Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (Check one):

The number of shares outstanding of the registrant’s common stock, par value $0.001 per share, as of April 14,July 12, 2010 was 16,066,24515,800,007 and no shares of preferred stock were outstanding.

This report on Form 10-Q for the quarter ended February 28,May 31, 2010, should be read in conjunction with the Company's annual report on Form 10-K for the year ended August 31, 2009, filed with the SEC on November 30, 2009 and its amendment filed on March 1, 2010. As contemplated by the Securities and Exchange Commission under Article 8 of Regulation S-X, 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", "us"), the interim data includes 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: SIGNIFICANT ACCOUNTING POLICIES

Our condensed 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.  Significant accounting policies for us include revenue recognition, accounting for capitalized computer software development costs, valuation of stock options, and accounting for income taxes.

The condensed consolidated financial statements include the accounts of Simulations Plus, Inc. and its wholly owned subsidiary, Words+, Inc.  All significant intercompany accounts and transactions are eliminated in consolidation.

We recognize revenues related to software licenses and software maintenance in accordance with Financial Accounting Standards Boards (“FASB”) Accounting Standards Codification (“ASC”) 985-605.  Software products revenue is recorded when the following conditions are met: 1) evidence of arrangement exists, 2) delivery has been made, 3) the amount is fixed, and 4) collectability is probable.  Post-contract customer support ("PCS") obligations are insignificant; therefore, revenue for PCS is recognized at the same time as the licensing fee, and the costs of providing such support services are accrued and amortized over the obligation period.  For Words+ products, the revenue is recorded at the time of shipment, net of estimated allowances and returns.

As a byproduct of ongoing improvements and upgrades for the new programs and new modules of software, some modifications are provided to customers who have already purchased software at no additional charge. Other software modifications result in new, additional cost modules that expand the functionality of the software. These are licensed separately. We consider the modifications that are provided without charge to be minimal, as they do not significantly change the basic functionality or utility of the software, but rather add convenience, such as being able to plot some additional variable on a graph in addition to the numerous variables that had been available before, or adding some additional calculations to supplement the information provided from running the software. Such software modifications for any single product have typically occurred once or twice per year, sometimes more, sometimes less. Thus, they are infrequent.  We provide, for a fee, additional training and service calls to our customers and recognize revenue at the time the training or service call is provided.

Most license agreements have a term of one year; however, from time to time, we enter into multi-year license agreements. We generally unlock and invoice software one year at a time for multi-year licenses. Therefore, revenue is recognized one year at a time.

We recognize contract study revenue either equally over the term of the contract or using the percentage of completion method, depending upon how the contract studies are engaged, in accordance with FASB ASC 605-35.  To recognize revenue using the percentage of completion method, we must determine whether we meet the following criteria:  1) there is a long-term, legally enforceable contract, 2) it is possible to reasonably estimate the total project costs, and 3) it is possible to reasonably estimate the extent of progress toward completion.

Certain numbers in the prior year have been reclassified to conform to the current year’s presentation.

For purposes of the statements of cash flows, we consider all highly liquid investments purchased with original maturities of three months or less to be cash equivalents.

We maintain an allowance for doubtful accounts for estimated losses that may arise if any of itsour customers are unable to make required payments.  Management specifically analyzes the age of customer balances, historical bad debt experience, customer credit-worthiness,creditworthiness, and changes in customer payment terms when making estimates of the collectability of the Company’s trade accounts receivable balances.  If management determines that the financial conditions of any of its customers deteriorated, whether due to customer-specific or general economic issues, an increase in the allowance may be made.  Accounts receivable are written off when all collection attempts have failed.  We also estimate the contractual discount obligation for third-party funding such as Medicare, Medicaid, and private insurance companies.  Those estimated discounts are reflected in the allowance for doubtful accounts and contractual discounts.

Inventory is stated at the lower of cost (first-in, first-out basis) or market and consists primarily of computers and peripheral computer equipment.

Software development costs are capitalized in accordance with FASB ASC 985-20.  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 with respect to certain external factors including, but not limited to, technological feasibility, anticipated future gross revenues, estimated economic life, and changes in software and hardware technologies. Capitalized software development costs are comprised primarily of salaries and direct payroll-related costs and the purchase of existing software to be used in our software products.

