Good afternoon. It is Wednesday, April 9, 2014, and on behalf of Simulations Plus, I welcome you to our Second Quarter Fiscal Year 2014 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, John Kneisel; 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, Renee. And welcome everyone to our Second Quarter Fiscal Year 2014 Conference Call and Webinar. Always like to keep the attorneys happy, so I'll read the safe harbor statement. 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 our highlights for the three months that were ended February 28, our second fiscal quarter, compared to 2Q of '13 was our 26th consecutive profitable quarter. So doing quite well over 6.5 or about 6.5 years of continuous profit and earning. Our sales were just over $3 million -- $3.081 million. This was a small decrease, 1.2% decrease of $37,000 from $3.118 million in 2Q '13, and as we had announced in our preliminary revenues press release about a month ago, approximately $350,000 of revenues were delayed until the current quarter, 3Q '14, because one of our larger customers decided to move one of their -- part of their order which was a renewal into the third fiscal quarter to synchronize it with their other orders and their internal budget timelines. And at the same time, the consulting project, which was pretty far…

Now our first question is Howard Halpern and can you provide some perspective as to how long it takes a new hire to reach full on learning the simulation software and integrate into the sales and marketing process? From the hires over the last few years, how many are at full capacity? Well, it all depends. A number of our new hires fortunately were already using Plus before they came to us. Most of our new hires in recent years have been on the GastroPlus side, little bit on the cheminformatic side. The cheminformatics side to say, they came up to speed very, very quickly because they -- they know what the product is all about, and it’s fairly easy for them to come up to speed on what the chemistry type software is doing. On the simulation side, particularly GastroPlus, in terms it is such a multi-disciplinary program, for someone coming in completely cold, I would say it takes one to two years depending on you know the background that that person has, how much exposure they get to using the program while they are here and focus on just one particular module or they work with all the different things. And then one of our training methods is to take advantage of the old adage that you learn by teaching. So when we go out and we do our training in our workshops, we will give someone who is new to the company one section and say right, we present this section for this particular section, and then maybe the next time they do a different section and then after they’ve done a few of these, they’ve covered a number of the sections and have started to develop a very good expertise. So very good question. How many were at full capacity? I am not sure what’s full capacity is because we are all learning. Those of us who've been using the software for 15 years, we are constantly learning, but I would say almost everybody now is at a very high level, the new hire that just joined us on Monday, has -- already has 10-years experience and had been using GastroPlus at his pharma company. So, again we are at a pretty good level here. Next question also Howard. So far in 3Q '14, have you seen any customers from last year postponing their renewal date? John DiBella, can you answer that?

Yes, right now I would say that any orders that have historically been in the third quarter seem like they are on track to be recognized in this third quarter as well. There is always -- I always anticipate there being some clear falls with any new contractual proceeding that a company might have, but right now everything seems like it’s going to fall into the quarter as normal.

Thank you, John. Next question from Howard for FY '15, what is your perspective on (inaudible) potential in Asia generally and China specifically? Well as you know Howard, we don’t give guidance but just the climate in general in Asia and China. John DiBella?

You know we've been able to form some key partnerships with several leading universities and CROs over in China, Korea, and we've had a nice presence in Japan for a number of years. We've also started to again form these kind of alliances of partnerships. And that's helping with the exposure of the products overall to newer clients. I'm bullish on Asia in general for us, and that's why I think we’ve dedicated some time to visiting Korea, China, and Japan a couple of times this year hosting workshops over there as well. So I would say that long term that's going to be a key territory for us.

Thank you, John. Next question again from Howard, what's next for the NCE program in COX-2 project specifically? Well I would say what's next is telling the world making sure we get the message out there about what we've done, we will publish these results. We might approach companies that are interested in COX-2. We are not sure of what the general feeling in the industry is yet, but Merck pulled Vioxx from the market on their own some days ago whether they want to even consider getting them back into that area, we just don’t know. Again these are lead compounds. Most likely, they would not be the final drug that would be quite certain, but our goal here is to sell software to show that these tools really work. And we hit two out of two homeruns here. We don’t expect to do another NCE program, at least not right now. I don’t think that we need to . We've pretty well proven that the methods and the software works to do what we set them to do, and that is to generate high quality of lead compounds in a very short period of time and at much less investment than is traditionally required. Again from Howard, what was Q2 '14 renewal rate and what was the revenue contribution of new customers. John Di, I'll ask you for that one.

Yeah, the renewal rate was strong as it always is, little over 92%, and the revenue contribution from new license sales was between 18% and 19%.

