UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

FORM 10-K

For the fiscal year ended August 31, 20132016

or

For the transition period from _________ to _________

Commission file number: 001-32046

Simulations Plus, Inc.

(Exact name of registrant as specified in its charter)

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes   £[_]  No  T

[X]

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.   Yes  [_]  No  [X]

Yes £   No T

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filings requirements for the past 90 days.

Yes  T[X]  No  £

[_]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes  T[X]  No  £

[_]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.           £

[X]

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):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).£ Yes [  ] No T

[X]

The aggregate market value of the registrant’s common stock held by non-affiliates of the registrant as of February 28, 2013,2016, based upon the closing price of the common stock as reported by The Nasdaq Stock Market on such date, was approximately $39,168,468.$102,975,104. This calculation does not reflect a determination that persons are affiliates for any other purposes.

As of November 15, 2013, 16,041,89414, 2016, 17,226,478 shares of the registrant’s common stock par value $0.001 per share were outstanding, and no shares of preferred stock were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Certain portions of the registrant’s definitive Proxy Statementproxy statement to be delivered to its shareholders in connection with the 2014registrant’s 2017 Annual Meeting of Shareholders are incorporated by reference into Part III of this Form 10-K to10-K. Such definitive proxy statement will be filed with the Securities and Exchange Commission within 120 days after the closeend of the fiscal year covered by this annual report.report on Form 10-K.

The Exhibit Index (Item 15) lists several documents incorporated by reference.

Simulations Plus, Inc.
FORM 10-K
For the Fiscal Year Ended August 31, 20132016

Table of Contents

Forward-Looking Statements

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 other filings with the Securities and Exchange Commission (“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.otherwise, except as required by law.

PART I

ITEM 1 – BUSINESS–BUSINESS

As used in this report, each of the terms “we,” “us,” “our,” the “Company” and “Simulations Plus” refers to Simulations Plus, Inc. and Cognigen Corporation, a wholly-owned subsidiary of Simulations Plus, unless otherwise stated or the context otherwise requires.

OVERVIEW

Simulations Plus, Inc. (“Simulations Plus” or the “Company,” “us,” “we,” or “our”), which was incorporated in 1996, developsis a premier developer of groundbreaking drug discovery and producesdevelopment software for mechanistic modeling and simulation, for machine-learning-based prediction of properties of molecules solely from their structure, and is exploring the application of its machine-learning technologies in other industries, including aerospace/military and general healthcare. Our pharmaceutical/chemistry software is licensed to major pharmaceutical, biotechnology, agrochemical, and food industry companies and to regulatory agencies worldwide for use in pharmaceutical researchthe conduct of industry-based research. We also provide consulting services ranging from early drug discovery through preclinical and clinical trial data analysis and for education,submissions to regulatory agencies. Simulations Plus is headquartered in Southern California, with offices in Buffalo, New York, and its common stock trades on the NASDAQ Capital Market under the symbol “SLP.”

In September 2014, Simulations Plus acquired Cognigen Corporation (Cognigen) as wella wholly-owned subsidiary pursuant to that certain Agreement and Plan of Merger, dated as provides consultingof July 23, 2014, by and between Simulations Plus and Cognigen (the “Merger Agreement”). Cognigen, was originally incorporated in 1992. Through the integration of Cognigen into Simulations Plus, Simulations Plus is now also a leading provider of population modeling and simulation contract research services tofor the pharmaceutical industry. Words+, foundedand biotechnology industries. Our clinical-pharmacology-based consulting services include pharmacokinetic and pharmacodynamic modeling, clinical trial simulations, data programming, and technical writing services in 1981, produced computersupport of regulatory submissions. We have also developed software for harnessing cloud-based computing in support of modeling and simulation activities and secure data archiving, and we provide consulting services to improve interdisciplinary collaborations and research and development productivity.

We are a global leader focused on improving the ways scientists use knowledge and data to predict the properties and outcomes of pharmaceutical and biotechnology agents, and are one of only two global companies who provide a wide range of preclinical and clinical consulting services and software. Our innovations in integrating new and existing science in medicinal chemistry, computational chemistry, pharmaceutical science, biology, physiology, and machine learning into our software have made us the leading software provider for physiologically based pharmacokinetics (PBPK) modeling and simulation and for prediction of molecular properties from structure.

We generate revenue by delivering relevant, cost-effective software and specialized hardware forcreative and insightful consulting services. Pharmaceutical and biotechnology companies use by persons with disabilities. The Words+ subsidiary was sold effective November 30, 2011,our software programs and is treatedscientific knowledge to guide early drug discovery (molecule design and screening), preclinical, and clinical development programs. They also use it to enhance their understanding of the properties of potential new medicines and to use emerging data to improve formulations, select and justify dosing regimens, support the generics industry, optimize clinical trial design, and simulate outcomes in special populations, such as “discontinued operations” in the financial statements. This discussion will therefore focus on the ongoing operations for pharmaceutical softwareelderly and services.pediatric patients.

PRODUCTS

General

We currently offer fiveeight software products for pharmaceutical research:research and development: three simulation programs that provide time-dependent results based on solving large sets of differential equations: GastroPlus™; DDDPlus™; and MembranePlus™; three programs that are based on predicting and analyzing static (not time-dependent) properties of chemicals: ADMET Predictor™,; MedChem Designer™,; and MedChem Studio™ (the combination of ADMET Predictor, MedChem Designer, and MedChem Studio is called our ADMET Design Suite™); one recently-announced program for rapid clinical trial data analysis and regulatory submissions called PKPlus™; and one program called KIWI™ that provides an integrated platform for data analysis and reporting through our proprietary secure cloud. During the fourth fiscal quarter of the fiscal year ended August 31, 2016, we announced the release of our newest software offering, PKPlus™, DDDPlus™a next-generation software package for noncompartmental and compartmental pharmacokinetic analysis and reporting, which is further described below.

GastroPlus

Our flagship product and currently our largest source of revenue is GastroPlus. GastroPlus simulates the absorption, pharmacokinetics, and pharmacodynamics of drugs administered to humans and animals, and is currently the most widely used software of its type by pharmaceutical companies, the U.S. Food and Drug Administration (FDA), the U.S. National Institutes of Health (NIH), and GastroPlus™other government agencies in the U.S. and other countries. The FDA currently has 70 GastroPlus licenses.

Because of the widespread use of GastroPlus, we were the only non-European company invited to join the European Innovative Medicines Initiative (IMI) program for Oral Bioavailability Tools (OrBiTo). A sixth product, MembranePlus™OrBiTo, begun in 2012, is an international collaboration among 27 industry, academic, and government organizations working in the area of oral absorption of pharmaceutical products. Because we are outside of the European Union, our participation in this project is at our own expense, while other members are compensated for their work; however, we are a full member with access to all of the data and discussions of all other members. We believe our investment to participate in this initiative enables us to benefit from, and to contribute to, advancing the prediction of human oral bioavailability from preclinical data, and ensures that we are well-known to member pharmaceutical companies and regulatory agencies.

In September 2016 we announced that Simulations Plus had been invited to join the European SimInhale Consortium and had been admitted to this prestigious group focused on advancing the state of the art for simulation of inhaled dosage forms. As one of only two U.S. participants, Simulations Plus will participate in activities designed toadvance particle designs for improved deposition and interaction with lung tissue; promote realistic computer simulations of particle aerosolization, delivery and deposition; promote patient-tailored inhaled medicines; promote integration of device and formulation design; and promote critical assessment of toxicity issues and related risks.

In September 2014, we entered into a research collaboration agreement (RCA) with the FDA to enhance the Ocular Compartmental Absorption and Transit (OCAT™) model within the Additional Dosing Routes Module of GastroPlus. The objective of this agreement is to provide a tool for generic companies and the FDA to assess the likely bioequivalence of generic drug formulations dosed to the eye. Under this RCA, we receive up to $200,000 per year. This RCA may be renewed for up to a total of three years based on the progress achieved during the project. After a successful second year, the RCA was renewed for its third year in September 2016, and will expire in September 2017.

We were awarded another RCA by the FDA in September 2015, this time to expand the capabilities of GastroPlus to simulate the dosing of long-acting injectable microspheres. This type of dosage form is usually injected via subcutaneous or intramuscular routes, but can also be used for ocular dosing. Once again, this RCA provides up to $200,000 per year for up to three years. Under this agreement, we are developing simulation models to deal with the slow dissolution/decomposition of the microsphere carrier material that gradually releases the active drug over periods as long as weeks or months. After a successful first year, the RCA was renewed for the second year in September 2016, and will expire in September 2017 unless re-renewed.

In addition to the two funded efforts with the FDA described above, we also have an unfunded RCA with the FDA’s Office of Generic Drugs (OGD) that began in 2014. The objective of this RCA, which has a five-year term, is directed toward the FDA’s evaluation of mechanistic IVIVCs (in vitro-in vivo correlations) to determine whether mechanistic absorption modeling (MAM) can relate laboratory (in vitro) dissolution experiment results to the behavior of dosage forms in humans and animals (in vivo) better than traditional empirical methods.

In April 2015, we released Version 9.0 of GastroPlus. This was the largest single upgrade we have made to the program to date, and the added level of science and technology enabled valuable new functionalities that we believe provide the most advanced decision-making tool for preclinical and early clinical trial simulation and modeling analysis available today. Several of the significant enhancements include:

Our goal with GastroPlus is to integrate the most advanced science into user-friendly software to enable pharmaceutical researchers and regulators to perform sophisticated analyses of complex drug behaviors in humans and laboratory animals. Already the most widely used program in the world for physiologically based pharmacokinetics (PBPK), the addition of these new capabilities is well alongexpected to expand the user base in the early pharmaceutical research and development with testingprocess, while also helping us further penetrate the biopharmaceuticals, food, cosmetics, and validation studies under way. general toxicology markets.

We planare now finalizing the development of version 9.5 of GastroPlus, which will add a number of new capabilities and will refine and enhance some of the existing capabilities in the program, including intramuscular dosing, simulation of antibody-drug conjugates, additional animal physiologies, enhanced report generation, and enhancements to the PBPK tissue models. We expect to release MembranePlus™version 9.5 before the end of calendar year 2016.

DDDPlus

DDDPlus simulatesin vitro (laboratory) experiments that measure the rate of dissolution of a drug and, if desired, the additives (excipients) in a particular dosage form (e.g., powder, tablet, or capsule) under a variety of experimental conditions. This unique software program is used by Marchformulation scientists in industry and the FDA to (1) understand the physical mechanisms affecting the dissolution rate for various formulations, (2) reduce the number of cut-and-try attempts to design new drug formulations, and (3) designin vitrodissolution experiments to better mimicin vivo (animal and human) conditions. Version 5.0 of DDDPlus, which adds a number of significant enhancements, was released in April 2016. This version adds new formulation types (controlled release bilayer tablet, delayed release coated tablet, and immediate release coated beads), expanded formulation specification options, biorelevant solubilities and surfactant effects on dissolution, tablet compression and disintegration models, links with GastroPlus, and updated licensing.

