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

Thank you, Rene. Again, I apologize folks.

I switched to MacBook Pro Retina which has a very nice high resolution screen but apparently go to GoToMeeting or GoToWebinar has difficulty with the resolution. So I have just given John a thumb drive, we will make him the presenter.

Okay, thank you very much. Okay.

So I apologize for the delays. Let me go right ahead with the safe-harbor statement to keep the attorneys happy.

With the exception of historical information, the matters discussed in this presentation are forward-looking statements that involve a number of risks and uncertainties. The actual results of the company could differ significantly from those statements.

Factors that could cause or contribute to such differences include but are not limited to, continuing demand for the company's products, competitive factors, company's ability to finance future growth, company's ability to produce and market new products in a timely fashion, company's ability to continue to attract and retain skilled personal, and the company's ability to sustain or improve current levels of productivity. Further information on the company's risk factors is contained in the company's quarterly and annual reports on file with the Securities and Exchange Commission.

Next slide please. Okay.

So for the fourth quarter, June, July, August of this year, comparing 4Q ’12 to 4Q ’11, this was our 20th consecutive profitable quarter. And sales were up for the fourth quarter 14.9% to result in another record fourth quarter.

So all four quarters of last fiscal year were record quarters and of course that makes for a record fiscal year. We did $1.64 million compared to $1.43 million in 4Q ’11.

Our Gross profit was up 6.8%. I think actually that’s an error.

That should have been 18.4% to $1.32 million from $1.11 million. I thought I gave you the corrected chart on that John, but I guess I didn’t, sorry.

So the correct numbers there 18.4% increase in gross profit. The gross profit was $1.32 million and last year was $1.11 million.

Our SG&A decreased 14.5% to $0.83 million from $0.97 million. So revenue is up, SG&A down, I would like to see that trend.

R&D investments were up significantly, 462% to about $203,000 from $36,000, and that’s due to a combination of expanding our scientific staff as well as our malaria molecule design project that I will talk about a little bit more in other slide. Our net income for the fourth quarter increased a little over 88% to $0.349 million from $0.186 million.

Our diluted earnings per share $0.02, 2.1 cents if you want another decimal place, increased 85.4% from $0.012 or 1.2 cents in fourth quarter of last year. And we paid our third ongoing cash dividend of $0.05 per share per quarter during the fourth quarter during August.

Our balance sheet remains strong. Cash increased 24.8% to $12.7 million from $10.2 million at the end of 4Q ’11, and after our November 13 dividend payment last week of about $800,000 and paying income taxes of approximately -- that should be $1.1 million -- sorry, that’s another correction there, $1.1 million, cash today is approximately $11.6 million.

Our shareholders’ equity increased 7.9% to $15.1 million at the end of fiscal ’12 compared to ’14 million at the end of fiscal ’11, and of course we remain debt free. Next slide please.

For the entire fiscal year, sales were up 8.1%. Again, that’s a record fiscal year at $9.45 million from $8.74.

And by the way all these numbers I am reporting are without the former subsidiary Words+, unless otherwise stated. Gross profit up 9.1% to $6.622 million from $6.069 million, SG&A up 6.1% to $3.38 million from $3.19 million for a variety of reasons listed here.

But note also that as a percent of revenues SG&A was down to 35.8% from 36.5%. Our net income increased for the fiscal year 11.5% to $3.03 million from $2.71 million in the previous year.

And our diluted earnings per share increased 11.1% to $0.19 a share, 18.7 from $0.17 a share or 16.9, for that extra decimal place. And this strong balance sheet, same numbers as Q4.

Cash increased and the other lines are exactly the same as on the previous slide. Next slide please.

So this is a table form. Same numbers that you can -- and I won't read every number to you.

This gives you a side by side comparison without all the text embedded with it and the other statements. You can see our gross profit margin now is running tad over 80%.

So very happy with that. Total operating expenses just over $1 million, very similar to last year.

As far as the operating expenses, even though the sales were up a nice amount from last year. And then earnings per share, you can see about $0.02 a share for the fourth quarter compared to $0.01 in the previous fourth quarter.

Next slide please. And then for the fiscal year, bottom line, again $0.19 a share versus $0.17.

Net income just over $3 million compared to $2.7 million in the last fiscal year. The asterisk there on SG&A and R&D refereed to the fact that these have been adjusted from what was previously reported, so that they are numbers without the Words+ subsidiary.

Words+ subsidiary was a subsidiary for the entire fiscal year ’11 but only for the first quarter of FY ’12. The sale was completed on November 30 of last year at the end of the first quarter.

So, again, all these numbers are adjusted to reflect just the ongoing business of pharmaceutical software and services. Next side, please.

Revenues last fiscal year. You can see, John DiBella likes to point out that since he took over marketing and sales in 2009, the slope has increased significantly and I have to agree.

I think we are doing a good job, especially considering the state of the economy in general, the global economy, various consolidations and other factors that we have seen in the industry. We are still growing our customer base and still growing our revenues and earnings, and paying a very healthy dividend.

Next slide please. And here you can just see the revenues by quarter.

So very nice trend every quarter. A nice sure step climb up and we are very pleased with the results that we have achieved during some fairly troubling global economic times.

