##### Table of Contents





UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549





FORM 10-Q



|x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------------

For the quarterly period ended December 31, 2007

OR



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------

For the transition period from  to

Commission File Number: 0-27188





ACCELRYS, INC.

(Exact name of registrant as specified in its charter)



|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Delaware                                                       |  | 33-0557266                          
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)
|                                                               | 
|10188 Telesis Court, Suite 100, San Diego, California          |  | 92121-4779                          
|(Address of principal executive offices)                       |  | (Zip Code)                          

(858) 799-5000

(Registrants telephone number, including area code)

Indicate by check
mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No   ̈

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See
definition of accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated
filer   ̈            Accelerated filer  x            Non-accelerated filer   ̈

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

The number of outstanding shares of the registrants common stock, par value $0.0001 per share, as of January 18, 2008 was 26,792,458, net of treasury shares.









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ACCELRYS, INC.

FORM 10-Q  QUARTERLY REPORT

For The Quarterly Period Ended December 31, 2007

Table of Contents



|                               |  |                                                                                                                                         |  |   
|------------------------------ |  | --------------------------------------------------------------------------------------------------------------------------------------- |  | --
|PART I  FINANCIAL INFORMATION |  |                                                                                                                                        
|                               |  |                                                                                                                                        
|Item 1.                        |  | Condensed Consolidated Financial Statements                                                                                             |  | 3 
|                               |  |                                                                                                                                        
|                               |  | Condensed consolidated balance sheets as of December 31, 2007 (unaudited) and March 31, 2007                                            |  | 3 
|                               |  |                                                                                                                                        
|                               |  | Condensed consolidated statements of operations (unaudited) for the three-month and nine-month periods ended December 31, 2007 and 2006 |  | 4 
|                               |  |                                                                                                                                        
|                               |  | Condensed consolidated statements of cash flows (unaudited) for the nine-month periods ended December 31, 2007 and 2006                 |  | 5 
|                               |  |                                                                                                                                        
|                               |  | Notes to condensed consolidated financial statements (unaudited)                                                                        |  | 6 
|                               |  |                                                                                                                                        
|Item 2.                        |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                                                   |  | 14
|                               |  |                                                                                                                                        
|Item 3.                        |  | Quantitative and Qualitative Disclosures About Market Risk                                                                              |  | 19
|                               |  |                                                                                                                                        
|Item 4.                        |  | Controls and Procedures                                                                                                                 |  | 19
|                               | 
|PART II  OTHER INFORMATION    |  |                                                                                                                                        
|                               |  |                                                                                                                                        
|Item 1.                        |  | Legal Proceedings                                                                                                                       |  | 19
|                               |  |                                                                                                                                        
|Item 1A.                       |  | Risk Factors                                                                                                                            |  | 20
|                               |  |                                                                                                                                        
|Item 5.                        |  | Other Information                                                                                                                       |  | 26
|                               |  |                                                                                                                                        
|Item 6.                        |  | Exhibits                                                                                                                                |  | 26
|                               | 
|Signature                      |  | 27                                                                                                                                     



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PART I  FINANCIAL INFORMATION



|Item 1. | Condensed Consolidated Financial Statements
|------- | -------------------------------------------

Accelrys, Inc.

Condensed Consolidated Balance Sheets

(In thousands, except per share amounts)



|                                                                                                                                                |  |                  |          |   |               |   |          |  
|----------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------- | -------- | - | ------------- | - | -------- | -
|                                                                                                                                                |  | December 31,2007 |          |   | March 31,2007 |  
|                                                                                                                                                |  | (Unaudited)      |          |   |               |  
|Assets                                                                                                                                          |  |                  |          |   |               |   |          |  
|Current assets:                                                                                                                                 |  |                  |          |   |               |   |          |  
|Cash and cash equivalents                                                                                                                       |  | $                | 39,395   |   |               | $ | 33,247   |  
|Marketable securities                                                                                                                           |  |                  | 18,224   |   |               |   | 29,322   |  
|Trade receivables, net of allowance for doubtful accounts of $201 as of December 31, 2007 and $213 as of March 31,
2007                         |  |                  | 29,473   |   |               |   | 18,617   |  
|Prepaid expenses, deferred tax assets and other current assets                                                                                  |  |                  | 3,677    |   |               |   | 8,652    |  
|                                                                                                                                                |  |                  |          |   |               |   |          |  
|Total current assets                                                                                                                            |  |                  | 90,769   |   |               |   | 89,838   |  
|Restricted cash and marketable securities                                                                                                       |  |                  | 8,198    |   |               |   | 8,188    |  
|Property and equipment, net                                                                                                                     |  |                  | 4,973    |   |               |   | 6,049    |  
|Goodwill                                                                                                                                        |  |                  | 42,663   |   |               |   | 42,663   |  
|Purchased intangible assets, net                                                                                                                |  |                  | 5,994    |   |               |   | 7,138    |  
|Other assets                                                                                                                                    |  |                  | 584      |   |               |   | 725      |  
|                                                                                                                                                |  |                  |          |   |               |   |          |  
|Total assets                                                                                                                                    |  | $                | 153,181  |   |               | $ | 154,601  |  
|                                                                                                                                                |  |                  |          |   |               |   |          |  
|Liabilities and stockholders equity                                                                                                            |  |                  |          |   |               |   |          |  
|Current liabilities:                                                                                                                            |  |                  |          |   |               |   |          |  
|Accounts payable                                                                                                                                |  | $                | 512      |   |               | $ | 1,199    |  
|Accrued liabilities                                                                                                                             |  |                  | 6,031    |   |               |   | 10,911   |  
|Accrued compensation and benefits                                                                                                               |  |                  | 7,865    |   |               |   | 8,353    |  
|Current portion of accrued restructuring charges                                                                                                |  |                  | 418      |   |               |   | 673      |  
|Current portion of deferred revenue                                                                                                             |  |                  | 52,401   |   |               |   | 53,218   |  
|                                                                                                                                                |  |                  |          |   |               |   |          |  
|Total current liabilities                                                                                                                       |  |                  | 67,227   |   |               |   | 74,354   |  
|Deferred revenue, net of current portion                                                                                                        |  |                  | 2,587    |   |               |   | 2,915    |  
|Deferred tax liability                                                                                                                          |  |                  | 761      |   |               |   | 505      |  
|Accrued restructuring charges, net of current portion                                                                                           |  |                  | 1,214    |   |               |   | 1,371    |  
|Lease-related liabilities, net of current portion                                                                                               |  |                  | 6,165    |   |               |   | 6,466    |  
|Stockholders equity:                                                                                                                           |  |                  |          |   |               |   |          |  
|Preferred stock, $.0001 par value; 2,000 shares authorized; no shares issued and outstanding                                                    |  |                  |         |   |               |   |         |  
|Common stock, $.0001 par value; 60,000 shares authorized; 27,436 and 27,155 shares issued at December 31, 2007 and March 31, 2007,
respectively |  |                  | 3        |   |               |   | 3        |  
|Additional paid-in capital                                                                                                                      |  |                  | 263,033  |   |               |   | 259,435  |  
|Lease guarantee                                                                                                                                 |  |                  | (525     | ) |               |   | (572     | )
|Treasury stock; 644 shares at each of December 31, 2007 and March 31, 2007                                                                      |  |                  | (8,340   | ) |               |   | (8,340   | )
|Accumulated deficit                                                                                                                             |  |                  | (180,143 | ) |               |   | (182,681 | )
|Accumulated other comprehensive income                                                                                                          |  |                  | 1,199    |   |               |   | 1,145    |  
|                                                                                                                                                |  |                  |          |   |               |   |          |  
|Total stockholders equity                                                                                                                      |  |                  | 75,227   |   |               |   | 68,990   |  
|                                                                                                                                                |  |                  |          |   |               |   |          |  
|Total liabilities and stockholders equity                                                                                                      |  | $                | 153,181  |   |               | $ | 154,601  |  
|                                                                                                                                                |  |                  |          |   |               |   |          |  

See accompanying notes to these condensed consolidated financial statements.



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Accelrys, Inc.

Condensed Consolidated Statements of Operations

(In thousands, except per share amounts)

(Unaudited)



|                                                                    |  |                                |        |   |                               |   |        |      |  |      |        |  |   |        |  
|------------------------------------------------------------------- |  | ------------------------------ | ------ | - | ----------------------------- | - | ------ | ---- |  | ---- | ------ |  | - | ------ | -
|                                                                    |  | Three Months EndedDecember 31, |        |   | Nine Months EndedDecember 31, |  
|                                                                    |  | 2007                           |        |   | 2006                          |   |        | 2007 |  | 2006 |       
|Revenue                                                             |  | $                              | 19,566 |   |                               | $ | 20,684 |      |  | $    | 59,329 |  | $ | 61,066 |  
|Cost of revenue                                                     |  |                                | 4,074  |   |                               |   | 4,264  |      |  |      | 11,028 |  |   | 11,457 |  
|                                                                    |  |                                |        |   |                               |   |        |      |  |      |        |  |   |        |  
|Gross profit                                                        |  |                                | 15,492 |   |                               |   | 16,420 |      |  |      | 48,301 |  |   | 49,609 |  
|Operating expenses:                                                 |  |                                |        |   |                               |   |        |      |  |      |        |  |   |        |  
|Product development                                                 |  |                                | 4,497  |   |                               |   | 4,697  |      |  |      | 13,101 |  |   | 14,739 |  
|Sales and marketing                                                 |  |                                | 9,564  |   |                               |   | 8,878  |      |  |      | 24,244 |  |   | 22,512 |  
|General and administrative                                          |  |                                | 3,393  |   |                               |   | 4,077  |      |  |      | 10,809 |  |   | 13,162 |  
|Restructuring charges                                               |  |                                | 22     |   |                               |   | 252    |      |  |      | 47     |  |   | 252    |  
|                                                                    |  |                                |        |   |                               |   |        |      |  |      |        |  |   |        |  
|Total operating expenses                                            |  |                                | 17,476 |   |                               |   | 17,904 |      |  |      | 48,201 |  |   | 50,665 |  
|                                                                    |  |                                |        |   |                               |   |        |      |  |      |        |  |   |        |  
|Operating income (loss)                                             |  |                                | (1,984 | ) |                               |   | (1,484 | )    |  |      | 100    |  |   | (1,056 | )
|Interest and other income, net                                      |  |                                | 839    |   |                               |   | 601    |      |  |      | 2,534  |  |   | 1,445  |  
|                                                                    |  |                                |        |   |                               |   |        |      |  |      |        |  |   |        |  
|Income (loss) before taxes                                          |  |                                | (1,145 | ) |                               |   | (883   | )    |  |      | 2,634  |  |   | 389    |  
|Income tax expense                                                  |  |                                | 86     |   |                               |   | 198    |      |  |      | 806    |  |   | 864    |  
|                                                                    |  |                                |        |   |                               |   |        |      |  |      |        |  |   |        |  
|Net income (loss)                                                   |  | $                              | (1,231 | ) |                               | $ | (1,081 | )    |  | $    | 1,828  |  | $ | (475   | )
|                                                                    |  |                                |        |   |                               |   |        |      |  |      |        |  |   |        |  
|Basic and diluted net income (loss) per share amounts               |  | $                              | (0.05  | ) |                               | $ | (0.04  | )    |  | $    | 0.07   |  | $ | (0.02  | )
|Weighted average shares used to compute net income (loss) per share |  |                                |        |   |                               |   |        |      |  |      |        |  |   |        |  
|Basic                                                               |  |                                | 26,744 |   |                               |   | 26,387 |      |  |      | 26,671 |  |   | 26,297 |  
|Diluted                                                             |  |                                | 26,744 |   |                               |   | 26,387 |      |  |      | 27,168 |  |   | 26,297 |  

See accompanying notes to these condensed consolidated financial statements.



