Renee Bouche Walter S. Woltosz - Co-Founder, Chairman, Chief Executive Officer, President and Chairman of The Board - Words+ Inc - Sub John R. Kneisel - Chief Financial Officer John Anthony DiBella - Vice President of Marketing and Sales.

Good afternoon. Today is Thursday, January 9, 2014, and on behalf of Simulations Plus, I welcome you to our First Quarter Fiscal Year 2014 Financial Results Conference Call and Webinar. Chairman and Chief Executive Officer, Walt Woltosz, will be presenting this afternoon.

Joining Walt, as panelists, are Chief Financial Officer, John Kneisel; and Vice President, Marketing and Sales, John DiBella. An opportunity to ask questions will follow Walt's presentation. [Operator Instructions] This call is being recorded for playback at our website, www.simulations-plus.com.

It's now my pleasure to turn the presentation over to Walt Woltosz, Chairman and CEO of Simulations Plus..

that sales were up 15.3%, setting a new first quarter record of $2.64 million from $2.29 million in FY '13 first quarter. Gross profit was up a similar amount 15.2% to $2.193 million from $1.903 million in 2013. SG&A increased 15% to $1.07 million from about $931,000. As a percent of revenues, SG&A decreased slightly to 40.6% from 40.7%.

R&D expense decreased 10.1% to $162,000 from $180,000, this was primarily because more time was spent on capitalized software activities, and so those don't show up as an R&D expense, even though people are doing research and development related to software development.

And also, our new chemical entity, or NCE, project cost this year for the COX-2 and COX-1 targets are lower than what they were for the malaria project. Our net income increased 16.7% to $0.685 million from $0.587 million, and diluted earnings per share also increased 16.7% to $0.042 per share from $0.036 per share.

Rounded off, those are both going to show up as $0.04 a share. It doesn't look like there was any change, but we added the extra decimal point, they're actually extra significant digit there to show that there actually was a substantial increase in earnings per share as well.

And during the quarter, approximately $643,000 was distributed to shareholders as a cash dividend.

That was a $0.04 per share dividend for that quarter, and that was increased from what would have been $0.02 per share for that quarter because we had already paid $0.03 of that quarter's dividend last -- or the December earlier in December 2012, to give shareholders the tax break for 2012 tax levels as opposed to 2013 tax levels.

Beginning in February, we expect at this time to return to the $0.05 per share, per quarter dividend that was declared a couple of years ago and was only changed because of the accelerated dividend, and in the fact that the board decided to bump up the last 2 quarters during calendar year 2013 and provide a little extra.

But we do expect to be going back to the $0.05 per share per quarter going forward. A strong balance sheet.

Cash of $10.55 million at the end of the quarter and that was after the distribution of $643,000, and net cash was even, in spite of the dividend distribution, net cash was up slightly from the beginning of the quarter at the end of August, that was the end of our last fiscal year. Cash as of yesterday was $10.25 million.

Shareholders' equity on November 30, $14.35 million and, of course, we continue to have no debt. In tabular form, so you can see side-by-side the numbers, I won't read every one of these, but you can see in particular the gross profit margin is in right in there, in the 83% to 84% range, about 83% this time. Total operating expenses, $1.2 million.

And so dropping all the way down to the bottom to net income, $685,000 compared to $587,000, so almost $100,000 increase. And what's important there is, during the last year, we had some funding from collaborations that was included in our revenues.

We completed all those collaborations, so they not only had to make that up, but add new sales and consulting services in order to reach the net income that we have this year. So we're very pleased with the result there. And this just shows, in graphical form, the trends that we've had.

As we had always showed every quarter, you can see that the revenue growth is pretty steady and that there is a definite seasonality to our business. For those of you that might be attending for the first time, you'll notice Q4 is the lowest quarter, our Q4 is June, July and August, so that's the summer months.

Lots of vacations in Europe, in Japan, for example. There are times when there are entire months with nobody around doing very much. They have a more generous vacation policy in some countries. But you can also see that the first quarter here, at $2.64 million, exceeds the second and third quarters of 2 years ago in 2011.

And those are typically our highest quarters. So the growth continues nicely. We're pleased that the market keeps recognizing more and more the value of simulation and modeling technology, and we think that is a trend that has a long life to it.

This is just the beginning of the use of simulation and modeling in the pharmaceutical industry compared to other industries. Gross profit, by fiscal quarter, similar trend as you can see here, and similar seasonality. EBITDA by fiscal quarter, as always, has a little bit of oscillation up and down based on taxes. I'm sorry, this is before taxes.

This is -- okay, help me, Momo or John, what is it that causes our oscillation up and down? My mind just went blank..

We're sitting, we just come up and down -- sorry about that. We've just been going up and down with the revenues, and revenues create certain -- that drives the P&L and it's really our P&L that does it. We're also increasing our amortization of software cost as we go, so that has an impact, too..

