FORM 10-Q

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549



QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934



For the quarterly period ended September 30, 2000



Commission File Number 0-23666



TRIPOS, INC.

(Exact Name of Registrant as Specified in its Charter)



| |  | Utah                            | 43-1454986         
| |  | ------------------------------- | -------------------
| |  | (State or Other Jurisdiction of | (I.R.S. Employer   
| |  | Incorporation or Organization)  | Identification No.)

1699 South Hanley Road

St. Louis, Missouri 63144

(Address of Principal Executive Offices and Zip Code)



(314) 647-1099

(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 requirement for the past 90 days.

YesXNo



Number of shares outstanding of the issuer's Common Stock, par value $.01 per share, as of September 30, 2000:3,526,027 shares.







TABLE OF CONTENTS





|PART I FINANCIAL INFORMATION,                                           | Page
|----------------------------------------------------------------------- | ----
|Item 1. Financial Statements (Unaudited)                                |     
|Consolidated Balance Sheets at September 30, 2000 and December 31, 1999 | 3   
|Consolidated Statements of Operations                                   |     
|for Three Months Ended September 30, 2000 and September 30, 1999        |     
|and Nine Months Ended September 30, 2000 and September 30, 1999         | 4   
|Consolidated Statements of Cash Flows for Nine Months Ended             |     
|September 30, 2000 and September 30, 1999                               | 5   
|Notes to Consolidated Financial Statements                              | 6   
|                                                                        |     
|Item 2. Management's Discussion and Analysis of Financial Condition     |     
|and Results of Operations                                               | 9   
|                                                                        |     
|PART II OTHER INFORMATION                                               | 13  
|SIGNATURES                                                              | 13  

Page 2

PART I

FINANCIAL INFORMATION

Item 1. Financial Statements.

CONSOLIDATED BALANCE SHEETS

(In thousands)

|                                                      | Sep. 30, 2000 | Dec. 31,1999
|----------------------------------------------------- | ------------- | ------------
|ASSETS                                                | (Unaudited)   |             
|Current Assets:                                       |               |             
|Cash and cash equivalents                             | $  2,480      | $   813     
|Marketable Securities                                 | 28,247        | -           
|Notes receivable-other                                | 879           | 830         
|Accounts receivable                                   | 7,966         | 14,182      
|Inventory                                             | 4,186         | 2,595       
|Prepaid expenses                                      | 1,770         | 242         
|Deferred income taxes                                 | -             | 1,418       
|Total current assets                                  | 45,528        | 20,080      
|                                                      |               |             
|Notes Receivable-trade                                | 2,042         | 2,448       
|Notes Receivable-other                                | -             | 934         
|Property and equipment, less accumulated depreciation | 12,991        | 13,899      
|Capitalized development costs, net                    | 372           | 572         
|Goodwill, net of amortization                         | 1,045         | 1,082       
|Investment in restricted stock                        | 2,301         | 2,368       
|Other, net                                            | 193           | 199         
|Total assets                                          | $ 64,472      | $ 41,582    
|                                                      |               |             
|LIABILITIES AND SHAREHOLDERS' EQUITY                 
|Current Liabilities:                                  |               |             
|Current portion of capital leases                     | $   935       | $  1,079    
|Current portion of long-term debt                     | 3,113         | 1,166       
|Accounts payable                                      | 245           | 1,443       
|Accrued expenses                                      | 2,175         | 3,187       
|Deferred revenue                                      | 6,237         | 4,832       
|Deferred income taxes                                 | 8,812         | -           
|Total current liabilities                             | 21,517        | 11,707      
|                                                      |               |             
|Long-term portion of capital leases                   | 426           | 1,223       
|Long-term portion of long-term debt                   | -             | 7,001       
|Long-term deferred revenue                            | 1,411         | 2,485       
|Deferred income taxes                                 | 1,583         | 1,583       
|                                                      |               |             
|Series-B preferred stock                              | 9,263         | -           
|                                                      |               |             
|Shareholders' equity :                                |               |             
|Common stock                                          | 35            | 33          
|Additional paid-in capital                            | 19,663        | 18,431      
|Retained deficit                                      | (5,767)       | (1,020)     
|Other comprehensive income                            | 16,341        | 139         
|Total shareholders' equity                            | 30,272        | 17,583      
|                                                      |               |             
|Total liabilities and shareholders' equity            | $ 64,472      | $ 41,582    
|                                                      |               |             

