###### FORM 10-Q

** **

**UNITED STATES**

###### SECURITIES ANDEXCHANGE COMMISSION

**Washington****, DC  20549**

** **

(MarkOne)

[X]**  QUARTERLYREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE**

**SECURITIES EXCHANGE ACTOF 1934**

or

[  ]  **TRANSITIONREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE**

**SECURITIES EXCHANGE ACTOF 1934**

###### For the quarterlyperiod ended March 31, 2007

** **

###### Commission FileNumber 0-23666

**TRIPOS, INC.**

(Exact Name ofRegistrant 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 PrincipalExecutive Offices and Zip Code)

** **

**(314) 647-1099**

(Registrant's TelephoneNumber, 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 theSecurities Exchange Act of 1934 during the preceding 12 months (or for suchshorter period that the registrant was required to file such reports), and (2)has been subject to such filing requirement for the past 90 days.

Yes               No    X    

            

Indicate by check mark whether the registrant isa large accelerated filer, an accelerated filer, or a non-accelerated filer (asdefined in Rule 12b-2 of the Exchange Act).

| Large accelerated  filer  ___ | Accelerated filer  ___ | Non-accelerated filer   _X |
|------------------------------------|-----------------------------|---------------------------------|

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

Number of shares outstanding of the issuer'sCommon Stock, par value $.01 per share, as of June 11, 2007:****10,392,835shares.

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**TRIPOS,INC.**

###### TABLE OF CONTENTS

|                                                                                                                                                                                                                                                                | **Page** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------|
| **PART  I  FINANCIAL INFORMATION**                                                                                                                                                                                                                        |          |
| **Item  1.  Financial Statements**                                                                                                                                                                                                                        |          |
|     Consolidated Statement of Net Assets in Liquidation as of March 31, 2007    (Unaudited)                                                                                                                                                | 4        |
|     Consolidated Statement of Changes in Net Assets in Liquidation for the period  from 	        March 16, 2007 through March 31, 2007 (Unaudited)                                                                     | 5        |
|     Consolidated Balance Sheet (Going Concern Basis) as of December 31, 2006                                                                                                                                                                         | 6        |
|     Consolidated Statements of Operations (Going Concern Basis) for the  period from  January 1, 2007 through 	       March 15, 2007 (Unaudited) and for the three-months  ended  March 31, 2006 (Unaudited) | 7        |
|   Consolidated  Statements of Cash Flows (Going Concern Basis) for the period from  January 1, 2007 through	      March 15, 2007 (Unaudited) and for the three-months  ended  March 31, 2006 (Unaudited)                    | 8-9      |
|   Notes  to Consolidated Financial Statements (Unaudited)                                                                                                                                                                                            | 10-25    |
|                                                                                                                                                                                                                                                                |          |
| **Item  2. Management's Discussion and Analysis of Financial Condition and  Results of Operations**                                                                                                                                                            | 26-36    |
| **Item  3. Quantitative and Qualitative Disclosures about Market Risk**                                                                                                                                                                                        | 36       |
| **Item  4. Controls and Procedures**                                                                                                                                                                                                                           | 37       |
|                                                                                                                                                                                                                                                                |          |
| **PART  II  OTHER INFORMATION**                                                                                                                                                                                                                           | 38       |
| **SIGNATURES**                                                                                                                                                                                                                                                 | 39       |

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**INTRODUCTORY NOTE**

As further described in Note 1 of theaccompanying consolidated financial statements, on March 20, 2007, Tripos, Inc.("Company") consummated the sale of substantially all of the assets of itsDiscovery Informatics business unit.  This sale was approved by shareholders ata special meeting held on March 15, 2007. 

On June 6, 2007, Tripos Discovery Research LTD("TDR"), the principal operating subsidiary of Tripos, Inc. ("Tripos") enteredinto a series of  agreements with the South West of England RegionalDevelopment Agency ("SWERDA") and the Department of Trade and Industry ofEngland ("DTI") in connection with the sale-lease back of TDR's principalfacility in Bude, Cornwall, England (the "Property").  Shortly thereafter, onJune 6, 2007, Tripos and Commonwealth Biotechnologies, Inc. ("CBI") enteredinto an Amended and Restated Share Purchase and Sale Agreement (the "AmendedAgreement") pursuant to which CBI acquired all of the capital stock of TDR. The Amended Agreement superseded a Purchase and Sale Agreement dated as of May11, 2007 between the parties.  The sale of the discovery research products andservices business closed contemporaneously with the execution of the AmendedAgreement.  As the result of these agreements, Tripos has completed thedisposition of its last operating business and has realized or will realize upto $2.15 million in consideration for the shares or in repayment of outstandingintercompany advances.  Tripos has also been relieved of potential obligationsto repay up to GBP2.84 million to SWERDA and DTI.  These transactions are partof the planned liquidation of Tripos approved by stockholders in March, 2007.

In the second quarter, the Company will reflectits relief from full obligation to the DTI by reducing the payment obligationto the actual amount paid of GBP591,000 instead of the recorded amount of GBP1,540,000. An estimate of the Net Assets in Liquidation for second quarter, after givingeffect to the provision for income taxes of $3.2 million as described below, isas follows:

| Net assets in liquidation at 3/31/2007                |  | $ 5,063,000 |
|-------------------------------------------------------|--|------------------|
| Reduction of DTI grant repayment obligation  (in USD) |  | 1,868,000        |
| Estimated net assets in liquidation 6/30/2007         |  | $ 6,941,000 |

TheCompany will update asset and liability balances at June 30, 2007 to reflectthe sale of TDR on June 6, 2007, for second quarter activity, for adjustments,if any, to the income tax provision, and for changes in estimates to liquidatethe Company.  Therefore, the Company is not currently in a position to assureits common shareholders whether the amounts ultimately distributed to commonstockholders in liquidation will approximate the estimated net assets inliquidation at June 30, 2007, or any adjustments to estimated net assets that maybe included in future filings. 

We continue to evaluate the tax effects of therecent sales of our Discovery Informatics and Discovery Research businesses.Final determination of the tax consequences depends upon the analysis of taxlaws in the United States, England, France, and Germany and on the availabilityof tax loss carryforwards in these jurisdictions.  Based on information andadvice recently obtained and yet to be finalized, we are unable to make adefinitive determination that  tax loss carryforwards for U.S. federal incometax purposes will be sufficient to shelter all gains in the United States. This is primarily due to an uncertainty about whether ownership changes (forfederal income tax purposes) have caused the availability of net operating losscarryforwards and losses realized on the sale of TDR to be limited.  Ourfederal income tax return for 2006 is not due until September 15, 2007, uponwhich Tripos must report whether there were any ownership changes in 2006. Based on current information, we have recorded a tax provision of $3.2 million inour March 31, 2007 financial statements.  Prior to effecting our initialliquidating distribution, currently planned for October 2007, we will need todetermine with greater certainty the position to be taken on our 2007 Federalincome tax return.  Our current expectation is that we will likely need to holdback from the distribution (potentially for a several year period) an amountapproximating the tax reserve described above.  We cannot at this time assurestockholders that we will not be required to use this reserve to pay taxes inthe U.S. and other jurisdictions.

This Quarterly Report describes the financialresults of the Company for the reported periods.  As a result of the stockholders'approval of the Company's plan of liquidation and dissolution, the Company hasadopted the liquidation basis of accounting effective March 16, 2007.

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**PARTI**

##### FINANCIALINFORMATION

** **

**Item1.  Financial Statements.**

** **

**TRIPOS, INC.**

**CONSOLIDATED STATEMENTOF NET ASSETS IN LIQUIDATION**

**(In thousands, exceptper share data)**

** (Unaudited)**

|                                                                                  |       | Mar. 31, 2007       |
|----------------------------------------------------------------------------------|------------|---------------------|
| ASSETS                                                                           |            |                     |
|    Cash  and cash equivalents                                     | ** ** | $ 14,775  |
|    Restricted  Cash                                               | ** ** | 14             |
|    Accounts  receivable                                           | ** ** | 219            |
|    Prepaid  expenses                                              | ** ** | 1,652          |
|    Property  and equipment, less accumulated depreciation         | ** ** | 3,765          |
|    Assets  of discontinued operations                             | ** ** | 10,099         |
|         Total assets                               | ** ** | $ 30,524  |
|                                                                                  | ** ** |                     |
| LIABILITIES                                                                      |
|    Accounts  payable                                              | ** ** | 1,707          |
|    Accrued  expenses                                              | ** ** | 658            |
|     Accrued liquidation costs                                          | ** ** | 4,405          |
|     Income taxes payable                                               | ** ** | 3,041          |
|     Common stock warrants                                              | ** ** | 118            |
|     Redeemable convertible preferred stock, $.01 par value, authorized | ** ** |                     |
|     1,833 shares, issued 1,833 shares in 2006                          | ** ** | 5,500          |
|     Liabilities of discontinued operations                             | ** ** | 10,032         |
|        Total liabilities                                | ** ** | $ 25,461       |
|                                                                                  | ** ** |                     |
|                                                                                  | ** ** |                     |
| Net  Assets in Liquidation                                                       | ** ** | $ 5,063   |
|                                                                                  |            |                     |

*Seeaccompanying notes.*

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**Item1.  Financial Statements (continued)**

**TRIPOS, INC.**

**CONSOLIDATED STATEMENTOF CHANGES IN NET ASSETS IN LIQUIDATION**

**(In thousands, exceptper share data)**

**(Unaudited)**

** **

|                                                                                                      |       | Period from   Mar. 16, 2007 through   Mar. 31, 2007 |
|------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------|
|                                                                                                      |       | ** **                                          |
| Stockholders'  deficit at March 15, 2007                                                             | ** ** | $ (13,292)                                     |
|                                                                                                      | ** ** |                                                     |
| Effects  of adopting a liquidation basis of accounting:                                              | ** ** |                                                     |
|      Accrual of liquidation costs                                                     | ** ** | (7,365)                                             |
|      Adjustment of assets to estimated realizable values                              | ** ** | 28,873                                         |
|          Net effect of adopting a liquidation basis of accounting | ** ** | 21,508                                         |
|                                                                                                      | ** ** |                                                     |
| Net  assets in liquidation at March 16, 2007                                                         | ** ** | 8,216                                          |
|                                                                                                      | ** ** |                                                     |
| Changes  in net assets in liquidation:                                                               | ** ** |                                                     |
|     Corporate and liquidation operating activity                                           | ** ** | 1,422                                          |
|     Discovery research operating activity                                                  | ** ** | 284                                            |
|     Settlement of assets and liabilities in liquidation                                    | ** ** | (4,859)                                             |
|                                                                                                      | ** ** |                                                     |
|         Net change in net assets in liquidation                        | ** ** | (3,153)                                             |
|                                                                                                      | ** ** |                                                     |
| Net  assets in liquidation at March 31, 2007                                                         | ** ** | $ 5,063                                   |
|                                                                                                      | ** ** |                                                     |

*See accompanying notes.*

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**Item1.  Financial Statements (continued)**

** **

**TRIPOS, INC.**

**CONSOLIDATED BALANCESHEET**

**(In thousands, exceptper share data)**

** **

|                                                                                                                                     | **Dec. 31, 2006**   |
|-------------------------------------------------------------------------------------------------------------------------------------|---------------------|
| Current  assets:                                                                                                                    |                     |  |
|    Cash  and cash equivalents                                                                                        | $ 2,157   |
|     Restricted cash                                                                                                       | 14             |
|    Accounts  receivable, less allowance for doubtful accounts of $192                                                | 8,573          |
|    Prepaid  expenses                                                                                                 | 2,423          |
|    Current  assets of discontinued operations                                                                        | 5,121          |
|         Total  current assets                                                               | 18,288         |
| Property  and equipment, less accumulated depreciation                                                                              | 5,084          |
| Capitalized  development costs, net of accumulated amortization of $3,366                                                           | 2,237          |
| Goodwill                                                                                                                            | 4,308          |
| Intangible  assets, less accumulated amortization of $1,065                                                                         | 3,068          |
| Deferred  income taxes                                                                                                              | 171            |
| Other,  net of accumulated amortization of $164                                                                                     | 464            |
| Long-term  assets of discontinued operations                                                                                        | 54             |
|         Total  assets                                                                       | $ 33,674  |
| * *                                                                                                                            |                     |  |  |
| **Liabilities  and shareholders' equity:**                                                                                          |                     |
| Current  liabilities:                                                                                                               |                     |  |
|    Short-term  debt                                                                                                  | $ 9,845   |
|    Capital  lease obligations                                                                                        | 181            |
|    Accounts  payable                                                                                                 | 1,383          |
|    Accrued  expenses                                                                                                 | 6,281          |
|    Deferred  income taxes                                                                                            | 22             |
|    Deferred  revenue                                                                                                 | 14,740         |
|    Current  liabilities of discontinued operations                                                                   | 4,169          |
|         Total  current liabilities                                                          | 36,621         |
|                                                                                                                                     |                     |  |  |
|    Common  stock warrants                                                                                            | 107            |
|    Long-term  liabilities of discontinued operations                                                                 | 2,060          |
| Total  liabilities                                                                                                                  | 38,788         |
|                                                                                                                                     |                     |
| Redeemable  convertible preferred stock, $0.01 par value,      authorized and issued 1,833 shares                    | 3,932          |
|                                                                                                                                     |                     |  |  |
| Shareholders'  equity                                                                                                               |                     |  |
|    Common  stock, $.01 par value; authorized 20,000 shares;      issued and outstanding 10,393 shares | 104            |
|    Additional  paid-in capital                                                                                       | 42,560         |
|    Retained  deficit                                                                                                 | (50,051)            |
|    Other  comprehensive deficit                                                                                      | (1,659)             |
|         Total  shareholders' equity                                                         | (9,046)             |
|         Total  liabilities and shareholders' equity                                         | $ 33,674  |