Next slide please. And gross profit by fiscal year, you can see here.

Next slide, and by fiscal quarter, gross profit. Next slide, and EBITDA for the fiscal year.

Next slide -- I didn’t get that one in there, the EBITDA at quarter adjusted without Words+, the fourth quarter for last year would have been $329,000 instead of $270,000 you see there. And this year $547,000 or $0.55 million if you round of the two places.

So it will be $0.33 million for last year’s fourth quarter and $0.55 for this year’s first quarter for the EBITDA by fiscal quarter. We will get these corrected when we post them so that you can download them from the website.

Next slide. Our net income by fiscal year.

You can see again, very steady progress for six years running here. And this is for, again, 2011-2012, just the Simulations Plus, the pharmaceutics software and services business.

Next slide. And net income by quarter.

So very nice fourth quarter. Next slide, and balance sheet.

As of August 31, you can see the cash up about $2.6 million from the previous year, part of that due to the sale of Words+. Cash per share up, current assets up.

Current ratio at 7.4. And shareholders’ equity increased in shareholders’ equity per share increased.

Next slide please. So to talk a little bit about what we do.

We are a, of course, a pharmaceutical software and consulting services company. Our primary revenues come from software licenses and we also generate some revenue from consulting and also from collaborations.

The difference there being, consulting is when where we are helping a company work on a particular drug project. Collaborations is where we are working on something that’s more general, long purposes, usually enhancing our software offerings with the funding from an external organization, such as one of the pharmaceutical companies, an SBIR grant or something along that line.

Our software is covering the range of discovery and development in the pharmaceutical industry all the way from the earliest activities where a chemist might be sketching a new molecule that he or she has in mind in to a MedChem Designer, and just thinking about how they might modify that molecule or design that molecule to accomplish a particular therapeutic role and still have all of the other properties if they like. So all the way from the very beginning of the idea in the chemist’s head to the clinical trial and post-clinical trial where the generic company's, for example, after patent life is up on a innovative product generic companies are working on coming up with formulations that can be determined as bioequivalent to the innovative product.

So we span the entire range. On the discovery side we tend to be more oriented towards chem informatics software and we divide that into ADMET chem informatics, which is the ADMET Predictor software; and discovery chem informatics which we call the MedChem Studio and MedChem Designer software.

And those programs, all three of those programs together, ADMET Predictor, MedChem Studio and MedChem Designer, while we now call the ADMET Design Suite. And this is the suite of programs that we used in our malaria project to design and make a few molecules, completely new molecules and test them.

And I will tell you a little bit more about that in an upcoming slide. So that’s the chem informatics side of the business or the software side.

And the other side is the simulation side and that is, for now, the GastroPlus and DDDPlus software that have been out for years. And you see in grey there, MembranePlus.

This is a new program in development, in testing, that we hope to release early next year. And this will give us an additional product on the simulation side.

The ADMET Predictor, to go back and describe what these programs do, ADMET Predictor takes in molecular structures such as the drawing that you see up there under the word discovery. It can take in thousands or hundreds of thousands of those and from those structures alone, it can predict about 140 different properties of that molecule with pretty good accuracy.

In fact, all of the programs that are out on the market claim to have pretty good accuracy but we are only one that can point to the peer reviewed comparison studies and show that we are consistently ranked number one in accuracy where other programs seem to churn around in their ranking depending on the product that’s being predicated. So we are very pleased with the results that we get of ADMET Predictor.

And it’s not only accurate, it’s extremely fast. We can typically evaluate and predict properties for about 200,000 molecules per hour on a fast laptop computer.

That means a chemist can filter through a million molecules that are not real molecules but they are virtual molecules in computer, in just a morning before lunch. And so that’s quite a fantastic capability.

And again, it’s a keystone for what we did in the malaria project. MedChem Studio and MedChem Designer are tools that allow us to do data mining so that when we look at large amounts of data that are generated in the pharmaceutical industry in a process called high throughput screening for example, you can have thousands to hundreds of thousands of molecules in the data base.

And you would like to understand within that very large library of molecules, what is it about the structures of those molecules that make them perhaps active against a particular target or have adverse toxic side effects of other properties. How soluble are they, how permeable and they and so on.

And so MedChem Studio allows us to identify classes of molecules that share very large parts of their structure. And it does this simply on a graph theory.

So just like the chemist would look at the images, the graphic images of two molecules like you see in the upper left corner of the slide there. And the chemist would quickly see whether those molecules share a large part of their core structure or not.

MedChem Studio can do that very rapidly for hundreds of thousands of molecules and generate classes that have common core structures. And then the scientist can look at those classes and say what is it about a class that shares on particular part of its core structure that makes it fairly active and another class shares another part of its core structure and is maybe not so active or has some other change in property.

MedChem Designer works in both the MedChem Studio and ADMET Predictor as a subprogram. It’s also available free as a standalone program.

And this allows you to draw molecule structures like the one you see on the slide and then click on a button for ADMET Predictor to predict the properties of the molecule you just drew. Or to click on another button and predict what the metabolites would be from the major enzymes that metabolize drugs in human body.

