###### 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 June 30, 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     X         No    _    

            

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   X           No        

Number of shares outstanding of the issuer'sCommon Stock, par value $.01 per share, as of August 20, 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 June 30, 2007     (Unaudited)                                                                                                                                                                                 | 4        |
|     Consolidated Statement of Changes in Net Assets in Liquidation for the period  from          March 16, 2007 through June 30, 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- and six-months        ended June 30, 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 six-months ended         June 30, 2006 (Unaudited)                  | 8-9      |
|   Notes  to Consolidated Financial Statements (Unaudited)                                                                                                                                                                                                                                  | 10-22    |
|                                                                                                                                                                                                                                                                                                      |          |
| **Item  2. Management's Discussion and Analysis of Financial Condition and Results of Operations**                                                                                                                                                                                                   | 22-29    |
| **Item  3. Quantitative and Qualitative Disclosures about Market Risk**                                                                                                                                                                                                                              | 29       |
| **Item  4. Controls and Procedures**                                                                                                                                                                                                                                                                 | 29       |
|                                                                                                                                                                                                                                                                                                      |          |
| **PART  II  OTHER INFORMATION**                                                                                                                                                                                                                                                                 | 30       |
| **SIGNATURES**                                                                                                                                                                                                                                                                                       | 31       |

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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 April12, 2007, the Company completed the sale of its corporate headquarters locatedin St. Louis, Missouri.  The sale price for the building was $4.7 million lessadjustments resulting in a net purchase price of just under $4.0 million. Sales commissions, fees and other closing costs reduced the net proceeds toapproximately $3.7 million.  At closing, the Company entered into a 7-monthlease for a portion of the building and made a lump sum deposit of the fullrental amount of $418,000.

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 a 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.  

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 carry-forwards in these jurisdictions.  Based on information andadvice recently obtained, we have determined that tax loss carry-forwards for U.S. federal income tax purposes will be sufficient to shelter most of the gains in the UnitedStates. However, final determination will not be made until our federal incometax return for 2006 is finalized, which is due September 15, 2007.    Based oncurrent information, we have recorded a tax provision of $0.5 million in our June30, 2007 financial statements.  Prior to effecting our initial liquidatingdistribution, currently planned for October 2007, we will need to determinewith greater certainty the position to be taken on our 2007 Federal income taxreturn.  Our current expectation is that we will likely need to hold back fromthe 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)**

|                                                                          | ** ** | June 30, 2007       |
|--------------------------------------------------------------------------|------------|---------------------|
| ASSETS                                                                   |            |                     |
|    Cash  and cash equivalents                             | ** ** | $ 10,847  |
|    Accounts  receivable                                   | ** ** | 637            |
|    Prepaid  expenses                                      | ** ** | 594            |
|    Property  and equipment, less accumulated depreciation | ** ** | 3              |
|         Total assets                       | ** ** | $ 12,081  |
|                                                                          | ** ** |                     |
| LIABILITIES                                                              |            |                     |
|    Accounts  payable                                      | ** ** | 874            |
|    Accrued  expenses                                      | ** ** | 299            |
|     Accrued liquidation costs                                  | ** ** | 1,637          |
|     Net deferred revenue                                       | ** ** | 7              |
|     Income taxes payable                                       | ** ** | 340            |
|        Total liabilities                        | ** ** | $ 3,157        |
|                                                                          | ** ** |                     |
|                                                                          | ** ** |                     |
| Net  Assets in Liquidation                                               | ** ** | $ 8,924   |
|                                                                          |            |                     |

*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   June 30, 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                                           | ** ** | (2,331)                                             |
|     Discovery research operating activity                                                  | ** ** | (1,050)                                             |
|     Settlement of assets and liabilities in liquidation                                    | ** ** | 3,476                                          |
|     Change in estimate of liquidation accrual                                              | ** ** | 613                                            |
|                                                                                                      | ** ** |                                                     |
|         Net change in net assets in liquidation                        | ** ** | 708                                            |
|                                                                                                      | ** ** |                                                     |
| Net  assets in liquidation at June 30, 2007                                                          | ** ** | $ 8,924                                   |
|                                                                                                      | ** ** |                                                     |