See accompanying notes



Item 1.  Financial Statements (continued)



CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)

|                                                    | Three Months Ended | Nine Months Ended
|--------------------------------------------------- | ------------------ | -----------------
|                                                    | Sep. 30, 2000      | Sep. 30, 1999    
|Net sales:                                          |                    |                  
|Software licenses                                   | $  2,193           | $  2,389         
|Support                                             | 1,897              | 2,005            
|Discovery services                                  | 1,448              | 817              
|Hardware                                            | 164                | 296              
|Total net sales                                     | 5,702              | 5,507            
|                                                    |                    |                  
|Operating costs and expenses:                       |                    |                  
|Cost of sales                                       | 697                | 984              
|Sales and marketing                                 | 2,294              | 2,477            
|Research and development                            | 2,706              | 2,009            
|General and administrative                          | 1,321              | 1,330            
|Total costs and expenses                            | 7,018              | 6,800            
|                                                    |                    |                  
|Loss from operations                                | (1,316)            | (1,293)          
|                                                    |                    |                  
|Other income (expense), net                         | 245                | (15)             
|Loss before income taxes and preferred dividends    | (1,071)            | (1,308)          
|                                                    |                    |                  
|Income tax benefit                                  | -                  | (472)            
|Net loss before preferred dividends                 | (1,071)            | (836)            
|                                                    |                    |                  
|Preferred dividends                                 | 113                | -                
|Net loss allocable to common shareholders           | $ (1,184)          | $ (836)          
|                                                    |                    |                  
|Basic and diluted loss per share                    | $ (0.34)           | $ (0.25)         
|Basic and diluted weighted average number of shares | 3,525              | 3,289            
|                                                    |                    |                  

See accompanying notes.

Page 4

Item 1. Financial Statements (continued)

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands)

(Unaudited)

|                                                                                | Nine Months Ended
|------------------------------------------------------------------------------- | -----------------
|                                                                                | Sep. 30, 2000    
|Operating activities:                                                           |                  
|Net loss                                                                        | $  (4,747)       
|Adjustments to reconcile net loss to net cash provided
by operating activities: |                  
|Depreciation of property and equipment                                          | 1,492            
|Amortization of capitalized development costs and goodwill                      | 337              
|Deferred income taxes                                                           | -                
|Accreted dividends on Series B preferred stock                                  | 292              
|                                                                                |                  
|Change in operating assets and liabilities:                                     |                  
|Accounts receivable                                                             | 5,719            
|Notes receivable-trade                                                          | 405              
|Inventory                                                                       | (1,926)          
|Prepaid expenses and other current assets                                       | (1,741)          
|Accounts payable and accrued expenses                                           | (1,585)          
|Deferred revenue                                                                | 740              
|Net cash used by operating activities                                           | (1,014)          
|                                                                                |                  
|Investing activities:                                                           |                  
|Notes receivable-other                                                          | 885              
|Purchases of property and equipment                                             | (1,266)          
|Capitalized development costs                                                   | (55)             
|Acquisition, including investment in unconsolidated affiliates                  | (1,112)          
|Net cash used in investing activities                                           | (1,548)          
|                                                                                |                  
|Financing activities:                                                           |                  
|Stock issuance pursuant to stock plans                                          | 1,234            
|Proceeds from issuance of Series B preferred stock                              | 8,971            
|Payments on long-term debt and capital leases                                   | (5,232)          
|Proceeds from the issuance of long-term debt                                    | -                
|Net cash provided by financing activities                                       | 4,973            
|                                                                                |                  
|Effect of foreign exchange rate changes on cash and cash equivalents            | (744)            
|                                                                                |                  
|Net change in cash and cash equivalents                                         | 1,667            
|                                                                                |                  
|Cash and cash equivalents at beginning of period                                | 813              
|Cash and cash equivalents at end of period                                      | $  2,480         

See accompanying notes.

Page 5

Item 1. Financial Statements (continued)

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share data)



(1)   Summary of significant accounting policies

Organization

Tripos, Inc. is a leading provider of integrated discovery software products, software consulting services, and discovery research services to the pharmaceutical, biotechnology, agrochemical, and other life
sciences industries. We combine information technology and scientific research to optimize and accelerate molecular research for the discovery of new products by our clients.

