Renee Bouche Walter S. Woltosz - Co-Founder, Chairman, Chief Executive Officer, President and Chairman of Words+ Inc Momoko A. Beran - Chief Financial Officer and Principal Accounting Officer John Anthony DiBella - Vice President of Marketing and Sales

Good afternoon. It is Wednesday, April 10, 2013. And on behalf of Simulations Plus, I welcome you to our Second Quarter Fiscal Year 2013 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. [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, Renee, and welcome, everyone, to our Second Quarter of Fiscal Year 2013 Conference Call and Webinar. Our Safe Harbor statement makes our attorneys happy, and that's also a good thing to do, so I'm going to read that. 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 maintain 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 being filed with the Securities and Exchange Commission. So highlights of second quarter. It was a very satisfying second quarter. We had our 22nd consecutive profitable quarter and 44th of the last 46 quarters. Sales were up 11.8%, as we had announced in our preliminary revenues announcement about 5 or 6 weeks ago. That was a record for any quarter of $3.118 million, up from $2.789 million in the same quarter last year. Our gross profit was up 9.5% to $2.619 million from $2.393 million compared to last year. SG&A decreased by almost 11% to $0.855 million from just about $1 million last year. As a percent of revenues, SG&A decreased 27.4% from 34.3% last year. R&D expense decreased 6.4% to about $0.25 million from a little over $0.25 million last year. Last year included R&D expenditures for our Malaria NCE project. That…

Yes. Last year, we had some unique expense, which we don't see this fiscal year. One of them is a legal fee. We pay -- we have to pay the legal fee while we are trying to acquire certain assets of -- and tariffs in bankruptcy code. And that was about $54,000, and that was last year. And also, last year, we spent a little bit of effort for expanding our market share in China. So we send some Life Science personnel in China and demonstrate our products and workshops, et cetera. So there was last year's expense which we don't see in this year. And another one is the SG&A salary decrease because Life Sciences staff spend more time in R&D rather than SG&A. So that result in some deduction in overall SG&A expenses.

Okay. Next question, "Of the 18 new customers, how many additional departments/site licenses have the potential to the penetrated?" Boy, that's the $64,000 question, and I'm going to pass off to John.

I would say that of the 18 new customers, 9 of them would have the potential to be penetrated into different departments and/or new sites. I think it was mentioned earlier that this particular quarter, the new customers, the theme would be more quality than quantity because we did have 7 complete new industrial or industry customers signed up, and I think those would be the ones that we would part typically for extension of licenses going forward. So we'll be doing some trainings very shortly at these customer sites in order to hopefully expose more people to the software.

Thank you, John. Our next question, also from Howard, "How close are you to getting consumer products companies to license your work in toxicity?" So I assume that would mean probably food and cosmetics companies. John, can you comment on that?

Well, we do have several large consumer product companies that are licensing the software and specifically the toxicity features as it would relate to ADMET Predictor and GastroPlus. And we had a very good response at the most recent Society of Toxicology Annual Meeting, quite a few consumer product companies coming up and asking for more information. And hopefully, we'll have also some collaboration going forward with a couple of regulatory groups in the area of toxicity and PBPK modeling, which will also help with the exposure to these alternative markets.

Thank you, John. Again, from Howard. "What do you view as the long-term benefit to having GastroPlus simulation contract study submissions becoming more routine as part of the regulatory review process? And can you leverage it to enhance revenue?" Well, absolutely. I mean, this is the proof of the pudding. When we get right down to it, all of these software programs have 1 or 2 purposes. One is to make good decisions about what you do next, and the other is to get drugs to the market faster and cheaper. If regulatory agencies are willing to accept simulation results in lieu of actual clinical study information, either in part or in full, then the savings are just fantastic. And so as these agencies now have become more and more open minded, this is both European and FDA, as they become more and more open minded to -- and familiar with the process of these simulations, to accepting these in lieu of having to run additional trials, then clearly that's going to be a bellwether development so that companies can see that the price of the software may look expensive, but what it does saves far, far more than its cost. And so the cost-benefit ratio is very, very high. From Howard again, "How much revenue over the next year or so can we anticipate from funded collaborations?" Those are pretty hard to predict. These -- the last 2 came up somewhat quickly. John, do you have any comment on that one?

I don't have any additional information really to add. I know that the 2 that we're currently in are going to be wrapping up within the next few months. And there are some new features in the software that we hopefully will be working on -- starting to work on over the next couple of months. And I think that there had been some interest from some of our friends in the industry to work together. Now whether it would be through a funded collaboration or not is hard to say, but there potentially could be some coming up.

Thank you. I don't see any other questions, are there? Does anybody else see any questions? Renee?

No, I don't see any questions, nor are there any hands raised.

Well, let's see if any hand is raised. Okay. Well, look, there's...

Oh, wait, Donald Berseit [ph] is...

Yes, I see it. "Are there any safeguards in place to avert any hostile takeover attempts?" Well, it would be relatively difficult since my wife and I own about 40% of the stock. And that means we only have to get 11% or so from the rest of the universe of shareholders, and a good chunk of that would be covered by other employees. I really doubt that, that could happen. But there is a preferred stock capability that was approved by the board some years ago. It's never been used. So something could be done if needed. Again, I think with the amount of control that we have from insiders, it wouldn't take very much from the remainder of the shareholders to prevent a hostile takeover. I don't see any other questions. All right. Well, I guess we'll call it a day there. Thank you all for attending, and we will see you in about 3 months. Renee, back to you.

Okay. Thank you, Walt. That concludes today's conference call and webinar. If you missed any part of today's presentation, the replay will be available at our website, www.simulations-plus.com. Thank you for joining us today, and have a great afternoon.