SECURITIES
AND EXCHANGE COMMISSION


Washington,
DC  20549





FORM
10-Q





x
            Quarterly
      Report Pursuant to Section 13 or 15(d) of the Security Exchange Act of
      1934 for the quarterly period ended February 28,
      2009





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




Commission
file number:  001-32046


Simulations
Plus, Inc.


(Name of
registrant as specified in its charter)




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




42505
10th
Street West


Lancaster,
CA  93534-7059


(Address
of principal executive offices including zip code)





(661)
723-7723


(Issuer’s
telephone number, including area code)





Indicate
by check mark whether the registrant (1) filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the 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 [  ]





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


Large accelerated
      filer  o
              Non-accelerated
      filer  o
              Smaller reporting
      company  x


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





The
number of shares outstanding of the Issuer’s common stock, par value $0.001 per
share, as of April 10, 2009, was 16,031,927.












Simulations
Plus, Inc.


FORM
10-Q


For
the Quarterly Period Ended February 28, 2009





Table of
Contents






PART
      I.     FINANCIAL INFORMATIONItem
    1.
            Financial Statements
      (Unaudited)
            PageConsolidated Balance
      Sheets at February 28, 2009 (unaudited)
              and August 31, 2008
      (audited)
            2Consolidated
      Statements of Operations for the six months ended
              February 28, 2009
      and February 29, 2008 (unaudited)
            3Consolidated
      Statements of Cash Flows for the six months ended
              February 28, 2009
      and February 29, 2008 (unaudited)
            4Notes to
      Consolidated Financial Statements (unaudited)
            5Item
    2.
            Management’s
      Discussion and Analysis or Plan of Operations
            16General
            16Results of
      Operations
            21Liquidity and
      Capital Resources
            25Item 3.
            Quantitative and
      Qualitative Disclosures about Market Risk
            25Item
    4.
            Controls and
      Procedures
            26PART
      II.     OTHER INFORMATIONItem
      1.
            Legal
      Proceedings
            27Item
    2.
            Changes in
      Securities
            27Item
    3.
            Defaults upon Senior
      Securities
            27Item
    4.
            Submission of
      Matters to a Vote of Security Holders
            27Item
    5.
            Other
      Information
            27Item
    6.
            Exhibits and Reports
      on Form 8-K
            27Signature
            28Exhibit –
      Certifications


1




SIMULATIONS
PLUS, INC. AND SUBSIDIARY


CONSOLIDATED
BALANCE SHEETS


February
28, 2009 (Unaudited) and August 31, 2008 (Audited)








ASSETSFebruary
      28,
                  2009
                
                
                August
      31,
                  2008Current
      assetsCash
      and cash equivalents
                
                $
                7,522,211
                
                
                $
                5,889,601Accounts
      receivable, net of allowance for doubtful accountsand
      estimated contractual discounts of $450,179 and $319,609
                
                
                2,181,850
                
                
                
                2,105,074Inventory
                
                
                391,677
                
                
                
                342,051Prepaid
      expenses and other current assets
                
                
                106,792
                
                
                
                195,330Deferred
      income taxes
                
                
                432,400
                
                
                
                318,400Total
      current assets
                
                
                10,634,930
                
                
                
                8,850,456Investment(note
      8)
                
                
                -
                
                
                
                750,000Capitalized computer software
      development costs,net
      of accumulated amortization of $3,576,371 and $3,324,328
                
                
                1,889,582
                
                
                
                1,788,756Property and equipment,
      net (note 3)
                
                
                54,612
                
                
                
                102,633Customer relationships,net of accumulated amortization of $95,626 and
    $85,029
                
                
                32,416
                
                
                
                43,013Other
      assets
                
                
                18,445
                
                
                
                18,445Total
      assets
                
                $
                12,629,985
                
                
                $
                11,553,303LIABILITIES
      AND SHAREHOLDERS' EQUITYCurrent
      liabilitiesAccounts
      payable
                
                $
                174,473
                
                
                $
                181,230Accrued
      payroll and other expenses
                
                
                596,272
                
                
                
                537,363Accrued
      bonuses to officer
                
                
                53,253
                
                
                
                60,000Accrued
      warranty and service costs
                
                
                51,658
                
                
                
                33,899Accrued
      income tax
                
                
                301,564
                
                
                
                -Deferred
      revenue
                
                
                205,833
                
                
                
                83,333Total
      current liabilities
                
                
                1,383,053
                
                
                
                895,825Long-Term
      liabilitiesDeferred
      income taxes
                
                
                794,000
                
                
                
                742,400Total
      liabilities
                
                
                2,177,053
                
                
                
                1,638,225Commitments and
      contingencies (note 4)Shareholders' equity
      (note 5)Preferred
      stock, $0.001 par value10,000,000
      shares authorizedno
      shares issued and outstanding
                
                
                -
                
                
                
                -Common
      stock, $0.001 par value50,000,000
      shares authorized16,136,898
      and 16,297,400 shares issued and outstanding
                
                
                4,608
                
                
                
                4,769Additional
      paid-in capital
                
                
                6,186,407
                
                
                
                6,328,185Retained
      Earnings
                
                
                4,261,917
                
                
                
                3,582,124Total
      shareholders' equity
                
                
                10,452,932
                
                
                
                9,915,078Total
      liabilities and shareholders' equity
                
                $
                12,629,985
                
                
                $
                11,553,303




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




2


SIMULATIONS
PLUS, INC. AND SUBSIDIARY
 CONSOLIDATED
STATEMENTS OF OPERATIONS
 for the
three and six months ended February 28, and 29,
 (Unaudited)


Three months ended
                                                            
                                                            
                                                            Six months ended2009
                                                            
                                                            
                                                            2008
                                                            
                                                            
                                                            2009
                                                            
                                                            
                                                            2008Net
      sales
                                                            
                                                            $
                                                            2,456,762
                                                            
                                                            
                                                            $
                                                            2,179,675
                                                            
                                                            
                                                            $
                                                            4,590,012
                                                            
                                                            
                                                            $
                                                            4,163,484Cost
      of sales
                                                            
                                                            
                                                            552,956
                                                            
                                                            
                                                            
                                                            455,513
                                                            
                                                            
                                                            
                                                            1,079,369
                                                            
                                                            
                                                            
                                                            941,453Gross
      profit
                                                            
                                                            
                                                            1,903,806
                                                            
                                                            
                                                            
                                                            1,724,162
                                                            
                                                            
                                                            
                                                            3,510,643
                                                            
                                                            
                                                            
                                                            3,222,031Operating
      expensesSelling,
      general, and administrative
                                                            
                                                            
                                                            1,036,724
                                                            
                                                            
                                                            