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 to exceed five years).  Amortization of software development costs amounted to $316,304$477,900 and $252,043$381,390 for the sixnine months ended February 28,May 31, 2010 and 2009, respectively.  We expect future amortization expense to vary due to increases in capitalized computer software development costs.

We test capitalized computer software costs for recoverability whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.

Property and equipment are recorded at cost, less accumulated depreciation and amortization.  Depreciation and amortization are provided using the straight-line method over the estimated useful lives as follows:

Maintenance and minor replacements are charged to expense as incurred.  Gains and losses on disposals are included in the results of operations.

For certain of our financial instruments, including accounts receivable, accounts payable, accrued payroll and other expenses, accrued bonuses to officers, and accrued warranty and service costs, the amounts approximate fair value due to their short maturities.

Shipping and handling costs, recorded as cost of sales, amounted to $54,715$88,944 and $47,666$75,058 for the sixnine months ended February 28,May 31, 2010 and 2009, respectively.

Research and development costs are charged to expense as incurred until technological feasibility has been established. These costs consist primarily of salaries and direct payroll-related costs.  It also includes purchased software which was developed by other companies and incorporated into, or used in the development of, our final products.

We utilize FASB ASC 740-10 which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns.

Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each year-end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income.  Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.  The provision for income taxes represents the tax payable for the period and the change during the period in deferred tax assets and liabilities.

The difference between income tax expense attributable to continuing operations and the amount of income tax expenses that would result from applying domestic federal statutory rates to pre-tax income is mainly related to state income taxes, offset by the utilization of research and development credits for federal and state purposes.  Our policy is to include interest and penalties related to unrecognized tax benefits in income tax expense.  Interest and penalties amounted to $731 and $315$1,028 for the sixnine months ended February 28,May 31, 2010 and 2009, respectively.

We purchased customer relationships as a part of the acquisition of certain assets of Bioreason, Inc. in November 2005.  Customer relationships was recorded at a cost of $128,042, and is being amortized over 78 months under the sum-of-the-years’-digits method.  Amortization expense for the sixnine months ended February 28,May 31, 2010 and 2009 amounted to $7,605$10,847 and $10,597,$15,335, respectively.  Accumulated amortization as of February 28,May 31, 2010 and 2009 was $112,333$115,574 and $95,626,$100,364, respectively.

We report earnings per share in accordance with FASB ASC 260-10 .260-10.  Basic earnings per share is computed by dividing income available to common shareholders by the weighted-average number of common shares available.  Diluted earnings per share is computed similar to basic earnings 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.  The components of basic and diluted earnings per share for the sixnine months ended February 28,May 31, 2010 and 2009 were as follows:

International sales accounted for 30% and 29%31% of net sales for both of the sixnine months ended February 28,May 31, 2010 and 2009, respectively.2009.  For Simulations Plus, Inc. (Pharmaceutical(pharmaceutical segment), two customersone customer accounted for 22% and 15%14% of net sales during the sixnine months ended February 28,May 31, 2010, compared with two customers accounting for 22%14% each of net sales during the sixnine months ended February 28,May 31, 2009.  We license our software on an annual basis, and two large customers renew their licenses during the first sixnine months of our fiscal year.  Therefore, as a percentpercentage of total revenue, the renewals from those two customers typically result in 20+23 ~ 28% percent of all Pharmaceutical revenue for the first sixnine months.

For Words+, Inc., third-party billing, which includes various government agencies as well as private insurance companies, accounted for 61%57% of net sales during the sixnine months ended February 28,May 31, 2010, compared with 60% of net sales during the sixnine months ended February 28,May 31, 2009.  If changes are made in government funding policies for Words+ products, Words+ revenue may be impacted.  We continually evaluate and monitor regulatory developments in funding matters, and we do not expect Medicare and Medicaid of all 50 states to discontinue their funding of Words+ products; however, there can be no assurances that the current level of revenue from third parties will continue.

We operate in the computer software industry, which is highly competitive and changes rapidly.  Our operating results could be significantly affected by our ability to develop new products and find new distribution channels for new and existing products.