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Accelrys, Inc.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)



|                                                                                     |  |                               |         |   |      |   |         |  
|------------------------------------------------------------------------------------ |  | ----------------------------- | ------- | - | ---- | - | ------- | -
|                                                                                     |  | Nine Months EndedDecember 31, |        
|                                                                                     |  | 2007                          |         |   | 2006 |  
|Cash flows from operating activities:                                                |  |                               |         |   |      |   |         |  
|Net income (loss)                                                                    |  | $                             | 1,828   |   |      | $ | (475    | )
|Adjustments to reconcile net income (loss) to net cash used in operating activities: |  |                               |         |   |      |   |         |  
|Depreciation                                                                         |  |                               | 1,677   |   |      |   | 2,295   |  
|Amortization of purchased intangible assets                                          |  |                               | 1,144   |   |      |   | 1,152   |  
|Stock-based compensation                                                             |  |                               | 2,943   |   |      |   | 3,344   |  
|Deferred income taxes                                                                |  |                               | (78     | ) |      |   |        |  
|Other                                                                                |  |                               | (354    | ) |      |   | 1,152   |  
|Changes in operating assets and liabilities:                                         |  |                               |         |   |      |   |         |  
|Trade receivables                                                                    |  |                               | (10,203 | ) |      |   | (9,294  | )
|Prepaid expenses and other current assets                                            |  |                               | 467     |   |      |   | (54     | )
|Restricted cash and other assets                                                     |  |                               | 191     |   |      |   | (1,200  | )
|Accounts payable                                                                     |  |                               | (713    | ) |      |   | (663    | )
|Accrued liabilities                                                                  |  |                               | (143    | ) |      |   | 1,091   |  
|Deferred revenue                                                                     |  |                               | (2,484  | ) |      |   | (7,264  | )
|                                                                                     |  |                               |         |   |      |   |         |  
|Net cash used in operating activities                                                |  |                               | (5,725  | ) |      |   | (9,916  | )
|Cash flows from investing activities:                                                |  |                               |         |   |      |   |         |  
|Purchases of property and equipment, net                                             |  |                               | (548    | ) |      |   | (847    | )
|Purchases of marketable securities                                                   |  |                               | (9,075  | ) |      |   | (24,580 | )
|Proceeds from maturities of marketable securities                                    |  |                               | 20,295  |   |      |   | 24,391  |  
|                                                                                     |  |                               |         |   |      |   |         |  
|Net cash provided by (used in) investing activities                                  |  |                               | 10,672  |   |      |   | (1,036  | )
|Cash flows from financing activities:                                                |  |                               |         |   |      |   |         |  
|Proceeds from issuance of common stock                                               |  |                               | 707     |   |      |   | 1,230   |  
|                                                                                     |  |                               |         |   |      |   |         |  
|Net cash provided by financing activities                                            |  |                               | 707     |   |      |   | 1,230   |  
|Effect of changes in exchange rates on cash and cash equivalents                     |  |                               | 494     |   |      |   | 1,670   |  
|                                                                                     |  |                               |         |   |      |   |         |  
|Increase (decrease) in cash and cash equivalents                                     |  |                               | 6,148   |   |      |   | (8,052  | )
|Cash and cash equivalents at beginning of period                                     |  |                               | 33,247  |   |      |   | 24,656  |  
|                                                                                     |  |                               |         |   |      |   |         |  
|Cash and cash equivalents at end of period                                           |  | $                             | 39,395  |   |      | $ | 16,604  |  
|                                                                                     |  |                               |         |   |      |   |         |  

See accompanying notes to these condensed consolidated financial statements.



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Accelrys, Inc.

Notes to Condensed Consolidated Financial Statements



|1. | Basis of Presentation and Significant Accounting Policies
|-- | ---------------------------------------------------------

Financial Statement Preparation

The condensed consolidated financial statements of Accelrys, Inc. (we,
our or us) as of December 31, 2007, and for the three and nine months ended December 31, 2007 and 2006 are unaudited. We have condensed or omitted certain information and disclosures normally included in financial
statements presented in accordance with accounting principles generally accepted in the United States. We believe the disclosures made are adequate to make the information presented not misleading. However, you should read these condensed
consolidated financial statements in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended March 31, 2007.

In the opinion of management, these condensed consolidated financial statements include all adjustments, consisting of normal recurring adjustments,
necessary for a fair presentation of results for the interim periods presented.

Our business is subject to seasonal variations.
Historically, we have received approximately two-thirds of our annual customer orders in the second half of our fiscal year. In accordance with our revenue recognition policies, the revenue associated with these orders is generally recognized over
the contractual license term. Therefore, because we accrue and expense sales commissions and royalties upon the invoicing of customer orders, we have historically experienced an increase in operating costs and expenses and a decrease in income
during the second half of our fiscal year. Additionally, our cash flows from operations have historically been positive in the fiscal quarter ended March 31 as we collect the accounts receivable generated from these customer orders, while we
have historically experienced negative cash flows from operations in the other three fiscal quarters. As a result of these and other seasonal variations, we believe that sequential quarter-to-quarter comparisons of our operating results are not a
good indication of our future performance and that the interim financial results for the periods presented in this quarterly report are not necessarily indicative of results for a full year or for any subsequent interim period.

Principles of Consolidation

The accompanying
unaudited condensed consolidated financial statements include the accounts of our wholly-owned subsidiaries. All material intercompany accounts and transactions have been eliminated in consolidation.

Reclassifications

Certain amounts in the previously
reported financial statements have been reclassified to conform to the current period presentation.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires us to make estimates and
assumptions that affect the amounts reported in the financial statements and accompanying notes. On an ongoing basis, we evaluate our estimates, including those related to revenue recognition, stock-based compensation, income taxes and the valuation
of goodwill, intangibles and other long-lived assets. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual future results could differ from those estimates.

Revenue Recognition

We recognize
revenues in accordance with the American Institute of Certified Public Accountants (AICPA) Statement of Position (SOP) 97-2, Software Revenue Recognition, as amended, Securities and Exchange Commission (the
SEC) Staff Accounting Bulletin (SAB) No. 104, Revenue Recognition and Emerging Issues Task Force (EITF) Issue No. 00-21, Revenue Arrangements with Multiple Deliverables.

We generate revenue from the following primary sources:



| |  |  | software licenses,
| | - |  | ------------------



| |  |  | provision of post-contract customer support and maintenance services on licensed software, collectively referred to as PCS, and
| | - |  | -------------------------------------------------------------------------------------------------------------------------------



| |  |  | professional services.
| | - |  | ----------------------



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Customer billings generated in connection with our revenue-generating activities are initially recorded
as deferred revenue. We then recognize the revenue from these customer billings as set forth below and when all of the following criteria are met:



| |  |  | a fully executed written contract and/or purchase order has been obtained from the customer (i.e., persuasive evidence of an arrangement exists),
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the contractual price of the product or services has been defined and agreed to in the contract (i.e., price is fixed or determinable),
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------



| |  |  | delivery of the product or service has occurred and no material uncertainties regarding customer acceptance of the delivered product or service exist, and
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | collection of the purchase price from the customer is deemed probable.
| | - |  | ----------------------------------------------------------------------

Software Licenses.We license software either perpetually or on a term basis. Our standard perpetual software licensing arrangements include
twelve months of bundled PCS, while our standard term-based software licensing arrangements typically include PCS for the full duration of the term license. Because we do not have vendor specific objective evidence (VSOE) of the fair
value of these elements, we recognize as revenue the entire fee for such perpetual and term-based licenses ratably over the term of the bundled PCS. Certain of our term-based licenses also allow the customer to substitute purchased products for
other products of equal value throughout the term. We account for these arrangements as in-substance subscriptions and, accordingly, we recognize as revenue the entire fee for such licenses ratably over the contractual term of the arrangement, which
is typically the same as the term of the bundled PCS.

Renewal of PCS under Perpetual Software Licenses.Our PCS includes the right
to receive unspecified upgrades or enhancements and technical support. Fees from customer renewals of PCS related to previously purchased perpetual licenses are recognized ratably over the term of the PCS.

Professional Services.We provide certain services to our customers, including non-complex product training, installation, implementation and
other professional services which are non-essential to the operation of the software. We also perform professional services for our customers designed to enhance the value of our software products by creating extensions to functionality to address a
clients specific business needs. When sold separately, revenue from these services is recorded under the proportional performance or completed performance method.

Multi-Element Arrangements.For multi-element arrangements which include software licenses, PCS and non-complex training, installation and implementation services which are non-essential to the operation of the
software, the entire fee for such arrangements is recognized as revenue ratably over the term of the PCS or delivery of the services, whichever is longer. For multi-element arrangements which include software licenses, PCS, non-essential services
and services that are essential to the operation of the software, the fee for such arrangements is generally deferred until the services essential to the operation of the software have been performed and the modified software has been delivered, at
which point the entire fee for such arrangements is recognized as revenue ratably over the remaining term of the PCS or the delivery of the non-essential services, whichever is longer.

Software Development Costs

We account for costs incurred to develop our software products in
accordance with Statement of Financial Accounting Standards (SFAS) No. 86, Accounting for the Cost of Computer Software to be Sold, Leased or Otherwise Marketed. Accordingly, costs incurred in the research and development of
new software products and significant enhancements to existing software products are expensed as incurred until the technological feasibility of the product has been established. Technological feasibility occurs shortly before our software products
are available for general release, and we have determined that costs eligible for capitalization are not material. Accordingly, there were no software development costs capitalized as of December 31, 2007 or March 31, 2007.

Share Based Compensation

We adopted SFAS
No. 123 (revised 2004), Share-Based Payments(SFAS No. 123R), effective April 1, 2006, using the modified prospective transition method. Accordingly, beginning in the first quarter of fiscal year 2007, we recognized
as a charge against income the estimated grant date fair value of share-based awards granted to employees and directors. We estimate the fair value of our share-based stock awards on the date of grant using the Black-Scholes option-pricing model.
The Black-Scholes option-pricing model requires the use of certain input variables, as follows:

Expected Volatility. Volatility is
a measure of the amount the stock price will fluctuate during the expected life of an award. We determine volatility based on our historical stock price volatility over the most recent period equivalent to the expected life of the award and the
historical stock price volatilities of comparable publicly traded companies, giving consideration to company-specific events impacting historical volatility that are unlikely to occur in the future, such as the April 30, 2004 spin-off of
Pharmacopeia Drug Discovery, Inc. (PDD), as well as anticipated future events that may impact volatility.



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Risk-Free Interest Rate.Our assumption of the risk-free interest rate is based on the interest
rates on U.S. constant rate treasury securities with contractual terms approximately equal to the expected life of the award.

Expected
Dividend Yield.Because we have not paid any cash dividends since our inception and do not anticipate paying dividends in the foreseeable future, we assume a dividend yield of zero.

Expected Award Life.We determine the expected life of an award by considering various relevant factors, including the vesting period and
contractual term of the award, our employees historical exercise patterns and length of service, the expected future volatility of our stock price, tax implications of exercising an award and employee characteristics. We also consider the
expected award lives of comparable publicly traded companies. For stock purchase plan purchase rights, the expected life is equal to the current offering period under the stock purchase plan.

Under SFAS No. 123R, we are also required to estimate at the time of grant the likelihood that the award will ultimately vest (the pre-vesting
forfeiture rate), and revise the estimate, if necessary, in future periods if the actual forfeiture rate differs. We determine the pre-vesting forfeiture rate of an award based on our historical pre-vesting award forfeiture experience, giving
consideration to company-specific events impacting historical pre-vesting award forfeiture experience that are unlikely to occur in the future as well as anticipated future events that may impact forfeiture rates.

Income Taxes

We account for income taxes in
accordance with SFAS No. 109, Accounting for Income Taxes. Accordingly, deferred tax assets and liabilities are recognized for the tax consequences of temporary differences between the financial carrying amounts and the tax basis of
existing assets and liabilities by applying enacted statutory tax rates applicable to future years. The provision for income taxes is based on our estimates for taxable income of the various legal entities and jurisdictions in which we operate. As
such, income tax expense may vary from the customary relationship between income tax expense and pre-tax accounting income. We establish a valuation allowance against our net deferred tax assets to reduce deferred tax assets to the amount expected
to be realized.

We adopted Financial Accounting Standards Board (FASB) Interpretation No. 48, Accounting for
Uncertainty in Income Taxes(FIN No. 48), effective April 1, 2007. FIN No. 48 prescribes a recognition threshold and measurement standard for the financial statement recognition and measurement of a tax position taken
or expected to be taken in a tax return. FIN No. 48 requires that we determine whether the benefits of our tax positions are more likely than not of being sustained upon audit based on the technical merits of the tax position. We recognize the
impact of an uncertain income tax position taken on our income tax return at the largest amount that is more-likely-than-not to be sustained upon audit by the relevant taxing authority. An uncertain income tax position is not recognized if it has
less than a 50% likelihood of being sustained. See Note 4 for additional information on our adoption of the provisions of FIN No. 48.