                                                            832,493
                                                            
                                                            
                                                            
                                                            1,940,414
                                                            
                                                            
                                                            
                                                            1,762,783Research
      and development
                                                            
                                                            
                                                            360,283
                                                            
                                                            
                                                            
                                                            251,894
                                                            
                                                            
                                                            
                                                            661,681
                                                            
                                                            
                                                            
                                                            477,845Total
      operating expenses
                                                            
                                                            
                                                            1,397,007
                                                            
                                                            
                                                            
                                                            1,084,387
                                                            
                                                            
                                                            
                                                            2,602,095
                                                            
                                                            
                                                            
                                                            2,240,628Income
      from operations
                                                            
                                                            
                                                            506,799
                                                            
                                                            
                                                            
                                                            639,775
                                                            
                                                            
                                                            
                                                            908,548
                                                            
                                                            
                                                            
                                                            981,403Other
      income (expense)Interest
      income
                                                            
                                                            
                                                            19,606
                                                            
                                                            
                                                            
                                                            47,076
                                                            
                                                            
                                                            
                                                            52,993
                                                            
                                                            
                                                            
                                                            92,223Miscellaneous
      income
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            43
                                                            
                                                            
                                                            
                                                            25Gain
      on currency exchange
                                                            
                                                            
                                                            32,340
                                                            
                                                            
                                                            
                                                            14,925
                                                            
                                                            
                                                            
                                                            50,216
                                                            
                                                            
                                                            
                                                            33,560Total
      other income (expense)
                                                            
                                                            
                                                            51,946
                                                            
                                                            
                                                            
                                                            62,001
                                                            
                                                            
                                                            
                                                            103,252
                                                            
                                                            
                                                            
                                                            125,808Income
      before income taxes
                                                            
                                                            
                                                            558,745
                                                            
                                                            
                                                            
                                                            701,776
                                                            
                                                            
                                                            
                                                            1,011,800
                                                            
                                                            
                                                            
                                                            1,107,211Provision
      for income taxes
                                                            
                                                            
                                                            (190,673
                                                            )
                                                            
                                                            
                                                            (136,967
                                                            )
                                                            
                                                            
                                                            (332,006
                                                            )
                                                            
                                                            
                                                            (299,141
                                                            )Net
      income
                                                            
                                                            $
                                                            368,072
                                                            
                                                            
                                                            $
                                                            564,809
                                                            
                                                            
                                                            $
                                                            679,794
                                                            
                                                            
                                                            $
                                                            808,070Basic
      earnings per share
                                                            
                                                            $
                                                            0.02
                                                            
                                                            
                                                            $
                                                            0.04
                                                            
                                                            
                                                            $
                                                            0.04
                                                            
                                                            
                                                            $
                                                            0.05Diluted
      earnings per share
                                                            
                                                            $
                                                            0.02
                                                            
                                                            
                                                            $
                                                            0.03
                                                            
                                                            
                                                            $
                                                            0.04
                                                            
                                                            
                                                            $
                                                            0.04Weighted-average
      commonshares
      outstandingBasic
                                                            
                                                            
                                                            16,268,583
                                                            
                                                            
                                                            
                                                            16,130,622
                                                            
                                                            
                                                            
                                                            16,309,683
                                                            
                                                            
                                                            
                                                            16,020,147Diluted
                                                            
                                                            
                                                            17,108,322
                                                            
                                                            
                                                            
                                                            18,279,889
                                                            
                                                            
                                                            
                                                            17,312,242
                                                            
                                                            
                                                            
                                                            18,369,400


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




3


SIMULATIONS
PLUS, INC. AND SUBSIDIARY
 CONSOLIDATED
STATEMENTS OF CASH FLOWS
 for
the six months ended February 28, and 29,
 (Unaudited)
 2009
                                                              
                                                              
                                                              2008Cash
      flows from operating activitiesNet
      income
                                                              
                                                              $
                                                              679,794
                                                              
                                                              
                                                              $
                                                              808,070Adjustments
      to reconcile net income to net cashprovided
      by operating activitiesDepreciation
      and amortization of property and equipment
                                                              
                                                              
                                                              10,719
                                                              
                                                              
                                                              
                                                              26,447Amortization
      of customer relationships
                                                              
                                                              
                                                              10,597
                                                              
                                                              
                                                              
                                                              13,589Amortization
      of capitalized computer software development costs
                                                              
                                                              
                                                              252,043
                                                              
                                                              
                                                              
                                                              236,785Bad
      debts
                                                              
                                                              
                                                              129,881
                                                              
                                                              
                                                              
                                                              62,947Stock-based
      compensation
                                                              
                                                              
                                                              80,968
                                                              
                                                              
                                                              
                                                              15,265Deferred
      income taxes
                                                              
                                                              
                                                              (62,400
                                                              )
                                                              
                                                              
                                                              (63,900
                                                              )(Increase)
      decrease inAccounts
      receivable
                                                              
                                                              
                                                              (209,815
                                                              )
                                                              
                                                              
                                                              79,978Inventory
                                                              
                                                              
                                                              22,453
                                                              
                                                              
                                                              
                                                              (50,471
                                                              )Other
      assets
                                                              
                                                              
                                                              91,695
                                                              
                                                              
                                                              
                                                              (141,393
                                                              )Increase
      (decrease) inAccounts
      payable
                                                              
                                                              
                                                              (6,757
                                                              )
                                                              
                                                              
                                                              (67,336
                                                              )Accrued
      payroll and other expenses
                                                              
                                                              
                                                              58,909
                                                              
                                                              
                                                              
                                                              (64,433
                                                              )Accrued
      bonuses to officers
                                                              
                                                              
                                                              (6,747
                                                              )
                                                              
                                                              
                                                              (143,015
                                                              )Accrued
      income taxes
                                                              
                                                              
                                                              301,564
                                                              
                                                              
                                                              
                                                              291,741Accrued
      warranty and service costs
                                                              
                                                              
                                                              17,759
                                                              
                                                              
                                                              
                                                              (8,898
                                                              )Deferred
      revenue
                                                              
                                                              
                                                              122,500
                                                              
                                                              
                                                              
                                                              -Net
      cash provided by operating activities
                                                              
                                                              
                                                              1,493,163
                                                              
                                                              
                                                              
                                                              995,376Cash
      flows from investing activitiesPurchases
      of property and equipment
                                                              
                                                              
                                                              (34,777
                                                              )
                                                              
                                                              
                                                              (61,390
                                                              )Proceeds
      from sale of assets
                                                              
                                                              
                                                              -
                                                              
                                                              
                                                              