With a strong foundation in cheminformatics, Tripos provides its customers with what we believe are distinct competitive advantages. Our "chemically intelligent" discovery software tools are able to manage, analyze
and share biological and chemical information. Tripos' software consulting services help to organize data in a manner that is conducive to discovery research. Tripos' proprietary chemical compound libraries couple Tripos' molecular design technology and
synthesis capabilities. Discovery research services leverage Tripos' cheminformatics expertise in molecular design analysis and medicinal chemistry. Together, these services allow our customers to take advantage of recent advances in high throughput
screening for biological activity with a goal of accelerating the development and commercialization of major new products.

Our customers, a number of which are industry leaders, use our products and services to reduce product discovery costs and time, and to accelerate the development of major new products. To date, Tripos has entered
into several strategic alliances with pharmaceutical and biotechnology companies. Certain of these contracts provide for recurring payments for products and services over the course of the contract term as well as milestone payments or ownership of new
product discoveries. Tripos has a geographically diverse customer base, with approximately half of its revenues derived from European and other customers outside the United States. Tripos has a worldwide sales force with offices throughout the United
States, and in England, France and Germany, representatives throughout the Pacific Rim, and its Tripos Receptor Research chemistry laboratories in England.

Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q
and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all normal
recurring adjustments necessary for a fair presentation of such financial statements have been included. Operating results for the three- and nine-month periods ended September 30, 2000 are not necessarily indicative of the results that may be expected
for the year ending December 31, 2000.

(2)   Income Taxes

The provision for income taxes is computed using the liability method. The primary difference between financial statement and taxable income results from the use of different methods of computing capitalized
development costs, accrued vacation and customer deposits.

(3)   Comprehensive Income

The components of comprehensive income, net of related tax, for the three- and nine-month periods ended September 30, 2000 and 1999 are as follows:

|                                          | Three Months Ended | Nine Months Ended
|----------------------------------------- | ------------------ | -----------------
|                                          | Sep. 30, 2000      | Sep. 30, 1999    
|Net loss allocable to common shareholders | $  (1,184)         | $  (836)         
|Unrealized gains on                       |                    |                  
|available-for-sale investment             | 16,905             | -                
|Foreign currency translation adjustments  | (281)              | 92               
|Comprehensive income (loss)               | $ 15,440           | $  (744)         

Page 6

Item 1. Financial Statements (continued)

The components of accumulated other comprehensive income, net of related tax, at September 30, 2000 and December 31, 1999 are as follows:

|                                                   | Sep. 30, 2000 | Dec. 31, 1999
|-------------------------------------------------- | ------------- | -------------
|Foreign currency translation adjustments           | $  (564)      | $  139       
|Unrealized gains on available-for -sale investment | 16,905        | -            
|                                                   |               |              
|Accumulated other comprehensive income             | $ 16,341      | $  139       

Subsequent to the end of Tripos' second quarter of fiscal 2000, Arena Pharmaceuticals, Inc. registered 6,900,000 shares of common stock for the purpose of its initial public offering, including broker
overallotments. Arena's shares were priced at $18 per share upon commencement of trading. Arena's share price closed at $43 per share on September 29, 2000. After the offering Tripos held approximately 9.4% of the outstanding shares of Arena, giving
effect to the conversion of a note receivable from Arena and the exercise of warrants. Arena is now traded on the Nasdaq National Market system under the symbol ARNA. Tripos' investment in Arena Pharmaceuticals is subject to a number of restrictions and
uncertainties, many of which are beyond Tripos' control. In particular, Tripos is subject to an agreement restricting its ability to sell any Arena common stock that expires in January 2001 and will be subject to substantial restrictions under federal
securities laws. In addition, Tripos cannot provide any assurance to its investors about the market for Arena common stock, the potential volatility in the market price of Arena's common stock, or the ability of Tripos to sell any of its Arena common
stock should Tripos seek to make such sales in the future. At September 30, 2000, Tripos has classified those shares which become unrestricted within one year as marketable securities shown at fair value. The remaining shares which are restricted for a
period over one year remain classified as restricted stock and are valued at cost.