Okay. Thank you. Net income by quarter, of course, tends to follow the similar ups and downs as EBITDA, and you can see, about $700,000 rounded off here for the first quarter.

New customers by quarter, the new customers we consider to be either brand-new companies or government agencies or universities that have never licensed anything from us before, or contracted for consulting services or new departments within very large organizations that we have not done business with before.

So it can be just as challenging, perhaps, to take on a new department at some location within a large pharmaceutical company as it would be to find a small company doing a similar type of activity that might be across town and in the same city as that large company.

So both of those, we consider new customers, based on the kind of interaction that it takes to get them signed up and get them to become a customer. Selected balance sheet items. Again, I mentioned cash was up after the dividend distribution of 640-plus thousand dollars.

We increased the cash position from August 31 to November 30, as you can see there from $10.18 million to $10.56 million, roughly, rounding off a little bit. And you can see the cash per diluted share.

Shareholder's equity, increased, it's always impacted when we do a dividend distribution, of course, because we decrease cash and we have to grow that back. But you can see shareholders' equity also up multiple quarters. And equity per diluted share up as well. Now this shows the effect of the dividends that we've had.

We've now distributed about $7 million in dividends since the very first dividend, which was in fiscal second quarter of fiscal year '12. So it was 2 years ago in February, in fact. So we're coming up on our 2-year anniversary for providing a dividend, we've had a dividend going ever since then.

You can see the Q1 FY '13, the very large amount there, where we accelerated the dividend, again, to give the tax advantage to shareholders of 2012 tax rates over the 2013 rates. In that quarter, we paid all of the Q2 FY '13 dividend, and that's why you see 0 there. And we've paid $0.03 of the $0.05 that were planned for the following 3 quarters.

You can see, then, that in Q3, that was the -- that would be the March, April, May -- I'm sorry, May -- March, April, May -- come on , Walt, yes, March, April, May is the third quarter.

So in March, April, May of '13, we paid out $480,000, that was actually $0.03, so we -- the board decided to add $0.01 per share to the dividend, so normally that would be about $320,000. Roughly 16 million shares, $0.02 makes $320,000, $0.03 makes $480,000. And as you can see on the last bar there, $640,000 is the $0.04 that was kicked up.

So Q3, Q4 and Q1 FY '14 were all increased over the $0.02 that would have been there, as a result of the accelerated dividend paid in December of 2012. Now we're going to go back to the original $0.05 per share per quarter, or at least that's the plan for now. The board has not yet voted on it.

We expect that, but the board always reserves the right to use cash in the best interest of the shareholders in the business. Now for an overview of our products and services. We work all the way from the earliest level of discovery in the pharmaceutical industry to clinical trials and everything in between.

We probably have the most dominant part of our revenues and services are in discovery and preclinical, and perhaps in the Phase I clinical. And then jumping past clinical, actually, to post patent, where we deal with generic companies working on developing formulations for drugs that have gone off patent and are now becoming generic drugs.

And that is a very nicely growing part of the business. So about 5 years ago, I think we had one generic company as a customer, and now we have somewhere on the order of 30, perhaps, a little more. The interesting thing about generics is, of course, there are always going to be more and more of them.

And so the generic industry has a pipeline of drugs that will be going off patent in future years, and this provides an incentive for them to start developing their generic formulation. There is an advantage for the first generic to receive an approval.

I think it's a 6-month exclusivity, and so anything they can do to reduce the time to get their new formulation to market can get them to be that one that gets that 6-month exclusivity before their competitors jump in. What we offer, by and large, is productivity.

Software, in any enterprise, whether it's using of the spreadsheet or word processor, PowerPoint presentation or database, they're really productivity tools.

And so, I like to say we sell productivity, in a sense, and that productivity comes from being able to do things faster, but also being able to understand what it is that you're working on, much more deeply and might be possible without software.

The problems that have to be solved all the way from discovery to preclinical development to clinical are very, very complex problems, and there's just no way that the human mind can look at stacks and stacks of data, databases and spreadsheets and so on, and figure out how all of that data interacts with each other.

You have to have software to do that, whether it's GastroPlus software, simulating what's going on in the body of a human or a laboratory animal, when we dose certain drugs, a certain way. DDDPlus where we're simulating what's happening when formulations are dissolving in the laboratory.

The upcoming MembranePlus product, very mechanistic simulation of what's going on in permeability experiments in the lab, another unique product in the industry, like DDDPlus, it's the only one of its kind.

Or we're looking at high-throughput screening data with MedChem Studio and MedChem Designer, so that you look at thousands and thousands of experimental results, where you have many different molecules that you're testing against the target and you want see what it is about those molecules that make them bind to that target very well, or not bind very well at all.

