Good afternoon. It is Tuesday, April 10, 2012, and on behalf of Simulations Plus, I welcome you to our Second Quarter Fiscal Year 2012 Financial Results Conference Call and Webinar. Chairman and Chief Executive Officer, Walt Woltosz, will be presenting this afternoon. Joining Walt as panelists are Chief Financial Officer, Momoko Beran; and our Vice President of Marketing and Sale, John DiBella. An opportunity to ask questions will follow Walt's presentation. [Operator Instructions] This call is being recorded for playback at our website, www.simulations-plus.com. It is now my pleasure to turn the presentation over to Walt Woltosz, Chairman and CEO of Simulations Plus.

Thank you, Renée, and welcome, everyone, to our Second Quarter Fiscal Year 2012 Conference Call and Webinar. With the exception of historical information, the matters discussed in this presentation are forward-looking statements that involve a number of risks and uncertainties. The actual results of the company could differ significantly from those statements. Factors that could cause or contribute to such differences include, but are not limited to, continuing demand for the company's products, competitive factors, the company's ability to finance future growth, the company's ability to produce and market new products in a timely fashion, the company's ability to continue to attract and retain skilled personnel and the company's ability to sustain or improve current levels of productivity. Further information on the company's risk factors is contained in the company's quarterly and annual reports and filed with the Securities and Exchange Commission. So much for the formalities. The highlights for our second quarter, which ended February 29, was our 18th consecutive profitable quarter and I think 39 of the last 41. I have to check and see if the 2 that weren't may have been entirely from our now former subsidiary, in which case on a pro forma basis, we have more quarters in 03 [ph] than that. Now sales were up 6.4%. This is a record quarter, for any quarter. Usually our third quarter is our record quarters, but this quarter has beat last year's third quarter and that's a good sign, $2.8 million roughly from $2.6 million. And that had to make up some lost revenue, about $65,000 from last year from our SPIR collaboration, or grant rather, with the National Institutes of Health. So we made up that plus added new sales to achieve the 6.4%. Now gross profit up 8.3%, $2.4 million roughly from $2.2 million.…

I see the first asker is Donald, but it's cutting off. Will there be any price increases for the major upgrades of software to be released in April? Not right away. We are always looking at pricing, testing ideas, but at least for now, there will not be any price increases directly linked to these releases. Walter Ramsley. Will selling prices be increased? Okay, I just answered that. Same question. Who are the potential new customers once the toxicity model is released, from Howard. There are a number of companies in, for example, food industry. We have 1 or 2 of those now, but there are quite a number of others that should be interested in this. Anyone who is processing food on a large scale, for example, where you have to worry about what kind of contaminants, just from the machinery, every machine has to be oiled and lubricated and maintained and there's wear. I mean, metal can wear off from metal to metal contact. Anyone who's in that kind of business needs to be concerned about food safety. And so the food industry is one. The chemical industry. If you're an agrochemical company, where you're developing pesticides and herbicides and things like that, well, if you have a choice of a number of different molecules that will kill a certain insect that's a problem with a certain crop, then you'd like to take at least the one that's going to be the least toxic, if some trace amount of it or greater than trace amount of it, gets out into the food supply. So chemical companies and food companies, I would see. Also cosmetic companies. It's very interesting to me when I went to the Society of Toxicology meeting for the first time several years back, to see that one of the largest presenters in terms of the number of scientific posters and the type of science that they were doing was L'Oreal, the French cosmetic company. They do a tremendous amount of research, and they do physiologically based pharmacokinetics, PBPK, like we do in GastroPlus and they do structure and property modeling like we do in ADMET Predictor. We don't believe they do it at nearly the same level and so there's a possibility there of the cosmetic industry, again, being another customer base. Walter Ramsley. What were the consulting revenues in Q2? How much is that business likely to increase in upcoming periods? I'm going to need some help with that one. John or Momoko, could you answer that?

Yes, I can take that one. Consulting revenue made up about 4% of the total revenue in the second quarter. And it's a little hard to predict what the future consulting revenue is going to be because typically, we get approached from time to time from clients when they have very high priority projects or are working on something that's very difficult. We would certainly expect to maintain that level, but I couldn't offer any kind of predictions as to the likely increase that might be seen.

Thank you, John. Question. What is the expected tax rate for the entire fiscal year? I think in the press release, I think we guessed that 31% to 34%. Is that correct Momo? Momo, are you there?

Yes, I am. Yes. It's 31% to 34% depending on how much R&D credit we can obtain for our fiscal year 2012.