On the other side GastroPlus and DDDPlus are simulation programs. So they are simulating things that change with time rather than static properties as the other programs do.

And GastroPlus we have had now on the market since 1998, so we are in our 14th year as of, I think September, as of our first launch date in September of ’98. It is the most widely used program of its type in the world.

And kind of, like we dominate that market niche. There is one other competitor that is a very good competitor and than a third that doesn’t seem to affect us much at all.

GastroPlus simulates how drugs are absorbed. When you take a pill or a capsule, when you use an inhaler, when you use eye drops or even injections into the eye which are done.

GastroPlus can simulate what happens, where does that drug go. It gets into the blood stream or it gets into different tissues.

For example, it it’s injected into the eye, the eye is made up for quite a number of different kinds of tissue and how does the drug actually partition into those different parts of the eye. And then how does it get into the blood and how does the drug from the blood go into the eye from perhaps an oral dose.

So many different things like that can be simulated with GastroPlus. It is our biggest revenue generator.

Probably 60% of our revenues or so come from GastroPlus licenses. DDDPlus is a simulation program but rather than being in a body, a human body or an animal like GastroPlus deals with, this is in a glass container in the lab and so there is no biology involved.

The DDD stands for dose disintegration and dissolution. So here we are looking at the kinds of experiments that formulations scientists run to see how quickly a given formulation will dissolve.

And when you take a pill, the pill you take, if you take even an aspirin or an ibuprofen or something like that, a small of amount of that pill is actually the drug and a large part of it is often a filler of some sort and other additives that are required to keep it strong so it doesn’t fall apart when you ship it around the country. To give it a acceptable shelf life and so on to perhaps mask any flavoring, so that if you let some of these things dissolve in your mouth they don’t very good but if you swallow them quickly you don’t notice that.

So DDDPlus simulates those dissolution experiments. And that gives the formulations scientist a way to play with the experiment and also play with the formulation design to try to achieve the characteristics that they are looking for in that formulation.

MembranePlus is similar to DDDPlus. It is a simulation of lab experiments.

In that case though there is biology involved. We are looking at permeation of drugs through layers of cells, to put it simply.

And so we actually have living cells. We put the drug on one side of the cells and measure how quickly it comes through on the other side.

Well, those are expensive experiments and so if we can simulate those then we can use the simulation to analyze the data from a set of experiments and then better predict how a drug might behave if you change the conditions of the experiment. And this gives us two things.

It gives greater value to the experiment itself because we can interpret why the drug behaved the way it did in the experiment. The way it’s getting through the cells or perhaps not getting through the cells.

And then whether there is anything that can be done about it. You know, is it a matter of formulation, is it matter of some other factors, the experiment perhaps not being run in the most optimum way to mimic what we would like to see in the actual human body.

Then finally at the bottom, consulting services and collaborations. These tend to have a bit of a pendulum swing.

Last year we had quite a bit of consulting work and collaboration work. This year until the fourth quarter, the collaboration work was almost zero, I think.

But we started up two new funded collaborations in the fourth quarter and those are going very nicely now. Consulting services.

I always say it’s kind of like the restaurant business. You open the door every day, you hope customers will come through the door and want to order food.

But you never know, and so some quarters we have a lot of consulting and in other quarters not so much. Next slide please.

So this slide is exactly the same as I used last quarter because the summer quarter was one where we didn’t have any new releases. We are working on new versions of all of these programs but the public information that we are releasing right now is what you see here.

So version 8 of GastroPlus was released in May, version 6 of ADMET Predictor also in May, and MedChem Designer and MedChem Studio had new versions, a 3.0 and 2.0, also released in May. And the reason these were all released together is because all of these programs talk to ADMET Predictor so with the architecture we had at that time, we needed to upgrade all of these at once to keep everything synchronized.

With this latest upgrade now we have made it so that we can upgrade one program without having to upgrade all of them at the same time going forward. DDDPlus, very minor bug fixed have been done but really it’s a very stable program and we have not made much investment in that because we have had other priorities on the other programs.

Next slide please. Marketing and sales.

We did add another sales person in July and she is someone with sales experience in pharmaceutical software. She has worked as a medicinal chemist in the industry and here we are focusing her skills, because of her chemistry skills, on the ADMET Design Suite, and again that’s MedChem Studio, MedChem Designer and ADMET Predictor.

We continue to do a lot of conferences and scientific meetings. During the fourth quarter alone, June, July, August, we did 14 meetings in the U.S., Europe and Asia.

And those are conference meetings they are not customer meetings. I did probably 15 or so customer meetings alone in Japan in September and early October, late September early October.

So that was after we closed at the fiscal year. But that’s a very typical two week trip to Japan and we do those twice a year.

We also had about 44 posters and presentations that we did, as well as more than 25 client publications in peer reviewed scientific journals during the fiscal year. And that’s really good.

Now it’s one thing for us to go out there and toot our horn but it’s so much better when our customers and clients are out there publishing and putting our name in print and showing what they can do with our software. So we are very happy to see that trend continuing to grow year-over-year.