MembranePlus™

MembranePlus was released in October 2014. Similar to DDDPlus, MembranePlus simulates laboratory experiments, but in this case, the experiments are for measuring permeability of drug-like molecules through various membranes, including several different standard cell cultures (Caco-2, MDCK), as well as artificially formulated membranes (PAMPA). The value of such a simulation derives from the fact that when the permeabilities of the same molecules are measured in different laboratories using (supposedly) the same experimental conditions, the results are often significantly different. These differences are caused by a complex interplay of factors in how the experiment was set up and run. MembranePlus simulates these experiments with their specific experimental details, and this enables scientists to better interpret how results from specific experimental protocols can be used to predict permeability in human and animals, which is the ultimate goal. A few initial sales of MembranePlus have been made. Similar to DDDPlus ten years ago, this program is a new concept that requires educating scientists on how and why to use it, and our marketing and sales program has been tasked with providing that training.

PKPlus™

On August 25, 2016, we announced the release of a new standalone software product called PKPlus, based on the internal PKPlus Module in GastroPlus that has been available since 2000. The PKPlus Module in GastroPlus provides quick and easy fitting of compartmental pharmacokinetic (PK) models as well as noncompartmental analysis (NCA) for intravenous and extravascular (oral, dermal, ocular, pulmonary, etc.) doses; however, the PKPlus Module in GastroPlus was not designed to meet all of the requirements for performing these analyses for Phase 2 and 3 clinical trials and producing report-quality output for regulatory submissions. The new standalone PKPlus program has been developed to provide the full level of functionality needed by pharmaceutical industry scientists to perform the analyses and generate the outputs needed to fully satisfy regulatory agency requirements for both NCA and compartmental PK modeling. We believe the potential number of eventual users for PKPlus is in the thousands world-wide and that it has the potential to eventually become one of our leading revenue producers.

ADMET Predictor™

ADMET (Absorption, Distribution, Metabolism, Excretion, and Toxicity) Predictor is a chemistry-based computer program that takes molecular structures (i.e., drawings of molecules represented in various formats) as inputs and predicts over 140approximately 150 different properties for them at thean average rate of about 200,000over 100,000 compounds per hour on a fastmodern laptop computer. This capability allows chemists to getgenerate estimates for a large number of important molecular properties without the need to synthesize and test the molecules. molecules, as well as to generate estimates of unknown properties for molecules that have been synthesized, but for which only a limited number of experimental properties have been measured. Thus, a chemist can assess the likely success of a large number of existing molecules in a company’s chemical library, as well as molecules that have never been made, by providing their molecular structures, either by drawing them using a tool such as our MedChem Designer software, or by automatically generating large numbers of molecules using various computer algorithms, including those embedded in our MedChem Studio software.

ADMET Predictor has been consistently top-ranked for predictive accuracy in multiple peer-reviewed, independent comparison studies, for predictive accuracy, while generating its results at a very high throughput rate. The current state-of-the-artAlthough the state of the art of this type of software does not enable findingidentifying the best molecule in a series, but it does allow identifyingearly screening of molecules that are highly likely to fail as potential drug candidates (the(i.e., the worst molecules, which is oftenusually the majority of a chemical library) before synthesizing and testing them. Thus, millions of “virtual”virtual compounds can be created and screened in a day, compared to potentially months or years of work to actually synthesize and test a much smaller number of actual compounds.

The most recent release of ADMET Predictor, version 8.0, was released on August 1, 2016. This new version features a completely redesigned and modernized interface as well as a number of new capabilities to enhance the performance and user-friendliness of the program. In addition, we have integrated a number of MedChem Studio features into the new ADMET Predictor, and created a tighter integration between the two programs when a MedChem Studio license is obtained along with an ADMET Predictor license.

The optional ADMET Modeler™ subprogram that is integrated intoModule in ADMET Predictor enables scientists to use their own experimental data to quickly create proprietary high-quality proprietary predictive models using the same powerful modelingmachine-learning methods we use to build our top-ranked class property predictions. Pharmaceutical companies expend substantial time and money conducting a wide variety of experiments on new molecules each year, resulting ingenerating large databases of experimental data. Using this proprietary data to build predictive models can provide a second return on their investment; however, model building has traditionally been a difficult and tedious activity performed by specialists. The automation in ADMET Modeler makes it easy for a scientist to create very powerful models with minimal training.

Potential new markets for machine learning

We released Version 6.5are currently investigating applications of ADMET Predictor during this reporting period. This version extends our metabolism predictions by training on a much larger experimental data set,sophisticated machine-learning engine outside of our normal pharmaceutical markets. To date, we have conducted several proof-of-concept studies including: (1) building predictive models for missile aerodynamic force and for the first time, provides specific metabolism rates for individual atoms within a molecule, rather than only for the moleculemoment coefficients as a whole. These improvementsfunction of missile geometry, Mach number, and angle of attack, (2) classifying/identifying missiles and other objects from radar tracking data, (3) mapping jet engine compressor performance to predict when maintenance might be required, and (4) classifying patients as healthy or experiencing some disease state or genetic disorder evidenced by magnetic resonance imaging (MRI) of the brain. Other potential applications for this modeling engine have also been identified; however, our focus to date has been primarily in these areas.

We believe our proprietary machine-learning software engine has a wide variety of potential applications and we intend to pursue funding to develop customized tools to further monetize our investment in this technology by expanding our markets beyond the life sciences and chemistry. In addition, we are also available via MedChem Designer and MedChem Studio for customers who license ADMET Predictor. We are now working on version 7.0, which we expectexamining a variety of expanded capabilities to release before the end of calendar 2013. This new version will incorporate a new model for predicting ionization constants (pKa’s) developed in a collaboration with Bayer AG that enabled us to approximately double the size of our data set from about 16,000 pKa values to more than 30,000 and to expand the chemical space it covers to include more molecules representative of those of interestadd to the pharmaceutical industry today. We believe the resulting improvement in pKa prediction puts our already best-in-class model well in front of any competitor.Predicting ionization is criticalbasic modeling engine to predicting most other properties, so all of our models (approximately 140) are being retrained based on thisaccommodate even larger data sets (“big data analytics”) and new capability for version 7.0.applications.

Version 6.5 also adds confidence levels to most of our toxicity models so that users have an idea of the reliability of each individual prediction.

MedChem Designer™

MedChem Designer was launched in 2011. It was initially a molecule drawingmolecule-drawing program, or “sketcher”, but now has capabilities exceeding those of other molecule drawingmolecule-drawing programs because of its integration with both MedChem Studio and ADMET Predictor. We provide MedChem Designer for free because we believe that in the long run it will help to increase demand for ADMET Predictor and MedChem Studio, and because most other existing molecule drawingmolecule-drawing programs are also provided for free. Our free version includes a small set of ADMET PredictorPredictor’s best-in-class property predictions, allowing the chemist to modify molecular structures and then see a few key properties very quickly. The chemist also sees that withWith a paid ADMET Predictor license, a totalthe chemist would see the entire approximately 150 predictions that are available. Over 16,000 copies of over 140 predictions would be available.MedChem Designer have been downloaded by scientists around the world to date.

When coupledused with a license for ADMET Predictor, MedChem Designer becomes ade novo molecule design tool for medicinal chemists.tool. With it, theya researcher can draw one or more molecular structures, then click on the ADMET Predictor icon and have over 140approximately150 properties for each structure calculated in seconds, including our proprietary ADMET Risk™ index. TheyResearchers can also click on an icon to generate the likely metabolites of a molecule and then predict theirall of the properties andof those metabolites from ADMET Risks as well.Predictor, including each of their ADMET Risk scores. This is important because a metabolite of a molecule can be therapeutically beneficial (or harmful) even though the parent molecule is not.

Our proprietary ADMET Risk score provides a single number that tells the chemist how many default threshold values for 24various predicted properties were crossed (or violated) by each structure. Thus, in a single number, the chemist can instantly compare the effects of different structural changes in many dimensions. The ideal score is zero; however, a low score greater than zero might be acceptable, depending on what property(s) caused the points to be assigned. If the number is too high (greater than 5 or 6), the molecule is not likely to be successful as a drug. The default rules can be modified and new rules can be added by the user to include any desired rule set based on any combination of calculated descriptors, predicted properties, and user inputs. Thus, in a single number, the chemist can instantly compare the effects of different structural changes in many dimensions. As chemists attempt to modify structures to improve one property, they often cause others to become unacceptable. Without ADMET Risk, the chemist would have to separatelyindividually examine many key properties for each new molecule (and its metabolites) to checkdetermine whether any of them became unacceptable as a result of changing the structure.

We released MedChem Designer 2.5 during this reporting period. This new version now shows the chemist the specific predicted atom locations for metabolism by each of the enzymes predicted to act upon a molecule.

MedChem Studio™

Over the past several years, MedChem Studio updatesis a powerful software tool that is used both for data mining and forde novo design of new molecules. In its data-mining role, MedChem Studio facilitates searching large chemical libraries to find molecules that contain identified substructures, and it enables rapid identification of clusters (classes) of molecules that share common substructures. MedChem Studio version 4.0 was released during fiscal year 2014. We have resulted in a very powerful tool fornow merged MedChem Studio with the refactoring of ADMET Predictor 8.0, so that either program can be entered through the same interface, and the communication between the two programs is enhanced through the seamless integration of both technologies. We believe this will enhance the attractiveness of both ADMET Predictor and MedChem Studio to medicinal and computational chemists for both data mining and for designing new drug-like molecules. We released version 3.5 of MedChem Designer during this reporting period. The new features are too numerous to list, but include such important items as:chemists.

While MedChem Designer can be used to refine a small number of molecules: however, creatingmolecules, MedChem Studio can be used to create and screening ascreen (with ADMET Predictor) very large numbernumbers of molecules down to a few promising lead candidates is the primary function of MedChem Studio (with ADMET Predictor).candidates. MedChem Studio has features that enable it to generate very large numbers of new molecular structures using a variety ofde novo design methods. CoupledWhen MedChem Studio is used with ADMET Predictor and MedChem Designer (the combination of which we refer to as our ADMET Design Suite), we believe the programs provide an unmatched capability for chemists to search through large libraries of compounds that have undergone high-throughput screening experiments to find the most promising classes (groups of molecules with a large common part of their structures the same)structures) and molecules that are active against a particular target. In addition, MedChem Studio with ADMET Predictor can take an interesting (but not acceptable) molecule and, very quickly generate many thousands of high quality analogs (i.e., similar new molecules) using a variety of design algorithms, quickly generate many thousands to generatemillions of high quality analogs (similar new molecules). These molecules can then be screened using ADMET Predictor to find molecules that are predicted (via ADMET Predictor) to be both active against the target as well asand acceptable in a variety of ADMET properties.