Interest and penalties related to income tax matters are recognized in income tax expense. During the three and nine months ended December 31, 2007 and 2006 we did not incur any expense related to interest or penalties for income tax
matters, and no such amounts were accrued as of December 31, 2007.



|2. | Net Income Per Share
|-- | --------------------

We compute net income per
share pursuant to SFAS No. 128, Earnings Per Share. Accordingly, basic net income per share is computed by dividing the net income for the period by the weighted average number of common shares outstanding during the period, without
consideration for common stock equivalents. Diluted net income per share is computed by dividing the net income for the period by the weighted average number of common stock and common stock equivalents outstanding during the period. Potentially
dilutive common share equivalents consist of in-the-money common stock options and unvested restricted stock units (RSUs).



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|                                                             |  |                                          |        |   |                                |   |        |      |  |      |        |  |   |        |  
|------------------------------------------------------------ |  | ---------------------------------------- | ------ | - | ------------------------------ | - | ------ | ---- |  | ---- | ------ |  | - | ------ | -
|                                                             |  | Three Months Ended December 31,          |        |   | Nine Months Ended December 31, |  
|                                                             |  | 2007                                     |        |   | 2006                           |   |        | 2007 |  | 2006 |       
|                                                             |  | (In thousands, except per share amounts) |       
|Numerator:                                                   |  |                                          |        |   |                                |   |        |      |  |      |        |  |   |        |  
|Net income                                                   |  | $                                        | (1,231 | ) |                                | $ | (1,081 | )    |  | $    | 1,828  |  | $ | (475   | )
|Denominator:                                                 |  |                                          |        |   |                                |   |        |      |  |      |        |  |   |        |  
|Weighted average common shares outstanding                   |  |                                          | 26,744 |   |                                |   | 26,387 |      |  |      | 26,671 |  |   | 26,297 |  
|Dilutive potential common stock equivalents                  |  |                                          |       |   |                                |   |       |      |  |      | 497    |  |   |       |  
|                                                             |  |                                          |        |   |                                |   |        |      |  |      |        |  |   |        |  
|Weighted average shares and dilutive potential common shares |  |                                          | 26,744 |   |                                |   | 26,387 |      |  |      | 27,168 |  |   | 26,297 |  
|                                                             |  |                                          |        |   |                                |   |        |      |  |      |        |  |   |        |  
|Basic and diluted net income per share:                      |  | $                                        | (0.05  | ) |                                | $ | (0.04  | )    |  | $    | 0.07   |  | $ | (0.02  | )
|                                                             |  |                                          |        |   |                                |   |        |      |  |      |        |  |   |        |  

Potentially dilutive common share equivalents that were excluded from the diluted net income per
share calculations as their effect would be anti-dilutive totaled approximately 2.2 million shares and 2.5 million shares for the three and nine months ended December 31, 2007, respectively, and 3.7 million shares and
3.8 million shares for the three and nine months ended December 31, 2006, respectively.



|3. | Share-Based Payments
|-- | --------------------

Share-Based Compensation Plans

On August 2, 2005, our stockholders approved the Amended and Restated 2004 Stock Incentive Plan (the 2004 Plan). The
2004 Plan authorizes the grant of equity awards to purchase the number of shares of our common stock equal to the sum of (i) 1,900,000 shares and (ii) the number of shares of common stock underlying any stock awards granted under certain
prior share-based compensation plans that expire or are cancelled or forfeited without having been exercised in full or that are repurchased by us. Potential types of equity awards that may be granted under the 2004 Plan to our officers, directors,
employees and consultants include stock options, restricted stock awards, common stock awards, stock appreciation rights, performance awards and deferred stock units. Pursuant to the 2004 Plan, any shares of common stock that are awarded under the
2004 Plan as restricted stock awards, common stock awards, performance awards or deferred stock units (but not as stock options or stock appreciation rights) are counted against the maximum number of shares of common stock available for issuance
under the 2004 Plan based on a 1.15-to-1 ratio. The terms and conditions of specific awards are set at the discretion of our board of directors although generally awards vest over not more than four years, expire no later than ten years from the
date of grant and do not have exercise prices less than the fair market value of the underlying common stock on the date of grant. At December 31, 2007, approximately 1,526,000 shares of our common stock remain available for issuance pursuant
to awards granted under the 2004 Plan.

On August 2, 2005, our stockholders also approved the 2005 Employee Stock Purchase Plan (the
ESPP), under which we have reserved 1,000,000 shares of our common stock for issuance. Under the ESPP, employees may defer up to 10% of their base salary to purchase shares of our common stock, up to a maximum of 1,000 shares. The
purchase price of the common stock is equal to 85% of the lower of the fair market value per share of our common stock on the commencement date of the applicable offering period or the applicable purchase date. To date, we have issued 200,000 shares
under the ESPP and 800,000 shares remain available for future issuance under the ESPP as of December 31, 2007.

We also maintain
certain other share-based compensation plans, under which we did not grant awards during fiscal year 2007 and do not intend to grant any further awards in the future.

Our share-based compensation plans contain a provision that allows eligible participants to continue to vest in their stock options upon their retirement, as that term is defined in the plans. To be eligible for
continued vesting, participants must be at least 55 years of age and have 5 years of service at the time of their retirement. Awards granted under the 2004 Plan beginning in fiscal year 2008 do not contain this retirement benefit.

During the second quarter of fiscal year 2007, we offered eligible employees the one-time opportunity to surrender any and all stock options granted
pursuant to any of our stock plans with an exercise price greater than $9.00 per share in exchange for RSUs (the Exchange Offer) based on an exchange ratio determined by our board of directors. The RSUs vest in three equal annual
installments commencing on the date of grant and are subject to the terms and conditions set forth in the 2004 Plan. The offer period commenced on July 28, 2006 and expired on August 25, 2006. On August 26, 2006, all eligible stock
options tendered by eligible employees in accordance with the terms of the Exchange Offer were cancelled and RSUs were issued to such eligible employees in accordance with the exchange ratios established by the board of directors. In total, stock
options for the purchase of approximately 410,000 shares of our common stock were tendered and cancelled, and RSUs for approximately 105,000 shares of our common stock were granted. Any eligible stock options not tendered remain issued and
outstanding in accordance with their original terms and conditions.



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Pursuant to SFAS No. 123R, we accounted for the cancellation of the tendered stock options and
concurrent grant of RSUs as a modification of the cancelled stock options. Accordingly, we measured the excess of the grant-date fair value of the RSUs over the fair value of the cancelled stock options at cancellation (the incremental
value) and are recognizing the aggregate of the incremental value and the remaining unamortized grant-date fair value of the cancelled stock options of approximately $0.2 million as stock-based compensation expense over the requisite service
period of the RSUs.

Share-Based Award Activity

Our stock options generally vest over four years and have a contractual term of 10 years. A summary of stock option activity under our share-based compensation plans is as follows:



|                                 |  |                                                    |  |                              |       |                         |   |                                         |  |     
|-------------------------------- |  | -------------------------------------------------- |  | ---------------------------- | ----- | ----------------------- | - | --------------------------------------- |  | ----
|                                 |  | Number ofShares                                    |  | WeightedAverageExercisePrice |       | AggregateIntrinsicValue |   | WeightedAverageRemainingContractualLife
|                                 |  | (In thousands, except per share amounts and years)
|Outstanding at April 1, 2007     |  | 3,730                                              |  | $                            | 7.67  |                         |   |                                         |  |     
|Granted                          |  | 175                                                |  |                              | 6.90  |                         |   |                                         |  |     
|Exercised                        |  | 19                                                 |  |                              | 5.31  |                         |   |                                         |  |     
|Expired/Forfeited                |  | 431                                                |  |                              | 10.16 |                         |   |                                         |  |     
|                                 |  |                                                    |  |                              |       |                         |   |                                         |  |     
|Outstanding at December 31, 2007 |  | 3,455                                              |  |                              | 7.33  |                         | $ | 2,757                                   |  | 6.64
|                                 |  |                                                    |  |                              |       |                         |   |                                         |  |     
|Exercisable at December 31, 2007 |  | 2,378                                              |  |                              | 7.55  |                         | $ | 1,952                                   |  | 5.85
|                                 |  |                                                    |  |                              |       |                         |   |                                         |  |     

RSUs granted under the 2004 Plan vest annually over three years and, once vested, do not expire.
Upon vesting of an RSU, employees are generally issued an equivalent number of shares of our common stock. A summary of RSU activity under our share-based compensation plans is as follows:



|                              |  |                                          |  |                                     |     
|----------------------------- |  | ---------------------------------------- |  | ----------------------------------- | ----
|                              |  | Number ofShares                          |  | WeightedAverageGrant DateFair Value
|                              |  | (In thousands, except per share amounts)
|Unvested at April 1, 2007     |  | 439                                      |  | $                                   | 6.73
|Granted                       |  | 510                                      |  |                                     | 6.47
|Vested                        |  | 150                                      |  |                                     | 6.22
|Forfeited                     |  | 19                                       |  |                                     | 6.60
|                              |  |                                          |  |                                     |     
|Unvested at December 31, 2007 |  | 780                                      |  | $                                   | 6.85
|                              |  |                                          |  |                                     |     



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Share-Based Compensation Expense

The estimated fair value of our share-based awards is recognized as a charge against income on a straight-line basis over the requisite service period, which is generally the vesting period of the award. Total
stock-based compensation expense recognized in our condensed consolidated statements of operations for the three and nine months ended December 31, 2007 and 2006 was as follows:



|                                       |  |                                |       |                               |   |       |  |      |       |  |   |      
|-------------------------------------- |  | ------------------------------ | ----- | ----------------------------- | - | ----- |  | ---- | ----- |  | - | -----
|                                       |  | Three Months EndedDecember 31, |       | Nine Months EndedDecember 31,
|                                       |  | 2007                           |       | 2006                          |   | 2007  |  | 2006
|                                       |  | (In thousands)                
|Cost of revenue                        |  | $                              | 83    |                               | $ | 90    |  | $    | 248   |  | $ | 245  
|Product development                    |  |                                | 250   |                               |   | 236   |  |      | 707   |  |   | 977  
|Sales and marketing                    |  |                                | 253   |                               |   | 211   |  |      | 704   |  |   | 590  
|General and administrative             |  |                                | 488   |                               |   | 467   |  |      | 1,284 |  |   | 1,532
|                                       |  |                                |       |                               |   |       |  |      |       |  |   |      
|Total stock-based compensation expense |  | $                              | 1,074 |                               | $ | 1,004 |  | $    | 2,943 |  | $ | 3,344
|                                       |  |                                |       |                               |   |       |  |      |       |  |   |      

No stock-based compensation expense was capitalized in the periods presented. At December 31,
2007, the gross amount of unrecognized stock-based compensation expense relating to unvested share-based awards was approximately $8 million, which we anticipate recognizing as a charge against income over a weighted average period of 1.3 years.



|4. | Income Taxes
|-- | ------------

As a result of our adoption of FIN
No. 48 on April 1, 2007, we reversed a previously recorded income tax reserve with a corresponding adjustment to beginning retained earnings of $0.7 million.

Due to uncertainties surrounding our ability to generate future taxable income, a valuation allowance of $71.6 million has been established to offset our gross deferred tax asset as of April 1, 2007, which
primarily consists of federal and state net operating loss carryforwards (NOLs). The future utilization of our NOLs to offset future taxable income may be subject to a substantial annual limitation as a result of ownership changes that
may have occurred previously or that could occur in the future. We plan to complete an assessment of such ownership changes under Sections 382 and 383 of the Internal Revenue Code in fiscal year 2008. As a result of this assessment, our future
utilization of NOLs could be materially impacted; however, we are unable to estimate the range of possible outcomes at this time. Until such an assessment is completed and any limitation on future utilization of NOLs known, no amounts are being
presented as an uncertain tax position under FIN No. 48. Accordingly, we had no unrecognized tax benefits upon our adoption of FIN No. 48 on April 1, 2007. Additionally, if as a result of this assessment we determine that we do have
an uncertain tax position, future changes in our unrecognized tax benefits will not impact our effective tax rate as we have a full valuation allowance against our NOLs. Any NOLs that expire prior to utilization as a result of such limitations will
be removed from deferred tax assets with a corresponding reduction of the valuation allowance.