* *

*Seeaccompanying notes.*

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**Item1.  Financial Statements (continued)**

**TRIPOS, INC.**

**CONSOLIDATED STATEMENTSOF OPERATIONS**

**(In thousands, exceptper share data)**

**(Unaudited)**

|                                                                                                                                                                    | **Period from   Jan. 1, 2007 through   Mar. 15, 2007** | Three-Months Ended   Mar. 31, 2006 |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------------------------------------------------|------------------------------------|
| Net  sales:                                                                                                                                                        | ** **                                             |                                    |
|    Discovery  informatics licenses and support                                                                                                      | **$ 4,531 **                                 | $ 5,883                  |
|    Discovery  informatics services                                                                                                                  | ** 1,090 **                                  | 744                           |
|    Hardware                                                                                                                                         | **14 **                                           | 17                            |
|         Total net sales                                                                                                              | **5,635 **                                        | 6,644                         |
|                                                                                                                                                                    | ** **                                             |                                    |
| Cost  of sales                                                                                                                                                     | **2,349 **                                        | 1,958                         |
|         Gross profit                                                                                                                 | **3,286 **                                        | 4,686                         |
|                                                                                                                                                                    | ** **                                             |                                    |
| Operating  expenses:                                                                                                                                               | ** **                                             |                                    |
|    Sales  and marketing                                                                                                                             | **1,831 **                                        | 2,805                         |
|    Research  and development                                                                                                                        | **1,151 **                                        | 1,921                         |
|    General  and administrative                                                                                                                      | **1,600 **                                        | 1,417                         |
|    Restructuring  charge                                                                                                                            | **155 **                                          | 120                           |
|         Total operating expenses                                                                                                     | **4,737 **                                        | 6,263                         |
|                                                                                                                                                                    | ** **                                             |                                    |
| Loss  from operations                                                                                                                                              | ** (1,451)**                                      |  (1,577)                      |
|                                                                                                                                                                    | ** **                                             |                                    |
| Interest  expense                                                                                                                                                  | **(480)**                                              | (333)                              |
| Other  income (expense), net                                                                                                                                       | **(608)**                                              | 279                           |
| Loss  before income tax expense (benefit)                                                                                                                          | **(2,539)**                                            | (1,631)                            |
| Income  tax expense (benefit)                                                                                                                                      | **48 **                                           | (218)                              |
| Net  loss from continuing operations                                                                                                                               | ** (2,587)**                                      |  (1,413)                      |
| Preferred  dividends                                                                                                                                               | **977 **                                          | --                            |
| Net  loss from continuing operations allocable   to common shareholders                                                                                            | ** (3,564)**                                      |  (1,413)                      |
| Loss  from discontinued operations, net of income tax      benefit of $0 and $0, respectively, allocable to common      shareholders | **(1,840)**                                            | (2,273)                            |
| Net  loss allocable to common shareholders                                                                                                                         | **$ (5,404)**                                     | $ (3,686)                     |
|                                                                                                                                                                    | ** **                                             |                                    |
| Basic  & diluted loss from continuing operations, per share                                                                                                    | **$ (0.34)**                                           | $ (0.14)                           |
| Basic  & diluted loss from discontinued operations, per share                                                                                             | **$ (0.18)**                                           | $ (0.22)                           |
| Basic  & diluted loss allocable to common shareholders, per share                                                                                         | **$ (0.52)**                                           | $ (0.36)                           |
| Basic  and diluted weighted average number of shares                                                                                                               | **10,393 **                                       | 10,190                        |

*See accompanying notes.*

** **

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**Item1.  Financial Statements (continued)**

** **

**TRIPOS, INC.**

**CONSOLIDATED STATEMENTSOF CASH FLOWS**

**(In Thousands)**

**(Unaudited)**

|                                                                                    | **Period from   Jan. 1, 2007 through  Mar. 15, 2007** | Three-Months Ended   Mar. 31, 2006 |
|------------------------------------------------------------------------------------|-------------------------------------------------------|------------------------------------|
| **Operating  activities:**                                                         | ** **                                            |                                    |
| Net  loss from continuing operations                                               | **$ (2,587)**                                         | $ (1,413)                     |
| Adjustments  to reconcile net loss to  net cash used in operating activities:      | ** **                                            |                                    |
| Net  loss from discontinued operations                                             | ** (1,840)**                                     | $ (2,273)                     |
|    Depreciation  of property and equipment                          | **200 **                                         | 253                           |
|    Amortization  of capitalized development costs & intangibles | **314 **                                         | 303                           |
|    Amortization  of debt discount                                   | **44 **                                          | 63                            |
|    Amortization  of deferred issuance costs                         | **62 **                                          | --                            |
|    Deferred  income taxes                                           | **-- **                                          | --                            |
|    Write-down  (carrying value adjustment) of long-term investment  | **-- **                                          | (16)                               |
|    Loss  on retirement of assets                                    | **48 **                                          | --                            |
|    Stock-based  compensation expense                                | **-- **                                          | 94                            |
|                                                                                    | ** **                                            |                                    |
| Change  in operating assets and liabilities:                                       | ** **                                            |                                    |
|    Accounts  receivable                                             | **5,487 **                                       | 4,629                         |
|    Prepaid  expenses and other current assets                       | **(2,177)**                                           | (786)                              |
|    Accounts  payable and accrued expenses                           | **487 **                                         | (599)                              |
|    Deferred  revenue                                                | **(1,253)**                                           | (1,611)                            |
| Net  cash provided by discontinued operations operating activities                 | **312 **                                         | 1,272                         |
| Net  cash used in operating activities                                             | **(903)**                                             | (84)                               |
|                                                                                    | ** **                                            |                                    |
| **Investing  activities:**                                                         | ** **                                            |                                    |
| Purchases  of property and equipment                                               | **-- **                                          | (19)                               |
| Capitalized  development costs                                                     | **(128)**                                             | (235)                              |
| Change  in intangibles and patents                                                 | **(47)**                                              | --                            |
| Net  cash provided by (used in) discontinued operations investing activities       | **(43)**                                              | 2,848                         |
| Net  cash provided by (used in) investing activities                               | **(218)**                                             | 2,594                         |

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**Item1.  Financial Statements (continued)**

** **

**TRIPOS, INC.**

**CONSOLIDATED STATEMENTSOF CASH FLOWS**

**(In Thousands)**

**(Unaudited)**

|                                                                             | **Period from   Jan. 1, 2007   through  Mar. 15, 2007** | Three-Months Ended   Mar. 31, 2006 |
|-----------------------------------------------------------------------------|---------------------------------------------------------|------------------------------------|
|                                                                             | ** **                                              |                                    |
| **Financing  activities:**                                                  | ** **                                              |                                    |
| Borrowings  under revolving line of credit                                  | **1,450 **                                         | 1,400                         |
| Payments  on long-term debt and capital lease obligations                   | **(161)**                                               | (3,527)                            |
| Net  cash used in discontinued operations financing activities              | **(911)**                                               | (1,160)                            |
| Net  cash provided by (used in) financing activities                        | **378 **                                           | (3,287)                            |
| Effect  of foreign exchange rate changes on  cash and cash equivalents      | **1,071 **                                         | (236)                              |
| Net  increase (decrease) in cash and cash equivalents                       | **328 **                                           | (1,013)                            |
|                                                                             | ** **                                              |                                    |
| Cash  and cash equivalents at beginning of period - continuing operations   | **2,157 **                                         | 4,393                         |
| Cash  and cash equivalents at beginning of period - discontinued operations | **605 **                                           | 1,848                         |
| Cash  and cash equivalents at beginning of period                           | **2,762 **                                         | 6,241                         |
|                                                                             | ** **                                              |                                    |
| Cash  and cash equivalents at end of period - continuing operations         | **3,061 **                                         | 2,942                         |
| Cash  and cash equivalents at end of period - discontinued operations       | **29 **                                            | 2,286                         |
| Cash  and cash equivalents at end of period                                 | **$ 3,090 **                                       | $ 5,228                  |
|                                                    | ** **                                              |                                    |

*See accompanying notes.*

* *

** **

**Supplemental Disclosure of Cash Flow Information(In Thousands)**

| ** **                                                 | **Period from   Jan. 1, 2007  through  Mar. 15, 2007** | Three-Months Ended   Mar. 31, 2006 |
|------------------------------------------------------------|--------------------------------------------------------|------------------------------------|
| **Noncash investing activities**                           | ** **                                             |                                    |
| Purchase of new equipment through capital  lease financing | ** 498**                                          | 3,108                              |

*See accompanying notes.*

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**Item 1.  Financial Statements (continued)**

** **

**TRIPOS, INC.**

**NOTES TO UNAUDITEDCONSOLIDATED FINANCIAL STATEMENTS**

**(In thousands, exceptper share data)**

**(1)     Descriptionof Business and Summary of Significant Accounting Policies**

#### Organization

Tripos, Inc. ("Company") was formed in 1979 tocommercialize software for molecular visualization, analysis and design.  Inbuilding its discovery informatics solutions, the Company focused on developingan integrated suite of offerings at the leading edge of scientific research. In addition to its discovery informatics product and service offerings, theCompany engaged in chemistry research enhanced by informatics capabilities toproduce high-value products and services that directly impacted its customers'discovery research.  In certain cases with customers, these capabilitiescreated opportunities for the Company to participate in research collaborations,which provided the potential for milestones and/or royalty interests inearly-stage new drug candidates. 

The Company's business model is based primarilyon deriving revenues from its Discovery Informatics (DI) and Discovery Research(DR) business units as follows:

•        *DiscoveryInformatics Products and Services.*  The SYBYL® and UNITY®software suites were the foundation of our discovery informatics product(software) offerings.  These suites provided integrated tools forcomputer-aided molecular modeling and visualization, virtual screening, combinatoriallibrary design, data storage and analysis, and structure-activity relationshipsto customers in pharmaceutical, biotechnology and related life science fieldsof research.  The Company offered over fifty (50) software products for theseresearch areas.  Key components of theseproducts were packaged as web services as part of Tripos' Service-OrientedInformatics strategy, designed to make the Company's valuable discovery toolsadaptable to each scientist's workflow in the new rapidly evolving informaticsenvironment.  In 2005, the Company launched the Windows®-basedBenchwareTM suite, used by laboratory researchers to supportsynthesis and testing decisions; digitally store, search and retrieve researchinformation; and share experimental results with project team members,including computational scientists.  These products and technologieswere provided to customers through a license arrangement, while certain of theenterprise-wide technologies also involved systems integration and otherservices to facilitate a smooth implementation.  Customized software developmentprojects also were an avenue to assist customers to resolve specific researchissues that require new scientific methods, techniques and analytical tools.

•        *DiscoveryResearch Products and Services.*Tripos Discovery Research Centre, based in the United Kingdom, offered compound design and synthesis, molecular analysis, a complete suiteof lead discovery and lead optimization capabilities and newly introducedtarget-specific chemical libraries on which Tripos applied for patentprotection (LeadDiscovery libraries).  The Company offeredoff-the-shelf libraries of compounds sold for pharmaceutical screeningpurposes.  The Company also participated with its customers in strategicchemistry research projects, primarily on a fee for service basis.  In a fewcases, the transfer of intellectual property rights for these therapeuticcollaborations included royalty or milestone payments associated withadvancement of the compounds through various stages of drug development.  Inaddition, Tripos' newly introduced target-specific libraries were intended tobe a platform for our further collaborative development with clients.

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**Item 1.  Financial Statements (continued)**

####  

#### Organization

The Company had a geographically diversecustomer base.  Historically, approximately 50% of its revenues were derivedfrom customers outside of North America.  The Company's worldwide sales forceoperated from offices in the United States, Canada, England, France, and Germany, and through representatives around the Pacific Rim.  The Company's headquartersis in St. Louis, Missouri and its chemistry laboratory is in Bude, England.

On March 20, 2007, the Company consummated thesale of substantially all of the assets of the Company's DI business unit toTripos (Cayman) LP, a Cayman Islands limited partnership, pursuant to an AssetPurchase Agreement dated November 19, 2006.  Tripos (Cayman) is controlled byVector Capital, LLP ("Vector"), a San Francisco-based private equity boutique. The cash consideration received by the Company at closing for the purchase ofDI was $26,175 in immediately available funds, comprising $25,600 of baseconsideration and an additional $575 as a result of a positive purchase priceadjustment based on the working capital of the business on the date of closingand determined after negotiations with Vector concerning certain items disputedby Vector.  The parties have resolved any further disputes and have agreed thatthe final purchase price will not be subject to any post-closing adjustmentprocess.

In connection with the consummation of thetransactions contemplated by the Asset Purchase Agreement, on March 20, 2007the Company, Vector and Tripos (DE), Inc., ("DE") a newly formed subsidiary ofTripos (Cayman), (together, the "Buyers") entered into a Transition ServicesAgreement.  Each of the Buyers is controlled by the Purchaser.  Pursuant to theTransition Services Agreement, the Buyers have agreed to render certainadministrative services to the Company related to facilitate the liquidation ofTripos, Inc. and the Company shall render certain administrative services tothe Buyers for the operation of the purchased DI.  The agreement will terminatewith respect to each service 180 days after March 20, 2007 (unless earlierterminated by the recipient of such service).