MedChem Studio version 3.5 was released during We demonstrated the current reporting period, adding a numberpower of new features, including:

NCE Project

Based on our strong belief in our ADMET Design Suite’s (MedChem Studio/MedChem Designer/ADMET Predictor) exceptional capabilities, we initiated our own project to design new molecules (NCEs, or New Chemical Entities). After considering various targets, we selected the malaria parasite Plasmodium falciparum, both because there is an unmet need for a very low-cost cure, and because we believed that external funding opportunities might exist if we were successful in generating high-quality lead compounds using our software. Our goal was to demonstrate how well the ADMET Design Suite worked to generate newduring two NCE (new chemical entity) projects wherein we designed lead molecules in a fractionto inhibit the growth of theplasmodium falciparum malaria parasite in one study and lead molecules that were combined COX-1 and COX-2 inhibitors. In each case, we announced ahead of time and cost normally required in the pharmaceutical industry. We completed the design process in September 2012that we were attempting to do this, and we announced thatreported the results when the projects were complete. Every molecule we designed and had requested quotations from chemical synthesis companies for the cost and time to make a small set of molecules. Five molecules of our own design and two precursors (almost the final designed structures, but a step awaysynthesized hit their targets in synthesis) were synthesized and tested for inhibition of the parasite at the University of California at Riverside. We were hoping that at least one would show inhibition of the growth cycle of the parasite.both projects.

We were excited

KIWI^TM

Drug development programs rely increasingly on modeling and simulation analyses to learnsupport decision-making and submissions to regulatory agencies. To ensure high-quality analyses, organizations must not only apply high-quality science, but must also be able to support the science by being able to validate the results. KIWI is a cloud-based web application that every molecule showed activity againstwas developed to efficiently organize, process, maintain, and communicate the parasite at less than micromolar concentrations, with two showing activity at less than 100 nanomolar concentration (high potency) againstvolume of data and results generated by pharmacologists and scientists over the drug-sensitive strainduration of the parasite. They were then tested against the drug-resistant straina drug development program. The validated workflow and tools within KIWI promote traceability and reproducibility of the malaria parasite, and again potency was observed, with two molecules showing nanomolar activity. We believe this exercise – a software company using its own products to design novel molecules and have them synthesized and tested – is unprecedented.results.

Several of these molecules were sent to another outside laboratory for additional experiments to measure a few key properties to compare the values versus our ADMET Predictor predictions. Our predictions for solubility, ionization constants (pKa), and lipophilicity were all well within accepted tolerances. Metabolism by human liver microsomes was much faster than predicted, probably due to metabolism by pathways our models did not yet predict. These molecules were only expected to be good lead molecules, not to be final drug molecules. Further structural changes to these lead compounds might meet all requirements for an approved drug.

At this time, we are not pursuing this project any further using internal funding, but would do so if external funding can be secured, because our goal for this project was not to develop a cure for malaria. Rather, we wanted to demonstrate that our software tools can enable scientists to quickly and efficiently analyze high-throughput data, to generate new molecular structures, and to assess their qualities via ADMET Predictor, resulting in high-quality lead candidates in a small fraction of the time and cost usually required. We accomplished that and we have been presenting our results in scientific meetings and in webinars to a worldwide audience. New software license sales resulting from these presentations have already more than recovered our investment.

The pharmaceutical industry has been working on developing the synthetic methodsrapidly adopting cloud technology as a solution to make these new molecules for a numberever-expanding computer processing needs. Leveraging our 20-plus years of weeks and progress is encouraging. We hope to have samples of several of our new molecules, if not all of them,experience in the next few months, at which time we will contract for testing them against both COX-2 and COX-1 enzymes (COX-1 is inhibited by aspirin and other drugs). The reason for also testing against the COX-1 enzyme is that it appears from the scientific research that was conducted after the withdrawal of other COX-2 inhibitors from the market that it is important to inhibit both COX-2 and COX-1 at a certain ratio in order to provide the benefits of COX-2 inhibition without the cardiotoxicity risk that has been associated with inhibiting COX-2 alone. We designed our new molecules based on activity models for both COX-2 and COX-1 built from public data, with the goal of providing an acceptable ratioarchitecture supporting modeling and simulation efforts, we have developed KIWI as a secure, validated, enterprise-scale environment, enabling global teams to collaborate on model-based decision making. KIWI has proven to be a valuable platform for encouraging interdisciplinary discussions about the model development process and interpretation of COX-2results. We continue to COX-1 inhibition.

DDDPlus

DDDPlus simulatesreceive positive feedback about the functionality implemented in vitro laboratory experiments used to measureKIWI and the rate of dissolutionvalue of the drugapproach we have taken to harness cloud technology. We continue to improve functionality and if desired,collaboration within the additives (excipients) contained in tabletsKIWI platform, and capsules underwe expect the licensing fee will be a variety of experimental conditions. This software program is used by formulation scientists in industry and the U.S. Food and Drug Administration (FDA) to (1) understand the physical mechanisms affecting the dissolution rate for various formulations, (2) reduce the number of cut-and-try attempts to design new drug formulations, and (3) to design in vitro dissolution experiments to better mimic in vivo conditions.

GastroPlus

Our flagship product and largest source of revenues is GastroPlus. GastroPlus simulates the absorption, pharmacokinetics,recurring revenue for further development and pharmacodynamicsgrowth. KIWI Version 1.3 was released in May 2015. This version of drugs administered to humans and animals, and is currently in widespread use at pharmaceutical companies, the FDA, the U.S. National Institutes of Health (NIH), and other government agencies in the U.S. and other countries. Because of GastroPlus, we were the only non-European company invited to join the European Innovative Medicines Initiative (IMI) program for Oral Bioavailability Tools (“OrBiTo”). OrBiTo is a collaboration among 27 industry, academic, and government organizations working in the area of oral absorption of pharmaceutical products. Because we are outside of Europe,KIWI provides our participation in this project is at our own expense, while other members are compensated for their work; however, we are a full memberuser community with access to allnew features that accelerate completion of modeling projects by decreasing run times and facilitating the datacomparison and discussionsexporting of all other members. We believe participationresults across models. These features include dynamic comparisons of model parameter estimates and diagnostic plots, export of model run records for regulatory submissions, and accelerated infrastructure with the upgrade to the latest versions of NONMEM® and Perl-speaks-NONMEM running in this initiative enables us to benefit from and to contribute to advancing the prediction of human oral absorption from preclinical data, and ensures that we are in front of the audience of member pharmaceutical companies and regulatory agencies.a 64-bit Linux environment.

KIWI Version 8.5 of GastroPlus1.5 was released during the current reporting period, adding a number of importantin March 2016. This new capabilities requested by customers as well as improvements we have identified in-house, including:

MembranePlus™

MembranePlus is a new product that has been under development for a number of years, but was put on hold for several years due to other priorities. It was revivedversion introduced major enhancements in the past yearfunctionality of visualization tools offered by the platform. These enhancements include simplifying the creation of plots and iscomparing them across multiple models, thus accelerating the model refinement process. In addition, analysts can now nearing commercial release. Like DDDPlus, MembranePlus simulates laboratory experiments, but in this case, the experiments are for measuring permeability of drug-like molecules through various membranes, including several different cell cultures (Caco-2, MDCK) as well as artificially formulated membranes (PAMPA). The value of such a simulation is that when the same molecules are measured in different laboratories, results are often strikingly different. The differences are caused by a complex interplay of factors in how the experiment was set up. The ability to simulate these experimentsconveniently copy visualization preferences across projects, improving consistency and facilitating collaboration and communication with their specific setups in detail is provided by MembranePlus,clients and this enables the scientist to better interpret how results from various experiments can be used to predict permeability in human and animals, which is the ultimate goal. MembranePlus is unique and our customers have expressed significant interest in the new capability.colleagues.

We plan to release version 1.0 of MembranePlus by March 2014.

Contract Research and Consulting Services

Our scientists and engineers have expertise in oraldrug absorption via various dosing routes (oral, intravenous, ocular, nasal/pulmonary, and dermal), pharmacokinetics, is evidenced by the fact that our staff membersand pharmacodynamics. They have been speakers or presenters at over 80150 scientific meetings worldwide in the past four years. We frequently conduct contracted consulting studies for large customers (including the five largest five pharmaceutical companies) who have particularly difficult problems and who recognize our expertise in solving them, as well as for smaller customers who prefer to have studies run by our scientists rather than to license our software and train someone to use it. The demand for our consulting services has been steadily increasing. Long-term collaborationsincreasing, and shorter-termwe have expanded our consulting contracts serve bothteams to showcase our technologies and to build and strengthen customer relationships.meet the increased workload.

DuringWe closed a five-year consulting agreement with a major research foundation to implement a platform for coordinating the fourth quarter of fiscal year 2013 we continued todata generated by global teams engaged in model-based drug development and began work on the project.

We currently are working with the FDA on three different Research Collaboration Agreements (RCAs): the two funded efforts for the ocular model and long-acting injectable microspheres and the unfunded IVIVC effort, all described above under “GastroPlus”. We also successfully completed the fifth year of our 5-yearfive-year renewable collaboration agreement with the Center for Food Safety and Applied Nutrition (CFSAN) of the FDA. FDA scientists and our scientists are using ADMET Predictor/Modeler to builddevelop predictive toxicity models for likely toxicities of food additives and contaminants. During

Pharmacometric Modeling

We have a reputation for high-quality analyses and regulatory reporting of data collected during preclinical experiments as well as clinical trials of new and existing pharmaceutical products, typically working on 30-40 drug projects per year. The model-based analysis of clinical trial data that we perform is different from the modeling analysis offered by GastroPlus; the former relies more on statistical and semi-mechanistic models, whereas the latter relies on very detailed mechanistic models. Statistical models rely on direct observation and mathematical equations that are used to fit data collected across multiple studies along with describing the variability within and between patients. Mechanistic models are based on a detailed understanding of the human body and the chemistry of the drug and involve mathematical and scientific representation of the phenomena involved in drug dissolution/precipitation, absorption, distribution, metabolism, and elimination. Collectively, the models guide drug formulation design and dose selection.