As far as training workshops, we have run both basic GastroPlus and advanced GastroPlus workshops and we are adding a new chem informatics training workshop that will be held in Boston in February during the same week that we are going to do another one of our basic GastroPlus workshops. The basic workshops have been well attended and have generated significant interest as far as evaluating software and turning those eventually into sales.

It is a long sales cycle as you might guess for fairly high-end products like this. They are very sophisticated.

They are not terribly inexpensive. We believe they are fairly priced.

In fact, we should think about a price increase, haven’t done one for a couple of years. But we do have to make sure people understand how to use them and use them properly so when they acquire the software, and we use to give them a free evaluation period of a few weeks, that they use it properly and get a fair valuation.

And of course we help them doing things like we are doing right now through GoToMeeting to get them started. We have done quite a bit with the digital marketing initiatives.

Assistant Arlene has done a lot with Twitter, Facebook and LinkedIn and so on. And we are finding that this is the modern age.

You have to be out there in the social media to be seen and heard on an equal basis with those that you are competing with. As far as the collaborations and consulting and grants, we are progressing on a five-year collaboration with the FDA Center for Food Safety.

Our consulting studies continue. Our new funded collaboration for improving our oral cavity dosing model, this is where you have something a lingual dose.

That means on top of your tongue or sub-lingual, under your tongue or what they call a buckle patch which would be a patch that sticks to the inside of your cheek. Those are all oral cavity dosing, dosing routes.

And there are some advantages to using those. So we are enhancing that model.

That’s a funded collaboration from one of the top five pharmaceutical companies. And from one of the other top five we are enhancing the -- I am sorry, this is incorrect -- with one of the other top five we are developing a brand new transdermal dosing model.

So dosing through the skin and by injection into subcutaneous layers. We do believe that this is a continuing industry shift such as we saw in the aerospace industry in the 1970s, where software tools took a while to take hold.

The aerospace industry since of course has moved way ahead as also has the automotive industry, electronics and others in using simulation and modeling software as a key element. And we haven’t seen that yet, it’s still considered kind of the stepchild I suppose, of the industry.

So software is growing, modeling and simulation is achieving a wider and wider adoption rate. Our new customer growth is evidence of that.

Ten new customers during the fourth quarter and 43 new customers during the entire fiscal year. So it is growing.

We would like to see it grow faster but it’s a matter of education and attitude shift and so it’s just taking time. But again it’s growing, revenues keep growing and earnings keep growing, so we can't be too unhappy about that.

Next slide please. I mentioned the FDA program.

This is a five-year renewable research collaboration agreement or RCA they call it now. And here we are working with the FDA to build predictive toxicity models for substances that can be found in foods and they can be additives or they could be contaminants.

And that by using these models which are developed on a small fraction of the 70,000 or so molecules for each toxicity, we predict the toxicity of the other molecules that weren’t tested and try to identify potential problems and so those can be tested. The FDA has requested some code modifications.

We did make those and those became a part of our ADMET Predictor 6.0 release in May. And we also released our first toxicity model from the collaboration with version 6.0 and this was a model for predicting tumor growth or carcinogenicity in rats and mice, and other models are in progress.

Next slide please. Our NCE project, our new chemical entity project.

This to me is a very exciting thing. It’s something that we talked about doing for a few years and finally decided to put up or shut up, let's do it.

We had the luxury of a database provided by GlaxoSmithKline that was made public and another set of data that was in the scientific literature for a very small number of molecules. And we used those two data sets along with our ADMET design suite and GastroPlus to design some molecules.

And we announced last September, in September 2011, that we had completed the design phase which took about a month, part time for two people. So not very much time we spent when you think of the labor that was involved in designing our molecules.

And we announced, without knowing how our results were going to turn out, we announced that we were going out for quotations for synthesis and testing of our molecules. By the time we finished up the synthesis which was challenging for our synthesis company and had the molecules tested, everything was done by June, we had seven molecules that were received and tested.

And all seven showed inhibition of the growth of the parasite ,we were hoping at least one would. Every single molecule, we had a hundred percent hit rate on the target which was just fantastic.

With two of them active at a very low concentration, nanomolar-level concentration. And that was against both the drug resistant strains of the parasite.

There was an article just last week. According to Reuters, GlaxoSmithKline reported some disappointing results for their malaria vaccine for infants.

And this was done in a very large clinical trial in Africa with over 6500 babies, six to 12 weeks old. And the vaccine was effective for about 30%, so that’s the good news, but the other 70% still contracted malaria.

And so our molecules are not vaccines, they are not preventative, they are therapeutic drugs. So after you get malaria, the molecules that we are designing or have been designing, were directed more towards being a therapy for the disease rather than preventing the disease.

Ours are not suitable to be drugs. They were active against the parasite.

They had some nice physical and chemical properties but the metabolism was much too fast. And so they are good lead molecules but they are not final molecules.

And we believe that there may be a potential for outside funding to take these molecules or to repeat the process and design some completely new molecules for malaria and perhaps for other diseases. And so we are communicating with some outside organizations to see about getting funded to do some further work in this area.

Next slide. So in summary.

For the fourth quarter and the fiscal year financial performance continues. We have had a five-year profitable trend.