In connection with the consummation of thetransactions contemplated by the Asset Purchase Agreement, on March 20, 2007the Company and DE entered into an office lease for a portion of the officebuilding located at 1699 South Hanley Road, St. Louis, Missouri, totaling 29square feet.  The lease shall terminate on the first anniversary of itscommencement unless sooner terminated by either party upon 90 days writtennotice.  The annual rent under the office lease is $645, payable in equal monthlyinstallments of $54.  The Company may sell, transfer or otherwise assign itsownership of the building, provided that the new owner assumes the Company'sobligations under the office lease. 

On June 6, 2007, Tripos Discovery Research LTD  ("TDR"), the principal operating subsidiary of Tripos, Inc. ("Tripos")  entered into a series of agreements with the South West of England Regional  Development Agency ("SWERDA") and the Department of Trade and Industry of  England ("DTI") in connection with the sale-lease back of TDR's principal  facility in Bude, Cornwall, England (the "Property").  Shortly thereafter, on  June 6, 2007, Tripos and Commonwealth Biotechnologies, Inc. ("CBI") entered  into an Amended and Restated Share Purchase and Sale Agreement (the "Amended  Agreement") pursuant to which CBI acquired all of the capital stock of TDR.   The Amended Agreement superseded a Purchase and Sale Agreement dated as of  May 11, 2007 between the parties.  The sale of the discovery research  products and services business closed contemporaneously with the execution of  the Amended Agreement.  As the result of these agreements, Tripos has  completed the disposition of its last operating business and has realized  $350 in consideration for the shares and has received or will ultimately  receive $1,800 and GBP236 in repayment of inter-company advances.  Tripos has  also been relieved of potential obligations to repay up to GBP2,840 to SWERDA  and DTI.  A previously recorded accrued liability of GBP1,540 payable to the DTIwill be reduced in the second quarter of 2007 to reflect the actual amount tobe paid of GBP591 (a reduction of GBP949).

| 11 |
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**Item1.  Financial Statements (continued)**

 

The saleof DR is part of a process, set forth in the plan of dissolution adopted by theCompany's board of directors and recently approved by a vote of the Company'sshareholders, that is intended to result in the winding up of the Company andthe distribution of the sale proceeds to shareholders after the satisfaction ofall debts, other liabilities and corporate obligations.

Tripos expects to be delisted from the NasdaqGlobal Market, either because it is no longer an operating business or becauseof its inability to remedy certain listing standards, not later than June 28,2007.  Tripos will seek to have its shares traded on the OTC Bulletin Board(R),but cannot assure stockholders that it will accomplish this listing.  If Triposcannot identify another trading market for its stock, it would close its stocktransfer books and cannot assure that there will be any further trading ofTripos' common stock.

** **

Basisof Accounting

Effective with the shareholder approval on March 15, 2007of the plan of liquidation, the Company changed its basis of accounting fromthe going-concern basis to a liquidation basis for all periods subsequent toMarch 15, 2007.  Under the liquidation basis of accounting, assets are recordedat their estimated realizable amounts and liabilities that will be paid in fullare recorded at the present value of amounts to be paid.  Under the liquidationbasis of accounting, the net present value of the estimated remaining costs tobe incurred during liquidation (exclusive of interest expense) is accrued.  TheCompany will use estimates for professional fees, legal matters, compensationand benefits for the remaining employees, and other miscellaneous general andadministrative costs in computing the accrual of liquidation costs.  Managementexpects there to be changes made to these estimates and will recognize suchchanges in future periods as a change in net assets in liquidation.  Currentestimates are based in large part on the time required to settle all matters ofthe Company.  If there are delays, actual costs incurred during liquidation couldincrease as a result of the need for additional internal and external resources.

** **

**Basisof Presentation**

The accompanying unaudited consolidatedfinancial statements have been prepared in accordance with generally acceptedaccounting principles for interim financial information and with theinstructions to Form 10-Q and Article 10 of Regulation S-X.  Accordingly, theydo not include all of the information and footnotes required by accountingprinciples generally accepted in the United States for complete financialstatements.  In the opinion of management, all normal recurring adjustmentsnecessary for a fair presentation of such financial statements have beenincluded.  For a further description of accounting policies, please refer tothe "Description of Business and Summary of Significant AccountingPolicies" section in the Company's annual report on Form 10-K for the yearended December 31, 2006. The financial statements for periods subsequent to theadoption of the liquidation basis of accounting are not comparable to thefinancial statements for the periods prior to the adoption of the liquidationbasis of accounting.  Prior to March 16, 2007, the financial statements wereprepared on a going concern basis, which assumed continuity of operations, realizationof assets and satisfaction of liabilities in the ordinary course of business,and did not purport to show, reflect or provide for the consequences of thedissolution of the Company.

| 12 |
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**Item 1.  Financial Statements (continued)**

**CriticalAccounting Policies**

** **

**Revenue Recognition**

***Discovery Informatics Licenses andSupport***

The Company recognizes revenues in accordancewith the American Institute of Certified Public Accountants (AICPA) Statementof Position (SOP) 97-2, "Software Revenue Recognition," as amended. Revenues from software license agreements are recognized when each of thefollowing criteria is met as set forth in paragraph 8 of SOP 97-2: (1)persuasive evidence of an arrangement exists, (2) delivery has occurred, (3)the fee is fixed or determinable, and (4) collectibility is probable.

The Company allocates revenues on perpetualsoftware arrangements involving multiple elements to each element based on therelative fair values of each element.  The Company's determination of fairvalue of each element in multiple element arrangements is based onvendor-specific objective evidence (VSOE).  The Company limits its assessmentof VSOE for each element to the price charged when the same element is soldseparately by the Company.  The Company has analyzed all of the elementsincluded in its multiple-element arrangements and determined that it hassufficient VSOE to allocate revenues to maintenance and support services, andtraining.  The Company sells training separately and has established VSOE onthis basis.  VSOE for maintenance and support is determined based upon therenewal rates in contracts themselves, which is based on a fixed percentage ofthe current perpetual license list price.  Accordingly, assuming all otherrevenue recognition criteria are met, revenues from perpetual licenses arerecognized upon delivery of the software using the residual method inaccordance with SOP 98-9, "Modification of SOP 97-2, Software RevenueRecognition, with Respect to Certain Transactions." Revenues from perpetualsoftware license sales fluctuate based on the size and number of transactionscompleted during any fiscal period.

Software maintenance agreements providetechnical support and the right to unspecified enhancements and upgrades on a"when-and-if-available" basis.  Post-contract customer supportrevenues on perpetual agreements are recognized ratably over the term of thesupport period (generally one year), and training and other service revenuesare recognized as the related services are provided.  Any unrecognized portionof amounts paid or billed in advance for licenses and services is recorded asdeferred revenue.  Revenues from post-contract support are derived from salesto new customers and renewals from existing customers.

Term and bundled licenses represent time-basedlicense arrangements for one or multiple software products that are sold withmaintenance and support for the term of the license arrangement.  The Companydoes not have VSOE to determine fair value of the maintenance and support interm arrangements.  The Company recognizes revenues from these bundledtime-based licenses ratably over the license term, which is typically 1 to 3years.  Revenues from time-base license arrangements are derived from sales tonew customers and renewals from existing customers.  Historical renewal rateshave averaged over 80% the past three years.

| 13 |
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**Item 1.  Financial Statements (continued)**

** **

**CriticalAccounting Policies (continued)**

***Discovery Informatics Services***

Discovery Informatics Services (DIS) representscontracts for the development and delivery of enterprise-wide customizedsoftware (such as laboratory information systems or database integrationprojects).  Technological feasibility exists on these software arrangements andthey typically include installation at the customer's site.  The Companyaccounts for these arrangements in accordance with SOP 81-1, as required by SOP97-2 since the contract to deliver software and installation requiressignificant production, modification or customization of software.

In applying the provisions of SOP 81-1 thepercentage of completion is utilized.  For contracts where customer approval ofcontractually required tasks must occur at each distinct milestone, and whereamounts billable are indicative of progress-to-completion, we record revenueswhen a milestone has been met and accepted by the customer.  For contractswithout distinct milestones, we measure progress using the cost-to-cost method(cumulative costs as a percentage of total expected costs to complete), whichapproximates progress towards completion.

DIS also includes software development projectsthat are contractual arrangements with customers for use of Tripos softwaredevelopers in an effort to develop a scientific software tool for use in drugdiscovery.  The contractual arrangements are on a "commerciallyreasonable" basis, and the customer is subject to billings on a time andmaterials basis.  Accordingly, we record the related revenue when the time andcosts are incurred at the stated contractual rates.

*** ***

***Discovery Research Services***

Discovery Research services (DRS) include salesof chemical compounds from (1) inventory, (2) long-term contracts to design andproduce chemical compounds to customer specifications, or (3) contracts toperform discovery research activities. 

The Company recognizes revenue from the sale ofchemical compounds upon shipment of the products, FOB shipping point, to thecustomer.  This practice is consistent with the four criteria required forrevenue recognition listed in paragraph 1 of Staff Accounting Bulletin("SAB") 101 issued by the U.S. Securities and Exchange Commission("SEC").  For chemical compound transactions, persuasive evidence ofan agreement exists upon the receipt of a contract outlining the purchase andusage terms of the compounds.  A purchase order may also be received asconfirmation.  As stated above, revenue is not recognized until the compoundshave been shipped to the customer.  The selling price for compounds is fixedaccording to the terms of the contract or customer's purchase order.  Paymentterms for chemical compound transactions are Net 30 days.  The Company hasexperienced very few bad debts arising from these transactions; as a result,collectibility is reasonably assured.

In accordance with SOP 81-1, sales derived fromlong-term contracts to design and produce chemical compounds to customerspecifications are recorded using the percentage of completion method as thecompounds are delivered (under the units of delivery method).  The contractcosts related to delivered compounds are recorded to cost of sales as thecompounds are delivered and revenue is recognized.

 DRS involve lead-compound optimization projects, customsynthesis, and compound design.  These contracts generally call fornon-refundable contractual fees tied to time and materials.  Accordingly,revenues under contracts of this type are recorded on a time and material basis. When contracts to

|  14 |
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**Item 1.  Financial Statements (continued)**

** **

**CriticalAccounting Policies (continued)**

perform discovery research activities require aspecific deliverable, the direct and incremental contract costs are deferred. Revenue and the contract costs are then recorded upon delivery and acceptance.

An access fee for the LeadDiscovery programs isrecognized upon completion of a materials transfer agreement and shipment ofselected compounds to the customer for screening purposes.  Should the customerdecide to retain exclusive rights to promising compounds in the selection, anadditional fee is required.  Customers may engage Tripos for discovery researchservices to further refine the lead compound for additional fees.

** **

**Stock-Based Compensation**

EffectiveJanuary 1, 2006, the Company adopted the fair value recognition provisionsof SFAS No. 123R ("FAS 123R"), "Share-Based Payment," using themodified-prospective transition method.  Under this transition method,compensation expense was recognized beginning January 1, 2006 and includes(a) compensation expense for all share-based employee compensationarrangements granted prior to, but not yet vested as of January 1, 2006,based on the grant date fair value estimated in accordance with the originalprovisions of FAS 123, and (b) compensation expense for all share-basedemployee compensation arrangements granted subsequent to January 1, 2006,based on the grant date fair value estimated in accordance with the provisionsof FAS 123R.  See Note 10 of the Notes to Consolidated Financial Statements inthis Form 10-Q for further discussion of stock-based compensation.

