<PAGE> 1
As filed pursuant to Rule 424(b)(1)
under the Securities Act of 1933
Registration No. 333-72587
PROSPECTUS
530,000 Shares
SIMULATIONS PLUS, INC.
COMMON STOCK
All shares of common stock, par value $.001 per share (the "Common
Stock") of Simulations Plus, Inc. (the "Company", "we", "us" or "our")
offered hereby (the "Shares") are being offered by certain shareholders and
other security holders of the Company named herein (the "Selling Shareholders").
It is anticipated that the Selling Shareholders will generally offer shares of
Common Stock for sale at prevailing prices on the Nasdaq SmallCap Market on the
date of sale. See "Plan of Distribution." The 530,000 Shares being offered for
resale include: (i) 280,000 Shares issuable upon the exercise of warrants (the
"Lender's Warrants") issued to certain lenders in connection with loans made to
the Company in December 1996 and January l997; and (ii) 250,000 Shares issuable
upon the exercise of warrants (the "Bridge Warrants") issued to certain lenders
in connection with loans made to the Company in August 1996 and September 1997.
The distribution of the Shares by the Selling Shareholders may be
effected from time to time in one or more transactions for their own accounts
(which may include block transactions) on the Nasdaq SmallCap Market or any
exchange on which the Common Stock may then be listed, in negotiated
transactions or a combination of such methods of sale, at fixed prices which may
be changed, at market prices prevailing at the time of sale, at prices related
to such prevailing market prices or at negotiated prices. The Selling
Shareholders may effect such transactions by selling Shares to or through
broker-dealers, including broker-dealers who may act as underwriters, and such
broker-dealers may receive compensation in the form of discounts, concessions or
commissions from the Selling Shareholders and/or the purchasers of Shares for
whom such broker-dealers may act as agent or to whom they sell as principal or
both (which compensation as to a particular broker-dealer might be in excess of
customary commissions). The Selling Shareholders may also sell Common Stock
pursuant to Rule 144 promulgated under the Securities Act of 1933, as amended
(the "Securities Act") or pledge Shares as collateral for margin accounts, and
such Shares could be resold pursuant to the terms of such accounts.
The Company intends that the Registration Statement will remain
effective for a period of 120 days from the date on which it is declared
effective by the Securities and Exchange Commission or such earlier date as of
which such Registration Statement is no longer required for the transfer of the
subject securities.
The Common Stock of the Company is traded on the Nasdaq SmallCap Market
under the symbol "SIMU". On March 5, 1999, the closing price of the Company's
Common Stock, as reported by the Nasdaq SmallCap Market, was $3.375.
<PAGE> 2
ANY INVESTMENT IN THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE
OF RISK. SEE "RISK FACTORS" COMMENCING ON PAGE 7 FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK
OFFERED HEREBY.
The Selling Shareholders and any broker executing selling orders on
behalf of the Selling Shareholders may be deemed to be an "underwriter" within
the meaning of the Securities Act. Commissions received by any such broker may
be deemed to be underwriting commissions under the Securities Act.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is March 5, 1999.
<PAGE> 3
AVAILABLE INFORMATION
We are subject to the informational reporting requirements of the
Securities Exchange Act of l934, as amended (the "Exchange Act") and, in
accordance therewith, file reports, proxy statements, and other information with
the Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information can be inspected and copied at the Public
Reference Room of the Commission, 450 Fifth Street, N.W., Washington, D.C.
20549, and at the Commission's regional offices at 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661-2511, and 7 World Trade Center, 13th Floor,
New York, New York 10048, and copies of such material can be obtained from the
Public Reference Section of the Commission, Washington, D.C. 20549, at
prescribed rates. The Commission maintains a Web site at http://www.sec.gov
containing reports, proxy and other information statements and other information
regarding registrants that file electronically with the Commission, including
the Company.
We have filed with the Commission a registration statement on Form S-3
(such registration statement, together with all amendments and exhibits thereto,
being hereinafter referred to as the "Registration Statement") under the
Securities Act of 1933, as amended (the "Securities Act"), for the registration
under the Securities Act of the Shares offered by this Prospectus. This
Prospectus does not contain all of the information set forth in the Registration
Statement, certain parts of which are omitted in accordance with the rules and
regulations of the Commission. Reference is hereby made to the Registration
Statement for further information with respect to us and the securities offered
by this Prospectus. Statements contained herein concerning the provisions of
documents filed as exhibits to the Registration Statement are necessarily
summaries of such documents, and each such statement is qualified in its
entirety by reference to the copy of the applicable document filed with the
Commission. Copies of the Registration Statement and the exhibits may be
inspected, without charge, at the offices of the Commission, or obtained at
prescribed rates from the Public Reference Section of the Commission at the
address set forth above.
INFORMATION INCORPORATED BY REFERENCE
There are hereby incorporated by reference in this Prospectus the
following documents and information previously filed with the Commission:
(1) Our Annual Report on Form 10-KSB and Form 10-KSB/A for the fiscal
year ended August 31, 1998, filed pursuant to Section 13 of the Exchange Act.
(2) Our Quarterly Report on Form 10-QSB for the fiscal quarter ended
November 30, 1998, filed pursuant to Section 13 of the Exchange Act.