Our lower SG&A was an improvement so that as a percentage of sales it’s lower, it’s a little bit up in absolute dollars but as a percentage of sales it is down. Sale of Words+ has simplified our business and focused it.

You probably noticed our 10-K was out much earlier than it has been in the past. Our auditors commented on the fact that the audit just goes so much more smoothly and quickly now with the smaller business and more focused business.

Words+ was a fairly good business and continues to be. It helps people in a very critical way but from the business standpoint it was a more complex business with difficult accounts receivable.

We have never had a bad debt on the pharmaceuticals side, we had quite a few on the words plus side. The number of transactions was much higher and so from an auditing and accounting standpoint the business now is much cleaner and simpler.

We have continued to expand our life sciences team. We added two new PhDs starting in August and both of them have hit the ground running, doing very nice work.

We are continuing interviews to expand more we are sitting on a reasonable amount of cash. We don’t want to just sit on that, we would like to invest that.

We have continued to look for acquisitions unsuccessfully. We will keep evaluating things but we just haven’t found anything that was a good fit either from a technology standpoint or if the technology might fit, from a financial standpoint.

So we want to make good deals. The acquisitions we have done in the past have all been accretive right away.

And maybe that’s spoiled us a little bit but we are not looking for something that would require a large amount of investment and risk as an acquisition. We are promoting development of new products and services.

MembranePlus being an example of a new product. There are some others that we are not talking about publicly yet.

And of course with a larger life sciences team, as I have mentioned many times, our life sciences team is also a strong supplement to marketing and sales team. People like to talk directly to the scientists who do the work and we get them out.

They go to meetings a lot and they go to customers’ sties. And this also is a reverse payback because they get to know what the customers do and what they want, better than they would by going through a third party sales person.

On the other hand we are expanding the sales team. Our new field sales manager from for chem informatics started in July.

Off to a good start. We have spent some greater staff time, life sciences time, on marketing and sales, supporting that department.

And our new training workshop for our chemistry tools, first round will be held in Boston in February and that involves life sciences members primarily delivering that workshop. We are recognized as a leader.

We have unquestionably an outstanding reputation for scientific expertise and innovation and we hear constant feedback on our customer support being very timely and very strong. Cash position, very good.

We have paid now four quarterly cash dividends as of last week. So under $3.2 million, just under $3.2 million, so that was about a little under $800,000 per quarter for our dividend.

And yet cash grew. And again, sorry, I gave the wrong set of slides to John here, I believe it was about $2.6 million during the last fiscal year.

Next slide. I think it’s probably Q&A time.

Right, well, I see there are some questions here. Let's see if I can get this to behave, I always seem to have a problem with it.

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

John, you want to take that?

Sure. So in fiscal 2012, we hosted five workshops.

We had one basic workshop in the U.S., one advanced workshop in the U.S. Two basic courses in China and then one basic course in Europe.

And the plans for 2013 are to increase that a little bit. Right now we have scheduled three workshops in the spring for GastroPlus and the ADMET Design Suite and then I think we will plan on having probably three to four more scheduled in the fall as well.

Thank you, John. And the next question was how much revenue was generated from workshops in 2012?

It’s not a number we have made public but I don’t see why we can't answer the question, if you have that handy?

Yeah, I think the revenue from the workshops was around maybe 1%, 1.5% of the total revenue. But I think it’s more important, as Walt pointed our earlier in the presentation that especially from these basic workshop courses, we do have people who attend from companies who don’t have licenses to the software before they come for the training.

And we have been able to generate a fairly significant amount of new license revenue from those people who did attend, who did go back to the companies and say these are valuable tools we should bring them in-house. So revenue directly from workshop fees is relatively small but then adding on the new license sales that we see it’s definitely a profitable set of events that we host.

Thanks, John. Why did the Entelos acquisition fall through?

Well, we did a lot of due diligence on Entelos. We think the science there is good.

We felt that in the bankruptcy proceeding that they were in back last summer in into September. From all the feedback we have been getting from them, that we could probably acquire this capability for on the order of $2 million to $3 million.

When we got to the bankruptcy court in Delaware, we were advised that the first secured creditor was owed something on the order of $10.5 million and that as the first secured creditor, that organization could bid up to the $10.5 million without having to put out any money because they would just be writing themselves a check. And they intended to do that.

So we said, that would have taken virtually all of our cash and then we would not have had cash to operate the entity until it became profitable again. And so it was not economically a smart thing for us to get into.

Still like the technology and some day maybe we will find a way to work with them. There are some compatibilities between what we do and what they do but as of now the acquisition is of the table.

What's the potential market for MembranePlus? Well, good question [Howard].

We know that anyone who is developing new drug molecules needs to know there permeability. We also know that it’s not inexpensive to run these permeability experiments, especially in large numbers.

And that even when you run these experiments, the cells that are used are not the same as what you would see in, for example a human small intestine or in a dog or in a rat or mouse, which is where the in vivo experiments are run. So if you are going to spend money on these experiments and people do and should, the experiments are good.

You want to be able to understand what's really going on. And so if you can invest a small amount of money, relatively speaking in a piece of software that helps you interpret that data better and even to predict how the permeability would change for different structures.