And then, ADMET Predictor, the ability to take millions, literally millions of molecular structures that have not even been synthesized yet, so they exist only as an idea in a computer, and run them through this program before lunch and predict over 140 properties of those molecules, with good enough accuracy, to tell which ones of those are really not very good molecules.

And that's going to be the majority in almost every case. And throw those away without wasting any time and money to synthesize them and test them and clean up the lab and go through all of that. So the productivity gains through simulation and modeling software are almost immeasurable.

You never know what you've avoided when you avoid a problem early on. And so I like to use the analogy of you got a tire on your car that's pretty well worn, and so you replace it with a new tire, you never know what you might have avoided, in terms of an accident or something else that could have cost you a lot of time and money.

And then, at the bottom, the consulting services and collaborations. Consulting business continues to grow.

We've expanded our consulting team, adding 2 more consulting scientists in the past year, and the business just keeps rolling in there from -- sometimes from companies we haven't even known very much about, or perhaps haven't heard of at all, calling us for help in analyzing experimental data that they have either from animals or human testing.

As far as our products, we did release GastroPlus, Version 8.5 in the fourth quarter, in last summer, which had a unique precipitation model.

Many times, when you take a drug, if it's a base, as opposed to an acid, it goes into your stomach, it's dissolved very nicely in the stomach at low pH, but then, when it -- the stomach dumps it into the small intestine, the pH shoots up, the solubility goes down and the stuff can precipitate out.

You probably all seen videos of a liquid beaker and you pour something in and suddenly, there's this white cloud that appears, whatever you're pouring in, you pour one liquid into another liquid and suddenly, the second liquid turns into a light powder and creates a cloud. Well, that's precipitation.

We've added physiologies for infants so that we can deal with, now, infants as much as 16 weeks premature. And this is a high interest area, both in the FDA and in the industry, the ability to simulate what's going to happen in an infant when we dose a certain drug that's been tested with adults, but has not yet been tested in infants.

As you can imagine, it's very difficult to run a clinical trial with infants. It's very difficult to get infants, first of all, and then there's the ethical issue of testing drugs on infants.

So when we have an infant who needs a certain kind of therapy for a certain indication, if we can take data that have been obtained in adults and know how those behaviors can scale to the infant physiology, and the infant physiology can change by the day or by the week, if you're talking about a very, very young baby.

And so GastroPlus, now, is able to handle that very remarkable capability that the Simulations technologies team is working to the program. We added a built-in method now for extrapolating from in vitro tests, laboratory tests, to what happens in vivo, in human and animals, when transporters are involved.

Transporters are proteins that can pump certain chemicals, or molecules, in and out of cells. And you can measure things in the lab in one way, but it's been very difficult in the past to take those lab results and get a reasonably accurate estimate of what's going to happen in an entire body of an animal or human.

And so developing that method turned out to be a significant breakthrough for us. And we've added a number of additional built-in enzyme expression levels, so we know how much of different enzymes exist in different species and in different tissues.

So if we're dealing with a rat or a dog or a human, and we're looking at the liver or the heart or the lungs and so on, then we need to know if the enzyme is going to attack our drug molecule and metabolize it into something else. We need to know where that's going to happen and how much is going to happen.

So these are important new capabilities as well.

ADMET Predictor Version 6.5, was released in June 2013, Version 7.0, we expect to release this month and this will add significantly improved metabolism predictions, a new model of skin permeability, as well as air-water partition coefficient, that's of interest to many scientists; new mutagenicity models in the toxicity module; and we've incorporated a new licensing software that gives us more flexibility and efficiency in both ADMET Predictor and in MedChem Studio as well.

MedChem Studio, Version 3.5 and MedChem Designer were both released in July of 2013. We expect a new release here shortly, for both of those, along with the Version 7.0 of ADMET Predictor. Those programs are closely linked in functionality.

There's a great deal of synergy in the ability to do what we do with MedChem Studio and then be able to click on a button and automatically, call ADMET Predictor and generate properties for molecules that we're investigating in MedChem Studio.

It's a unique capability, and it's this capability, combining these programs that we've used to design our NCE project molecules for malaria, a couple of years ago, and now for COX-2 and COX-1 in the most recent project? So the number of the improvements that we have from the previous release were better drawings of molecules, so when you see a molecule drawing on a computer screen, the lines are crisp and clear, they're not jagged and pixelated.

The licensing software has been upgraded, as we did with ADMET Predictor. We've come up with some new very, very fast screening methods, it's methods for very large molecular libraries, and we've added 64-bit versions, again, that expand the amount of memory that the program can use to deal with very large libraries.

DDDPlus Version 4, we added virtual trials because experiments are not pure, things vary and this shows us where that particular type of experiment, what kind of variances the scientists can expect as things change a little bit in the experiment.