Because of the synergies achieved through the integration of our Buffalo division (Cognigen) into Simulations Plus, our first full fiscal year of this collaboration, we analyzed FDA databasescombined operations resulted in significantly increased revenues and workedearnings. Our clinical pharmacometricians in Buffalo, supported by our consulting team in California, are learning to use the PBPK modeling capabilities of GastroPlus and are performing such studies under new and expanded contracts with FDA scientists to ensure that the FDA data to be used for building new predictive models is as accurate as we can reasonably make it. Both FDA scientists and our scientists are building a series of models to classify new compounds as toxic or nontoxic from FDA datasets. Included in this effort was a special modification to ADMET Predictor to allow the user to set a minimum value for specificity or sensitivity when building a model. Sensitivity refers to how well a model identifies toxic (or any other property) compounds. A model that determined all compounds are toxic would have 100% sensitivity, because all toxic compounds would be labeled as such; however, all nontoxic compounds would also be labeled toxic. Specificity refers to how well a model distinguishes between toxic and nontoxic compounds. Increasing one usually results in decreasing the other. Depending on the purpose of the model, some scientists will prefer to train models that emphasize one statistic over the other.pharmaceutical customers.

PRODUCT DEVELOPMENT

Development of our software is focused on expanding product lines, designing enhancements to our core technologytechnologies, and integrating existing and new products into our principal software architecture and platform technology.technologies. We intend to continue to offer regular updates to our products and to continue to look for opportunities to expand our existing product suite.suite of products and services.

We develop all of ourTo date, we have developed products internally. We haveinternally, sometimes also licensed productslicensing or have otherwise acquiredacquiring products, or portions of our products, from other organizations.third parties. These arrangements sometimes require the payment ofthat we pay royalties by us.to third parties. We intend to continue to license or otherwise acquire technology or products from third parties.parties when it makes business sense to do so. We currently have two royalty agreements, one with TSRL, Inc. (“TSRL”) and another with Symyx Technologies (“Symyx”). In July 1997, we entered into a royaltylicense agreement, with TSRLBIOVIA, a San Diego division of Dassault Systemes in France (formerly known as Accelrys, Inc.), pursuant to which royalties werea small royalty is paid to TSRLBIOVIA from revenues on each license for GastroPlus basic software. the Metabolite module in ADMET Predictor. This license agreement continues in perpetuity and either party has the right to terminate it.

In March 2010,1997 we entered into a royaltyan exclusive software licensing agreement with Symyx, which was merged with Accelrys,TSRL, Inc. (aka Therapeutic Systems Research Laboratories) (TSRL), pursuant to which TSRL licensed certain software technology and databases to us, and we paid royalties were paid to Symyx from revenues on each license for Metabolite module. AfterTSRL. On May 15, 2014, we and TSRL entered into a buyouttermination and non-assertion agreement pursuant to which the parties agreed to terminate the 1997 exclusive software licensing agreement. As a result, the Company obtained a perpetual right to use certain source code and data, and TSRL relinquished any rights and claims to any GastroPlus products and to any claims to royalties or other payments under that agreement, and we agreed to pay TSRL total consideration of $6,000,000 as follows: (a) $3,500,000 by May 20, 2014, which amount was comprised of $2,500,000 in cash and $1,000,000 worth of our common stock (which was 164,745 shares based upon the April 25, 2014 closing price per share of $6.07 per share), (b) $750,000 payable on or before April 25, 2015, (c) $750,000 payable on or before April 25, 2016, and (d) $1,000,000 payable on or before April 25, 2017. All payments have now been made except the final $1 million, which will be paid in April 2017. Our outstanding payment obligation described above is non-interest-bearing and will be amortized at a constant rate of $150,000 per quarter until it is completely amortized, after which no further expense will be incurred. For most quarters, we expect that this will result in a savings over the royalty payments that would have been paid to TSRL if paid consistent with Enslein Research, we combined Metabolism module and Metabolite module, and currently we pay royalties to Symyx from the sale of a new Metabolism module.These license agreements have no expiration date.past practices.

MARKETING AND DISTRIBUTION

We distribute our products and offer our services in North America, South America, Europe, Japan, Australia, New Zealand, India, Singapore, Taiwan, and the People’s Republic of China.

We market our pharmaceutical software and consulting services through attendance and presentations at scientific meetings, exhibits at trade shows, seminars at pharmaceutical companies and government agencies, through our web pages on the Internet,website, and using various communication mediachannels to our compiled database of prospects and customer names.customers. At various scientific meetings around the world each year there are numerous presentations and posters presented in which the research that was reported onresearch was performed using our software. Many of these presentations wereare from industry and FDA scientists; some wereare from our staff. In addition, more than 50 peer-reviewed scientific journal articles, posters, and podium presentations are published each year using our software, mostly by our customers, further supporting its use in a wide range of preclinical and clinical studies.

We have one independent distributor in Japan

Our sales and two independent representatives in China; however,marketing efforts are handled primarily internally with our scientific team is also the majority of our sales and marketing team,several senior management staff assisting our Vice President of Marketingmarketing and Sales and hissales staff with trade shows, seminars, and customer trainingtrainings both via the Internetonline and on-site. We believe that this is more effective than a completely separate sales team for several reasons: (1) customers appreciate talking directly with software developers and consulting scientists who can answer a wide range of in-depth technical questions about methods and features in depth;features; (2) our scientists benefit from direct customer contact by gainingand engineers gain an appreciation for the customer’s environment and problems of the customer;problems; and (3) we believe the relationships we build through scientist-to-scientist contact are stronger than relationships built through salesperson-to-scientist contacts. We also have one independent distributor in Japan and two independent representatives in China who also sell and market our products with support from our scientists and engineers.

We provide support to the GastroPlus User Group in Japan, which was organized by Japanese researchers several years ago. As ofin 2009. In early 2013, a group of scientists in Europe and North America have organized another group following the example set in Japan. The number ofOver 850 members who have joined this group is more than 330.to date. We support this group as well through coordination of online meetings each month and managing the user group web site for exchange of information among members. These user groups provide us valuable feedback with respect to desired new features and suggested interface changes.

We use the Internet to provide product information and software updates, and as a forum for user feedback and information exchange. We have cultivated market share in North America, South America, Europe, Japan, Australia, New Zealand, Singapore, and the People’s Republic of China. Internet and e-mail technologies have had a positive influence on our ability to communicate with existing and potential customers worldwide.

PRODUCTION

Our pharmaceutical software products are designed and developed entirely by our development teamteams in California and New York, with locations in Lancaster, Petaluma, San Jose, San Diego, and San Diego. The principal materialsBuffalo. In addition, we have one team member working out of North Carolina and components used in the manufacture of simulation softwareour Chief Executive Officer works primarily from Auburn, Alabama. Our products includeand services are now delivered electronically – we no longer provide CD-ROMs and instructionprinted manuals which are also produced in-house and through outside contractors. In-house graphic art and engineering talent enables us to accomplish this production in a cost-efficient manner.or reports.

COMPETITION

In our pharmaceutical software and services business, we compete against a number of established companies that provide screening, testing and research services, and products that are not based on simulation software. There are also software companies whose products do not compete directly with, but are sometimes closely related to, ours. Our competitors in this field include some companies with financial, personnel, research, and marketing resources that are larger than ours. Our management believes there is currently no significant competitive threat to GastroPlus or DDDPlus,GastroPlus; however, in spite of a high barrier to entry, one could be developed over time. Our new PKPlus software product will compete with one major and a few minor software programs; however, the capabilities and design features of PKPlus, along with more affordable licensing, are expected to generate significant interest. MedChem Studio, MedChem Designer, and ADMET Predictor/ADMET Modeler operate in a more competitive environment. Several other companies presently offer simulation or modeling software, or simulation-software-based services, to the pharmaceutical industry.

Major pharmaceutical companies conduct drug discovery and development efforts through their internal development staffs and through outsourcing some of this work.outsourcing. Smaller companies generally need to outsource a greater percentage of this research. Thus, we compete not only with other software suppliers, but also with the in-house development teams at some of the larger pharmaceutical companies.

Although competitive products exist, both new licenses and license renewals for GastroPlus have continued to grow in spite of this competition.grow. We believe that we enjoy a dominantsignificant market share in this segment. We believe that the success of our recenttwo NCE projectprojects in which we successfully designed, had synthesized, and tested a number of new lead molecules to treat malaria has cultivated strong interest in our ADMET Design Suite™ (ADMET Predictor/MedChem Studio/MedChem Designer). Presentations in the U.S., Japan, and Europe since the results were released have beenas well received and new licenses for our cheminformatics software have already more than recouped our investment. Our newas COX-2/COX-1 NCE project is intended towill further promote the abilities of our ADMET Design Suite for rapid and cost-effective design of lead compounds. We expect the completely refactored ADMET Predictor 8.0 version with its fresh look and expanded features will generate increased interest in drug discovery and early drug development teams.

We believe the key factors in competingour ability to successfully compete in this field are our ability to: (1) continue to invest in research and development, and develop and support industry-leading simulation and modeling software and related products and services to effectively predict activities and ADMET-related behaviors of new drug-like compounds, to(2) design new molecules with acceptable activity and ADMET properties, to(3) develop and maintain a proprietary database of results of physical experiments that will serve as a basis for simulated studies and empirical models, to(4) attract and retain a highly skilled scientific and engineering team, and to(5) develop and maintain relationships with research and development departments of pharmaceutical companies, universities and government agencies.

We are actively seekingseek acquisitions to expand the pharmaceutical software and services business. Earlier attemptsWe plan to acquire other companies have not been successful eithercontinue our efforts to find strategic targets and alliances that will enhance our position in arriving at mutually agreeable termsthe industry, and conditions, or becauseto pursue the application of adverse conditions discovered during our due diligence process.machine-learning technology to new industries.

TRAINING AND TECHNICAL SUPPORT

Customer training and technical support are important factors in customer satisfaction for our pharmaceutical products, and we believe we are an industry leader in providing customer training and technical support in our business areas. We provide in-house seminars at customers’, and potential customers’, sites. sites, as well at selected universities to train students who will soon be industry scientists. These seminars often serve as initial training in the event the potential customer decides to license or evaluate our software. Technical support is provided after the sale of any software in the form of on-site training (at the customer’s expense), web meetings and telephone, fax, and e-mail assistance to the customer’s users during the customer’s license period. We have used Internet meetings extensively to provide demonstrations and customer assistance, resulting in rapid response to requests worldwide and reducing our travel time and expenses.

Technical support for pharmaceutical software is provided by our life sciences team and our inside sales and support staff based at our headquarters facilities in Lancaster, California. We provide free telephone support offering toll-free numbers in the U.S. and Canada, and e-mail and web-based support for all of our pharmaceutical software products worldwide. Technical support for pharmaceutical software products is minimal, averaging a few person-hours per month.

