SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended February 29, 2004 or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1937
For the transition period from _________ to _________
Commission file number: 000-21665
SIMULATIONS PLUS, INC.
----------------------
(Name of small business issuer in its charter)
CALIFORNIA 95-4595609
(State or other jurisdiction of (I.R.S. Employer
Incorporation or Organization) identification No.)
1220 W. AVENUE J
LANCASTER, CA 93534-2902
(Address of principal executive offices including zip code)
(661) 723-7723
(Issuer's telephone number, including area code)
NOT APPLICABLE
(Former Name, Former Address and Former Fiscal Year, if Changed Since
Last Report)
Check whether the issuer: (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 [ ]
The number of shares outstanding of the Issuer's common stock, par value $0.001
per share, as of April 7, 2004, was 3,537,625.
SIMULATIONS PLUS, INC.
FORM 10-QSB
FOR THE QUARTERLY PERIOD ENDED FEBRUARY 29, 2004
Table of Contents
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet at February 29, 2004 (unaudited) 2
Consolidated Statements of Operations for the three and six months
ended February 29, 2004 and February 28, 2003 (unaudited) 4
Consolidated Statements of Cash Flows for the three and six months
ended February 29, 2004 and February 28, 2003 (unaudited) 5
Notes to Consolidated Financial Statements (unaudited) 7
Item 2. Management's Discussion and Analysis or Plan of Operations
General 13
Results of Operations 18
Liquidity and Capital Resources 23
Item 3. Controls and Procedures 23
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 24
Item 2. Changes in Securities 24
Item 3. Defaults upon Senior Securities 24
Item 4. Submission of Matters to a Vote of Security Holders 24
Item 5. Other Information 24
Item 6. Exhibits and Reports on Form 8-K 24
Signature 25
Exhibit - Certifications 26
SIMULATIONS PLUS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
at February 29, 2004
(Unaudited)
--------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents (Note 6) $ 57,396
Accounts receivable, net of allowance for doubtful accounts
of $17,121 and present value discount of $11,629 1,379,011
Inventory (Note 7) 229,589
Prepaid expenses and other current assets 55,413
-----------
Total current assets 1,721,409
LONG TERM RECEIVABLES, net of present value discount
of $52,843 491,157
CAPITALIZED COMPUTER SOFTWARE DEVELOPMENT COSTS,
net of accumulated amortization of $1,903,792 (Note 4) 520,172
PROPERTY AND EQUIPMENT, net (Note 8) 77,726
DEFERRED TAX (Note 5) 1,291,110
OTHER ASSETS 11,150
-----------
TOTAL ASSETS $4,112,724
===========
The accompanying notes are an integral part of these financial statements.
SIMULATIONS PLUS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
at February 29, 2004
(Unaudited)
--------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 173,980
Accrued payroll and other expenses 259,031
Accrued warranty and service costs 39,058
Current portion of deferred revenue 11,416
Other current liabilities (Note 9) 2,808
-----------
Total current liabilities 486,293
DEFERRED REVENUE 25,693
OTHER LONG TERM LIABILITIES (Note 9) 4,667
-----------
Total liabilities 516,653
COMMITMENTS AND CONTINGENCIES (Note 9) --
SHAREHOLDERS' EQUITY (Note 10)
Preferred stock, $0.001 par value
10,000,000 shares authorized
no shares issued and outstanding --
Common stock, $0.001 par value
20,000,000 shares authorized
3,499,509 shares issued and outstanding 3,500
Additional paid-in capital 4,897,446
Accumulated deficit (1,304,875)
-----------
Total shareholders' equity 3,596,071
-----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $4,112,724
===========
The accompanying notes are an integral part of these financial statements.
SIMULATIONS PLUS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the six months ended February 29, and 28,
(Unaudited)
-------------------------------------------------------------------------------------------
2004 2003
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 79,346 $ 197,348
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization of property and equipment 19,512 23,350
Amortization of capitalized software development costs 109,178 71,102
(Increase) decrease in
Accounts receivable (176,825) 172,882
Inventory (37,750) (18,610)
Other assets 10,340 (21,485)
Increase (decrease) in
Accounts payable (1,028) (24,528)
Accrued expenses (19,778) (100,842)
Accrued payroll for officers -- (100,000)
Accrued bonuses to officers (133,538) (54,057)
Accrued warranty and service costs (5,672) 6,191
Deferred revenue (9,308) 1,849
---------- ----------
Net cash provided by (used in) operating activities (165,523) 153,200
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (17,906) (37,009)
Sale of property and equipment 379 --
Capitalized computer software development costs (92,676) (86,683)
---------- ----------
Net cash used in investing activities (110,203) (123,692)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on capitalized lease obligations (2,489) (6,796)
Proceeds from the exercise of stock options 74,878 1,310
---------- ----------
Net cash provided by (used in) financing activities 72,389 (5,486)
---------- ----------
Net increase (decrease) in cash and cash
equivalents $(203,337) $ 24,022
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 260,733 36,072
---------- ----------
CASH AND CASH EQUIVALENTS, END OF QUARTER $ 57,396 $ 60,094
========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
INTEREST PAID $ 384 $ 1,540
========== ==========
INCOME TAXES PAID $ 47,000 $ 1,600
========== ==========
SUPPLEMENTAL SCHEDULE OF NON-CASH TRANSACTIONS
1. Minolta copier with a zero book value was traded-in for a new Ricoh
copier/printer. The remaining obligation of $8,177 was assumed by the
lessor of Ricoh copier/printer in the exchange for a higher per print
cost.
2. The Company purchased all of the rights, title, and interest in the
Say-it! SAM augmentative communication device developed by SAM
Communications, LLC, for 35,000 shares of Simulations Plus restricted
common stock at $4.65 per share equal to the closing price on the date
when the agreement was signed.