We've added an ADMET Predictor module, as we have in GastroPlus, so that if we want to get many of the inputs that we need for DDDPlus, or GastroPlus, can often be calculated from molecular structure using the ADMET Predictor, when there are no experimental data available.

So this gives the scientist an opportunity to run these other programs before they have complete sets of data from a wide variety of experiments that provide the inputs that are needed for these programs.

MembranePlus, similar to DDDPlus, it simulates things that happened in the lab rather than what happened in the human body or animal bodies, and we expect this during the second calendar quarter of 2014.

We are -- this allows us to see when we run an experiment, where we measure the permeability of a drug through a layer of cells; why the drug behaved the way it did; how much of the drug got stuck in the cells, for example; how much of it got trapped in the lysosomes of the cells, which can happen; how much is in various regions within the well of the experiment that contains the fluid and the layer of cells; how much are transporters affecting the results; and so on.

We right now have had some in vitro assays that we've contracted for, that are at a level of detail not normally run for these assays because we need details at a very fine level. And so we contracted for those, those are being completed now.

We did present a scientific poster, I should have updated this slide, it wasn't last week, but it was in November, in San Antonio.

Our marketing and sales program, John, would you like to take this one, John DiBella?.

Sure. The conferences and the scientific meetings continue to still be the primary source of leads, so I think we averaged, in Q1, about 4 conferences per month, and also presented a number of scientific posters, gave a number of oral podium presentations as well. So we -- very active in U.S. and Europe with the conferences.

Trainings, we continued with the education efforts, hosting on-site trainings in Europe, Japan and the U.S., 7 of those at client sites in Q1. And then, we also hosted our first workshop over in Japan, in Tokyo. A full house, we had attendees come in from Thailand, Australia and Japan. And I think it was very well received.

We also decided to make a fairly large investment in traveling over to Asia. We spent several weeks doing some client visits in China and in Japan. I think, in total, visiting over 20 companies. I think, that, that was very good. The strategic digital marketing initiatives continue.

So we did host 3 webinars over the course of the 3 months, and 2 of those were co-hosted with some of our clients, which was a nice little twist, to discuss some case studies and also collaboration efforts, and in total, we had over 500 registrations for those 3 webinars.

And then, we continue to be still really active with regards to social media, LinkedIn, Facebook, Twitter accounts and also the website redesign has helped. We've been able to upload a number of new marketing materials, which I think helps us with regards to getting the message out.

From a collaborations-consulting-grants perspective, so we've continued, I believe, we're going into year 2 or 3 of the 5-year collaboration with the FDA on developing toxicity models with ADMET Predictor and ADMET Modeler. And they're also utilizing some of the other software as well as part of this collaboration.

And we've started to introduce some of those models that were generated from this collaboration into ADMET Predictor for sale. Consulting studies, as Walt mentioned earlier, very strong, that the pipeline is full. We've got, right now, 4 active studies that are going on. And then, we have 4 that are in the proposal stage.

Also talking with a number of companies about executing CDAs and scheduling some teleconference kick-off calls. We finalized collaborations with Bayer Pharma on the enhancement of the pKa model, we're really excited about now making this available to everybody, which the Version 7.0 release of ADMET Predictor.

And then, also finalized the collaborations on the enhancement of the new additional dosage route models in GastroPlus, oral cavity and dermal.

And so, when those become available in Version 9 of GastroPlus, hopefully, we'll be able to start reaching some newer markets with those, while also continuing with the penetration into the existing pharma and biotech companies that are clients already.

And then, we've talked a little bit with several CROs over in Asia, and also in North America, about partnering on modeling and simulation support services. So these companies, these contract research organizations, typically, will focus on providing in vitro and in vivo experimental services to pharmaceutical companies or companies in other spaces.

And they've been getting more and more requests from their clients to offer some sort of modeling and simulation service. And so, we've been talking with these companies, these CROs, about ways in which we might be able to co-promote and, hopefully, see some additional uptick in our consulting services.

As Walt has mentioned, we do see this fundamental shift continuing, so we've mentioned, I think, it was back in the summertime about submissions that were made referencing GastroPlus modeling results to a number of different regulatory agencies.

One of those resulted in an actual bio waiver, a couple of others are under consideration, we're having some back-and-forth discussions with the regulatory groups to clarify some points, but that seems very promising, that the regulatory side now is being very open to the incorporation of simulation results into the applications from the sponsors from the pharma companies.

The GastroPlus user group was formed and has now got over 350 members on LinkedIn. And we talked about now setting up some face-to-face meetings, cohosting some events at some conferences in 2014 to extend beyond the web-based discussions that we've been having up to this point.

But that's been a very good resource for exchanging ideas on LinkedIn, opening up a whole new network of users. And we talked about, finally, the number of new customers, 15 during Q1. Several new industry clients closed over in Asia. We did have one press release talking about a nice sale to WuXi PharmaTech, which is the largest CRO in China.