(3) The description of the Company's Common Stock contained in the
Company's Registration Statement on Form 8-A, which became effective June 18,
1997, filed pursuant to Section 12(g) of the Exchange Act, including any
amendment or report filed for the purpose of updating such description.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14,
or 15(d) of the Exchange Act after the date of this Prospectus and prior to the
termination of the offering of securities contemplated hereby shall be deemed to
be incorporated by reference in this
<PAGE> 4
Prospectus or any Prospectus Supplement and to be a part hereof from the date
of filing of such documents, except as to any portion of any future Annual or
Quarterly Report to Shareholders which is not deemed to be filed under said
provisions or any portion of a Proxy Statement not deemed incorporated herein by
reference. Any statement contained in a document incorporated by reference or
deemed to be incorporated by reference in this Prospectus or superseded for all
purposes of this Prospectus or such Prospectus Supplement to the extent that a
statement contained herein, therein or in any subsequently filed document that
also is incorporated or deemed to be incorporated by reference herein or in such
Prospectus Supplement modifies or supersedes such statement. Any such statement
so modified or superseded shall not be deemed, except as so modified or
superseded, to constitute a part of this Prospectus or any Prospectus
Supplement.
We will provide without charge to each person to whom a copy of this
Prospectus has been delivered, upon the written or oral request of such person,
a copy of any and all of the documents referred to above that have been or may
be incorporated in this Prospectus by reference (other than exhibits to such
documents, unless such exhibits are specifically incorporated by reference
therein). Requests for such copies should be directed to: the Company's Chief
Financial Officer, Simulations Plus, Inc., 1220 West Avenue J, Lancaster,
California 93534-2902. The Company's telephone number at that location is (805)
723-7723.
FORWARD-LOOKING STATEMENTS
Certain information contained in, or incorporated by reference into,
this Prospectus includes "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995 and is subject to the safe
harbor created by that Act. These forward-looking statements include, but are
not limited to, statements concerning the opening of new markets, the
introduction of new products and the like, and are generally identified by
phrases such as "we expect," "we believe," "Management
expects," "Management believes" and words of similar import. There are several
important factors that could cause actual results to differ materially from
those anticipated by the forward-looking statements contained in such
discussions. Additionally information about these factors is contained in the
discussions in the "Risk Factors" beginning on page 7 and elsewhere in this
Prospectus and in documents incorporated by reference into this Prospectus.
No person is authorized to give any information or to make any
representations, other than those contained in this Prospectus, in connection
with the offering described herein, and, if given or made, such information or
representations must not be relied upon as having been authorized by the
Company. This Prospectus does not constitute an offer to sell, or a solicitation
of an offer to buy, nor shall there be any sale of these securities by any
person in any jurisdiction in which it is unlawful for such person to make such
offer, solicitation or sale. Neither the delivery of this Prospectus nor any
sale made hereunder shall under any circumstances create an implication that the
information contained herein is correct as of any time subsequent to the date
hereof.
<PAGE> 5
THE COMPANY
Simulations Plus, Inc. and its wholly owned subsidiary, Words+, Inc. produce two
types of products: (1) Simulations Plus, incorporated in 1996, develops and
produces simulation software for use in pharmaceutical research and for
education. Simulations Plus is currently producing and developing simulation
software for pharmaceutical research and for science courses for the high
school, community college, and university markets. Simulations Plus also
provides contract research services to the pharmaceutical industry, and (2)
Words+, founded in 1981, produces computer software and specialized hardware for
use by persons with disabilities, as well as a personal productivity software
program for the retail market.
The types of simulation software under development by Simulations Plus are based
on the equations of chemistry and physics that describe or "model" the behavior
of things in the real world. Our GastroPlus(TM) pharmaceutical software
simulates the movement, dissolution, absorption, and clearance of drug compounds
in the human gastrointestinal tract. Our science experiment simulations
incorporate the equations of chemistry and physics for each experiment (optics,
electrical circuits, gravity, ideal gases, acid/base titration, etc.)
Our pharmaceutical software provides cost-effective solutions to a number of
problems in pharmaceutical research as well as in the education of pharmacy and
medical students. We released an improved version of GastroPlus(TM) in August
1998 and, in the first quarter of fiscal year 1999, we entered into license
agreements with Pfizer, Roche, Pharmaceia and Upjohn, Zeneca, and Astra. In the
second fiscal quarter of fiscal year 1999, through January 1999, we entered into
license agreements with three additional major pharmaceutical companies. An
additional (extra-cost) Optimization Module was released in November 1998 and is
receiving enthusiastic interest from pharmaceutical researchers. A second
optional model, IVIV Correlation, is in advanced development and is expected to
be released in early 1999. Two other modules are also in
<PAGE> 6
development, and both are expected to be released in 1999. These additional
modules will more than double the average sale price for an annual license. We
are actively working over 150 leads for additional sales. No assurances can be
given, however, that any additional sales will occur as a result of such leads
or that any such sales would be profitable to us.
In 1997, we executed a License Agreement with Therapeutic Systems Research
Laboratories, Inc. ("TSRL") to obtain exclusive rights to TSRL's technology and
database for drug compound absorption in animal and human test subjects. Through
the formation of this strategic alliance with TSRL, the development costs and
time for GastroPlus were significantly reduced, and our access to pharmaceutical
markets was enhanced.
In the area of simulation software for pharmaceutical research, we are currently
pursuing the development of additional modules for GastroPlus(TM), such as the
IVIV Correlation Module, and the Metabolism and Efflux Module, as well as the
development of QMPRPlus(TM) as both a separate companion program and as an
optional module within GastroPlus(TM). We are also developing HelixGen(TM),
which predicts the receptor structure of certain transmembrane proteins.
In the area of educational simulations, our research and development activities
include continuing the development of science experiment simulation software for
high school and university-level science courses. The level of this effort was
reduced in August 1998 in order to conserve resources. This development effort
is now at a level of one engineer plus support from marketing and graphic arts
personnel as required. Current sales and a grant from the National Science
Foundation provide support for this level of effort. At the high school level,
anticipated new titles include simulated experiments for courses in Physical
Science, Physics, Chemistry, Biology and Earth Science. At the university level,
anticipated titles include more sophisticated simulations for Physics,
Chemistry, and Biology, as well as titles for studies in Engineering and
Medicine such as Heat Transfer, Fluid Mechanics, Thermodynamics, Gas Dynamics,
Kinematics and Dynamics, and Electronic Circuits.