The accompanying notes are an integral part of these financial statements.
SIMULATIONS PLUS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
for the three and six months ended February 29, and 28,
(Unaudited)
------------------------------------------------------------------------------------------------------------------
Three months ended Six months ended
--------------------------- ---------------------------
2004 2003 2004 2003
------------ ------------ ------------ ------------
NET SALES $ 1,368,750 $ 1,120,029 $ 2,507,483 $ 2,197,544
COST OF SALES 459,790 371,795 811,536 704,593
------------ ------------ ------------ ------------
GROSS PROFIT 908,960 748,234 1,695,947 1,492,951
------------ ------------ ------------ ------------
OPERATING EXPENSES
Selling, general, and administrative 733,747 598,946 1,339,617 1,101,827
Research and development 153,989 81,585 297,382 191,183
------------ ------------ ------------ ------------
Total operating expenses 887,736 680,531 1,636,999 1,293,010
------------ ------------ ------------ ------------
INCOME FROM OPERATIONS 21,224 67,703 58,948 199,941
------------ ------------ ------------ ------------
OTHER INCOME (EXPENSE)
Interest income 19,271 19 39,758 34
Interest expense (65) (1,087) (384) (2,627)
------------ ------------ ------------ ------------
Total other income (expense) 19,206 (1,068) 39,374 (2,593)
------------ ------------ ------------ ------------
INCOME BEFORE BENEFIT FROM (PROVISION FOR)
INCOME TAXES 40,430 66,635 98,322 197,348
BENEFIT FROM (PROVISION FOR) INCOME TAXES
Provision for income tax (7,803) -- (18,976) --
Change in valuation allowance -- -- -- --
------------ ------------ ------------ ------------
Total benefit from (provision for) income taxes (7,803) -- (18,976) --
------------ ------------ ------------ ------------
NET INCOME $ 32,627 $ 66,635 $ 79,346 $ 197,348
============ ============ ============ ============
BASIC EARNINGS PER SHARE $ 0.01 $ 0.02 $ 0.02 $ 0.06
============ ============ ============ ============
Diluted earnings per share $ 0.01 $ 0.02 $ 0.02 $ 0.05
============ ============ ============ ============
WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING
BASIC 3,469,994 3,408,331 3,443,598 3,408,575
============ ============ ============ ============
DILUTED 4,209,459 3,781,590 4,209,459 3,781,590
============ ============ ============ ============
The accompanying notes are an integral part of these financial statements.
SIMULATIONS PLUS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the Years Ended February 29, and 28,
(Unaudited)
-------------------------------------------------------------------------------------------------------
Common Stock Additional
-------------------------- Paid-In Accumulated
Shares Amount Capital Deficit Total
------------ ------------ ------------ ------------ ------------
BALANCE, AUGUST 31, 2002 3,408,331 $ 3,409 $ 4,654,756 $(3,890,281) $ 767,884
SHARES ISSUED UPON EXERCISE
OF STOCK OPTIONS 3,916 4 5,149 5,153
NET INCOME 2,506,060 2,506,060
------------ ------------ ------------ ------------ ------------
BALANCE, AUGUST 31, 2003 3,412,247 $ 3,413 $ 4,659,905 $(1,384,221) $ 3,279,097
============ ============ ============ ============ ============
SHARES ISSUED UPON
PURCHASING SAY-IT! SAM PROD 35,000 35 162,715 162,750
SHARES ISSUED UPON EXERCISE
OF STOCK OPTIONS 52,262 52 74,826 74,878
NET INCOME 79,346 79,346
------------ ------------ ------------ ------------ ------------
BALANCE, FEBRUARY 29, 2004 3,499,509 $ 3,500 $ 4,897,446 $(1,304,875) $ 3,596,071
============ ============ ============ ============ ============
The accompanying notes are an integral part of these financial statements.
SIMULATIONS PLUS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
Note 1: GENERAL
As contemplated by the Securities and Exchange Commission under Item 310(b) of
Regulation S-B, 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"), the interim
data include 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: CRITICAL ACCOUNTING POLICIES
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. Critical accounting policies for us include revenue
recognition (see Note 3), accounting for capitalized software development costs
(see Note 4), and accounting for income taxes (see Note 5).
Note 3: REVENUE RECOGNITION
We account for the licensing of software in accordance with American Institute
of Certified Public Accountants (AICPA) Statement of Position (SOP) 97-2,
"SOFTWARE REVENUE RECOGNITION". The application of SOP 97-2 requires judgment,
including whether a software arrangement includes multiple elements, and if so,
whether vendor-specific objective evidence (VSOE) of fair value exists for those
elements.
The end users receive certain elements of our products over a period of time.
These elements include free post-delivery telephone support and the right to
receive unspecified upgrades/enhancements. In accordance with SOP 97-2, we have
evaluated these agreements and we have recognized the entire license fee on the
date the software is delivered to and accepted by the customer. In order to
recognize the fee in this manner, we have met all the criteria required,
including:
o The Post Contract Customer Support ("PCS") fee is included in the
initial licensing fee,
o The PCS included with the license is for one year or less,
o The estimated cost of providing the PCS during the arrangement is
insignificant, and
o Unspecified upgrades/enhancements during the PCS arrangements have been
and are expected to continue to be minimal and infrequent.
Changes to the elements in a software arrangement, the ability to identify VSOE
for those elements, the fair value of the respective elements, the costs
associated with providing PCS and changes to a product's estimated life cycle
could materially impact the amount of earned and unearned revenue. Judgment is
also required to assess whether future releases of certain software represent
new products or upgrades and enhancements to existing products.
