###### FORM 10-Q/A

(Amendment No. 1)

** **

**UNITED STATES**

###### SECURITIES AND EXCHANGE COMMISSION

**Washington, DC  20549**

** **

(Mark One)

[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 quarterly period ended June 30, 2005

** **

###### Commission File Number 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, Missouri63144**

(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 isan accelerated filer (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 9, 2005:****10,113,652shares.

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Tripos, Inc.

Explanatory Note

For Quarter Ended

June 30, 2005

This amendment to theCompany's Quarterly Report on Form 10-Q for the quarter ended June 30, 2005 isbeing filed to revise the consolidated financial statements, as set forth inNote 14 of the Notes to Unaudited Consolidated Financial Statements, from thosepreviously filed with the Securities and Exchange Commission (the "SEC") on August9, 2005.  The Company has filed this amendment in order to correct an errorfound in a consolidating spreadsheet application used solely for 2005 interimreporting relating to accounting for foreign exchange transaction gains/losseson certain intercompany balances as described in Note 14.  Previously reportedamounts for 2004 were not affected by this error.  Except for changes inamounts reported in Items 1 and 2 of this Quarterly Report on Form 10-Q tocorrect this error, the addition of a new Note 14 of the Notes to the Company'sConsolidated Financial Statements, revised disclosures regarding internalcontrols in Item 4, and new certifications filed as exhibits to this QuarterlyReport on Form10-Q, this amendment does not affect any amounts or disclosurespreviously reported or disclosed in the Quarterly Report on Form 10-Q for thequarter ended June 30, 2005, nor does it reflect events occurring after thedate of filing of the Quarterly Report on Form 10-Q.

In accordance withapplicable SEC rules, the Quarterly Report on Form 10-Q/A includes updatedcertifications from the Company's Chief Executive Officer and Chief FinancialOfficer as Exhibits 31.1, 31.2 and 32.

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**TRIPOS,INC.**

###### TABLE OF CONTENTS

|                                                                                                                                                                                            | **Page** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------|
| **PART  I  FINANCIAL INFORMATION**                                                                                                                                                    |          |
| **Item  1.  Financial Statements**                                                                                                                                                    |          |
|   Consolidated  Balance Sheets at June 30, 2005 (Unaudited) and December 31, 2004                                                                                                | 4        |
|   Consolidated  Statements of Operations for the Three- and Six-Months Ended 

      June  30, 2005 (Unaudited) and June 30, 2004 (Unaudited) | 5        |
|   Consolidated  Statements of Cash Flows for the Six-Months Ended 

      June  30, 2005 (Unaudited) and June 30, 2004 (Unaudited)                 | 6-7      |
|   Notes  to Consolidated Financial Statements (Unaudited)                                                                                                                        | 7-23     |
|                                                                                                                                                                                            |          |
| **Item  2. Management's Discussion and Analysis of Financial Condition**

**      and  Results of Operations**                                               | 24-31    |
| **Item  3. Quantitative and Qualitative Disclosures about Market Risk**                                                                                                                    | 32       |
| **Item  4. Controls and Procedures (as amended)**                                                                                                                                          | 32-33    |
|                                                                                                                                                                                            |          |
| **PART  II  OTHER INFORMATION**                                                                                                                                                       | 34       |
| **SIGNATURES**                                                                                                                                                                             | 35       |

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**PART I**

##### FINANCIALINFORMATION

** **

**Item1.  Financial Statements.**

**TRIPOS, INC.**

**CONSOLIDATED BALANCESHEETS**

(In thousands)

|                                                                                                                                                                                                                                                          | Restated 

**06-30-2005** |  

 12-31-2004 |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------------------------|--------------------------|
| ASSETS                                                                                                                                                                                                                                                   | **(Unaudited) **          |                          |
| Current  assets:                                                                                                                                                                                                                                         |                                |                          |
|      Cash  and cash equivalents                                                                                                                                                                                                 | **$ 6,169 **         | $ 4,171        |
|      Marketable  securities                                                                                                                                                                                                     | **--  **             | 341                 |
|      Accounts  receivable, less allowances for doubtful accounts of       $238 and $246, respectively                                                                                                  | **7,380 **                | 15,666              |
|      Inventory                                                                                                                                                                                                                  | **9,048 **                | 12,007              |
|      Deferred  income taxes                                                                                                                                                                                                     | **--  **             | 29                  |
|      Prepaid  expenses                                                                                                                                                                                                          | **5,338 **                | 5,603               |
| Total current assets                                                                                                                                                                                                                                     | **27,935 **               | 37,817              |
|                                                                                                                                                                                                                                                          | ** **                     |                          |
|    Property  and equipment, less accumulated depreciation                                                                                                                                                                                 | **29,056 **               | 30,672              |
|    Capitalized  development costs, less accumulated amortization                                                                                                                                                                          | **3,302 **                | 2,159               |
|    Goodwill                                                                                                                                                                                                                               | **5,273 **                | 965                 |
|    Intangible  assets, less accumulated amortization                                                                                                                                                                                      | **3,788 **                | 90                  |
|    Investments  recorded at cost                                                                                                                                                                                                          | **1,433 **                | 1,397               |
|    Other  assets, net                                                                                                                                                                                                                     | **--  **             | 22                  |
| Total assets                                                                                                                                                                                                                                             | **$70,787 **              | $ 73,122       |
|                                                                                                                                                                                                                                                          | ** **                     |                          |
| LIABILITIES  AND SHAREHOLDERS' EQUITY                                                                                                                                                                                                                    |
| Current  liabilities:                                                                                                                                                                                                                                    | ** **                     |                          |
|      Current  portion of long-term debt                                                                                                                                                                                         | **$3,218 **               | $ 4,514        |
|      Current  portion of capital leases                                                                                                                                                                                         | **3,702 **                | 3,689               |
|      Accounts  payable                                                                                                                                                                                                          | **1,248 **                | 1,796               |
|      Accrued  expenses                                                                                                                                                                                                          | **3,657 **                | 8,950               |
|      Deferred  revenue                                                                                                                                                                                                          | **15,508 **               | 21,945              |
|      Deferred  income taxes                                                                                                                                                                                                     | **162 **                  | --                  |
| Total current liabilities                                                                                                                                                                                                                                | **27,495 **               | 40,894              |
|                                                                                                                                                                                                                                                          | ** **                     |                          |
|    Capital  leases, less current portion                                                                                                                                                                                                  | **2,586 **                | 2,653               |
|    Long-term  debt, less current portion                                                                                                                                                                                                  | **6,894 **                | --                  |
|    Deferred  income taxes                                                                                                                                                                                                                 | **-- **                   | 1,709               |
| Shareholders'  equity :                                                                                                                                                                                                                                  | ** **                     |                          |
|      Common  stock, $0.01 par value; authorized 20,000 shares,       issued and outstanding 10,114 shares as of June  30, 2005 and 9,359       shares as of December 31, 2004 | **101 **                  | 94                  |
|      Additional  paid-in capital                                                                                                                                                                                                | **41,322 **               | 37,394              |
|      Retained  earnings (deficit)                                                                                                                                                                                               | **(7,297)**                    | (8,089)                  |
|      Other  comprehensive loss                                                                                                                                                                                                  | **(314)**                      | (1,533)                  |
| Total shareholders' equity                                                                                                                                                                                                                               | **33,812 **               | 27,866              |
|                                                                                                                                                                                                                                                          | ** **                     |                          |
| Total liabilities and shareholders' equity                                                                                                                                                                                                               | **$ 70,787 **        | $ 73,122       |
|                                                                                                                                                                                                                                                          |                                |                          |

*Seeaccompanying notes.*

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**Item1.  Financial Statements (continued)**

**TRIPOS, INC.**

**CONSOLIDATED STATEMENTSOF OPERATIONS**

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

**(Unaudited)**

|                                                                 | **Three Months Ended**   |               | **Six Months Ended** |
|-----------------------------------------------------------------|--------------------------|--------------------|----------------------|
|                                                                 | Restated

**06-30-2005** |  

06-30-2004 |                 | Restated

**06-30-2005** |  

06-30-2004 |
| Net  sales:                                                     | ** **               | ** **         | ** **           | ** ** |  |
|    Discovery  informatics products & support | **$ 5,849 **   | $ 6,246  | ** **           | **$ 12,112 ** | $ 12,220  |
|    Discovery  informatics services               | **580 **            | 719           | ** **           | **1,248 ** | 1,434  |
|    Discovery  research products & services   | **6,919 **          | 8,908         | ** **           | **15,021 ** | 17,635  |
|    Hardware                                      | **11 **             | 30            | ** **           | **21 ** | 74  |
| Total net sales                                                 | **13,359 **         | 15,903        | ** **           | **28,402 ** | 31,363  |
|                                                                 | ** **               |                    | ** **           | ** ** |  |
| Cost  of sales                                                  | **6,886 **          | 7,409         | ** **           | **14,793 ** | 15,102  |
| Gross profit                                                    | **6,473 **          | 8,494         | ** **           | **13,609 ** | 16,261  |
|                                                                 | ** **               |                    | ** **           | ** ** |  |
| Operating  expenses:                                            | ** **               |                    | ** **           | ** ** |  |
|    Sales  and marketing                          | **2,685 **          | 3,233         | ** **           | **5,630 ** | 6,375  |
|    Research  and development                     | **1,991 **          | 2,465         | ** **           | **3,912 ** | 5,293  |
|    General  and administrative                   | **1,922 **          | 1,903         | ** **           | **3,887 ** | 3,782  |
| Total operating expenses                                        | **6,598 **          | 7,601         | ** **           | **13,429 ** | 15,450  |
|                                                                 | ** **               |                    | ** **           | ** ** |  |
| Income (loss) from operations                                   | **(125)**                | 893           | ** **           | **180 ** | 811  |
|                                                                 | ** **               |                    | ** **           | ** ** |  |
| Interest  expense                                               | **(393)**                | (288)              | ** **           | **(781)** | (519) |
| Other  income (loss), net                                       | **(650)**                | (211)              | ** **           | **(657)** | 62  |
| Income (loss) before income taxes                               | **(1,168)**              | 394           | ** **           | **(1,258)** | 354  |
|                                                                 | ** **               |                    | ** **           | ** ** |  |
| Income  tax expense (benefit)                                   | **(1,979)**              | 238           | ** **           | **(2,050)** | 223  |
| Net income                                                      | **$ 811 **     | $ 156    | ** **           | **$ 792 ** | $ 131  |
|                                                                 | ** **               |                    | ** **           | ** ** |  |
| Basic  income per share                                         | **$ 0.08 **    | $ 0.02   | ** **           | **$ 0.08 ** | $ 0.01  |
| Basic  weighted average number of shares                        | **10,091 **         | 9,173         | ** **           | **10,075 ** | 9,110  |
| Diluted  income per share                                       | **$ 0.08 **    | $ 0.02   | ** **           | **$ 0.08 ** | $ 0.01  |
| Diluted  weighted average number of shares                      | **10,107 **         | 9,352         | ** **           | ** 10,125 ** | 9,349  |

*See accompanying notes.*

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

**TRIPOS, INC.**

**CONSOLIDATED STATEMENTSOF CASH FLOWS**

**(In Thousands)**

**(Unaudited)**

|                                                                                      | **Six Months Ended**     |
|--------------------------------------------------------------------------------------|--------------------------|
|                                                                                      | Restated