In order to reduce expenses, we completed a downsizing in August 1998,
primarily by reducing the engineering and marketing and sales efforts in the
educational simulation software portion of our business. At that time, we added
one new Ph.D. in the pharmaceutical software development area, and refocused
our efforts on our GastroPlus(TM) and QMPRPlus(TM) pharmaceutical software
products. Since that time, we achieved our first sales in the pharmaceutical
industry for GastroPlus, and we completed the development of, and achieved our
first sales for, the optional Optimization Module for GastroPlus. In addition,
we began development of two additional optional modules for GastroPlus
(Metabolism and Efflux, and I.V.I.V. Correlation), both of which are expected
to be completed in early 1999. We also made considerable progress on developing
QMPRPlus, a software program that estimates certain properties of new drug
molecules just from their molecular structure, and we expect to release
QMPRPlus in March 1999. We have presented technical papers at several
scientific meetings, and have presented our products at numerous conferences,
on-site locations at pharmaceutical companies in the U.S. and in Japan, and at
the U.S. Food and Drug Administration. We have also been granted, and have
completed, two study contracts for major pharmaceutical companies, and have
prepared proposals on request for several additional companies.
In October 1997, we were awarded a $300,000 Phase II follow-on grant which is
funded in four equal payments of $75,000 every six months for an eighteen month
period. The payments were received in October 1997, April 1998, and October 1998
at $75,000 each. We are expecting to receive the last payment in April 1999
after submitting our final report. This grant is funded to further develop
software to allow physically disabled science students to perform simulated
laboratory experiments on a computer with minimal physical input. We are using
our expertise and technology from our Words+ subsidiary in designing and
building computer access products for the physically-disabled, as well as our
expertise in developing scientific educational simulation software, in
developing these programs. These programs are also designed to be used by
able-bodied students so that the same programs will be attractive to and used by
both physically disabled and able-bodied persons.
<PAGE> 7
Our wholly owned subsidiary, Words+, Inc. has been in business since
1981. Words+ is a technology leader in designing and developing augmentative and
alternative communication computer software and hardware devices for persons who
cannot speak due to physical disabilities. Words+ products enable a disabled
person to operate a computer and to communicate through a voice synthesizer,
through movements as slight as the blink of an eye. The Company's most famous
user is theoretical astrophysicist Professor Stephen Hawking, author of the
best-selling A Brief History of Time.
We believe that we have been an industry technology leader in introducing and
improving augmentative and alternative communication and computer access
software and devices for disabled persons and we intend to continue to be at the
forefront of the development of new products. We will continue to enhance our
major software products, E Z Keys and Talking Screen, as well as our growing
line of hardware products. We will also consider acquisitions of other products,
businesses and companies that are complementary to our existing augmentative and
alternative communication and computer access business lines.
Simulations Plus was incorporated under the laws of California in 1996. Our
principal executive offices are located at 1220 West Avenue J, Lancaster,
California 93534 and our telephone number at that address is (661) 723-7723.
RECENT DEVELOPMENTS
In February, 1999 we signed a Letter of Intent to form a joint venture with
Absorption Systems LP of Exton, Pennsylvania to create a data warehouse and
predictive computer capability for key compound ADME characteristics for new
drug discovery and development. The acronym "ADME" stands for "Absorption,
Distribution, Metabolism and Elimination" and is commonly used in the
pharmaceutical industry to refer to how these processes affect a drug compound
after it is taken orally.
Under the joint venture, Absorption Systems will conduct laboratory testing of
drug molecules and compounds for member companies of a new ADME Consortium.
Measurements will be made of approximately 30 parameters for each compound that
describe critical absorption, metabolism, solubility, and other ADME
characteristics. Simulations Plus will then use the data to build and
continually improve predictive computer models to predict these 30 parameters
for new drug compounds from their molecular structure, without the need to make
the compounds or for laboratory testing. This will allow drug companies to
screen very large numbers of new compounds in the computer, without the need to
actually make every compound, saving considerable time and money.
We expect that a minimum investment of $500,000 and provision of a minimum of
100 samples of compounds will be required from each consortium member per year.
We expect the consortium to eventually reach a membership of over 20 companies
worldwide. Each member company will benefit from the mathematical models
generated from all member companies' data; however, no member will have access
to the raw data from other members.
<PAGE> 8
RISK FACTORS
In addition to the other information in this Prospectus, the following risk
factors should be considered carefully in evaluating us and our business before
purchasing the Shares offered pursuant to this Prospectus. This Prospectus
contains forward-looking statements that involve risks and uncertainties. Our
actual results could differ materially from the results discussed in these
forward-looking statements. Factors that might cause such a difference include,
but are not limited to, those set forth in the following risk factors and
elsewhere in this Prospectus.
<PAGE> 9
ACCEPTANCE OF SIMULATION SOFTWARE BY THE PHARMACEUTICAL INDUSTRY. Although our
GastroPlus(TM) software has now been licensed by eight major pharmaceutical
companies, and we are currently working over 150 active leads for new
pharmaceutical software license sales, we cannot guarantee that the
pharmaceutical industry will accept the use of simulation software, such as
GastroPlus(TM) and QMPRPlus(TM), in large enough numbers to achieve our sales
expectations. The failure to meet our sales expectations could materially and
adversely affect our business, financial condition and results of operations.