** **

**IncomeTaxes**

** **

The Company accounts for income taxes inaccordance with Statement of Financial Accounting Standards No. 109 ("FAS109"), *Accounting for Income Taxes,* which prescribes the use of theasset and liability method whereby deferred tax assets or liabilities arecalculated at the balance sheet date using current tax laws and rates ineffect.  Valuation allowances are established when necessary to reduce deferredtax assets when it is more likely than not that a portion or all of thedeferred tax assets will not be realized.  In accordance with FAS 109, incometax expense includes 1) deferred tax expense, which generally represents thenet change in the deferred tax asset or liability balance during the periodplus any change in valuation allowances, and 2) current tax expense, whichrepresents the amount of tax currently payable to or receivable from a taxingauthority.  The primary difference between financial statement income andtaxable income results from the use of different methods of computingdepreciation, capitalized development cost, certain revenue recognitionactivities, other timing differences and the valuation of net operating losscarryforwards.  Deferred taxes do not reflect temporary differences relating toour investment in foreign subsidiaries as these amounts have been deemed to bepermanently invested.  Estimating the deferred tax position on these amounts isnot practical.****

The effective tax ratereflects management's current estimate of the distribution of earnings amongthe statutory jurisdictions in which we operate and the valuation of certaintax credits and net operating losses in the U.S. and U.K. from prior tax years(each ending December 31).  Valuation allowances established for deferred taxassets related to net operating losses does not impair our ability to use thosedeferred tax assets upon achieving profitability in the related jurisdictions. Upon the recognition of income in future periods in the jurisdictions where thedeferred tax assets were created, release of the corresponding valuationallowances may result in a lower effective tax rate.

| 15 |
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**Item 1.  Financial Statements (continued)**

**CriticalAccounting Policies (continued)**

** (2)     ComprehensiveIncome Loss**

The components of accumulated other comprehensiveloss, net of related tax, at December 31, 2006 were as follows:

|                                          | Dec. 31, 2006  |
|------------------------------------------|----------------|
| Foreign currency translation adjustments | $ (1,659) |
| Accumulated other comprehensive loss     | $ (1,659) |

**(3)     ContingentLiabilities**

*Grant Programs*

In 2002, the Company and its U.K. subsidiary, DR, were awarded two grants related to the expansion of the chemistry laboratoriesin Bude, Cornwall.  The U.K.'s Department of Trade and Industry("DTI") awarded GBP2,400 based on the creation of jobs in the regionand capital investment.  Additionally, the South West of England RegionalDevelopment Agency ("SWERDA") awarded GBP1,300 tied to costs to construct thelaboratory.  At December 31, 2002, DR had met all criteria for the firstinstallment of the DTI grant and was approved to receive a payment of GBP550that was recorded in 2002.  Approximately GBP99 of the payment was attributedto the reduction of expenses while the remainder was treated as a reduction inthe cost of capital expenditures.  During 2003, DR achieved multiple thresholdsunder the South West of England Regional Development Agency grant and madeclaims of GBP1,300 which were recorded as reductions in the amounts of capitalexpenditures.  In 2004, the second installment of the DTI grant was approvedand a payment was received for GBP990.  Approximately GBP205 of the payment wasattributed to reduction in expenses while the remaining GBP785 was recorded asa reduction of our capital expenditures.  Beginning late in the fourth quarterof 2005 and multiple times during 2006 TDR conducted a series of jobeliminations.  These job eliminations meant that DR no longer met the criteriato retain the full value of the DTI grant funding.  As of December 31, 2006,the Company was obligated to repay the full GBP1,540 grant to the DTI based onthe terms of the original grant agreement.   As the result of the closing of thetransactions with SWERDA and DTI, including the sale-lease back of the Bude,England facility, the closing of the share purchase and sale agreement with CBIon June 6, 2007, and payments to DTI of GBP520 from the proceeds of thesale-lease back and GBP71 funded by Tripos, Tripos has been relieved ofpotential repayment obligations to these English authorities totaling GBP2,840.

| 16 |
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**Item 1.  FinancialStatements (continued)**

** **

**(4)     LossPer Share** 

The following table sets forth the computationof basic and diluted earnings per share for the period from January 1, 2007through March 15, 2007 and for the three-month period ended March 31, 2006.

** **

|                                                                                                         |       | **Period from   Jan. 1, 2007 through  Mar. 15, 2007** | Three-Months Ended   Mar. 31, 2006 |
|---------------------------------------------------------------------------------------------------------|------------|-------------------------------------------------------|------------------------------------|
| **Numerator:**                                                                                          |            | ** **                                            |                                    |
| Numerator for basic and diluted earnings per  share-  -net loss allocable to common shareholders        |            | **$ (5,404)**                                    | $ (3,686)                     |
| -dividends accruing to preferred shareholders  (Note C)                                                 |            | **-- **                                          | --                            |
| Numerator for diluted earnings per share                                                                |            | **$ (5,404)**                                    | $ (3,686)                     |
| ** **

**Denominator:**                                                                            |            | ** **                                            |                                    |
| Denominator for basic earnings per share--weighted average shares                                       |            | **10,393 **                                      | 10,190                        |
| Effect of dilutive securities:                                                                          | ** ** | ** **                                            |                                    |
|    Warrants (Note A)                                                                     |            | **-- **                                          | --                            |
|    Employee stock options (Note  B)                                                      |            | **-- **                                          | --                            |
|    Assumed conversion of Series  C preferred shares (Note C)                             |            | **-- **                                          | --                            |
| Denominator for diluted earnings per share--  -adjusted weighted average shares and assumed conversions |            | **10,393 **                                      | 10,190                        |
| Basic earnings per share                                                                                |            | **$ (0.52)**                                     | $ (0.36)                      |
| Diluted earnings per share                                                                              |            | **$ (0.52)**                                     | $ (0.36)                      |

Note A: For the periodfrom January 1, 2007 through March 15, 2007 and for the three-months endedMarch 31, 2006, the dilutive effect of the 156 outstanding warrants to purchaseshares of common stock issued to Horizon in January 2005 has been excluded asthe average market price of Tripos common stock was below the price of thewarrants and therefore the warrants could not be deemed to have been convertedinto common stock.  The 550 warrants and 16 warrants issued in May 2006 toMidwood Capital and Seven Hills, respectively, have also been excluded for 2007as the average market price of Tripos common stock was below the price of thewarrants and therefore the warrants could not be deemed to have been convertedinto common stock.

Note B:  For the periodfrom January 1, 2007 through March 15, 2007 and for the three-months endedMarch 31, 2006, weighted average shares outstanding did not include sharesrelated to the effect of employee stock options as none were exercisable as theexercise price was below the market price of the Company's common stock duringthe periods.

Note C:  For the periodfrom January 1, 2007 through March 15, 2007 and for the three-months endedMarch 31, 2006, weighted average shares outstanding were not adjusted for theconversion of the Series C Preferred Stock that were issued in May 2006 astheir inclusion would have been anti-dilutive.  Accordingly, the relatedpreferred dividends were not added back to the numerator for diluted earningsper share.

For additional disclosures regarding earningsper share, see the notes to the Company's 2006 consolidated financialstatements in its Form 10-K.

| 17 |
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**Item1.  Financial Statements (continued)**

** **

**(5)     Debt Facilities**

Asof December 31, 2006, the Company had a credit agreement with LaSalle Bank N.A.for a $3,480 mortgage note for property with a book carrying value of $3,821. The mortgage was due to mature on March 21, 2007.  The Company also had a$6,000 revolving line of credit agreement with LaSalle Bank with an outstandingbalance of $3,500 maturing on March 21, 2007.  Both credit agreements werecollateralized by substantially all of our U.S. assets and stock pledges for each of the U.S. and U.K. subsidiaries.  

The mortgage note underthe credit agreement called for even quarterly principal payments based on atwenty-year amortization schedule.  Borrowings under the mortgage were subjectto a variable interest rate at LIBOR plus 2.25%.  Under the amended agreement theinterest rate was LIBOR plus 3.00%.  Interest rates paid on the mortgageaveraged 8.4% and 6.8% during 2007 and 2006, respectively.  The $6,000revolving line of credit under the credit agreement required quarterlyinterest-only payments with any remaining borrowings due at the end of theagreement period.  The line of credit carried a commitment fee of 3/8% of theunused portion of the line.  Borrowings under the revolving line of credit boreinterest at variable rates tied to LIBOR or the bank's prime rate.  We averaged$4,524 and $4,206 of outstanding borrowings during 2007 and 2006, respectively. The weighted average interest rate on line of credit borrowings was 8.5% and7.7% in 2007 and 2006, respectively.  **The Company paid the outstandingbalance of the mortgage loan and the line of credit on March 20, 2007** withthe proceeds from the sale of the assets of the Discovery Informatics businessto Vector Capital.

In connection with theOptive acquisition, the Company issued a subordinated promissory note toHorizon Technology Finance with a face value of $3,500 and a stated interestrate of 11.42%.  The original repayment terms of the promissory note requiredmonthly interest only payments of $33 for the first 18 months, followed by 30monthly payments of $135 beginning on August 1, 2006.  This payment schedulewas subsequently amended with principal payments suspended until March 1,2007.  The subordinated promissory note contained prepayment penalties.  Inaddition, as part of the financing transaction, 112 shares of common stock wereissued to Horizon and Sand Hill Capital at a discounted price of $4.48 pershare.  156 warrants to purchase common stock were issued to Horizon at anegotiated price of $4.48.  These transactions resulted in original issuancedebt discounts of $89 related to the common stock issued at a discount and $432related to the warrants, calculated based upon relative fair values.  The debtdiscounts were being amortized to interest expense over the life of the loan.  **TheCompany paid the outstanding balance on the subordinated debt plus the earlytermination fee of $154 to Horizon on March 20, 2007** from the proceeds ofthe asset sale to Vector Capital.

Short-term debt obligations were:

|  |                                                | Dec. 31, 2006 |
|--|------------------------------------------------|---------------|
|  | Borrowings  outstanding under Credit Agreement | $ 3,500  |
|  | Mortgage  note                                 | 3,480    |
|  | Subordinated  debt                             | 3,088    |
|  | Debt  discount                                 | (223)         |
|  |    Short-term debt                        | $ 9,845  |

| 18 |
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**Item 1.  FinancialStatements (continued)**

**(6)     Goodwilland Other Intangible Assets**

At December, 31, 2006,the Company had the following intangible asset balances: 

|                        | Dec. 31, 2006 |
|------------------------|---------------|
|                        | Gross         |  |  |
|                        | Carrying      |  | Accumulated |
|                        | Amount        |  | Amortization |
| Acquired software      | $3,590        |  | $764  |
| Noncompete agreements  | 350           |  | 185  |
| Patents and trademarks | 192           |  | 115  |
| Total                  | $4,132   |  | $1,064  |

Amortization expense was approximately $104 and$122 for the period from January 1, 2007 through March 15, 2007 and for thethree-month period ended March 31, 2006, respectively.  

In accordance with the provisions of StatementNo. 142, "Goodwill and Other Intangible Assets", the Company management performedformal impairment tests of goodwill in 2006 by using a discounted cash flowapproach to estimate fair value.  Based on their evaluations, they determinedthere was no impairment of the goodwill related to continuing operations atDecember 31, 2006

** **

** **

**(7)**    **Restructuring Charge**

** **

OnJanuary 24, 2006 the Company completed a reduction in force for its DR businessunit based in Bude, England.  This action coincided with the conclusion of the30-day consultation period with employees mandated by U.K. law.  The Company reduced the number of employees by 76 positions to streamline andrefine the DR business unit and associated cost structure as a result of ourfourth quarter 2005 completion of the four-year $90 million file enrichmentproject with Pfizer Inc.  More than half of the employees affected left theCompany under a voluntary separation plan.  In addition, a restructuring of its  US based employees resulted in a staff reduction of 9 employees.  As a resultof these actions, the Company recorded a pre-tax restructuring charge in thefirst quarter of 2006 of approximately $807 and $120 related to our DR and DIbusiness units, respectively, for one-time termination benefits andoutplacement costs.  

Inthe first quarter of 2007 the Company eliminated five positions in anticipationof the liquidation of the Company.   As a result of this action, the Companyrecorded a pre-tax restructuring charge in 2007 of approximately $155 relatedto its DI business unit for one-time termination benefits and outplacementcosts.  These costs are recorded in the consolidated statements of operationsin the restructuring charge line item.  Other anticipated costs subsequent toMarch 15, 2007 are reflected in the accrual of liquidation costs as an effectof adopting the liquidation basis of accounting.  

| 19 |
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**Item1.  Financial Statements (continued)**

** **

**(8)**    **Series C PreferredStock**

** **

On May 4, 2006, theCompany completed the sale of 1,833 shares of Redeemable Convertible PreferredStock ("Preferred Stock") at a price of $3.00 per share and issued 550five-year common stock warrants exercisable at $3.50 per share to MidwoodCapital, a private equity firm, for gross proceeds of $5,500.  Net proceedsfrom this transaction, after the placement agent's fee and estimated legal andother costs incurred by the Company, were approximately $4,851.  Proceeds wereutilized to reduce the borrowings under the revolving line of credit and tofund working capital requirements.  The warrants to purchase common stock wereexercisable upon issuance.  The shares of Preferred Stock representapproximately 15 percent of Tripos' outstanding common stock on an as-convertedbasis (1 preferred share is convertible into 1 share of common stock).  Eachoutstanding share of Preferred Stock is entitled to voting rights equal to thenumber of full shares of Common Stock into which such shares are convertible onthe date of issuance.  The Preferred Stock also has preferential distributionrights in the event of liquidation, dissolution or winding-up of the Company ora deemed liquidation.  The Preferred Stock bears a dividend at an annual rateof 10.5% and is redeemable in two years at the option of the holders.  Due tothe sale of the assets of the DI business after January 26, 2007 under theterms of the preferred offering the dividends will be accelerated such that theholders of the Preferred Stock will receive dividends in the aggregate amountof $1,155 inclusive of any dividends received to date.  This financingstrengthened the Company's balance sheet, enhancing its ability to explorestrategic alternatives and support current and potential business initiatives. 