**06-30-2005** |  

06-30-2004 |
| **Operating  activities:**                                                           | ** **               |  |
| Net  income                                                                          | **$ 792 **     | $ 131  |
| Adjustments  to reconcile net income to   net cash provided by operating activities: | ** **               |  |
|    Depreciation  of property and equipment                            | **1,999 **          | 2,000  |
|    Amortization  of capitalized development costs & intangibles   | **308 **            | 145  |
|    Amortization  of debt discount                                     | **28 **             | --  |
|    Appreciation  (depreciation) in foreign currency hedge instruments | **(85)**                 | 870  |
|    Deferred  tax benefit                                              | **(1,177)**              | (191) |
|    Gain  from sale of marketable securities                           | **(240)**                | (144) |
|    Gain  from sale of property and equipment                          | **-- **             | (29) |
|    Impairment  loss on long-term investment                           | **88 **             | 50  |
|                                                                                      | ** **               |  |
| Change  in operating assets and liabilities (excluding acquired business):           | ** **               |  |
|    Accounts  receivable                                               | **5,427 **          | 5,855  |
|    Inventories                                                        | **2,157 **          | 292  |
|    Prepaid  expenses and other current assets                         | **(736)**                | 1,676  |
|    Accounts  payable and accrued expenses                             | **(4,878)**              | (3,707) |
|    Deferred  revenue                                                  | **(2,716)**              | 3,336  |
| Net cash provided by operating activities                                            | **967 **            | 10,284  |
|                                                                                      | ** **               |  |
| **Investing  activities:**                                                           | ** **               |  |
| Purchases  of property and equipment                                                 | **(537)**                | (2,825) |
| Capitalized  development costs                                                       | **(1,157)**              | (9) |
| Acquisition  of business, net of cash received                                       | **(4,770)**              | --   |
| Proceeds  from the sale of marketable securities                                     | **426 **            |  196  |
| Proceeds  from the sale of property and equipment                                    | **-- **             | 169  |
| Investment  in unconsolidated affiliates                                             | **(125)**                | (178) |
| Net cash used in investing activities                                                | **(6,163)**              | (2,647) |
|                                                                                      | ** **               |  |
| **Financing  activities:**                                                           | ** **               |  |
| Proceeds  from stock issuance pursuant to stock purchase and option plans            | **29 **             | 635  |
| Proceeds  from issuance of common stock                                              | **500 **            | --  |
| Net  borrowings (repayments) under revolving line of credit                          | **2,400 **          | (8,400) |
| Proceeds  from issuance of long-term debt and capital leases                         | ** 5,495 **    | 3,514  |
| Payments  on long-term debt and capital lease obligations                            | **(1,670)**              | (1,394) |
| Net cash provided by (used in) financing activities                                  | **6,754 **          | (5,645) |
|                                                                                      | ** **               |  |
| Effect  of foreign exchange rate changes on cash and cash equivalents                | **440 **            | 245  |
|                                                                                      | ** **               |  |
| Net increase in cash and cash equivalents                                            | **1,998 **          | 2,237  |
|                                                                                      | ** **               |  |
| Cash  and cash equivalents at beginning of period                                    | **4,171 **          |  2,945 |
| Cash and cash equivalents at end of period                                           | **$ 6,169 **   | $  5,182 |
|                                                             | ** **               |  |

*See accompanying notes.*

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

** **

**Supplemental Disclosure of Cash Flow Information**

Information aboutnoncash investing activities not reflected in the Consolidated Statement ofCash Flows follows:

| (Amounts in thousands)                                                                                  | **Six Months Ended** |
|---------------------------------------------------------------------------------------------------------|----------------------|
| ** **                                                                                              | **06-30-2005**       | 06-30-2004 |
| **Noncash investing activities**                                                                        | ** **           |  |
|   Increase (decrease) in fair value  of marketable securities,    net of tax effect | **$ 42 **  | $ 7  |

In January 2005, theCompany acquired Optive Research, Inc. for $4,750 in cash, 600 shares of theCompany's common stock valued at $3,183 and direct costs of the acquisition. The related assets and liabilities at the acquisition date were as follows(amounts in thousands):

|   Cash                              | $ 647    |
|-----------------------------------------------|--------------------|
|   Accounts receivable               | 809           |
|   Prepaids & other              | 30            |
|   Equipment, net                    | 40            |
|   Intangible assets                 | 3,940         |
|   Goodwill                          | 4,308         |
|     Total assets acquired | 9,774         |
|                                               |                    |
|   Accounts payable                  | (422)              |
|   Accrued expenses                  | (97)               |
| **  **Deferred revenue              | (655)              |
|   Common stock issued to sellers    | (3,183)            |
|                                               |                    |
|   Cash paid                         | $ 5,417  |

**TRIPOS, INC.**

**NOTES TO UNAUDITEDCONSOLIDATED FINANCIAL STATEMENTS**

 **(In thousands,except per share data)**

**(1)     Summary ofSignificant Accounting Policies**

**Organization**

Our discovery informaticsand discovery research products and services enable life science companies toenhance their drug discovery capabilities.  We combine our resources incomputer-aided molecular design, cheminformatics, chemistry research andproduction, with scientists on our staff to address the challenges facingpharmaceutical research organizations. These pharmaceutical firms deliverproducts and services that are internationally recognized for their innovationand quality.  By formulating new chemical compounds and aiding our partners'design of new chemical compounds in ways that we believe are more likely toresult in drug discoveries, we offer our customers advantages in terms ofresearch cycle time, cost, and efficiency of research activities.

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**Item1.  Financial Statements (continued)**

We have formedcommercial relationships with most major pharmaceutical companies and with manyemerging biotechnology companies based on their use of some or all of ourproducts and services.  In addition, we have established strategiccollaborations with several of the companies based on our specific uniquecapabilities.  Representative pharmaceutical clients include: Sanofi-Aventis,Bayer, Bristol-Myers Squibb, Pfizer, and Schering AG.  Representativebiotechnology clients include: CeNeS, BioTie and Chronogen.  

Tripos was formed in1979 to commercialize software for molecular visualization, analysis anddesign.  In building our discovery informatics services, we have focused ondeveloping an integrated suite of offerings to stay at the leading edge ofscientific research.  In addition to creating discovery informatics product andservice offerings, our chemistry research activities have created anopportunity for us to participate in therapeutic collaborations with certain ofour customers, giving us the potential for milestones and/or to a lesserextent, royalty interests in early-stage new drug candidates.

Our business model isbased primarily on deriving recurring revenues from our discovery informaticsand discovery research businesses and to a lesser extent on achievingcontributions from therapeutic collaborations if and when new therapeutics aredeveloped.  The following is a description of each area of our business:

•        *DiscoveryInformatics Products and Services.* The SYBYL® and UNITY®software suites are the foundation of our discovery informatics product(software) offerings.  These suites provide integrated tools for computer-aidedmolecular modeling and visualization, virtual screening (docking),combinatorial library design, data storage and analysis, and structure-activityrelationships to customers in pharmaceutical, biotechnology and related lifescience fields of research.  We offer over fifty (50) software products forthese research areas.  We recently introduced Windows®-basedprograms such as Benchware® 3D Explorer (formerly known as Lithium®), and SARNavigatorTM,along with other desktop systems to reach beyond the traditional computationalchemistry user base within life science research organizations.  The Benchwaresuite of products facilitates visualization and communication of computationalmodels to other parts of the organization including combinatorial libraryenumeration and design to be performed by bench scientists while SARNavigatorprovides an intuitive means of high-throughput screening (HTS) data analysis.

           Additionalnew Tripos products and technologies will enable management of modern researchlaboratory operations as well as data analysis: the Benchware®Notebook (formerly known as Tripos Electronic NotebookTM) provides researcherswith a common interface to enter all experimental data and store such knowledgeand experience for future query and retrieval; ChemCoreRIOTM is achemical registration, inventory and ordering system; ModelBaseTM isan Oracle® based system for storage and retrieval of computationaland therapeutic product knowledge; and the Auspyx®data cartridge is a supporting technology for storing and searching chemicaldata within Oracle relational databases.  These products and technologies areprovided to clients through a license arrangement and typically involve someservices to facilitate implementation.  Customized software developmentprojects can also be 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's laboratories,based in the United Kingdom, offer compound analysis, design and synthesis anda complete suite 

** **

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

of lead discovery,optimization, and discovery projects on a fee per service basis. Certainprojects are focused on specific therapeutic targets that may result in ourobtaining an ownership or economic interest in the products resulting from ourresearch.  Typically such ownership positions result only when we investthrough contribution of discounted services or of in-kind products or servicesto a project or through specific and unique scientific expertise.  We entersuch collaborations on an opportunistic basis if and when scientific andfunding resources are available.  Our intent is to pursue improved returns fromthese projects.  Although we are advancing certain Lead Discovery compoundsthrough additional rounds of screening, we do not seek to become a therapeuticscompany, which would require taking a drug candidate into clinical development.

We have a geographicallydiverse customer base, with over half of our revenues derived from customersoutside of North America.  Our worldwide sales force operates from offices inthe United States, Canada, England, France, and Germany, and throughrepresentatives around the Pacific Rim.  Our headquarters is in St. Louis,Missouri and our chemistry laboratory is in Cornwall, England.

** **

**Basis of Presentation**

The accompanyingunaudited consolidated financial statements have been prepared in accordancewith generally accepted accounting principles for interim financial informationand with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes requiredby accounting principles generally accepted in the United States for completefinancial statements.  In the opinion of management, all normal recurringadjustments necessary for a fair presentation of such financial statements havebeen included.  For a further description of accounting policies, please referto the "Critical Accounting Policies" section in the Company's annualreport on Form 10-K for the year ended December 31, 2004.  Operating resultsfor the six-month period ended June 30, 2005 are not necessarily indicative ofthe results that may be expected for the year ending December 31, 2005.

** **

**Revenue Recognition **

** **

**Discovery InformaticsProducts**

** **

We recognize revenues inaccordance with the American Institute of Certified Public Accountants (AICPA)Statement of Position (SOP) 97-2, "Software Revenue Recognition," asamended.  Revenues from informatics software license agreements are recognizedwhen each of the following criteria are met as set forth in paragraph 8 of SOP97-2: (1) persuasive evidence of an arrangement exists, (2) delivery hasoccurred, (3) the fee is fixed or determinable, and (4) collectibility isprobable.

Our largest sources ofsoftware license revenue are from Term and Bundled licenses that are time-basedarrangements for one or multiple software products that are sold together withmaintenance and support for the term of the license arrangement.  We do nothave VSOE to determine fair value of the maintenance and support in termarrangements and therefore recognize revenues from these bundled time-basedlicenses ratably over the license term, which is typically 1 to 3 years. 

 

We  allocate revenues from perpetual software arrangements involving multiple  elements to each element based on the relative fair values of each element.   Our determination of fair value of each element in multiple element  arrangements is based on vendor-specific objective evidence (VSOE).  We limit  our assessment of VSOE for each element to the price charged when the sameelement is sold separately.  We have analyzed all of the elements includedin our multiple-element arrangements and determined that

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**Item 1.  FinancialStatements (continued)**

we have sufficient VSOEto allocate revenues to maintenance and support services, and training.  Wesell training separately and have established VSOE on this basis.  VSOE formaintenance and support is determined based upon the renewal rates in contractsthemselves, which is based on a fixed percentage of the current perpetuallicense list price.  Accordingly, assuming all other revenue recognitioncriteria are met, revenues from perpetual licenses are recognized upon deliveryof the software using the residual method in accordance with SOP 98-9,"Modification of SOP 97-2, Software Revenue Recognition, with Respect toCertain Transactions."