They've got clients, both local Chinese pharma and also clients in North America and Europe, who utilize their in vitro services. And now they're going to be offering some additional in silico services with our ADMET Predictor software, so we're excited about that.

Walt?.

Thank you, John. I mentioned our new chemical entity or NCE project. We did start the new project using COX-2 as the selected target for this second project. Our first one, I mentioned earlier, was the malaria project, which was very successful. In fact, it paid for itself in less than a year with just new software licenses.

We finished the molecular synthesis very recently and we're in the final process of selecting the contractor to run the experiments to test these compounds, to see if they do get COX-2 and COX-1 at the ratio that we're looking for. So what we're looking for is significant potency against COX-2, but a lesser potency against COX-1.

And this comes from research that was done after Vioxx was pulled from the market and Celebrex became the only remaining COX-2 inhibitor in the market.

The research indicated that cardiotoxicities that were being caused by these other COX-2 inhibitors were largely because COX-1 was not being inhibited and it needs to be, but not nearly at the level that COX-2 is. So this is a much more challenging design problem that we have.

I won't say it's easy to design to hit any one target, but it's certainly is harder to hit 2 targets and hit them at a certain ratio of potency. And so that's our goal here. It's a very ambitious goal. Hopefully, we don't fall flat on our face. We'll find out here probably in another 6, 6 to 8 weeks or so, when we get our results back.

COX-1 is inhibited by aspirin. You might say, "Well, why don't you just take an aspirin with your Celebrex or Vioxx and everything will be great." The problem is, the half-life's are not the same, so you'd run out of the COX-1 inhibitor perhaps before you run out of the COX-2 inhibitor, and you'd be back where you started.

So you have to have it at same molecule, have the affinity for both of the targets at a good ratio in order to really make this work. We did use our newest versions of the ADMET Design Suite and GastroPlus in the design process.

And our goal here and your people say, "What are you going to do with these molecules when we're all done?" Our goal here is not really to become a drug company. I mean that's way beyond anything that our resources would allow.

We really want to demonstrate that you can get to lead compounds, which are compounds that are very close to what might be a final drug, very, very quickly and cost-effectively using this ADMET Design Suite.

Now what's the most serendipitous result? Well, the most serendipitous result is, 'Wow, one or more of these molecules goes into testing and comes back and it just looks perfect.' And perhaps then we can patent the molecule and see if we can find someone interested in licensing it and taking it forward.

We're not going to take drugs forward into preclinical and clinical development. That's just -- it's not our business and the investment involved would be very, very large. And so we would have to license that to someone else. Again, what we want to do is license software.

And to our knowledge, no other software company has taken the risk that we took with the malaria project or here with this project to say we believe in what we have so much that we're going to go out and design some molecules.

And before we have them tested, we're going to tell the world that we're doing this, and we're going to succeed or not, and, well, let the chips fall where they may and see how it comes out. It came out as a home run with the malaria project. We're hoping we, at least, get to second or third base if not further with the COX-2 project.

Growth opportunities, MembranePlus, a new product is going to be out shortly. This is, again, simulating the in vitro permeability experiments, and it'll be a unique capability in the industry.

Continued enhancement of our current software products to expand health coverage into new areas, so the dermal dosing module, for example, in GastroPlus and we're now looking at partnering with the veterinary medicine school at Auburn University, War Eagle, for the addition of large animal models to GastroPlus, which are of interest to a variety of organizations.

So horses and swine -- pigs, will be some of the first that will be added there. Cloud offering, we're looking into how cloud computing might provide [indiscernible] for our software and services to customers that we're not reaching right now. And a new product, development kind of prototype that we have right now. We call it aeromodeller.

This is taking these model-building engine for artificial neural networks that we have in our ADMET Predictor software and that has evolved over now about 15 years to become an absolutely knock-your-socks-off capability for building predictive models and applying it in different ways. And I'm an aerospace engineer from Auburn University.

I've been talking with one of the professors here almost year ago. I learned that they were trying to predict aerodynamic force coefficients from missiles at different mach numbers and different angles of attack using their own networks and they weren't having much luck.

So I said, "Well, just for the fun of it, send me a little bit of your data and I'll kind of backdoor it into our chemistry thinking program and see if I can build a good model." And the model came out virtually perfect, R-squared at 0.999. Almost absolutely perfect. And I didn't quite believe it, so I said send me some more of your data.

And I ran that through it again, 0.999.

And I went out and talked to the professors at the University and showed them the results and they said, "Wow, you don't know how big this could be?" Well, I still don't know how big it could be, to be honest with you in terms of the market size, but this is a capability that appears to be very useful across a variety of military and aerospace organizations.