For Simulations Plus (Pharmaceutical(pharmaceutical segment), three customers comprised 19%27%, 15%17%, and 14% (a dealer account representing various customers), and 10% of its accounts receivable at February 28,May 31, 2010, and three customers comprised 18%21% (one dealer account representing various customers), 14%,18% and 12%17% of its accounts receivable at February 28,May 31, 2009.  For Words+, third-party billing, which includes various government agencies, comprised 90%86% of its accounts receivable at February 28,May 31, 2010, and 75%88% of its accounts receivable at February 28,May 31, 2009.  The collectionCollection of those accounts receivable in a timely manner is critical into Words+’ cash flow and its operations.  We have three dedicated fundingfunding/billing personnel who continually track such collections.

Our subsidiary, Words+, Inc., purchases components for its main computer products from four manufacturers. Words+, Inc. also uses a number of pictographic symbols that are used in its software products which are licensed from a third party. The inability of Words+ to obtain computers used in its products or to renew its licensing agreement to use pictographic symbols could negatively impact our financial position, results of operations, and cash flows.

Property and equipment as of February 28,May 31, 2010 consisted of the following:

On August 31, 2009, we entered into an employment agreement with our President/Chief Executive Officer that expires in August 2011.  The employment agreement provides for an annual base salary of $275,000 per year, and a performance bonus in an amount not to exceed 10% of the Employee’s salary, or $27,500 per year, at the end of each fiscal year.  The specific amount of the bonus to be awarded will be determined by the Compensation Committee of the Board of Directors, based on the financial performance and achievements of the Company for the previous fiscal year.  The agreement also provides Employee stock options, exercisable for five years, to purchase fifty (50) shares of Common Stock for each one thousand dollars ($1,000) of net income before taxes at the end of each fiscal year up to a maximum of 120,000 options over the term of the agreement.  We may terminate the agreement upon 30 days' written notice if termination is without cause.  Our only obligation would be to pay itsthe President the greater of a) 12 monthsmonths' salary or b) the remainder of the term of the employment agreement from the date of notice of termination.

We are not a party to any litigation at this time and we are not aware of any pending litigation of any kind.

Note 5: SHAREHOLDERS’ EQUITY

On October 23, 2008, the board of directors authorized a share repurchase program (Phase I) enabling the buyback of up to $2.5 million in shares during a 12-month period beginning Monday, October 27, 2008.  The actual repurchase started on December 2, 2008; therefore the board of directors extended it through December 1, 2009 in order to have a full 12-month period.  We have opened an account with Morgan Stanley Smith Barney for the purchase of such securities. Funds for any stock purchases will beare drawn from our cash reserves.

On January 10, 2010, the board of directors authorized a renewed share repurchase program (Phase II) effective as of February 15, 2010.  The renewed program enables the Company to buy back up to one million shares during a 12-month period.  As of February 28, 2010, we had not bought back any shares under the renewed share repurchase program.

The details of repurchases made during the sixnine months ended February 28,May 31, 2010 are listed in the following table:

In September 1996, the Board of Directors adopted, and the shareholders approved, the 1996 Stock Option Plan (the "Option Plan") under which a total of 1,000,000 shares of common stock had been 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 2,000,000.  In February 2000, the shareholders approved an increase in the number of shares that may be granted under the Option Plan to 4,000,000.  In December 2000, the shareholders approved an increase in the number of shares that may be granted under the Option Plan to 5,000,000.  Furthermore, in February 2005, the shareholders approved an additional 1,000,000 shares, resulting in the total number of shares that may be granted under the Option Plan to 6,000,000. The 1996 Stock Option Plan terminated in September 2006 by its term.

The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options, which do not have vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions, including the expected stock price volatility. Because our employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of our employee stock options.

The weighted-average remaining contractual life of options outstanding issued under the Plan was 4.454.4 years at February 28,May 31, 2010.  The exercise prices for the options outstanding at February 28,May 31, 2010 ranged from $0.26 to $3.03,$3.02, and the information relating to these options is as follows:

As of February 28,May 31, 2010, the Board of Directors holds options to purchase 63,000 shares of common stock at exercise prices ranging from $0.30 to $6.68, which were granted prior to February 28,May 31, 2010.

