Walter Woltosz - Chairman, President and Chief Executive Officer John DiBella - Vice President, Marketing and Sales Momoko Beran - Chief Financial Officer

It is Monday, November 19, 2012, and on behalf of Simulations Plus I welcome you to our Fourth Quarter and 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 Vice President of Marketing and Sales, 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’s now my pleasure to turn the presentation over to Walt Woltosz, Chairman and CEO of Simulations Plus.

Thank you, Rene. Again, I apologize folks. I switched to MacBook Pro Retina which has a very nice high resolution screen but apparently go to GoToMeeting or GoToWebinar has difficulty with the resolution. So I have just given John a thumb drive, we will make him the presenter. Okay, thank you very much. Okay. So I apologize for the delays. Let me go right ahead with the safe-harbor statement to keep the attorneys happy. 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, company's ability to finance future growth, company's ability to produce and market new products in a timely fashion, company's ability to continue to attract and retain skilled personal, 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 on file with the Securities and Exchange Commission. Next slide please. Okay. So for the fourth quarter, June, July, August of this year, comparing 4Q ’12 to 4Q ’11, this was our 20th consecutive profitable quarter. And sales were up for the fourth quarter 14.9% to result in another record fourth quarter. So all four quarters of last fiscal year were record quarters and of course that makes for a record fiscal year. We did $1.64 million compared to $1.43 million in 4Q ’11. Our Gross profit was up 6.8%. I think actually that’s an error. That should have been 18.4% to $1.32 million from $1.11 million. I thought I gave you…

Okay. From [Nick], how many workshops did you add in fiscal 2012 and how many do you plan to introduce in 2013? John, you want to take that?

Sure. So in fiscal 2012, we hosted five workshops. We had one basic workshop in the U.S., one advanced workshop in the U.S. Two basic courses in China and then one basic course in Europe. And the plans for 2013 are to increase that a little bit. Right now we have scheduled three workshops in the spring for GastroPlus and the ADMET Design Suite and then I think we will plan on having probably three to four more scheduled in the fall as well.

Thank you, John. And the next question was how much revenue was generated from workshops in 2012? It’s not a number we have made public but I don’t see why we can't answer the question, if you have that handy?

Yeah, I think the revenue from the workshops was around maybe 1%, 1.5% of the total revenue. But I think it’s more important, as Walt pointed our earlier in the presentation that especially from these basic workshop courses, we do have people who attend from companies who don’t have licenses to the software before they come for the training. And we have been able to generate a fairly significant amount of new license revenue from those people who did attend, who did go back to the companies and say these are valuable tools we should bring them in-house. So revenue directly from workshop fees is relatively small but then adding on the new license sales that we see it’s definitely a profitable set of events that we host.

Thanks, John. Why did the Entelos acquisition fall through? Well, we did a lot of due diligence on Entelos. We think the science there is good. We felt that in the bankruptcy proceeding that they were in back last summer in into September. From all the feedback we have been getting from them, that we could probably acquire this capability for on the order of $2 million to $3 million. When we got to the bankruptcy court in Delaware, we were advised that the first secured creditor was owed something on the order of $10.5 million and that as the first secured creditor, that organization could bid up to the $10.5 million without having to put out any money because they would just be writing themselves a check. And they intended to do that. So we said, that would have taken virtually all of our cash and then we would not have had cash to operate the entity until it became profitable again. And so it was not economically a smart thing for us to get into. Still like the technology and some day maybe we will find a way to work with them. There are some compatibilities between what we do and what they do but as of now the acquisition is of the table. What's the potential market for MembranePlus? Well, good question [Howard]. We know that anyone who is developing new drug molecules needs to know there permeability. We also know that it’s not inexpensive to run these permeability experiments, especially in large numbers. And that even when you run these experiments, the cells that are used are not the same as what you would see in, for example a human small intestine or in a dog or in a rat or mouse, which is where the…

We are. Yeah, I think we are doing a nice job of promoting the toxicity module in ADMET Predictor at different conferences. In fact we just came back from a conference in Long Beach, the SETAC conference, and came back with the highest number of leads and prospect enquires than from any other previous toxicology conference that we have gone to. So as we add more and more toxicity models and specifically modeling endpoints that are of interest to non-pharmaceutical companies, we will continue to see the increased rate.

Thank you, John. In fact one of the interesting sales that we announced here a few months back was the U.S. Army license ADMET Predictor. And this was as a result of attending a workshop that we did in Boston and there interest is in environmental toxicology. So the army of course has everything from motor oils and hydraulic fluids to explosives that can be in the environment. And so they need to know -- and all of these things are made up of many different molecular ingredients. So they need to know what the potential is for toxicity not only to the fighting forces but also to the environment. You know training environment or whether it’s actual combat environment. Have the three new scientists in life sciences and one in sales and marketing reached their full sales potential? I hope not. I mean they are just getting started. It takes a while for anyone to really get up to speed with what we do. We are a difficult business to explain in the financial world where the terminology can get in the way. But even in the scientific world, these are not trivial tools. These are complex tools that have many different capabilities. When you look at a program like ADMET Predictor, GastroPlus, MedChem Studio, DDDPlus, there are a lot of different options. There are a lot of different things to think about. And it’s very easy to use a program like this wrong if you just jump in and start making runs without thinking about what you are doing and getting some good training. And so when someone new comes on board, it takes a while for them to do enough different kinds of studies and see who things interact before they are ready to go out on…

Well, we are in fiscal year 2013 right now and my guess is that we probably won't be passing along any increases while we are in this fiscal year but I do think that it’s something we will investigate starting, definitely in place by fiscal year 2014. I think that, as Walt has mentioned through a few of his slides, that with the way the global economy has been over the last few years, our customers have certainly appreciated the fact that we have been able to continue offering a very valuable software while keeping the prices fixed. And that’s certainly been one of the key reasons why we have seen such a higher renewal rate and things like that. So I think that they understand that the last price increase was several years ago and know that we have some discussions about passing along an increase maybe in fiscal year ’14, but since we are already in fiscal year ’13 I don’t think it’s likely.