We are subject to taxation in the U.S.,
various state jurisdictions, the United Kingdom, France, Germany, and Japan. Our tax years from 1993 forward are subject to examination by the U.S. and various other state jurisdictions due to the carryforward of unutilized net operating losses and
research and development credits. Our tax years from fiscal year 2006 forward are subject to examination by the United Kingdom taxing authorities and from fiscal year 2003 forward are subject to examination by the Japanese taxing authorities.

At March 31, 2007, our wholly-owned Japanese subsidiary, Accelrys, K.K., recognized an income tax payable and associated deferred tax
asset of $4.8 million for revenue recognized for Japanese income tax purposes in advance of being recognized for book purposes as a result of the change in our revenue recognition policy in connection with the restatement of our previously issued
consolidated financial statements. In the first quarter of fiscal year 2008, we pursued alternative tax return positions that were consistent with Japanese tax law and filed Accelrys K.K.s fiscal year 2007 income tax return. As a result,
Accelrys K.K.s income tax obligation was reduced to $0.6 million, which was paid during the first quarter of fiscal year 2008. The associated deferred tax asset was reversed in the same period.



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|5. | Comprehensive Income
|-- | --------------------

For the three and nine months
ended December 31, 2007 and 2006, comprehensive income consists of the following:



|                                         |  |                                |        |   |                               |   |        |      |  |   |       |   |  |   |      |  
|---------------------------------------- |  | ------------------------------ | ------ | - | ----------------------------- | - | ------ | ---- |  | - | ----- | - |  | - | ---- | -
|                                         |  | Three Months EndedDecember 31, |        |   | Nine Months EndedDecember 31, |  
|                                         |  | 2007                           |        |   | 2006                          |   |        | 2007 |  |   | 2006  |  
|                                         |  | (In thousands)                 |       
|Net income (loss)                        |  | $                              | (1,231 | ) |                               | $ | (1,081 | )    |  | $ | 1,828 |   |  | $ | (475 | )
|Foreign currency translation adjustment  |  |                                | 65     |   |                               |   | 61     |      |  |   | (90   | ) |  |   | 915  |  
|Unrealized gain on marketable securities |  |                                | 29     |   |                               |   | 118    |      |  |   | 145   |   |  |   | 413  |  
|                                         |  |                                |        |   |                               |   |        |      |  |   |       |   |  |   |      |  
|Total comprehensive income (loss)        |  |                                | (1,137 | ) |                               |   | (902   | )    |  |   | 1,883 |   |  |   | 853  |  
|                                         |  |                                |        |   |                               |   |        |      |  |   |       |   |  |   |      |  



|6. | Segment Information
|-- | -------------------

In accordance with SFAS
No. 131, Disclosures about Segments of an Enterprise and Related Information, our operations have been aggregated into one reportable segment given the similarities of economic characteristics between the operations and the common nature
of the products, services and customers.



|7. | Guarantees
|-- | ----------

Guarantee of Lease Obligation of Others

On April 30, 2004, we spun-off our drug discovery subsidiary, PDD, into an independent, separately traded, publicly held company
through the distribution to our stockholders of a dividend of one share of PDD common stock for every two shares of our common stock. The landlords of our New Jersey facilities, which were used by our PDD operations, consented to the assignment of
the leases to PDD. Despite the assignment, the landlords required us to guarantee the remaining lease obligations, which totaled approximately $20.1 million as of December 31, 2007. In the event that PDD defaults on their lease commitment, we
are permitted under the guarantee to sublease the facility in order to mitigate our lease obligation. In accordance with FIN No. 45, Guarantors Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others, we recognized a liability and corresponding charge to stockholders equity for the probability-weighted fair market value of the guarantee. Changes to the fair market value of the liability are recognized in
stockholders equity. The liability for our guarantee of the lease obligation was $0.5 million and $0.6 million as of December 31, 2007 and March 31, 2007, respectively.

Other Guarantees and Indemnifications

We provide indemnifications of varying scope and size to
certain customers against claims of intellectual property infringement made by third parties arising from the use of our products. We have also entered into indemnification agreements with our officers and directors. Although the maximum potential
amount of future payments we could be required to make under these indemnifications is unlimited, to date we have not incurred material costs to defend lawsuits or settle claims related to these indemnification provisions. Additionally, we have
insurance policies that, in most cases, would limit our exposure and enable us to recover a portion of any amounts paid. Therefore, we believe the estimated fair value of these agreements is minimal and likelihood of incurring an obligation is
remote. Accordingly, we have not accrued any liabilities in connection with these indemnification obligations as of December 31, 2007.



|8. | Restructuring Activities
|-- | ------------------------

The following summarizes
the changes in our accrued restructuring charges liability:



|                                                   |  |                            |        |   |                                               |   |        |       |  |   |        |  
|-------------------------------------------------- |  | -------------------------- | ------ | - | --------------------------------------------- | - | ------ | ----- |  | - | ------ | -
|                                                   |  | Severance andRelated Costs |        |   | LeaseObligation Exitand FacilityClosure Costs |   |        | Total | 
|                                                   |  | (In thousands)             |       
|Balance at March 31, 2006                          |  | $                          | 1,065  |   |                                               | $ | 3,209  |       |  | $ | 4,274  |  
|Additional severance and lease abandonment charges |  |                            | 611    |   |                                               |   | 355    |       |  |   | 966    |  
|Adjustments to liability                           |  |                            |       |   |                                               |   | 237    |       |  |   | 237    |  
|Cash payments                                      |  |                            | (1,591 | ) |                                               |   | (2,230 | )     |  |   | (3,821 | )
|Effect of foreign exchange                         |  |                            | 79     |   |                                               |   | 309    |       |  |   | 388    |  
|                                                   |  |                            |        |   |                                               |   |        |       |  |   |        |  
|Balance at March 31, 2007                          |  |                            | 164    |   |                                               |   | 1,880  |       |  |   | 2,044  |  
|Additional severance and lease abandonment charges |  |                            | 55     |   |                                               |   |       |       |  |   | 55     |  
|Adjustments to liability                           |  |                            |       |   |                                               |   | 85     |       |  |   | 85     |  
|Cash payments                                      |  |                            | (108   | ) |                                               |   | (499   | )     |  |   | (607   | )
|Effect of foreign exchange                         |  |                            | 16     |   |                                               |   | 39     |       |  |   | 55     |  
|                                                   |  |                            |        |   |                                               |   |        |       |  |   |        |  
|Balance at December 31, 2007                       |  | $                          | 127    |   |                                               | $ | 1,505  |       |  | $ | 1,632  |  
|                                                   |  |                            |        |   |                                               |   |        |       |  |   |        |  



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Prior to fiscal year 2005, we implemented various actions designed to improve our operations and overall
financial performance through workforce reductions and the abandonment of leased facilities. All severance benefits related to the workforce reductions in these periods have been fully paid. Our remaining obligations under the lease obligations
terminate in fiscal year 2009.

During fiscal year 2005, we implemented various actions designed to improve the efficiency of our sales
department and eliminate duplicative general and administrative personnel through workforce reductions and the abandonment of a leased facility in Germany. As a result of the implementation of these actions, we recognized a charge of $1.7 million,
consisting of $1.4 million in severance benefits from the termination of 42 employees and $0.3 million related to the abandonment of the leased facility. The severance benefits were paid in full in fiscal year 2006. In the second quarter of fiscal
year 2007, we made a $0.1 million lease buy-out payment to the landlord of the abandoned facility that terminates our obligations under the lease. As a result of the termination of the lease, we reduced the remaining liability for the abandoned
facility to a negligible amount.

In March 2006, we implemented various actions designed to realign our resources with our portfolio of
products and services, eliminate redundancies in our workforce and streamline our operations through workforce reductions and abandoning two leased facilities in the United Kingdom. As a result of the implementation of these actions, we recognized a
charge of $3.2 million, consisting of $1.8 million in severance benefits from the termination of approximately 50 employees and $1.4 million for our future lease obligations related to the abandoned facility, net of estimated future sublease income.
In fiscal year 2007, we recognized a charge of $0.3 million for estimated additional severance benefits to be paid to certain employees terminated under the original restructuring plan and associated legal expenses. We anticipate completing the
payment of severance benefits subsequent to the current fiscal year 2008. Additionally, in fiscal year 2007 we recorded an additional lease abandonment charge of $0.3 million. The lease obligations for the abandoned facilities terminate in fiscal
years 2013 and 2022.

As a result of the substantial completion of our product modernization and integration efforts, in December 2006, we
implemented a restructuring plan which resulted in the closure of our research and development facility in Bangalore, India, and the termination of approximately 60 research and development employees. As a result of the implementation of the
restructuring plan, we recognized a charge of $0.8 million, consisting of $0.3 million of severance benefits and $0.5 million of asset impairment charges and other facility closure costs during fiscal year 2007. The severance benefits and facility
closure costs were fully paid in the fourth quarter of fiscal year 2007.



|9. | Recent Accounting Pronouncements
|-- | --------------------------------

In December 2007,
the FASB issued SFAS No. 141(R) (SFAS 141(R)), Business Combinations: Applying the Acquisition Method.SFAS 141(R) retains the fundamental requirements of SFAS No. 141, Business
Combinations, but provides additional guidance on applying the acquisition method when accounting for similar economic events. It establishes principles and requirements for how an acquirer in a business combination recognizes and measures
in its financial statements the identifiable assets acquired, the liabilities assumed, and any controlling interest; recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase; and determines what
information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. SFAS 141(R) was a joint effort between the FASB and the International Accounting Standards Board to promote
global standards by improving the accounting and financial reporting of business combinations. SFAS 141(R) is effective for the fiscal year following December 15, 2008. Early adoption is prohibited. We will assess the impact of SFAS 141(R) if
and when a future acquisition occurs.



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In February 2007, the FASB issued SFAS No. 159 (SFAS 159), The Fair Value
Option for Financial Assets or Financial Liabilities,which provides companies with an option to report selected financial assets and liabilities at fair value. Most of the provisions in SFAS No. 159 are elective; however, the
amendment to SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities,applies to all entities with available-for-sale and trading securities. The objective is to reduce both the complexity in accounting
for financial instruments and the volatility in earnings caused by measuring related assets and liabilities differently. The fair value option: (a) may be applied instrument by instrument, with a few exceptions, such as investments otherwise
accounted for by the equity method; (b) is irrevocable (unless a new election date occurs); and (c) is applied only to entire instruments and not to portions of instruments. SFAS 159 also establishes presentation and disclosure
requirements designed to facilitate comparisons between companies that choose different measurement attributions for similar types of assets and liabilities. SFAS 159 is effective the beginning of an entities first fiscal year following
November 15, 2007. The Company is currently evaluating the effect of SFAS 159, and any potential impact it may have on its financial position and results of operations.

In September 2006, the FASB issued SFAS No. 157 (SFAS 157), Fair Value Measurements,which defines fair value,
establishes guidelines for measuring fair value and expands disclosures regarding fair value measurements. SFAS 157 does not require any new fair value measurements but rather eliminates inconsistencies in guidance found in various prior accounting
pronouncements. SFAS 157 is effective for fiscal years beginning after November 15, 2007. The Company is currently evaluating the effect of SFAS 157, and any potential impact it may have on its financial position and results of operations.



|Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations
|------- | -------------------------------------------------------------------------------------

When used anywhere in this Quarterly Report on Form 10-Q (this Report), the words expect, believe,
anticipate, estimate, intend, plan and similar expressions are intended to identify forward-looking statements. These forward-looking statements may include statements addressing our future financial
and operating results. We have based these forward-looking statements on our current expectations about future events. Such statements are subject to certain risks and uncertainties including those related to execution upon our strategic plans, the
successful release and acceptance of new products, the demand for new and existing products, additional competition, changes in economic conditions and those described in documents we have filed with the Securities and Exchange Commission, including
this Report in Managements Discussion and Analysis of Financial Condition and Results of Operations and Risk Factors, and in our subsequent reports on Form 10-Q and Form 10-K. All forward-looking statements in this
Report are qualified entirely by the cautionary statements included in this Report and such other filings. These risks and uncertainties could cause actual results to differ materially from results expressed or implied by forward-looking statements
contained in this Report. These forward-looking statements speak only as of the date of this Report. We disclaim any undertaking to publicly update or revise any forward-looking statements contained herein to reflect any change in our expectations
with regard thereto or any change in events, conditions or circumstances on which any such statement is based.

The following discussion
and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and related notes thereto included elsewhere in this Report.