We account for segments and geographic revenues in accordance with ASC 280-10.  Our reportable segments are strategic business units that offer different products and services.  Results for each segment and consolidated results are as follows for the sixnine months ended February 28,May 31, 2010 and February 28,May 31, 2009 (in thousands):

In addition, the Company allocates revenues to geographic areas based on the locations of its customers.  Geographical revenues for the sixnine months ended February 28,May 31, 2010 and 2009 were as follows (in thousands):

Note 7:  EMPLOYEE BENEFIT PLAN

We maintain a 401(K) Plan for all eligible employees, and make matching contributions equal to 100% of the employee’s elective deferral, not to exceed 4% of total employee compensation.  We can also elect to make a profit-sharing contribution.  Our contributions to this Plan amounted to $40,975$62,864 and $38,611$60,661 for the sixnine months ended February 28,May 31, 2010 and February 28,May 31, 2009, respectively.

Note 8:  SUBSEQUENT EVENT

In April 2010, we started buying back our own shares under the renewed repurchase program, and we plan to continue our share repurchase in accordance with the share repurchase plan, which authorizes up to 1 million shares through February 15, 2011.  Our repurchases from June 1 through July 12, 2010 are summarized in the following table.

This document and the documents incorporated in this document by reference contain forward-looking statements that are subject to risks and uncertainties. All statements other than statements of historical fact contained in this document and the materials accompanying this document are forward-looking statements.

The forward-looking statements are based on the beliefs of our management, as well as assumptions made by and information currently available to our management. Frequently, but not always, forward-looking statements are identified by the use of the future tense and by words such as “believes,” expects,” “anticipates,” “intends,” “will,” “may,” “could,” “would,” “projects,” “continues,” “estimates” or similar expressions. Forward-looking statements are not guarantees of future performance and actual results could differ materially from those indicated by the forward-looking statements. Forward-looking statements involve known and unknown risks, uncertainties, and other factors that may cause our or our industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by the forward-looking statements.

The forward-looking statements contained or incorporated by reference in this document are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (“Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (“Exchange Act”) and are subject to the safe harbor created by the Private Securities Litigation Reform Act of 1995. These statements include declarations regarding our plans, intentions, beliefs or current expectations.

Among the important factors that could cause actual results to differ materially from those indicated by forward-looking statements are the risks and uncertainties described under “Risk Factors” in our Annual Report and elsewhere in this document and in our other filings with the SEC.

Forward-looking statements are expressly qualified in their entirety by this cautionary statement. The forward-looking statements included in this document are made as of the date of this document and we do not undertake any obligation to update forward-looking statements to reflect new information, subsequent events or otherwise.

Simulations Plus, Inc. (together with its subsidiary referred to as the “Company,” “us,” “we,” or “our”) and its wholly owned subsidiary, Words+, Inc. (“Words+”) produce different types of products: (1) Simulations Plus, incorporated in 1996, develops and produces software for use in pharmaceutical research and for education, as well as provides contract research services to the pharmaceutical industry.  Simulations Plus has also taken over responsibility for producing a personal productivity software program called Abbreviate!, originally spun out of products for the disabled by Words+ for the retail market, and (2) Words+, founded in 1981, produces computer software and specialized hardware for use by persons with disabilities. For the purposes of this document, we sometimes refer to the two businesses as “Simulations Plus” when referring to the business that is pharmaceutical software and services, educational software, and Abbreviate!, and “Words+” when referring to the business that is focused on assistive technologies for persons with disabilities.

Consolidated net sales increased $493,000,$406,000, or 20.1%14.9%, to $2,950,000$3,119,000 in the secondthird fiscal quarter of 2010 (2QFY10)(3QFY10) from $2,457,000$2,713,000 in the secondthird fiscal quarter of 2009 (2QFY09)(3QFY09).  Our sales from pharmaceutical and educational software increased approximately $448,000,$340,000, or 25.2%17.1%; and our Words+, Inc. subsidiary’s sales also increased approximately $45,000,$66,000, or 6.6%9.1%, for the quarter.  We attribute the increase in pharmaceutical software sales to a combinationincreases in number of SBIR grant revenue, corroborations/study contractslicenses with large pharmaceutical companies, software licenses to new and existing customers, and licensing of new modules to existing customers, as well as increases in number of licenses with existing customers thatand SBIR grant revenue which outweighed the loss of sales from some customers reporteddecrease in 2QFY09.