Thank you. From Howard, what is the average revenue contribution of an advanced/basic training course? Well, an advanced course, the price for the advanced course is right at $3,000 per person for the full week. If we fill it with 20 people, that's $60,000. Our costs probably run in the -- I'm going to guess, $20,000 to $25,000 range. And so it does contribute somewhere in the $30,000, $35,000 range. That's a ballpark estimate if we fill the course. If we don't fill the course, it's probably proportional, the costs are proportional to the number of the users, pretty well. We bought a set of laptop computers when we did our first course a couple of years ago. So those were capitalized and we continue to use those computers. When we do these courses, we pre-load all of the software, and everything is licensed and unlocked so that when the students come in, they sit down the computer, turn it on and everything is ready to go. We don't waste time trying to install on their computers with different operating systems and who knows what other software they might have. So it keeps it cleaner that way. We reformat the drives, basically wipe them between shows so that if they went out there and downloaded something on one of our computers, it will be gone for the next show. That's a ballpark average for the basic training -- for the advanced training. For the basic training, John, help me on that. I forgot what we charge for the basic training.

For 3-day basic training course, we charge $1,500 per student. So now, again, filling it up at around 20 students and then minus the costs. In that case, it comes out to be a little bit lower, but in the reverse case, the students that typically attend those basic courses are coming from companies that may not necessarily have licenses to the software program. And we've been very pleased with the response so far from some of those attendees with regards to asking now for quotes to bring in the software to their companies. So where the advanced users are typically coming from companies that already have licenses, these basic workshops have -- at least this initial one, has done a very nice job of introducing the software to new clients who are now very interested in moving forward with licensing the software. So there's some additional kind of auxiliary revenue that's coming mainly from the basic workshop.

Thank you, John. And Howard asks, the press release noted approximately $130,000 increase in quarterly SG&A expenses. Is the increase based on prior year, first quarter '12 or second quarter '12, excluding the onetime payment to M&A consultants. This was a calculation of what to expect going forward. And I'll ask Momo, could you please comment on that $130,000 figure going forward quarter-by-quarter?

Yes. There is still this quarter, as well as the 6 months operation, there is a onetime fee such as those legal fees, which is about $55,000 or $56,000. And also consultation fee for Words+ sale related. And so eliminating those onetime fee, I expect it to be -- SG&A to go up about $130,000.

Per quarter, going forward, right?

Yes.

And some quarters will be higher than others or some will be lower. I mentioned that our year-end bonuses are always paid in the second quarter. And so we take a large hit in that quarter for the year-end bonuses and then you don't see that in the other quarters. How will the Enslein royalty buyout improve margins? Well, the royalty buyout was a deal where we basically purchased the IP, the intellectual property rights, and eliminated the royalty payment on the Enslein metabolism module. That royalty buyout will be amortized over a number of years, 10 years. We're able to buy it out at the equivalent of about 3 years of average royalty payments. And so basically, the amortization of that will be only about 30% of what the royalty payment would have been. It's not a huge number. I think we averaged, what was it, about $25,000 per year, Momo?

Probably more like a $20,000 quota driven...

Per quarter, sorry. And so about 70% of that will remain then as -- I should say, 30% of that will be the expense now rather than the full 100%. So $20,000 or so per quarter will drop to about$ 6,000 per quarter. So will be about a $14,000 per quarter, ballpark number now improvement. How do you drive consistent double-digit sales growth with your current cost structure? Well, I'm going to ask John to answer that one, our Vice President of Marketing and Sales.

One of the things that I don't think Walt mentioned in the presentation, but it was in the press release, had to do with the actual software license revenue and how it compares between both last year's second quarter and then the first 6 months last year. Software license revenue has gone up. We're 11% above last year's second quarter and now over 12% for the first half of the year, so we're producing this double-digit sales growth with regard to the software licenses. We are in the process of negotiating a couple of new funded collaborations, which will help to make up for a lot of that lost revenue that we've seen over the last 2 years or so from collaborations that have expired, grants that have expired. And I think that this NCE project, as Walt mentioned as well, is doing a very good job of starting to kind of illustrate how our cheminformatics software products can really kind of help add value to the research that's going on at these companies. GastroPlus is certainly, the cash cow product here at the company, but there's a lot of room for growth still with regard to the cheminformatics software lines and so we've begun to really push in combination with these press releases for the NCE project, how the software products can begin to assist with those companies' internal research efforts. So I think it's trying to find new revenue routes through collaborations, still identifying possible grants that we could apply for as well. And then really making an effort to promote or do a better job of promoting the cheminformatics offerings that we have to continue to drive the double-digit sales growth. Again, license revenue, software license revenue, has grown consistently by double digits. So we only expect that to continue if not increase now with the nice news related to the NCE project.