*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** | Six-Months Ended   June 30, 2006 | Three-Months Ended   June 30, 2006 |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------------------------------------------------|----------------------------------|------------------------------------|
| Net  sales:                                                                                                                                                           | ** **                                             |                                  |                                    |
|    Discovery  informatics licenses and support                                                                                                         | **$ 4,531 **                                 | $ 12,093               | $ 6,210                  |
|    Discovery  informatics services                                                                                                                     | ** 1,090 **                                  | 2,517                       | 1,773                         |
|    Hardware                                                                                                                                            | **14 **                                           | 25                          | 8                             |
|         Total net sales                                                                                                                 | **5,635 **                                        | 14,635                      | 7,991                         |
|                                                                                                                                                                       | ** **                                             |                                  |                                    |
| Cost  of sales                                                                                                                                                        | **2,349 **                                        | 4,490                       | 2,532                         |
|         Gross profit                                                                                                                    | **3,286 **                                        | 10,145                      | 5,459                         |
|                                                                                                                                                                       | ** **                                             |                                  |                                    |
| Operating  expenses:                                                                                                                                                  | ** **                                             |                                  |                                    |
|    Sales  and marketing                                                                                                                                | **1,831 **                                        | 5,378                       | 2,573                         |
|    Research  and development                                                                                                                           | **1,151 **                                        | 3,737                       | 1,816                         |
|    General  and administrative                                                                                                                         | **1,600 **                                        | 2,790                       | 1,373                         |
|    Restructuring  charge                                                                                                                               | **155 **                                          | 120                         | --                            |
|         Total operating expenses                                                                                                        | **4,737 **                                        | 12,025                      | 5,762                         |
|                                                                                                                                                                       | ** **                                             |                                  |                                    |
| Loss  from operations                                                                                                                                                 | **(1,451)**                                            | (1,880)                          | (303)                              |
|                                                                                                                                                                       | ** **                                             |                                  |                                    |
| Interest  expense                                                                                                                                                     | **(480)**                                              | (657)                            | (324)                              |
| Other  income (expense), net                                                                                                                                          | **(608)**                                              | 1,150                       | 871                           |
| Income  (loss) before income tax expense (benefit)                                                                                                                    | **(2,539)**                                            | (1,387)                          | 244                           |
| Income  tax expense (benefit)                                                                                                                                         | **48 **                                           | (16)                             | 202                           |
| Net  Income (loss) from continuing operations                                                                                                                         | **(2,587)**                                            | (1,371)                          | 42                            |
| Preferred  dividends                                                                                                                                                  | **977 **                                          | 217                         | 217                           |
| Net  loss from continuing operations allocable   to common shareholders                                                                                               | **(3,564)**                                            | (1,588)                          | (175)                              |
| Loss  from discontinued operations, net of income tax      benefit of $0, $0 and $0, respectively, allocable to     common shareholders | **(1,840)**                                            | (3,703)                          | (1,430)                            |
| Net  loss allocable to common shareholders                                                                                                                            | **$ (5,404)**                                     | $ (5,291)                   | (1,605)                            |
|                                                                                                                                                                       | ** **                                             |                                  |                                    |
| Basic  & diluted loss from continuing operations, per share                                                                                                       | **$ (0.34)**                                           | $ (0.16)                         | $ (0.02)                           |
| Basic  & diluted loss from discontinued operations,      per share                                                                                 | **$ (0.18)**                                           | $ (0.36)                         | $ (0.14)                           |
| Basic  & diluted loss allocable to common shareholders,      per share                                                                             | **$ (0.52)**                                           | $ (0.52)                         | $ (0.16)                           |
| Basic  and diluted weighted average number of shares                                                                                                                  | **10,393 **                                       | 10,192                      | 10,194                        |

*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** | Six-Months  Ended   June 30, 2006 |
|--------------------------------------------------------------------------------------------------------|-------------------------------------------------------|-----------------------------------|
| **Operating  activities:**                                                                             | ** **                                            |                                   |
| Net  loss from continuing operations                                                                   | **$ (2,587)**                                         | $ (1,371)                    |
| Adjustments  to reconcile net loss to   net cash used in operating activities:                         | ** **                                            |                                   |
| Net  loss from discontinued operations                                                                 | ** (1,840)**                                     | (3,703)                           |
|    Depreciation  of property and equipment                                              | **200 **                                         | 601                          |
|    Amortization  of capitalized development costs      & intangibles | **314 **                                         | 611                          |
|    Amortization  of debt discount                                                       | **44 **                                          | 126                          |
|    Amortization  of deferred issuance costs                                             | **62 **                                          | 36                           |
|    Gain  on revaluation of common stock warrants                                        | **-- **                                          | (358)                             |
|    Deferred  income taxes                                                               | **-- **                                          | 4                            |
|    Write-down  (carrying value adjustment) of      long-term investment  | **-- **                                          | (16)                              |
|    Loss  on retirement of assets                                                        | **48 **                                          | 3                            |
|    Stock-based  compensation expense                                                    | **-- **                                          | 214                          |
|                                                                                                        | ** **                                            |                                   |
| Change  in operating assets and liabilities:                                                           | ** **                                            |                                   |
|    Restricted  Cash                                                                     | **-- **                                          | (298)                             |
|    Accounts  receivable                                                                 | **5,487 **                                       | 7,122                        |
|    Prepaid  expenses and other current assets                                           | **(2,177)**                                           | 1,408                        |
|    Accounts  payable and accrued expenses                                               | **487 **                                         | (3,863)                           |
|    Deferred  revenue                                                                    | **(1,253)**                                           | (5,225)                           |
| Net  cash provided by discontinued operations      operating activities                 | **312 **                                         | 644                          |
| Net  cash used in operating activities                                                                 | **(903)**                                             | (4,065)                           |
|                                                                                                        | ** **                                            |                                   |
| **Investing  activities:**                                                                             | ** **                                            |                                   |
| Purchases  of property and equipment                                                                   | **-- **                                          | (221)                             |
| Capitalized  development costs                                                                         | **(128)**                                             | (455)                             |
| Change  in intangibles and patents                                                                     | **(47)**                                              | --                           |
| Net  cash provided by (used in) discontinued operations      investing activities       | **(43)**                                              | 3,706                        |
| Net  cash provided by (used in) investing activities                                                   | **(218)**                                             | 3,030                        |

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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** | Six-Months  Ended   June 30, 2006 |
|--------------------------------------------------------------------------------------------------|---------------------------------------------------------|-----------------------------------|
|                                                                                                  | ** **                                              |                                   |
| **Financing  activities:**                                                                       | ** **                                              |                                   |
| Proceeds  from the issuance of common stock                                                      | **-- **                                            | 172                          |
| Proceeds  from the issuance of preferred stock                                                   | **-- **                                            | 4,891                        |
| Payments  of cash dividends on preferred stock                                                   | **-- **                                            | (93)                              |
| Borrowings  under revolving line of credit                                                       | **1,450 **                                         | 2,300                        |
| Payments  on long-term debt and capital lease obligations                                        | **(161)**                                               | (7,300)                           |
| Net  cash used in discontinued operations      financing activities               | **(911)**                                               | (1,667)                           |
| Net  cash provided by (used in) financing activities                                             | **378 **                                           | (1,697)                           |
| Effect  of foreign exchange rate changes on   cash and cash equivalents                          | **1,071 **                                         | (614)                             |
| Net  increase (decrease) in cash and cash equivalents                                            | **328 **                                           | (3,346)                           |
|                                                                                                  | ** **                                              |                                   |
| 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 **                                         | 2,606                        |
| Cash  and cash equivalents at end of period -       discontinued operations       | **29 **                                            | 289                          |
| Cash  and cash equivalents at end of period                                                      | **$ 3,090 **                                       | $ 2,895                 |
|                                                                                                  | ** **                                              |                                   |