Upon issuance, the fairvalue of the warrants was determined based on the Black-Scholes option-pricingmodel and recorded on the balance sheet as a liability in the amount of$1,040.  The warrants were determined to be a liability, as under EmergingIssues Task Force ("EITF") 00-19, "Accounting for Derivative FinancialInstruments Indexed to, and Potentially Settle in, a Company's Own Stock", theycould not be recorded in equity due to registration rights obligations and cashpenalty requirements that were not capped in the event of unsuccessfulregistration.  The maximum penalty for failure to register or maintain effectivenessof a registration was determined to exceed the spread between the fair value ofregistered and unregistered share and, as such, cash settlement was assumed forthis determination.  The weighted-average assumptions utilized in determiningthe Black-Scholes values upon issuance were as follows: stock price-$2.96;strike price-$3.50; dividend yield-0%; risk-free rate-5.0%, volatilityfactor-0.79 and expected life-5 years.  The Company reassesses the fair valueof the warrants on a quarterly basis until exercise or expiration and recordsany resulting gain or loss through "other income" in the statement ofoperations.  The Company evaluated the conversion feature of the preferredstock under FAS No. 133, "Accounting for Derivative Instruments and HedgingActivities" and determined that it was clearly and closely related to the hostcontract (preferred stock) and was more akin to equity.  The conversion featuretherefore was not separated from the host contract.  The equity features of thepreferred stock are similar to common stock: for example voting rights,participation in distributions to common shareholders, the holder retaining aresidual interest in the Company, and the preferred shares not beingmandatorily redeemable.  The Company therefore determined that the conversionfeature should be evaluated under EITF No. 98-5, "Accounting for ConvertibleSecurities with Beneficial Conversion Features or Contingently AdjustableConversion Rations" and EITF No. 00-27, "Application of Issue No. 98-5 to CertainConvertible Instruments."  After taking into account the allocation of theproceeds to the warrants, the Company determined that the Preferred Stockcontained a beneficial conversion feature valued at $1,015 based upon theintrinsic value of the shares at the closing stock price versus the valueassigned to the preferred stock.  Together, the value assigned to the warrantsand the beneficial conversion feature created a preferred stock discount in theamount of $2,055, which is being accreted through preferred dividend expenseover a two-year period using the effective interest rate methodology.

| 20 |
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**Item1.  Financial Statements (continued)**

** **

**(8)**    **Series C PreferredStock (continued)**

** **

In addition thetransaction costs of $629 were recorded as deferred issuance cost on thebalance sheet and are being amortized to interest expense over a two-yearperiod also using the effective interest rate methodology.  Included in thetransaction costs are 16 warrants valued at $29 to purchase common stock issuedto the placement agent.  These warrants were issued with the same terms as thewarrants issued to the holders of Preferred Stock.  Accretion of the preferredstock discount and amortization of the deferred issuance cost from issuancethrough March 15, 2007 totaled $741 and $227, respectively.  The Companyadjusted the warrant valuation quarterly starting in the second quarter of 2006,which resulted in an adjustment of the liability and recording a gain or lossthrough "other income" in the statement of operations.  For the quarter endedMarch 31, 2007, the value of the warrants is $118 as a result of cumulative netreductions since issuance of $921.  The Black-Scholes assumptions utilized at March31, 2007 were the same as the assumptions utilized upon issuance with thefollowing exceptions: the stock price reduced to $0.74 the risk free rateadjusted to 4.54%, the volatility to 0.8, and the expected life reduced to 4.08years.

As a result of the consummation of thetransactions contemplated by the Asset Purchase Agreement, on March 20, 2007the Company became obligated to redeem the outstanding shares of its Series Cconvertible preferred stock for a redemption price of approximately $5,500 plusaccrued dividends.  Through March 31, 2007, the Company had paid $526 ofdividends leaving a total of $629 to be paid prior to liquidation.  The Companywill pay these amounts in accordance with the plan of dissolution adopted bythe Company's board of directors and subsequently approved by vote of theCompany's shareholders, prior to the payment or provision of payment on thecommon stock.

** **

** **

**(9)     Segments**

TheFinancial Accounting Standards Board issued SFAS No. 131, "Segment Information"("SFAS 131") to amend the requirements for public companies to report financialand descriptive information about their reportable operating segments in annualfinancial statements and selected information about operating segments ininterim reports issued to shareholders.  It also establishes standards forrelated disclosures about products and services, geographic areas, and majorcustomers.  Operating segments, as defined in SFAS 131, are components of theenterprise for which separate financial information is available and isevaluated regularly by our management in deciding how to allocate resources andassess performance.  The Company operated two reporting segments, DiscoveryInformatics and Discovery Research.  The Company's Discovery Informaticssegment designs, or in-licenses, and sells licenses to software suites thatprovide computer-aided molecular modeling and visualization, virtual screening,combinatorial library design, data storage and analysis, and structure-activityrelationships to customers in pharmaceutical, biotechnology and related lifescience fields or research.  The Company's Discovery Research segment providesdrug discovery services to pharmaceutical and biotechnology companies.  Thissegment was designated as held for sale on December 31, 2006 and is nowpresented as discontinued operations.  As a result, we no longer have multipleoperating segments requiring separate presentation.  

| 21 |
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**Item 1.  Financial Statements (continued)**

**(10)     Stock-basedCompensation Plans**

** **

**Employee Stock Purchase Plan**

In 2002, the Company adopted the 2002 EmployeeStock Purchase Plan that allows eligible employees to purchase stock at thelower of 85% of the fair market value of the stock on the enrollment date orexercise date as defined by the plan.  Pursuant to the plan, employee purchasesare limited to 10% of annual compensation.  The plan originally had 250 sharesreserved for issuance.  In 2004 the shareholders approved an increase in thereserve of 450 shares.  The plan is in effect for ten years unless terminatedor amended sooner by the Board of Directors.  At December 31, 2006, 515 shareshave been purchased under this plan leaving 185 shares available for issuance. The Board of Directors **suspended plan activity effective January 1, 2007**in anticipation of the sale of the Company's operating units and liquidation ofthe company.

**1994 Stock Option Plan**

In 1994, the Company adopted the 1994 Stock Option Plan that isadministered by the Compensation Committee and provided for incentive stockoptions, non-statutory stock options and stock purchase rights to be granted tocompany employees and consultants.  Pursuant to the plan, incentive stockoptions could be exercised at a price which is not less than the fair value ofthe stock on the grant date, and non-statutory stock options and stock purchaserights could be exercised at a price which is determined by the CompensationCommittee.  Options vested at the rate of 25% on the first anniversary of eachgrant and 1/48th per month over the next three years.  All options granted have10-year terms.  The plan, which was amended in 2001 to increase the number ofshares of common stock reserved for issuance from 2,560 to 2,960, was in effectfor ten years from the date of inception and expired during 2004.  Theoutstanding 1,010 options granted prior to the expiration of the plan will remainoutstanding until their exercise, expiration or forfeiture.

** **

**1996 Director Stock Plan**

In 1994, the Companyadopted the 1994 Director Option Plan that provided for non-statutory stockoptions to be granted to non-employee directors at the fair market value of thestock at the date of grant.  Options vested in 25% increments on theanniversary of date of grant.  The plan, which was amended in 2002 to increasethe number of shares of common stock reserved for issuance from 480 to 600, wasin effect for ten years from the date of inception and expired during 2004. This plan was amended in 2001 to allow for discretionary grants of options. The outstanding 347 options granted prior to the expiration of the plan willremain outstanding until their exercise, expiration or forfeiture.

The shareholders approved the 1996 DirectorStock Plan in order to change the compensation arrangements for the board ofdirectors from only cash to 50% cash and 50% common stock.  The board receivedtheir compensation quarterly with the number of shares issued dependent on theclosing price on the last business day of the calendar quarter.  The fullamount of the quarterly compensation is expensed in each interim period.  Theseunrestricted shares issued to the board were included in the weighted averagenumber of outstanding shares for computing earnings per share.  **EffectiveMarch 31, 2007, the Board suspended activity in the 1996 Director Stock Plan**and received only cash for their first quarter compensation. 

| 22 |
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**Item 1.  Financial Statements (continued)**

**(10)     Stock-basedCompensation (continued)**

** **

**Equity Incentive Plans**

In 2005, the Company adopted the 2005 EquityIncentive Plan ("2005 Plan") that provides for incentive and/or non-statutorystock options, stock appreciation rights, restricted stock, restricted stockunits, performance shares and units, deferred stock units and dividendequivalents to be granted to our employees, consultants and directors.  A totalof 800,000 shares were available for issuance under the 2005 Plan plus anyoutstanding options under the Company's 1994 Employee Stock Option Plan thatsubsequently expired unexercised, up to a maximum of 300,000 shares.  As of March31, 2007, only stock options had been granted.  Stock options were grantedunder the 2005 Plan at an exercise price not less than 100% of the fair marketvalue on the date of grant.  Options became exercisable and expired at thetimes and terms established by the administrator, but generally vested overfour years and expired five to ten years after the grant date.  The Companysatisfies the exercise of stock options by issuing new shares.  No options weregranted or exercised during the period from January 1, 2007 through March 15,2007.  The outstanding 279 options granted prior to the expiration of the planwill remain outstanding until their exercise, expiration of forfeiture.  Optionexpense for the period from January 1, 2007 to March 15, 2007 was $74. 

The fair value of each option award wasestimated on the date of grant using the Black-Scholes valuation model based onassumptions for volatility, interest rates, dividend rates, expected timeoutstanding until exercised (expected term) and expected forfeitures made atthe time of the grant.  The requisite service life equaled the vesting term,primarily four years.  Expected volatilities were based on daily observationsof the historical volatility of our common stock over comparable length periodsand other factors.  No adjustment was made in contemplation of the affect offuture events.  We estimated option exercises and employee terminations basedon historical data for groups of employees that have similar exercise andtermination behavior (the groups identified are: a. employees, b. officers, andc. directors).  The expected term of options granted was derived by consideringactual historical exercise data and represents the period of time that optionsgranted were expected to be outstanding.  The risk-free interest rate was basedon the U.S Treasury yield curve in effect at the time of the grant.

** **

Due to the approval of the sale of the DIbusiness and approval of the plan of liquidation by the shareholders on March15, 2007, **the vesting for all outstanding stock options was accelerated suchthat all options became fully vested**.

A summary of option activity under the plans forthe period from January 1, 2007 through March 15, 2007 is as follows:

| **Directors**                 | Shares    | Weighted Average  Exercise Price | Weighted Average  Remaining Contractual Term | Aggregate Intrinsic  Value |
|-------------------------------|-----------|----------------------------------|----------------------------------------------|----------------------------|
| Outstanding,  January 1, 2007 | 382  | $8.81                            |                                              |                            |
| Granted                       | --   | --                               |                                              |                            |
| Exercised                     | --   | --                               |                                              |                            |
| Forfeited                     | --   | --                               |                                              |                            |
| Expired                       | (35)      | $8.38                            |                                              |                            |
| Outstanding,  March 15, 2007  | 347  | $9.30                            | 4.6 years                                    | $0                         |
| Options  Exercisable          | 347  | $9.30                            | 4.6 years                                    | $0                         |

 

| 23 |
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----

**Item1.  Financial Statements (continued)**

** **

**(10)     Stock-basedCompensation (continued)**

| **Officers**                  | Shares    | Weighted Average  Exercise Price | Weighted Average  Remaining Contractual Term | Aggregate Intrinsic  Value |
|-------------------------------|-----------|----------------------------------|----------------------------------------------|----------------------------|
| Outstanding,  January 1, 2007 | 803  | $7.95                            |                                              |                            |
| Granted                       | --   | --                               |                                              |                            |
| Exercised                     | --   | --                               |                                              |                            |
| Forfeited                     | (17)      | $3.98                            |                                              |                            |
| Expired                       | --   | --                               |                                              |                            |
| Outstanding,  March 15, 2007  | 786  | $8.41                            | 3.6 years                                    | $0                         |
| Options  Exercisable          | 786  | $8.41                            | 3.6 years                                    | $0                         |

 

| **Employees**                 | Shares    | Weighted Average  Exercise Price | Weighted Average  Remaining Contractual Term | Aggregate Intrinsic  Value |
|-------------------------------|-----------|----------------------------------|----------------------------------------------|----------------------------|
| Outstanding,  January 1, 2007 | 603  | $5.86                            |                                              |                            |
| Granted                       | --   | --                               |                                              |                            |
| Exercised                     | --   | --                               |                                              |                            |
| Forfeited                     | (74)      | $5.99                            |                                              |                            |
| Expired                       | (24)      | $5.26                            |                                              |                            |
| Outstanding,  March 15, 2007  | 504  | $5.87                            | 3.38 years                                   | $0                         |
| Options  Exercisable          | 504  | $5.87                            | 3.38 years                                   | $0                         |

A summary of the status of the Company'snonvested options as of March 15, 2007 and changes during the period fromJanuary 1, 2007 through March 15, 2007 is as follows:

| Nonvested Shares              |  | Shares    |  |  |
|-------------------------------|--|-----------|--|--|
| Nonvested  at January 1, 2007 |  | 273  |  |  |
| Granted                       |  | --   |  |  |
| Vested                        |  | (123)     |  |  |
| Forfeited/Expired             |  | (150)     |  |  |
| Nonvested  at March 15, 2007  |  | --   |  |  |

| 24 |
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----

**Item1.  Financial Statements (continued)**

**(11)     SubsequentEvent**

** **

On April 12, 2007, the Company completed the saleof its corporate headquarters located in St. Louis, Missouri.  The sale pricefor the building was $4,700 less adjustments totaling $727 resulting in a netpurchase price of $3,973.  Sales commissions, fees and other closing costsreduced the net proceeds to approximately $3,693.  At closing, the Company enteredinto a 7-month lease for a portion of the building and made a lump sum depositof the full rental amount of $418.