                                                              13,152Proceeds
      from sale of investments
                                                              
                                                              
                                                              750,000
                                                              
                                                              
                                                              
                                                              -Capitalized
      computer software development costs
                                                              
                                                              
                                                              (352,869
                                                              )
                                                              
                                                              
                                                              (389,450
                                                              )Net
      cash provided by (used in) investing activities
                                                              
                                                              
                                                              362,354
                                                              
                                                              
                                                              
                                                              (437,688
                                                              )Cash
      flows from financing activitiesRepurchase
      of common stock
                                                              
                                                              
                                                              (271,713
                                                              )
                                                              
                                                              
                                                              -Proceeds
      from the exercise of stock options
                                                              
                                                              
                                                              48,806
                                                              
                                                              
                                                              
                                                              411,677Net
      cash provided by (used in) financing activities
                                                              
                                                              
                                                              (222,907
                                                              )
                                                              
                                                              
                                                              411,677Net
      increase in cash and cash equivalents
                                                              
                                                              $
                                                              1,632,610
                                                              
                                                              
                                                              $
                                                              969,365Cash
      and cash equivalents, beginning of year
                                                              
                                                              
                                                              5,889,601
                                                              
                                                              
                                                              
                                                              4,537,714Cash
      and cash equivalents, end of period
                                                              
                                                              $
                                                              7,522,211
                                                              
                                                              
                                                              $
                                                              5,507,079Supplemental
      disclosures of cash flow informationInterest
      paid
                                                              
                                                              $
                                                              -
                                                              
                                                              
                                                              $
                                                              -Income
      taxes paid
                                                              
                                                              $
                                                              -
                                                              
                                                              
                                                              $
                                                              180,000
  4


Simulations
Plus, Inc.





NOTES
TO CONDENSED FINANCIAL STATEMENTS


(Unaudited)





Note 1:
GENERAL





This
report on Form 10-Q for the quarter ended February 28, 2009, should be read in
conjunction with the Company's annual report on Form 10-KSB for the year ended
August 31, 2008, filed with the SEC on November 26, 2008. As contemplated by the
Securities and Exchange Commission under Article 10 of Regulation S-X, the
accompanying financial statements and footnotes have been condensed and
therefore do not contain all disclosures required by generally accepted
accounting principles. The interim financial data are unaudited; however, in the
opinion of Simulations Plus, Inc. ("we", "our", "us"), the interim data includes
all adjustments, consisting only of normal recurring adjustments, necessary for
a fair statement of the results for the interim periods. Results for interim
periods are not necessarily indicative of those to be expected for the full
year.





Note 2:
SIGNIFICANT ACCOUNTING POLICIES





Estimates


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





Principles of
Consolidation


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





Revenue
Recognition


The
Company recognizes revenues related to software licenses and software
maintenance in accordance with the American Institute of Certified Public
Accountants ("AICPA") Statements of Position (SOP) No. 97-2, "Software Revenue
Recognition."  Software products revenue is recorded when the
following conditions are met: 1) evidence of arrangement exists, 2) delivery has
been made, 3) the amount is fixed, and 4) collectibility is
probable.  Post-contract customer support ("PCS") obligations are
insignificant; therefore, revenue for PCS is recognized at the same time as the
licensing fee, and the costs of providing such support services are accrued and
amortized over the obligation period.  For Words+ products, the
revenue is recorded at the time of shipment, net of estimated allowances and
returns.





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




5




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





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





Cash and Cash
Equivalents


For
purposes of the statements of cash flows, 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 collectibility 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.





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 $252,043 and $236,785 for the six months ended
February 28, 2009 and February 29, 2008, respectively.  We expect
future amortization expense to vary due to increases in capitalized computer
software development costs.




6




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.





Property and
Equipment


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





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





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





Fair Value of Financial
Instruments


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 $47,666 and $45,427
for the six months ended February 28, 2009 and February 29, 2008,
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.





In June
2006, the Financial Accounting Standards Board (“FASB”) issued FASB
interpretation No. 48, “Accounting for Uncertainty in Income Taxes – an
Interpretation of FASB Statement No. 109” (“FIN 48”), which clarifies the
accounting for uncertainty in income tax positions.  The provisions of
FIN 48 were effective for the Company on September 1, 2007.  After
evaluating the adoption of FIN 48, we believe that the adoption did not have a
material impact on our consolidated financial statements.




7




At the
end of fiscal year 2008, we recorded $424,000 in net deferred income tax
liabilities.  For the first six months operation in fiscal year 2009,
we recorded a provision for income taxes in the amount of $332,006, resulting in
a net deferred tax liability of $361,600 at February 28, 2009.  The
evaluation of the deferred income tax assets is based on our history of
generating taxable profits and our projections of future profits, as well as
expected future tax rates.  As of February 28, 2009, we have
determined that it is more likely than not that the deferred tax assets will be
realized.  As such, no valuation allowance was recorded against the
deferred tax assets.  Significant judgment is required in these
evaluations, and differences in future results from our estimates could result
in material differences in the realization of these assets.





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 six
months ended as of February 28, 2009 and February 29, 2008 amounted to $10,597
and $13,589, respectively.  Accumulated amortization as of February
28, 2009 and February 29, 2008 was $95,626 and $72,935,
respectively.





Earnings per
Share


The
Company reports earnings per share in accordance with SFAS No. 128, "Earnings
per Share."  Basic earnings per share is computed by dividing income
available to common shareholders by the weighted-average number of common shares
available.  Diluted earnings per share is computed similar to basic
earnings per share except that the denominator is increased to include the
number of additional common shares that would have been outstanding if the
potential common shares had been issued and if the additional common shares were
dilutive.  The components of basic and diluted earnings per share for
the six months ended February 28, 2009 and February 28, 2008 were as
follows:





02/28/2009
            
            
            02/29/2008Numerator
              Net
      income attributable to common shareholders
            
            $
            679,794
            
            
            $
            808,070Denominator
              Weighted-average
      number of common shares
              outstanding
      during the year
              Dilutive
      effect of stock options
            
            
            16,309,683
      1,002,559
            
            
            
            16,020,147
      2,349,253Common
      stock and common stock
              equivalents
      used for diluted earning per share
            
            
            17,312,242
            
            
            
            18,369,400





Stock-Based
Compensation


Compensation
costs related to stock options are determined in accordance with SFAS No. 123R
using the modified prospective method.  Under this method,
compensation cost recognized during the six months ended February 28, 2009
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.  Stock-based
compensation was $80,967 and $15,265 for the six months ended February 28, 2009
and February 29, 2008, respectively, and is included in the condensed
consolidated statements of operations as Selling, General and Administrative,
and Research and Development expense.