*See accompanying notes.*

* *

** **

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

| ** **                                                 | **Period from   Jan. 1, 2007  through  Mar. 15, 2007** | Six-Months  Ended   June 30, 2006 |
|------------------------------------------------------------|--------------------------------------------------------|-----------------------------------|
| **Noncash investing activities**                           | ** **                                             |                                   |
| Purchase of new equipment through capital  lease financing | **$ 498**                                         | $ 3,966                      |

*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 was 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,combinatorial library design, data storage and analysis, and structure-activityrelationships to customers in pharmaceutical, biotechnology and related lifescience fields of research.  The Company offered over fifty (50) softwareproducts for these research areas.  Key componentsof these products were packaged as web services as part of Tripos'Service-Oriented Informatics strategy, designed to make the Company's valuablediscovery tools adaptable to each scientist's workflow in the new rapidlyevolving informatics environment.  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 headquarterswas in St. Louis, Missouri and its chemistry laboratory was 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 resolved the disputes and agreed that the finalpurchase price would not be subject to any post-closing adjustments.

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 was to terminate on the first anniversary of itscommencement unless sooner terminated by either party upon 90 days writtennotice.  The annual rent under this office lease was $645, payable in equal monthlyinstallments of $54.  

On April 12, 2007, the Company completed thesale of its corporate headquarters building to 1699-1701 South Hanley, LLC, anunrelated third-party.  The sale price for the building was $4,700 lessadjustments totaling $727 resulting in a net purchase price of $3,973.  Salescommissions, fees and other closing costs reduced the net proceeds toapproximately $3,693.  At closing, the Company entered into a 7-month lease fora portion of the building and made a lump sum deposit of the full rental amountof $418.

Tripos (DE) delivered a notice of termination ofits lease with Tripos, Inc. effective August 1, 2007 with the intention ofvacating the premises, however, the parties have since entered into anamendment in which DE planned to remain in the premises through the November12, 2007 expiration date of the Company's lease with 1699-1701 South HanleyLLC.

On June 6, 2007, Tripos Discovery Research LTD  ("TDR") entered into a series of agreements with the South West of England  Regional Development Agency ("SWERDA") and the Department of Trade and  Industry ("DTI") for England 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 

| 11 |
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**Item 1.  Financial Statements (continued)**

Agreement (the "Amended Agreement") pursuant towhich CBI acquired all of the capital stock of TDR.  The Amended Agreementsuperseded a Purchase and Sale Agreement dated as of May 11, 2007 between theparties.  The sale of the discovery research products and services businessclosed contemporaneously with the execution of the Amended Agreement.  As theresult of these agreements, Tripos has completed the disposition of its lastoperating business and has realized $350 in consideration for the shares andhas 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 liability of GBP1,540 payable tothe DTI recorded in the first quarter of 2007 was reduced to the actual amountpaid of GBP591 in the second quarter of 2007 (a reduction of GBP949).

The saleof DI, DR and the St. Louis building were parts of the plan of dissolutionadopted by the Company's board of directors and approved by a vote of theCompany's shareholders, that is intended to result in the winding up of theCompany and the distribution of the sale proceeds to shareholders after thesatisfaction of all debts, other liabilities and corporate obligations.

Tripos was delisted from the Nasdaq GlobalMarket effective on July 6, 2007 because it ceased meeting certain listingcriteria, including the existence of an operating business.  Tripos shares continueto be traded on the OTC Bulletin Board(R).  

** **

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, compensation and benefits forthe remaining employees, and other miscellaneous general and administrativecosts in computing the accrual of liquidation costs.  Management expects thereto be changes made to these estimates and will recognize such changes in futureperiods as a change in net assets in liquidation.  Current estimates are basedin large part on the time required to settle all matters of the Company.  Ifthere are delays, actual costs incurred during liquidation could increase as aresult 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,realization of assets and satisfaction of liabilities in the ordinary 

** **

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

** **

course of business, and did not purport to show,reflect or provide for the consequences of the dissolution of the Company.

**CriticalAccounting Policies**

** **

**Revenue Recognition**

***Discovery Informatics Licenses andSupport***

The Company recognized 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 were recognized when each of thefollowing criteria was 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 allocated 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 was based onvendor-specific objective evidence (VSOE).  The Company limited its assessmentof VSOE for each element to the price charged when the same element was soldseparately by the Company.  The Company analyzed all of the elements includedin its multiple-element arrangements and determined that it had sufficient VSOEto allocate revenues to maintenance and support services, and training.  TheCompany sold training separately and established VSOE on this basis.  VSOE formaintenance and support was determined based upon the renewal rates incontracts themselves, which were based on a fixed percentage of the currentperpetual license list price.  Accordingly, assuming all other revenuerecognition criteria were met, revenues from perpetual licenses were recognizedupon delivery of the software using the residual method in accordance with SOP98-9, "Modification of SOP 97-2, Software Revenue Recognition, withRespect to Certain Transactions." Revenues from perpetual software licensesales fluctuated based on the size and number of transactions completed duringany fiscal period.

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

Term and bundled licenses represented time-basedlicense arrangements for one or multiple software products that were sold withmaintenance and support for the term of the license arrangement.  The Company didnot have VSOE to determine fair value of the maintenance and support in termarrangements.  The Company recognized revenues from these bundled time-basedlicenses ratably over the license term, which was typically 1 to 3 years. Revenues from time-base license arrangements were derived from sales to newcustomers and renewals from existing customers.  Historical renewal rates haveaveraged 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) representedcontracts for the development and delivery of enterprise-wide customizedsoftware (such as laboratory information systems or database integrationprojects).  Technological feasibility existed on these software arrangementsand they typically included installation at the customer's site.  The Companyaccounted for these arrangements in accordance with SOP 81-1, as required bySOP 97-2 since the contract to deliver software and installation requiredsignificant production, modification or customization of software.