On June 6, 2007, Tripos Discovery Research LTD("TDR"), the principal operating subsidiary of Tripos, Inc. ("Tripos") enteredinto a series of agreements with the South West of England Regional DevelopmentAgency ("SWERDA") and the Department of Trade and Industry of England ("DTI")in connection with the sale-lease back of TDR's principal facility in Bude,Cornwall, England (the "Property").  Shortly thereafter, on June 6, 2007,Tripos and Commonwealth Biotechnologies, Inc. ("CBI") entered into an Amendedand Restated Share Purchase and Sale Agreement (the "Amended Agreement")pursuant to which CBI acquired all of the capital stock of TDR.  The AmendedAgreement superseded a Purchase and Sale Agreement dated as of May 11, 2007between the parties.  The sale of the discovery research products and servicesbusiness closed contemporaneously with the execution of the Amended Agreement. As the result of these agreements, Tripos has completed the disposition of itslast operating business and has realized $350 in consideration for the sharesand has received or will ultimately receive $1,800 and GBP236 in repayment ofinter-company advances.  Tripos has also been relieved of potential obligationsto repay up to GBP2,840 to SWERDA and DTI.  A previously recorded accruedliability of GBP1,540 payable to the DTI will be reduced in the second quarterof 2007 to reflect the actual amount to be paid of GBP591 (a reduction of GBP949).

**(12)     NewAccounting Pronouncements**

The shareholders of the Company approved a planof dissolution and liquidation at a special meeting on March 15, 2007.  As aresult of the pending liquidation of the Company and adoption of theliquidation basis of accounting for periods subsequent to March 15, 2007, onlyaccounting pronouncement that will impact the Company prospectively ispresented as follows:

In June 2006, the Financial Accounting StandardsBoard ("FASB") issued FASB Interpretation No. 48, "Accounting for Uncertaintyin Income Taxes-an interpretation of FASB Statement No. 109."  ThisInterpretation prescribes a recognition threshold and measurement attribute forthe financial statement recognition and measurement of a tax position taken orexpected to be taken in a tax return.  This Interpretation also providesguidance on de-recognition, classification, interest and penalties, accountingin interim periods, disclosure, and transition.  The Interpretation iseffective for fiscal years beginning after December 15, 2006.  We adopted FIN48 beginning January 1, 2007 and the adoption did not have a material effect onour financial statements for the period.  

| 25 |
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**Item 2.  Management'sDiscussion and Analysis of Financial Condition and Results of Operations**

**Forward-lookingStatements**

The remainder of this report may contain certainstatements that are forward-looking and involve risks and uncertainties.  Wordssuch as "expects", "anticipates", "projects","estimates", "intends", "plans", "believes",variations of such words and similar expressions are intended to identify suchforward looking statements.  These statements are based on current expectationsand projections made by management and are not guarantees of futureperformance.  Therefore, actual events, outcomes and results may differmaterially from what is expressed or forecast in such forward-lookingstatements.  Among the factors that could cause actual results to differmaterially from the forward-looking statements are set forth under the caption"Risk Factors" in Part 1A of Tripos' Form 10*-*K for 2006.  Triposundertakes no obligation to update any forward-looking statements in this Form10-Q.

The following discussion should be read inconjunction with the audited consolidated financial statements and notesthereto.

** **

**SUMMARYOF RECENT ACTIVITIES**

The Company is in the process of selling itsoperating businesses.  The following is a summary of our recent activities.

*    OnMarch 15, 2007, the Company's stockholders approved the sale of the assets ofthe discovery informatics business to Tripos (Cayman), L.P., a newly-formedsubsidiary of Vector Capital Corporation, and the dissolution and liquidationof the Company.   

*    OnMarch 20, 2007, the Company completed the sale of its discovery informaticsbusiness for cash amounting to of $26.2 million and used $11.8 million of theproceeds to repay indebtedness to LaSalle Bank and Horizon Technology Finance. The Company is prohibited from making distributions to common stockholdersuntil September 20, 2007.  During that time, it must resolve all creditorclaims.

*    On April 12, 2007, the Company completedthe sale of its corporate headquarters located in St. Louis, Missouri.  The netproceeds from the sale was approximately $3.7 million. 

*   On June 6, 2007, we completed a sale-leaseback ofour UK facility, were released from grant repayment obligations in the UK, andsold our discovery research business to Commonwealth Biotechnologies Inc. 

*    The Company is assembling theresources necessary to efficiently manage the liquidation and dissolutionprocess.  As of the current date, the sole employee of Tripos, other thanemployees of the discovery research business and employees being transitionedto the purchaser of the discovery informatics business, is John P. McAlister. The Board of Directors will continue to supervise the dissolution andliquidation process.

*   Undergenerally accepted accounting principles, the Company is required to report theresults of its discovery informatics business as continuing operations throughMarch 15, 2007, the date of stockholder approval of the Company's plan ofdissolution and liquidation.  However, discovery research business is reportedherein as discontinued operations through March 15, 2007.  With the approval bythe shareholders for the sale of the discovery informatics business and theCompany's plan of liquidation, the Company changed the basis of accounting forperiods subsequent to March 15, 2007, from the going-concern basis to aliquidation basis.

| 26 |
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**Item 2.                                   Management'sDiscussion and Analysis of Financial Condition and Results of Operations(continued)**

** **

**SUMMARYOF RECENT ACTIVITIES (continued)**

Due to the sale of its principal operating units,the discovery informatics business and the discovery research business, theCompany expects to have minimal operations in the near future.  Rather, itsprincipal activities will be to complete the activities needed to complete thedissolution and liquidation of the business, pending the initial liquidatingdistribution expected to be made late in the third quarter of 2007 or in thefourth quarter of 2007.

** **

**OVERVIEW**

** **

The Company providedproducts and services to the pharmaceutical, biotechnology, and life scienceindustries to support early stage research activities.  The Company's offeringswere applied principally to assist research chemists to make decisions aboutthe most productive new compounds to make and test as potential therapeutics. Through its own chemistry laboratories, the Company made those compounds forits clients.  Through strategic partnerships, the Company also participatedmore directly with its clients in the development and testing of newtherapeutic compounds for its clients.

The industries that theCompany served were highly research driven.  Mature pharmaceutical companiestypically spend up to 20% of their annual revenues on research to find newblockbuster drugs.  This research process consists of several phases from earlydiscovery of compounds of interest, through testing of the promising ones foractivity and safety in animals, to final testing of these compounds in humans. The investment in research activity increases dramatically in the second andthird phases.  Tripos' offerings were most relevant to the initial phase ofthis activity, namely discovery of compounds.  The Company's products andservices were designed and intended to provide its pharmaceutical andbiotechnology customers with improved ways to identify and select the mostpromising drug candidates to take forward into the more expensive and timeconsuming stages of the drug development process.   Depending on the number ofcompounds that a particular company has in different stages of their newtherapeutic pipeline, they may reduce or increase investment in the otherphases of research.  Further, decisions by the pharmaceutical industryconcerning their research investments were strongly influenced by decisions bythe various governments of the world regarding drug pricing and regulation.

Tripos' software products were primarily sold ona renewable license basis, typically with terms of one to three years.  Thisbusiness was generally predictable, as the Company had experienced high renewalrates in the past for licenses.  Tripos management closely monitored licenseexpirations and deployed sales staff to ensure the highest probability ofrenewals.  Tripos' service businesses, both informatics and chemistry, weremuch less predictable.  The sales cycles for these offerings are typically long-- from six to eighteen months -- and are highly influenced by factors in themacro-economic environment, including the general state of the pharmaceuticalindustry and the political situations in various parts of the world.  Toforecast potential business in these areas, Tripos management strived toclosely interact with the management of our customers and was closely involvedin business development activities for material service project opportunities.

Large service contracts forpharmaceutical research, both informatics and chemistry, were complex and,because they were deployed in research applications where outcomes wereuncertain, had a large risk component.  Risk management in these projectsbegan with the definition of project requirements and continued throughperformance metrics and customer acceptance milestones.  Due to thecomplexity of the projects and changing priorities within client organizations,it is typical that many decision points will arise that require managementattention both at Tripos and at the client.  To mitigate the project 

| 27 |
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**Item 2. Management's Discussion and Analysis ofFinancial Condition and Results of Operations (continued)**

** **

**OVERVIEW (continued)**

difficulties, Tripos developed a focused processin which management monitored milestones in the project plan according to theprocess workflow.  Despite best efforts, however, some projects were ofsufficient complexity that they presented challenges that required revisions tothe project plan and scope. 

The Company licensed itsDiscovery Informatics products and post-contract support ("PCS") aseither perpetual licenses or time-based licenses, typically one to three-yearrenewable contracts.  The magnitude of these license fees was dependent on eachcustomer's required usage levels, that is, the number of locations andindividual users.  Variations in licensing levels ranged from tens of thousandsup to several million dollars.  The following are descriptions of the Company'ssales models for discovery software:

***Perpetual licenses******: ***Software pricing wastaken from a price list based on the quantity of individual modules and numberof users.  Customers were billed upon delivery.  Revenue for software wasrecognized upon delivery of product and issuance of perpetual keys.  PCS was optionalfor each customer and was priced as a fixed percentage of the total currentlist price of the software purchased. Where applicable, PCS was typicallybilled annually.

** **

The Company has analyzed the other elementsincluded in its multiple element arrangements involving perpetual licenses, andhas determined it has sufficient Vendor Specific Objective Evidence("VSOE") to allocate revenues to PCS and/or training.  VSOE for PCSand training is established based on the price charged when those elements aresold separately.  For PCS, this allocation amount was established based on therenewal rate specified in the arrangement, which was consistently priced at apercentage of the list price of the purchased licenses.  Training was chargedconsistently from the Company's price list. 

***Bundled licenses******: ***Time-based bundledlicenses were an alternative to perpetual licenses.  This type of licenseallowed customers to obtain multiple software products bundled with PCS thatwere co-terminus with the period of the arrangement.  A bundled licenseincluded specific software modules and specified numbers of users of eachmodule with all product and access keys delivered on or before the effectivedate of the contract.  Tripos software was sold to professional users on an"off the shelf" basis in which the customer was responsible forinstallation.  These non-cancelable, non-refundable contracts were normallythree years in duration although certain customers requested shorter or longercontract periods.  At the end of the contract term, the customer renewed thelicense, or the software ceased to operate.  PCS, which includes unspecifiedupdates, upgrades, and "help desk" services, was included in thetotal price of the contract.  The PCS provided under bundled arrangements wasthe same as that provided to customers under perpetual agreements.  Bundledcontract pricing was taken from established price list (included package pricingand a-la-cart pricing) that was based on the number of users and length of term. All contracted products were delivered at inception.  If the customer wantedadditional modules, users, or license to any new software products, thecustomer entered a new contract (or addendum) and paid the incremental fees topurchase these items.  Software revenue and PCS revenues under bundled licenseagreements were recognized ratably over the contract period.

***Term  licenses: ***Term Licenses represented one-year arrangementsfor a software product and one-year of PCS.  The price was taken from theCompany's price list by product.  The support renewal fee was a fixedpercentage of the software price (similar to perpetual model).  The PCSprovided for under term arrangements was the same as that provided to customersunder perpetual agreements.  Software and support pricing were separatelystated and billed upon delivery of product.  To continue to operate the

|  28 |
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**Item 2. Management's Discussion and Analysis ofFinancial Condition and Results of Operations (continued)**

** **

**OVERVIEW (continued)**

*** ***

software, the customer paid their annual renewalfee.  Software revenue and PCS revenues under term license agreements wererecognized ratably over the contract period.

Integration of chemistryand biological data in the life sciences industries created a revenueopportunity for discovery informatics services (software consulting).  To servethis market, the Company maintained a staff of specialists who used theCompany's proprietary data integration framework, such as Discovery 360,Benchware Notebook, ChemCoreRIO and AUSPYXTM to configure customizedsolutions for data management.  Revenue was generated on a billable rate perday, or upon achievement of milestones or deliverables and was recognized asproduction activities were performed.  These contracts also generated substantiallicense fee revenue for the Company's proprietary software technologies.  Similarlyto the Company's discovery informatics products, licensing levels weredependent on the number of users and sites and ranged from the lowhundred-thousands up to million dollar levels.

The Company developedand manufactured general screening compound libraries for sale to the lifesciences industry for a fee per compound delivered.  In addition the Companyoffered LeadDiscovery libraries which included higher value intellectualproperty rights (such as patent applications).  These compounds and libraries createdthe opportunity to offer follow-up discovery research methods to customers fordesign and synthesis of focused libraries for lead optimization.  The Companyalso marketed a comprehensive research process to its life sciences customersfor rapid and cost effective discovery.  This process combined advancedinformatics, chemistry, and biology products and services, with proprietarydiscovery technologies for efficient lead development, refinement, and optimizationresulting in a tightly integrated process to facilitate synergies in drugdiscovery. 

In the past the Company actedas a reseller of computer hardware.  Hardware sales were generally made tofacilitate the Company's software customers' access to hardware components andnot a primary focus of its sales activities.  The Company acted as anauthorized reseller and only order hardware products on an "asneeded" basis, and thus did not maintain any inventory.

The Company licenseddiscovery informatics tools to customers, provided ongoing support (includingupgrades selected by customers) and provided informatics services to customersthat enabled integration of its existing and newly developed discovery tools tocustomers' discovery operations.  The Company generally expensed research anddevelopment costs associated with software enhancements and new functionality. Thus, a significant portion of the costs associated with development andenhancement of software was accounted for as research and development and notas a cost of software sales.  Certain software development projects requiredsubstantial commitments of time and resources.  Costs of these projects werecapitalized upon achievement of technological feasibility and/or a workingmodel according to the Financial Accounting Standards Board ("FASB")Statement of Financial Accounting Standards ("SFAS") No. 86.  