From time to time, we offer certain customers multi-year contracts with extended
payment terms. SOP 97-2 requires us to evaluate these contracts to determine if
they qualify for recognition of revenue in a manner similar to our one-year
contracts. On these contracts, we evaluate the collection and concession history
with these customers and products to overcome the presumption that revenue
should be recognized in line with cash collections. To date, we have recognized
these contracts on delivery to and acceptance by the customer of the product.
Substantial judgment is required in evaluating the relevant history and contract
economics of these extended contracts, and could materially impact recorded
revenue and unearned revenue in our financial statements.
Note 4: CAPITALIZED COMPUTER SOFTWARE DEVELOPMENT COSTS
Capitalized computer 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
including, but not limited to, technological feasibility, anticipated future
gross revenues, estimated economic life, and changes in software and hardware
technologies. Any changes to these estimates could materially impact the amount
of amortization expense, research and development expense recognized in the
consolidated statement of operations and the amount recognized as capitalized
software development costs in the consolidated balance sheet.
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 exceeding three years. Management periodically
compares estimated net realizable value by product with the amount of software
development costs capitalized for that product to ensure the amount capitalized
is recoverable through revenues. Any excess of development costs to expected net
realizable value is expensed at that time.
Note 5: INCOME TAX
SFAS No. 109, "ACCOUNTING FOR INCOME TAXES", establishes financial accounting
and reporting standards for the effect of income taxes. The objectives of
accounting for income taxes are to recognize the amount of taxes payable or
refundable for the current year and deferred tax liabilities and assets for the
future tax consequences of events that have been recognized in an entity's
financial statements or tax returns. Judgment is required in assessing the
future tax consequences of events that have been recognized in our financial
statements or tax returns. Fluctuations in the actual outcome of these future
tax consequences could materially impact our financial position or our results
of operations.
During the year ended August 31, 2003, we recognized significant income tax
benefit from the release of a previously recorded reserve for deferred tax
assets. The evaluation of the deferred tax assets is based on our history of
generating taxable profits and our projections of future profits as well as
expected future tax rates to determine if the realization of the deferred tax
asset is more-likely-than-not. Significant judgment is required in these
evaluations, and differences in future results from our estimates, could result
in a material differences in the realizability of these assets.
Note 6: CASH AND CASH EQUIVALENTS
We maintain cash deposits at banks located in California. Deposits at each bank
are insured by the Federal Deposit Insurance Corporation (FDIC) up to $100,000.
As of February 29, 2004, all cash deposits are insured by FDIC. We have not
experienced any losses in such accounts and we believe we are not exposed to any
significant credit risk on cash and cash equivalents.
Note 7: INVENTORY
Inventory is stated at the lower of cost (first-in, first-out basis) or market,
and consists of computers and peripheral computer equipment.
Note 8: FURNITURE AND EQUIPMENT
Furniture and equipment as of February 29, 2004 consisted of the following:
Equipment $ 98,884
Computer equipment 337,236
Furniture and fixtures 52,704
Leasehold improvements 38,215
----------
527,039
Less accumulated depreciation (449,313)
----------
$ 77,726
==========
Note 9: OTHER LIABILITIES
We lease certain facilities for our corporate and operations offices under a
non-cancelable operating lease agreement that expires in September 2005. During
the second fiscal quarter of 2004 (FY04), we agreed to a 3-year non-cancelable
operating lease for a printer/copier. In this agreement, we traded in the
previous copier with an additional per charge per print for the new
printer/copier. Accordingly, the remaining balance on the lease of the previous
copier will be amortized over the term of the lease. The equipment that was
traded in had a book value of zero (the original cost of $37,967 with
accumulated depreciation of $37,967) at the time of transaction.
Note 10: STOCKHOLDERS' EQUITY
STOCK OPTION PLAN
In September 1996, the Board of Directors adopted and the shareholders approved
the 1996 Stock Option Plan (the "Option Plan") pursuant to which a total of
250,000 shares of common stock were 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
the number of shares to be granted under the Option Plan to be 1,000,000 shares.
Furthermore, in December 2000, the shareholders approved an increase in number
of shares that may be granted under the Option Plan to 1,250,000. The Option
Plan terminates in 2006, subject to earlier termination by the Board of
Directors.
As of February 29, 2004, 1,075,106 shares have been issued and outstanding to
various employees at an exercise price equal to the fair market value of our
stock price at the date of each grant, with five-year vesting periods. Also, in
accordance with the by-laws of the corporation, a total of 7,206 shares have
been issued to the Board of Directors at exercise prices ranging from $1.20 to
$5.25, with a three-year vesting period. At the end of the second fiscal quarter
of 2004, 58,478 options have been exercised by employees.
On December 23, 2003, Words+, Inc., the Company's subsidiary, has purchased all
of the rights, title, and interest in the Say-it! SAM augmentative communication
device developed by SAM Communications, LLC, for 35,000 shares of Simulations
Plus restricted common stock. The value of this technology acquisition was
recorded at $4.65 per share; equal to the closing price of the Company's stock
on the date the agreement was signed. Its costs are capitalized in accordance
with SFAS No. 86 (see Note 4) and amortized over the estimated economic life of
the product, not exceeding three years.
Note 11: EARNINGS PER SHARE
The Company utilizes SFAS No. 128, "Earnings per Share." Basic earnings (loss)
per share is computed by dividing income (loss) available to common stockholders
by the weighted-average number of common shares outstanding. Diluted earnings
(loss) per share is computed similar to basic earnings (loss) 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. Common equivalent
shares are excluded from the computation if their effect is anti-dilutive. The
Company's common share equivalents consist of stock options.