No assurance can be given that other pharmaceutical companies will purchase
annual licenses for GastroPlus(TM), that companies that have purchased annual
licenses will renew such licenses or that we will be able to realize sustained
revenues from GastroPlus(TM) or any updates. Further, we are developing
additional pharmaceutical simulation software as line extensions of
GastroPlus(TM). No assurance can be given that we will successfully develop
these programs, or if developed, that they will receive market acceptance. Our
inability to obtain acceptance of our pharmaceutical simulation software could
materially and adversely affect our business, financial condition and results of
operations.
ACCUMULATED DEFICIT AND RECENT OPERATING LOSSES. While we were profitable in
each of our fiscal years ended August 31, 1996, 1995, and 1994, we sustained a
net loss of approximately $1,436,000 for the fiscal year ended August 31, 1997,
and for the fiscal year ended August 31, 1998, we sustained a net loss of
approximately $2,068,000. These losses are attributable primarily to increases
in selling, general and administrative expenses, including staff increases,
computer equipment, facilities expansion, and marketing and sales expenses,
including research and development activities for the development of educational
and pharmaceutical simulation software. In July 1998 we moved to a larger
building, which provided greater space at a significantly lower rent. We
completed a downsizing in August 1998 in order to reduce expenses, cutting
educational software development to two people and refocusing our efforts in the
pharmaceutical software area. In addition, a number of management personnel
accepted lower salaries on a temporary basis, with unpaid amounts being accrued
for payment later when our cash position will allow it without adverse effects.
As of November 30, 1998, accrued salaries equaled approximately $55,000 and
salaries are currently accruing at the rate of approximately $17,000 per
quarter. As a result of these cost reduction measures, and record sales for the
first quarter, losses for our first fiscal quarter of 1999 ended November 30,
1998 were reduced to $74,000, compared to approximately $443,000 in the first
quarter of fiscal year 1998.
NEED TO RAISE ADDITIONAL CAPITAL. We need to raise additional capital to cover
ongoing operating expenses and to expand the development of our pharmaceutical
software products. If we are unable to raise this capital, and if sales do not
continue to increase, we will need to institute further cost reduction measures
to become cash positive. If all of the warrants underlying the common stock that
is being registered with this registration statement are exercised at their
exercise price, we would receive a total of $1,700,000; however, there is no
guarantee that any of the warrants will be exercised. In January 1999, we signed
an agreement with The Kriegsman Group, a southern California firm, to assist us
in raising equity capital. No assurance can be given that we will be successful
in raising equity capital or that we will be able to raise equity capital on
favorable terms.
<PAGE> 10
DEPENDENCE ON GOVERNMENTAL AND THIRD PARTY FUNDING FOR AUGMENTATIVE AND
ASSISTIVE COMMUNICATION AND COMPUTER TECHNOLOGY. We estimate that
approximately 50% of our sales of augmentative and assistive communication and
computer products is to public schools that fund these purchases from special
education budgets or to persons who receive funding for such purchases, in whole
or in part, from third-party payors such as Medicaid, Medicare, other
governmental funding sources, private medical insurance or from charitable
organizations. Purchases of these products by public schools from special
education budgets is prompted in large part by Federal legislation mandating
that schools acquire this assistive technology and make it available to disabled
students. Medicaid, Medicare and other governmental funding for such assistive
technology has been driven by Federal legislation and policies and supported by
court decisions. Private insurance providers have increasingly accepted this
technology as a covered benefit. In addition, professional speech-therapy
organizations and governmental initiatives have sponsored public awareness and
advocacy programs with regard to governmental funding for this technology. At
the present time, we believe the direction of professional
organizations, Federal government policy, the courts and private insurance
providers is for continued and increased support for access to this technology
for disabled persons. However, there can be no assurance that the policies of
these entities will continue to support continued or increased governmental and
other third-party funding for this technology. Any change in these policies, or
court decisions for reduced support for funding for this technology or public
awareness programs for such funding, could reduce the ability of individuals to
purchase this technology and reduce special education budgets in public schools
for this technology, and this could materially adversely affect sales of these
products by the entire industry and by us. In addition, changes in
governmental and private insurance policies in other countries could adversely
affect foreign sales of these products.
DEPENDENCE ON INDEPENDENT DISTRIBUTORS. We are substantially
dependent on the efforts of our independent distributors and dealers for sales
of our Words+ disability products and for customer service and support. Our
distribution and dealer agreements generally grant exclusive
territorial rights and generally are terminable by either party on 30 days
notice. In the event of a termination of any such distributor or dealer
relationship, there can be no assurance that we could quickly find
alternative distributors or dealers. In addition, if a distributor or dealer
terminates its relationship with us and begins to distribute
competitive products, our ability to compete in the former distributor
or dealer's territory could be materially adversely affected. Thus, the loss of
one or more of our distributors or
<PAGE> 11
dealers could have a material adverse effect on our business, financial
condition and results of operations.
DEPENDENCE ON REFERRAL BUSINESS. As part of our mix of marketing strategies
for our disability products, we and our distributors and dealers maintain close
working relationships with many clinics, service agencies, rehabilitation
organizations, speech-language pathologists, rehabilitation counselors or
similar advisors to people with communication problems. A significant amount of
our business is derived from referrals from such people, organizations and
agencies. Sometimes such relationships are a matter of contract, but more often
they are informal relationships developed over an extended period of time. Our
competitors compete with us for such referral sources. The loss of one or more
of these referral sources could have a material adverse effect on our business,
financial condition and results of operations.