8




Concentrations and
Uncertainties


International
sales accounted for 29% and 43% of net sales for the six months ended February
28, 2009 and February 29, 2008, respectively.  For Simulations Plus,
Inc., two customers accounted for 22% each of net sales during the six months
ended February 28, 2009, compared with two customers accounting for 20% and 10%
of net sales during the six months ended February 29, 2008.  For
Words+, Inc., two government agencies accounted for 25% and 9% of net sales
during the six months ended February 28, 2009, compared with one government
agency accounting for 20%, and one customer accounting for 13% of net sales
during the six months ended February 29, 2008.





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.





For
Simulations Plus, three customers comprised 18%, 14%, and 12% of its accounts
receivable at February 28, 2009, and four customers comprised 21%, 18%, 14%, and
10% of accounts receivable at February 29, 2008.   For Words+,
three government agencies comprised 29%, 12%, and 10% of its accounts receivable
at February 28, 2009, and two government agencies comprised 28% and 10%, and two
customers comprised 14% and 10% of its accounts receivable at February 29,
2008.





The
Company’s subsidiary, Words+, Inc., purchases components for its main computer
products from four manufacturers. Words+, Inc. also uses a number of
pictographic symbols that are used in its software products which are licensed
from a third party. The inability of 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




On March
19, 2008, the Financial Accounting Standards Board (FASB) announced the issuance
of Statement of Financial Accounting Standards No. 161, Disclosures about Derivative
Instruments and Hedging Activities (“SFAS No. 161”). SFAS No. 161 amends
Statement of Financial Accounting Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities (“SFAS No. 133”) and was issued in
response to concerns and criticisms about the lack of adequate disclosure of
derivative instruments and hedging activities. SFAS No. 161 is focused on
requiring enhanced disclosure on 1) how and why an entity uses derivative
instruments and hedging activities; 2) how derivative instruments and related
hedging activities are accounted for under SFAS No. 133; and 3) how derivative
instruments and related hedging activities affect an entity’s cash flows,
financial position and performance.




To
accomplish the three objectives listed above, SFAS No. 161 requires: 1)
qualitative disclosures regarding the objectives and strategies for using
derivative instruments and engaging in hedging activities in the context of an
entity’s overall risk exposure; 2) quantitative disclosures in tabular format of
the fair values of derivative instruments and their gains and losses; and 3)
disclosures about credit-risk related contingent features in derivative
instruments.




9





SFAS No.
161 is effective for financial statements issued for fiscal years and interim
periods beginning after November 15, 2008.  Management believes the
adoption of SFAS No. 161 for its financial assets and liabilities did not have a
material impact on our consolidated financial statements.





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





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





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





Note
3:  PROPERTY AND EQUIPMENT





Property
and equipment as of February 28, 2009 consisted of the following:





Equipment
            
            $
            80,830Computer
      equipment
            
            
            366,897Furniture
      and fixtures
            
            
            61,498Automobile
            
            
            21,769Leasehold
      improvements
            
            
            53,898Sub
      total
            
            
            584,892Less:
      Accumulated depreciation and amortization
            
            
            (530,280
            )Net
      Book Value
            
            
            54,612





Note
4:  COMMITMENTS AND CONTINGENCIES




10




Employee
Agreement


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





Litigation


The
Company is not a party to any litigation at this time and is not aware of any
pending litigation of any kind.




Note 5:
SHAREHOLDERS’ EQUITY





Stock
Repurchase


Since
December 2008, the Company has been buying back and canceling its own shares,
and plans to continue its share repurchase in accordance with its share
repurchase plan, which authorizes up to $2.5 million for the repurchase program
through October 2009.  The details of repurchases made during the six
months ended February 28, 2009 are listed in the following table:








Period
            Total
      Number of Shares Purchased
            Average
      Price Paid per Share
            Remaining
      Funds Available Under the Share Repurchase Plan12/01/2008
              to  12/31/2008
            90,632
            $0.9764
            $2,411,50901/01/2009
      through 01/31/2009
            105,752
            $1.0352
            $2,302,03202/01/2009
      through 02/28/2009
            73,118
            $1.0086
            $2,228,287As
      of 02/28/09
            269,502
            $1.0082




Stock Option
Plan


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




11




On
February 23, 2007, the Board of Directors adopted and the shareholders approved
the 2007 Stock Option Plan under which a total of 500,000 shares (1,000,000
shares after a 2-for-1 stock split on October 1, 2007) of common stock had been
reserved for issuance.




Options Outstanding & Exercisable at February
      28, 2009Number
      of Options
            
            
            Weighted-Average
      Exercise Price
              Per
      ShareOutstanding,
      August 31, 2008
            
            
            2,714,536
            
            
            $
            0.92Granted
            
            
            50,000
            
            
            $
            1.73Exercised
            
            
            (109,000
            )
            
            $
            0.45Expired/Cancelled
            
            
            (3,000
            )
            
            $
            3.02Outstanding,
      February 28, 2009
            
            
            2,652,536
            
            
            $
            0.95Exercisable,
      February 28, 2009
            
            
            2,290,136
            
            
            $
            0.73











Options Outstanding & Unvested at February 28,
      2009Number
      Outstanding
            
            
            Weighted
      Average Vesting Period
              (in years)
            
            
            Weighted
      Average Fair Market
      PriceNon
      Vested before 9/1/2008
            
            
            414,000
            
            
            
            2.65
            
            
            $
            1.64Granted
            
            
            50,000
            
            
            
            
            
            
            $
            1.34Vested
            
            
            (98,600
            )
            
            
            
            
            
            $
            1.41Cancelled
            
            
            (3,000
            )
            
            
            
            
            
            $
            2.27Non
      Vested at 02/28/2009
            
            
            362,400
            
            
            
            2.46
            
            
            $
            1.65




The fair
value of the options granted during the first six months of fiscal year 2009 is
estimated at $67,190.  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 first six months of fiscal year
2009: dividend yield of 0%, expected volatility of 86.93%, risk-free interest
rate of 3.26%, and expected life of 7 years. The weighted-average fair values of
options granted during the first six months of fiscal year 2009 was $1.34, and
the weighted-average exercise prices of options granted during the first six
months of fiscal year 2009 was $1.73.  The total fair value of
non-vested stock options as of February 28, 2009 was $581,806 and is amortizable
over a weighted average period of 2.46 years.