Software maintenanceagreements provide technical support and the right to unspecified enhancementsand upgrades on a "when-and-if-available" basis.  Post-contractcustomer support revenues on perpetual agreements are recognized ratably overthe term of the support period (generally one-year), and training and otherservice revenues are recognized as the related services are provided.  Anyunrecognized portion of amounts paid or billed in advance for licenses andservices is recorded as deferred revenue.

**Discovery InformaticsServices**

Discovery InformaticsServices (DIS) represents contracts for the development and delivery ofenterprise-wide customized software (such as laboratory information systems ordatabase integration projects).  Technological feasibility exists on thesesoftware arrangements and they typically include installation at the customer'ssite.  We account for these arrangements in accordance with SOP 81-1, asrequired by SOP 97-2 since the contract to deliver software and installationrequires significant production, modification or customization of software.

In applying theprovisions of SOP 81-1 the percentage of completion method is utilized.  Forcontracts where customer approval of contractually required tasks must occur ateach distinct milestone, and where amounts billable are indicative ofprogress-to-completion, we record revenues when a milestone has been met andaccepted by the customer.  For contracts without distinct milestones, wemeasure progress using the cost-to-cost method, which approximates progresstowards completion.  When current estimates of total contract revenue andcontract cost indicate a loss, a provision for the entire loss on the contractis made in the period that the loss becomes evident.

** **

DIS also includessoftware development ("SD") projects that are contractualarrangements with customers for use of our software developers in an effort todevelop a scientific software tool for use in drug discovery.  Billings may beon a time and materials basis; accordingly, we record the related revenue whenthe time and costs are incurred at the stated contractual rates.  Othercontracts may be accounted for under milestone or completed contract basisdepending on the negotiated terms.  For these arrangements, cost and revenuesare deferred until achievement of the milestone or completion of the contract. 

**Discovery ResearchProducts and Services**

Discovery research sales include: (1) sales of chemicalcompounds from inventory, (2) long-term contracts to design and producechemical compounds to customer specifications, or (3) contracts to performdiscovery research activities. 

We recognize revenue from the sale of chemical compounds  upon shipment of the products, FOB shipping point, to the customer.  This  practice is consistent with the four criteria required for revenue  recognition listed in paragraph 1 of Staff Accounting Bulletin ("SAB")101 issued by the U.S. Securities

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

and Exchange Commission ("SEC").  For chemical compoundtransactions, persuasive evidence of an agreement exists upon the receipt of acontract outlining the purchase and usage terms of the compounds.  A purchaseorder may also be received as confirmation.  As stated above, revenue is notrecognized until the compounds have been shipped to the customer.  The sellingprice for compounds is fixed according to the terms of the contract orcustomer's purchase order.  Payment terms for chemical compound transactionsare Net 30 days.  We have experienced very few bad debts arising from theseproduct transactions; as a result, collectibility is reasonably assured.

In accordance with SOP 81-1, sales derived from long-termcontracts to design and produce chemical compounds to customer specificationsare recorded using the percentage of completion method as the compounds aredelivered (under the units of delivery method).  The contract costs related todelivered compounds are recorded to cost of sales as the compounds aredelivered and revenue is recognized.

Discovery research activities may involve lead compoundoptimization projects, custom synthesis, and compound design.  These contractsgenerally call for non-refundable contractual fees tied to time and materials. Accordingly, revenues under contracts of this type are recorded on a time andmaterial basis.  When contracts to perform discovery research activitiesrequire a specific deliverable, the direct and incremental contract costs aredeferred.  Revenue and the contract costs are then recorded upon delivery andacceptance.

** **

** **

**Hardware Sales**

Hardware sales are recorded upon delivery unless deliveredin connection with a contractual arrangement involving term or bundled softwarelicenses.  When hardware is sold in conjunction with a term or bundled license,the entire contractual revenue amount is recognized ratably over the term orbundled software license period and the related hardware costs are deferred andrecorded in cost of sales ratably over the same period.

** **

** **

** **

**Stock-based Compensation**

We account for stockoption plans under the intrinsic value method as permitted under AccountingPrinciples Board Opinion No. 25 ("APB 25"), "*Accounting forStock Issued to Employees*", and related Interpretations.  Under APB25, generally no compensation expense is recognized because the exercise priceof the options equals the fair value of the stock at the grant date.

The following tableillustrates the effect on net income and earnings per share for the three- andsix-months ended June 30, 2005 and 2004 as if the Company had applied the fairvalue recognition provisions of SFAS 148, "*Accounting for Stock-BasedCompensation--Transition and Disclosure*", to stock-based employeecompensation. 

| 11 |
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----

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

|                                                                                                                                                                                                            | **Three-month Period**   |               | **Six-month Period** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------------------|--------------------|----------------------|
|                                                                                                                                                                                                            | Restated

**06-30-2005** |  

06-30-2004 |                 | Restated

**06-30-2005** |  

06-30-2004 |
| Net  income as reported                                                                                                                                                                                    | **$ 811**           | $ 156         | ** **           | **$ 792** | $ 131 |
| Deduct:  Total stock-based employee     compensation expense determined     under fair value based method for all     awards, net of related tax effects | ** 188**            | 420           | ** **           | **302** | 658  |
| Pro forma net income (loss)                                                                                                                                                                                | **$ 623**           | $ (264)       | ** **           | **$ 490** | $ (527) |
|                                                                                                                                                                                                            | ** **               | ** **         | ** **           | ** ** |  |
| Pro  forma income (loss) per share:                                                                                                                                                                        | ** **               | ** **         | ** **           | ** ** |  |
|       Basic-  as reported                                                                                                                                                    | **$0.08**                | $ 0.02   | ** **           | **$0.08** | $ 0.01  |
|       Basic-  pro forma                                                                                                                                                      | **$0.06**                | $ (0.03)      | ** **           | **$0.05** | $ (0.06) |
|       Diluted-  as reported                                                                                                                                                  | **$0.08**                | $ 0.02   | ** **           | **$0.08** | $ 0.01  |
|       Diluted-  pro forma                                                                                                                                                    | **$0.06**                | $ (0.03)      | ** **           | **$0.05** | $ (0.06) |

**Income Taxes**

** **

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

The effective tax ratefor 2005 reflects management's current estimate of the distribution of earningsamong the statutory jurisdictions in which we operate, the realization ofR&D tax credits in the U.K. from prior years and the valuation of netoperating losses in the U.S. and U.K. from prior tax years (each endingDecember 31).  We were not able to reflect the R&D credits from those priorperiods until such time as they became more likely than not to be approved bythe U.K. tax authorities.  During the first quarter of 2005, we received noticethat the credits from 2002 had been approved.  Calculation of the 2003 and 2004R&D credits were performed during the second quarter of 2005 and a taxbenefit of over $2,100 was reflected in the cumulative tax position.  Theexistence of valuation allowances established for deferred tax assets related tonet operating losses do not impair our ability to use those deferred tax assetsupon achieving profitability in the related jurisdictions.  Upon therecognition of income in future periods in the jurisdictions where the deferredtax assets were created, release of the corresponding valuation allowances mayresult in a lower effective tax rate. 

| 12 |
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----

**Item 1.  FinancialStatements (continued)**

** **

**(2)     ContingentLiabilities**

On or about July 24,2003, the Company and two of its executive officers, Dr. John P. McAlister andMr. B. James Rubin, were sued in federal district court in St. Louis, Missourion behalf of purchasers of the Company's common stock during the first half of2002.  The consolidated class action complaint alleged that statements made bythe Company in press releases and other public disclosures contained materiallyfalse and misleading information in violation of the federal securities laws. On or about May 5, 2004, plaintiffs filed a second amended complaint on behalfof a purported class of purchasers of the Company's common stock betweenFebruary 9, 2000 and July 1, 2002 (the "Class Period").  The second amendedcomplaint generally alleges that, during the Class Period, defendants madefalse or misleading statements of material fact about the Company's prospectsand failed to follow generally accepted accounting principles in violation ofthe federal securities laws.  The second amended complaint also names Ernst& Young LLP, the Company's former independent registered public accountingfirm, as a co-defendant.  In August 2004, the Company and the individualdefendants and Ernst & Young filed motions to dismiss the second amendedcomplaint.  The amount of damages being sought is unspecified at this time. Although the Company believes that it has meritorious defenses to the claimsalleged against it in this action, it is too early in the litigation to providean accurate assessment of the likelihood or the extent of any liability arisingfrom this matter.

** **

** **

**(3)     ComprehensiveIncome (Loss)**

The components ofcomprehensive income, net of related tax, for the three- and six-month periodsended June 30, 2005 and 2004 were as follows:

|                                                                                   | **Three-month Period**   |               | **Six-month Period** |
|-----------------------------------------------------------------------------------|--------------------------|--------------------|----------------------|
|                                                                                   | Restated

**06-30-2005** |  

06-30-2004 |                 | Restated

**06-30-2005** |  

06-30-2004 |
| Net income                                                                        | **$ 811 **     | $ 156         |                      | **$ 792 ** | $ 131  |
| Unrealized gain (loss)on marketable securities                                    | **11 **             | --                 |                      | **53 ** | --  |
| Less: reclassification for (gain) loss  included in     net income | **(36)**                 | --                 |                      | **(149)** | (53) |
| Foreign currency translation adjustments                                          | **806**                  | 296                |                      | **1,315 ** | 587  |
| Comprehensive income                                                              | **$ 1,592 **   | $ 452         |                      | **$ 2,011 ** | $ 665  |

The components ofaccumulated other comprehensive income, net of related tax, at June 30, 2005and December 31, 2004 were as follows:

|                                          | Restated 

**06-30-2005** |  

12-31-2004 |
|------------------------------------------|--------------------------------|--------------------|
| Foreign currency translation adjustments | **$ (314)**               | $ (1,629)     |
| Unrealized gain on marketable securities | **-- **                   | 96            |
| Accumulated other comprehensive  loss    | **$ (314)**               | $ (1,533)     |

** **

| 13 |
|----|

                                                                                                                                                

----

**Item 1.  FinancialStatements (continued)**

** **

**(4)     Earnings PerShare**  

The following table setsforth the computation of basic and diluted earnings per share for the three-and six-month periods ended June 30, 2005 and 2004.

|                                                                                                   | **Three-months Ended**   |               | **Six-months Ended** |
|---------------------------------------------------------------------------------------------------|--------------------------|--------------------|----------------------|
|                                                                                                   | Restated

**06-30-2005** |  

06-30-2004 |                 | Restated

**06-30-2005** |  

06-30-2004 |
| **Numerator:**                                                                                    | ** **               |                    |                      | ** ** |  |
| Numerator for basic earnings per share--     Net income                       | **$ 811**           | $156               |                      | **$ 792** | $ 131 |
| **Denominator:**                                                                                  | ** **               |                    |                      | ** ** |  |
| Denominator for basic earnings per share--     Weighted average shares             | **10,091**               | 9,173              |                      | **10,075** | 9,110 |
| Effect of dilutive securities:                                                                    | ** **               | ** **         | ** **           | ** ** | ** ** |
|    Warrants  Note A.                                                          | **--**                   | --                 |                      | **--** | -- |
|    Employee stock options                                                | **16**                   | 179                |                      | **50** | 239 |
| Denominator for diluted earnings  per share--     Adjusted weighted average shares | **10,107**               |  9,352        |                      | ** 10,125** | 9,349 |
| ** **                                                                                        | ** **               |                    |                      | ** ** |  |
| **Basic** and diluted earnings per share                                                          | **$ 0.08**          | $ 0.02        |                      | **$ 0.08** | $ 0.01 |

Note A: For the threeand six-months periods in 2005, the dilutive effect of the 156 outstandingwarrants has been excluded as the average market price of Tripos common stockwas below the price of the warrants and therefore the warrants could not bedeemed to have been converted into common stock.