RESEARCH AND DEVELOPMENT

We believe that our ability to grow and remain competitive in our markets is strongly dependent on investment into researchResearch and development (“R&D”). R&D(R&D) activities include both enhancement of existing products and development of new products. Development of new products and adding functionality to existing products are capitalized in accordance with Financial Accounting Standards Board (“FASB”)(FASB) Accounting Standards Codification (“ASC”)(ASC) 985-20, “Costs of Software to Be Sold Leased, or Marketed”. R&D expenditures, which primarily relate to both capitalized and expensed salaries, R&D supplies, laboratory testing, and R&D consulting, were approximately $1,931,000$2,641,000 during fiscal year 2013,2016, of which $1,129,000$1,196,000 was capitalized. R&D expenditures during fiscal year 20122015 were approximately $1,907,000,$2,496,000 during fiscal year 2015, of which $959,000$1,168,000 was capitalized.

Our pharmaceutical business R&D activities during fiscal year 20132015 were focused on improving our ADMET Predictor/ADMET Modeler, MedChem Studio, MedChem Designer and GastroPlus products, as well as the development of our new MembranePlus software product described above.

EMPLOYEES

EMPLOYEES

As of August 31, 2013, we2016, Simulations Plus and its subsidiary Cognigen Corporation employed 27a total of 63 employees, including 60 full-time employees and no3 part-time employees, including 1948 in technical and research and development, 45 in marketing and sales, 410 in administration and accounting. Currently 1525 employees hold Ph.D.s and 1 is a Ph.D. candidatePh.Ds. in their respective science or engineering disciplines. Additionally, 4disciplines, and 16 employees hold one or more Master’s degrees. Most of the senior management team and the members of our Board of Directors hold graduate degrees.

We believe that our future success will depend, in part, on our ability to continue to attract, hire and retain qualified personnel. We continue to seek additions to our life sciences team although the competition for such personnel in the pharmaceutical industry is intense. None of our employees is represented by a labor union, and we have never experienced a work stoppage. We believe that our relations with our employees are good.

INTELLECTUAL PROPERTY AND OTHER PROPRIETARY RIGHTS

We own two patents that were acquired as part of our acquisition of certain assets of Bioreason, Inc. We primarily protect our intellectual property through copyrights and trade secrecy.secrets. Our intellectual property consists primarily of source code for computer programs and data files for various applications of those programs in the pharmaceutical software businesses. The expertise of our staff is a considerable asset closely related to intellectual property, and attracting and retaining highly qualified scientists and engineers is essential to our business.

EFFECT OF GOVERNMENT REGULATIONS

Our pharmaceutical software products are tools used in research and development and are neither approved nor approvable by the FDA or other government agencies.

ITEM 1A – RISK FACTORS

Not applicable because we are a smaller reporting company.

ITEM 1B – UNRESOLVED STAFF COMMENTS

Not applicable.None.

ITEM 2 – PROPERTIES–PROPERTIES

We lease approximately 13,500 square feet of office space in Lancaster, California. The original agreementlease had a five-year term with two, (2), three (3)-yearthree-year options to extend. Since the originalThe initial five-year term expired in February 2011, and we have exercisedextended the first of the two (2), three (3)-year options which will end onlease to February 2, 2014. We made an amendmentIn June 2013, the lease was amended to our current lease with a single remaining extension of three (3) years at an annual increase of 4% per year.extend the term to February 2, 2017. The amended lease extends to February 2, 2017 withalso provides for an annual base rent increase of 3% per year and has antwo, two-year options to extend. In May 2016 the Company exercised the two, two-year options extending the term of the lease through February 2, 2021 at a fixed rate of $25,000 per month. The new extension agreement gives the Company the right, upon 90 days’ prior notice, to terminate the lease in the last two years of the term upon payment of a recapture payment equal to the 3% base payment increase that would have been due under the original agreement.

Our subsidiary leases approximately 12,225 square feet of office space in Buffalo, New York. The initial five-year term expires in October 2018; the lease allows for a three-year option of two (2) two-year extensions.to extend to October 2021. The current base rent amount of $24,272.42is $15,638 per month remains the same; however, we had 3 months’ free base rent during the months of June, July and August of 2013. We record these three (3) months as a discount divided equally through the first term of this amended lease from June 2013 through January 2017. The amended lease is filed with the SEC as an exhibit to our Form 10-Q filed on July 10, 2013.month.

AfterRent expense, including common area maintenance fees for the sale of Words+ to Prentke Romich Company (PRC), we entered into a sublease agreement under which Words+ paid 20% of the monthly rent we pay to our landlord, plus 20% of facility-related operating expenses. The term of this month to month sublease commenced on January 1, 2012fiscal years ended August 31, 2016 and ended on February 28, 2013.2015 was $491,800 and $488,888, respectively.

The Company believes its existing facilities and equipment are in good operating condition and are suitable for the conduct of its business.

ITEM 3 – LEGAL PROCEEDINGS

WeExcept as described below, we are not a party to any legal proceedings and are not aware of any pending legal proceedings of any kind.

In June 2014, the Company was served with a complaint in a civil action entitled Sherri Winslow v. Incredible Adventures, Inc., et al. (Los Angeles Superior Court Case No. BC545789) alleging wrongful death and seeking unspecified damages arising out of a May 18, 2012 plane crash in the State of Nevada. The Company’s Chief Executive Officer owns the subject aircraft and is also a named defendant. The complaint alleged that the Company was the owner of the subject aircraft. The Company denies all material allegations against it, including that it owns or has ever owned any interest in the subject aircraft. On November 25, 2014, the plaintiff and the Company signed a stipulation of dismissal pursuant to which the plaintiff agreed to dismiss the Company without prejudice. The Company planned to prepare a dismissal with prejudice to be signed on behalf of the plaintiff in the event the plaintiff did not discover evidence during a nine month period to and including August 31, 2015 that justified bringing the Company back into the litigation. The Company did not receive any notification of any such discovery and is in the process of preparing documents for the plaintiff’s final dismissal with prejudice.

ITEM 4 – MINE SAFETY DISCLOSURES.

Not applicable.

PART II

ITEM 5 – MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

There is currently no share repurchase program pending, andThe Company’s common stock trades on the Company made no repurchasesNASDAQ Capital Market under the symbol “SLP.”

Price Range of its securities within the fourth quarter of the fiscal year 2013.Common Stock

The following table shows low and high sales price for the Company’s common stock for the last eight fiscal quarters.

Holders

As of November 14, 2016, there were 42 shareholders of record.

Dividends

We paid a total of approximately $3.4 million in cash dividends during each of fiscal years 2016 and 2015 as set forth in the table below. We expect to pay quarterly dividends of $0.05 per share of common stock each quarter, subject to declaration by our Board of Directors. However, there can be no assurances that our Board of Directors will continue the dividend distributions for any specified number of quarters.

Equity Compensation Plan Information

The following information is provided as of August 31, 2016:

Repurchases

There is currently no share repurchase program pending, and the Company has made no repurchases of its securities since fiscal year 2011.

ITEM 6 – SELECTED FINANCIAL DATA

Not applicable because we are a smaller reporting company.

ITEM 7 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with the Financial Statements and related notes included in this Annual Report on Form 10-K.

Management Overview

Fiscal year 20132016 highlights:

Fiscal Year 2016 Financial Summary:

Fiscal year 2013 Financial Summary:

Strategy Going Forward:

Fiscal year 20132016 was another record year. We believe the continued growth of our pharmaceutical software and services business segment is the result of steadily increasing adoption of simulation and modeling software tools across the pharmaceutical industry, as well as the expertise we offer as consultants to assist companies involved in the research and development of new medicines. We have received a continuing series of study contracts with pharmaceutical companies ranging from several of the largest in the world to a number of medium-sized and smaller companies in the U.S., Europe, and Europe.Japan.

Our financial performance has enabled us to maintain significant cash deposits remain debt-free, and to continue to invest in our marketing and sales activities we began in early 2009 in order to reach a wider customer base, as well as to distribute significant cash dividends to our shareholders.

We have not beencompleted a second successful year of the integration of Cognigen, following our acquisition of Cognigen in identifying and completing any acquisitions during this reporting period in spite of ongoing investigations. ItSeptember 2014; it is our intent to continue to search for acquisition opportunities that would beare strategically compatible with our current businesses and that would be immediatelyare accretive, i.e., adding to both revenues and earnings.

In the past, weWe do not have used some of our cash to repurchase shares of our common stock because we believe that reducing the number of fully diluted shares provides greater value to our shareholders than receiving a low interest rate on our cash deposits, and because we believe that our cash deposits after such repurchases remain sufficient to accomplish any reasonable potential acquisitions as well as to maintain sufficient cash reserves to ensure meeting operational needs for the foreseeable future. Although there are no stock repurchase programs pending,currently in place or pending; however, our Board of Directors may consider additional repurchases at anyprograms from time at prices and under conditions set by our Board of Directors.to time.

Results of Operations

The following sets forth selected items from our statements of operations (in thousands) and the percentages that such items bear to net sales for the fiscal years ended August 31, 2013 (“FY13”)2016 (FY16) and August 31, 2012 (“FY12”)2015 (FY15)(because of rounding, numbers may not foot).

* Numbers in the prior year have been reclassified to conform to the current year presentation

FY13FY16 COMPARED WITH FY12FY15

Net SalesRevenues

NetConsolidated net revenues increased by 9.1% or $1.658 million to $19.972 million in FY16 from $18.314 million in FY15. $326,000 of this increase was from revenues generated by our Buffalo subsidiary (Cognigen), while net revenues of the California division increased $1.332 million or 10.2%, to $14.418 million in FY16 from $13.086 million in FY15. FY16 software license sales increased $622,000, or 6.6%,$1.340 million, while consulting revenues increased by $318,000 compared to $10,071,000 in FY13 from $9,449,000 in FY12. We attribute the increase in pharmaceutical software sales to increases in the number of licenses with new and existing customers, as well as licensing of new modules to existing customers, especially for our GastroPlus line of products because it has more modules than other products we offer. The revenue from sales of software increased approximately $254,000, or 3%. In FY13, the revenue from two funded collaborations which will expand the capabilities of our GastroPlus software and analytical studies also increased approximately $368,000, or 101%.FY15.

Cost of SalesRevenues

Consolidated cost of revenues increased by $209,000 to $4.602 million in FY16 from $4.392 million in FY15. The majority of this increase was salary-related expenses from annual salary increases and the first year of expensed bonuses for our Buffalo division (Cognigen).

Cost of sales increased $137,000, or 9.0%, to $1,647,000 in FY13 from $1,510,000 in FY12. Asrevenues as a percentage of netrevenue decreased from 24.0% in FY15 to 23.0% in FY16. The majority of this percentage change is a result of the percentage blend of software sales cost of sales increased by 0.3%.compared to consulting services during FY16.