Thank you. Walter, in Q3 last year, the company generated revenue of $3.09 million, a 15% increase from here and we get them up to $3.55 million revenue. (inaudible) with $350,000 delayed revenues, we are bringing the total to $3.9 million, is that a reasonable expectation for the current period? Again we don't give guidance. I will let everybody else do their own math. I found that whenever I try to get guess the future, I tend to be wrong. I either underestimate or overestimate, but I would say your math is probably in the ballpark, but I would want to bring it down more accurately than that. What is the outlook for the aerospace project? We have had a scientific poster presentation accepted for a Missiles and Space Conference in Huntsville Alabama in June. This is a restricted access conference, not for classified but there is restricted access and we'll have some military folks there from various agencies and contractor and employees in the aerospace area and we'll be showing off what we're doing and trying to generate some interest there to see if we can get funded to take this to the next level. Our goal here was to develop a prototype teaser that would at least show people what might be done or what can be done using the mathematical engine. Now the next step is to polish it to allow it to take in input data in whatever format the customer might want and output reports in whatever format they might want. And there is a second application that we've discovered and that is, it's called stores separation and what it refers to is when an airplane drops something, it could be a fuel tank, it could be a bomb, it could be a missile, you want to make sure that dropping gets away from the airplane, so they call it a store and their separation problem can be very complicated in terms of a simulation solution. And so again we're looking at the potential of using the artificial narrow network engine that we have, that’s done so well in the chemistry field in some of these other areas. Walter Ramsley. Are there any employees based outside of California?

Not at present. We do have one of our former employees who now works a contractor out of North Carolina, but no employees currently are based outside of California. In years passed we did have some for the Words+ subsidiary. We had some field sales personnel, but that’s been many, many years ago. James Morato, last year you mentioned potential price hikes on your main products for 2014, can you please give an update on this? Thank you.

John DiBella will talk to that.

Yes, we did an analysis of our prices compared to the competition and identified a few products and modules of those products that were underpriced. So we did increase the fees essentially taking effect March 1st and it was about a 5% increase. The goal I think going forward is to have these smaller more frequent price increases, but I couldn’t tell you what the future is going to hold. But yes, we did introduce the 5% hike on several modules of a couple of different programs.

Thank you, John. Walter Ramsley. Is there a plan to increase R&D spending to develop large molecule simulation technology for the biotech sector of the market?

Actually it’s already been implemented. I mentioned the former employee who is now working as a contractor in North Carolina and her entire effort is directed towards the biologics, the large molecules for the biotech sector and that will be added into the GastroPlus program in the future. [Donald Borsi] (ph). I hope I am pronouncing that right. Has the company received any inquires from entities regarding either of the two entities?

Unfortunately, no, it’s not something we pursued a lot. We did try to make a few contacts on Malaria and we had some supposedly promising contacts, but nothing pinned out from that. Walter Ramsley. Q4 is usually a seasonally low, are there plans…

Well, Q4 for us of course is June, July and August and that’s summer time. If you go back and look at when we go back to our revenue slide, revenues by quarter -- revenues by quarter, so if you look at Q4, that we’re kind of covering up that part and you remove that, you’ll see that last two year’s Q4 around $1.6 million is about where Q1 was a few years back even Q2 we had a 1.8 the oldest year I know, sorry I dropped the year scale up slight here at the bottom. So Q4 has been going up last year again we had shift of one of the orders as you recall, we had a similar thing that we had in the second quarter, we had an order that shifted from quarter into the first quarter of this fiscal year and so that bumped this up a little bit and about this time a little bit. But in general, all of the quarters tend to go up unless you have one of these things that jumps, sits into the next quarter. It is a summer quarter and much of the world you know the vacation policies are far more generous that we are see in the United States. In general in much of Europe, in Japan for example, it’s not exactly a shut down, but it really slows down. To accelerate growth in that period, I’d say, you fighting an uphill battle. The real strong quarters are second and third year-after-year. First quarter now has become stronger and stronger. You can see first quarter here at 2.6 is better than second and third quarter so just a few years ago and equal to are just three years ago. Donald Borsi, what if any progress on using this progress on using the software for the aeronautical application mentioned in the previous conference call?

Well I think I mentioned that already it’s a prototype program. We have not gone up to a customer yet. We are still doing some testing. We put it on the cloud for example. We've got a graduate student at Albury who is using it as part of his Master thesis and research work. We also have couple of professors there. That student was actually here yesterday for an interview and we are very likely to hire him. I think he is going to join us. He seems quite interested. [What are] (ph) tax rate is 30% is at the expected full year rate, John can I so, I'm going to have to ask you, I don't know that one? You there? Well, his office is next to mine and I think I hear him talking through the wall, but it's not coming through the computer. I would say that it's probably a little on the low side. We tend to run more like 32 or 33. This time we ran around 29, I think 29 point something for the quarter, which surprised me. I don’t know why. It's already tax credits and various things like that, that affect us. It's quite complicated. So I am going to have to differ on that one. I just don’t know. But I would expect it certainly be below 30s, if it's consistent with the past behavior. James Morato. What kind of revenues or impact on your company do you expect the China partnership to bring long term?