Overview

Our Business

We develop and commercialize scientific business intelligence software for the aggregation, mining, integration, analysis, simulation, management and
interactive reporting of scientific data used by biologists, chemists, materials scientists, engineers, nanotechnology researchers, statisticians, executives and information technology professionals for product design and drug discovery and
development. Our technology and services are designed to meet the needs of todays leading research and development organizations. Our customers include leading commercial, government and academic organizations. Many of the largest
pharmaceutical, biotechnology, chemical, and petroleum companies worldwide use our products. We market our products and services worldwide, principally through our direct sales force, augmented by the use of third-party distributors.

Our Marketplace

Historically, we have
primarily sold molecular modeling and simulation software. The market for molecular modeling and simulation products in the pharmaceutical and biotechnology industries is challenging due to the maturity of the market, industry consolidation,
reduction in the level of discovery research activity, and increased competition, including competition from open source software. We also sell modeling and simulation products to the chemical, petrochemical and materials industries. We believe
these industries are in the early stages of adoption of these technologies. Thus we believe the market for our products within these industries is nascent and has experienced modest growth over the past several years. We also sell chemical
informatics products to both our life and materials sciences customers. Following the acquisition of SciTegic, Inc. (SciTegic), we began to offer a scientific operating platform. This technology is widely applicable within our target
industries and represents a significant growth opportunity. There is currently limited competition in our targeted industries to this technology, which is experiencing growth within our customer base.



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Our Strategy

Our objective is to be the leader in scientific business intelligence solutions and scientific innovation. We plan to accomplish this objective by providing a comprehensive set of integrated solutions, built on our
industry leading scientific operating platform, that are central to the enterprise-wide research and development activities of our customers. By doing this we will make it easier for research and development organizations to manage data,
information, knowledge, and collaborative processes.

Our strategy for growth is to expand usage of our products and services by marketing
and distributing our solutions to a broader group of users, including scientists, engineers and information technology professionals, within our existing customers, as well as to new customers in other industries.

A key enabler of this strategy is the scientific operating platform we acquired through our SciTegic acquisition. We are utilizing this technology to
enable our customers to build solutions which allow them to integrate scientific software and content from across the research and development spectrum. Selling solutions is fundamentally different than our traditional sale of stand-alone modeling
and simulation products. We are focused on enhancing our sales processes to emphasize solutions-selling and strategic account management. We are also expanding our professional services capabilities to enable our customers to deploy these solutions.

In addition to the activities underway in our sales and service functions, we continue to focus on the componentization of our entire
suite of products on our Discovery Studio and Materials Studio platforms. In the second quarter of fiscal year 2008, we completed the migration of our life sciences applications to the Discovery Studio platform with the launch of Discovery Studio
2.0. The development, release, and timing of any new or upgraded features or functionality for our products remains at our sole discretion.

Finally, in addition to our focus on revenue growth, we continuously evaluate our personnel requirements and cost structure. Over the past several years we have significantly reduced our operating costs through workforce reductions and
other cost-savings measures. We will continue our focus on cost control, as well as working capital management as we strive to improve our financial performance.

Critical Accounting Policies

The critical accounting policies and estimates used in the preparation of our consolidated
financial statements are described in Item 6, Managements Discussion and Analysis of Financial Condition and Results of Operations, of our Annual Report on Form 10-K for the fiscal year ended March 31, 2007. There have
been no significant changes in our critical accounting policies and estimates from March 31, 2007, other than as described below.

We
adopted FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes(FIN No. 48), effective April 1, 2007. FIN No. 48 prescribes a recognition threshold and measurement standard for the financial
statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN No. 48 requires that we determine whether the benefits of our tax positions are more likely than not of being sustained upon audit based
on the technical merits of the tax position. We recognize the impact of an uncertain income tax position taken on our income tax return at the largest amount that is more-likely-than-not to be sustained upon audit by the relevant taxing authority.
An uncertain income tax position is not recognized if it has less than a 50% likelihood of being sustained.

Results of Operations

Historically, we have received approximately two-thirds of our annual customer orders in the second half of our fiscal year. In accordance with our
revenue recognition policies, the revenue associated with these orders is generally recognized over the contractual license term. Therefore, because we accrue and expense sales commissions and royalties upon the invoicing of customer orders, we have
historically experienced an increase in operating costs and expenses and a decrease in income during the second half of our fiscal year. As a result of these and other seasonal variations, we believe that quarter-to-quarter comparisons of our
operating results are not a good indication of our future performance and that the interim financial results for the periods presented in this Report are not necessarily indicative of results for a full year or for any subsequent interim period.



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##### Table of Contents

Comparison of the Three Months Ended December 31, 2007 and 2006

The following table summarizes our results of operations as a percentage of revenue for the respective periods:



|                               |  |                                |    |  |      |   
|------------------------------ |  | ------------------------------ | -- |  | ---- | --
|                               |  | Three Months EndedDecember 31, |   
|                               |  | 2007                           |    |  | 2006 |   
|Revenue                        |  | 100                            | %  |  | 100  | % 
|Cost of revenue                |  | 21                             | %  |  | 21   | % 
|                               |  |                                |    |  |      |   
|Gross profit                   |  | 79                             | %  |  | 79   | % 
|Operating expenses:            |  |                                |    |  |      |   
|Product development            |  | 23                             | %  |  | 23   | % 
|Sales and marketing            |  | 49                             | %  |  | 43   | % 
|General and administrative     |  | 17                             | %  |  | 20   | % 
|Restructuring charges          |  | 0                              | %  |  | 1    | % 
|                               |  |                                |    |  |      |   
|Total operating expenses       |  | 89                             | %  |  | 87   | % 
|                               |  |                                |    |  |      |   
|Operating loss                 |  | (10                            | )% |  | (7   | )%
|Interest and other income, net |  | 4                              | %  |  | 3    | % 
|                               |  |                                |    |  |      |   
|Loss before income taxes       |  | (6                             | )% |  | (4   | )%
|Income tax expense             |  | 0                              | %  |  | 1    | % 
|                               |  |                                |    |  |      |   
|Net loss                       |  | (6                             | )% |  | (5   | )%
|                               |  |                                |    |  |      |   

Revenue

Revenue decreased 5% to $19.6 million for the three months ended December 31, 2007, as compared to $20.7 million for the three months ended December 31, 2006. The decrease was primarily attributable to
reduced revenues from de-emphasized products, partially offset by continued growth in our scientific operating platform product line.

Cost of
Revenue

Cost of revenue decreased 4% to $4.1 million for the three months ended December 31, 2007, as compared to $4.3 million
for the three months ended December 31, 2006. As a percentage of revenue, cost of revenue remained consistent at 21% for the three months ended December 31, 2007 and the three months ended December 31, 2006. The decrease in cost of
revenue was primarily attributable to a $0.2 million decrease in personnel costs due to lower headcount in our customer services departments.

Operating Expenses

Product Development Expenses.Product development expenses decreased 4% to
$4.5 million for the three months ended December 31, 2007, as compared to $4.7 million for the three months ended December 31, 2006. As a percentage of revenue, product development expenses remained consistent at 23% for the
three months ended December 31, 2007 and the three months ended December 31, 2006. The decrease in product development expenses was primarily attributable to net savings of approximately $0.2 million a majority of which resulted from the
closure of our research and development facility in Bangalore, India in the fourth quarter of fiscal year 2007.

Sales and Marketing
Expenses.Sales and marketing expenses increased 8% to $9.6 million for the three months ended December 31, 2007, as compared to $8.9 million for the three months ended December 31, 2006. As a percentage of revenue, sales and
marketing expenses increased to 49% for the three months ended December 31, 2007, as compared to 43% for the three months ended December 31, 2006. The increase in sales and marketing expense is primarily attributable to an increase in
personnel and related costs of $0.4 million associated with higher commissions and bonuses and $0.2 million of depreciation and other overhead costs.

General and Administrative Expenses.General and administrative expenses decreased 17% to $3.4 million for the three months ended December 31, 2007, as compared to $4.1 million for the three
months ended December 31, 2006. As a percentage of revenue, general and administrative expenses decreased to 17% for the three months ended December 31, 2007, as compared to 20% for the three months ended December 31, 2006. The
decrease was primarily attributable to cost savings initiatives.

Restructuring Expenses.Restructuring expenses were
$0.02 million for the three months ended December 31, 2007, as compared to $0.3 million for the three months ended December 31, 2006, which related to the closure of our Bangalore research and development facility



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##### Table of Contents

Net Interest and Other Income

Net interest and other income was $0.8 million for the three months ended December 31, 2007, as compared to $0.6 million for the three months ended December 31, 2006. The increase in net interest and
other income was primarily attributable to favorable fluctuations in foreign currencies and higher average cash balances coupled with increased interest rates obtained on our cash and marketable securities balances during the current quarter.

Income Tax Expense

Income tax
expense was $0.1 million for the three months ended December 31, 2007, as compared to $0.2 million for the three months ended December 31, 2006.

Comparison of the Nine Months Ended December 31, 2007 and 2006

The following table summarizes our results of
operations as a percentage of revenue for the respective periods:



|                               |  |                               |   |  |      |   
|------------------------------ |  | ----------------------------- | - |  | ---- | --
|                               |  | Nine Months EndedDecember 31, |  
|                               |  | 2007                          |   |  | 2006 |   
|Revenue                        |  | 100                           | % |  | 100  | % 
|Cost of revenue                |  | 19                            | % |  | 19   | % 
|                               |  |                               |   |  |      |   
|Gross profit                   |  | 81                            | % |  | 81   | % 
|Operating expenses:            |  |                               |   |  |      |   
|Product development            |  | 22                            | % |  | 24   | % 
|Sales and marketing            |  | 41                            | % |  | 37   | % 
|General and administrative     |  | 18                            | % |  | 22   | % 
|Restructuring charges          |  | 0                             | % |  | 0    | % 
|                               |  |                               |   |  |      |   
|Total operating expenses       |  | 81                            | % |  | 83   | % 
|                               |  |                               |   |  |      |   
|Operating income (loss)        |  | 0                             | % |  | (2   | )%
|Interest and other income, net |  | 4                             | % |  | 2    | % 
|                               |  |                               |   |  |      |   
|Income before income taxes     |  | 4                             | % |  | 1    | % 
|Income tax expense             |  | 1                             | % |  | 1    | % 
|                               |  |                               |   |  |      |   
|Net income (loss)              |  | 3                             | % |  | (1   | )%
|                               |  |                               |   |  |      |   

Revenue

Revenue decreased 3% to $59.3 million for the nine months ended December 31, 2007, as compared to $61.1 million for the nine months ended December 31, 2006. The decrease was primarily attributable to reduced
revenues from de-emphasized products, partially offset by continued growth in our scientific operating platform product line.

Cost of Revenue

Cost of revenue decreased 4% to $11 million for the nine months ended December 31, 2007, as compared to $11.5 million for the
nine months ended December 31, 2006. As a percentage of revenue, cost of revenue remained consistent at 19% for the nine months ended December 31, 2007 and the nine months ended December 31, 2006. The decrease in cost of revenue was
primarily due to a $0.5 million decrease in personnel and related costs due to lower headcount in our customer services departments.

Operating
Expenses

Product Development Expenses.Product development expenses decreased 11% to $13.1 million for the nine months
ended December 31, 2007, as compared to $14.7 million for the nine months ended December 31, 2006. As a percentage of revenue, product development expenses decreased to 22% for the nine months ended December 31, 2007, as compared
to 24% for the nine months ended December 31, 2006. The decrease in product development expenses was primarily attributable to savings of approximately $0.5 million in discretionary costs, $0.4 million in personnel costs, $0.4 million
operational expenses, a majority of which resulted from the closure of our research and development facility in Bangalore, India in the fourth quarter of fiscal year 2007 in addition to a decrease of $0.3 million in stock-based compensation expense.



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##### Table of Contents

Sales and Marketing Expenses.Sales and marketing expenses increased 8% to $24.2 million for
the nine months ended December 31, 2007, as compared to $22.5 million for the nine months ended December 31, 2006. As a percentage of revenue, sales and marketing expenses increased to 41% for the nine months ended December 31,
2007, as compared to 37% for the nine months ended December 31, 2006. The increase in sales and marketing expense is primarily attributable to an increase in personnel and related costs of $1.7 million and $0.7 million in depreciation and other
overhead costs.