A significant portion of cost of salesrevenues 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.revenues. This amortization cost decreased approximately $42,000 in FY16 compared with FY15. In FY15, amortization expense increased approximately $49,000, or 7%, in FY13 compared with FY12.

Royalty expense, a variable cost related to sales of our GastroPlus core program as well as royalties from the agreement with Accelrys, Inc. (the original agreement was with Symyx Technologies which merged with Accelrys, Inc.) Metabolite/Metabolism, increased approximately $46,000, or 8%, in FY13 compared with FY12.

Service cost, such as labor costs for trainings/workshops, analytical studies, and technical support, increased approximately $42,000, or 71%, in FY13 compared with FY12$215,000 due to more numberreleases of person-hours allocated to those services during FY13 compared with FY12.GastroPlus and ADMET Predictor and amortization of software acquired as part of the Cognigen acquisition.

Gross ProfitMargin

Gross profitConsolidated gross margin increased $485,000,$1.449 million or 6.1%10.4%, to $8,424,000$15.371 million in FY13FY16 from $7,939,000$13.922 in FY12. We attributeFY15. $1.372 of this increase tois from the California division, which showed an 84.3% gross margin. The Buffalo Division Gross margins increased sales$77,000 with margins of pharmaceutical software which outweighed an increase in the cost58% after first-time bonuses of goods sold.$139,000.

Selling, General and Administrative Expenses

Selling, general, and administrative (“SG&A”)(SG&A) expenses increased $171,000,decreased $43,000, or 5.0%0.6% to $3,550,000$6.694 million in FY13, compared to $3,379,000FY16 from $6.737 million in FY12; however, as a percentage of sales, SG&A decreased to approximately 35.2% in FY13 from approximately 35.8% in FY12. FY15.

The major increases in SG&A expense were:

The major decreases in SG&A expense were:

Thus, increases in SG&A expenses outweighed decreases.

Research and Development

We incurred approximately $1,931,000$2,641,000 of research and development costs during FY13.FY16. Of this amount, $1,129,000$1,196,000 was capitalized and $802,000$1,445,000 was expensed. In FY12, weWe incurred $1,900,000approximately $2,496,000 of research and development costs of which $952,000during FY15. Of this amount, $1,168,000 was capitalized and $948,000$1,328,000 was expensed. The increase of $24,000,$ 145,000, or 1.3%5.8%, in total research and development expenditures from FY12FY15 to FY13FY16 was mainly due to staff increases and salary increases for existing staff, which outweighed the reduction in NCE (new chemical entity) malaria project costs.staff.

Income from operations

During FY13, we generated income from operations of $4,072,000, as compared to $3,612,000 for FY12, an increase of 12.7%. We attribute this increase to increases in gross profit and decreases in research and development expense, which outweighed the increase in SG&A expense.

Other Income and (Expense)income (expense)

Net other income (expense) decreasedin FY16 increased by $159,000, or 46.2%,$168,000 to $184,000a net other income of $5,000 from an expense of $164,000 in FY13 from $343,000 in FY12.FY15. This is due mainly to the lower interest income and lowera $168,000 reduction in currency exchange gainlosses in FY13 compared with FY12, and a decrease in sublease income from Words+ as they closed their operations in March 2013.FY16.

Provision for Income Taxes

ProvisionThe provision for income taxes was $2.286 million for FY13 increased by $227,000, or 19.9%, to $1,370,000,FY16 compared to $1,143,000$1.850 million for FY12 dueFY15. Our effective tax rate decreased to higher taxable income. 31.6% in FY16 from 32.5% in FY15.

Net Income from Continuing Operations

Net income from continuing operations for FY13 increased by $74,000,$1,107,000, or 2.7%28.8%, to $2,886,000, compared to $2,812,000 for FY12. We attribute this increase$4.950 million in net income to increased gross profit and decreaseFY15 from $3.843 million in research and development expense, and decrease in tax expense, which outweighed the increase in SG&A expense, the decrease in other income, and increase in tax expense.FY15.

SEASONALITY

Sales in our business segment exhibitsOur sales exhibit some seasonal fluctuations, with the fourth fiscal quarter (June-August) generally having the lowest sales over the past three fiscal years because of summer vacations and reduced activities at our customers’ sites. This unaudited quarterly sales information has been prepared on the same basis as the annual information presented elsewhere in this Annual Report on Form 10-K and, in the opinion of management, reflects all adjustments (consisting of normal recurring entries) necessary for a fair presentation of the information presented. Net sales for any quarter are not necessarily indicative of sales for any future period; however, because our pharmaceutical software is licensed on an annual basis, renewals are usually within the same quarter year after year.

LIQUIDITY AND CAPITAL RESOURCES

Our principal source of capital has been cash flow from our operations. We have achieved continuous positive operating cash flow over the last ninetwelve fiscal years. We believe that our existing capital and anticipated funds from operations will be sufficient to meet our anticipated cash needs for working capital and capital expenditures for the foreseeable future. Thereafter, if cash generated from operations is insufficient to satisfy our capital requirements, we may open a revolving line of credit with a bank, or we 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 us, or, if available, that it will be in amounts and on terms acceptable to us.

We are not aware of any trends or demands, commitments, events or uncertainties that are reasonably likely to result in a decrease in liquidity of our assets. The trend over the last ten years has been increasing cash deposits from our operating cash flows, and we expect that trend to continue for the foreseeable future. In FY14 we used $2,500,000 of our cash reserves to pay the initial installment of the amounts we owe under termination and non-assertion agreement we entered into with TSRL in May 2014 that terminated the exclusive software licensing agreement we entered with TSRL in 1997. We also incurred $2,500,000 of debt in connection with termination and non-assertion agreement. We have been paying that debt out of, and anticipate that that debt will continue to be, paid out of operations from the reduction in royalty payments that are no material commitments for capital expenditureslonger payable under the 1997 licensing agreement as a result of its termination.

On July 23, 2014, we signed the Merger Agreement with Cognigen. The merger closed on September 2, 2014, subsequent to the end of FY14, and Cognigen became our wholly-owned subsidiary. In connection with the latest fiscal period.closing we paid $2,080,000 in cash and issued 491,159 shares of common stock of the Company to the former Cognigen stockholders. The 491,159 shares were valued at $3,120,000 based on a $6.35 per share price, which was the volume-weighted average closing price of our common stock for the 30 consecutive trading-day period ending two trading days before the closing date. In July 2016, we paid the additional $720,000 in cash due, and issued the additional 170,014 shares of common stock due, to the former Cognigen stockholders, which additional shares were valued at $1,080,000 under the formula described above.

We will continue to seek opportunities for strategic acquisitions. If one or more such acquisitions is identified, a substantial portion of our cash reserves may be required to complete it; however, we intend to maintain sufficient cash reserves after any acquisition to provide reasonable assurance that outside financing will not be necessary to continue operations. If we identify an attractive acquisition that would require more cash to complete than we are willing or able to use from our cash reserves, we will consider financing options to complete the acquisition, including obtaining loans and issuing additional securities.

Because we have not been able to find suitable acquisitions for several years, the board of directors decided to distribute a portion of our cash reserves to our shareholders, declaring an ongoing $0.05 per share per quarter cash dividend beginning with the second quarter of FY12. Quarterly dividend payments made in FY12FY15 and FY13FY16 are listed in the following table.

There

The Board of directors has indicated its intension to pay $0.05 quarterly dividends; however, there can be no assurances that our Board of Directors will continue the dividend distributions for any specified number of quarters; however, thereas the decision is nomade on a quarterly basis based on current plan to discontinue the quarterly dividend distributions.financial conditions and strategic plans. After the end of this reporting period,FY16, in November 2016, our Board of Directors declared a dividend distribution of $0.04$0.05 per share for November 2013, an increase of 100% over the planned $0.02 per share that remained after the accelerated distribution in December 2012.

UNUSUAL OR INFREQUENT EVENTS

On November 30, 2011, we sold our entire interest in our former wholly-owned subsidiary, Words+, an augmentative and alternative communication device manufacturer, for aggregate gross proceeds of $1.97 million. We recognized a gain of approximately $465,820, net of tax, from the sale of Words+, which is included in discontinued operations in our statement of operations for the fiscal year ended August 31, 2012. The difference between the sales price and the net gain is a result of adjustments to net working capital from August 31, 2011, until the closing on November 30, 2011, legal fees, auditing fees, tax specialist’s fees, and severance compensation for terminated employees.share.

KNOWN TRENDS OR UNCERTAINTIES

Although we have not seen any significant reduction in revenues to date, we have seen some consolidation in the pharmaceutical industry during the current economic downturn. This trend hasdownturns. These consolidations have not had a negative effect on our total sales to that industry; however, theseshould consolidations and downsizing in the industry continue to occur, those events could have anadversely impact on our revenues and earnings going forward.

We believe that the need for improved productivity in the research and development activities directed toward developing new medicines will continue to result in increasing adoption of simulation and modeling tools such as those we produce. New product developments in the pharmaceutical business segments could result in increased revenues and earnings if they are accepted by our markets; however, there can be no assurances that new products will result in significant improvements to revenues or earnings. For competitive reasons, we do not disclose all of our new product development activities.

Our continued quest for acquisitions in the pharmaceutical business segment could result in a significant change to revenues and earnings if one or more such acquisitions are completed.

The potential for growth in new markets (e.g., aerospace and healthcare) is uncertain. We will continue to explore these opportunities until such time as we either generate sales or determine that resources would be more efficiently used elsewhere.

INFLATION

We have not been affected materially by inflation during the periods presented, and no material effect is expected in the near future.

OFF-BALANCE SHEET ARRANGEMENTS

As of August 31, 2013,2016, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. As such, we are not materially exposed to any financing, liquidity, market, or credit risk that could arise if we had engaged in such relationships.

We do not have relationships or transactions with persons or entities that derive benefits from their non-independent relationship with us or our related parties.

RECENTLY ISSUED OR NEWLY ADOPTED ACCOUNTING STANDARDS

In July 2012,May 2014, the FinancialFranchise Accounting StandardStandards Board (“FASB”)(FASB) issued Accounting Standards Update 2012-02, “(ASU) No. 2014-09,Testing Indefinite-Lived Intangible AssetsRevenue from Contracts with Customers(ASU 2014-09). The standard will eliminate the transaction- and industry-specific revenue recognition guidance under current generally accepted accounting principles in the U.S. (GAAP) and replace it with a principles-based approach for Impairment” (“determining revenue recognition. ASU 2012-02”), which amended the guidance in Accounting Standards Update 2011-08 Testing Goodwill for Impairment to simplify the testing of indefinite-lived intangible assets other than goodwill for impairment. ASU 2012-02 becomes2014-09 is effective for annual and interim impairment tests performedperiods beginning after December 15, 2017. Early adoption is permitted for years beginning after December 15, 2016. The revenue recognition standard is required to be applied retrospectively, including any combination of practical expedients as allowed in the standard. We are evaluating the impact, if any, of the adoption of ASU 2014-09 to our financial statements and related disclosures. The Company has not yet selected a transition method nor has it determined the effect of the standard on its ongoing financial reporting.