So basically combining our ADMET Predictor capability with the MembranePlus to get some predictive capability, you might be able to say that in the long run there is a certain set of molecules here that just have such low permeability that regardless of how good they are in any other sense, they are not going to be very good for a oral dose. And then you can decide if you want to consider them for another dosing route or do you want to drop those and go with other molecules that have a better one.

So the number of companies, I would say, is certainly in the hundreds if not more than that, maybe in the thousands or thousand and two. And the number of those that would take on a piece of software like this which is similar to DDDPlus in the sense that there is nothing else like it, people are not used to using a tool like this and it may take a little time for the market to grow.

But the good thing is, the people who do these kinds of experiments are the kinds of people that run GastroPlus. And we have kept the interface between MembranePlus and GastroPlus as similar as we can, considering they are different programs.

And so the learning curve will be very quick and those people are used to using software in a mode like this so that we believe the sales in education part of the sales, will not be nearly as difficult as it was with DDDPlus for formulation scientists. We never had anything like DDDPlus and there still is nothing else on the market that compares to it.

Are you still in talks with the Bill and Melinda Gates Foundation? Well, I can't say too much in that respect other than that we have some feelers out and we are hoping that something comes out of it.

Are you seeing increased enquires from consumer companies for your toxicity models? John, I will let you take that one?

We are. Yeah, I think we are doing a nice job of promoting the toxicity module in ADMET Predictor at different conferences.

In fact we just came back from a conference in Long Beach, the SETAC conference, and came back with the highest number of leads and prospect enquires than from any other previous toxicology conference that we have gone to. So as we add more and more toxicity models and specifically modeling endpoints that are of interest to non-pharmaceutical companies, we will continue to see the increased rate.

Thank you, John. In fact one of the interesting sales that we announced here a few months back was the U.S.

Army license ADMET Predictor. And this was as a result of attending a workshop that we did in Boston and there interest is in environmental toxicology.

So the army of course has everything from motor oils and hydraulic fluids to explosives that can be in the environment. And so they need to know -- and all of these things are made up of many different molecular ingredients.

So they need to know what the potential is for toxicity not only to the fighting forces but also to the environment. You know training environment or whether it’s actual combat environment.

Have the three new scientists in life sciences and one in sales and marketing reached their full sales potential? I hope not.

I mean they are just getting started. It takes a while for anyone to really get up to speed with what we do.

We are a difficult business to explain in the financial world where the terminology can get in the way. But even in the scientific world, these are not trivial tools.

These are complex tools that have many different capabilities. When you look at a program like ADMET Predictor, GastroPlus, MedChem Studio, DDDPlus, there are a lot of different options.

There are a lot of different things to think about. And it’s very easy to use a program like this wrong if you just jump in and start making runs without thinking about what you are doing and getting some good training.

And so when someone new comes on board, it takes a while for them to do enough different kinds of studies and see who things interact before they are ready to go out on their own and really defend what we do because it amounts to that. When you go into a company and you are saying, hey look, I have got this whiz-bang piece of software that’s going to save you all sorts of time and money, you can imagine they just don’t pull out there checkbook and say how much is it, they start challenging you.

Well, how do you deal with this? How do you will with that?

Why did you do it this way? And so it’s almost like defending a PhD dissertation in terms of level of complexity and the kinds of questions you can get.

So, no, the three new scientists and the one in sales and marketing are still coming up to speed and I would say, anyone who gets up to speed in one year is doing really, really well. Two years, now they are hitting the average.

And that’s an average amongst very smart people. I am saying, unless you have got some very closely related experience before you come on, it’s probably going to take you close to two years to be full confident and able to go out there and defend.

Based on all the updates to your offerings, are you contemplating any price increases for the upcoming fiscal year? John, we haven’t really talked about it, what's your take on that?

Well, we are in fiscal year 2013 right now and my guess is that we probably won't be passing along any increases while we are in this fiscal year but I do think that it’s something we will investigate starting, definitely in place by fiscal year 2014. I think that, as Walt has mentioned through a few of his slides, that with the way the global economy has been over the last few years, our customers have certainly appreciated the fact that we have been able to continue offering a very valuable software while keeping the prices fixed.

And that’s certainly been one of the key reasons why we have seen such a higher renewal rate and things like that. So I think that they understand that the last price increase was several years ago and know that we have some discussions about passing along an increase maybe in fiscal year ’14, but since we are already in fiscal year ’13 I don’t think it’s likely.

Thank you, John. Next question, are you seeing any potential for asset purchases?

I wish. I have to say at the moment I don’t see anything at the moment.

It seems like every couple of weeks something pops up and we take a look at it. Most of it not really very exciting but every now and then we get one that looks very interesting and we follow up and start doing some due diligence.

So nothing right this minute but something could come up before the end of this month. Are there plans for a dividend reinvestment program?

A dividend reinvestment program, so I assume that means a share repurchase. There are no plans.

The board of directors right now has declared the dividend and at this point that is cash dividend that is. And perhaps the question here refers to using the cash to buy stock.

There is no plan for anything different than then $0.05 per quarter per share dividend right now. That could change tomorrow.