General and Administrative Expenses.General and administrative expenses decreased 18% to $10.8 million for
the nine months ended December 31, 2007, as compared to $13.2 million for the nine months ended December 31, 2006. As a percentage of revenue, general and administrative expenses decreased to 18% for the nine months ended
December 31, 2007, as compared to 22% for the nine months ended December 31, 2006. The decrease was primarily attributable to $0.5 million of outside consulting and accounting fees incurred during the first quarter of fiscal year 2007 in
connection with the restatement of our previously issued consolidated financial statements which were not incurred in the current quarter, in addition to a decrease of $0.3 million in stock-based compensation expense, $0.3 million in depreciation
expense and $1.3 million related to cost savings initiatives.

Restructuring Expenses.Restructuring expenses were $0.1 million
for the nine months ended December 31, 2007, as compared to $0.3 million for the nine months ended December 31, 2006, which related to the closure of our Bangalore research and development facility.

Net Interest and Other Income

Net interest
and other income was $2.5 million for the nine months ended December 31, 2007, as compared to $1.4 million for the nine months ended December 31, 2006. The increase in net interest and other income was primarily attributable to higher
average cash balances coupled with increased interest rates obtained on our cash and marketable securities balances during the current quarter, in addition to favorable fluctuations in foreign currencies resulting from the cash settlement of certain
intercompany transactions.

Income Tax Expense

Income tax expense was $0.8 million for the nine months ended December 31, 2007, as compared to $0.9 million for the nine months ended December 31, 2006.

Liquidity and Capital Resources

We had cash, cash
equivalents, marketable securities, and restricted cash and marketable securities of $65.8 million as of December 31, 2007, as compared to $70.8 million as of March 31, 2007, a decrease of $4.9 million. The decrease in cash, cash
equivalents, marketable securities and restricted cash and marketable securities during the nine months ended December 31, 2007 was primarily attributable to cash used in operations of $5.7 million and $0.5 million in net property and equipment
purchases. These decreases were offset by proceeds of $0.7 million from the issuance of our common stock under employee stock plans and gains of $0.5 million due to favorable fluctuations in foreign currencies. Our operating cash flows on a
quarterly basis are significantly impacted by changes in accounts receivable balances. Due to the seasonality of our business, accounts receivable balances have historically increased significantly in the third quarter of each fiscal year as a
result of higher order intake. The collection of these accounts receivable balances has generally resulted in positive cash flows from operations in the fourth quarter of each fiscal year, while we have historically experienced negative cash flows
from operations in the other three fiscal quarters.

Net cash used in operating activities was $5.7 million for the nine months ended
December 31, 2007, as compared to $9.9 million for the nine months ended December 31, 2006. The decrease in cash used in operating activities was primarily attributable to reduced operating expenditures.

Net cash provided by investing activities was $10.7 million for the nine months ended December 31, 2007, as compared to net cash used in investing
activities of $1.0 million for the nine months ended December 31, 2006. Significant components of cash flows from investing activities for the nine months ended December 31, 2007 included net purchases of property and equipment of $0.5
million and a net decrease in our marketable securities portfolio of $11.2 million. Significant components of cash flows used in investing activities for the nine months ended December 31, 2006 included $0.8 million of net purchases of property
and equipment and a net increase in our marketable securities portfolio of $0.2 million.

Net cash provided by financing activities was
$0.7 million for the nine months ended December 31, 2007 and $1.2 million for the nine months ended December 31, 2006. Cash flows from financing activities for both periods consisted solely of proceeds from the issuance of our common stock
under employee stock plans.



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At March 31, 2007, our Accelrys, K.K. subsidiary recognized an income tax payable and associated
deferred tax asset of $4.8 million for revenue recognized for Japanese income tax purposes in advance of being recognized for book purposes as a result of the change in our revenue recognition policy in connection with the restatement of our
previously issued consolidated financial statements. In the first quarter of fiscal year 2008 we pursued alternative tax return positions that were consistent with Japanese tax law and filed Accelrys K.K.s fiscal year 2007 income tax return.
As a result, Accelrys K.K.s income tax obligation was reduced to $0.6 million, which was paid during the first quarter of fiscal year 2008. The associated deferred tax asset was reversed in the same period.

We have funded our activities to date primarily through the sales of software licenses and related services and the issuance of equity securities.

We anticipate that our capital requirements may increase in future periods as a result of seasonal sales trends, additional product
development activities, and the acquisition of additional equipment. Our capital requirements may also increase in future periods as we seek to expand our technology platform through investments, licensing arrangements, technology alliances, or
acquisitions.

We anticipate that our existing capital resources will be adequate to fund our operations for at least the next 12 months.
However, there can be no assurance that changes will not occur that would consume available capital resources before then. Our capital requirements depend on numerous factors, including our ability to continue to generate software sales, the
purchase of additional capital equipment and acquisitions of other businesses or technologies. There can be no assurance that additional funding, if necessary, will be available to us on favorable terms, if at all. Our forecast for the period of
time through which our financial resources will be adequate to support our operations is forward looking information, and actual results could vary.



|Item 3. | Quantitative and Qualitative Disclosures About Market Risk
|------- | ----------------------------------------------------------

The information called for by this item is provided in Item 7A, Quantitative and Qualitative Disclosures About Market Risk, of our Annual Report on Form 10-K for the fiscal year ended March 31, 2007. Our exposures to
market risk have not changed materially since March 31, 2007.



|Item 4. | Controls and Procedures
|------- | -----------------------

Conclusion Regarding the Effectiveness
of Disclosure Controls and Procedures

We maintain disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act), that are designed to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the
Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and
principal financial officer, as appropriate, to allow timely decisions regarding required financial disclosures. Because of inherent limitations, our disclosure controls and procedures, no matter how well designed and operated, can provide only
reasonable, and not absolute, assurance that the objectives of such disclosure controls and procedures are met.

As of the end of the
period covered by this Report, we conducted an evaluation, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, of the effectiveness of the design and
operation of our disclosure controls and procedures pursuant to Exchange Act Rules 13a-15(b) and 15d-15(b). Based on this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and
procedures were effective as of December 31, 2007.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting during the three months ended December 31, 2007 that materially affected, or
are reasonably likely to materially affect, those controls.

PART II  OTHER INFORMATION



|Item 1. | Legal Proceedings
|------- | -----------------

We are subject to various claims
and legal actions arising in the ordinary course of business. The ultimate disposition of these matters is not expected to have a material effect on our business or financial condition. However, there can be no assurance that the disposition of such
matters will not have a material effect on our results of operations in any particular period.



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|Item 1A. | Risk Factors
|-------- | ------------

You should carefully consider the
risks described below before investing in our publicly-traded securities. The risks described below are not the only ones facing us. Our business is also subject to the risks that affect many other companies, such as competition, technological
obsolescence, labor relations, general economic conditions, geopolitical changes and international operations. Additional risks not currently known to us or that we currently believe are immaterial also may impair our business operations and our
liquidity. The risks described below could cause our actual results to differ materially from those contained in forward-looking statements we have made in this Report, the information incorporated herein by reference and those we may make from time
to time.

Certain Risks Related to Our Marketplace and Environment

Our revenue from the sale of modeling and simulation software to the life science discovery research marketplace, which has historically constituted a significant portion of our overall revenue, has been
declining over the past several years and may continue to decline in future years. Historically we have derived a significant portion of our revenue from the sale of modeling and simulation software to the discovery research departments in
pharmaceutical and biotechnology companies. Such revenues have been declining over the past several years. We believe this decline is due to several factors, including increased competition, including competition from open source software, industry
consolidation, a general reduction in the level of discovery research activity by our customers, and reductions in profit and related information technology spending by our customers. If such declines continue and we do not increase the revenue we
derive from our other product and service offerings, our business could be adversely impacted.

Our ability to sustain or increase
revenues will depend upon our success in entering new markets and in deriving additional revenues from our existing customers. Our products are currently used primarily by molecular modeling and simulation specialists in discovery research
organizations. Our strategy is to expand usage of our products and services by utilizing our scientific operating platform and our tools and components to leverage vast amounts of information stored in both corporate databases and public data
sources in order to make informed scientific and business decisions during the research and development process. This strategy would allow increased usage of our software and services by biologists, chemists, engineers and informaticians within our
existing pharmaceutical and biotechnology customers, as well as to new customers in other industries. However, our products and services may not achieve market acceptance or penetration in targeted new departments within our customers or in new
industries. As a result, we may not be able to sustain or increase revenue.

Our focus on offering scientific business intelligence
solutions to both existing and new customers and markets may make it more difficult for us to sustain our revenue from the sale of modeling and simulation products to the life science discovery research marketplace. Our strategy involves
transforming our product and service offerings by utilizing our scientific operating platform and our tools and components in order to enable our customers to more effectively utilize the vast amounts of information stored in both their databases
and public data sources in order to make informed scientific and business decisions during the research and development process. This strategy is intended to lead us to new and different markets and customers, as well as increase the usage of our
offerings by existing customers. Executing this strategy will require significant management focus and utilization of resources. Though we intend to continue to dedicate sufficient resources and management focus to our life science modeling and
simulation products, it is possible that the strategy will result in loss of management focus and resources relating to these existing products and markets, thereby resulting in decreasing revenues from these markets. If these revenues are not
offset by increasing revenues from new markets and/or customers, our overall revenues will suffer.

We may be unable to develop
strategic relationships with our customers.Our strategy is to expand usage of our products and services by marketing and distributing our solutions to a broader, more diversified group of biologists, chemists, engineers and informaticians
throughout our customers research and development organizations. A key component of our business strategy is to become a preferred provider of scientific software and solutions. Becoming a preferred vendor will require substantial re-training
and new skills development within our sales and service personnel and deployment of a successful account-management sales model. We believe that developing strategic relationships with our customers may lead to additional revenue opportunities.
However, there can be no assurance that any such relationships will develop or that such relationships will produce additional revenue or profit opportunities.

Consolidation within the pharmaceutical and biotechnology industries may continue to lead to fewer potential customers for our products and services. A significant portion of our customer base
consists of pharmaceutical and biotechnology companies. Continued consolidation within the pharmaceutical and biotechnology industries may result in fewer customers for our products and services. If one of the parties to a consolidation uses the
products or services of our competitors, we may lose existing customers as a result of such consolidation.



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Increasing competition and increasing costs within the pharmaceutical and biotechnology industries
may affect the demand for our products and services, which may affect our results of operations and financial condition. Our pharmaceutical and biotechnology customers demand for our products is impacted by continued demand for
their products and by our customers research and development costs. Demand for our customers products could decline, and prices charged by our customers for their products may decline, as a result of increasing competition, including
competition from companies manufacturing generic drugs. In addition, our customers expenses could continue to increase as a result of increasing costs of complying with government regulations and otherwise. A decrease in demand for our
customers products, pricing pressures associated with the sales of these products, and additional costs associated with product development could cause our customers to reduce research and development expenditures. Because our products and
services depend on such research and development expenditures, our revenues may be significantly reduced.

Health care reform and
restrictions on reimbursement may affect the pharmaceutical, biotechnology and industrial chemical companies that purchase or license our products or services, which may affect our results of operations and financial condition. The
continuing efforts of government and third-party payers in the markets we serve to contain or reduce the cost of health care may reduce the profitability of pharmaceutical, biotechnology and industrial chemical companies causing them to reduce
research and development expenditures. Because our products and services depend on such research and development expenditures, our revenues may be significantly reduced. We cannot predict what actions federal, state or private payers for health care
goods and services may take in response to any health care reform proposals or legislation.

We face strong competition in the
scientific software sector. The market for our products is intensely competitive. We currently face competition from other scientific software providers, larger technology and solutions companies, in-house development by our customers, as
well as academic and government institutions and the open source community.

Some of our competitors and potential competitors in this
sector have longer operating histories than us and have greater financial, technical, marketing, research and development and other resources. Many of our competitors offer products and services directed at more specific markets than those we
target, enabling these competitors to focus a greater proportion of their efforts and resources on these markets. Some offerings that compete with our products are developed and made available at lower cost by government organizations and academic
institutions, and these entities may be able to devote substantial resources to product development and also offer their products to users for little or no charge. We also face competition from open source software initiatives, in which developers
provide software and intellectual property free over the Internet. In addition, many of our customers spend significant internal resources in order to develop their own software. Moreover, we intend to leverage our scientific operating platform in
order to enable our customers to more effectively utilize the vast amounts of information stored in both their databases and public data sources in order to make informed scientific and business decisions during the research and development process.
This strategy could lead to competition from much larger companies which provide general data storage and management software.