And so we're going to see with this prototype that we've developed that demonstrates the concept whether we can generate interest in funding a full-blown development of this aeromodelling software. Penetration of clinical pharmacology departments. We have now reached into clinical pharmacology departments.

And these are the people who analyze clinical trial data, and the way that, that's been done in the past has been to use relatively simple empirical models. Empirical meaning just statistical models that are not based on any actual physical or mechanistic simulation.

And we're trying to get the folks that work in that area to think more mechanistically, which will allow them to understand better what exactly is going on when they see a certain behavior in a clinical trial.

Is there a group of patients that doesn't respond to a particular drug because of perhaps a difference in enzyme expression levels for an enzyme that might be metabolizing molecule or -- I'm giving a couple of simple examples here, but basically using the very detailed mechanistic model that we have in GastroPlus to assist the clinical pharmacology departments in understanding better how different patient populations respond both in a good sense, in a therapeutic sense and perhaps in an adverse sense to a new drug.

And then again the growth opportunity of the COX-2 and COX-1, we expect that to further demonstrate the capabilities that we have in the ADMET Design Suite, and our goal here is to license software, with the potential upside, which would be very serendipitous. We'll be perhaps licensing 1 or more molecules. So in summary, excellent first quarter.

We're very pleased that we not only made up the lost revenue from the discontinued or completed, I should say, collaborations, but we also exceeded that and grew revenues over 15% and earnings over 16%, almost 17%. The company's continuing to grow. We added 3 new PhDs in fiscal '13. We continue to seek and interview additional scientists and engineers.

We've got a PhD candidate. He was here today interviewing. And the Life Sciences team, as it grows, was also part of our marketing and sales effort. We were working on very scientific market.

And so the marketing sales team consist of John DiBella's group, supplemented by everyone else who works in the science area to help attend these many shows and conferences, 50 or 60 conferences a year, to do the trainings, to do the workshops. This is a developing activity for our new scientists.

When they get out there and they teach one segment of a workshop, and then maybe the next workshop, they teach another segment. This helps them develop their skills and is a way for them to train and become more intensively involved in the programs that they work with.

And again, it supports marketing and sales by having a staff available to them that can be unique to each show or conference and the subject matter of that show or conference. The marketing and sales activities, we're going to continue this pretty intensive conference and tradeshow and workshop schedule.

We find that, that's how we generate the new business, by and large, is to get out there you've got to be in front of people. And it's got to be a scientist-to-scientist or engineer-to-engineer type of interaction to really set the hook and get them in, and get them to evaluate the software.

New workshops scheduled and we're now splitting the course offerings a little bit in these workshops, where, for example, we're going to do a 3-day introductory GastroPlus workshop, which we do now. But then the last 2 days, we'll offer advanced workshops on specific research functions. So we'll do 2 of those in parallel.

So someone can attend the first 3 days to get the basic introduction and understand how to use GastroPlus, in general, and then choose their specific research area for their final 2 days and focus on very detailed examination of how to really use the tool, let's say, if they're a formulation scientist or if they're a metabolism scientists and so on.

Again, we're going to continue the trips to Asia and Oceania to visit the clients there and have the seminars there. There's a growing interest in Asia. There's a new market for us, relatively speaking, and it's growing nicely. And on the financial side, we remain very strong with our cash position and no debt, and we continue to pay out the dividend.

Again, we expect the dividend to remain at $0.05 per share per quarter for the foreseeable future, but the board always reserves the right to increase, decrease or discontinue the dividend based on the cash needs of the business. And so that completes the formal presentation. I'd like to now open the floor to questions.

And we have a number of questions that have been typed in..

So I'll begin with the first one. Donald Borsi [ph]. "Soon to be selection of a contractor to test the synthesized molecules to determine their activities against their COX-2 and COX-1 enzyme targets? Will there be a press release?" Well, I haven't thought about it, but yes, we'll do a press release, why not? Howard Halpern.

"You anticipate 1Q '14 SG&A as a good run rate for the rest of the year?" I think so.

John Kneisel or Momo, any comment on that?.

Yes, that's probably a -- it's probably a fair statement. The numbers were up a little bit over a quarter last year, mostly because of salary changes, but that's probably a fair rate going forward..

Yes. As a percentage of revenues, it was virtually flat. I think it was down 0.1% or something. So it seems that there's a consistency there. Howard Halpern.

"What was the revenue contribution of the 15 new customers?" John DiBella?.

Yes, the revenue breakdown for Q1, it would have been about 18% of the revenue coming from new customers, maybe about 6% from the consulting side. And then the rest, mostly coming from our newer revenue..

Thank you. Donald Borsi[ph]. "What value the selected contractor for the COX inhibitor work? Approximately, what are the expected cost to perform that task?" I'll just say it's still in competition phase. I'll just say the overall cost of the COX-2 project is probably going to be only about 1/3 to 1/2 of what it was for malaria.