(4)   Earnings Per Share

The following table sets forth the computation of basic and diluted earnings per share for the three- and nine-month periods ended September 30, 2000 and 1999.

|                                                                                                         | Three Months Ended | Nine Months Ended
|-------------------------------------------------------------------------------------------------------- | ------------------ | -----------------
|                                                                                                         | Sep. 30, 2000      | Sep. 30, 1999    
|Numerator:                                                                                               |                    |                  
|Numerator for basic earnings per share-
   net loss allocable to common shareholders                     | $  (1,184)         | $  (836)         
|Add back preferred dividends    (Note A)                                                                 | -                  | N/A              
|Numerator for diluted earnings per share-net loss                                                        | $  (1,184)         | $  (836)         
|                                                                                                         |                    |                  
|Denominator:                                                                                             |                    |                  
|Denominator for basic earnings per share-weighted average shares                                         | 3,525              | 3,289            
|Effect of dilutive securities:                                                                           |                    |                  
|Employee stock options     (Note B)                                                                      | -                  | -                
|Preferred shares    (Note A)                                                                             | -                  | N/A              
|Denominator for diluted earnings per share--
   adjusted weighted average shares and assumed conversions | 3,525              | 3,289            
|Basic    loss per share                                                                                  | $ (0.34)           | $ (0.25)         
|Diluted  loss per share                                                                                  | $ (0.34)           | $ (0.25)         

Note A: Weighted average shares outstanding were not adjusted for the conversion of the Series B Preferred Stock as their inclusion would have been anti-dilutive. Accordingly, the related preferred dividends were not added
back to the numerator for diluted earnings per share.

Note B: Employee stock options to purchase shares of the Company's common stock were not included in the September 30, 1999 or 2000 computation of diluted earnings per share because the effect would have been anti-dilutive. For
additional disclosures regarding earnings per share, see the notes to the Company's 1999 consolidated financial statements in its Form 10-K.

Page 7

Item 1. Financial Statements (continued)

(5)   Inventory

Tripos maintains a physical inventory of chemical compound libraries in various states of completion. Costs associated with the manufacture of compounds are calculated using the
standard cost method and are carried at the

lower of cost or market. Compounds that are acquired from third parties are also carried at the lower of cost or market. Finished Goods inventory may periodically contain costs of computer hardware that has been acquired for resale to
the Company's customers.

|                | Sep. 30, 2000 | Dec. 31, 1999
|--------------- | ------------- | -------------
|Raw materials   | $   426       | $   256      
|Work in process | 580           | 533          
|Finished goods  | 3,180         | 1,806        
|Total inventory | $ 4,186       | $ 2,595      

(6)   Long Term Debt

On March 22, 1999, Tripos received a credit commitment from LaSalle Bank that refinanced a prior $12,000 Credit Agreement and mortgage note. The credit commitment was for a total of $15,333 which was broken into
three separate secured credit facilities: a $3,333 real estate mortgage for property with a carrying value of $4,476, $4,000 three-year term loan, and an $8,000 three-year revolving line of credit. The credit commitment is collateralized by substantially
all of Tripos' U.S. assets and stock pledges for each of the U.S. and foreign subsidiaries. The commitment also required Tripos to meet certain financial covenants, including various coverage ratios and a debt to capitalization ratio. During 1999, Tripos
violated the terms of the covenants, however, the bank waived the violations and later amended the terms of the credit facility.

The mortgage note under the current credit commitment calls for even quarterly principal payments based on a twenty-year amortization schedule that began June 30, 1999. Borrowings under the mortgage are subject to a
variable interest rate at LIBOR plus 2.25%. An interest rate swap agreement was entered into which fixed the interest rate at 7.81%. The $4,000 term note under the credit commitment was repaid in its entirety in three installments; $3,000 during the
fourth quarter of 1999 and the balance on February 10, 2000. The revolving line of credit under the credit commitment requires quarterly interest-only payments with any remaining borrowings due at the end of the three-year commitment period. The original
$8,000 line of credit was reduced to $4,000 effective September 30, 1999. Availability under the revolving line of credit is based on eligible U.S. accounts receivable. Borrowings under the revolving line of credit bear interest at variable rates tied to
LIBOR or the bank's prime rate. At September 30, 2000, no borrowings were outstanding. Tripos' bank granted waivers for covenant violations relating to minimum EBITDA and Shareholders' Equity for the quarters ended March 31, June 30, and September 30, 2000.