There can
be no assurance that our current or potential competitors will not develop products, services or technologies that are comparable to, superior to, or render obsolete, the products, services and technologies we offer. There can be no assurance that
our competitors will not adapt more quickly than us to technological advances and customer demands, thereby increasing such competitors market share relative to ours. Any material decrease in demand for our technologies or services may have a
material adverse effect on our business, financial condition and results of operations.

We are subject to pricing pressures in the
markets we serve. We operate in an intensely competitive marketplace which has led to significant pricing pressure and declines in average selling price over the past several years. In response to competition and general adverse economic
conditions in the markets we serve, we may be required to modify our pricing practices. Changes in our pricing model could lead to a decline or delay in revenue as our sales force and customers adjust to the new pricing policies. This development
may adversely affect our revenue and earnings.

Our operations may be interrupted by the occurrence of a natural disaster or other
catastrophic event at our primary facilities. Our research and development operations and administrative functions are primarily conducted at our facilities in San Diego, California, and Cambridge, United Kingdom. We also conduct sales and
customer support activities at our facilities in Burlington, Massachusetts, Paris, France, and Tokyo, Japan. Although we have contingency plans in effect for natural disasters or other catastrophic events, catastrophic events could still disrupt our
operations. For example, our San Diego and Tokyo facilities are located in areas that are particularly susceptible to earthquakes. Any natural disaster or catastrophic event in our facilities or the areas in which they are located could have a
significant negative impact on our operations.

Our insurance coverage may not be sufficient to avoid material impact on our
financial position or results of operations resulting from claims or liabilities against us, and we may not be able to obtain insurance coverage in the future. We maintain insurance coverage for protection against many risks of liability.
The extent of our insurance coverage is under continuous review and is modified as we deem it necessary. Despite this insurance, it is possible that claims or liabilities against us may have a material adverse impact on our financial position or
results of operations. In addition, we may not be able to obtain any insurance coverage, or adequate insurance coverage, when our existing insurance coverage expires. For example, we do not carry earthquake insurance for our facilities in Tokyo,
Japan or San Diego, California, because we do not believe the costs of such insurance are reasonable in relation to the potential risk.



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Certain Risks Related to Our Operations

Defects or malfunctions in our products could hurt our reputation among our customers, result in delayed or lost revenue and expose us to
liability. Our business and the level of customer acceptance of our products depend upon the continuous, effective and reliable operation of our software and related tools and functions. To the extent that defects cause our software to
malfunction and our customers use of our products is interrupted, our reputation could suffer and our revenue could decline or be delayed while such defects are remedied. We may also be subject to liability for the defects and malfunctions of
third-party technology partners and others with whom our products and services are integrated.

Delays in the release of new or
enhanced products or services or undetected errors in our products or services may result in increased cost to us, delayed market acceptance of our products and delayed or lost revenue. To achieve market acceptance, new or enhanced products
or services can require long development and testing periods, which may result in delays in scheduled introduction. Any delays in the release schedule for new or enhanced products or services may delay market acceptance of these products or services
and may result in delays in new customer orders for these new or enhanced products or services or the loss of customer orders. In addition, new or enhanced products or services may contain a number of undetected errors or bugs when they
are first released. Although we test each new or enhanced software product or service before being released to the market, there can be no assurance that significant errors will not be found in existing or future releases. As a result, in the months
following the introduction of certain releases, we may need to devote significant resources to correct these errors. There can be no assurance, however, that all of these errors can be corrected.

We are subject to risks associated with the operation of a global business.Our non-U.S. operations are subject to risks inherent in the
conduct of international business, including:



| |  |  | unexpected changes in regulatory requirements;
| | - |  | ----------------------------------------------



| |  |  | longer payment cycles;
| | - |  | ----------------------



| |  |  | currency exchange rate fluctuations;
| | - |  | ------------------------------------



| |  |  | import and export license requirements;
| | - |  | ---------------------------------------



| |  |  | tariffs and other barriers;
| | - |  | ---------------------------



| |  |  | political unrest, terrorism and economic instability;
| | - |  | -----------------------------------------------------



| |  |  | disruption of our operations due to local labor conditions;
| | - |  | -----------------------------------------------------------



| |  |  | limited intellectual property protection;
| | - |  | -----------------------------------------



| |  |  | difficulties in collecting trade receivables;
| | - |  | ---------------------------------------------



| |  |  | difficulties in managing distributors or representatives;
| | - |  | ---------------------------------------------------------



| |  |  | difficulties in managing an organization spread over various countries;
| | - |  | -----------------------------------------------------------------------



| |  |  | difficulties in staffing foreign subsidiary or joint venture operations; and
| | - |  | ----------------------------------------------------------------------------



| |  |  | potentially adverse tax consequences.
| | - |  | -------------------------------------

Our success depends, in part, on our ability to anticipate and address these risks. There can be no assurance that we will do so effectively, or that these or other factors relating to our international operations will not adversely affect
our business or operating results.

In order to improve our financial position, we have reduced our headcount, which could negatively
impact our business.We have undergone several reductions-in-force over the past several years, and our workforce has declined. While we believe we have sufficient staff to operate our business, we do not have duplicative or redundant
resources in many of our functions or operations. As a result, there can be no assurance that further attrition will not impact our ability to operate our business, or adversely impact our revenues.

Failure to attract and retain skilled personnel could have a material adverse effect on us. Our success depends in part on the continued
service of key scientific, sales, business development, marketing, engineering, management and accounting personnel and our ability to identify, hire and retain additional personnel. There is intense competition for qualified personnel. Immigration
laws may further restrict our ability to attract or hire qualified personnel. We may not be able to continue to attract and retain the personnel necessary for the development of our business. Failure to attract and retain key personnel could have a
material adverse effect on our business, financial condition and results of operations. Further, we are highly dependent on the principal members of our technical, scientific and management staff. One or more of these key employees could retire or
otherwise leave our employ within the foreseeable future, and the loss of any of these people could have a material adverse effect on our business, financial condition or results of operations. We do not intend to maintain key person life insurance
on the life of any employee.



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If we choose to acquire businesses, products or technologies instead of developing them ourselves,
we may be unable to complete these acquisitions or to successfully integrate an acquired business or technology in a cost-effective and non-disruptive manner. From time to time, we may choose to acquire businesses, products or technologies
instead of developing them ourselves. We do not know if we will be able to complete any acquisitions, or whether we will be able to successfully integrate any acquired businesses, operate them profitably or retain their key employees. Integrating
any business, product or technology we acquire could be expensive and time-consuming, disrupt our ongoing business and distract company management. In addition, in order to finance any acquisition, we may utilize our existing funds, thereby lowering
the amount of funds we currently have, or might need to raise additional funds through public or private equity or debt financings. In that event, we could be forced to obtain financing on less than favorable terms and, in the case of equity
financing, that may result in dilution to our stockholders. If we are unable to integrate any acquired entities, products or technologies effectively, our business could suffer. In addition, under certain circumstances, amortization of assets or
charges resulting from the costs of acquisitions could harm our business, financial condition, or operating results.

Certain Risks Related To Our
Financial Performance

We have a history of losses and our future profitability is uncertain.We generated net losses for
the years ended March 31, 2007, 2006 and 2005. Continuing net losses may limit our ability to fund our operations and we may not generate income from operations in the future. Our future profitability depends upon many factors, including
several that are beyond our control. These factors include without limitation:



| |  |  | changes in the demand for our products and services;
| | - |  | ----------------------------------------------------



| |  |  | the introduction of competitive software;
| | - |  | -----------------------------------------



| |  |  | our ability to license desirable technologies;
| | - |  | ----------------------------------------------



| |  |  | changes in the research and development budgets of our customers and potential customers;
| | - |  | -----------------------------------------------------------------------------------------



| |  |  | our ability to successfully, cost effectively and timely develop, introduce and market new products, services and product enhancements; and
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the acquisition of any new entities or businesses which may have a dilutive effect upon our earnings.
| | - |  | -----------------------------------------------------------------------------------------------------

Our sales forecast and/or revenue projections may not be accurate.We use a pipeline system, a common industry practice, to
forecast sales and trends in our business. Our sales personnel monitor the status of proposals, including the date when they estimate a customer will make a purchase decision and the potential size of the order. We aggregate these estimates on a
quarterly basis in order to generate a sales pipeline. While the pipeline process provides us with some guidance in business planning and forecasting, it is based on estimates only and is therefore subject to risks and uncertainties. Any variation
in the conversion of the pipeline into revenue or the pipeline itself could cause us to improperly plan or budget and thereby adversely affect our business, results of operations and financial condition.

If we are unable to license software to, or collect receivables from our customers our operating results may be adversely affected. While
the majority of our current customers are well-established, large pharmaceutical customers and universities, we also provide products and services to smaller biotechnology companies. We have not experienced significant customer defaults during the
past three fiscal years. Our financial success depends upon the creditworthiness and ultimate collection of amounts due from our customers, including our smaller customers with fewer financial resources. If we are not able to collect from our
customers, we may be required to write-off significant accounts receivable and recognize bad debt expenses which could materially and adversely affect our operating results.

Our quarterly operating results, particularly our quarterly cash flows, may fluctuate.Quarterly operating results may fluctuate as a
result of a number of factors, including lengthy sales cycles, market acceptance of new products and upgrades, timing of new product introductions, changes in pricing policies, changes in general economic and competitive conditions, and the timing
and integration of acquisitions. We may also experience fluctuations in quarterly operating results due to general and industry specific economic conditions that may affect the research and development expenditures of pharmaceutical and
biotechnology companies. In particular, historically we have received approximately two-thirds of our annual customer orders in the second half of our fiscal year. In accordance with our revenue recognition policies, the revenue associated with
these orders is generally recognized over the contractual license term. Therefore, because we accrue sales commissions and royalties upon the receipt of customer orders, we generally experience an increase in operating costs and expenses during the
second half of our fiscal year with only a minimal corresponding incremental increase in revenue. Additionally, our cash flows from operations have historically been positive in the fiscal quarter ended March 31 as we collect the accounts
receivable generated from these customer orders, while we have historically experienced negative cash flows from operations in the other three fiscal quarters. As a result of these seasonal variations, we believe that quarter-to-quarter comparisons
of our operating results are not a good indication of our future performance and that our interim financial results are not necessarily indicative of results for a full year or for any subsequent interim period.



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We may be required to indemnify Pharmacopeia Drug Discovery, Inc. (PDD), or may
not be able to collect on indemnification rights from PDD. On April 30, 2004, we spun-off our drug discovery subsidiary, PDD, into an independent, separately traded, publicly held company through the distribution to our stockholders of
a dividend of one share of PDD common stock for every two shares of our common stock. As part of the spin-off, we agreed to indemnify the indebtedness, liabilities and obligations of PDD. One such obligation includes a guarantee by us to the
landlord of PDDs obligations under certain facility leases, with respect to which PDD will indemnify us should we be required to make any payment under the guarantee. These indemnification obligations could be as significant as the remaining
future minimum lease payments, which totaled approximately $20.1 million as of December 31, 2007. PDDs ability to satisfy any such indemnification obligations (including, without limitation, PDDs commitment to indemnify us in the
event of our payment under our guarantee of its leases) will depend upon PDDs future financial strength. We cannot assure you that, if PDD becomes obligated to indemnify us for any substantial obligations, PDD will have the ability to do so.
There also can be no assurance that we will be able to satisfy any indemnification obligations to PDD. Any failure by PDD to satisfy its obligations and any required payment by us could have a material adverse effect on our business.

Enacted and proposed changes in securities laws and regulations have increased our costs and may continue to increase our costs in the
future. The Sarbanes-Oxley Act of 2002 (Sarbanes-Oxley) required changes in some of our corporate governance and securities disclosure and compliance practices. Under Sarbanes-Oxley, publicly held companies, including us, are
required to, among other things, furnish independent annual audit reports regarding the existence and reliability of their internal control over financial reporting and have their chief executive officer and chief financial officer certify as to the
accuracy and completeness of their financial reports.

We expect continued compliance with Sarbanes-Oxley to remain costly. Further,
Sarbanes-Oxley and the related SEC and NASDAQ compliance rules may make it more difficult and expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced coverage or incur substantially higher
costs to obtain coverage. These laws and regulations could also make it more difficult for us to attract and retain qualified members of our board of directors, or qualified executive officers. We continually evaluate and monitor regulatory
developments and cannot estimate the timing or magnitude of additional costs we may incur as a result.