Malaria was about $150,000 total that we spent over the entire period for all of the synthesis and all of the experiments. The experiments will run at 2 different locations, and that may be the case again here that we split the experiments between 2 different ones.

But we haven't made the selection yet, so I don't think it's appropriate yet for me to put a dollar value on that, other than to give you a ballpark range. But it will be significantly less than malaria. Lamar Melvin.

"There's a recent article which indicated that 1 month of [indiscernible], oh, yes, Faruqi & Faruqi LLP was conducting an investigation on the Board of Directors of SLP.

Please explain the following conditions, which lead to this investigation." And what this is, is we, in our proxy, announced that we want to add another million options to the 2007 stock option plan. There is no intended use at this point in time for the options.

It's just that the reserve from that plan is getting low and we wanted to have enough to cover the next number of years, and so we picked a round number of a million.

This firm is known to go out fishing to find someone, some shareholder who wants to bring a class action suit and they hope to settle and gain a little bit of money on the side knowing that they have no case.

We haven't dealt with this before, so I'm not sure how much I should say on a public forum like this, but we definitely don't feel like this has any merit. There is no merit at all. Again, there's no specific use other than the committed use that we have.

Every director gets, I think, 5,000 options per year as part of their compensation to be a director. That's only the outside directors. I, as a director, and my wife, Virginia, as a director, do not receive any options as directors. Donald Borsi [ph].

"Aeromodelers, assuming continued success, will you consider in the future adding staff or setting up a subsidiary to deal with that industry?" Absolutely.

If this turns out to be a significant business area, and I do have very close relations with Auburn and a number of boards at the university there, and of course, we got UCLA and USC and San Jose State and Stanford and very good excellent -- very excellent aerospace departments out here in the West Coast.

Certainly, as a supply, we live in the Antelope Valley in California, and that is a very intensive aerospace environment. We have Lockheed and Northrop in Edwards Air Force Base and so on. And so there certainly will be a supply of aerospace engineers and scientists available if we decided to build up in that area.

Right now it's a new venture and we're looking into it. The feedback we're getting from the professors at Auburn, who have been working with certain defense department customers for decades, is that this is big. I hope they're right.

But until we get into it and talk to the actual customers, which we hope to do in the coming months and see what the reaction is, we won't know what the actual market potential will be. Donald Borsi[ph]. "Can you address, in any way, the Faruqi lawsuit?" Well, I think I just did that. Jack Wallace.

"What was the new client versus new division mix of new revenue in the quarter?" In other words, I guess brand-new companies versus just divisions of larger companies.

John DiBella, can you answer that one?.

The majority of that new revenue came from completely new organizations. I think it's going to be somewhere probably around 70%, 75% of that new license revenue coming from new organizations..

Great, thank you. Jack Wallace.

"Of SLP's existing client base, what percent is a likely target for MembranePlus? John DiBella?.

That's a good question. If we think of a nice round number of, let's say, 200 companies, which are licensing the software. Walt mentioned some of those companies are going to be generic firms. They wouldn't be targets necessarily for MembranePlus.

Some of the divisions within some of the existing large pharmaceutical companies like formulation groups probably are not targets for MembranePlus. This is going to be, I think, aimed at DMPK scientists, modeling and simulation scientists. I would say it's fair to put a percentage anywhere from 40% to 60% maybe..

Okay. Thank you, John. And last question I see. Jack Wallace. "What is the approximate pricing for MembranePlus?" We haven't set the pricing yet other than to say very likely $120,000 per year, so it will be on annual license model like all of our other software. So that will be $20,000 per year for the first user at the first geographic location.

How much under, we're still kicking that around, and we'll probably do a little price testing to settle on a final price. Okay, there's a couple more questions just appeared.

"Would it be safe to model a tax rate of 32% to 34% in FY '14?" John Kneisel?.

Yes, that looks like a good rate. We are a little lower than normal this quarter because of R&D credits, but that 32% to 34% should be in the ballpark..

Thank you. Walter Ramsley. "Are there specific plans to create a service bureau operation like the 3D printing companies have? Customers would hire you to perform jobs for them, leverage their personnel, get better results." Well, in fact, that's what our consulting business does now. John mentioned we have 4 consulting projects underway right now.

Seems like at any time we have anywhere from 3 to 6 going. And we cycle through those. Consulting, I always call it a restaurant-style business. You don't know who's going to walk through the door, and when they do if they're going to order a steak or just order a salad.

So it's one thing we continue to promote the consulting services, we continue to get consulting business. I think when I looked at I think our fourth quarter results, the growth was something like 300% over the previous year's fourth quarter.