In applying the provisions of SOP 81-1 thepercentage of completion was utilized.  For contracts where customer approvalof contractually required tasks had to occur at each distinct milestone, andwhere amounts billable were indicative of progress-to-completion, we recordedrevenues when a milestone was met and accepted by the customer.  For contractswithout distinct milestones, we measured progress using the cost-to-cost method(cumulative costs as a percentage of total expected costs to complete), whichapproximated progress towards completion.

DIS also included software development projectsthat were 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 were on a "commerciallyreasonable" basis, and the customer was subject to billings on a time andmaterials basis.  Accordingly, we recorded the related revenue when the timeand costs were incurred at the stated contractual rates.

*** ***

***Discovery Research Services***

Discovery Research services (DRS) included 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 recognized revenue from the sale ofchemical compounds upon shipment of the products, FOB shipping point, to thecustomer.  This practice was 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 existed upon the receipt of a contract outlining the purchase andusage terms of the compounds.  A purchase order was also received asconfirmation.  As stated above, revenue was not recognized until the compoundshad been shipped to the customer.  The selling price for compounds was fixedaccording to the terms of the contract or customer's purchase order.  Paymentterms for chemical compound transactions were Net 30 days.  The Companyexperienced very few bad debts arising from these transactions; as a result,collectibility was reasonably assured.

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

DRS involved lead-compound optimization projects, customsynthesis, and compound design.  These contracts generally called fornon-refundable contractual fees tied to time and materials.  Accordingly,revenues under contracts of this type were recorded on a time and materialbasis.  When contracts to

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

** **

**CriticalAccounting Policies (continued)**

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

An access fee for the LeadDiscovery programs wasrecognized upon completion of a materials transfer agreement and shipment ofselected compounds to the customer for screening purposes.  If the customerdecided to retain exclusive rights to promising compounds in the selection, anadditional fee was required.  Customers engaged 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 included(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 accounted 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 were established when necessary to reduce deferredtax assets when it was more likely than not that a portion or all of thedeferred tax assets would not be realized.  In accordance with FAS 109, incometax expense included 1) deferred tax expense, which generally represented thenet change in the deferred tax asset or liability balance during the periodplus any change in valuation allowances, and 2) current tax expense, whichrepresented the amount of tax currently payable to or receivable from a taxingauthority.  The primary difference between financial statement income andtaxable income resulted from the use of different methods of computingdepreciation, capitalized development cost, certain revenue recognitionactivities, other timing differences and the valuation of net operating losscarry-forwards.  Deferred taxes did not reflect temporary differences relatingto our investment in foreign subsidiaries as these amounts were deemed to bepermanently invested.  Estimating the deferred tax position on these amounts wasnot practical.****

The effective tax ratereflected management's then current estimate of the distribution of earningsamong the statutory jurisdictions in which we operated and the valuation ofcertain tax credits and net operating losses in the U.S. and U.K. from priortax years (each ending December 31).  Valuation allowances established fordeferred tax assets related to net operating losses did not impair our abilityto use those deferred tax assets upon achieving profitability in the relatedjurisdictions.

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

**CriticalAccounting Policies (continued)**

** (2)     ComprehensiveIncome Loss**

The components of accumulated othercomprehensive loss, 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)     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, theonly accounting pronouncement that impacts the Company prospectively is:

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.  

**(4)     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 designed, or in-licensed, and sold licenses to software suites thatprovided computer-aided molecular modeling and visualization, virtualscreening, combinatorial library design, data storage and analysis, andstructure-activity relationships to customers in pharmaceutical, biotechnologyand related life science fields or research.  The Company's Discovery Researchsegment provided drug discovery services to pharmaceutical and biotechnology companies. This segment was designated as held for sale on December 31, 2006 and presentedas discontinued operations.  As a result, the Company no longer had multipleoperating segments requiring separate presentation.  

| 16 |
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**Item1.  Financial Statements (continued)**

** **

**(5)     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 and six-month periods ended June 30,2006.

** **

|                                                                                                         | **Period from   Jan. 1, 2007 through  Mar. 15, 2007** | Six-Months Ended   June 30, 2006 | Three-Months Ended   June 30, 2006 |
|---------------------------------------------------------------------------------------------------------|-------------------------------------------------------|----------------------------------|------------------------------------|
| **Numerator:**                                                                                          | ** **                                            |                                  |                                    |
| Numerator for basic and diluted earnings per  share-  -net loss allocable to common shareholders        | **$ (5,404)**                                    | $ (5,291)                   | $ (1,605)                     |
| -dividends accruing to preferred shareholders  (Note C)                                                 | **-- **                                          | --                          | --                            |
| Numerator for diluted earnings per share                                                                | **$ (5,404)**                                    | $ (5,291)                   | $ (1,605)                     |
| ** **

**Denominator:**                                                                            | ** **                                            |                                  |                                    |
| Denominator for basic earnings per share--  -weighted average shares                                    | **10,393 **                                      | 10,192                      | 10,194                        |
| 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 **                                      | 10,192                      | 10,194                        |
| Basic earnings per share                                                                                | **$ (0.52)**                                     | $ (0.52)                    | $ (0.16)                      |
| Diluted earnings per share                                                                              | **$ (0.52)**                                     | $ (0.52)                    | $ (0.16)                      |