(7)   Series B Preferred Stock

On February 4, 2000, Tripos issued 409 shares of Series B Preferred Stock for an aggregate purchase price of $9,000. Cumulative dividends of $1.10 per share per annum are payable upon the earlier of the conversion
or redemption of such share. Each share of preferred stock may be converted, at the option of the holder, into one share of Tripos' common stock. The preferred stock is mandatorily redeemable at the option of the holder at a price of $22 per share plus
accreted dividends on February 4, 2005 provided that the holder has provided notice of its intention to have its shares redeemed on or prior to February 4, 2004.

(8)   Recent Accounting Pronouncements

In June 1998, the Financial Accounting Standards Board issued Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("FAS 133"), which is required to be adopted in years beginning after
June 15, 1999. The FASB has since delayed the effective date until years beginning after June 15, 2000, with the issuance of FAS No. 137, "Accounting for Derivative Instruments and Hedging Activities-Deferral of the Effective Date of FAS No. 133". FAS 133
permits early adoption as of the beginning of any fiscal quarter after its issuance. Tripos expects to adopt the new Statement effective January 1, 2001. FAS 133 will require us to recognize all derivatives on the balance sheet at fair value. We have not
yet determined what the effect FAS 133 will be on earnings and financial position.

Page 8

Item 1. Financial Statements (continued)

In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101 ("SAB 101") on revenue recognition. SAB 101 was to take effect in January 2000 but has been
delayed by the Commission until the fourth quarter of 2000. Tripos expects to adopt the provisions of SAB 101 for its fourth quarter activity and does not expect this adoption to have a material impact on its revenues or earnings.

(9)   Subsequent Events

On October 16, 2000, Tripos announced that it had entered into an agreement with Lion bioscience AG to jointly develop a cheminformatics and bioinformatics discovery platform for Bayer AG. This contract will
include payments to Tripos for a technology license fee, ongoing R&D funding and milestones. The total estimated revenue of $25 million is to be shared by Tripos and Lion. For a further discussion of the announcement, see Tripos' Form 8-K filed with
the Securities and Exchange Commission on October 16, 2000.



Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Forward-looking Statements

The remainder of this report may contain certain statements that are forward-looking and involve risks and uncertainties. Words such as "expects", "anticipates", "projects", "estimates", "intends", "plans",
"believes", variations of such words and similar expressions are intended to identify such forward looking statements. These statements are based on current expectations and projections made by management and are not guarantees of future performance.
Therefore, actual events, outcomes and results may differ materially from what is expressed or forecast in such forward-looking statements. We have identified certain factors that could cause actual results to differ materially from the forward-looking
statements in our Annual Report on Form 10-K, our Quarterly Reports on Form 10-Q, and our current Report on Form 8-K. We undertake no obligation to update any forward-looking statements in this Form 10-Q.



Overview

Tripos, Inc. is a leading provider of an integrated array of discovery software, software consulting services, and discovery research services to the pharmaceutical, biotechnology, agrochemical, and other life
sciences industries. Tripos combines information technology and scientific research to optimize and accelerate molecular research for the discovery of new products by its clients.

Tripos generates its revenues from a diversified offering of products and services. Our foundation is the software license and support products we sell to the life sciences industries. Over 80% of software license
revenues are sold to the pharmaceutical and biotechnology industries; however, no single customer represents more than 10% of revenues to Tripos. Tripos licenses its software and support in the form of one to three year renewable contracts for any of its
more than 50 software modules available for sale.

Tripos' integration of chemistry and biological data in the life sciences industries creates a revenue stream for software consulting services. Tripos maintains a staff of specialists who use its proprietary data
integration framework to configure customized solutions for data management. Revenue is generated on a billable rate per day and is recognized as services are performed.

Tripos leverages its expertise in chemical compound library design technology to develop and manufacture general screening libraries for sale to the life sciences industries. Its current library of over 70,000 highly
pure and diverse compounds, is marketed under the name LeadQuestTM.

Tripos' sale and manufacture of chemical compound libraries has created the opportunity to offer follow-up contract research services to customers for design and synthesis of focused libraries for lead optimization. A
contract of this nature may be derived from the follow-up of positive biological activity in a LeadQuest compound sold to a customer or may come from compounds originated by the customer.