For additionaldisclosures regarding earnings per share, see the notes to the Company's 2004consolidated financial statements in its Form 10-K.

** **

** **

**(5)     SignificantCustomers **

During the secondquarter of 2005 and six months ended June 2005, revenues from Pfizer, Inc.represented 51% and 48%, respectively, of total net sales.  For the sameperiods in 2004, Pfizer represented 52% and 54%, respectively, of total netsales.  No other customers represented over 10% of total net sales in eitherperiod.  We have provided products and services to Pfizer under three separatecontracts: multi-year worldwide licenses to our discovery software products,multi-year collaborative software development project and a $90 millionfour-year discovery research project to design and synthesize exclusivecompound libraries.  Revenues from the four-year discovery research contractwill end in the fourth quarter of 2005. 

**(6)     Inventory**

Our  physical inventory consists of chemical compound libraries in various states  of completion for LeadQuest, Lead Discovery and customer-specific chemistryresearch projects.  Costs associated with the manufacture of compounds arecalculated using the standard cost method and are carried at the lower of cost(standard cost method approximating FIFO) or market.  Compounds that areacquired from third parties are also carried at the lower of cost or market. In calculating the reserve for obsolescence, collections of compounds arereviewed for their age, possible degradation and cumulative sales trends, and ifnecessary, a reserve provision is made so that the carrying value is at or belowthe respective net realizable values.  If there is, in our opinion, asignificant adverse deviation in sales trends for a specific compound collectionor 

| 14 |
|----|

                                                                                                                                                

----

**Item 1.  FinancialStatements (continued)**

library, an additionalreserve provision is taken.  A portion of the inventory is used in discoveryresearch projects.  Depreciation of this inventory is recorded in the reservefor obsolescence over its 10-year expected useful life.  Work in process andfinished goods inventory includes the accumulated cost of compounds inproduction or awaiting shipment to customers under discovery research or customsynthesis contracts.  Inventory balances at June 30, 2005 and December 31, 2004were:

|                                                                                                                     | **06-30-2005**         | 12-31-2004          |
|---------------------------------------------------------------------------------------------------------------------|------------------------|---------------------|
|      Raw materials                                                                         | **$2,032 **       | $ 2,124   |
|      Work in process                                                                       | **4,603 **        | 6,594          |
|      Finished goods                                                                        | **5,714 **        | 6,815          |
|      Reserve for  obsolescence                                                             | **(3,301)**            | (3,526)             |
|          Total  inventory                                              | **$9,048 **       | $ 12,007  |
| Costs of discovery research projects included  in      Work in Process and Finished Goods above | **$ 4,360 ** | $ 7,468   |

** **

**(7)     Long-termInvestments**

Since 2001, we haveinvested in the Life Science Ventures II fund administered by A.M. Pappas. This fund invests in new and developing companies in the life science sector. Our investment commitment of $2,500 represents approximately 2.2% of the totalcapital of the fund.  As of June 30, 2005 we had invested $1,875 or 75% of ourtotal commitment.  The fund records investment impairments when identified, forwhich we recognize our pro-rata share of such impairments.  The fund's managersdetermine whether certain investments are impaired.  We recorded our pro-ratashare of the fund's investment impairments that totaled $88 in the firstquarter of 2005 and $58 in the second quarter of 2004.  Gains are recorded whendistributions are received. 

**(8)     Time-basedSoftware License Arrangements**

Certain time-basedsoftware license arrangements are covered by non-cancelable agreements whoseterms generally range from one to three years.  Revenue from these time-basedsoftware license arrangements is recognized ratably over the agreed term.  Thefollowing table shows the amount of revenues to be recognized from thesenon-cancelable arrangements after the respective balance sheet dates:

|  | Revenues to be  recognized in:    | **06-30-2005**    | 12-31-2004    |
|--|-----------------------------------|-------------------|---------------|
|  |    2005            | **$ 10,366** | $ 13,422 |
|  |    2006            | **10,318**        | 7,273         |
|  |    2007            | **5,205**         | 3,744         |
|  |    2008  and later | **330**           | 21            |
|  | Total                             | **$ 26,219** | $ 24,460 |

Tripos is typically paidannually under these contracts.  Shown below are the amounts to be billed underthese contracts subsequent to the respective balance sheet dates (amounts notincluded in the accompanying balance sheets).

|  | Amounts to be billed  in: | **06-30-2005**    | 12-31-2004    |
|--|---------------------------|-------------------|---------------|
|  |    2005    | **$ 5,519**  | $ 9,250  |
|  |    2006    | **7,487**         | 6,865         |
|  |    2007    | **1,062**         | 411           |
|  |    2008    | **83**            | --            |
|  | Total                     | **$ 14,151** | $ 16,526 |

| 15 |
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----

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

**(9)     Goodwilland Other Intangible Assets**

At June 30, 2005 andDecember 31, 2004, the Company had the following intangible asset balances: 

|                        |  | **June 30, 2005** |            | December 31, 2004 |
|------------------------|--|-------------------|------------|-------------------|
|                        |  | **Gross**         | ** ** | ** **        |  | Gross |  |  |
|                        |  | **Carrying**      | ** ** | **Accumulated**   |  | Carrying |  | Accumulated |
|                        |  | **Amount**        | ** ** | **Amortization**  |  | Amount |  | Amortization |
| Acquired software      |  | **$3,590**        | ** ** | **$191**          |  | $ -- |  | $ -- |
| Noncompete agreements  |  | **350**           | ** ** | **46**            |  | -- |  | -- |
| Patents and trademarks |  | **183**           | ** ** | **98**            |  | 183 |  | 93 |
| Total                  |  | **$ 4,123**  | ** ** | **$ 335**    |  | $ 183 |  | $ 93 |

Amortization expense wasapproximately $95 and $3 for the three-month periods ended June 30, 2005 and2004, and $242 and $5 for the six-month periods, respectively.  Estimatedannual amortization expense for the next 5 years is: 2005 - $485; 2006 - $485;2007 - $475; 2008 - $474 and 2009 - $390.

The changes in thecarrying amount of goodwill for the six months ended June 30, 2005 are as follows:

|                                       |  | Discovery    |  | Discovery  |  |              |
|---------------------------------------|--|--------------|--|------------|--|--------------|
|                                       |  | Informatics  |  | Research   |  | Total        |
| Balance at December  31, 2004         |  | $ --    |  | $ 965 |  | $ 965   |
| Acquisition of Optive  Research, Inc. |  | 4,308        |  | --         |  | 4,308        |
| Balance at  June 30, 2005             |  | $ 4,308 |  | $ 965 |  | $ 5,273 |

The goodwill amountsshown above are not tax deductible.

** **

**(10)     DebtFacilities**

We have existing creditfacilities provided by LaSalle Bank in the form of a revolving line of creditand a mortgage loan for our corporate headquarters building, both amended inApril 2005.  The credit facilities are collateralized by substantially all ofour U.S. assets and stock pledges for each of the U.S. and U.K. subsidiaries.

The mortgage note callsfor even quarterly principal payments based on a twenty-year amortizationschedule.  Borrowings under the mortgage are subject to a variable interestrate at LIBOR plus 2.25%.  Interest rates paid by the Company on the mortgageaveraged 5.08% during the first half of 2005.  As of June 30, 2005, $3,806 wasremaining on the mortgage. The April 2005 amendment extended the maturity ofthe mortgage from December 2, 2005 to April 18, 2008, therefore amounts due inexcess of one year, $3,588, have been classified as long-term liabilities while$218 remains classified as short-term. .  At December 31, 2004, the balanceowed on the mortgage note of $3,914 was presented as a current liability on thebalance sheet since it was due within a one-year period.

The amended revolving facility is aone-year commitment for a $6,500 line of credit, requiring interest-onlypayments with borrowings due at the end of the agreement.  The agreementwill expire on April 18, 2006.  Borrowings under the revolving line ofcredit bear interest at variable rates tied to LIBOR or the bank's prime rate. Covenants under the amended revolving facility remain the same and includeminimum interest coverage, minimum shareholders' equity, maximum capitalexpenditure and an annual "clean down" period of 30 consecutive days in which noborrowings are outstanding.  We were in compliance with all covenants as ofJune 30, 2005 and June 30, 2004.  The line of credit carries a commitmentfee of 3/8% of the unused portion of the line.  At June 30, 2005 and 2004we had $3,000 and $0, respectively, and $600 at December 31, 2004 of borrowingsoutstanding.  We met the annual "clean down" provision of the priorrevolving 

| 16 |
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----

**Item 1.  FinancialStatements (continued)**

facility in July 2004 andhave until April 18, 2006 to meet the current year's clean down provision.  Dueto the one-year commitment of the amended credit facility, draws on the line ofcredit are classified as short-term debt.

In connection with theOptive acquisition, the Company issued a subordinated promissory note toHorizon Technology Finance with a face value of $3,500 and a stated interest rateof 11.42%.  The repayment terms of the promissory note require monthly interestonly payments of $33 for the first 18 months, followed by 30 monthly paymentsof $135 beginning on August 1, 2006.  Each payment of principal will beaccompanied by payment of accrued but unpaid interest to the date of thepayment. The subordinated promissory note contains prepayment penalties.   Inaddition, as part of the financing transaction, 112 shares of common stock wereissued to Horizon and Sand Hill Capital at a discounted price of $4.48 pershare.  156 warrants to purchase common stock were issued to Horizon at anegotiated price of $4.48.  When taken as a whole, these transactions resultedin an original issuance debt discount of $222 that is being amortized to interestexpense over the life of the loan.

**(11)     BusinessCombination**

On December 22, 2004 weannounced an agreement to acquire Optive Research, Inc. ("Optive"), a U.S.software company offering discovery informatics products complementary with ourown to the pharmaceutical and biotechnology industry.  We acquired Optive tomaintain access to products presently being distributed by us and to gainaccess to new technologies being developed.  The transaction was completed onJanuary 5, 2005, for consideration including cash and stock.  The acquisitionwas accomplished through a merger of a newly−formed, wholly−ownedsubsidiary of Tripos with and into Optive, with Optive surviving as oursubsidiary.  Under the terms of the agreement, we issued 600 shares of ourcommon stock with a value of $3,183 (a portion of which is restricted and willvest evenly on a semi-annual basis over 2 years) and $4,750 in cash to Optive'sformer shareholders.  The cash portion was funded by a group of new investorsthrough the issuance of $3,500 of subordinated debt bearing an interest rate of11.42%, 112 shares of common stock with a negotiated value of $500 and warrantsto purchase 156 shares of common stock at $4.48 per share.  Optive's operatingrevenues prior to the acquisition were approximately $2,400, including nearly$900 of royalty payments made by us.  The purchase price, including estimateddirect acquisition costs, has been allocated as follows:

| Cash                                              | $ 647  |
|---------------------------------------------------|------------------|
| Accounts receivable                               | 809         |
| Prepaid expenses                                  | 30          |
| Property & equipment,  net                    | 40          |
| Intangible software  & non-compete agreements | 3,940       |
| Goodwill                                          | 4,308       |
| Accounts payable                                  | (422)            |
| Accrued expenses                                  | (97)             |
| Deferred revenue                                  | (655)            |

During the second quarterof 2005, the purchase price and allocation of the purchase price was adjustedto account for minor additional acquisition cost invoices and reclassificationstotaling a net reduction of $9 and to reflect the final valuation of thepurchased intangibles.  The change in the intangibles based upon the finalvaluation report was a net decrease of $140.  These adjustments are reflectedin the balances reported above.