Quarterlyexpenses included the costs of research and development for software developmentand new chemistry research.  Management believed that core selling andadministrative costs would remain generally consistent on an annual basis. Variability in quarterly expenses primarily occurred in relation to the level ofrevenues.  This was due to sales compensation, bonuses, staffing forselling, general and administrative functions and for periodic marketingactivities such as appearances at trade exhibitions.  The relationshipbetween the quarterly amounts presented for cost of sales or research anddevelopment

|  29 |
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**Item 2. Management'sDiscussion and Analysis of Financial Condition and Results of Operations(continued)**

** **

**OVERVIEW (continued)**

expense fluctuated basedon the utilization of our employees on either billable contracts or researchprojects.

Companyrevenues and expenses varied from quarter to quarter depending upon, amongother things, the timing of customers' budget processes, the success of oursales efforts, the lengthy sales cycle and the Company's ability to influencecustomers and prospective customers to make decisions to outsource portions oftheir discovery process, the size of the customers' capital expenditurebudgets, the ability to produce compound libraries and achieve product releaseschedules (including by Tripos' third party software providers andcollaborators) in a timely manner, the rate of market acceptance of newproducts and enhanced versions of existing products, the timing of new productintroductions by the Company and other vendors, changes in licensing andpricing policies (ours, our partners and that of other vendors), consolidationin the customer base, client involvement in decision points in contractsrelated to project plans, the Company's ability to accurately match contractcosts to milestone or contract performance requirements on our larger collaborativearrangements, and changes in general economic, regulatory, and competitiveconditions.  See Note 1 of the Notes to Consolidated Financial Statements for adiscussion of revenue recognition policies.  Because much of the softwarelicense and PCS revenue along with contracted discovery research revenue wasrecognized ratably over multiple periods, fluctuations in quarterly revenuesand earnings were caused principally by sales of compounds or by achievement ofmilestones on specific projects.  The management team monitored quarterlybusiness activity with the aid of sales pipeline reports and monthly financialreports.

**CHANGESIN NET ASSETS IN LIQUIDATION**

|                                                                                                      |       | Period from  March 16, 2007  through  March 31, 2007 |
|------------------------------------------------------------------------------------------------------|------------|------------------------------------------------------|
|                                                                                                      |       |                                                 |
| Effects  of adopting a liquidation basis of accounting:                                              | ** ** |                                                      |
|      Accrual of liquidation costs                                                     | ** ** |  $ (7,365)                                      |
|      Adjustment of assets to estimated realizable values                              | ** ** | 28,873                                          |
|          Net effect of adopting a liquidation basis of accounting | ** ** | 21,508                                          |
|                                                                                                      | ** ** |                                                      |
| Changes  in net assets in liquidation:                                                               | ** ** |                                                      |
|     Corporate and liquidation operating activity                                           | ** ** | 1,422                                           |
|     Discovery research operating activity                                                  | ** ** | 284                                             |
|     Settlement of assets and liabilities in liquidation                                    | ** ** | (4,859)                                              |
|         Net change in net assets in liquidation                        | ** ** | (3,153)                                              |
|                                                                                                      | ** ** |                                                      |
|                                                                                                      | ** ** |                                                      |

** **

| 30 |
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**Item 2.            Management's Discussion andAnalysis of Financial Condition and Results of Operations (continued)**

** **

**Effectsof adopting liquidation basis of accounting**

In connection with the adoption of a liquidationbasis of accounting, we recorded an accrual for the estimated costs to beincurred during the liquidation period of approximately $7,365.  Our estimatefor liquidation costs as of March 31, 2007 includes professional feesassociated with liquidation and other legal matters, severance costs forterminated employees, and other miscellaneous general and administrativecosts.  Such estimated costs are subject to change.  We expect that changeswill be made to our estimated costs of liquidation and such changes inestimates will be recognized in future periods as a change in net assets inliquidation.  The estimated costs as of March 31, 2007 are based in large parton assumptions regarding the length of time required to settle all matters ofthe Company.  If there are delays in these matters, actual costs incurredduring liquidation could increase as a result of the need for additionalinternal and external resources.  The Company adjusted the net assets of theDiscovery Informatics business to its fair value by approximately $23,000 basedon the sale price of the DI assets to Vector. We also adjusted the fair valueof the Discovery Research business by approximately $6,800 reflecting theimpact of ongoing negotiations regarding the sale of this business on itscarrying value, while also reducing the realizable value of the St. Louis building by approximately $600 giving effect to the final sale price.  

**Changesin net liabilities in liquidation**

** **

Duringthe 15 days ended March 31, 2007 we recorded approximately $284 of net increasein assets from operations at TDR and an increase of $1,422 in assets fromcorporate and liquidation activities.  Over the same period we settled certainobligations related to corporate and liquidation activity for $4,859.  

** **

**Resultsof Operations**

***Period From January 1, 2007 Through March15, 2007 Compared to the Three Months Ended March 31, 2006***(Amounts in thousands,except per share amounts)

**Net sales** were$5,635 for the period from January 1, 2007through March 15, 2007 ("2007") compared to $6,644 for the three-monthperiod ended March 31, 2006 ("2006"), a decrease of 15%.  Discovery informaticsproducts and support sales decreased 23% to $4,531 in 2007 from $5,883 in 2006. This decrease is primarily attributable to decreased new product sales andcustomer contracts that were not renewed or were renewed at reduced levels. Discovery informatics services revenues increased 47% to $1,090 in 2007 from$744 in 2006.  The increase was attributable to the continuation of the Wyethproject in 2007, which began in early 2006.  The timing of revenue recognitionfrom discovery informatics services may fluctuate based on achievement ofcontractual milestones or progress on projects accounted for under thepercentage of completion method and thus varies from period to period.    Hardwaresales in 2007 were $14 compared to $17 in 2006.  We do not actively markethardware products, but rather facilitate customer demand when required. 

**Cost of sales** were $2,349 for the period from  January 1, 2007 through March 15, 2007 compared to $1,958 for the three-month  period ended March 31, 2006, an increase of 20%.  Cost of sales as a percent  of net sales was 42% and 29% for  the respective periods.  Costs****of discovery informatics licensesand support as a percent of software license and support sales were 25%, and 23%for the respective periods.  Costs of software licenses and supportconsisted of amortization of software products acquired in a corporateacquisition, amortization of capitalized software, product royalties tothird-party developers, commissions to Pacific Rim distributors, the cost ofsoftware product packaging and media, the costs

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**Item 2.            Management's Discussion andAnalysis of Financial Condition and Results of Operations (continued)**

related to staffing telephone support functions,packaging for updates/upgrades, and updates to documentation.  Cost of sales asa percent to software sales has increased over the past few years due to achange in the mix of internal versus third-party products sold, resulting inhigher royalty payments. 

Costs of discovery informatics services (DIS) asa percent of discovery informatics service revenues was 110% and 80% for therespective periods.  Costs of DIS are direct charges for staff, travel andoverhead required to develop custom software solutions for clients.  In thethird and fourth quarters of 2006 the company determined that changes to theplan would be required on a "Next-Generation Discovery IT" project with WyethPharmaceuticals resulting in incremental costs to complete the assignment.  Asa result of the incremental costs, the cumulative percentage of revenue to berecognized was adjusted.  This project is expected to be completed atapproximately $0 margin.  The timing of revenue recognition from discoveryinformatics services may fluctuate during any period based on achievement ofcontractual milestones or changes in overall cost estimates for "percentagecompletion" contracts.

Costs of hardware represented 85% and 87% forthe respective periods.  Cost of sales for hardware consists of the directcosts to us of the equipment sold.

**Gross profit**margin was $3,286 for the period fromJanuary 1, 2007 through March 15, 2007 compared to $4,686 for the three-monthperiod ended March 31, 2006, which represents gross margin of 58% and 70% forthe respective periods.  The decrease in gross margin is primarily attributableto the lower margin discovery informatics services business becoming a largerpercentage of revenues.  Gross profit for the Company is dependent on the mixof discovery informatics licenses and support versus discovery informaticsservices business, the mix of internal versus third-party software productsales, foreign exchange rates and the Company's ability to successfully deliveron informatics.

** **

**Sales and marketing expenses**were $1,831 for theperiod from January 1, 2007 through March 15, 2007 compared to $2,805 for thethree-month period ended March 31, 2006, a decrease of 35%.  Sales andmarketing expenses as a percent of total net sales was 32% and 42% for therespective periods.  The decrease in sales and marketing expenses was due toless employees resulting in lower employee costs, lower commissions, and lowertravel expense as well as reduced advertising expenditures in 2007.

**Research and development expenses** were $1,151 for the period fromJanuary 1, 2007 through March 15, 2007 compared to $1,921 for the three-monthperiod ended March 31, 2006, a decrease of 40%.  Research and development****expensesas a percent of net sales were 20% and 29% for the respective periods.  The decreasesin research and development expenses were the result of a reduction in workforce and greatercosts assigned to DI Service projects.  

**General and administrative expenses**were $1,660 for the period fromJanuary 1, 2007 through March 15, 2007 compared to $1,417 for the three-monthperiod ended March 31, 2006, an increase of 17%. General and administrative expenses as apercent of net sales were 29% and 21% for the respective periods.  The increasein general and administrative expense is the result of additional costs associatedwith the impendingliquidation of the Company. 

** **

**Restructuring expenses**were $155 for the periodfrom January 1, 2007 through March 15, 2007 and $120 for the three-month periodended March 31, 2006 and related to the reduction of the employee workforce ofthe Company's Discovery Informatics division.  As a result, the Companyrecorded a pre-tax restructuring charges related to the one-time terminationbenefits and outplacement costs.  

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**Item 2.                                   Management'sDiscussion and Analysis of Financial Condition and Results of Operations(continued)**

** **

**Interest expense** was****$480 for theperiod from January 1, 2007 through March 15, 2007 and $333 for the three-monthperiod ended March 31, 2006.  Interest expenses consisted of interest due onthe long-term note payable for the corporate building, interest due on ourline-of-credit, interest costs associated with capital leases and interest relatedto the subordinated note issued in the acquisition of Optive Research.  InJanuary 2005, the Company issued a $3.5 million subordinated promissory notewith a stated interest rate of 11.4 % as part of consideration in the Optiveacquisition.  Interest expense has varied commensurate with the change inaverage outstanding debt balances to finance the various activities, includingthe acquisition of Optive Research in 2005.  The floating rate incurred by theCompany on the mortgage note averaged 8.4% and 6.8% for the respective periods. The interest rate incurred on the line of credit was 8.5% and 7.7% for therespective periods.  Interest rates on the capital leases ranged from 3% to 8%.

**Other Income (expense)**was $(608) for theperiod from January 1, 2007 through March 15, 2007 and $279 for the three-monthperiod ended March 31, 2006.  Included in 2007 is $652 related to currency losses. Includedin 2006 is $251 related to currency gains, $12 of interest income and a $16adjustment to our carrying value in the AM Pappas Life Science II Fund toreflect our current pro-rata share and the current valuation by the fund'smanagers.  

**Income tax expense** from continuingoperations was $48 for the period from January 1, 2007 through March 15, 2007and income tax benefit of $218 for the three-month period ended March 31, 2006. The effective tax rates were (2)% and 13% for the respective periods.  Theeffective tax rates reflect management's current estimate of the distributionof earnings among the statutory jurisdictions in which the Company operated.  Wecontinue to evaluate the tax effects of the recent sales of our Discovery Informaticsand Discovery Research businesses. Final determination of the tax consequencesdepends upon the analysis of tax laws in the United States, England, France,and Germany and on the availability of tax loss carryforwards in thesejurisdictions.  Based on information and advice recently obtained and yet to befinalized, we are unable to make a definitive determination that  tax losscarryforwards for U.S. federal income tax purposes will be sufficient toshelter all gains in the United States.  This is primarily due to anuncertainty about whether ownership changes (for federal income tax purposes)have caused the availability of net operating loss carryforwards and lossesrealized on the sale of TDR to be limited.  Our federal income tax return for2006 is not due until September 15, 2007.  Based on current information, we haverecorded a tax provision of $3,200 in our March 31, 2007 financial statements. Prior to making our initial liquidating distribution, currently planned forOctober 2007, we will need to determine with greater certainty our final taxposition.  Our current expectation is that we will likely need to hold backfrom the distribution (potentially for a several year period) an amountapproximating the tax reserve described above.  We cannot at this time assurestockholders that we will not be required to use this reserve to pay taxes inthe U.S. and other jurisdictions.    

** **

**Loss from discontinued operations**consisted primarily ofthe Company's Discovery Research business (DR).  DR revenues are derived fromthe Company's compound library product, LeadQuest, and discovery researchactivities. The operating results of the DR unit are presented as a singleentry under the caption "Loss from discontinued operations, net of income taxbenefit of $0 and $0 allocable to common shareholders" on the accompanyingConsolidated Statements of Operations.  DR revenues were $619 for the periodfrom January 1, 2007 through March 15, 2007 and $1,826 for the three-monthperiod ended March 31, 2006.  The decrease in DR revenues resulted from reduceddiscovery research activities.  Revenue related to discovery researchactivities is recognized in accordance with SOP 81-1, under the percentage ofcompletion method using an output measure for revenue recognition (units ofdelivery method).  