Thank you, John. And I think another thing to note is that when we talk about the different sources of revenue: consulting, collaborations, software licenses, software licenses are the ones that renew every year, where consulting and collaborations are they have a term limit. And once you finish the consultation or the collaboration, it's over. Where the software licenses have their own self-perpetuating growth because if each quarter, you get the renewals from your previous years, like quarter, and if you add your new business to that, so double-digit growth in software sales and you don't see the double-digit overall top line. Just keep in mind that the software sales growing double-digits is actually a pretty good thing that's underlying that. Another question. How much was the M&A payment in Q2 for the Words+ sale? And Entelos due diligence, how much was it in Q1? I did mention -- I did answer that in the slide. The Q2 payment was about $38,000, I think, for the final payment on the Words+ sale. And Momo just mentioned that in Q1, was when we had the Entelos expenses. And that was -- the legal fees were around $50,000. We did not have an M&A firm expense on that one as I recall. How long do you expect to pay before the new toxicology line contributes 5% or more to the sales? Well, 5% would be about, what, $250,000 in 6 months. We had $5 million in sales for the first 6 months, so 10% will be $500,000, and half of that would be $250,000. So John, can you guess where the new toxicology could contribute around -- that would be $125,000 a quarter? There's not too many ADMET Predictor licenses...

That's not. No. And I think the key is to first get this new release of ADMET Predictor out the door, because we're really excited internally about all of the enhancements that have been made. So it's going to be critical to first get this new version out the door. One of the nice things that we saw last quarter, we're seeing again in this quarter, is that there is a diversity with regard to the client base. We did sign a major industrial chemicals company to licenses of ADMET Predictor. Also one of the major food ingredient companies have made a significant investment in expanding their licenses for ADMET Predictor and also for GastroPlus. So I would guess that as soon as we get this new version out the door, we should see an uptick in the sales of the module timeframe for that. I really can't say right now, but I would guess, it's sooner than later before it reaches that 5% mark.

Thank you, John. There's another one for you, John. How does your current pipeline of prospective customers compare to the same time last year?

The first of each month, what we do is update our conferences webpage, that gives folks an idea about where we're going to be going over the course of next month or so. And if you noticed, starting in February, we really ramped up, for 2012 at least, the activity at conferences continued into March and has certainly picked up the pace here in April. So the pipeline of prospects is very strong. It's probably higher than last year. But the more important thing, I think, is the diversity in these prospects. Again, now we're starting to -- I mean, we still have a very strong prospect pipeline as it relates to those folks interested in GastroPlus, but the attendance at conferences that are aimed a little bit more towards the cheminformatics software products, whether it's drug design conferences, toxicology conferences, et cetera, combined with the news about the NCE projects, it really has drawn in a more diverse audience than we would have expected from years past. So it's strong and more diverse than this time last year.

Thanks, John. And the next one is for you, too. Have the terrific results from the malaria project began to produce higher sales demand?

It has produced higher demand, yes. We decided to kind of take an approach, instead of continuing to refer to MedChem Designer, MedChem Studio and ADMET Predictor, just rattling off each product name individually, we started to kind of design a marketing plan around an ADMET design suite, which has a little bit of a nicer ring to it. And so promoting the news and having a dedicated site that talks about the combination -- the power of the combination of those 3 products, has led to higher demand more requests for evaluations, more requests for quotes.

Thank you, John. And last question I see at the moment. Assuming successful synthesis of the NCE, what will be the next steps for this project. Well, even where we are now, I think we can proceed, although we're waiting for a little bit more results and again, watch your computers tomorrow morning for our press release, I think we'll probably have it out by then. If we don't, go ahead and call the office because I'm not there the rest of the week. A little joke there. Anyway, we will definitely be contacting organizations like the Bill & Melinda Gates Foundation, GlaxoSmithKline, others who have a strong interest in malaria research, to see if there would be an opportunity for a collaboration, especially funded collaboration. We do know that the Gates Foundation has a strong interest in malaria. It is an area of critical need around the world and that if they see something promising and innovative, and I think there certainly is, that they are willing to add funding to it. And we know for example just recently they funded the University of South Florida to the tune of about $5.5 million to pursue some chemistry that, as I've seen and what I've seen, it doesn't appear to be that much further along, if at all, than where we are. And so I think there's a possibility, no guarantees, of course, but a possibility that we could get external funding to take this to a much more significant level. And if we were to do that, then we would be designing larger numbers of molecules. And the more you can design and synthesize and test, the greater likelihood that you're finally going to find a winner. So I'd say that would be the next steps. And I believe that's the last question. I don't see any more. Does anyone else see any more?

No more questions.

All right. Well, thank you, all, for attending. We'll talk to you again in about 3 months. Well, I guess, it'll be around July we'll have that next conference call. Watch for the press releases. We'll keep you posted as best as we can as news develops, and hope you all enjoy your spring and talk to you again in the summertime. Thank you, all, for attending.

Thank you, Walt. This concludes today's conference call and webinar. If you missed any part of today's presentation, the playback will be available at our website, www.simulations-plus.com. Thank you for joining us today.