The board each quarter has to approve the dividend and as we always say in the press release, there is no guarantee that you can count on another one in three months or for how much it might be, because you never know what could pop up. If a good acquisition opportunity popped up that required a lot of cash and we felt that it was strategically to the shareholders advantage to go that route, than clearly that’s what the board would decide.

So I never want to give any guarantees and if I did my lawyers would shoot me. So I would just have to say that right now the only plan is that we paid a dividend last week for this quarter and at the moment we expect to pay one for the next quarter but that could change.

Next question. The full fiscal year tax rate was 28.9%, what's the outlook for fiscal 2013?

Momo, would you like to answer that.

Yes. That was very difficult to question.

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

As we all know, the election went the way it did. We don’t know yet what the impact is going to be on taxes.

I personally have a lot of heartburn with the way people talk about taxes. For example on dividends, if you get a dividend and you pay a 15% federal tax on that as a long term capital gain or a dividend gain, it appears to the average person that you are only paying 15% on that.

What people ignore is that you are part owner of the company. If you own 100% of a company, you pay 100% of the taxes of the company.

If you own 1% of a company, you are paying 1% of the taxes of the company. So in this case as you saw our percentage was 29.8%, you have already paid out of your share of the profits that you own as an owner of the company, you have already paid that 29.8%, now you get to pay another 15%.

And if you are in the State of California, lucky you, you get to pay another 8% or 9% on top of that. So you are paying over 50%, not 15%.

So I don’t know what's going to happen but I suspect taxes are going to up. We know healthcare costs have gone up already and continue to go up.

We have seen our renewal plans that come out around this time of the year and see what's happening, the rates go up and the benefits go down and nothing has changed in that respect. So I can only guess.

You know if someone else has a crystal ball or a Ouija board that can give us a better idea about taxes, I would sure like to know what they are. But I expect they may be higher than the 29.8%, a few percentage points as Momoko has allowed.

Our next question. Could you elaborate on increase in R&D spending?

You mentioned, you will pursue another similar proof of capability, similar to the malaria when you first measure the increase of sales from awareness raised from the work on malaria. We do expect to do another project.

As I presented this in Japan to about ten or 15 companies a few weeks back, I found two reactions. One was, wow, and the other one was unspoken but it was there between the lines like maybe you just got lucky on that one.

And, yes, you had a lot of data. You had 13,000 compounds of data from GSK.

Well, GSK also had those 13,000 compounds and our compounds were more active than their most active compounds of the 13,000. And we designed these compounds actually using an activity model not from the 13,000 but from the small set of about 90 compounds and the scientific [literature] are completely different organization.

So we believe it’s not luck. We believe that the tools do work and we believe that another demonstration is needed to show that they do work.

When you first measure the increase in sales, we can already measure the increase in interest. Sales always follow evaluations and the number of evaluations that have been requested has jumped as a result of this malaria project, we presented this now at several scientific meetings.

We have done couple of webinars. Actually, probably three or four webinars now to show off what we did, and the interest is very very strong.

What we did here was nothing sort of --in my opinion, nothing short of remarkable. I don’t know any other software company that’s ever basically put up the money and the effort to use their own tools to design brand new molecules and have them synthesized and have them tested at all.

In this case to get 100% hit rate on the target. This show that there is something going on with our tools that works.

So where we first measure, not measure the increase of sales directly but indirectly from the increase in interest we know the increase in sales always follows an increase of interest. What is the total number of customers?

In terms of companies, I am going to guess over 200. John, correct me if I am wrong.

And in terms of actual users, I am going to guess somewhere in the order of 1000 or more. What do you think, John?

Yeah, that’s okay.

Okay. Thanks.

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

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

Thank you. And that’s good because that means new business is running in the 20% or more range and that’s where we would like to be.

We would like to see the new business coming in at 20% or better. Our next question, what is GastroPlus’ market share?

We don’t exactly know that. We just know from a lot of communication, the company's that we talk to, how many companies use our software and don’t use competitive software versus those that also use competitive software.

So it’s rough guess that it’s more than half but I wouldn’t be able to put a firm number on that. What can't the company leverage that with that acquisitions and pay a higher acquisition price to realize that potential?

Well, I mean that’s one of those questions. If you are going to acquire something, first you have to find something worth acquiring.

Our major competitor on the GastroPlus side is a company called Simcyp out of England which was just acquired this past year by a group out of San Francisco Bay Area called Certara and they have earlier acquired both Pharsight and Tripos. And there really is no one else in the GastroPlus realm that we would be interested in acquiring.

So again, and even on the other side, on the chem. Informatics side, there are many companies that are coming in the chem informatics space.

That one is a much more competitive market. Probably 15 or 20 at least, companies that compete in that area.

Some of them pretty small, some of them larger than we are. Like [Acelors] for example.

There are other companies that are maybe about the same size as we are, OpenEYE, Leadscope and so on. Most of those companies are private companies so you can't really get good numbers on them.

We do meet there folks. We talk to them and the scientific meetings and we know them on a casual basis.

And you kind of get a feel for whether someone would be a likely acquisition target or not that you would afford, where that you would want. In many cases, these are companies that compete with ADMET Predictor and MedChem Studio directly.