Note 12: STOCK-BASED COMPENSATION
SFAS No. 123, "Accounting for Stock-Based Compensation," establishes and
encourages the use of the fair value based method of accounting for stock-based
compensation arrangements under which compensation cost is determined using the
fair value of stock-based compensation determined as of the date of grant and is
recognized over the periods in which the related services are rendered. The
statement also permits companies to elect to continue using the current implicit
value accounting method specified in Accounting Principles Board ("APB") Opinion
No. 25, "Accounting for Stock Issued to Employees," to account for stock-based
compensation. The Company has elected to use the intrinsic value based method
and has disclosed the pro forma effect of using the fair value based method to
account for its stock-based compensation.
Note 13: Segment and Geographic Reporting
The Company accounts for segments and geographic revenues in accordance with
SFAS No. 131, "Disclosure about Segments of an Enterprise and Related
Information." The Company's 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 29, 2004
and February 28, 2003:
February 29, 2004
----------------------------------------------------
Simulations
Plus, Inc. Words +, Inc. Eliminations Total
----------- ----------- ----------- -----------
Net Sales 1,384,557 1,122,926 2,507,483
Income (loss)
from operations 311,768 (241,820) 79,346
Identifiable assets 4,571,061 984,293 (1,442,630) 4,112,724
Capital expenditures 1,981 15,925 17,906
Depreciation and
amortization 7,548 11,964 19,512
----------- ----------- ----------- -----------
February 28, 2003
----------------------------------------------------
Simulations
Plus, Inc. Words +, Inc. Eliminations Total
----------- ----------- ----------- -----------
Net Sales 1,088,782 1,108,762 2,197,544
Income (loss)
from operations 282,991 (85,643) 197,348
Identifiable assets 1,686,368 735,662 (915,564) 1,506,466
Capital expenditures 73,008 50,684 123,692
Depreciation and
amortization 71,953 22,499 94,452
----------- ----------- ----------- -----------
In addition, the Company allocates revenues to geographic areas based on the
location of its customers. Geographical revenues for the six months ended
February 29, 2004 were as follows (in thousand):
North South
America Europe Asia Oceania America Total
-------------- ---------- ---------- ---------- ---------- ---------- ----------
Simulations
Plus, Inc. 530 434 420 -0- -0- 1,384
-------------- ---------- ---------- ---------- ---------- ---------- ----------
Words+, Inc. 964 103 37 14 5 1,123
-------------- ---------- ---------- ---------- ---------- ---------- ----------
Total 1,494 537 457 14 5 2,507
-------------- ---------- ---------- ---------- ---------- ---------- ----------
Note 14: SUBSEQUENT EVENT
The Company was approved for listing on the American Stock Exchange on March 9,
2004 and commenced trading under the ticker symbol "SLP" beginning Wednesday,
March 17, 2004.
Since March 1, 2004, additional 38,116 options have been exercised by employees.
FORWARD-LOOKING STATEMENTS
CERTAIN STATEMENTS IN THIS QUARTERLY REPORT ON FORM 10-KSB, 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 THE COMPANY'S STOCKHOLDERS
AND OTHER PUBLICLY AVAILABLE STATEMENTS ISSUED OR RELEASED BY THE COMPANY
INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS WHICH COULD
CAUSE THE COMPANY'S 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 THE COMPANY'S PLANS, OBJECTIVES,
EXPECTATIONS AND INTENTIONS AND OTHER FACTORS.
THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH THE
CONSOLIDATED FINANCIAL STATEMENTS AND RELATED NOTES INCLUDED ELSEWHERE IN THIS
REPORT.
GENERAL
Business
--------
Simulations Plus, Inc. (the "Company" or "Simulations Plus", or "we" or "our")
and its wholly owned subsidiary, Words+, Inc. ("Words+") produce two types of
products: (1) Simulations Plus, incorporated in 1996, develops and produces
modeling and simulation 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, as well as a personal
productivity software program called Abbreviate! for the retail market.
Description of Simulation and Modeling Software
-----------------------------------------------
The development of simulation software involves (1) understanding the underlying
science of the process to be simulated, (2) breaking the process down into the
lowest practical level of sub-processes which can be represented mathematically,
(3) developing mathematical equations for each of these sub-processes, and (4)
programming the equations into computer subroutines. Software subroutines are
then integrated into the overall simulation program, with appropriate
coordination between modules and design of a user-friendly interface for inputs
and outputs. The predictions of the simulations are compared to known results in
order to calibrate the software. The types of simulation software we produce are
based on the equations of chemistry and physics that describe or "model" the
behavior of things in the real world.
Products
--------
Our GastroPlus(TM) pharmaceutical software simulates how drugs are absorbed in
the human body and in animals. The simulation has equations for the movement of
the drug through the gastrointestinal tract, how fast it dissolves in the
stomach and intestines, whether it is converted to a different molecular form by
chemical reactions or by metabolism by enzymes in the gastrointestinal tract,
and how fast it is absorbed through the intestinal wall into the blood stream.
If some additional inputs are provided, it also simulates the amount of drug in
the blood plasma versus time. With an optional module called PDPlus(TM), the
program can also simulate how a drug affects the body, such as reducing pain,
reducing blood pressure, or reducing depression. Adverse side effects can also
be simulated.
We believe GastroPlus is the "gold standard" for simulation of oral drug
absorption in the pharmaceutical industry. In addition to pharmaceutical
companies, recent sales have included a number of drug delivery companies
(companies that design the tablet or capsule for a drug compound that was
developed by another company). Although these companies are considerably smaller
than the pharmaceutical giants, they can save cost and time through accurate
simulations of their drug delivery technologies. We believe this part of the
industry, which includes hundreds of companies, represents major growth
potential for GastroPlus.