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**Item 2.  Management's Discussion and Analysis ofFinancial Condition and Results of Operations (Continued)**

Cost of sales were $616 for the period fromJanuary 1, 2007 through March 15, 2007 compared to $1,609 for the three-monthperiod ended March 31, 2006, a decrease of 62%.  Cost of sales as a percent of net saleswas 100% and 88% for the respective periods.  The cost of the discovery researchbusiness consisted of the raw material, direct labor and overhead costs toproduce compound libraries and to deliver on contracted research projects. Discovery research contracts may also include third-party costs for productionof larger quantities of intermediate or scale-up materials.  As a result,variability in cost of sales may be attributed to the mix of compound productsand discovery research revenues.  Theincrease in the 2007 costs of discovery research products and services as apercentage of sales was negatively affected by cost overruns on certaincontracts and price reductions for compound inventory sales.  

Gross profit****marginwas $3 for the period from January 1, 2007 through March 15, 2007 compared to$217 for the three-month period ended March 31, 2006, which represents grossmargin of 0% and 12% for the respective periods.  The decrease in gross marginis primarily attributable to the lower margin discovery informatics servicesbusiness becoming a larger percentage of revenues. The decrease in the grossprofit margin was the result of an overall decrease in sales as well as costoverruns on service contracts and increased competition on compound inventorysales.

Sales and marketing expenses decreased to $0 in2007 from $204 in 2006.  Sales and marketing expenses represented 0% and 11% of2007 and 2006 total net sales, respectively.  

Research and development expenses****increased55% in 2007 to $1,393 from $901 in 2006.  R&D costs represented 226%, and 49%of net sales in 2007 and 2006, respectively.  The increase in R&D expensesas a percentage of net sales increased in 2006 primarily due to recording agrant repayment obligation to the U.K. Department of Trade & Industry inaddition to reduced sales as a result of the completion of the Pfizer contractat the end of 2005, as well as production inefficiencies resulting in greaternon-capitalizable costs remaining in R&D. See restructuring expense belowfor further details regarding reductions in force for our Discovery Researchbusiness that occurred in 2006.  Costs associated with investigating novelcompound templates are classified as R&D up until such time as the basereaction is validated, after which costs are captured in inventory. 

Restructuring expensesin 2006 represented a reduction in workforce related to our Discovery Researchdivision.  On January 24, 2006 we completed a reduction in force for ourDiscovery Research business based in Bude, England that was initiated followingcompletion of the four-year $90 million file enrichment project for Pfizer. This action coincided with the conclusion of the 30-day consultation periodwith employees mandated by U.K law.  We reduced the number of employees at thelaboratory by 76 positions.  More than half of the employees affected left thecompany under a voluntary separation plan.  As a result of these actions, the Companyrecorded pre-tax restructuring charges of approximately $807 in the firstquarter 2006 related to our Discovery Research division for one-timetermination benefits and outplacement costs.  The Company further reducedstaffing levels on August 11, 2006 by 14 positions, resulting in a pre-taxrestructuring charge of $338.  We solicited and obtained voluntary terminationsfor all positions affected in exchange for one-time termination benefits andoutplacement costs.  This action was necessary in order to further streamlinethis business with the goal of obtaining positive cash flows from this businessfor the remaining months of the year.  

Interest income****was$0 in 2007 and $12 in 2006.  The reduction from the 2006 level reflects adecreasing average amount of cash on hand due to lower levels of cash generatedfrom operations in 2007 and 2007.  Interest expense****of $142 in 2007 and$168 in 2006 was from interest costs associated with capital leases.  Otherincome (expense)****was ($10) in 2007 and $0 in 2006. 

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**Item 2.  Management's Discussion and Analysis ofFinancial Condition and Results of Operations (Continued)**

Our tax expense from discontinued operations was$0 in 2007 and 2006.  The effective income tax expense reflects management'scurrent estimate of the distribution of earnings among the statutoryjurisdictions in which we operate and the valuation of certain tax credits andnet operating losses in the U.K..  

** **

**Liquidity and Capital Resources**

Operating Activities.  Net cash used in operatingactivities in 2007 was $903.  The primary uses of cash were from a net loss fromcontinuing operations of $2,587, an increase in prepaid expenses and otherassets of $2,177, and lower deferred revenues of $1,253.  These uses of cashwere partially offset by collections of accounts receivables of $5,487,increased accounts payable and accrued expenses of $487, as well as theadd-back of non-cash items such as depreciation and amortization including theamortizations of debt discount and deferred issuance costs totaling $620.  Thediscontinued operations, DR business unit, used $1,528 of cash in itsoperations in 2007.  

Net cash used in 2006 operating activities was $84. Cash was used through the net loss from continuing operations of $1,413, anincrease in prepaid expenses of $786, along with decreases in deferred revenuesof $1,611 and accounts payable and accrued expenses of $599.  These uses werepartially offset by collections of accounts receivable of $4,629, the add-backof depreciation, amortization and a write-down of the value of an investmentheld at cost totaling $603, and stock compensation expense of $94. Discontinued operations used $1,001 of cash in 2006.

 

Investing Activities.  Net cash used ininvesting activities in 2007 was $218, consisting of capitalized developmentcosts for our discovery informatics software products of $128 and the additionof patents of $47.  Discontinued operations used $43 of cash in 2007.  

Net cash utilized in investing activities during2006 was $2,594.  During 2005 we made new investments in equipment of $19, andinvested in new informatics product development totaling $235.  The DRdiscontinued operations provided $2,848 in 2006, principally from the sale ofexcess property.

Financing Activities.  Net cash provided byfinancing activities in 2007 was $378, consisting of payments on long-term debtand capital lease obligations totaling $161, which were offset by borrowingsunder our revolving line of credit of $1,450.  Discontinued operations consumed$911 of cash in 2007 principally for payments on capital leases. 

Net cash utilized in financing activities in 2006was $3,287, consisting of payments on long-term debt and capital leases of $3,527and $1,160 used in discontinued operations.  These were offset by borrowingsunder our revolving line of credit of $1,400.

The company paid theoutstanding balance of the subordinated debt, the mortgage loan, and the lineof credit with the proceeds from the sale of the assets of the DiscoveryInformatics business to Vector Capital.

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**Item 2.  Management's Discussion and Analysis ofFinancial Condition and Results of Operations (Continued)**

** **

**Critical Accounting Policies**

For further discussionof the Company's critical accounting policies, please see the section entitled"Critical Accounting Policies" in Management's Discussion andAnalysis of Financial Condition and Results of Operations in Form 10-K for theyear ending December 31, 2006.  There have been no material changes to criticalaccounting policies previously reported in our Annual Report on Form 10-K forthe fiscal year ended December31, 2006 other than the transition to liquidationbasis of accounting for periods subsequent to March 15, 2007.

**New Accounting Pronouncements**

The shareholders of Tripos, Inc. approved a planof dissolution and liquidation at a special meeting on March 15, 2007.  As aresult of the pending liquidation of the Company and adoption of theliquidation basis of accounting for periods subsequent to March 15, 2007, onlyaccounting pronouncement that will impact the Company prospectively ispresented as follows:

In June 2006, the Financial Accounting StandardsBoard ("FASB") issued FASB Interpretation No. 48, "Accounting for Uncertaintyin Income Taxes-an interpretation of FASB Statement No. 109."  ThisInterpretation prescribes a recognition threshold and measurement attribute forthe financial statement recognition and measurement of a tax position taken orexpected to be taken in a tax return.  This Interpretation also providesguidance on de-recognition, classification, interest and penalties, accountingin interim periods, disclosure, and transition.  The Interpretation iseffective for fiscal years beginning after December 15, 2006.  We adopted FIN48 beginning January 1, 2007 and the adoption did not have a material effect onour financial statements for the period.  

** **

Periodic reports on Form 10-Q, Form 10-K andother filings with the Securities and Exchange Commission ("SEC") onForm 8-K and S-8, can be found on the Tripos web site at www.tripos.comunder the heading Investor Relations - SEC Filings.

**Item 3. Quantitative and Qualitative Disclosuresabout Market Risk**

Our exposure to marketrisks is limited to foreign exchange variances and fluctuations in interestrates.  To date, interest rate exposure has not resulted in a materialimpact.   During 2005, 2006 and 2007 the Company did experience a significantimpact from foreign exchange.  For example, the costs to perform the customdesign and synthesis contract with Pfizer were incurred in British poundssterling while we were compensated in U.S. dollars for much of the work.  As aresult, our gross profit was adversely affected by the decline in the U.S.dollar against the pound in 2004 and 2005.  Part of this effect was offsetthrough foreign currency forward contracts whose gains were recorded in"Other Income".

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Our foreign exchangerisk is presently limited to currencies that historically have exhibited onlyminor fluctuations although since 2004, these currencies have shown moresignificant variation.  Assets outside the United States subject to currencyfluctuation are located in England, Germany and France.  Our investments inforeign subsidiaries with a functional currency other than the U.S. dollar arenot hedged.  The assets in foreign subsidiaries most susceptible to exchangerate variances were as follows:  US dollar/UK pound balances 2006 $16.8million, and US dollar/Euro balances 2006 $1.2 million.  The potentialreduction in fair value resulting from a hypothetical 10% adverse change in USdollar/UK pound currency exchange rates would be approximately $1.7 million atDecember 31, 2006, while the same 10% adverse movement in the US dollar/Euro rateswould be approximately, $120,000 for 2006.  Any loss in fair value ofpermanently invested funds would be reflected in Other Comprehensive Income andwould not impact our net income. 

Our interest rate risk wasattributable to borrowings under the line-of-credit and mortgage loan.  Wemonitored our exposure to floating interest rate risk on line-of-creditborrowings along with the outstanding balance on the mortgage loan and, attimes, endeavored to mitigate this risk through the use of appropriate hedginginstruments.

** **

**Item 4.  Controls and Procedures**

We established andmaintained disclosure controls and procedures that were designed to ensure thatmaterial information relating to the Company and our subsidiaries required tobe disclosed by us in the reports that we file or submit under the SecuritiesExchange Act of 1934 were recorded, processed, summarized, and reported withinthe time periods specified in the SEC's rules and forms, and that suchinformation was accumulated and communicated to our management, including ourChief Executive Officer and Chief Financial Officer, as appropriate to allowtimely decisions regarding required disclosure.  In designing andevaluating the disclosure controls and procedures, management recognized thatany controls and procedures, no matter how well designed and operated, canprovide only a reasonable assurance of achieving the desired controlobjectives, and management was necessarily required to apply its judgment inevaluating the cost-benefit relationship of possible controls and procedures.

The Company's ChiefExecutive Officer and Chief Financial Officer have evaluated the effectivenessof the design and operation of the Company's disclosure controls and procedures(as defined under Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Actof 1934, as amended) as of the end of the period covered by this report. Basedupon that evaluation, the Company's Chief Executive Officer and Chief FinancialOfficer have concluded that the Company's disclosure controls and procedures wereeffective at the reasonable assurance level as of the date of such evaluation.

On March 20, 2007, JohnD. Yingling resigned as the Company's Chief Financial Officer to accept asimilar position with the successor to Tripos' discovery informatics businessand John P. McAlister assumed the position in addition to his other positionsas President and Chief Executive Officer of the Company.

During the quarterlyperiod covered by this report, there were no other changes in the Company'sinternal control over financial reporting that have materially affected, or arereasonably likely to materially affect, the Company's internal control overfinancial reporting.

** **

** **

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**PART II**

**OTHER INFORMATION**

Item 1.     LegalProceedings

          Noupdates.  See "Contingent Liabilities" in the Notes to Unaudited FinancialStatements above for a general description.  Reference is made to the "LegalProceedings" section of our Form 10-K for the year ending December 31, 2006 fora detailed description of legal proceedings.

** **

Item 1A.   Risk Factors

          Adescription of the risk factors associated with our business is contained inItem 1A, "Risk Factors," of our 2006 Annual Report on Form 10-K filed with theSecurities and Exchange Commission on April 17, 2007 and incorporated herein byreference.  These cautionary statements and similar statements made in ourcurrent reports on Form 8-K and in this quarterly report on Form 10-Q are to beused as a reference in connection with any forward-looking statements. The factors, risks and uncertainties identified in these cautionary statementsare in addition to those contained in any other cautionary statements, writtenor oral, which may be made or otherwise addressed in connection with aforward-looking statement or contained in any of our subsequent filings withthe Securities and Exchange Commission.

Item2.     Unregistered Sales of Equity Securities and Useof Proceeds

          None

Item3.     Defaults upon Senior Securities

          None

Item4.     Submission of Matters to a Vote of SecurityHolders

On March 15, 2007 the Company issued a pressrelease and filed a Form 8-K disclosing the results of the vote of shareholdersapproving the sale of assets of the Discovery Informatics business andapproving the liquidation and dissolution of the Company.

Item5.     Other Information

          None

Item6.     Exhibits 

           31.1    Section302 Certification of the Chief Executive and Chief Financial Officer

           32.1    WrittenStatement of Chief Executive Officer and Chief Financial Officer Pursuant toSection 906 of the Sarbanes-Oxley Act of 2002

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**TRIPOS, INC.**

**SIGNATURES**

** **

Pursuant to the requirements of the SecuritiesExchange Act of 1934, the Registrant has duly caused this report to be signedon its behalf by the undersigned hereunto duly authorized.

TRIPOS, INC.

| Date:  |  June 20, 2007 | /s/  John P. McAlister      |
|-------------|---------------------|-----------------------------|
|             |                     | President,                  |
|             |                     | Chief Executive Officer and |
|             |                     | Chief Financial Officer     |
|             |                     |                             |

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