Optive's results ofoperations are included in our consolidated statements of operations from thedate of acquisition.

| 17 |
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----

**Item 1.  FinancialStatements (continued)**

** **

**(12)     Segments**

The Company operates intwo industry segments, Discovery Informatics and Discovery Research.   TheCompany's Discovery Informatics segment designs, or in-licenses, and sellslicenses to software suites that provide computer-aided molecular modeling andvisualization, visual screening, combinatorial library design, data storage andanalysis, and structure-activity relationships to customers in pharmaceutical,biotechnology and related life science fields of research.  The Company'sDiscovery Research segment provides drug discovery services to pharmaceuticaland biotechnology companies.  High-end services offered are based onapplication by Tripos of its proprietary high-throughput combinatorialchemistry, and Tripos' ChemspaceTM database searching and selectiontechnologies, including the Lead HoppingTM method for quickidentification of alternative chemistries for the customer's problem.

Summarized financialinformation concerning the industry segments follows:

DI=Discovery Informatics

DR=Discovery Research

|                                                             | ** ** | ** **                    |
|-------------------------------------------------------------|------------|-------------------------------|
|                                                             | ** ** | **Three-Months End June 30,** |
|                                                             |            | **2005**                      |  | 2004 |
|                                                             |            | **DI**                        | **DR** | **Total** |  | DI | DR | Total |
| Revenues:                                                   |            |                               |  |  |  |  |  |  |
| DI products                                                 |            | **$5,860**                    | **$ --** | **$5,860 ** |  | $ 6,276 | $ -- | $ 6,276  |
| DI services                                                 |            | **580**                       | **--** | **580 ** |  | 719 | -- | 719  |
| DR products &  services                                 |            | **--**                        | **6,919** | **6,919 ** |  | --  | 8,908 | 8,908  |
| Total  revenues                                             |            | **$6,440**                    | **$ 6,919** | **$ 13,359 ** |  | $ 6,995 | $ 8,908 | $ 15,903  |
|                                                             |            | ** **                    | ** ** | ** ** |  |  |  |  |
| Depreciation & amortization                             |            | **$ 325**                | **$ 383** | **$ 708 ** |  | $280 | $ 213 | $ 493  |
| Corporate non-allocated                                     |            | ** **                    | ** ** | ** 91 ** |  |  |  | 116  |
| Depreciation & amortization  on statement of operations |            | ** **                    | ** ** | **$ 799 ** |  |  |  | $ 609  |
|                                                             |            | ** **                    | ** ** | ** ** |  |  |  |  |
| Operating income                                            |            | **$935**                      | **$497** | **$ 1,432 ** |  | $ 1,010 | $ 1,840 | $2,850  |
| Non-allocated corporate  department expense                 |            | ** **                    | ** ** | **(1,557)** |  |  |  | (1,957) |
| Operating income (loss) on  statement of operations         |            | ** **                    | ** ** | **$ (125)** |  |  |  | $ 893  |
|                                                             |            | ** **                    | ** ** | ** ** |  |  |  |  |
| Long-lived assets                                           |            | **$ 17,604**             | **$ 23,815** | **$ 41,419 ** |  | $ 9,893 | $ 22,728 | $ 32,621  |
|                                                             |            | ** **                    | ** ** | ** ** |  |  |  |  |
| Total assets (1)                                            |            | **$ 27,440**             | **$ 37,178** | **$ 64,618 ** |  | $ 19,456 | $ 42,415 | $ 61,871  |
| Consolidated cash                                           |            | ** **                    | ** ** | **6,169 ** |  |  |  | 5,182  |
| Total assets  on balance sheet                              |            | ** **                    | ** ** | **$ 70,787 ** |  |  |  | $ 67,053  |

(1)           Excludes cash and cash equivalents of $6,169 and $5,182 in 2005 and2004, respectively as cash and cash equivalents are monitored on a consolidatedbasis.

| 18 |
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----

**Item 1.  FinancialStatements (continued)**

** **

**(12)     Segments(continued)**

|                                                             | ** ** | ** **                  |
|-------------------------------------------------------------|------------|-----------------------------|
|                                                             | ** ** | **Six-Months End June 30,** |
|                                                             |            | **2005**                    |  | 2004 |
|                                                             |            | **DI**                      | **DR** | **Total** |  | DI | DR | Total |
| Revenues:                                                   |            |                             |  |  |  |  |  |  |
| DI products                                                 |            | **$ 12,133**           | **$ --** | **$ 12,133 ** |  | $ 12,294 | $ -- | $ 12,294  |
| DI services                                                 |            | **1,248**                   | **--** | **1,248 ** |  | 1,434 | -- | 1,434  |
| DR products &  services                                 |            | **--**                      | **15,021** | ** 15,021 ** |  | -- | 17,635 |  17,635  |
| Total  revenues                                             |            | **$ 13,381**           | **$ 15,021** | **$ 28,402 ** |  | $ 13,728 | $ 17,635 | $ 31,363  |
|                                                             |            | ** **                  | ** ** | ** ** |  |  |  |  |
| Depreciation & amortization                             |            | **$ 693**              | **$ 1,433** | **$ 2,126 ** |  | $ 534 | $ 1,398 | $ 1,932 |
| Corporate non-allocated                                     |            | ** **                  | ** ** | **181 ** |  |  |  | 213  |
| Depreciation & amortization  on statement of operations |            | ** **                  | ** ** | **$ 2,307 ** |  |  |  | $ 2,145  |
|                                                             |            | ** **                  | ** ** | ** ** |  |  |  |  |
| Operating income                                            |            | **$ 2,028**            | **$ 1,180** | **$  3,208 ** |  | $ 1,928 | $ 2,551 | $ 4,479  |
| Non-allocated corporate  department expense                 |            | ** **                  | ** ** | **(3,028)** |  |  |  | (3,668) |
| Operating income on  statement of operations                |            | ** **                  | ** ** | **$  180 ** |  |  |  | $ 811  |
|                                                             |            | ** **                  | ** ** | ** ** |  |  |  |  |
| Long-lived assets                                           |            | **$ 17,604**           | **$ 23,815** | **$ 41,419 ** |  | $ 9,893 | $ 22,728 | $ 32,621  |
|                                                             |            | ** **                  | ** ** | ** ** |  |  |  |  |
| Total assets (2)                                            |            | **$ 27,440**           | **$ 37,178** | **$ 64,618 ** |  | $ 19,456 | $ 42,415 | $ 61,871  |
| Consolidated cash                                           |            | ** **                  | ** ** | **6,169 ** |  |  |  | 5,182  |
| Total assets  on balance sheet                              |            | ** **                  | ** ** | **$ 70,787 ** |  |  |  | $ 67,053  |

(2)           Excludes cash and cash equivalents of $6,169 and $5,182 in 2005 and2004, respectively as cash and cash equivalents are monitored on a consolidatedbasis.

** **

**(13)     NewAccounting Pronouncements**

In November 2004, theFinancial Accounting Standards Board ("FASB") issued Statement ofFinancial Accounting Standards ("SFAS") No. 151 "InventoryCosts-an amendment of ARB No. 43, Chapter 4" ("FAS 151").  FAS151 clarifies the accounting for abnormal amounts of idle facility expense,freight, handling costs, and wasted material (spoilage) to require that theseitems be included as current-period charges and not included in overhead.  Inaddition, FAS 151 requires that allocation of fixed production overheads to thecosts of conversion be based on the normal capacity of the production facilities. The provisions in FAS 151 are effective for inventory costs incurred duringfiscal years beginning after June 15, 2005.  We are in the process ofevaluating the requirements of FAS 151 but do not expect the adoption of FAS151 to have a significant effect on our financial statements.

In December 2004, the FASB  issued SFAS No. 123 (revised 2004), "Share-Based Payment"  ("FAS 123R"), which revises and replaces SFAS No. 123,  "Accounting for Stock-Based Payment" and supercedes APB 

| 19 |
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**Item 1.  FinancialStatements (continued)**

**(13)     NewAccounting Pronouncements (continued)**

Opinion No. 25,"Accounting for Stock Issued to Employees".  FAS 123R requires themeasurement of all share-based payments to employees, including grants ofemployee stock options, using a fair-value based method and the recording ofsuch expense in our consolidated statements of operations.  The pro-formadisclosures previously permitted under SFAS No. 123 will no longer be analternative to financial statement recognition.  The provisions of FAS 123Rwere to have been effective for reporting periods beginning after June 15,2005.  At the end of March, the SEC staff released Staff Accounting BulletinNo. 107 (SAB 107), providing guidance for implementing FASB Statement No. 123 (revised2004), *Share-Based Payment* (Statement 123R).  Subsequently, theCommission delayed the implementation dates for Statement 123R to the start ofa Company's fiscal year.  As a result, we will be required to comply with theprovisions of FAS 123R beginning January 1, 2006.  We are currently evaluatingthe requirements of FAS 123R, but because we are presently accounting foremployee stock option grants in a footnote disclosure as permitted by SFAS No.123, the adoption of FAS 123R will have an impact on our results of operationseffective upon adoption.

In May 2005, the FASBissued SFAS No. 154 "Accounting Changes and Error Corrections-areplacement of APB Opinion No. 20 and FASB Statement No. 3"("FAS 154").  FAS 154 requires retrospective application to priorperiods' financial statements of changes in accounting principle, unless it isimpracticable to determine either the period-specific effects or the cumulativeeffect of the change.  When it is impracticable to determine theperiod-specific effects of an accounting change on one or more individual priorperiods presented, FAS 154 requires that the new accounting principle beapplied to the balances of assets and liabilities as of the beginning of theearliest period for which retrospective application is practicable and that acorresponding adjustment be made to the opening balance of retained earningsfor that period rather than being reported in an income statement.  When it isimpracticable to determine the cumulative effect of applying a change inaccounting principle to all prior periods, then FAS 154 requires that the newaccounting principle be applied as if it were adopted prospectively from theearliest date practicable.  The provisions of FAS 154 are effective foraccounting changes and corrections of errors made in fiscal years beginningafter December 15, 2005.