Note A: For the periodfrom January 1, 2007 through March 15, 2007 and for the three- and six-monthsended June 30, 2006, the dilutive effect of the 156 outstanding warrants topurchase shares of common stock issued to Horizon in January 2005 has beenexcluded as the average market price of Tripos common stock was below the priceof the warrants and therefore the warrants could not be deemed to have beenconverted into common stock.  The 550 warrants and 16 warrants issued in May2006 to Midwood Capital and Seven Hills, respectively, have also been excludedfor 2007 as the average market price of Tripos common stock was below the priceof the warrants 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- and six-monthsended June 30, 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- and six-monthsended June 30, 2006, weighted average shares outstanding were not adjusted forthe conversion 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)**

** **

**(6)     Debt Facilities**

Asof December 31, 2006, the Company had a credit agreement with LaSalle Bank N.A.for a $3,480 mortgage note for its St. Louis real property.  The Company alsohad a $6,000 revolving line of credit agreement with LaSalle Bank with anoutstanding balance of $3,500.  Both credit agreements were collateralized bysubstantially all of our U.S.assets and stock pledges for each of the U.S. and U.K. subsidiaries.  The Companypaid the outstanding balance of the mortgage loan and the line of credit onMarch 20, 2007 with the proceeds from the sale of the assets of the DiscoveryInformatics business to Vector Capital.

In connection with the acquisitionof Optive Research, Inc. in 2005, the Company issued a subordinated promissorynote to Horizon Technology Finance with a face value of $3,500 and a statedinterest rate of 11.42%.  In addition, as part of the financing transaction,112 shares of common stock were issued to Horizon and Sand Hill Capital at adiscounted price of $4.48 per share.  156 warrants to purchase common stockwere issued to Horizon at a negotiated price of $4.48.  These transactionsresulted in original issuance debt discounts of $89 related to the common stockissued at a discount and $432 related to the warrants, calculated based uponrelative fair values.  The Company paid the outstanding balance on thesubordinated debt plus the early termination fee of $154 to Horizon on March 20,2007 from the proceeds of the 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  |

**(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 (included in discontinuedoperations) and $120 related to our DR and DI business units, respectively, forone-time termination benefits and outplacement 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.  

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

**(8)     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 for theperiod from January 1, 2007 through March 15, 2007.  For the three- and six-monthperiods ended June 30, 2006, amortization was $122 and $244, 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

** **

** **

** (9)**    **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 Preferred Stock also had preferential distributionrights in the event of liquidation, dissolution or winding-up of the Company ora deemed liquidation.  The Preferred Stock bore dividends at an annual rate of10.5% and was redeemable within two years of issue at the option of theholders.  Under the terms of the preferred offering, the dividends wereaccelerated due to the sale of the DI business assets occurring subsequent toJanuary 26, 2007.  As such, the holders of the Preferred Stock were entitled toreceive dividends in the aggregate amount of $1,155 inclusive of any dividendsreceived to date.  

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 $5,500 plus accrueddividends.  Through March 31, 2007, the Company had paid $526 of dividendsleaving a total of $629 to be paid prior to liquidation.  On June 27, 2007 theCompany paid MidwoodCapital $5,500 to redeem the Series C convertible preferred stock and $479 of theaccrued dividends, which Midwood accepted as full satisfaction of the amountsowed it.  

** **

** **

| 19 |
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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 allowed 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 purchaseswere 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 was in effect for ten years unless terminatedor amended sooner by the Board of Directors.  At December 31, 2006, 515 shareshad been purchased under this plan.  The Board of Directors suspended planactivity effective January 1, 2007 in anticipation of the sale of the Company'soperating units and liquidation of the company.

**1994 Stock Option Plan**

In 1994, the Company adopted the 1994 Stock Option Plan that wasadministered 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 was 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 was 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 had 10-yearterms.  The plan, which was amended in 2001 to increase the number of shares ofcommon stock reserved for issuance from 2,560 to 2,960, was in effect for tenyears from the date of inception and expired during 2004.  Only options grantedto John McAlister remained outstanding as of June 30, 2007, however, the grantprice was well below the market price.  The options granted to employeesexpired unexercised on June 19, 2007.

** **

**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 remainoutstanding 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 was expensed in each interim period. These unrestricted shares issued to the board were included in the weightedaverage number of outstanding shares for computing earnings per share. Effective March 31, 2007, the Board suspended activity in the 1996 DirectorStock Plan and received only cash for their first quarter compensation. 

| 20 |
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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 provided 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.  Onlystock options had been granted.  Stock options were granted under the 2005 Planat an exercise price not less than 100% of the fair market value on the date ofgrant.  Options became exercisable and expired at the times and termsestablished by the administrator, but generally vested over four years and wereto expire five to ten years after the grant date.  The Company satisfied theexercise of stock options by issuing new shares.  No options were granted orexercised during the period from January 1, 2007 through March 15, 2007.    Optionexpense for the period from January 1, 2007 to March 15, 2007 was $74. 

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.  Only options granted to John McAlisterremained outstanding as of June 30, 2007, however, the grant price was wellbelow the market price.  All other options granted to employees expiredunexercised on June 19, 2007.

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  |  | --   |

A summary of option activity under the plans forthe period from January 1, 2007 through June 30, 2007 is as follows:

|                               | **Employees** | **Officers**                     | **Directors** |
|-------------------------------|---------------|----------------------------------|---------------|
|                               | Shares        | Weighted Average  Exercise Price | Shares        | Weighted Average  Exercise Price | Shares | Weighted Average  Exercise Price |
| Outstanding,  January 1, 2007 | 603      | $5.86                            | 803      | $7.95 | 382  | $8.81 |
| Granted                       | --       | --                               | --            | -- | --  | -- |
| Exercised                     | --       | --                               | --            | -- | --  | -- |
| Forfeited                     | (165)         | $4.64                            | (144)         | $3.86 | --  | -- |
| Expired                       | (386)         | $6.22                            | (458)         | $9.61 | (35) | $8.37 |
| Outstanding,  June 30, 2007   | 52       |                                  | 201      |  | 347  |  |

Remaining employee and officer options relatedto TDR staff will expire on or before September 6, 2007.  All other optionsrelate to Dr. McAlister and the board of directors whose exercise prices aresubstantially above the market price at June 30, 2007.

| 21 |
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**Item2.  Management's Discussion and Analysis of Financial Condition and Results ofOperations**

**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 areintended to identify such forward looking statements.  These statements arebased on current expectations and projections made by management and are notguarantees of future performance.  Therefore, actual events, outcomes andresults may differ materially from what is expressed or forecast in suchforward-looking statements.  Among the factors that could cause actual resultsto differ materially from the forward-looking statements are set forth underthe caption "Risk Factors" in Part 1A of Tripos' Form 10*-*K for 2006. Tripos undertakes no obligation to update any forward-looking statements inthis Form 10-Q.