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




12




The
weighted-average remaining contractual life of options outstanding issued under
the Plan was 3.4 years at February 28, 2009.  The exercise prices for
the options outstanding at February 28, 2009 ranged from $0.26 to $3.03, and the
information relating to these options is as follows:





Exercise
      Price
            
            
            Awards
      Outstanding
            
            
            Awards
      ExercisableLow
            
            
            High
            
            
            Quantity
            
            Weighted
      Average Remaining Contractual Life
            
            Weighted
      Average Exercise Price
            
            
            Quantity
            
            Weighted
      Average Remaining Contractual Life
            
            Weighted
      Average Exercise Price$
            0.26
            
            
            $
            0.50
            
            
            
            856,936
            
            1.8
      years
            
            $
            0.37
            
            
            
            856,936
            
            1.8
      years
            
            $
            0.37$
            0.51
            
            
            $
            0.75
            
            
            
            795,500
            
            0.9
      years
            
            $
            0.66
            
            
            
            795,500
            
            0.9
      years
            
            $
            0.66$
            0.76
            
            
            $
            1.25
            
            
            
            667,100
            
            6.3
      years
            
            $
            1.09
            
            
            
            581,100
            
            6.2
      years
            
            $
            1.12$
            1.26
            
            
            $
            3.03
            
            
            
            333,000
            
            9.0
      years
            
            $
            2.83
            
            
            
            56,600
            
            8.9
      years
            
            $
            3.032,652,536
            
            3.6
      years
            
            $
            0.95
            
            
            
            2,290,136
            
            2.8
      years
            
            $
            0.73




Other Stock
Options


As of
February 28, 2009, the independent members of the Board of Directors hold
options to purchase 63,824 shares of common stock at exercise prices ranging
from $0.30 to $6.68, which options were granted on or before February 28,
2009.





Number of Options
            Weighted average exercise
    priceOptions
      Outstanding
            63,824
            $     1.59Options
      exercisable
            45,624
            $     1.04




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 six months ended February 28,
2009 and February 29, 2008 (in thousands):





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





13





February
      29, 2008Simulations
      Plus, Inc
            
            
            Words
      +, Inc.
            
            
            Eliminations
            
            
            TotalNet
      Sales
            
            $
            2,988
            
            
            $
            1,175
            
            
            
            
            
            $
            4,163Income
      (loss) from operations
            
            
            1,053
            
            
            
            (72
            )
            
            
            
            
            
            981Identifiable
      assets
            
            
            9,861
            
            
            
            2,010
            
            
            $
            (1,796
            )
            
            
            10,075Capital
      expenditures
            
            
            -
            
            
            
            61
            
            
            
            
            
            
            
            61Depreciation
      and Amortization
            
            
            9
            
            
            
            17
            
            
            
            
            
            
            
            26




In
addition, the Company allocates revenues to geographic areas based on the
locations of its customers.  Geographical revenues for the six months
ended February 28, 2009 and February 29, 2008 were as follows (in
thousands):




February
28, 2009


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




February
29, 2008


North
      America
            
            
            Europe
            
            
            Asia
            
            
            Oceania
            
            
            South
      America
            
            
            TotalSimulations
      Plus, Inc.
            
            
            1,441
            
            
            
            1,212
            
            
            
            335
            
            
            
            -
            
            
            
            -
            
            
            
            2,988Words+,
      Inc.
            
            
            949
            
            
            
            192
            
            
            
            14
            
            
            
            20
            
            
            
            -
            
            
            
            1,175Total
            
            
            2,390
            
            
            
            1,404
            
            
            
            349
            
            
            
            20
            
            
            
            -
            
            
            
            4,163




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 $38,611 and $36,168 for the six months ended February 28, 2009
and February 29, 2008, respectively.




Note
8:  INVESTMENT





On
January 2, 2009, the Company received a confirmation from UBS Financial
Services, Inc. that all Auction Rated Securities (ARS) were sold and payment was
settled on January 5, 2009.  As a result, the par value of $750,000
plus accrued interest of $301 became available to the Company as cash on January
5, 2009.  The ARSs were presented as an investment at August 31,
2008.





14





Note
9:  SUBSEQUENT EVENT





Since
December 2008, the Company has been buying back its own shares, and plans to
continue its share repurchase in accordance with its share repurchase plan,
which authorizes up to $2.5 million for the repurchase program through October
2009.  The details of repurchases made since February 28, 2009
are listed in the following table.





Period
              Total
      Number of Shares Purchased
              Average
      Price Paid per Share
              Remaining
      Funds Available
                Under
      the Share Repurchase Plan03/01/2009to  03/31/2009
              73,315
              $0.9575
              $2,158,09004/01/2009
      through 04/10/2009
              31,656
              $0.9809
              $2,127,039Total
              104,971
              $0.9645




15


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




Forward-Looking
Statements





Certain
statements in this Quarterly Report on Form 10-Q, 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. 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
PredictorTM, ClassPharmerTM, DDDPlusTM, and GastroPlusTM.





ADMET
Predictor


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




16




ADMET
(Absorption, Distribution, Metabolism, Excretion and Toxicity) Predictor
consists of a library of statistically significant numerical models that predict
various properties of chemical compounds from just their molecular
structures.  Our models are built using a machine learning approach
that is based primarily on artificial neural network ensembles (groups of
artificial neural networks) that has been demonstrated to provide the most
accurate prediction capabilities in any commercially available software
today.





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
continually search through millions of such “virtual” molecular structures as
they attempt to find new drugs. It has been estimated that there are somewhere
on the order of 1062
possible drug-like molecular structures. That is such a huge number that it is
difficult to comprehend. If we could evaluate a billion molecules (109) per
second, it would take 1053 seconds
to evaluate them all -- that’s about 1045 years.
The age of the universe is said to be less than 1010 years.
Clearly, we will never be able to make and test evaluate all of them, so
computerized methods are the only hope to even scratch the surface of the total
“chemical space” for potential pharmaceutical products.





The vast
majority of drug-like molecules are not suitable as medicines for various
reasons. Some have such low solubility that they will not dissolve well, some
have such low permeability through the intestinal wall that they will not be
absorbed well as an oral dose (about 80% of medications), 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 many will be toxic in various ways.
Identification of such properties in the computer enables researchers to
eliminate poor compounds without spending time and money to make them and run
experiments to identify their weaknesses. Today, many molecules can be
eliminated on the basis of computer predictions provided by ADMET
Predictor.





Several
independent studies have been published that compare the accuracy of software
programs like ADMET Predictor. In each case, ADMET Predictor has been ranked
first in accuracy (it was ranked second in one study, but that study was later
redone with a more difficult set of test compounds and a newer version of ADMET
Predictor, and it was then ranked first). Not one other software product was
consistently in the top 4 in these studies. This is a remarkable accomplishment,
considering the greater size and resources of many of our
competitors.