In May 2005, the FASBissued FASB Staff Position No. EITF 00-19-1 "Application of EITF Issue No.00-19 to Freestanding Financial Instruments Originally Issued as EmployeeCompensation" ("FSP EITF 00-19-1").  FSP EITF 00-19-1 providesguidance on how to assess whether an issuer has the ability to control the formof settlement for options and share rights originally issued as employeecompensation.  When these options and shares originally issued as employeecompensation can only be settled by delivering registered shares, then FSP EITF00-19-1 nullifies the provisions of EITF 00-19 that require the assumption ofcash settlement and thus classified as an asset or liability.  The terms ofsuch instruments are to be evaluated using paragraph 34 of FAS 123R todetermine whether they should be recorded as equity or liabilities.  Theguidance in FPS EITF 00-19-1 is applied in accordance with the effective dateand transition provisions of FAS 123R.  As discussed above, we are currentlyevaluating the requirements of FAS 123R and will consider the additionalguidance provided by FSP EITF 00-19-1 in our evaluation.  

 

** **

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**(14)     Restatement**

On February 28, 2006, managementconcluded and the Audit  Committee of the Board of Directors agreed that theCompany's condensed consolidated financial statements included in its QuarterlyReports on Form 10−Q for the fiscal quarters ended March 31, 2005, June30, 2005 and September 30, 2005 should be restated to correct an error relatingto accounting for foreign exchange transaction gains and losses from certainintercompany transactions and that such previously filed financial statementsshould no longer be relied upon.  This conclusion was reported in a CurrentReport on Form 8-K filed March 6, 2006.  The error found by management in aconsolidating financial statement spreadsheet application used solely for 2005interim reporting related to foreign currency translation gains and losses fromintercompany transactions that should have been recorded in "Other income andexpense" on the statement of operations instead of "Other comprehensive income"within the shareholders' equity section of the balance sheet.  All other assetand liability accounts in the balance sheet and operating activity on the statementof operations were properly reported.  This error affected foreign translationeffects for the periods ending March 31, June 30 and September 30, 2005.  Previouslyreported amounts for 2004 were not affected by this error.

The following tablespresent the effects of the restatement in the Consolidated Statement ofOperations and Consolidated Balance Sheets as of the period ended June 30,2005.

**TRIPOS, INC.**

**CONSOLIDATED STATEMENTSOF OPERATIONS**

| (In  thousands, except per share data**)**                      | Three Months Ended      |                    | Six Months Ended |
|-----------------------------------------------------------------|-------------------------|-------------------------|------------------|
|                                                                 | As Reported

06-30-2005 | As Restated

06-30-2005 |             | As Reported

06-30-2005 | As Restated

06-30-2005 |
| Net  sales:                                                     |                         |                         |                  |  |  |
|    Discovery  informatics products & support | $ 5,849       | $ 5,849       |                  | $ 12,112  | $ 12,112  |
|    Discovery  informatics services               | 580                | 580                |                  | 1,248  | 1,248  |
|    Discovery  research products & services   | 6,919              | 6,919              |                  | 15,021  | 15,021  |
|    Hardware                                      | 11                 | 11                 |                  | 21  | 21  |
| Total net sales                                                 | 13,359             | 13,359             |                  | 28,402  | 28,402  |
|                                                                 |                         |                         |                  |  |  |
| Cost  of sales                                                  | 6,886              | 6,886              |                  | 14,793  | 14,793  |
| Gross profit                                                    | 6,473              | 6,473              |                  | 13,609  | 13,609  |
|                                                                 |                         |                         |                  |  |  |
| Operating  expenses:                                            |                         |                         |                  |  |  |
|    Sales  and marketing                          | 2,685              | 2,685              |                  | 5,630  | 5,630  |
|    Research  and development                     | 1,991              | 1,991              |                  | 3,912  | 3,912  |
|    General  and administrative                   | 1,922              | 1,922              |                  | 3,887  | 3,887  |
| Total operating expenses                                        | 6,598              | 6,598              |                  | 13,429  | 13,429  |
|                                                                 |                         |                         |                  |  |  |
| Income (loss) from operations                                   | (125)                   | (125)                   |                  | 180  | 180  |
|                                                                 |                         |                         |                  |  |  |
| Other  (loss), net                                              | (165)                   | (1,043)                 |                  | (752) | (1,438) |
| Loss before income taxes                                        | (290)                   | (1,168)                 |                  | (572) | (1,258) |
|                                                                 |                         |                         |                  |  |  |
| Income  tax benefit                                             | (1,979)                 | (1,979)                 |                  | (2,050) | (2,050) |
| Net income                                                      | $ 1,689       | $ 811         |                  | $ 1,478  | $ 792  |
|                                                                 |                         |                         |                  |  |  |
| Basic  income per share                                         | $ 0.17        | $ 0.08        |                  | $ 0.15  | $ 0.08  |
| Basic  weighted average number of shares                        | 10,091             | 10,091             |                  | 10,075  | 10,075  |
| Diluted  income per share                                       | $ 0.17        | $ 0.08        |                  | $ 0.15  | $ 0.08  |
| Diluted  weighted average number of shares                      | 10,107             | 10,107             |                  | 10,125  | 10,125  |

| 21 |
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**(14)     Restatement(continued)**

**TRIPOS, INC.**

**CONSOLIDATED BALANCESHEETS**

** **

| (In  thousands)                                                                                                                                                                  | As Reported

06-30-2005 | As Restated

06-30-2005 |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-------------------------|-------------------------|
| ASSETS                                                                                                                                                                           |                         |                         |
| Current  assets:                                                                                                                                                                 |                         |                         |
|      Cash  and cash equivalents                                                                                                                         | $ 6,169       | $ 6,169       |
|      Marketable  securities                                                                                                                             | --            | --            |
|      Accounts  receivable, less allowances for doubtful accounts of $238                                                                                | 7,380              | 7,380              |
|      Inventory                                                                                                                                          | 9,048              | 9,048              |
|      Deferred  income taxes                                                                                                                             | --            | --            |
|      Prepaid  expenses                                                                                                                                  | 5,338              | 5,338              |
| Total current assets                                                                                                                                                             | 27,935             | 27,935             |
|                                                                                                                                                                                  |                         |                         |
|    Property  and equipment, less accumulated depreciation                                                                                                         | 29,056             | 29,056             |
|    Capitalized  development costs, less accumulated amortization                                                                                                  | 3,302              | 3,302              |
|    Goodwill                                                                                                                                                       | 5,273              | 5,273              |
|    Intangible  assets, less accumulated amortization                                                                                                              | 3,788              | 3,788              |
|    Investments  recorded at cost                                                                                                                                  | 1,433              | 1,433              |
|    Other  assets, net                                                                                                                                             | --            | --            |
| Total assets                                                                                                                                                                     | $70,787            | $70,787            |
|                                                                                                                                                                                  |
| LIABILITIES  AND SHAREHOLDERS' EQUITY                                                                                                                                            |                         |                         |
| Current  liabilities:                                                                                                                                                            |                         |                         |
|      Current  portion of long-term debt                                                                                                                 | $3,218             | $3,218             |
|      Current  portion of capital leases                                                                                                                 | 3,702              | 3,702              |
|      Accounts  payable                                                                                                                                  | 1,248              | 1,248              |
|      Accrued  expenses                                                                                                                                  | 3,657              | 3,657              |
|      Deferred  revenue                                                                                                                                  | 15,508             | 15,508             |
|      Deferred  income taxes                                                                                                                             | 162                | 162                |
| Total current liabilities                                                                                                                                                        | 27,495             | 27,495             |
|                                                                                                                                                                                  |                         |                         |
|    Capital  leases, less current portion                                                                                                                          | 2,586              | 2,586              |
|    Long-term  debt, less current portion                                                                                                                          | 6,894              | 6,894              |
|    Deferred  income taxes                                                                                                                                         | --                 | --                 |
| Shareholders'  equity :                                                                                                                                                          |                         |                         |
|      Common  stock, $0.01 par value; authorized 20,000 shares,       issued and outstanding 10,114 shares as of June  30, 2005 | 101                | 101                |
|      Additional  paid-in capital                                                                                                                        | 41,322             | 41,322             |
|      Retained  earnings (deficit)                                                                                                                       | (6,611)                 | (7,297)                 |
|      Other  comprehensive loss                                                                                                                          | (1,000)                 | (314)                   |
| Total shareholders' equity                                                                                                                                                       | 33,812             | 33,812             |
| Total liabilities and shareholders' equity                                                                                                                                       | $ 70,787      | $ 70,787      |

** **

** **

** **

** **

** **

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**TRIPOS, INC.**

**CONSOLIDATED STATEMENTSOF CASH FLOWS**

** **

| (In  Thousands)                                                                      | Six Months Ended        |
|--------------------------------------------------------------------------------------|-------------------------|
|                                                                                      | As Reported

06-30-2005 | As Restated

06-30-2005 |
| **Operating  activities:**                                                           |                         |  |
| Net  income                                                                          | $ 1,478       | $ 792  |
| Adjustments  to reconcile net income to   net cash provided by operating activities: |                         |  |
|    Depreciation  of property and equipment                            | 1,999              | 1,999  |
|    Amortization  of capitalized development costs & intangibles   | 308                | 308  |
|    Amortization  of debt discount                                     | 28                 | 28  |
|    Depreciation  in foreign currency hedge instruments                | (85)                    | (85) |
|    Deferred  tax benefit                                              | (1,177)                 | (1,177) |
|    Gain  from sale of marketable securities                           | (240)                   | (240) |
|    Gain  from sale of property and equipment                          | --                 | --  |
|    Impairment  loss on long-term investment                           | 88                 | 88  |
|                                                                                      |                         |  |
| Change  in operating assets and liabilities (excluding acquired business):           |                         |  |
|    Accounts  receivable                                               | 5,427              | 5,427  |
|    Inventories                                                        | 2,157              | 2,157  |
|    Prepaid  expenses and other current assets                         | (736)                   | (736) |
|    Accounts  payable and accrued expenses                             | (4,878)                 | (4,878) |
|    Deferred  revenue                                                  | (2,716)                 | (2,716) |
| Net cash provided by operating activities                                            | 1,653              | 967  |
|                                                                                      |                         |  |
| **Investing  activities:**                                                           |                         |  |
| Purchases  of property and equipment                                                 | (537)                   | (537) |
| Capitalized  development costs                                                       | (1,157)                 | (1,157) |
| Acquisition  of business, net of cash received                                       | (4,770)                 | (4,770) |
| Proceeds  from the sale of marketable securities                                     | 426                | 426  |
| Proceeds  from the sale of property and equipment                                    | --                 | --  |
| Investment  in unconsolidated affiliates                                             | (125)                   | (125) |
| Net cash used in investing activities                                                | (6,163)                 | (6,163) |
|                                                                                      |                         |  |
| **Financing  activities:**                                                           |                         |  |
| Proceeds  from stock issuance pursuant to stock purchase and option plans            | 29                 | 29  |
| Proceeds  from issuance of common stock                                              | 500                | 500  |
| Net  borrowings under revolving line of credit                                       | 2,400              | 2,400  |
| Proceeds  from issuance of long-term debt and capital leases                         |  5,495        |  5,495  |
| Payments  on long-term debt and capital lease obligations                            | (1,670)                 | (1,670) |
| Net cash provided by financing activities                                            | 6,754              | 6,754  |
|                                                                                      |                         |  |
| Effect  of foreign exchange rate changes on cash and cash equivalents                | (246)                   | 440  |
|                                                                                      |                         |  |
| Net increase in cash and cash equivalents                                            | 1,998              | 1,998  |
|                                                                                      |                         |  |
| Cash  and cash equivalents at beginning of period                                    | 4,171              | 4,171  |
| Cash and cash equivalents at end of period                                           | $ 6,169       | $ 6,169  |
|                                                             |                         |  |

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** **

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

**Forward-lookingStatements**

The remainder of thisreport may contain certain statements that are forward-looking and involverisks and uncertainties.  Words such as "expects","anticipates", "projects", "estimates","intends", "plans", "believes", variations ofsuch words and similar expressions are intended to identify such forwardlooking statements.  These statements are based on current expectations andprojections made by management and are not guarantees of future performance. Therefore, actual events, outcomes and results may differ materially from whatis expressed or forecast in such forward-looking statements.  Among the factorsthat could cause actual results to differ materially from the forward-lookingstatements are set forth under the caption "Cautionary Statements --Additional Important Factors to be Considered" in Item 7, Management'sDiscussion and Analysis of Financial Condition and Results of Operations("MD&A") in Tripos' Form 10*-*K for 2004.  Tripos undertakesno obligation to update any forward-looking statements in this Form 10-Q.