In 2000, Tripos began to market a comprehensive research process to its life sciences customers for rapid and cost effective discovery. The process combines advanced informatics, chemistry and biology products and
services, and proprietary discovery technologies for efficient lead development, refinement, and optimization. Tripos will also

Page 9



Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

(Continued)

work with its collaborators to achieve the milestones associated with this type of contract. These multi-million dollar contracts may include royalties and milestones. In June 2000, Tripos signed its first major contract to provide
these comprehensive services with Lipha S.A., a pharmaceutical subsidiary or Merck KgaA. Under this agreement, Tripos utilizes a wide range of its technologies, including its molecular design and informatics capabilities, to create novel drug candidate
libraries and implemented a web-based informatics system to provide Lipha with real-time access to project data and results.

In February 2000, Tripos entered into a strategic alliance with LION Biosciences AG to integrate LION's bioinformatics with Tripos' cheminformatics expertise. The companies intend to jointly market their products and
services to the life sciences industry. As part of this alliance, LION made a $9.0 million investment in convertible preferred stock of Tripos. These funds are being used for general corporate purposes.

Late in 1999, Tripos created a strategic alliance with Cyprotex, a newly formed company whose focus is development of in-vitro screens and data modeling capabilities to predict biological reactions of new chemical
entities. These reactions are essential in determining the survival of new drug candidates. Tripos and Cyprotex will jointly market their services to the drug discovery market.

Tripos also acts as a reseller of computer hardware in conjunction with software sales. Hardware sales are generally made to facilitate integration of Tripos' software into customer research activities and are not a
focus of Tripos' sales activities. Tripos acts merely as an authorized reseller for a single vendor and does not maintain any inventory. Accordingly, margins on these sales are relatively modest.

Tripos licenses its discovery software tools to customers, provides ongoing support, including upgrades selected by customers, and provides consulting services to its customers that enable integration of Tripos'
discovery tools to customers' discovery operations. Certain long-term software licenses may, subject to certain rules of SOP 97-2 and SOP 98-4, be recognized over the life of the contract. Tripos generally expenses its research and development costs
associated with software enhancements and new software tools. Thus, a significant portion of the costs associated with development and enhancement of software is accounted for as research and development and not as a cost of software sales.

Tripos has staffed its worldwide operations to efficiently execute its current business plan. The quarterly expenses include the fixed costs of research and development for software development, software consulting
services, and variable costs of contract research. Tripos believes that its selling and administrative costs will remain constant on a quarterly basis. Variability in quarterly expenses primarily occurs in relation to the level of revenues for sales
compensation, performance bonuses, third party R&D services and software consulting service contracts.

Over the past two years Tripos has used its capital resources to fund investments in the building of chemistry production facilities, chemical compound library inventories, collaborative drug discovery programs,
staffing new business segments, and investments in Arena Pharmaceuticals. In the future, Tripos expects to dedicate available cash to maintain capital infrastructure and conduct operations.

Tripos' revenues and expenses vary from quarter to quarter depending upon, among other things, the timing of customers budget processes, the success of our sales efforts, the lengthy sales cycle and Tripos' ability to
influence customers and prospective customers to make decisions to outsource portions of their discovery process, the size of the customers' capital expenditure budgets, the ability to produce compound libraries in a timely manner, market acceptance of
new products and enhanced versions of existing products, the timing of new product introductions by Tripos and other vendors, changes in pricing policies by Tripos, partners and other vendors, consolidation in customer base, and changes in general
economic and competitive conditions. In addition, Tripos may choose to negotiate a long-term software license contract that may, subject to certain rules of SOP 97-2 and SOP 98-4, be recognized ratably over the life of the contract. See Note 1 of the
Notes to Consolidated Financial Statements for the year ended December 31, 1999 for a further discussion of revenue recognition policies. A substantial portion of revenues for each quarter is attributable to a limited number of orders and tends to be
realized toward the end of each quarter. Thus, even short delays or deferrals of sales near the end of a quarter can cause quarterly results to fluctuate substantially. Tripos' quarterly results can be affected by the mix of its revenue components.

Page 10

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

(Continued)

Results of Operations

Net sales for the third quarter of 2000 were $5,702 compared to $5,507 in 1999. The Company experienced an increase in discovery service revenues that was partially offset by decreases in hardware and software
related revenues in the quarter.