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





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




17




During
this reporting period, improvement of ADMET Predictor/Modeler has continued.
Under a funded collaboration with Pfizer, we added the capability for scientists
to run large molecular libraries through ADMET Predictor to generate the
predicted dose amount that would be required to achieve an effective
concentration level for each potential new drug.  This capability
requires the integration of the customer’s experimental data with predictions
when no experiments have been run, so that the effects of a wide variety of
properties that interact to result in a plasma concentration can be predicted.
This is accomplished by the integration of a small GastroPlus engine within
ADMET Predictor that runs the simulations needed to estimate plasma
concentrations.





We expect
to release the next version in late April 2009.  This new version will
also include a new set of toxicity predictions, expanding the program’s
capabilities into this important, and almost unlimited area (because there are
so many kinds of toxicities).  Every new predicted property that can
be used to help triage bad compounds early in discovery has the potential to
save large amounts of time and money.





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





In August
2008, we had resubmitted a Phase II NIH SBIR (Small Business Innovation
Research) grant proposal. After the end of this reporting period, we were
advised that this grant will be funded at a level of $375,000. We have continued
this work under our own funding, and we’ve demonstrated further improvements in
predictive capability, which we are incorporating into the next release of ADMET
Predictor.





ClassPharmer


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





Improvements
during the second quarter were focused on incorporating more new features
requested by our users around the world, as well as adding other new
capabilities identified in-house. We released ClassPharmer 4.6 in January 2009,
and we expect another release in the near future with a new “scaffold hopping”
feature.  This feature enables chemists to substitute the core
(scaffold) portion of a molecule while retaining other atoms around the
periphery.  In previous versions, ClassPharmer had only the inverse
capability – to replace the atoms surrounding the core.  Scaffold
hopping has been a technique with growing interest among chemists, and we expect
that added to ClassPharmer already best-in-class performance, this new
capability will attract additional ClassPharmer users.




18




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





DDDPlus


DDDPlus
sales have continued to grow as formulation scientists continue to recognize the
value of this one-of–a–kind simulation software in their work. Improvements have
been added to further enhance the value of this product, including numerous user
convenience features have been added, as well as more sophisticated handling of
dosage forms that incorporate multiple polymers for controlled release. Work on
the next update of DDDPlus has included making the program match the user
interface in our flagship GastroPlus product as closely as possible since many
formulation scientists can use both programs. Additions to the programs
capabilities and built-in databases for excipient ingredients and dissolution
media have also been made. A major new release of DDDPlus is expected early in
April 2009.




GastroPlus


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





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




19




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





Since
last May, the improvements to GastroPlus have been many and complex. Most of
these developments were funded through our funded collaborations with three of
the top five pharmaceutical companies in the world.  We are adding
ocular delivery of drugs under one collaboration, pulmonary delivery under
another, and drug-drug interaction analysis under a third. These capabilities
will further extend the commanding lead GastroPlus enjoys in the
marketplace.





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





CONTRACT RESEARCH AND
CONSULTING SERVICES


Our
recognized world-class expertise in oral absorption and pharmacokinetics is
evidenced by the fact that our staff members have been speakers or presenters at
over 50 prestigious scientific meetings worldwide in the past five years. We
frequently conduct contracted studies for customers who prefer to have studies
run by our scientists rather than to license our software and train someone to
use it. The demand for our consulting services has been increasing steadily, and
we expect this trend to continue. Long-term collaborations and shorter-term
consulting contracts serve both to showcase our technologies and as a way to
build and strengthen customer relationships.





WORDS+
SUBSIDIARY





PRODUCTS


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




20




During
last fiscal year, after the introduction of the newest Say-it! SAM version late
in the first quarter, sales of our new PDA-based
(personal-digital-assistant-based) Say-it! SAM augmentative communication device
set new records, contributing nicely to the highest quarter in our history in
the third quarter.  Just before the end of the last quarter we
introduced the ConversaTM.  This product offers the most human-sounding
synthetic speech output available in the marketplace utilizing AT&T
synthetic voices and our new custom designed Sound Pack.  To quote one
young adult client who changed to the Conversa after using a variety of
augmentative communication devices from our competitors for most of her life “I
actually sound like a regular woman for the first time in my life!” We are
adding the Sound Pack design to other products.





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




Results
of Operations





Comparison
of Three Months Ended February 28, 2009 and February 29, 2008.





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




Three
      Months Ended02/28/09
                            
                            
                            02/29/08Net
      sales
                            
                            $
                            2,457
                            
                            
                            
                            100
                            %
                            
                            $
                            2,180
                            
                            
                            
                            100
                            %Cost
      of sales
                            
                            
                            553
                            
                            
                            
                            22.5
                            
                            
                            
                            456
                            
                            
                            
                            20.9Gross
      profit
                            
                            
                            1,904
                            
                            
                            
                            77.5
                            
                            
                            
                            1,724
                            
                            
                            
                            79.1Selling,
      general and administrative
                            
                            
                            1,037
                            
                            
                            
                            42.2
                            
                            
                            
                            832
                            
                            
                            
                            38.2Research
      and development
                            
                            
                            360
                            
                            
                            
                            14.7
                            
                            
                            
                            252
                            
                            
                            
                            11.6Total
      operating expenses
                            
                            
                            1,397
                            
                            
                            
                            56.9
                            
                            
                            
                            1,084
                            
                            
                            
                            49.7Income
      from operations
                            
                            
                            507
                            
                            
                            
                            20.6
                            
                            
                            
                            640
                            
                            
                            
                            29.4Other
      income
                            
                            
                            52
                            
                            
                            
                            2.1
                            
                            
                            
                            62
                            
                            
                            
                            2.8Net
      income before taxes
                            
                            
                            559
                            
                            
                            
                            21.7
                            
                            
                            
                            702
                            
                            
                            
                            32.2(Provision
      for) income taxes
                            
                            
                            (191
                            )
                            
                            
                            (7.7
                            )
                            
                            
                            (137
                            )
                            
                            
                            (6.3
                            )Net
      income
                            
                            $
                            368
                            
                            
                            
                            14.0
                            %
                            
                            $
                            565
                            
                            
                            
                            25.9
                            %





Net
Sales


Consolidated
net sales increased $277,000, or 12.7%, to $2,457,000 in the second fiscal
quarter of 2009 (2QFY09) from $2,180,000 in the second fiscal quarter of 2008
(2QFY08).  Our sales from pharmaceutical and educational software
increased approximately $229,000, or 14.8%; and our Words+, Inc. subsidiary’s
sales also increased approximately $48,000, or 7.6%, for the
quarter.  We attribute the increase in pharmaceutical software sales
primarily to new study contracts with large pharmaceutical companies, new
customers, and sale of new modules to existing customers as well as increases in
number of licenses with existing customers that outweighed the loss of some
customers and revenues from an SBIR grant which were reported in
2QFY08.