The following discussionshould be read in conjunction with the audited consolidated financialstatements and notes thereto.

** **

**Overview**

** **

We provide products andservices to the pharmaceutical, biotechnology, and life science industries tosupport early stage research activities.  Our offerings are applied principallyto assist research chemists to make decisions about the most productive newcompounds to make and test as potential therapeutics.  Through our ownchemistry laboratories, we can also make those compounds for our clients. Through strategic partnerships, we can also screen and analyze compounds forour clients.

The industries that weserve are highly research driven.  Industry trade publications state thatmature pharmaceutical companies typically spend between 12% and 20% of theirannual revenues on research in the search for new blockbuster drugs.  Thisresearch process consists of several phases from early discovery of compoundsof interest, through testing of the promising ones for activity and safety inanimals, to final testing of these compounds in humans.  Our offerings are mostrelevant to the initial phase of this activity.  Our products and services aredesigned and intended to provide our pharmaceutical and biotechnology customerswith improved ways to identify and select the most promising drug candidates totake forward into the more expensive and time consuming stages of the drugdevelopment process.   Depending on the number of compounds that a particularcompany has in different stages of their new therapeutic pipeline, it mayreduce or increase investment in the other phases of research.  Further,decisions by the pharmaceutical industry concerning their research investmentsare strongly influenced by decisions by the various governments of the worldregarding drug pricing and regulation.

Our software productsare sold on a renewable license basis, typically with a term of one or three years. This business is generally predictable, as we have experienced high renewalrates in the past for licenses.  Our management closely monitors licenseexpirations and deploys sales staff to ensure the highest probability ofrenewals.  Our service businesses, both informatics and chemistry, are muchless predictable.  The sales cycles for these offerings are typically long --from six months to eighteen months -- and are highly influenced by factors inthe macro-economic environment, including the general state of thepharmaceutical industry and the political situations in various parts of theworld.  To forecast potential business in these areas, our management strivesto closely interact with the management of our customers and is closelyinvolved in business development activities for service projects.

| 24 |
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**Item 2.            Management'sDiscussion and Analysis of Financial Condition and Results of Operations(continued)**

** **

Large service contractsfor pharmaceutical research, both informatics and chemistry, are complex and,because they are deployed in research applications where outcomes areuncertain, have a large risk component.  Risk management in these projectsbegins with the definition of project requirements and continues throughperformance metrics and customer acceptance milestones.  Due to the complexityof the projects and changing priorities within client organizations, it istypical that many decision points will arise that require management attentionboth at Tripos and at the client.  To mitigate the project difficulties, wehave developed a process focus and management monitors milestones in theproject plan according to the process workflow.  Despite these efforts,however, some projects are of sufficient complexity that they presentchallenges that require revisions to the project plan and scope. 

Being a public companywith limited capital, we have focused on profitability and cashflow.  Thatsaid, the company has not always been profitable, but we have achievedprofitability in certain years.  Major investments, such as the recentexpansion of our chemistry research laboratories in England, have been fundedby the proceeds from the sale of certain investments, cash from operations,temporary use of debt capacity, and grant funding from the British government.

We license our discoverysoftware products and post-contract support ("PCS") as eitherperpetual licenses or time-based licenses, typically one to three-yearrenewable contracts.  The magnitude of these license fees is dependent on eachcustomer's required usage levels, that is, the number of locations andindividual users.  Variations in licensing levels range from the lowhundred-thousands up to several million dollars.  The following aredescriptions of our current sales models for discovery software:

**Perpetuallicenses:**

Software pricing istaken from our price list based on the quantity of individual modules andnumber of users.  Customers are billed upon delivery.  Revenue for software isrecognized upon delivery of product and issuance of perpetual keys.  Supportpricing is a fixed percentage of the total current list price of the softwarepurchased and is billed annually.  Perpetual license sales represent thesmallest share of our informatics revenues.

We have analyzed theother elements included in our multiple-element arrangements involvingperpetual licenses, and determined that we have sufficient Vendor SpecificObjective Evidence ("VSOE") to allocate revenues to PCS and/ortraining.  VSOE for PCS and training is established based upon the pricecharged when those elements are sold separately.  For PCS this is establishedbased on the renewal rate specified in the arrangement, which is consistentlypriced at a percentage of the list price of the purchased licenses.  Trainingis charged consistently from our price list. 

**Bundledlicenses:**

In 1998, we began offering time-based bundled licenses as an alternativeto perpetual licenses.  This allows our customers to obtain multiplesoftware products bundled with PCS that is co-terminus with the period of thearrangement.  Bundled licenses have grown to become our largest source ofsoftware license revenues.  A bundled license includes specific softwaremodules, specified numbers of users of each module with all product and accesskeys delivered on or before the effective date of the contract.  Oursoftware is sold to professional users on an "off the shelf" basis in which thecustomer is responsible for installation.  These non-cancelable,non-refundable contracts are normally three years in duration, although certaincustomers request shorter or longer contract periods.  At the end of thecontract term, the customer must renew the license or the software will cease tooperate.  PCS, which includes unspecified updates, upgrades and "help desk"services, is included in the total price of the contract.  The PCS providedunder bundled arrangements is the same as that provided to customers underperpetual 

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

agreements.  Bundledcontract pricing is taken from our established price list for products(includes package pricing and a-la-cart pricing), number of users and length ofterm.  All contracted products are delivered at inception.  If the customershould want additional modules, users or new software products upon theirrelease, the customer must enter into a new contract (or addendum) and pay theincremental fees to purchase these items.  Software revenue and PCS revenuesunder bundled license agreements are recognized ratably over the contract term.

**Termlicenses:**

Term licenses representone-year arrangements for a software product with an additional charge forone-year of PCS.  The price is taken from our price list by product.  Thesupport renewal fee is a fixed percentage of the software price (similar toperpetual model).  The PCS provided under term arrangements is the same as thatprovided to customers under perpetual agreements.  Software and support pricingare separately stated and billed upon delivery of product.  To continue tooperate the software, the customer must pay their annual renewal fee.  Softwarerevenue and PCS revenues under these license agreements are recognized ratablyover the contract term.

Our softwaretechnologies for the integration of chemistry and biological data in the lifesciences industries creates a revenue stream for discovery informatics services(software consulting).  To serve this market, we maintain a staff ofspecialists who use our proprietary technology, such as MetaLayer,FormsBuilder, Benchware, Benchware Notebook, ChemCoreRIO and AUSPYXtechnologies to configure customized solutions for data management.  Revenuemay be generated on a billable rate per day, or upon achievement of milestonesor deliverables and is recognized as production activities are performed. These contracts may also generate substantial license fee revenue for ourproprietary software technologies.

We develop andmanufacture general screening compound libraries for sale to the life sciencesindustry for a fee per compound delivered.  This has created the opportunity tooffer follow-up discovery research methods to customers for design andsynthesis of focused libraries for lead optimization.  We also market acomprehensive research process to our life sciences customers for rapid andcost effective discovery.  This process combines advanced informatics,chemistry and access to biology products and services, and proprietarydiscovery technologies for efficient lead development, refinement, andoptimization resulting in a tightly integrated process to facilitate synergiesin drug discovery. 

We also act as areseller of computer hardware.  Hardware sales are generally made to facilitateour software customers' access to hardware components and are not a primaryfocus of our sales activities.  We act as an authorized reseller and only orderproducts on an "as needed" basis.  Products are shipped directly tothe customer and thus we do not maintain an inventory.  Margins on these salesare relatively modest.

We license discoveryinformatics tools to customers, provide ongoing support (including upgradesselected by customers) and provide informatics services to customers thatenable integration of our existing and newly developed discovery tools tocustomers' discovery operations.  We generally expense research and developmentcosts associated with software enhancements and new functionality.  Thus, asignificant portion of the costs associated with development and enhancement ofsoftware is accounted for as research and development and not as a cost ofsoftware sales.  Certain software development projects require substantialcommitments of time and resources.  Costs of these projects are capitalizedupon achievement of technological feasibility and/or a working model accordingto Financial Accounting Standards Board ("FASB") Statement of FinancialAccounting Standards ("SFAS") No. 86.

** **

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

Quarterly expensesinclude the costs of research and development for software development and newchemistry research.  We believe that core selling and administrative costs willremain generally consistent as 

a percentage of sales onan annual basis.  Variability in quarterly expenses primarily occurs inrelation to the level of revenues.  This is due to sales compensation, bonuses,staffing for selling, general and administrative functions and for periodicmarketing activities such as appearances at trade exhibitions.

Ourrevenues and expenses vary from quarter to quarter depending upon, among otherthings, the timing of customers' budget processes, the success of our salesefforts, the lengthy sales cycle and our ability to influence customers andprospective customers to make decisions to outsource portions of theirdiscovery process, the size of the customers' capital expenditure budgets, theability to produce compound libraries in a timely manner, market acceptance ofnew products and enhanced versions of existing products, the timing of newproduct introductions by us and other vendors, changes in pricing policies(ours, partners and other vendors), consolidation in customer base, clientinvolvement in decision points in contracts related to project plans, ourability to accurately match contract costs to milestone or contract performancerequirements on our larger collaborative arrangements, and changes in generaleconomic and competitive conditions.  Because much of our informatics productlicenses and PCS revenue along with our contracted discovery research revenueis recognized ratably over multiple periods, fluctuations in our quarterlyrevenues and earnings are caused principally by sales of compounds or byachievement of milestones on specific projects.  Our management team monitorsquarterly business activity with the aid of sales pipeline reports and monthlyfinancial reports.

** **

**Results of Operations**(Amounts in thousands,except per share amounts)

**Net sales** for the second quarterof 2005 were $13,359 compared to $15,903 in 2004, a decrease of 16%.  Discovery informaticsproducts and support sales decreased 6% to $5,849 in 2005 from $6,246 for sameperiod in 2004.  This decrease is primarily attributable to softness in thePacific Rim territory resulting from a patent infringement case in Japanrelating to a software product that we in-license from a third-party.  Thethird-party introduced what we believe to be a non-infringing version of thesoftware in the second quarter and our distributor is working to facilitate asmooth transition.  Sales to academic customers were weaker in the secondquarter due to turnover and internal transfers of sales personnel.  Discoveryinformatics services revenues for the second quarter of 2005 decreased 19% to$580 from $719 in 2004.  The reduction in this area's revenues was attributableto the timing and size of ongoing projects in the current year.  The timing ofrevenue recognition from discovery informatics services is typically subject toachievement of contractual milestones and thus varies from period to period. Discovery research sales accounted for $6,919 in the second quarter of 2005 and$8,908 in the same period in 2004, a decrease of 22%.  This decrease indiscovery research business was principally attributed to lower levels ofproduction on the four-year, $90 million strategic compound file enrichment andhit follow-up contract with Pfizer (the "Pfizer Contract") that waspartially offset by incremental work for other customers.  As previouslydisclosed, revenues from the Pfizer Contract were expected to be lower in 2005than 2004 and are scheduled to end in the fourth quarter of 2005.  Hardwaresales decreased by 63% to $11 for the second quarter 2005 from $30 in 2004.  Wedo not actively market hardware products, but rather facilitate customer demandwhen required.