VOLATILITY OF STOCK PRICE. Our stock price has been, and in the future is
expected to be, volatile and to experience market fluctuation as a result of a
number of factors, including, but not limited to, current and anticipated
results of operations, future product offerings by us or our competitors and
factors unrelated to our operating performance. The trading price of our Common
Stock may also vary as a result of changes in the business, operations, or
financial results, prospects of general market and economic conditions and other
factors.
LIMITED SOURCE FOR CERTAIN COMPONENTS. We do not manufacture certain of our
components. Our Pegasus LITE portable communication system is based upon a
computer that is only available from Epson, Inc. ("Epson"), a large
multi-national corporation headquartered in Japan. Although to date we have not
experienced any significant difficulty in obtaining such computer, there can be
no assurance that shortages will not arise in the future. There is no other
source for this computer component. The failure of Epson to continue manufacture
and sale of the computer that is utilized in our Pegasus LITE could have a
material adverse effect on our business, financial condition and results of
operations. In addition, a number of the pictographic symbols used by us in our
Talking Screen for Windows product are purchased from a competitor, the
Mayer-Johnson Company, that produces augmentative communication systems for
Apple computers. Although we believe that our relationship with this supplier is
good, no assurance can be given that it will continue to sell such pictographic
symbols to us, or, if such sales continue that such sales will be on terms
favorable to us. The termination of sales of pictographic symbols to the Company
could have a material adverse effect on our business, financial condition and
results of operations. We rely on limited sources for other components as well.
If we were unable to obtain sufficient quantities of components, we could
experience delays or reductions in product shipments which would have a material
adverse effect on our business, financial condition and results of operations.
Furthermore, delays in filling orders may have a material adverse effect on our
relationships with our customers, which may cause a permanent loss of sales and
result in a material adverse effect on our business, financial condition and
results of operations.
<PAGE> 12
HIGHLY COMPETITIVE INDUSTRIES. The augmentative communication industry in
which we compete is very competitive. We believe that the level of
sophistication of the market somewhat precludes successful entry by very small
companies, as has been possible in the past; however, companies with sufficient
financial, development and marketing resources may enter the market. There can
be no assurance that our products will remain at the technological forefront of
the industry, or that we will be able to market and sell our products
successfully in the presence of new competition, whether from improved products
offered by existing competitors, or from new competitors who may enter the
market with new technologies.
<PAGE> 13
RISK OF PRODUCT DEFECTS. Software products as complex as those offered by
us may contain undetected errors or "bugs" when introduced or when new versions
are released. We have in the past discovered software defects in certain of our
products after commercial release. No assurance can be given that, despite
testing by us, errors will not be found in new products or releases after
commencement of commercial shipments, resulting in loss of market share or
failure to achieve market acceptance. Any such occurrence could have a material
adverse effect upon our business, financial condition and results of operations.
Our warranty costs have not been significant to date. However, no assurance can
be given that warranty costs will not increase in future periods or that any
such increase would not have a material adverse effect on our business,
financial condition and results of operation.
LIMITED PROTECTION OF INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS; NO
PATENTS. We regard our E Z Keys for Windows, Talking Screen for Windows, Pegasus
LITE and related software and our simulation software products as proprietary
and rely primarily on a combination of copyright, trademark, trade secret and
confidential information laws and employee and third-party non-disclosure
agreements and other methods to protect our proprietary rights. There can be no
assurance that these protections will be adequate to protect our intellectual
property rights or that our competitors will not independently develop
technologies that are substantially equivalent or superior to our technologies.
We do not currently hold any patents or have any patent applications pending for
us or our products and have not obtained Federal registration for any of our
trademarks, except that we have filed for trademark registration for the
following: Abbreviate!, GastroPlus, HelixGen, QMPRPlus and Futurelab. We enter
into non-disclosure and invention assignment agreements with our employees and
enter into non-disclosure agreements with its consultants, subcontractors and
distributors. However, there can be no assurance that such measures will protect
our proprietary technology, or that our competitors will not develop products
with features based upon, or otherwise similar to, our products or that we will
be able to enjoin competitors from selling similar products.
We believe that our products, trademarks and other proprietary rights do
not infringe on the proprietary rights of third parties. We have been conducting
business on a world-wide basis in the augmentative communication and computer
alternative access industries without receiving claims from third parties that
our products or names infringe on any proprietary rights of other parties.
However, we are a recent entrant in the educational and pharmaceutical
simulation software fields. There can be no assurance that third parties will
not assert infringement claims against us in the future with respect to current
or future products, trademarks or other works or that such assertion may not
require us to enter into royalty arrangements or result in costly litigation.
<PAGE> 14
CONCENTRATION OF OWNERSHIP. Following this offering, the current officers
and directors of the Company and their affiliates will beneficially own or have
voting control over approximately 56.3% (assuming exercise of the warrants sold
to the Selling Shareholders) of the outstanding shares of Common Stock.
Accordingly, these individuals will have the ability to influence the election
of our directors and effectively to control most corporate actions. This
concentration of ownership may also have the effect of delaying, deterring or
preventing a change in control.
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS. We distribute our products
in approximately 12 countries and revenues from sales outside the United States
represented approximately 13%, 17%, 14%, 11%, and 17% of the Company's
revenues for the fiscal years ended August 31, 1998, 1997, 1996, 1995 and 1994,
respectively. Adaptation of our products for distribution in foreign countries
includes translation of text to conform to foreign languages and conventions and
can be time consuming and costly. We face the following additional risks in
distributing our products abroad although to date such risks have not materially
and adversely affected our business: unexpected changes in regulatory
requirements, tariffs and other trade barriers, longer accounts receivable
payment cycles, difficulties in managing international operations, potentially
adverse tax consequences, repatriation of earnings and the burdens of complying
with a wide variety of foreign laws. There can be no assurance that such factors
will not have an adverse effect on our future foreign sales and, consequently,
our future business, financial condition or results of operations. All of our
international sales are currently designated in United States Dollars.