Again, the fourth quarter is the summertime and things tend to be slow, so that's probably a little bit disproportion. But the point is, the consulting work is continuing to grow.

The acceptance of simulation and modeling capabilities in the industry continues to grow, not every company has the staff that they can dedicate to learn how to run, say, a GastroPlus software, which is a very sophisticated piece of software.

In general, when we have a new PhD who joins the company, it takes about 1.5 years to 2 years before they are able to really go out on their own and demonstrate the software to someone with all the different modules and defend why we do things the way we do. And it really amounts to that.

Marketing presentation on something like GastroPlus is like a PhD dissertation defense except it's much more multidisciplinary. So many of these companies don't have the staff to do that and that's why they hire us.

The ability to have this offered via the cloud, where access to the -- us and the software, secure access to their own data seems to be something that is well worth looking into. So that's why we're looking into the possibility of a cloud-based offering. Jack Wallace.

"What caused the difference of $11,000 between preliminary revenue and the figure reported today?" I think it went up a little bit, didn't it? Was that consulting project?.

Yes, well, I think it did. And it was related to one of the consulting contracts when the final numbers came in. We're a little higher on the income..

Thanks. Walter Ramsley. "Is the acquisition methodology similar to Oracle's and most other American companies, or is amortization of acquired intangibles still considered when evaluating earnings accretion?" What language is that written in? Okay, I've got to read that again.

"Is the acquisition methodology similar to Oracle?" I don't know what theirs is. "And most other American companies." Or contrasting to that, "Is amortization of acquired intangibles still considered when evaluating earnings accretion?" All right. One of you CFOs are going to have to answer that one for me..

I'm not really sure how to answer the question. We are -- I'll answer it this way for right now. Our intangibles on the books are basically our software cost, and they're being amortized out over 5 years on a straight-line basis. So hopefully, Walter, you could ask to get clarification if you need more than that, I think, at this point..

Yes, Jack, I'm scratching my head here to see if I can figure out a better way to answer that or understand the question a little better. Well, you mentioned acquisitions, so first of all, when we look to acquire, we look to acquire something that technologically is reasonably close to what we do, but not 100% overlap.

And I say that because on the GastroPlus side, there really isn't any opportunity for acquisition. There are only 2 other competitors, one in England, one in Germany. The one in England was recently acquired by Certara and, the one in Germany probably would not be appropriate for an acquisition because they're part of a larger company; Bayer.

On the cheminformatics side, where we have MedChem Studio, ADMET Predictor, and MedChem Designer, acquiring one of our competitors there when there are so many, there's 15 or 20 at least, would simply take some market share from that competitor and probably split it between ourselves and the other 14 or 19 that would be left.

So I'm not sure we'd be doing ourselves any favor unless there was a specific scientific capability that we could gain in doing that.

So as we look for technologies that are close to ours but not duplicating ours and then look at companies that are the right size, we are a small fish, we can't swallow a whale, we're pretty small ourselves, so you've got to have a technological match. You've got to have a size match.

You've got to have a personal chemistry match between our staff and the staff of a potential acquisition, and you've got to have someone who's willing to sell at a reasonable price where the post deal status makes sense and becomes a win-win for both partners. And because we're that small, as small as we are, that makes it really, really difficult.

We struggle with this. We've made a couple of attempts, and as most you know, we tried to buy the assets of Entelos in bankruptcy court about 1.5, 2 years ago. That didn't go through.

We did acquire the Bioreason assets and Sage Informatics assets that now became MedChem Studio, and out of that spun MedChem Designer, and that was done in the fall of 2005, so it's been now 8 years since we found something that actually worked out. So I guess this amortization of acquired intangibles is not something I've really thought about.

What we're looking for is something that is accretive in the positive sense, so that we add to revenues and we add to earnings. We so far have not found anything that look like it was going to require a significant investment over a number of years to start becoming profitable.

We think that, at least right now, it does not seem to be in the best interest of our shareholders. We want something, if we can find it, that has an ongoing business that generates revenues and generates earnings right off the bat. And I think that's the last question. I don't see any other questions.

So, Renee, I'll turn it over to you to close the meeting..

Okay, very good. Thank you, Walt. One last thing before we let you go this afternoon. We want to remind you that on Monday, January 13, we'll be presenting at the Sidoti Micro-Cap Conference in New York City. Both Walt and John DiBella will be present. So please stop by estate 3 at 2:10 p.m. in the Grand Hyatt and see their presentation.

And for those of you who are on the West Coast, we'll be presenting at the 15th Annual B. Riley Investor Conference taking place at the Loews Santa Monica Beach Hotel, May 19 to 21. We'll have more details on that as the date approaches. But for now, this concludes today's conference call and webinar.

If you missed any part of today's presentation, the playback will be available at our website, www.simulations-plus.com. Thank you so much. Happy New Year, and have a great afternoon..