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

** **

**SUMMARYOF RECENT ACTIVITIES**

The following is a summary of our recentactivities.

*    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 will seek to resolve allcreditor claims.

*    On April 12, 2007, the Company completedthe sale of its corporate headquarters located in St. Louis, Missouri.  The netproceeds from the sale approximated $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 in the midst of theliquidation and dissolution process.  As of the current date, the sole employeeof Tripos is John P. McAlister, President and CEO.  The Board of Directors willcontinue to supervise the dissolution and liquidation process.

*    Undergenerally accepted accounting principles, the Company was required to reportthe results of its discovery informatics business as continuing operationsthrough March 15, 2007, the date of stockholder approval of the Company's planof dissolution and liquidation.  However, discovery research business wasreported herein as discontinued operations through March 15, 2007.  With theapproval by the shareholders for the sale of the discovery informatics businessand the Company's plan of liquidation, the Company changed the basis ofaccounting for periods subsequent to March 15, 2007, from the going-concernbasis to a liquidation basis.

Due to the sale of its principal operating units, thediscovery informatics business and the discovery research business, the Companyhas no continuing operations.  Its principal activities will be to complete 

| 22 |
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**Item 2.                                   Management'sDiscussion and Analysis of Financial Condition and Results of Operations(continued)**

the steps necessary for the dissolution andliquidation of the business in anticipation of an initial liquidatingdistribution expected to be made late in the third quarter or in the fourthquarter of 2007.

** **

**CHANGESIN NET ASSETS IN LIQUIDATION**

|                                                                                                      | ** ** | Period from  March 16, 2007  through  June 30, 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                                           | ** ** | (2,331)                                             |
|     Discovery research operating activity                                                  | ** ** | (1,050)                                             |
|     Settlement of assets and liabilities in liquidation                                    | ** ** | 3,476                                          |
|     Change in estimate of liquidation accrual                                              | ** ** | 613                                            |
|         Net change in net assets in liquidation                        | ** ** | $ 708                                     |
|                                                                                                      | ** ** |                                                     |

** **

**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 June 30, 2007 includes professional fees associatedwith liquidation, severance costs for terminated employees, and othermiscellaneous general and administrative costs.  Such estimated costs aresubject to change.  We expect that changes will be made to our estimated costsof liquidation and such changes in estimates will be recognized in futureperiods as a change in net assets in liquidation.  The estimated costs as of June30, 2007 are based in large part on assumptions regarding the length of timerequired to settle all matters of the Company.  If there are delays in thesematters, actual costs incurred during liquidation could increase as a result ofthe need for additional internal and external resources.  The Company adjustedthe net assets of the Discovery Informatics business to its fair value byapproximately $23,200 based on the sale price of the DI assets to Vector. Wealso adjusted the fair value of the Discovery Research business by approximately$7,900 reflecting the impact of negotiations regarding the sale of thisbusiness on its carrying value, while also reducing the realizable value of theSt. Louis building by approximately $600 giving effect to the final sale priceand eliminated the carrying value of debt discount of $1,700.  

** **

**Changesin net liabilities in liquidation**

** **

During the period from March 16, 2007 throughJune 30, 2007 we recorded approximately $1,050 of net decrease in assets from operationsat TDR and a decrease of $2,331 in assets from corporate and liquidationactivities.  Over the same period we settled certain obligations related tocorporate and liquidation activity for $776, reduced our accrual for incometaxes by $2,700 due to updated research and reduced our estimated remainingliquidation accrual by $613. 

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

** **

**Resultsof Operations**

***Period From January 1, 2007 Through March15, 2007 Compared to the Three- and Six- Months Ended June 30, 2006***(Amounts in thousands,except per share amounts)

**Net sales** were$5,635 for the period from January 1, 2007through March 15, 2007 ("2007") while they were $7,991 for the three-monthperiod ended June 30, 2006.  Discovery informatics products and support sales were$4,531 in the 2007 operating period, but were $6,210 in the second quarter of 2006. These periods are not comparable due to the sale of the DI business late in thefirst quarter of 2007.  Discovery informatics services revenues were $1,090 in2007 and $1,773 the second quarter of 2006.  The bulk of the services performedin either period was primarily attributable to the Wyeth project, which beganin late 2005.  The timing of revenue recognition from discovery informaticsservices fluctuates based on achievement of contractual milestones or progresson projects accounted for under the percentage of completion method and thusvaries from period to period.    Hardware sales in 2007 were $14 and $8 in 2006. We no longer actively market hardware products. 

Total net sales were $14,635 in the six-monthperiod ended June 30, 2006.  Discovery informatics product and support sales were$12,093 in the year-to-date period in 2006.  Discovery informatics servicesrevenues were $2,517 in the six-month period ended June 30, 2006.  Hardwaresales were $25 in 2006.  Again, the 2006 six-month year-to-date period is notcomparable to the 2007 results due to the sale of the DI business assets in thefirst quarter of 2007.