Our business, financial
condition and results of operations may be adversely impacted by fluctuations in foreign currency exchange rates. Our international sales generally are denominated in local currencies. Fluctuations in the value of currencies in which we
conduct business relative to the United States dollar result in currency transaction gains and losses, and the impact of future exchange rate fluctuations cannot be accurately predicted. Future fluctuations in currency exchange rates may have a
material adverse impact on revenue from international sales, and thus on our business, financial condition and results of operations. When deemed appropriate, we may engage in currency exchange rate hedging transactions in an attempt to mitigate the
impact of adverse exchange rate fluctuations. However, currency hedging policies may not be successful, and they may increase the negative impact of exchange rate fluctuations.

If we consume cash more quickly than expected, we may be unable to raise additional capital and we may be forced to curtail operations. We
anticipate that our existing capital resources will be adequate to fund our operations for at least the next twelve months. However, our capital requirements will depend on many factors, including the potential acquisition of other businesses or
technologies. If we determine that we must raise additional capital, we may attempt to do so through public or private financings involving debt or equity. However, additional capital may not be available on favorable terms, or at all. If adequate
funds are not available, we may be required to curtail operations significantly or to obtain funds by entering into arrangements with collaborative partners or others that may require us to relinquish rights to certain of our technologies, products
or potential markets that we would not otherwise relinquish.

Certain Risks Related to Owning Our Stock

We expect that our stock price will fluctuate significantly, and our stockholders may not be able to resell their shares at or above their original
investment price. The stock market, historically and in recent years, has experienced significant volatility particularly with technology company stocks. The volatility of technology company stock prices often does not relate to the
operating performance of the companies represented by the stock. Factors that could cause volatility in the price of our common stock include without limitation:



| |  |  | actual and anticipated fluctuations in our quarterly financial and operating results;
| | - |  | -------------------------------------------------------------------------------------



| |  |  | market conditions in the technology and software sectors;
| | - |  | ---------------------------------------------------------



| |  |  | issuance of new or changed securities analysts reports or recommendations;
| | - |  | ---------------------------------------------------------------------------



| |  |  | developments or disputes concerning our intellectual property or other proprietary rights or other legal claims;
| | - |  | ----------------------------------------------------------------------------------------------------------------



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| |  |  | introduction of technological innovations or new commercial products by us or our competitors;
| | - |  | ----------------------------------------------------------------------------------------------



| |  |  | market acceptance of our products and services;
| | - |  | -----------------------------------------------



| |  |  | additions or departures of key personnel; and
| | - |  | ---------------------------------------------



| |  |  | the acquisition of new businesses or technologies;
| | - |  | --------------------------------------------------

These and other external factors may cause the market price and demand for our common stock to fluctuate substantially, which may limit or prevent investors from readily selling their shares of common stock and may
otherwise negatively affect the liquidity of our common stock.

As institutions hold the majority of our common stock in large
blocks, substantial sales by these stockholders could depress the market price for our shares. As of January 18, 2008, the top ten institutional holders of our common stock held approximately 60% of our outstanding common stock. As a
result, if one or more of these major stockholders were to sell all or a portion of their holdings, or if the market were to perceive that such sale or sales may occur, the market price of our common stock may fall significantly.

Because we do not intend to pay dividends, our stockholders will benefit from an investment in our common stock only if our stock price appreciates
in value. We have never declared or paid any cash dividends on our common stock. We currently intend to retain our future earnings, if any, to finance the expansion of our business and do not expect to pay any cash dividends in the
foreseeable future. As a result, the success of an investment in our common stock will depend entirely upon any future appreciation in its value. There is no guarantee that our common stock will appreciate in value or even maintain the price at
which it was purchased.

Anti-takeover provisions under the Delaware General Corporation Law, provisions in our certificate of
incorporation and bylaws, and our adoption of a stockholder rights plan may render more difficult the accomplishment of mergers or the assumption of control by a principal stockholder, making more difficult the removal of management. Certain
provisions of the Delaware General Corporation Law may delay or deter attempts to secure control of our company without the consent of our management. Also, our governing documents provide for a staggered board of directors, which will make it more
difficult for a potential acquirer to gain control of our board of directors. In 2002, we adopted a stockholder rights plan, which is triggered upon commencement or announcement of a hostile tender offer or when any one person or group acquires 15%
or more of our common stock. The rights plan, once triggered, enables our stockholders (other than the stockholder responsible for triggering the rights plan) to purchase our common stock at reduced prices. These provisions of our governing
documents and stockholder rights plan, and of Delaware law, could have the effect of delaying, deferring or preventing a change of control, including without limitation a proxy contest, making more difficult the acquisition of a substantial block of
our common stock. The provisions could also limit the price that investors might be willing to pay in the future for shares of our common stock. Further, the existence of these anti-takeover measures may cause potential bidders to look elsewhere,
rather than initiating acquisition discussions with us.

Certain Risks Related to Intellectual Property

We may not be able to protect adequately the trade secrets and confidential information that we disclose to our employees.We rely upon
trade secrets, technical know-how and continuing technological innovation to develop and maintain our competitive position. Competitors through their independent discovery (or improper means, such as unauthorized disclosure or industrial espionage)
may come to know our proprietary information. We generally require employees and consultants to execute confidentiality and assignment-of-inventions agreements. These agreements typically provide that all materials and confidential information
developed by or made known to the employee or consultant during his, her or its relationship with us are to be kept confidential, and that all inventions arising out of the employees or consultants relationship with us are our exclusive
property. Our employees and consultants may breach these agreements, and in some instances we may not have an adequate remedy. Additionally, in some instances, we may have failed to require that employees and consultants execute confidentiality and
assignment-of-inventions agreements.

Foreign laws may not afford us sufficient protections for our intellectual property, and we may
not seek patent protection outside the United States. We believe that our success depends, in part, upon our ability to obtain international protection for our intellectual property. However, the laws of some foreign countries may not be as
comprehensive as those of the United States and may not be sufficient to protect our proprietary rights abroad. In addition, we generally do not pursue patent protection outside the United States because of cost and confidentiality concerns.
Accordingly, our international competitors could obtain foreign patent protection for, and market overseas, products and technologies for which we are seeking patent protection in the United States.

A patent issued to us may not be sufficiently broad to protect adequately our rights in intellectual property to which the patent relates.
Due to cost and other considerations, we generally do not rely on patent protection to enforce our intellectual property rights, and have filed only a limited number of patent applications. Even if patents are issued to us, these patents may not
sufficiently protect our interest in our software or other technologies because the scope of protection



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provided by any patents issued to or licensed by us are subject to the uncertainty inherent in patent law. Third parties may be able to design around these
patents or develop unique products providing effects similar to our products. In addition, others may discover uses for our software or technologies other than those uses covered in our patents, and these other uses may be separately patentable. A
number of pharmaceutical and biotechnology companies, software organizations and research and academic institutions, have developed technologies, filed patent applications or received patents on various technologies that may be related to our
business. Some of these technologies, patent applications or patents may conflict with our technologies, patent applications or patents. These conflicts could also limit the scope of patents, if any, that we may be able to obtain, or result in the
denial of our patent applications.

We may be subject to claims of infringement by third parties.A number of patents may
have been issued or may be issued in the future that could cover certain aspects of our technology or functionality of our products and could prevent us from using technology that we use or expect to use, or making or selling certain of our
products. In addition, to the extent our employees are involved in research areas similar to those areas in which they were involved at their former employers, we may inadvertently use or disclose alleged trade secrets or other proprietary
information of their former employer. Thus, our products may infringe patent or other intellectual property rights of third parties, and we may be subject to infringement claims by third parties. Any such claims, with or without merit, could be time
consuming to defend, result in costly litigation, divert managements attention and resources, cause product shipment delays or require us to enter into royalty or licensing agreements. Such licenses may not be available on terms acceptable to
us, if at all. In the event of a successful claim of product infringement against us, our failure or inability to license or design around the infringed technology could have a material adverse effect on our business, financial condition and results
of operations.

Third-party software codes incorporated into our products could subject us to liability or limit our ability to sell
such products. Some of our products include software codes licensed from third parties, including the open source community. Some of these licenses impose certain obligations upon us, including royalty and indemnification obligations. In
addition, while some of these licenses are perpetual, other such licenses expire upon a predetermined date. An extension of these licenses may not be available upon the same terms, if at all, in which case our costs of sales could increase as our
royalty obligations increase. Alternatively, our revenues could decline if we are unable to extend the license or develop or license alternative technology and are compelled to discontinue products utilizing such licensed technology. In the case of
codes licensed from the open source community, the licenses may also limit our ability to sell products containing such code. Though we generally review the applicable licenses prior to incorporating third party code into our software products,
there can be no assurance that such third party codes incorporated into our products would not subject us to liability or limit our ability to sell the products containing such code, thereby having a material adverse affect upon our business.



|Item 5. | Other Information
|------- | -----------------

Effective as of February 8,
2008, the Companys Vice President of Marketing, R. William Taylor, resigned from the Company. In connection with Mr. Taylors resignation, the Company entered into a Separation Agreement and Release (Separation Agreement) with
Mr. Taylor. Per the terms of the Separation Agreement, Mr. Taylor will receive a total of $28,840 per month for a period of twelve months following the effective date of his resignation, contingent upon his continuing compliance with non-competition
and related terms. Mr. Taylor may also be reimbursed for up to twelve months of medical and dental insurance premiums, and remains eligible to receive a pro-rata bonus from the Companys Management Incentive Plan for FY 2008, when, if and as
awarded by the Companys Board of Directors (the Board).

The foregoing description is intended only as a summary of the
material terms of the Separation Agreement and is qualified in its entirety by reference to the full Separation Agreement attached as Exhibit 10.1 of this Report.

The Board has appointed Mr. Rohit Shyam, currently the Companys Vice President, Corporate Development and Strategy, to replace Mr. Taylor. Mr. Shyam will be the Companys Vice President, Marketing and
Strategy.



|Item 6. | Exhibits
|------- | --------



|              |  |                                                                                                                                                                                                                                                              
|------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Description                                                                                                                                                                                                                                                  
|              | 
|3.1           |  | Restated Certificate of Incorporation of Pharmacopeia, Inc. (incorporated by reference to Exhibit 3.1 to Accelrys, Inc.s Annual Report on Form 10-K for the fiscal year ended
December 31, 1996).                                                           
|              | 
|3.2           |  | Certificate of Designation, Preferences and Rights of Series A Junior Participating Preferred Stock of Pharmacopeia, Inc. (incorporated by reference to Exhibit 3.2 to Accelrys, Inc.s
Annual Report on form 10-K for the fiscal year ended March 31, 2005).
|              | 
|3.3           |  | Certificate of Amendment of the Restated Certificate of Incorporation of Pharmacopeia, Inc. (incorporated by reference to Exhibit 3.2 to Accelrys, Inc.s Annual Report on Form 10-K for the
fiscal year ended March 31, 2005.                               
|              | 
|3.4           |  | Certificate of Amendment of the Restated Certificate of Accelrys, Inc. (incorporated by reference to Exhibit 3.4 to Accelrys, Inc.s Quarterly Report Form 10-Q for the quarterly period
ended September 30, 2007.                                           
|              | 
|3.5           |  | Amended and Restated Bylaws of Accelrys, Inc. as amended on June 9, 2005. (incorporated by reference to Exhibit 3.3 to Accelrys, Inc.s Annual Report on Form 10-K for the fiscal year
ended March 31, 2005).                                                
|              | 
|10.1*         |  | Employment Separation Agreement and Release, dated February 5, 2008, between Accelrys, Inc. and R. William Taylor.                                                                                                                                           
|              | 
|31.1*         |  | Section 302 Certification of the Principal Executive Officer                                                                                                                                                                                                 
|              | 
|31.2*         |  | Section 302 Certification of the Principal Financial Officer                                                                                                                                                                                                 
|              | 
|32.1*         |  | Section 906 Certification of the Chief Executive Officer and Chief Financial Officer                                                                                                                                                                         



|* | Filed herewith
|- | --------------



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SIGNATURE

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



ACCELRYS, INC.By:

/s/ RICK E. RUSSORick E. RussoSenior Vice President and Chief Financial Officer (Duly Authorized Officer and Chief Financial Officer)Date: February 7, 2008




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