In November 2015, the FASB issued ASU No 2015-17,Income Taxes (Topic 740)(“ASU 2015-17). The amendments in ASU 2015-17 change the requirements for the classification of deferred taxes on the balance sheet. Currently, GAAP requires an entity to separate deferred income tax liabilities and assets into current and noncurrent amounts in a classified statement of financial position. To simplify the presentation of deferred income taxes, the amendments in this ASU require that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position. The pronouncement is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2016. Earlier application is permitted for all entities as of the beginning of an interim or annual reporting period. The Company has not yet selected a transition method nor has it determined the effect of the standard on orits ongoing financial reporting.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which supersedes existing guidance on accounting for leases in "Leases (Topic 840)" and generally requires all leases to be recognized in the consolidated balance sheet. ASU 2016-02 is effective for annual and interim reporting periods beginning after SeptemberDecember 15, 2012 and earlier2018; early adoption is permitted. We adoptedThe provisions of ASU 2016-02 are to be applied using a modified retrospective approach. The Company is currently evaluating the impact of the adoption of this standard on its consolidated financial statements.

In March 2016, the FASB issued ASU 2016-09,Improvements to Employee Share-Based Payment Accounting (ASU 2016-09). This ASU affects entities that issue share-based payment awards to their employees. The ASU is designed to simplify several aspects of accounting for share-based payment award transactions which include - the income tax consequences, classification of awards as either equity or liabilities, classification on the statement of cash flows and forfeiture rate calculations. ASU 2016-09 will become effective for the Company in the first quarter of fiscal year 2013. We believe2019. Early adoption did not have a material effectis permitted in any interim or annual period. The Company is currently evaluating the impact of this guidance on ourits consolidated financial statements.

In April 2016, the FASB issued AS 2016-10, Revenue from Contracts with Customers (Topic 606), which amends certain aspects of the Board's new revenue standard, ASU 2014-09, Revenue from Contracts with Customers. The standard should be adopted concurrently with adoption of ASU 2014-09 which is effective for annual and interim periods beginning after December 15, 2017. The Company has not yet selected a transition method nor has it determined the effect of the standard on its ongoing financial reporting.

SIGNIFICANT ACCOUNTING POLICIES

Estimates

Our financial statements and accompanying notes are prepared in accordance with accounting principles generally accepted in the United States of America.GAAP. 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 software development costs, valuation of stock options, and accounting for income taxes.

Revenue Recognition

We recognize revenues related to software licenses and software maintenance in accordance with the FASB Accounting Standards Codification (“ASC”) 985-605, “Software – Revenue Recognition”. Software productsproduct 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.

As a byproduct of ongoing improvements and upgrades for the new programs and new modules of software, some modifications are provided to our 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. The Company provides, for a fee, additional training and service calls to its customers and recognizes revenue at the time the training or service call is provided.

Generally, we enter into one-year license agreements with customers for the use of our pharmaceutical software products. We recognize revenue on these contracts when all the criteria are met.

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. Certain of the Company's software products are housed and supported on the Company's computer networks. Software revenues for those products are included in income over the life of the contract.

We recognize the revenue from collaboration research and the revenue from grants equally over their terms. However,For contract revenues based on actual hours incurred we recognize revenues when the work is performed. For fixed price contracts, we recognize contract study revenueand other contract revenues using the percentage of completionpercentage-of-completion method, depending upon how the contract studies are engaged, in accordance with FASB ASC 605-35, “Revenue“Revenue Recognition – Construction-Type and Production-Type Contracts”. To recognize revenue using the percentage of completionpercentage-of-completion method, we must determine whether we meet the following criteria: 1) there is a long-term, legally enforceable contract, and 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.

Cash and Cash Equivalents

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.

Accounts Receivable

We analyze the age of customer balances, historical bad-debt experience, customer creditworthiness, and changes in customer payment terms when making estimates of the collectability of the Company’s trade accounts receivable balances. If we determine 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 have not experienced any bad debts in our pharmaceutical software and services business.

Capitalized Computer Software Development Costs

Software development costs are capitalized in accordance with FASB ASC 985-20, “Costs of Software to Be Sold Leased, or 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 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 computer software development costs are comprised primarily of salaries and direct payroll-related costs and the purchase or licensing of existing software to be used in the Company’s software products.

Amortization of capitalized computer software development costs is provided on a product-by-product basis on the straight-line method over the estimated economic life of the products (notnot to exceed five years).years. Amortization of software development costs amounted to $716,888$981,066 and $668,021$1,023,139 for the years ended August 31, 2013FY16 and 2012,FY15, respectively. We expect future amortization expense to vary due to increases in capitalized computer software development costs.

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

Property and Equipment

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.

Intangible Assets and Goodwill

The Company performs valuations of assets acquired and liabilities assumed on each acquisition accounted for as a business combination and recognizes the assets acquired and liabilities assumed at their acquisition date fair value. Acquired intangible assets include customer relationships, software, trade name, and non-compete agreements. The Company determines the appropriate useful life by performing an analysis of expected cash flows based on historical experience of the acquired businesses. Intangible assets are amortized over their estimated useful lives using the straight-line method, which approximates the pattern in which the majority of the economic benefits are expected to be consumed.

Goodwill represents the excess of the cost of an acquired entity over the fair value of the acquired net assets. Goodwill is not amortized, instead it is tested for impairment annually or when events or circumstances change that would indicate that goodwill might be impaired. Events or circumstances that could trigger an impairment review include, but are not limited to, a significant adverse change in legal factors or in the business climate, an adverse action or assessment by a regulator, unanticipated competition, a loss of key personnel, significant changes in the manner of the Company's use of the acquired assets or the strategy for the Company's overall business, significant negative industry or economic trends or significant under-performance relative to expected historical or projected future results of operations.

Goodwill is tested for impairment at the reporting unit level, which is one level below or the same as an operating segment. As of August 31, 2016, the Company determined that it has two reporting units, Simulations Plus and Cognigen. When testing goodwill for impairment, the Company first performs a qualitative assessment to determine whether it is necessary to perform step one of a two-step annual goodwill impairment test for each reporting unit. The Company is required to perform step one only if it concludes that it is more likely than not that a reporting unit's fair value is less than its carrying value. Should this be the case, the first step of the two-step process is to identify whether a potential impairment exists by comparing the estimated fair values of the Company's reporting units with their respective book values, including goodwill. If the estimated fair value of the reporting unit exceeds book value, goodwill is considered not to be impaired, and no additional steps are necessary. If, however, the fair value of the reporting unit is less than book value, then the second step is performed to determine if goodwill is impaired and to measure the amount of impairment loss, if any. The amount of the impairment loss is the excess of the carrying amount of the goodwill over its implied fair value. The estimate of implied fair value of goodwill is primarily based on an estimate of the discounted cash flows expected to result from that reporting unit, but may require valuations of certain internally generated and unrecognized intangible assets such as the Company's software, technology, patents and trademarks. If the carrying amount of goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to the excess.

As of August 31, 2016, the entire balance of goodwill was attributed to the Company's Cognigen reporting unit. Intangible assets subject to amortization are reviewed for impairment whenever events or circumstances indicate that the carrying amount of these assets may not be recoverable. The Company has not recognized any impairment charges during FY16 and FY15.

Reconciliation of Goodwill for FY16 and FY15:

Other Intangible Assets

The following table summarizes other intangible assets as of August 31, 2016:

Amortization expense for each of FY16 and FY15 was $147,500.

Business Acquisitions

The Company accounted for the acquisition of Cognigen using the purchase method of accounting where the assets acquired and liabilities assumed are recognized based on their respective estimated fair values. The excess of the purchase price over the estimated fair values of the net assets acquired is recorded as goodwill. Determining the fair value of certain acquired assets and liabilities is subjective in nature and often involves the use of significant estimates and assumptions, including, but not limited to, the selection of appropriate valuation methodology, projected revenue, expenses and cash flows, weighted average cost of capital, discount rates, estimates of advertiser and publisher turnover rates and estimates of terminal values. Business acquisitions are included in the Company's consolidated financial statements as of the date of the acquisition.

Fair Value of Financial Instruments

Assets and liabilities recorded at fair value in the Condensed Balance Sheets are categorized based upon the level of judgment associated with the inputs used to measure their fair value. The categories, as defined by the standard are as follows:

For certain of our financial instruments, including accounts receivable, accounts payable, contract payable, accrued payroll and other expenses, and accrued bonus to officer, the amounts approximate fair value due to their short maturities.

Research and Development Costs

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 and databases that were developed by other companies and incorporated into, or used in the development of, our final products.

Income Taxes

We utilize FASB ASC 740-10, “Income Taxes”, 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 California Franchise Tax Board (“FTB”) audited us for the fiscal years ended (“FYE”) August 31, 2007 and 2008. We received refunds as we claimed; however they continued their audit to include fiscal years 2009 and 2010, and were reviewing 2007 and 2008 R&D credits, since those credits were carried forward to FYE 2009 and 2010. In May 2013, we received a letter from the FTB stating that an audit will not be conducted for those years at this time; however it may be subject to future audit if they receive new information.

In March 2012, we also received a notice from the Internal Revenue Service (IRS) that our fiscal year ended August 31, 2008 was subject to their examination. In October 2012, the IRS completed their examination of our 2007 tax filing. The outcome of this examination was a decrease of $36,868 in the amount refundable. We received a refund of $151,246 in December 2012.

Stock-Based Compensation

We accountThe Company accounts for stock options using the modified prospective method in accordance with FASB ASC 718-10,“Compensation-Stock CompensationCompensation”” (“FASB 718-10”). Under this method, compensation costs include: (1) compensation cost for all share-based payments granted prior to, but not yet vested as of September 1, 2006, based on the grant-dateinclude estimated grant date fair value estimated in accordance withof the original provisions of Statement of Financial Accounting Standards No. 123awards amortized over the options’ vesting period, and (2) compensation cost for all share-based payments granted subsequent to September 1, 2006, based on the grant-date fair value estimated in accordance with the provisions of FASB ASC 718-10, amortized on a straight-line basis over the options’ vesting period. Stock-based compensation was $115,740$347,077 and $181,521$295,243 for the fiscal years ended August 31, 20132016 and 2012,2015, respectively, and is included in the consolidated statements of operations as Consulting, Salaries, and Research and Development expense.