For the three months ended September 30, 2000, software licenses sales decreased 8% to $2,193. Software revenues were adversely affected by delays in negotiations of new token license sales into the fourth quarter
coupled with strong European sales in the third quarter of 1999. Support revenues decreased 5% to $1,897 compared to the third quarterly period in 1999.

Discovery Services sales accounted for $1,448 in the third quarter of 2000 and $817 in the same period in 1999 reflecting work performed on contracts such as the Lipha lead discovery project. Hardware sales decreased by 45% to $164 for
the third quarter 2000.

For the nine months ended September 30, 2000, software licenses sales increased 8% to $6,415. Support revenues decreased 7% to $5,714 compared to the same nine-month period in 1999. Discovery Services sales accounted
for $2,924 for the nine-month year-to-date period in 2000 and $3,709 for the same period in 1999. Hardware sales decreased by 43% to $1,123 for the nine-month period in 2000. Support sales have decreased primarily due to the increasing popularity of
Tripos' token-system method of selling software products. As token-system sales make up a larger share of the overall software revenue, the distinction between software license and support revenues becomes less pronounced. In the future, it will be more
appropriate to measure the changes in the combined software and support revenues rather than as separate revenue sources. The decrease in Discovery Service business is attributable to multiple large orders of promotionally priced compounds in 1999 and a
delay in entering a contract research project with Lipha S.A. in 2000. Sales to existing customers represent 86% of total net sales for the nine-month period ending September 30, 2000.

Net sales for the Company's activities outside of North America represented approximately 58% for the third quarter of 2000 compared to 53% for the same period in 1999. Net sales in Europe increased 9% in the quarter
compared to the same period in 1999 and accounted for 44% and 42% of net sales for the three-month periods in 2000 and 1999, respectively. Net sales in the Pacific Rim, principally Japan, increased 34% compared to the third quarter of 1999 and accounted
for 14% and 11% of net sales for the respective periods. Year-to-date net revenues outside of North America represented 55% in 2000 and 57% in 1999. Net sales in Europe decreased 20% for the nine-months ending September 30, 2000 and accounted for 41% of
total net sales compared to 47% in the same period in 1999. The third quarter of 1999 included two large software token sales to pharmaceutical customers as well as significant hardware sales. Year-to-date net sales in the Pacific Rim increased by 26%
over 1999 and grew to 14% of total net sales from 10% in 1999.

Cost of sales for the three-month period ending September 30, 2000 decreased 29% compared to the same period in 1999. Cost of sales was $697 and $984 for the third quarter of 2000 and 1999, respectively. Cost
of sales as a percent of net sales was 12% and 18% for the three-month periods in 2000 and 1999, respectively. Cost of sales for the nine-month period ending September 30, 2000 decreased 39% compared to the same period in 1999. Nine-month year-to-date
cost of sales was $2,635 and $4,330 for 2000 and 1999, respectively. These changes were due to decreased costs directly related to lower sales of lower margin product lines such as hardware and LeadQuest compounds, compared to the prior year. Costs to
perform Discovery Service contract research are classified as R&D expense.

Gross profit margin percentage for the third quarter 2000 increased to 88% from 82% of total net sales in the third quarter of 1999. For the nine-months year-to-date, gross margin increased to 84% from 76% in
the same period in 1999. These increases in gross profit percentage are due to the decreases in cost of sales described above.

Sales and marketing expenses decreased 7% to $2,294 compared to $2,477 for the three-month period in 1999. Sales and marketing expenses as a percentage of net sales were 40% and 45% for the three-month periods
in 2000 and 1999, respectively. The decrease in percent to sales is primarily due to higher net sales and lower advertising costs in the third quarter of 2000. For the nine-month period ending September 30, 2000, sales and marketing expense increased 4%
to $7,419 compared to 1999 and represented 46% and 40% of net sales, respectively.

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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

(Continued)

Research and development expenses increased to $2,706 from $2,009 and represented 47% and 36% of net sales for the three-month periods in 2000 and 1999, respectively. Nine-month year-to-date R&D expenses
increased to $7,293 in 2000 from $6,542 in 1999. The increase in expenses for the third quarter and year-to-date periods in 2000 reflects costs of performing discovery research contracts and the additions to R&D staff in anticipation of Software
Consulting Service contracts.