And the only reason to acquire them would be to shut them down and take away a competitor and that would require a significant increase in our own sales immediately, whereas typically if you do that, their market share is going to be spread among all of the competitors including ourselves. And so getting a return on investment is not a trivial thing to do.

How is the economy affecting demand? Well, I think I did talk to that.

We are obviously growing. Revenues and earnings have both grown throughout this economy.

The pharmaceutical industry continues to struggle. There we have seen consolidations going.

We know there are companies that have locked, sites that have been shut down. This is something that continues to happen as the pharmaceutical industry struggles with the enormous cost to develop drugs and the very high risk.

There was a Forbes article here just a few months back that looked at the actual return on investment or actual cost, I should say, of average cost of bringing a new drug to market. And in the past we always heard this number of up to $1.5 billion in 15 years.

Well, that was if you looked at the cost to develop that drug. You know one blockbuster drug.

But if you looked at the average number of new drugs that come out from various companies and looked at their average R&D expenditures over a multiple decade timer period, Forbes did this, what you find is that the lowest one was about $4 billion, and I believe that was Amgen. They averaged about $4 billion per new approved product.

And the higher one was over $12 billion and I believe that was AstraZeneca. And others in between.

So people complain about the price of the drugs, this is a very very risky business and a very expensive business to be in. And so they have to improve.

They simply have to improve and we believe productivity is the key. Discovery and development efforts can be boosted, productivity can be boosted through software.

So I believe we simply have to keep doing what we are doing and doing it better and better every year and that we will continue to grow and see the growth that we have seen both in revenues and earnings but also in terms of the adoption of simulation modeling throughout the industry. Next question.

Where does the company draw the line between product development costs that are capitalized and R&D costs that are expenses? You only capitalize software development that is a new functionality, new capability.

You don’t capitalize bug fixes, you don’t capitalize changing the color of the screen or something like that, it has to be a significant new technological capability. So the first thing we do, the way the rules work is that before you can capitalize management has to establish that what you are going to do is technologically feasible.

In that sense we don’t have a problem because we don’t take on projects that are not feasible. Our malaria project for example was not a software project, so it is not capitalizable.

It is simply expensed and that’s why you saw the R&D expense jump the way it did. R&D costs that are expensed include things like, simple things that are not changes in capability.

You know maybe we are going to rearrange some columns in a spreadsheet or something along that line. So it really comes down to that.

It has to be a new capability, it has to be determined to be technologically feasible and you capitalize the development cost during the development and as soon as you offer it for sale, you begin to amortize that cost and so it starts hitting cost of sales, I believe, so like that. You indicate you assume responsibility for producing Abbreviate.

Is this part of discontinued operations or is it continuing operations. If it is part of continuing operations, why was this kept while World+ was sold?

Now this was actually done a couple of years ago. We decide that Abbreviate was no longer of strong interest to Words+ but that there may be an advantage to putting it on the iPhone and so we spent -- I think we spent about $8,000 getting it converted to put on the iPhone.

And it would be an awesome tool on the iPhone if Apple would allow us to operate it the way it works on PCs. It is still sold for PCs.

It’s a very tiny amount of sales. It’s really not a significant, probably not even in the four significant digits for sales.

But unfortunately you know, I am an Auburn engineer and Tim Cook is an Auburn engineer. I was not able to get Apple to allow us to embed Abbreviate underneath other programs so that it would work inside of your email or inside of your notes or on website and things like that’s.

So Abbreviate is really a very insignificant product. One more question here, we are running a bit overtime.

Company's sales growth target has been 15% to 20% historically, is that a realistic target in fiscal 2013? I think it is.

I think depending on how our efforts go with getting external funding for things like the malaria project or other diseases, you know that’s a potential home run there but we can't promise anything like that. We haven’t even had any face to face to discussions with anyone yet.

It’s something we are working on. We believe there is potential there but it may take doing another project and showing that we didn’t just get lucky on the first one before we really are able to rein in very large amounts of revenue.

We know for example that the Gates Foundation funded, I believe it was University of South Florida, last year for about $5.5 million for malaria. And from what I have read, and I can't say that I have researched it completely, but from what I have read it appears the level of achievement that they have is really on a par with what we have done in our project.

I am not at all saying that Gates is going to run out and give us $5.5 million, just saying that seems to be an interest in funding external development. This is what they do and that perhaps when they see what we did, they might believe that it’s a technology that needs to be advanced more and provide some additional funding for us.

One more. What about just software sales growth?

Well, I would say the 15% to 20% software collaborations and consulting is a reasonable target. What do you think, John?

Its’ a target, yeah. I suppose it’s reasonable.

I mean you know there is -- going back to the question about the economy, we do know about some slight closures that have been announced and were announced several months ago. And so we are talking with those companies as far as how licenses will be transferred and things like that.

But I think it’s reasonable target knowing what we know right now.

Okay. That’s the last question.

We did go over an hour. A part of that due to MacBook technology issues here.

We will make sure we get that straightened out for next time. Thank you all for attending.

If you have any further questions you can always email us at [email protected] or just call the office at, in the U.S. 888-266-9294, or internationally 661-723-7723.

Thank you all for attending. See you next quarter.