**Costof sales**were $2,349 forthe period from January 1, 2007 through March 15, 2007 and $2,532 for thethree-month period ended June 30, 2006.  Cost of sales as a percent of net sales was 42%and 32% for the respectiveperiods.  Costs****of discovery informatics licenses and support as a percent of softwarelicense and support sales were 25%, and 22% for the respective periods.  Costs of softwarelicenses and support consisted of amortization of software products acquired ina corporate acquisition, amortization of capitalized software, productroyalties to third-party developers, commissions to Pacific Rim distributors,the cost of software product packaging and media, the costs related to staffingtelephone support functions, packaging for updates/upgrades, and updates to documentation. Cost of sales as a percent to software sales has increased over the past fewyears due to a change in the mix of internal versus third-party products sold,resulting in higher royalty payments. 

Costs of discovery informatics services (DIS) asa percent of discovery informatics service revenues was 110% and 63% 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 at cost. The timing of revenue recognition from discovery informatics services mayfluctuate during any period based on achievement of contractual milestones orchanges in overall cost estimates for "percentage completion" contracts.

Costs of hardware represented 85% and 88% forthe respective periods.  Cost of sales for hardware consists of the directcosts to us of the equipment sold.

Costs of sales were $4,490 in thesix-month period ended June 30, 2006.  Costs of discovery informaticslicenses and support as a percent of software license and support sales was 23%for the six-months ended 

| 24 |
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**Item 2.            Management's Discussion andAnalysis of Financial Condition and Results of Operations (continued)**

June 30, 2006.  Costs of discovery informaticsservices as a percent of discovery informatics services revenues was 68% for2006.  Cost of hardware was 88% in the six months ended June 30, 2006.

**Gross profit**margin was $3,286 for the period fromJanuary 1, 2007 through March 15, 2007 and $5,459 for the three-month periodended June 30, 2006, which represents gross margin of 58% and 68% for therespective periods.  Gross margin in the six month period ending June 30, 2006was $10,145, which represents a margin of 69%.  The lower in gross margin rate in2007 was primarily attributable to the Company performing the discoveryinformatics services contract with Wyeth at cost.  Gross profit for the Companywas dependent on the mix of discovery informatics licenses and support versusdiscovery informatics services business, the mix of internal versus third-partysoftware product sales and foreign exchange rates.

** **

**Sales and marketing expenses**were $1,831 for theperiod from January 1, 2007 through March 15, 2007 and $2,573 for thethree-month period ended June 30, 2006.  Sales and marketing expenses as apercent of total net sales was 32% in both periods.  There were no selling ormarketing activities in the second quarter of 2007.  Sales and marketingexpenses for the six month period ended June 30, 2006 were $5,378, whichrepresented 37% of net sales.  The periods are not comparable due to the saleof the Discovery Informatics business unit on March 15, 2007 and the ongoingliquidation of the Company.

**Research and development expenses** were $1,151 for the period fromJanuary 1, 2007 through March 15, 2007 and $1,816 for the three-month periodended June 30, 2006. Research and development****expenses as a percent of net sales were 20% and23% for the respective periods.  There were no R&D activities in the secondquarter of 2007.  Researchand development expenses for the six month period ended June 30, 2006 were$3,737, which represented 26% of net sales.

**General and administrative expenses**were $1,600 for the period fromJanuary 1, 2007 through March 15, 2007 and $1,373 for the three-month periodended June 30, 2006.General and administrative expenses as a percent of net sales were 28% and 17%for the respective periods.  G&A activities in the second quarter of 2007were related to the liquidation of the Company and were captured as a reductionof the liquidation accrual established at the time of the sale of the DIbusiness assets when the Company ceased to have operating businesses.  General andadministrative expenses for the six-month period ended June 30, 2006 were$2,790, which represented 19% of net sales.

**Restructuring expenses**were $155 for the periodfrom January 1, 2007 through March 15, 2007 related to the reduction of theemployee workforce of the Company's Discovery Informatics division.  As aresult, the Company recorded a pre-tax restructuring charges related to the one-timetermination benefits and outplacement costs.  Restructuring expenses for thesix-month period ended June 30, 2006 were $120 arising from an early 2006 jobaction that eliminated nine positions.

** **

**Interest expense** was****$480 for theperiod from January 1, 2007 through March 15, 2007 and $324 for the three-monthperiod ended June 30, 2006.  Interest expense for the six months ended June 30,2006 was $657.  Interest expenses consisted of interest due on the long-termnote payable for the corporate building, interest due on our line-of-credit,interest costs associated with capital leases and interest related to thesubordinated note issued in the acquisition of Optive Research.  In January2005, the Company issued a $3.5 million subordinated promissory note with astated 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.

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

**Other Income (expense)**was $(608) for theperiod from January 1, 2007 through March 15, 2007, $871 for the three-monthperiod ended June 30, 2006 and $1,150 for the six-month period in 2006.  Included in 2007 was$652 of currency losses. In the six-months ended June 30, 2006 was $723 relatedto currency gains, $56 of interest income, a non-cash gain of $358 on therevaluation of the common stock warrants, and a $16 adjustment to our carryingvalue in the AM Pappas Life Science II Fund.

**Income tax expense** from continuingoperations was $48 for the period from January 1, 2007 through March 15, 2007and income tax benefit of $16 for the six-month period ended June 30, 2006.  Theeffective tax rates were (2)% and (1)% for the respective periods.  Theeffective tax rates reflected management's then current estimate of thedistribution of earnings among the statutory jurisdictions in which the Companyoperated.  We continue to evaluate the tax effects of the recent sales of ourDiscovery Informatics and Discovery Research businesses. Final determination ofthe tax consequences depends upon the analysis of tax laws in the UnitedStates, England, France, and Germany and on the availability of tax losscarryforwards in these jurisdictions.  Based on information and advice recentlyobtained, we have determined that tax loss carry-forwards for U.S. federalincome tax purposes will be sufficient to shelter almost of the gains in theUnited States.    However, final determination will not be made until ourfederal income tax return for 2006 is finalized, which is due September 15,2007.  Based on current information, we have recorded a tax provision of $500 inour June 30, 2007 financial statements.  Prior to making our initialliquidating distribution, currently planned for October 2007, we will need todetermine with greater certainty our final tax position.  Our currentexpectation is that we will likely need to hold back from the distribution(potentially for a several year period) an amount approximating the tax reservedescribed above.  We cannot at this time assure stockholders that we will notbe required to use this reserve to pay taxes in the U.S. and otherjurisdictions.    