General and administrative expenses remained constant at $1,321 for the third quarter of 2000 compared to 1999, and represent 23% and 24% of net sales for the respective periods. For the nine-month periods in
2000 and 1999, G&A expenses were also flat at $3,792 and $3,727 which represented 23% and 21% of total net sales for the respective periods.

Other income (expense) changed from expense of $15 for the third quarter of 1999 to $245 of income for the comparable period in 2000. The nine-month period in 2000 had income of $508 compared to other expense
of $67 in 1999. These changes were due to the proceeds from investment by Lion Bioscience in the first quarter of 2000 that allowed Tripos to reduce its long-term bank debt and generate interest income from the excess funds.

Income tax benefit was $472 for the three-month and $1,489 nine-month periods in 1999, which represented an effective tax rate of 38%. No income tax benefit was recorded in 2000 due to the recognition of
a valuation allowance on the future tax benefits of net operating losses in the U.K. Management believes that the net operating loss carryforwards will be utilized in future periods. The effective tax rate utilized for the quarter and nine-month
year-to-date periods ended September 30, 2000 reflects management's current estimate of such rate for the fiscal year ending December 31, 2000.



Liquidity, Capital Resources and Capital Commitments

For the nine-month in period ending September 30, 2000, net cash used by operations was $1,014 due to depreciation ($1,492), amortization ($337), decreases in accounts and notes receivable ($5,719 and $405) which
were offset by the year-to-date net loss of $4,747, increases in inventories and prepaid expenses ($1,926 and $1,741), and a decrease in current liabilities ($1,585). In 1999, net cash used by operations came from decreases in accounts payable and accrued
expenses ($2,198), deferred revenue (1,011), and the year-to-date net loss of $2,495 offset by a decrease in trade accounts receivable of $2,864, notes receivable ($449), plus depreciation ($1,231), and amortization ($521).

Cash used by investing activities in 2000 was related to purchases of property and equipment ($1,266) needed throughout the company and an increase in the investment in the restricted stock of Arena Pharmaceuticals
(1,112) through the conversion of a note receivable and exercise of commons stock warrants. For the same period in 1999, cash used in investing activities was allocated to property and equipment mainly at Tripos Receptor Research ($4,336) and an increase
in the investment in Arena Pharmaceuticals, Inc. ($465).

Cash provided by financing activities came from the proceeds of the investment by Lion bioscience in Series B preferred shares ($8,971) and issuance of shares under Tripos' employee stock plans (1,234) offset by the
payments on long-term debt and capital leases of $5,232.

The Company anticipates that current working capital of $24,011, together with anticipated cash flows from operations, payments to be received under current and contemplated strategic partnership contracts, the $4,000
line of credit and access to equipment lease financing, will be sufficient to fund its operations for at least the next twelve months. For a description of certain factors that could adversely affect the Company's future capital requirements and the
adequacy of its available funds, including factors that are beyond the Company's control, see the discussion under the caption "Cautionary Statements-Additional Important Factors to be Considered" in the Company's Annual Report on Form 10-K for the year
ended December 31, 1999 and in the current Report on Form 8-K.



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PART II

OTHER INFORMATION

Item 1.   Legal Proceedings

The Company is not a party to any material litigation and is not aware of any threatened material litigation.

Item 2.   Changes in Securities

None

Item 3.   Defaults upon Senior Securities

None

Item 4.   Submission of Matters to a Vote of Security Holders

None



Item 5.   Other Information

Under Section 2.13 of Article II of the Company's Bylaws, any shareholder proposal submitted with respect to Tripos, Inc.'s 2001 Annual Meeting of Shareholders, which proposal is submitted outside the requirements of Rule 14a-8
under the Securities Exchange Act of 1934, will be considered untimely if notice thereof is received by the Company before February 9, 2001 or after March 11, 2001.

Item 6.   Exhibits and Reports on Form 8-K

(a) List of Exhibits

27   
 Financial Data Schedule

(b) No reports on Form 8-K were required to be filed during the period from June 30, 2000 to September 30, 2000.



TRIPOS, INC.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

TRIPOS, INC.



|Date:   November 13, 2000             |  | Date:   November 13, 2000         
|------------------------------------- |  | ----------------------------------
|                                      |  |                                   
|/s/ John P. McAlister                 |  | /s/ Colleen A. Martin             
|President and Chief Executive Officer |  | Chief Financial Officer, Secretary

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