Strengthening of the United States Dollar in relation to other currencies may
result in our products becoming more expensive in foreign markets, which may
result in decreased demand for our products in such markets. We do not engage in
hedging transactions to mitigate against such risk.
GOVERNMENT REGULATION. Devices that produce radio frequency ("RF") energy
are regulated by the Federal Communications Commission (the "FCC") pursuant to
the Communications Act of 1934, as amended. Part 15 of the FCC's Rules establish
technical standards for devices that generate radio energy but that are not
intended to emit RF energy and do not transmit information on radio frequencies.
Such devices are known as "unintentional radiators." The FCC requires that
equipment authorizations be obtained from the FCC in order to market Part 15
unintentional radiators and that applicants for equipment authorizations
demonstrate that their equipment satisfies FCC technical requirements relating
to RF emissions. Prior to 1997, we had not previously sought to obtain FCC
equipment authorizations for any of our products and in the latter part of 1996
we were advised that certain of our products are subject to Part 15 so that such
authorizations are required. We completed modifications to these
<PAGE> 15
products to comply with these technical requirements and have successfully
completed testing at an FCC-certified lab for all of our current products. All
of our products have now met the European CE requirements as well as FCC
requirements.
Under the Federal Food, Drug and Cosmetic Act, a "[medical] device" is
defined, in part, as an "instrument, apparatus, implement, machine, contrivance,
or other similar or related article . . . which is . . . intended for use in the
. . . mitigation, treatment or prevention of disease in man or other animals."
The FDA regulates such devices with respect to preclinical and clinical testing,
manufacturing, labeling, distribution and promotion. The FDA issued a letter
dated April 28, 1995 to one of our competitors concerning the applicability of
FDA rules to disability products similar to our. This letter stated that the FDA
had determined that communication systems that were the subject of that letter
will be considered as meeting the definition of a medical device only if they
are intended to be used for communications directly with medical personnel or to
alert authorities regarding a medical condition or medical emergency and that
the FDA will not consider communication systems to be medical devices if they
are intended to facilitate communications for physically impaired persons and
make no specific or implied claims for use during a medical emergency. This
letter addressed products of a competitor. We believe that our disability
products are similar in intended use to the product that was the subject of such
letter and that our disability products have not been promoted or marketed in a
way that would suggest that such products are intended to facilitate
communications for physically impaired persons for use during a medical
emergency. Accordingly, we believe that our disability products are not subject
to regulation as medical devices in accordance with the FDA's position expressed
in such letter. There can be no assurance that the FDA will not change its
regulatory position in the future and seek to regulate such products as medical
devices or that our disability products will not otherwise become subject to FDA
regulation as medical devices. In the event our disability products were to
become subject to FDA regulations as medical devices, we would incur added costs
and regulatory burdens.
ENVIRONMENTAL COMPLIANCE. In the ordinary course of our manufacturing and
repair processes, we use batteries, glue and similar materials which are stored
on-site. The waste created by use of these materials is transported off-site on
a regular basis. We currently ship batteries to a battery distributor for
recycling and dispose of empty glue containers in accordance with instructions
given to us by the disposal company that disposes of our general refuse.
Although we are not aware of any claim involving violation of environmental or
occupational safety and health laws and regulations, there can be no assurance
that such a claim may not arise in the future, which may have a material adverse
effect on our business, financial condition or results of operations.
<PAGE> 16
ABSENCE OF DIVIDENDS. We have never paid cash dividends on our Common Stock
and do not anticipate paying cash dividends on our Common Stock in the
foreseeable future.
LIMITATIONS ON LIABILITY OF DIRECTORS. Our Articles of Incorporation
substantially limits the liability of our directors to us and our shareholders
for breach of fiduciary and other duties to us.
<PAGE> 17
POSSIBLE DELISTING OF SHARES OF COMMON STOCK FROM THE NASDAQ MARKET. In
order to maintain quotation of its securities on the NASDAQ SmallCap Market
("NASDAQ"), we have to maintain certain minimum financial requirements. As of
November 30, 1998, our net assets were $1,243,492, which is below the continued
listing requirements for the NASDAQ SmallCap market, specifically, the net
tangible assets of $2,000,000. If we are unable to increase our net tangible
assets to meet the NASDAQ's requirement for continued listing, our securities
may be delisted from NASDAQ. In such event, trading, if any, in the shares of
Common Stock would thereafter be conducted in the over-the-counter markets in
the so-called "pink sheets" or on the NASDAQ's "electronic Bulletin Board."
Consequently, the liquidity of our securities could be impaired, not only in the
number of securities which could be bought and sold, but also through delays in
the timing of the transactions, reductions in security analysts' and the news
media's coverage of us, and lower prices for our securities than otherwise might
be attained.
If our securities were to be delisted from NASDAQ, they could become
subject to Rule 15g-9 under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), which imposes additional sales practice requirements on
broker-dealers that sell such securities to persons other than established
customers and "accredited investors" (generally, individuals with a net worth in
excess of $1,000,000 or annual incomes exceeding $200,000, or $300,000 together
with their spouses). For transactions covered by this rule, a broker-dealer must
make a special suitability determination for the purchaser and have received the
purchaser's written consent to the transaction prior to the sale. Consequently,
the rule may adversely affect the ability of broker-dealers to sell our
securities that acquired in the secondary market.