In 1998, we signed a License Agreement with Therapeutic Systems Research
Laboratories, Inc. ("TSRL"), Ann Arbor, Michigan, to obtain exclusive rights to
TSRL's technology and database, including data from nearly 60 laboratory
experiments to measure the intestinal permeability of drug compounds in human
and/or rat. As a part of this License Agreement, we are also entitled to ongoing
consulting assistance in the development and further enhancement of the
GastroPlus absorption simulation model from TSRL staff, including Dr. Gordon
Amidon. We believe that the strategic advantage of exclusive access to TSRL's
database, technology and expertise, combined with our own expertise in
absorption, pharmacokinetics, and pharmacodynamics simulation, have resulted in
GastroPlus becoming the de facto standard for oral drug absorption simulation
and analysis within the pharmaceutical industry. We are aware that other
companies have developed competitive software; however, based on customer
feedback, we believe there is no significant competitive threat for GastroPlus
at this time. We believe that the addition of the Metabolism and Transporter
Module last year, the recently released PDPlus module, and ongoing upgrades of
the core simulation are advances in the state-of-the-art of oral drug
absorption, pharmacokinetics, and pharmacodynamics analysis. The PBPKPlus module
now in development will further extend the utility of GastroPlus within the
industry. Our recognized expertise in oral absorption and pharmacokinetics is
evidenced by the fact that our staff members have been invited speakers at over
30 prestigious scientific meetings worldwide in the past two years, and they
continue to be invited to present at a variety of meetings worldwide. We also
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.
In addition to simulation software, we produce software that consists of
statistically significant models (equations) that predict various properties of
chemical compounds from just their molecular structures. When drug companies try
to find new drugs, they search through thousands or millions of potential
molecular structures (combinations of atoms arranged in different ways to make
molecules) to find a good molecule. In order for a new molecule to become an
approved drug, it must have acceptable values for certain properties, such as
solubility (how much can be dissolved in a glass of water), permeability (how
well it gets absorbed through the intestinal wall), and others.
Our QMPRPlus(TM) program provides estimates for several important properties of
new drug-like molecules with only their structures as input. Recent developments
have included adding a prediction of the percent of a new drug that would be
absorbed at dose levels of 1, 10, 100, and 1000 milligrams, and the addition of
the prediction of ionization constants ("pKa's") for molecules, which tells
chemists whether the molecules will ionize (add or give up hydrogen atoms) in
the body. Ionization has a major effect on some other properties, like
solubility.
GastroPlus and QMPRPlus are used by almost every major and a number of smaller
pharmaceutical companies in the U.S., Europe, and Japan. The number of customers
continues to grow each year. Our revenue growth reflects the cumulative effect
of new license sales added to annual license renewals from the previous year.
QMPRchitect (TM) was released in July of 2003. This program is used to generate
the predictive models used in QMPRPlus. With QMPRchitect, scientists can use
their own experimental data for a set of molecules to create a new predictive
model. For example, if a company had some experimental data for solubility for
500 new molecules that were somewhat similar to each other (called a "chemical
series"), they could use QMPRchitect to make a predictive model for solubility
that would be a good predictor for other molecules in the same series. In the
past, we have needed 2-3 months to produce equivalent models. With QMPRchitect,
the time is usually reduced to a few hours or days.
We continue to enhance GastroPlus, QMPRPlus, and QMPRchitect, and we are also
developing new core products to add to our catalog of software for
pharmaceutical research.
In addition to our pharmaceutical software, we also produce a set of
award-winning science experiment simulations (computer programs for Windows and
Macintosh computers) for middle school and high school students under the
umbrella name of FutureLab(TM). These simulations incorporate the equations of
chemistry and physics for each experiment (optics, electrical circuits, gravity,
universal gravitation, ideal gases, etc.), and allow students to design and
conduct their own experiments in a virtual laboratory environment. Although
development of FutureLab software was discontinued in 1998, low-level sales have
continued through distributors in the U.S., U.K. Australia, and New Zealand.
Contract Research Services
--------------------------
We offer contract research services to the pharmaceutical industry in the area
of gastrointestinal absorption, pharmacokinetics, and related technologies.
These studies provide us an additional source of revenue, as well as a means to
introduce our software products to new customers. These studies are also
beneficial to us to validate and enhance our products by studying actual data in
the pharmaceutical industry. A services contract with a major pharmaceutical
company was signed last year. This company has numerous software licenses, but
desires additional consultation assistance from our scientists for certain
complex simulation problems.
Pharmaceutical Simulations Software Product Development
-------------------------------------------------------
In the area of simulation software for pharmaceutical research, we are
developing additional modules for GastroPlus, QMPRPlus, and QMPRchitect.
Although all of our development work cannot be disclosed for competitive
reasons, some of our development efforts include:
(1) PBPKPlus(TM) Module
-----------------------
The PBPKPlus Module for GastroPlus is in early development. This module will
enable researchers to predict the amount of drug that reaches different body
tissues and organs. This is an important new capability because it opens up the
market to researchers who deal in later stage clinical trials, and who routinely
perform PBPK (physiologically based pharmacokinetic) and PD (pharmacodynamic)
analyses. Until now, these analyses were performed using models that treated
absorption and its related processes with simplified models - often so
simplified that calculations were in error. With PBPKPlus integrated with the
sophisticated absorption model in GastroPlus, researchers will be able to
perform more accurate simulations and analyses to better understand how a drug
moves from the blood into different tissues and organs. Without the ability to
predict these effects, clinical trial costs can soar when trials must be
repeated to determine proper dosing levels. We expect to release this
additional-cost module later this fiscal year.