Thank you, John. Next question, are you seeing any potential for asset purchases? I wish. I have to say at the moment I don’t see anything at the moment. It seems like every couple of weeks something pops up and we take a look at it. Most of it not really very exciting but every now and then we get one that looks very interesting and we follow up and start doing some due diligence. So nothing right this minute but something could come up before the end of this month. Are there plans for a dividend reinvestment program? A dividend reinvestment program, so I assume that means a share repurchase. There are no plans. The board of directors right now has declared the dividend and at this point that is cash dividend that is. And perhaps the question here refers to using the cash to buy stock. There is no plan for anything different than then $0.05 per quarter per share dividend right now. That could change tomorrow. The board each quarter has to approve the dividend and as we always say in the press release, there is no guarantee that you can count on another one in three months or for how much it might be, because you never know what could pop up. If a good acquisition opportunity popped up that required a lot of cash and we felt that it was strategically to the shareholders advantage to go that route, than clearly that’s what the board would decide. So I never want to give any guarantees and if I did my lawyers would shoot me. So I would just have to say that right now the only plan is that we paid a dividend last week for this quarter and at the moment we expect to pay one for the next quarter but that could change. Next question. The full fiscal year tax rate was 28.9%, what's the outlook for fiscal 2013? Momo, would you like to answer that.

Yes. That was very difficult to question. Assuming the R&D credit is still available to us than probably (inaudible) starting from the 40% to 41% starting point, I will set anywhere between 34% and 36%, depending on R&D credit.

As we all know, the election went the way it did. We don’t know yet what the impact is going to be on taxes. I personally have a lot of heartburn with the way people talk about taxes. For example on dividends, if you get a dividend and you pay a 15% federal tax on that as a long term capital gain or a dividend gain, it appears to the average person that you are only paying 15% on that. What people ignore is that you are part owner of the company. If you own 100% of a company, you pay 100% of the taxes of the company. If you own 1% of a company, you are paying 1% of the taxes of the company. So in this case as you saw our percentage was 29.8%, you have already paid out of your share of the profits that you own as an owner of the company, you have already paid that 29.8%, now you get to pay another 15%. And if you are in the State of California, lucky you, you get to pay another 8% or 9% on top of that. So you are paying over 50%, not 15%. So I don’t know what's going to happen but I suspect taxes are going to up. We know healthcare costs have gone up already and continue to go up. We have seen our renewal plans that come out around this time of the year and see what's happening, the rates go up and the benefits go down and nothing has changed in that respect. So I can only guess. You know if someone else has a crystal ball or a Ouija board that can give us a better idea about taxes, I would sure like to know what they are.…

Yeah, that’s okay.

Okay. Thanks. What is the percentage of revenue that came from existing customers? John, you got that?

The renewal revenue was approximately 70% to 75%, somewhere in that range for fiscal year 2012.

Thank you. And that’s good because that means new business is running in the 20% or more range and that’s where we would like to be. We would like to see the new business coming in at 20% or better. Our next question, what is GastroPlus’ market share? We don’t exactly know that. We just know from a lot of communication, the company's that we talk to, how many companies use our software and don’t use competitive software versus those that also use competitive software. So it’s rough guess that it’s more than half but I wouldn’t be able to put a firm number on that. What can't the company leverage that with that acquisitions and pay a higher acquisition price to realize that potential? Well, I mean that’s one of those questions. If you are going to acquire something, first you have to find something worth acquiring. Our major competitor on the GastroPlus side is a company called Simcyp out of England which was just acquired this past year by a group out of San Francisco Bay Area called Certara and they have earlier acquired both Pharsight and Tripos. And there really is no one else in the GastroPlus realm that we would be interested in acquiring. So again, and even on the other side, on the chem. Informatics side, there are many companies that are coming in the chem informatics space. That one is a much more competitive market. Probably 15 or 20 at least, companies that compete in that area. Some of them pretty small, some of them larger than we are. Like [Acelors] for example. There are other companies that are maybe about the same size as we are, OpenEYE, Leadscope and so on. Most of those companies are private companies so you can't really get…

Its’ a target, yeah. I suppose it’s reasonable. I mean you know there is -- going back to the question about the economy, we do know about some slight closures that have been announced and were announced several months ago. And so we are talking with those companies as far as how licenses will be transferred and things like that. But I think it’s reasonable target knowing what we know right now.

Okay. That’s the last question. We did go over an hour. A part of that due to MacBook technology issues here. We will make sure we get that straightened out for next time. Thank you all for attending. If you have any further questions you can always email us at info@simulations-plus.com or just call the office at, in the U.S. 888-266-9294, or internationally 661-723-7723. Thank you all for attending. See you next quarter.

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. Thanks so much for joining us and have a great afternoon.