RISK OF PENNY STOCKS. Securities and Exchange Commission ("Commission")
regulations define a "penny stock" to be any non-NASDAQ equity security that has
a market price (as therein defined) of less than $5.00 per share or with an
exercise price of less than $5.00 per share, subject to certain exceptions. For
any transaction involving a penny stock, unless exempt, the rules require
delivery, prior to any transaction in a penny stock, of a disclosure schedule
prepared by the Commission relating to the penny stock market. Disclosure is
also required to be made about commissions payable to both the broker-dealer and
the registered representative and current quotations for the securities.
Finally, monthly statements are required to be sent disclosing recent price
information for the penny stock held in the account and information on the
limited market in penny stocks.
The foregoing required penny stock restrictions will not apply to our
securities if such securities are listed on NASDAQ and have certain price and
volume information provided on a current and continuing basis or meet certain
minimum tangible assets or average revenue criteria. There can be no assurance
that our securities will qualify for exception from these restrictions. In any
event, even if our securities were exempt from such restrictions, it would
remain subject to Section 15(b)(6) of the Exchange Act, which gives the
Commission the authority to prohibit any person that is engaged in unlawful
conduct while participating in a distribution of penny stock from associating
with a broker-dealer or participating in the distribution of a penny stock, if
the Commission finds that such a restriction would be in the public interest. If
our securities were subject to the rules on penny stocks, the market liquidity
for our securities would be severely adversely affected.
FORWARD-LOOKING STATEMENTS. When used in this Prospectus and the documents
incorporated herein by reference, the words "believes," "anticipates,"
"intends," "expects" and similar expressions are intended to identify in certain
circumstances, forward-looking statements. Such statements are subject to a
number of risks and uncertainties that could cause actual results to differ
materially from those projected, including the risks described in this "Risk
Factors" section. Given these uncertainties, prospective investors are cautioned
not to place undue reliance on such statements. We undertake no obligation to
update these forward-looking statements.
<PAGE> 18
SELLING SHAREHOLDERS
The following table shows (i) the name of the Selling Shareholders (ii) the
number of shares of Common Stock beneficially owned by each Selling Shareholder
or issuable upon the exercise of currently outstanding warrants prior to the
sale of shares registered pursuant to this Prospectus, (iii) the aggregate
number of shares of Common Stock to be sold by each from time to time pursuant
to this Prospectus, and (iv) the number of shares beneficially owned after the
sale of all shares registered hereby:
<TABLE>
<CAPTION>
Name of Selling Shares Beneficially Shares to be Shares
Shareholder Owned Prior to Sold in the Owned After
the Offering Offering the Offering
<S> <C> <C> <C>
Fernando Zamudio 100,000 100,000 0
Patricia Ann O'Neil 150,000 150,000 0
Venture Acquisition
Group, Inc. 20,000 20,000 0
William Brereton 20,000 20,000 0
William D. Kay,
K. Long, Ttee 40,000 40,000 0
Mansour Khayyam 40,000 40,000 0
Paul J. &
Kelly A. Sznaider 20,000 20,000 0
Michael D. &
Anita Arden 40,000 40,000 0
Fixtar Holdings, Inc. 20,000 20,000 0
Tony & Cindy Nikolich 20,000 20,000 0
Lavina G. Reott 20,000 20,000 0
Harold W. Wrobel 40,000 40,000 0
</TABLE>
<PAGE> 19
USE OF PROCEEDS
All the shares offered hereby are being offered for the account of the
Selling Shareholders. Accordingly we will not receive any proceeds of any sales
made pursuant to this Prospectus but will receive funds from the exercise of any
warrants. Any such funds will be used for working capital.
PLAN OF DISTRIBUTION
We have been advised by the Selling Shareholders that they intend to sell
all or a portion of the shares offered hereby from time to time in the Nasdaq
SmallCap Market and that sales will be made at prices prevailing in the market
at the times of such sales. The Selling Shareholders may also make private
sales directly or through a broker or brokers, who may act as agent or as
principal. In connection with any sales, the Selling Shareholders and any
brokers participating in such sales may be deemed to be "underwriters" within
the meaning of the Securities Act. The Company will receive no proceeds from
any such sales.
Any broker-dealer participating in such transactions as agent may receive
commissions from the Selling Shareholders (and, if they act as agent for the
purchaser of such shares, from such purchaser). Usual and customary brokerage
fees will be paid by the Selling Shareholders. Broker-dealers may agree with
the Selling Shareholders to sell a specified number of shares at a stipulated
price per share, and, to the extent such a broker-dealer is unable to do so
acting as agent for the Selling Shareholders, to purchase as principal any
unsold shares at the price required to fulfill the broker-dealer commitment to
the Selling Shareholders. Broker-dealers who acquire shares as principal may
thereafter resell such shares from time to time in transactions (which may
involve crosses and block transactions and which may involve sales to and
through other broker-dealers, including transactions of the nature described
above) in the Nasdaq SmallCap Market, in negotiated transactions or otherwise at
market prices prevailing at the time of sale or at negotiated prices, and in
connection with such resales may pay to or receive from the purchasers of such
shares commissions computed as described above.
We have advised the Selling Shareholders that the anti-manipulative Rules
of Regulation M promulgated by the Commission may apply to their respective
sales in the market, have furnished the Selling Shareholders with a copy of
these Rules and have informed them of the need for delivery of copies of this
Prospectus. The Selling Shareholders may indemnify any broker-dealer that
participates in transactions involving the sale of the shares against certain
liabilities, including liabilities arising under the Securities Act. Any
commissions paid or any discounts or concessions allowed to any such
broker-dealers, and any profits received on the resale of such shares, may be
deemed to be underwriting discounts and commissions under the Securities Act if
any such broker-dealers purchase shares as principal.