(2) Multiple Particle Size Dissolution Model
--------------------------------------------
The current dissolution model in GastroPlus uses a single "effective" particle
size. While this model has represented most tablets, capsules, and suspensions
we have dealt with to date reasonably well, formulation researchers know that
real dosage forms do not consist of particles that are all one size. Instead,
there is a distribution of particle sizes from smaller than the average size to
larger than the average size. Smaller particles dissolve faster than larger
particles. For some drugs, this results in dissolution behavior that is not well
modeled with a single effective particle size. This new model will allow
formulation researchers to assess the effects of different particle size
distributions on dissolution and absorption.
(3) DDDPlus(TM)
---------------
The DDDPlus (Dose Disintegration and Dissolution Plus) project originally began
in 2000, and proceeded at a slow pace until 2003, in between other higher
priority projects. DDDPlus will simulate how different tablets and capsules
disintegrate and dissolve during in vitro (in the laboratory) experiments. The
program will include the effects of changing formulation excipients (additives
that are not the active drug). This tool will be a valuable asset for
formulation scientists as they search for optimum formulations that provide
desirable properties at minimum cost.
(4) QMPRPlus(TM) upgrades
-------------------------
We continue to add new molecular descriptors and new predicted ADMET properties
to QMPRPlus(TM). Last year we completed the development of two new,
additional-cost modules, one for predicting ionization constants ("pKa Module')
and one for predicting the fraction of a dose that will be absorbed at dose
levels of 1, 10, 100, and 1000 milligrams ("Fraction Absorbed Module"). Other
enhancements have been included to allow the program to account for a wider
variety of molecular features ("descriptors") to be used in its mathematical
models.
Disability Product Development
------------------------------
Our wholly owned subsidiary, Words+, Inc. has been an industry technology leader
for over 22 years in introducing and improving augmentative and alternative
communication and computer access software and devices for disabled persons and
intends to continue to be at the forefront of the development of new products.
We will continue to enhance our major software products, E Z Keys and Talking
Screen, as well as our growing line of hardware products. We will also consider
acquisitions of other products, businesses and companies that are complementary
to its existing augmentative and alternative communication and computer access
business lines. We recently announced the purchase of the Say-it! SAM
technologies from SAM Communications, LLC of San Diego, which gives us our
smallest, lightest augmentative communication system based on a Compaq iPAQ
personal digital assistant (PDA). PDA-based communication devices have been very
successful in the augmentative communication market, and this technology
purchase has enabled us to move into this market segment faster and at lower
cost than developing the product ourselves.
RESULTS OF OPERATIONS
COMPARISON OF THREE MONTHS ENDED FEBRUARY 29, 2004 AND FEBRUARY 28, 2003.
The following table sets forth our consolidated statements of operations (in
thousands) and the percentages that such items bear to net sales:
Three Months Ended
-------------------------------------
02/29/04 02/28/03
----------------- ------------------
Net sales $ 1,369 100% $ 1,120 100%
Cost of sales 460 33.6 372 33.2
------- ------- ------- --------
Gross profit 909 66.4 748 66.8
------- ------- ------- --------
Selling, general and administrative 734 53.6 599 53.5
Research and development 154 11.2 81 7.2
------- ------- ------- --------
Total operating expenses 888 64.8 680 60.7
------- ------- ------- --------
Income from operations 21 1.5 68 6.1
------- ------- ------- --------
Other income (expenses) 19 1.4 (1) (0.0)
------- ------- ------- --------
Net income before taxes 40 2.9 67 6.1
------- ------- ------- --------
Provision for income taxes 7 0.5 0 0
------- ------- ------- --------
Net income $ 33 2.4% $ 67 6.1%
======= ======= ======= ========
NET SALES
Consolidated net sales increased $249,000, or 22.2%, to $1,369,000 in the second
fiscal quarter of 2004 (FY04) from $1,120,000 in the second fiscal quarter of
2003 (FY03). Simulations Plus, Inc.'s sales from pharmaceutical and educational
software increased approximately $160,000, or 27.5%, and our Words+, Inc.
subsidiary's sales increased approximately $89,000, or 16.6%, for the quarter.
The increase in our pharmaceutical software sales is attributable in part to
another multi-year global license we received from one of the largest
pharmaceutical company during the second quarter of FY04. Management attributes
the increase in Words+ sales primarily to the increase in sales of our Freedom
2000 product line, a special Medicare-approved dedicated device, which
outweighed the decrease in sales of our TuffTalker Plus.
COST OF SALES
Consolidated cost of sales increased $88,000, or 23.7%, to $460,000 for the
second fiscal quarter of 2004 (FY04) from $372,000 in the second fiscal quarter
of 2003 (FY03). The percentage of cost of sales in the second fiscal quarter of
FY04 is slightly increased by 0.4% from the second fiscal quarter of FY03. For
Simulations Plus, cost of sales increased $22,000, or 25.4%. A significant
portion of cost of sales is the systematic amortization of capitalized software
development costs, which increased $18,000, or 58.75%, and an increase in
royalty expense of $4,000, or 7.4% which represents royalty payments to TSRL. As
a percentage of total revenues, cost of sales for our pharmaceutical software
business for the second fiscal quarter of FY04 was 14.7%, compared to 15.0% for
the second fiscal quarter of FY03, a decrease of 0.3%. Management attributes
this slight decrease in percentage of cost of sales primarily to a proportional
decrease in the percentage of sales paid as royalty to TSRL, which is only on
licenses of the basic GastroPlus program. All other software products and
modules are not subject to royalty payments.
For Words+, cost of sales increased $66,000, or 23.1%. The change in cost of
sales as a percentage of revenues between the second fiscal quarter of FY04 and
FY03 was an increase of 3.0%. Management attributes the percentage increase in
cost of sales for Words+ primarily to the fact that the proportion of sales
generated by products with higher profit margins, such as software, compared to
products with lower profit margins, such as computer-based systems, decreased in
FY04.