Consolidated cost of sales increased $73,000,$116,000, or 11.7%20.0%, to $701,000$699,000 in 2QFY103QFY10 from $627,000$583,000 in 2QFY09.3QFY09.  Cost of sales as a percentage of revenue for 2QFY10 decreased 1.7%3QFY10 increased 0.9% to 23.8%22.4% from 25.5%21.5% in 2QFY09.3QFY09.  For Simulations Plus (pharmaceutical business), cost of sales decreased $18,000,increased $76,000, or 5.6%27.5%, and as a percentage of revenue, cost of sales also decreasedincreased to 13.6%15.3% in 2QFY103QFY10 from 18.0%14.0% in 2QFY09.3QFY09.  A significant portion of cost of sales for pharmaceutical software products is the systematic amortization of capitalized software development costs, which is an independent fixed cost rather than a variable cost related to sales.  This amortization cost increased approximately $37,000,$32,000, or 32.2%41.0%, in 2QFY103QFY10 compared with 2QFY09.3QFY09.  Royalty expense, a variable cost related to sales of our GastroPlus core program as well as our ADMET Predictor Enslein Metabolism module, decreasedincreased approximately $15,000,$50,000, or 12.0%, in 2QFY103QFY10 compared with 2QFY093QFY09.  This increase is due to a reversingprice increase on which royalty cost on the Enslein Metabolism Module resulting from an amended royalty agreement.calculations are based.

For Words+, cost of sales increased $91,000,$40,000, or 29.7%13.1%.  As a percentage of revenue, cost of sales increased to 55.1%43.4% in 2QFY103QFY10 from 45.3%41.8% in 2QFY09.3QFY09.  We attribute the percentage increase in cost of sales for Words+ to sales generated from products with lower margins.  As we mentioned in the sales discussion above, we sold MessageMates to our distributor in Japan with a volume discount, and experienced increased revenue from our “Conversa” product, which has a lower margin, resulting in a higher cost of sales.

Consolidated gross profit increased $419,000,$290,000, or 22.9%13.6%, to $2,249,000$2,420,000 in 2QFY103QFY10 from $1,830,000$2,130,000 in 2QFY09.3QFY09.  We attribute this increase to increased sales of pharmaceutical software and services in addition to increased sales of Words+ products, which outweighed the increase in Words+ cost of goods sold.

Consolidated selling, general and administrative (SG&A) expenses decreased $52,000,increased $129,000, or 5.0%13.0%, to $1,089,000$1,118,000 in 2QFY103QFY10 from $1,037,000$989,000 in 2QFY09.3QFY09.  For Simulations Plus, SG&A decreased $11,000,increased $40,000, or 1.9%, and6.2%; however as a percentage of sales, SG&A decreased to approximately 26.2%29.0% in 2QFY103QFY10 from approximately 33.5%31.6% in 2QFY09.3QFY09.  The major decreasesincreases in SG&A expenses were commissions,investor relations, salaries and salary expensepayroll related expenses, such as payroll tax and health insurance, which outweighed increasesdecreases in travel expenses, advertisement, consultant fees, contract labor, and telephones.professional fees.

For Words+, SG&A expenses decreased $63,000,increased $89,000, or 14.1%25.1%, due primarily to decreases in technical service costs, repairs, and merchant credit card fees.  These decreases outweighed increases in commissions, trade shows, travel, bad debts,commissions, salaries and payroll related expenses.  These increases outweighed decreases in allowances for bad debts.

We incurred approximately $509,000$468,000 of research and development costs for both companies during 2QFY10.3QFY10.  Of this amount, $257,000$234,000 was capitalized and $252,000$234,000 was expensed.  In 2QFY09,3QFY09, we incurred $438,000$432,000 of research and development costs, of which $152,000$138,000 was capitalized and $286,000$294,000 was expensed.  The increase of $71,000,$36,000, or 16.2%8.3%, in total research and development expenditures from 2QFY093QFY09 to 2QFY103QFY10 was due to hiring outside R&D contractors, salary of a new hire and salary increases to existing staff.