Any securities covered by this Prospectus that qualify for sale pursuant to
Rule 144 under the Securities Act may be sold under that Rule rather than
pursuant to this Prospectus.
There can be no assurance that the Selling Shareholders will sell any or
all of the shares of Common Stock offered by them pursuant to this Prospectus.
<PAGE> 20
DESCRIPTION OF SECURITIES
COMMON STOCK
We are authorized to issue up to 20,000,000 shares of Common Stock. As of
the date of this Prospectus, there were 3,383,533 shares of Common Stock
outstanding, held of record by approximately 18 shareholders representing
approximately 800 beneficial owners. Holders of Common Stock are entitled to
cast one vote for each share held of record on all matters presented to
shareholders, other than with respect to the election of directors, for which
cumulative voting is currently required under certain circumstances by
applicable provisions of California law. Under cumulative voting, each
shareholder may give any one candidate whose name is placed in nomination prior
to the commencement of voting a number of votes equal to the number of directors
to be elected, multiplied by the number of votes to which the shareholder's
shares are normally entitled, or distribute such number of votes among as many
candidates as the shareholder sees fit. The effect of cumulative voting is that
the holders of a majority of the outstanding shares of Common Stock may not be
able to elect all of the Company's directors. Holders of Common Stock are
entitled to receive ratably such dividends as may be declared by the Board of
Directors out of funds legally available therefor. In the event of our
liquidation, dissolution or winding up, holders of Common Stock are entitled to
share ratably in all assets remaining after payment of liabilities and the
liquidation preference of any outstanding senior securities. Holders of Common
Stock have no preemptive rights and have no rights to convert their Common Stock
into any other securities. The outstanding shares of Common Stock are, and the
shares of Common Stock offered hereby will be, when issued, validly issued,
fully paid and nonassessable.
BRIDGE WARRANTS
We issued to Patricia Ann O'Neil and Fernando Zamudio the Bridge Warrants
entitling such persons, upon exercise thereof, to receive an aggregate of
250,000 shares of Common Stock at an exercise price of $4.00 per share. The
Bridge Warrants are exercisable at any time or from time to time until five
years from their date of issuance. The Bridge Warrants contain anti-dilution
provisions providing for appropriate adjustments in the event of any
recapitalization, reclassification, stock dividend, stock split or similar
transaction by the Company.
LENDER'S WARRANTS
We issued the Lender's Warrants, entitling the holders thereof,
upon exercise thereof, to receive an aggregate of 280,000 shares of Common Stock
at an exercise price of $2.50 per share. The holders of such Lender's Warrants
have been granted certain registration rights under the Securities Act with
respect to the Common Stock issuable upon the exercise of the Lender's Warrants.
The Lender's Warrants are exercisable at any time or from time to time until
five years from their date of issuance. The Lender's Warrants contain
anti-dilution provisions for appropriate adjustments in the event of any
recapitalization, reclassification, stock dividend, stock split or similar
transaction by the Company.
THE WALDRON WARRANT
The Waldron Warrant entitles Waldron & Co., Inc., the underwriter of our
initial public offering, to acquire 115,000 shares of Common Stock. The Waldron
Warrant is exercisable for a four-year period commencing on June 18, 1998 at an
exercise price equal to $6.00 per Share. The Waldron Warrant contains
anti-dilution provisions providing for appropriate adjustments in the event of
any recapitalization, reclassification, stock dividend, stock split or similar
transaction by the Company.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock and the Warrants of
the Company is U.S. Stock Transfer Company, Glendale, California.
LEGAL MATTERS
Counsel for the Company, Donahue, Mesereau & Leids LLP, has
rendered an opinion to the effect that the Common Stock offered for
resale hereby is duly and validly issued, fully paid and
non-assessable.
EXPERTS
The financial statements incorporated in this Prospectus by
reference to the Annual Report on Form 10-KSB of Simulations Plus,
Inc. for the fiscal year ended August 31, 1998 have been so incorporated
in reliance on the report of Singer Lewak Greenbaum & Goldstein LLP,
independent accountants, given on the authority of said firm as experts
in auditing and accounting.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration
Statement on Form S-3, under the Securities Act, with respect to the
shares of Common Stock offered hereby. This Prospectus does not
contain all of the information set forth in the Registration
Statement and the exhibits thereto. For further information with
respect to the Company and the Common Stock offered hereby, reference
is made to the Registration Statement and the exhibits filed
therewith or incorporated by reference. Statements contained in this
Prospectus regarding the contents of any contract or any other
document referred to are necessarily incomplete, and in each instance
reference is made to the copy of such contract or other document
filed as an exhibit to the Registration Statement or otherwise filed
with the Commission, each statement being qualified in all respects
by such reference. The Registration Statement may be inspected
without charge at the offices of the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549, and copies of all or any part thereof
may be obtained from such office upon the payment of the fees
prescribed by the Commission.
===============================================================================
NO DEALER, SALES REPRESENTATIVE OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS
IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS
AND IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR SOLICITATION OF AN OFFER TO BUY THE SECURITIES
BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT
AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER
OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE AN IMPLICATION THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
-------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information.....................................................
Information Incorporated by Reference.....................................
Forward Looking Statements................................................
The Company...............................................................
Recent Developments.......................................................
Risk Factors..............................................................
Selling Shareholders......................................................
Use of Proceeds...........................................................
Plan of Distribution......................................................
Description of Securities.................................................
Legal Matters.............................................................
Experts...................................................................
Additional Information....................................................
</TABLE>
================================================================================
================================================================================
530,000 SHARES
SIMULATIONS PLUS, INC.
--------------------
PROSPECTUS
--------------------
March 5, 1999