Well that's something we’re just going to have to see. We know the company that we partnered with. There is a major contract research organization that do a lot of in vitro work. Combining it was their initiatives to say how about working with us and providing the software analysis that would go along with our in vitro studies and they see this as a way of selling more of their in vitro work because they could offer this combined capability of a single package. So people just have to see how that plays out. It's a big market over there. They are ready for this combined capability, I'm going to have to see that the company over there believes that if that the case. Walter Ramsley, has the company worked up a business plan to increase revenues to $50 million over the next three to five years? If that’s to high, what is the goal?

No we have not. I think looking at $50 million over the next three to five years is high in the sky maybe there is a way to do it. I don’t see that’s a huge increase, that’s five times what we are doing right now. Growth is going to come in two ways as I've said on the conference call after conference call. Organically we continue to hire people. We continue to look at new products. Expanding the capabilities of existing products. Expanding our consulting services and then the other way is acquisition. We continue to look for acquisitions. We've got a nice war chest in the bank. $10 million, $11 million and if the right opportunity comes along and survives the due process, then those of you that have been following us, know we've been through this a number of times in recent years and unfortunately none of them have worked out since about 2005, I believe it was the last acquisitions we did. But we are on the hunt and sooner or later, we're going to find exactly what fits. James Morato. Is there any chance to sell or license any of these NCE created for COX-2?

No, maybe, it's a long shot, I wouldn't want to make any promises or set any expectations there. That’s a pretty tough sale, but I think the fact that we've done what we've done speaks for itself. I don't know if any other software company that have basically stood up and put the money where their mouth is and said we believe in our software so much that we're going to go out, design new molecules and tell the world before we get the test results that we've done it and we're going to report the results and let the chips go where they may. We were threatening this one because we're trying to hit two targets of the same molecules and fortunately it did work out. James Morato. Do you have any plans to start a third NCE project or do you feel like you've shown the proof of concept?

I think, I've already answered that, but right now, no expectation is starting for the project. I think we have proven what we set out to prove. Jack Wallace. Are the dealer cost associated with selling into Asian markets, one time in nature are those variable selling expenses. Are the dealer cost associated with selling into Indian markets, one time in nature or are these variable selling expense and growth? The costs are in flat commission, each sale from the dealer gets a certain percentage of the sale. In supporting our dealers in Asia, whether it's Japan, China, India, Korea; we will go over there and help present the products and do trainings. This has been very successful in Japan. Japan probably runs around, I am guessing right now, 15% to 20% of our business and that's -- those are a result of relationships that we bought since 1998. I've personally been in Japan 44 times, going again next month, again in October. It's a country that you cultivate relationships as much as you show what you do and we've got a very strong presence there. China, India, Korea are equivalent to our early years in Japan and Japan investment paid off nicely, it’s a very good market, very good customers, good companies going to work with.

Walt, can I just…

Well, is the company planning to maintain the aggressive selling and marketing campaigns for the rest of the year? Yes, you will actually see more meetings going on in other quarters, again with the second quarter being December and January, that's a time when not too many people are going to schedule its conferences and February begins to pick up a little bit, but now this time of year, we’ll see quite a bit more activity in Q3. Jack Wallace has the strong Q2 -- has a strong 2Q in terms of new client wins straight over into 3Q. Well we haven't said anything public yet and we generally don’t until the quarter is over. I would say everything feels very good on this end and that's I just leave it at that. [Omar] (ph) Can you discuss the law that's played on the software offerings?

No. That's not a subject I am prepared to discuss right here. And that is the last question I see.

Waltm can I just clarify something this is John Di.

Yeah. We are up to our hour -- so go ahead.

Okay. Yeah, just, we only have formal dealership agreements in place with China and Japan territories. So, we handle all of the sales activities in India and Korea. Now we've got some memorandum of understandings and partnership agreements with universities over there, but we are responsible for all the selling activities in India and Korea.

Okay. Thanks John, thanks for clarifying that. Well, our hour is up, lot of questions this time. I appreciate everyone attending. If you have any other questions, you can contact the company if there is public information and we'll be happy to share it with you if it's not public and obviously we're not able to do that. Thank you very much for attending. Renee?

Thank you, Walt. We have one announcement before we sign off. We'll be presenting at the B. Riley 15th Annual Investor Conference taking place May 19 to May 21 at the Loews Santa Monica Hotel and we hope to meet you there. So, this concludes today's conference call and webinar. If you missed any part of today's presentation, a replay will be available at our website www.simulations-plus.com. Thank you for joining us everyone and have a wonderful afternoon.