GROSS PROFIT
Consolidated gross profit increased $161,000, or 21.5%, to $909,000 in the
second quarter of FY04 from $748,000 in the second quarter of FY03. Management
attributes this increase to a significant increase in pharmaceutical software
sales, resulting in approximately 28% increase in gross profit for these sales
in addition to a slight gross profit generated by Words+ products.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Consolidated selling, general and administrative expenses increased $135,000, or
22.5%, to $734,000 in the second fiscal quarter of FY04 from $599,000 in the
second fiscal quarter of FY03. For Simulations Plus, selling, general and
administrative expenses increased $47,000, or 15.8%. The major increases in
expenses were in the categories of commission expense, salaries/bonus, payroll
tax, 401(k) matching contributions, insurance, and travel expenses. These
increases outweighed decreases in vacation expense, contract labor, public
relations, and supplies.
For Words+, expenses increased $88,000, or 29.1%, primarily due to increases in
selling expenses, such as commission expense, catalog, trade shows, travel, and
salaries/bonus, payroll tax, and insurance. These increases outweighed decreases
in dues & subscriptions, postage, supplies, and telephone.
RESEARCH AND DEVELOPMENT
We incurred approximately $360,000 of research and development costs for both
companies during the second quarter of FY04. Of this amount, $206,000 was
capitalized and $154,000 was expensed. In the second quarter of FY03, we
incurred $150,000 of research and development costs, of which $69,000 was
capitalized and $81,000 was expensed. The increase of $210,000, or 140.0% in
research and development expenditure from the second quarter of FY03 to the
second quarter of FY04 was due primarily to the purchase of Say-it! SAM
technology, staff expansion, salary increases, and year-end bonus increases.
OTHER INCOME (EXPENSE)
Interest income in the second quarter of FY04 increased by $19,000 due primarily
to the amortization of present value discounts on long-term receivables. The
interest expense in the second quarter of FY04 decreased by $1,000 which is
attributable primarily to eliminated interest expense on leased equipment.
PROVISION FOR INCOME TAXES
Although the Company had a Net Operating Loss (NOL) carried forward which was
applied to the Company's Federal income tax liability, the State of California
suspended the NOL carry forward for two years beginning with fiscal years that
began after January 2002, resulting in a $7,000 tax due to the state of
California for the second quarter FY04.
NET INCOME
Consolidated net income for the three months' operations decreased by $34,000,
or 50.8%, to $33,000 in the second quarter of FY04 compared to $67,000 in the
second quarter of FY03. Management attributes this decrease in profit primarily
to the increases in cost of sales, selling, general and administrative expenses,
and research and development expenses and provision for income taxes, which
outweighed increases in sales and other income.
COMPARISON OF SIX MONTHS ENDED FEBRUARY 29, 2004 AND FEBRUARY 28, 2003.
The following table sets forth our consolidated statements of operations (in
thousands) and the percentages that such items bear to net sales:
Six Months Ended
-------------------------------------
02/29/04 02/28/03
----------------- ------------------
Net sales $ 2,507 100% $ 2,198 100%
Cost of sales 811 32.4 705 32.1
------- ------- ------- --------
Gross profit 1,696 67.6 1,493 67.9
------- ------- ------- --------
Selling, general and administrative 1,340 53.4 1,102 50.1
Research and development 297 11.9 191 8.7
------- ------- ------- --------
Total operating expenses 1,637 65.3 1,293 58.8
------- ------- ------- --------
Income from operations 59 2.3 200 9.1
------- ------- ------- --------
Other income (expenses) 39 1.6 (3) (0.1)
------- ------- ------- --------
Net income before taxes 98 3.9 197 8.0
------- ------- ------- --------
Provision for income taxes 19 0.8 0 0
------- ------- ------- --------
Net income $ 79 3.1% $ 197 9.0%
======= ======= ======= ========
NET SALES
Consolidated net sales increased $309,000, or 14.1%, to $2,507,000 for the six
months ended February 29, 2004 compared to $2,198,000 for the six month ended
February 28, 2003. Simulations Plus, Inc.'s sales from pharmaceutical and
educational software increased approximately $296,000, or 27.2%, and Words+,
Inc. subsidiary's sales increased approximately $13,000, or 1.3%, for the same
six month periods. The increase in our pharmaceutical software sales is
attributable in part to the exercise of an option under the large multi-year
order we received during the 4th quarter of FY03 for an additional geographic
location. This option added a fifth site for the modified "ADME Partners"
program under that license agreement, which provides virtually unlimited
licenses for the use of our GastroPlus(TM), QMPRPlus(TM), and QMPRchitect(TM)
software products with all optional modules. The increase is also due in part to
another multi-year global license the Company received from one of our largest
pharmaceutical customers during the second quarter of FY04. Management
attributes the increase in Words+ sales primarily to the increase in sales of
our Freedom 2000 product line, a special Medicare-approved dedicated device,
which outweighed lower sales of our TuffTalker Plus and decreases in software
sales to overseas customers.
COST OF SALES
Consolidated cost of sales increased $106,000, or 15.0%, to $811,000 for the six
months ended February 29, 2004 from $705,000 for the six months ended February
28, 2003. The percentage of cost of sales for the six months ended February 29,
2004 increased by 0.3%. For Simulations Plus, cost of sales increased $45,000,
or 31.6%. A significant portion of cost of sales is the systematic amortization
of capitalized software development costs, which increased $33,000, or 54.5%,
and an increase in royalty expense of $12,000, or 14.3% which represents royalty
payments to TSRL. The change in percentage of cost of sales between the first
six months of FY04 and FY03 is an increase of 0.4%, 13.5% in FY04 and 13.1% in
FY03. Management attributes this slight increase in percentage of cost of sales
primarily to a proportional increase in amortization of capitalized software
development costs compared to sales.