ITEM 7A – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable because we are a smaller reporting company.

ITEM 8 –- FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The responses to this item areSee the financial statements included elsewhere in this Form 10-K (see pages F1 – F23) andreport beginning at page F-1, which are incorporated herein by reference.

ITEM 9 – CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

There have been no changes to our public accountants during the past two years.

ITEM 9A – CONTROLS AND PROCEDURES9A. Controls and Procedures

We are responsible for maintainingmaintain a set of disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Disclosure controls and proceduresthat are controls and other procedures designed to provide reasonable assurance that the information required to be disclosed by us in theour reports that we file or submitfiled under the Securities Exchange Act of 1934 (the “Exchange Act") is recorded, processed, summarized, and reported within the time periods specified in the SEC’sSEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to ourthe Company's management, including our principal executive officerthe Company's Principal Executive Officer and principal financial officer,Principal Financial Officer (i.e. its Chief Executive Officer and Chief Financial Officer), as appropriate to allow timely decisions regarding required disclosure. In designing

The Company's management, with the participation of the Company's Principal Executive Officer and evaluatingPrincipal Financial Officer, has evaluated the effectiveness of the Company's disclosure controls and procedures management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management(as such term is required to apply its judgmentdefined in evaluating the cost-benefit relationship of possible controls and procedures.

Based on our management’s evaluation (with the participation of our principal executive officer and principal financial officer) of our disclosure controls and procedures as required by Rule 13a-15(b) and 15d-15(b)Rules 13a-15(e) under the Exchange Act, our principal executive officerAct) as of the end of the period covered by this Annual Report on Form 10-K. Based on such evaluation, the Company's Principal Executive Officer and principal financial officerPrincipal Financial Officer have concluded that, as of the end of such period, due to the material weaknesses in our internal control over financial reporting described below, our disclosure controls and procedures were effective as of August 31, 2013, the end of the fiscal year covered by this report.not effective.

Management’sManagement's Report on Internal Control Over Financial Reporting

Our managementManagement is responsible for establishing and maintaining adequate internal controlscontrol over financial reporting. Internal control over financial reporting as defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Our internal controls over financial reporting areis a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with generally accepted accounting principles. Internal control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company's assets that could have a material effect on the financial statements.

UnderInternal control over financial reporting cannot provide absolute assurance of achieving financial reporting objectives because of its inherent limitations. Internal control over financial reporting is a process that involves human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failures. Internal control over financial reporting can also be circumvented by collusion or improper management override. Because of such limitations, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. Also, projections of any evaluation of effectiveness to future periods are subject to the supervision andrisk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the participationpolicies or procedures may deteriorate. However, these inherent limitations are known features of our management, including our principal executive officer and principalthe financial officer, wereporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk.

A material weakness (as defined in SEC Rule 12b-2) is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis.

Management conducted an evaluationassessment of the effectiveness of ourthe Company's internal controlscontrol over financial reporting based onas of August 31, 2016. In making this assessment, management used the framework establishedcriteria described in 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.Commission (COSO). Based on our evaluation under such framework, including the completion and review of internal reviewthis assessment, forms and the completion and review of financial reporting information systems and controls checklists in the framework, our management concluded that our internal control over financial reporting was not effective as of August 31, 2013.2016. Management has identified the following material weakness of internal control over financial reporting as of August 31, 2016:

NoInformation Technology General Controls

During our review of internal controls, we identified various deficiencies related to the design, implementation, and effectiveness of our general information technology controls (“GITCs”) over financial reporting. In particular, these deficiencies related to the configuration set-up of the information technology system and related financial applications, segregation of duties, user access, and change management controls that are intended to ensure that access to financial applications and data, and the ability to place program changes were madeinto production for such financial applications and data, are adequately restricted to appropriate internal personnel. Due to these GITC deficiencies, we concluded that those deficiencies, in the aggregate, result in a reasonable possibility that material misstatements in our interim or annual financial statements would not be prevented or detected on a timely basis and, as such, constitute a material weakness as of August 31, 2016. Management believes that although our financial reports have been accurate and that the weaknesses identified in our review have not resulted in any material misstatement in our interim or annual financial statements at any time, that we will improve our GITCs to ensure accurate reporting is not compromised in the future.

Management has taken steps to remediate the GITC deficiencies, including enhancing its internal documentation and monitoring approach to ensure that all GITC procedures designed to restrict access to applications and data are operating in an optimal manner in order to provide management with comfort that access is properly limited to the appropriate internal personnel. Management implemented the majority of the remedial steps during the fourth quarter of 2016 and expects that all steps will be substantially implemented and tested by February 28, 2017. In accordance with our internal control compliance program, a material weakness is not considered remediated until the remediation processes have been operational for a sufficient period of time and successfully tested.

Rose, Snyder & Jacobs LLP, the independent registered public accounting firm that audited the consolidated financial statements included in this Annual Report on Form 10-K, has also audited our internal control over financial reporting as of August 31, 2016, as stated in their report which is included herein.

Changes in internal control over financial reporting

Except as described above in this Item 9A, there was no change in our internal controlscontrol over financial reporting (as definedidentified in Rules 13a-15(f) and 15d-15(f)connection with our evaluation that occurred during the fourth quarter of the Exchange Act) during the quarterfiscal year ended August 31, 2013,2016, that havehas materially affected, or areis reasonably likely to materially affect, our internal controlscontrol over financial reporting.

Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls or internal controls over financial reporting will prevent all errors or all instances of fraud. A control system, no matter how well-designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple errors or mistakes. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and any design may not succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures. Because of the inherent limitation of a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

ITEM 9B –- OTHER INFORMATION

Not applicable.

PART III

ITEM 10 – DIRECTORS, AND EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE

Code of Ethics

Our code of ethics is posted on our website: www.simulations-plus.com.

Changes to Procedures for Recommending Nominees to the Board of Directors

There have been no material changes to the procedures by which security holders may recommend nominees to our board of directors since we last described such procedures.

The remaining information required by Item 10 is incorporated by reference from the sections entitled “Board Matters and Corporate Governance,” “Election of Directors,” “Executive Compensation and Other Information,” and “Security Ownership of Certain Beneficial Owners and Management” in our definitive proxy statement on Schedule 14A (the “Proxy Statement”) to be distributed in connection with our 20142017 Annual Shareholders’ Meeting.Meeting (the “Proxy Statement”).

ITEM 11 – EXECUTIVE COMPENSATION

The information required by Item 11 is incorporated by reference from the sections entitled “Executive Compensation and Other Information” and “Board Matters and Corporate Governance” in ourthe Proxy Statement to be distributed in connection with our 2014 Annual Shareholders’ Meeting.Statement.

ITEM 12 –- SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The information required by Item 12 is incorporated by reference from the sections entitled “Security Ownership of Certain Beneficial Owners and Management” and “Executive Compensation and Other Information” in ourthe Proxy Statement to be distributed in connection with our 2014 Annual Shareholders’ Meeting.Statement.

ITEM 13 – CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The information required by Item 13 is incorporated by reference from the subsection entitled “Certain Relationships and Related Transactions; Transactions with Related Persons” and the section entitled “Board Matters and Corporate Governance” in ourthe Proxy Statement to be distributed in connection with our 2014 Annual Shareholders’ Meeting.Statement.

ITEM 14 – PRINCIPAL ACCOUNTING FEES AND SERVICES

The information required by Item 14 is incorporated by reference from the section of the proposal entitled “Ratification of Selection of Independent Registered Public Accounting Firm” in ourthe Proxy Statement to be distributed in connection with our 2014 Annual Shareholders’ Meeting.Statement.

PART IV

ITEM 15 – EXHIBITS, FINANCIAL STATEMENT SCHEDULES

(a)        

(1)       Financial Statements. The consolidated financial statements are included in this Annual Report.Report on Form 10-K beginning on page F-1.

(2)       Financial Statement Schedules. All financial statement schedules have been omitted since the information is either not applicable or required or was included in the financial statements or notes included in this Annual Report on Form 10-K10-K.

(3)       List of Exhibits required by Item 601 of Regulation S-K. See part (b) below.

(b)       Exhibits. The following exhibits are filed as part ofor furnished with this report. Those exhibits marked with a (†) refer to management contracts or compensatory plans or arrangements.

________________________

__________________________

(c)       Financial Statement Schedule.

See Item 15(a)(2) above.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Lancaster, State of California, on authorized.

November 15, 2013.14, 2016

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

SIMULATIONS PLUS, INC. & SUBSIDIARY

CONTENTS

August 31, 20132016 and 20122015

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and ShareholdersStockholders of

Simulations Plus, Inc.

Lancaster, California

and Subsidiary

We have audited the accompanying consolidated balance sheets of Simulations Plus, Inc. (a California corporation) and subsidiary (the “Company”) as of August 31, 20132016 and 20122015, and the related consolidated statements of operations,income, shareholders’ equity and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards established byof the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements,statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Simulations Plus, Inc. as ofand subsidiary at August 31, 20132016 and 2012,2015, and the consolidated results of its operationstheir income and their cash flows for each of the years then ended, in conformity with accounting principlesU.S. generally accepted accounting principles.

We also have audited, in accordance with the United Statesstandards of America.the Public Company Accounting Oversight Board (United States), Simulations Plus, Inc. and subsidiary’s internal control over financial reporting as of August 31, 2016, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated November 14, 2016 expressed an adverse opinion thereon.

/s/ Rose, Snyder & Jacobs LLP

Rose, Snyder & Jacobs LLP

Encino, California

November 15, 201314, 2016

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders ofSimulations Plus, Inc.

We have audited Simulations Plus, Inc. and subsidiary’s internal control over financial reporting as of August 31, 2016, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (“the COSO Criteria”). Simulations Plus, Inc. and Subsidiary’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

A material weakness is a control deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis. The following material weakness has been identified and included in management’s assessment:

This material weakness was considered in determining the nature, timing, and extent of audit tests applied in our audit of the 2016 consolidated financial statements, and this report does not affect our report dated November 14, 2016, on those consolidated financial statements.

In our opinion, because of the effect of the material weakness described above on the achievement of the objectives of the control criteria, Simulations Plus, Inc. and Subsidiary has not maintained effective internal control over financial reporting as of August 31, 2016, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework).

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets and the related consolidated statements of income, shareholders’ equity, and cash flows of Simulations Plus, Inc. and Subsidiary, and our report dated November 14, 2016, expressed an unqualified opinion.

/s/ Rose, Snyder & Jacobs LLP

Rose, Snyder & Jacobs LLP

Encino, California

November 14, 2016

SIMULATIONS PLUS, INC.

CONSOLIDATED BALANCE SHEETS

As of

August 31