21




We
attribute the increase in Words+ sales primarily to an increase in “Freedom”
products with “EZKeys” or “Say-it! SAM” software, which are based on Windows XP
systems.  Increased revenues from this product outweighed declined
revenues from “Say-it! SAM” handheld speech output devices.  In
2QFY08, we had significant revenues from our “Say-it! SAM” speech output device
kits without PDA hardware for an overseas wholesaler, however we did not have
such an order in 2QFY09.





Cost of
Sales


Consolidated
cost of sales increased $97,000, or 21.4%, to $553,000 in 2QFY09 from $456,000
in 2QFY08.  Cost of sales as a percentage of revenue for 2QFY09
increased 1.6% to 22.5% from 20.9% in 2QFY08.  For Simulations Plus,
cost of sales increased $28,000, or 12.8%.  However, as a percentage
of revenue, cost of sales decreased to 13.8% in 2QFY09 from 14.1% in
2QFY08.  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
$7,000, or 6.4%, in 2QFY09 compared with 2QFY08.  Royalty expense,
which is a variable cost, relates to sales of our GastroPlus core program as
well as our new ADMET Predictor Enslein Metabolism module, increased
approximately $21,000, or 19.2%, in 2QFY09 compared with 2QFY08 due to increases
in sales from those products.





For
Words+, cost of sales increased $69,000, or 29.3%.  As a percentage of
revenue, cost of sales increased to 45.3% in 2QFY09 from 37.7% in
2QFY08.  We attribute the percentage increase in cost of sales for
Words+ primarily to the sales generated from products with lower
margins.  As we mentioned in the sales discussion above, we did not
have a large wholesale order with higher margins in 2QFY09.





Gross
Profit


Consolidated
gross profit increased $180,000, or 10.4%, to $1,904,000 in 2QFY09 from
$1,724,000 in 2QFY08.  We attribute this increase to an increase in
sales of pharmaceutical software and services in addition to an increase in
sales of Words+ products, which outweighed the increase in Words+ cost of goods
sold.





Selling, General and
Administrative Expenses


Consolidated
selling, general and administrative (SG&A) expenses increased $204,000, or
24.5%, to $1,037,000 in 2QFY09 from $832,000 in 2QFY08.  For
Simulations Plus, SG&A increased $55,000, or 10.2%; however, as
a percentage of sales, SG&A decreased to approximately 33.5% in 2QFY09
from approximately 34.9% in 2QFY08.  The major increases in SG&A
expenses were commissions, expanded trade show expenses, travel expenses, and
professional fees which outweighed decreases in contract labor, bonus to
Company’s Secretary, hiring expense, and vacation expense.





For
Words+, SG&A expenses increased $149,000, or 51.1%, due primarily to
increases in commissions, travel, bad debts, salaries and technical service
costs.  These increases outweighed decreases in depreciation as well
as marketing consulting as a result of a consultant becoming an
employee.




22




Research and
Development


We
incurred approximately $512,000 of research and development costs for both
companies during 2QFY09.  Of this amount, $152,000 was capitalized and
$360,000 was expensed.  In 2QFY08, we incurred $467,000 of research
and development costs, of which $215,000 was capitalized and $252,000 was
expensed.  The increase of $45,000, or 9.6%, in total research and
development expenditures from 2QFY08 to 2QFY09 was due primarily to salaries of
a new hire and salary increases to existing staff.





Other income
(expense)


Net other
income (expense) in 2QFY09 decreased by $10,000, or 16.2%, to $52,000 in 2QFY09
from $62,000 in 2QFY08.  This is due primarily to decreased interest
revenues from Money Market accounts.





Provision for Income
Taxes


The
provision for income taxes increased by $54,000, or 39.4%, to $191,000 in 2QFY09
from $137,000 in 2QFY08 due primarily to our estimation of higher provision for
income tax in fiscal year 2009.  The tax
rate used in this report is lower than standard rate because of
current R&D tax credits generated and used during this reporting
period.





Net
Income


Consolidated
net income decreased by $197,000, or 34.9%, to $368,000 in 2QFY09 from $565,000
in 2QFY08.  We attribute this decrease in profit primarily to the
increases in cost of sales, operating expenses, tax provision and a decrease in
other income which outweighed increases in revenue from both pharmaceutical
software and Words+ products.




Comparison
of Six Months Ended February 28, 2009 and February 29, 2008.





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




Six
      Months Ended02/28/09
              
              
              02/29/08Net
      sales
              
              $
              4,590
              
              
              
              100
              %
              
              $
              4,163
              
              
              
              100
              %Cost
      of sales
              
              
              1,079
              
              
              
              23.5
              
              
              
              941
              
              
              
              22.6Gross
      profit
              
              
              3,511
              
              
              
              76.5
              
              
              
              3,222
              
              
              
              77.4Selling,
      general and administrative
              
              
              1,940
              
              
              
              42.3
              
              
              
              1,763
              
              
              
              42.3Research
      and development
              
              
              662
              
              
              
              14.4
              
              
              
              478
              
              
              
              11.5Total
      operating expenses
              
              
              2,602
              
              
              
              56.7
              
              
              
              2,241
              
              
              
              53.8Income
      from operations
              
              
              909
              
              
              
              19.8
              
              
              
              981
              
              
              
              23.6Other
      income
              
              
              103
              
              
              
              2.2
              
              
              
              126
              
              
              
              3.0Net
      income before taxes
              
              
              1,012
              
              
              
              22.1
              
              
              
              1,107
              
              
              
              26.6(Provision
      for) income taxes
              
              
              (332
              )
              
              
              (7.2
              )
              
              
              (299
              )
              
              
              (7.2
              )Net
      income
              
              $
              680
              
              
              
              14.9
              %
              
              $
              808
              
              
              
              19.4
              %




Net
Sales


Consolidated
net sales increased $427,000, or 10.2%, to $4,590,000 in the first six months of
fiscal year 2009 (FY09) from $4,163,000 in the first six months of fiscal year
2008 (FY08).  Our sales from pharmaceutical software and services
increased approximately $221,000, or 7.4%, and our Words+, Inc. subsidiary’s
sales increased approximately $206,000, or 17.5%, for the first six months of
fiscal year 2008.




23




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 sales of our new “ConversaTM”
with Say-it! SAM software, which is a new product, EZKeys and Dynamic
Vocabularies software, and “Freedom” products with EZKeys software which are
based on Windows XP systems.  Those increases outweighed a decrease in
“TuffTalker” product sales.