** **

**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, $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 $916 for the three-month periodended June 30, 2006.  DR revenues for the six-months ended June 30, 2006 were$2,742.  Theperiods are not comparable due to the change to liquidation accounting in thefirst quarter of 2007.  Revenues for discovery research activities wererecognized in accordance with SOP 81-1, under the percentage of completionmethod using an output measure for revenue recognition (units of deliverymethod).

Cost of sales were $616 for the period fromJanuary 1, 2007 through March 15, 2007 and $862 for the three-month periodended June 30, 2006. Cost of sales as a percent of net sales was 100% and 94% for the respectiveperiods.  Costs of sales for the year-to-date period ended June 30, 2006 were$2,471, which represents 90% of net sales.  The cost of the discovery research businessconsisted of the raw material, direct labor and overhead costs to producecompound libraries and to deliver on contracted research projects.

Gross profit****marginwas $3 for the period from January 1, 2007 through March 15, 2007 and $54 forthe three-month period ended June 30, 2006, which represents gross margin of 0%and 6% for the respective periods.  The gross profit margin for the six-monthsended June 30, 2006 was $271, which represents a gross margin of 10%.

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

There were no DR sales and marketing expenses in2007 although there was $205 in the three-months ended June 30, 2006.  Salesand marketing expenses for the six-months ended June 30, 2006 were $409.  Salesand marketing expenses represented 22% and 15% of total net sales for therespective periods in 2006.

Research and development expenses were $1,393 inJanuary 1 to March 15, 2007 period and $815 in the three-months ended June 30, 2006. R&D costs represented 226%, and 89% of net sales for these respective periods. See restructuring expense below for further details regarding reductions inforce for our Discovery Research business that occurred in 2006.

Our Discovery Researchdivision incurred restructuring expenses in 2006 for multiple reductions inforce.  On January 24, 2006 we completed a reduction in force for our DiscoveryResearch 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, theCompany recorded pre-tax restructuring charges of approximately $807 in thefirst quarter 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.

There was no interestincome from discontinued operations in 2007.  For 2006, there was $10 in thethree-months ending June 30.  Interest expense****from capital leases was $142in 2007 and $203 in the three-months ended June 30, 2006.  Other income(expense)****was ($10) in 2007 and $0 in the three months ended June 30, 2006.

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 from January 1, to March 15, 2007 was $903.  The primary uses ofcash were from a net loss from continuing operations of $2,587, an increase inprepaid expenses and other assets of $2,177, and lower deferred revenues of$1,253.  These uses of cash were partially offset by collections of accountsreceivables of $5,487, increased accounts payable and accrued expenses of $487,as well as the add-back of non-cash items such as depreciation and amortizationincluding the amortizations of debt discount and deferred issuance coststotaling $620.  The discontinued operations, DR business unit, used $1,528 ofcash in its operations in 2007.  

Net cash used in the six monthsended June 30, 2006 operating activities was $4,065.  Cash was used throughthe net loss from continuing operations of $1,371, an increase in restrictedcash of $298, along with decreases in deferred revenues of $5,225 and accountspayable and accrued expenses of $3,863, and the non-cash gain on the revaluationof the common stock warrants of $358.  These uses were partially 

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

offset by collections of accounts receivable of$7,122, the reduction of prepaid expenses of $1,408, the add-back ofdepreciation and amortization, including amortization of the debt discount anddeferred issuance costs, and a write-down of the value of an investment held atcost totaling $1,358, and non-cash stock compensation expense of $214. Discontinued operations used $3,059 of cash in 2006.

 

Investing Activities.  Net cash used ininvesting activities for the January 1 to March 15, 2007 period was $218,consisting of capitalized development costs for our discovery informaticssoftware products of $128 and the addition of patents of $47.  Discontinuedoperations used $43 of cash in this 2007 period.

Net cash generated by investing activitiesduring 2006 was $3,030.  During 2006 we made new investments in equipment of $221,and invested in new informatics product development totaling $455.  The DRdiscontinued operations provided $3,706 in 2006, principally from the sale of equipment.

Financing Activities.  Net cash provided byfinancing activities in January through March 15, 2007 was $378, consisting of borrowingsunder our revolving line of credit of $1,450 offset by payments on long-termdebt and capital lease obligations totaling $161 along with cash consumed by discontinuedoperations of $911, principally for payments on related capital leases. 

Net cash used in financing activities in 2006was $1,697, consisting of payments on long-term debt and capital leases of $7,300,payments of cash dividends on preferred stock of $93 along with $1,667 used indiscontinued operations.  These were partially offset by borrowings under ourrevolving line of credit of $2,300, and proceeds from this issuance of commonand preferred stock of $172 and $4,891, respectively.

The company paid theoutstanding balance of the subordinated debt, the mortgage loan, and the lineof credit on March 20, 2007 with the proceeds from the sale of the assets ofthe Discovery Informatics business to Vector Capital.

** **

**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:

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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 is effectivefor fiscal years beginning after December 15, 2006.  We adopted FIN 48beginning 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".

Our foreign exchangerisk is presently limited to currencies that historically have exhibited onlyminor fluctuations (Euro and British pound) although since 2004, thesecurrencies have shown more significant variation.  Assets outside the United States subject to currency fluctuation are located in England, Germany and France.  Any loss in fair value of permanently invested funds would be reflected in OtherComprehensive Income and would 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.

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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.

** **

** **

**PART II**

**OTHER INFORMATION**

Item 1.     LegalProceedings

          None 

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

None

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

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----