For Words+, cost of sales increased $61,000, or 11.0%. The change in percentage
of cost of sales between the first six months of FY04 and FY03 was an increase
of 5.5%. Management attributes the percentage increase in cost of sales for
Words+ primarily to the fact that the percentage of sales generated by products
with higher profit margins, such as software, was less than products with lower
profit margins, such as complete computer-based systems.
GROSS PROFIT
Consolidated gross profit increased $203,000, or 13.6%, to $1,696,000 for the
six months ended February 29, 2004 from $1,493,000 for the six months ended
February 28, 2003. Management attributes this increase to a significant increase
in pharmaceutical software sales, resulting in approximately 27% increase in
gross profit for these sales. This increase outweighed a decrease in gross
profit generated by Words+ products.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Consolidated selling, general and administrative expenses increased $238,000, or
21.6%, to $1,340,000 for the six months ended February 29, 2004 from $1,102,000
for the six months ended February 28, 2003. For Simulations Plus, selling,
general and administrative expenses increased $166,000, or 34.7%. The major
increases in expenses were in the categories of other taxes due to sales to
foreign countries, commissions, salary/bonus, payroll tax, 401(k) matching,
insurance, printing, investor relations, and travel. These increases outweighed
small decreases in contract labor, public relations, dues/subscriptions,
employee benefits, and depreciation.
For Words+, expenses increased $72,000, or 11.5%. The increases in expenses were
in the categories of selling expenses, such as commissions, catalog, and trade
shows, insurance, salary/bonus, and payroll tax. These increases outweighed
decreases in contract labor, dues/subscriptions, postage, and technical service
costs.
RESEARCH AND DEVELOPMENT
We incurred approximately $550,000 of research and development costs for both
companies during the first six months of FY04. Of this amount, $253,000 was
capitalized and $297,000 was expensed. For the first six months of FY03, we
incurred $278,000 of research and development costs, of which $87,000 was
capitalized and $191,000 was expensed. The increase of $272,000, or 49.4% in
research and development expenditure from the first six months of FY03 to the
same period of FY04 was due to the purchase of the Say-it! SAM technology, staff
expansion, and salary increases.
OTHER INCOME (EXPENSE)
Interest income for the first six months of FY04 increased by $39,000 due
primarily to the amortization of present value discounts on long-term
receivables. Interest expense declined by $3,000 for the same time period which
is attributable to eliminated interest expense on leased equipment since all
leased equipment has been paid off or traded-in.
PROVISION FOR INCOME TAXES
Although the Company had a Net Operating Loss (NOL) carried forward which was
applied to the Company's Federal income tax liability, the State of California
suspended the NOL carry forward for two years beginning with fiscal years that
began after January 2002, resulting in a $19,000 tax due to the state of
California for the first six months of FY04.
NET INCOME
Consolidated net income for the six months' operations decreased by $118,000, or
59.9%, to $79,000 for the six months ended February 29, 2004 compared to
$197,000 for the six months ended February 28, 2003. Management attributes this
decrease in profit primarily to the increases in cost of sales, selling, general
and administrative expenses, research and development expenses, and provision
for income taxes, which outweighed increases in sales and other income.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal sources of capital have been cash flows from its
operations and a bank line of credit. The Company has available a $500,000
revolving line of credit from a bank. Interest is payable on a monthly basis at
the bank's prime rate plus 1.5%. At February 29, 2004, the outstanding balance
under the revolving line of credit was zero. The revolving line of credit is
secured by the Company's assets, consisting of tangible personal property
(except goods in transit), is personally guaranteed by the Company's President,
and expires in May 2004. The renewal paperwork is due by April 10, 2004, and is
currently a work-in-process.
The Company believes that existing capital and anticipated funds from operations
will be sufficient to meet its anticipated cash needs for working capital and
capital expenditures for the foreseeable future. Thereafter, if cash generated
from operations is insufficient to satisfy the Company's capital requirements,
the Company 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 the Company,
or, if available, that it will be in amounts and on terms acceptable to the
Company. 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.
Item 3. 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 Director of Finance concluded that the Company's disclosure
controls and procedures are effective in providing timely alert to them
for 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 was no
change in Company's internal control over financial reporting during
the Company's most recent fiscal quarter that has materially affected,
or is reasonably likely to materially affect, the Company's Internal
control over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
In the normal course of business, the Company is subject to
various lawsuits and claims. The Company believes that the
final outcomes of these matters, either individually or in the
aggregate, will not have a material effect on the financial
statements. The Company is not involved in any such litigation
at this time.
Item 2. Changes in Securities
---------------------
None.
Item 3. Defaults Upon Senior Securities
-------------------------------
None.
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 Officer
99.1 Press release dated January 14, 2004.
(Incorporated by reference to the Company's Form 8-K
filed on January 14, 2004.)
99.1 Press release dated December 29, 2003. (Incorporated
by reference to the Company's Form 8-K filed on
December 29, 2003.)
(b) Reports on Form 8-K
On December 12, 2003, Simulations Plus, Inc. issued a
press release announcing preliminary revenue for the
fiscal quarter ending November 30, 2003. Following the
press release, Form 8-K was filed on December 12, 2003.
On December 29, 2003, Simulations Plus, Inc. issued a
press release announcing that its Words+, Inc. subsidiary
had purchased all of the rights, title, and interest in
the Say-it! SAM augmentative communication device
developed by SAM Communications, LLC for 35,000 shares of
Simulations Plus restricted common stock.
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 14, 2004.
Simulations Plus, Inc.
Date: April 12, 2004 By: /s/ MOMOKO BERAN
----------------------------
Momoko Beran
Chief Financial Officer