Cost of
Sales


Consolidated
cost of sales increased $138,000, or 14.6%, to $1,079,000 in FY09 from $941,000
in FY08.  Cost of sales as a percentage of revenue for the first six
months of FY09 and FY08 were almost identical with a small increase of
0.9%.  For Simulations Plus, cost of sales increased $30,000, or
7.3%.  However, as a percentage of revenue, cost of sales were the
same at 13.6% in the first six months of FY09 and FY08.  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 $15,000, or 6.4%, in FY09 compared
with FY08.  Royalty expense increased approximately $20,000, or 10.0%,
in FY09 compared with FY08.





For
Words+, cost of sales increased $108,000, or 20.2%.  As a percentage
of revenue, cost of sales was almost identical with a small increase of 1.0%
between FY09 and FY08.  We attribute the small percentage increase in
cost of sales for Words+ primarily to sales from products with high-cost tablets
and computers for Windows XP-based systems.  Those costs were offset
by a decrease in warranty costs which is also a part of cost of sales, resulting
in a smaller percentage increase.





Gross
Profit


Consolidated
gross profit increased $289,000, or 9.0%, to $3,511,000 in FY09 from $3,222,000
in FY08.  We attribute this increase to increased sales of
pharmaceutical software and services, and Words+ products, while maintaining
similar gross margins.





Selling, General and
Administrative Expenses


Consolidated
selling, general and administrative (SG&A) expenses increased $178,000, or
10.1%, to $1,940,000 in FY09 from $1,763,000 in FY08.  For Simulations
Plus, SG&A increased $48,000, or 4.3%; however, as a percentage of sales,
SG&A decreased 1.0%, from 36.6% in FY08 to 35.6% in FY09.  The
major increases in SG&A expenses were expanded trade shows, travel,
professional fees, salaries, and 401K expenses, which outweighed decreases in
investor relations (namely a payment to AMEX for a stock split), bonus to the
Company’s Secretary, and contract labor.





For
Words+, SG&A expenses increased $130,000, or 7.4%, to $799,000 in FY09 from
$669,000 in FY08.  We attribute this increase in SG&A primarily to
an increase in write-off of potential bad debts and commission expense, which
outweighed a decrease in contract labor and depreciation expense.





Research and
Development


We
incurred approximately $1,015,000 of research and development costs for both
companies during the first six months of FY09.  Of this amount,
$353,000 was capitalized and $662,000 was expensed.  In the first six
months of FY08, we incurred $867,000 of research and development costs, of which
$389,000 was capitalized and $478,000 was expensed.  The increase of
$148,000, or 17.1%, in total research and development expenditures from the
first six months of FY08 to the first six months of FY09 was due to a
combination of salaries for new hires and salary increases and bonuses to
existing staff.




24




Other
income


Net other
income in the first six months of FY09 decreased by $23,000, or 17.9%, from
$126,000 to $103,000.  This is due primarily to decreased interest
revenues from Money Market accounts, which outweighed a gain on currency
exchange from the billing in foreign currencies at the request from our
customers.





Provision for Income
Taxes


The
provision for income taxes increased by $33,000, or 11.0%, to $332,000 in the
first six months of FY09 from $299,000 in the first six months of
FY08.  This increase is due primarily to our estimation of higher
provision for income tax in fiscal year 2009.  The tax
rate used in this report is lower than standard rate because of
current R&D tax credits generated and used during this reporting
period.





Net Income
(loss)


Consolidated
net income decreased by $128,000, or 15.8%, to $680,000 in the first six months
of FY09 from $808,000 in the first six months of FY08.  We attribute
this decrease in profit primarily to increases in operating expenses, the
increased provision for income taxes, and decrease in other income, which
outweighed increases in gross profit.




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. In
January 2009, the $750,000 investment in Auction Rate Securities was repurchased
by UBS Financial Services, Inc. at par value plus interest.




Item 3.
Quantitative and
Qualitative Disclosures about Market Risk




Our risk
from exposure to financial markets is limited to foreign exchange variances and
fluctuations in interest rates. We may be subject to some foreign exchange
risks.  Most of our business transactions are in U.S. dollars,
although we generate significant revenues from customers
overseas.  The exception is that we were compensated in Japanese yen
by some Japanese customers and one European customer.  As a result, we
experienced a small gain from currency exchange in the first six months of
FY09.  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




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


Part
II.  Other Information





Item
1.                     Legal
Proceedings


The
Company is not a party to any legal proceedings and is not aware of any pending
legal proceedings of any kind.





Item
2.                     Changes in
Securities


Since
December 2008, the Company has been buying back its own shares, and plans to
continue its share repurchase in accordance with its share repurchase plan,
which authorizes up to $2.5 million for the repurchase program through October
2009.  As a result, the Company has bought back 269,502 shares by the
end of February 28, 2009.





Item
3.                     Defaults Upon Senior
Securities


On
February 27, 2009, the Registrant held its annual meeting of shareholders. The
following proposals were submitted to a vote of security holders at the
meeting.





1.  To
elect to the Board of Director five (5) directors


Walter
Woltosz


Virginia
Woltosz


Dr. David
Z. D'Argenio


Dr.
Richard Weiss


H. Wayne
Rosenberger





2.
            To
      ratify the appointment of Rose, Snyder, and Jacobs as the Company's
      independent public accountants for the fiscal year ending August 31,
      2009.





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





Proposal
            
            Votes
      For
            
            Votes
      Against
            Votes
      Abstaining
            
            Votes
              Withheld
            
            
            Total(1)
      Walter Woltosz
            
            
            13,531,941
            
            
            
            
            
            626,899
            
            
            
            14,158,840(1)
      Virginia Woltosz
            
            
            13,304,799
            
            
            
            
            
            854,041
            
            
            
            14,158,840(1)
      Dr. David Z. D'Argenio
            
            
            13,997,440
            
            
            
            
            
            161,400
            
            
            
            14,158,840(1)
      Dr. Richard Weiss
            
            
            13,997,440
            
            
            
            
            
            161,400
            
            
            
            14,158,840(1)
      H. Wayne Rosenberger
            
            
            14,017,629
            
            
            
            
            
            141,211
            
            
            
            14,158,840(2)
            
            
            13,971,221
            
            126,054
            61,563
            
            
            126,054
            
            
            
            14,158,840





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 Officer32
            Certification
      pursuant to Sec. 906 of the Sarbanes-Oxley Act of
2002





27


SIGNATURE





In
accordance with Section 13 or 15 (d) of the Securities Exchange Act of 1934, the
Registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Lancaster, State of California, on
April 10, 2009.







Simulations Plus,
      Inc.Date:  April
      10, 2009
            By:
            /s/MOMOKO
      BERANMomoko
      BeranChief Financial
      Officer








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