For thesix-month period in 2005, total net sales decreased 9% to $28,402 from $31,363for the same period in 2004.  The decrease was primarily the result of thelower scheduled production levels of the previously mentioned discovery researchcontract with Pfizer.  Discovery software and support sales wereessentially flat for the six-month periods at $12,112 and $12,220 in 2005 and2004, respectively.  Discovery research revenues decreased by 15% for thefirst six months in 2005 to $15,021 from $17,635.  The decrease in

|  27 |
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**Item 2.  Management'sDiscussion and Analysis of Financial Condition and Results of Operations (Continued)**

discovery researchrevenues was principally from the lower contractual production levels in thePfizer compound file enrichment project.  Revenues from discovery informaticsservices declined by 13% to $1,248 in 2005 from $1,434 in 2004 for thesix-month period.  The reduction in discovery informatics service revenues isattributable to deferrals of revenues pending achievement of contractualmilestones and the completion of other projects.

Netsales for the Company's activities outside of North America representedapproximately 77% to 80% for both three-month periods ending June 30, 2005 and2004.  North American net sales accounted for roughly 23% of 2005 and 20% of2004 total second quarter sales.  Net sales in Europe accounted for 73% and74%, respectively, of total sales the second quarter of 2005 compared to 2004. Net sales in the Pacific Rim decreased by 21% for the second quarter of 2005compared to the same period in 2004.  The decrease was primarily the result ofthe patent infringement matter described earlier.  As indicated, the owner ofthe infringing software has recently introduced a replacement technology.  ThePacific Rim accounted for 4% and 6% of net sales for three-month periods in2005 and 2004, respectively.

** **

**Cost of sales** for the three-monthperiod ending June 30, 2005 decreased 7% to $6,886 compared to $7,409 for thesame period in 2004.  Driving the decrease in cost of sales for the secondquarter of 2005 were lower overall costs from reduced production on the Pfizermulti-year chemistry contract coupled with lower royalties from DiscoveryInformatics sales that were partially offset by amortization of the informaticsproduct-related intangibles acquired in the Optive Research transaction.  Costof sales as a percent of net sales was 52% and 47% for the three-month periodsin 2005 and 2004, respectively.  Six-month year-to-date cost of sales declined2% to $14,793 in 2005 from $15,102 in 2004.  Cost of sales was 52% and 48% oftotal net sales for 2005 and 2004, respectively.  The main reduction cost ofsales came from lower amounts incurred in discovery research activities fromthe Pfizer compound file enrichment project that were partially offset by theincremental costs of amortizing the intangibles from the Optive acquisition.

**Gross profit** margin for the secondquarter 2005 declined to 48% of total net sales versus 53% in the secondquarter of 2004.  Contributing to the lower gross profit in the quarter werethe effects of lower overall sales, the incremental amortization of Optiveproduct-related intangibles, and although costs of production on the Pfizercontract were lower than in the prior year, they remained higher as apercentage of related revenues as we wind down the project.  Six-monthyear-to-date gross profit margin declined to 48% in 2005 from 52% in the 2004six-month year-to-date period. Principal contributors to the year-to-datedecrease in overall gross margin were the recognition of zero margin from themilestone delivery under the Schering contract in the first quarter 2005 andincreased costs of production on the Pfizer contract as a percentage of relatedrevenues in this final year of the project.  The majority of the discoveryinformatics service revenues in the half of 2005 were attributable to theSchering contract.  We will not recognize gross margin, if any, on the Scheringdiscovery informatics consulting contract until the project is completed due toour historical experience of losses on the assignment.  A slight marginimprovement in discovery informatics products was primarily offset byadditional amortization expense associated with the product-related intangiblesacquired with Optive Research, Inc.  Gross profit for the company is alsodependent on costs of chemical materials and overhead, the mix of internalversus third-party software product sales, foreign exchange rates and thecompany's ability to successfully deliver on informatics contracts.

**Sales  and marketing**  expenses decreased 17% to $2,685 for the second quarter of 2005 from $3,233 inthe same period in 2004.  For the six-month year-to-date period in 2005,sales and marketing expenses declined to $5,630 from $6,375 in 2004.  Salesand marketing expenses as a percentage of net sales were 20% for both three andsix-month periods in 2005 and 2004, respectively.  The decreases in salesand marketing spending 

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

totaling $436 and $712for the quarter and year-to-date periods, respectively, were primarilyattributable to lower employee costs and the expiration of certain consultingrelationships.

** **

**Research and development**expensesdecreased by 19% to $1,991 from $2,465 and represented 15% and 16% of net salesfor the three-month periods in 2005 and 2004, respectively.  The decline inR&D expense in the second quarter of 2005 was attributable to reductions tostaff in certain areas of our informatics group compared to the prior year andcapitalization of $558 for costs of development related to discoveryinformatics products that have achieved technological feasibility.  Inaddition, we capitalized $394 of inventoried costs related to our innovativeLead Discovery chemistry projects in the second quarter of 2005.  Year-to-dateR&D expense declined by 26% to $3,912 in 2005 from $5,293 in 2004 and was14% and 17% of total net sales, respectively.  The principal contributors tothe reduction were capitalization of software development cost (mainlyBenchware components) of $1,157 and inventoried costs of LeadDiscoverycompounds in the amount of $849 compared to $211 of LeadDiscovery costs in the2004 six-month period.

**General andadministrative**expenseswere essentially unchanged at $1,922 in 2005 and $1,903 for the second quarterof 2004, respectively, and represent 14% and 12% of net sales for the correspondingperiods.  For the six-month periods, G&A expense was increased slightly to$3,887 in 2005 from $3,782 in 2004 and represented 14% and 12% of respectivetotal net sales.  Higher administrative costs at our expanded U.K. chemistryfacility more than offset expense reduction in other areas.

**Interest expense**increased 36% to $393 inthe second quarter of 2005 from $288 in the second quarter of 2004. For thesix-month period, interest expense increased 50% to $780 in 2005 from $519 in2004.  The increases in interest expense in the three and six-month periods wasprimarily due to interest incurred in 2005 associated with the subordinatednote issued for the acquisition of Optive Research, Inc. that took place inJanuary 2005.** **

** **

**Other income and (loss),net**increasedto a loss of $(650) in the second quarter of 2005 from a loss of $(211) in thesame period in 2004.  The 2005 loss resulted primarily from a currency loss of$746 and recording of a $58 gain from the sale of the remaining shares ofNuVasive, Inc. in the quarter.  For the second quarter of 2004, the lossresulted from a currency loss of $270 partially offset by interest income of$89.  The six-month periods in 2005 and 2004 generated other loss of $657 and otherincome of $62, respectively.  For 2005, the income was from interest of $63along with gains from the sale of NuVasive of $240 partially offset by anunrealized loss of $(88) on our pro-rata share of an investment held in theA.M. Pappas Life Science II fund and currency losses of $(874).  In the samesix-month period of 2004, other income was comprised of a gain of $144 on thesale of shares of Arena Pharmaceuticals, Inc. coupled with interest income of$152 that were partially offset by currency losses of $(234).  We completed thesale of our Arena holdings in the first quarter of 2004.

**Income tax** benefit was $2,050 forthe first six-months of 2005 compared to income tax expense of $(223) for thesame period in 2004, which represent effective tax rates of (162)% and 63%,respectively.  The  effective tax rate for 2005 reflects the realization ofR&D tax credits in the U.K. for prior periods.  We were not able to reflectthe R&D credits from those prior periods until such time as they becamemore likely than not to be approved by the U.K. tax authorities.  During thefirst quarter of 2005, we received notice that the credits from 2002 had beenapproved.  Calculation of the 2003 and 2004 R&D credits were performedduring the second quarter of 2005 and a tax benefit of over $2,100 was reflectedin the cumulative tax position. The 2005 income tax rate reflects management'scurrent estimate of the distribution of earnings among the statutoryjurisdictions in which we operate, realization of additional R&D taxcredits in the U.K. and the utilization of certain net operating losscarryforwards in 2005. 

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

** **

**Liquidity, Capital Resources and CapitalCommitments**

Net cash provided byoperations in the first six-months of 2005 was $967.  The primary sources ofcash were from net income of $792, reductions in accounts receivable of $5,427,reductions in inventory of $2,157 plus the add-back of non-cash depreciationand amortization, including the amortization of debt discount, of $2,335,combined.  These increases of cash were partially offset by payments ofaccounts payable and accrued expenses of $4,878 and a change in deferred taxbenefit of $1,177 along with additions to prepaid expenses of $736 and areduction in deferred revenue of $2,716, less the pre-tax gain of $240 from thesale of shares of NuVasive common stock.  The change in deferred tax benefit isa result of recording the R&D tax credits in the U.K.  The credits haveexceeded our previously recorded deferred tax liabilities and are thereforecapped by a valuation allowance on the excess.  The timing of collections ofaccounts receivable and reductions of deferred revenues both continue regularannual cyclical patterns.  Reductions in inventory levels principally reflectthe status of the deliveries of finished goods to Pfizer.  Net cash provided byoperations in the first half of 2004 was $10,284.  Sources of operating fundsfor the first six-months of 2004 were net collections of accounts receivable of$5,855, reductions in prepaid expenses of $1,676, increased deferred revenue of$3,336 plus the add-back of non-cash depreciation and amortization expenses ofa combined $2,145 and a net reduction in the amount of foreign currency forwardcontracts outstanding of $870.  Operating funds used in 2004 were from changesin net deferred tax position of $191, reductions of accounts payable &accrued expenses of $3,707, less the pre-tax gain of $144 from the sale ofshares of Arena Pharmaceuticals common stock.  The primary differences incashflow from operations year-over-year arises from higher prepaid royalties in2005, reductions in inventory and accounts payable and accrued expenses in 2005and receipt of $3,600 advance funding of technology access fees (deferredrevenue) in the first quarter of 2004.

Cash used in investingactivities during 2005 totaled $6,163 and were for property and equipmentacquisitions of $537, capitalized development costs for our discoveryinformatics software products of $1,157 and the cash used in the acquisition ofOptive Research, Inc. of $4,770.  These were partially offset by $426 of grossproceeds from the sale of NuVasive shares.  Over the next 12 to 18 months, wemay be required to fund the remainder of our investment commitment ($625) tothe A.M. Pappas Life Science II Fund.  Cash used in investing activities in2004 was $2,647 generated principally from the acquisitions of capitalexpenditures of $2,825, investment in the A.M. Pappas Life Science Ventures IIof $178 partially offset by the proceeds from the sale of Arena shares of $196and proceeds from the sale of property and equipment of $169.

For 2005, $6,754 of cashwas generated through financing activities from the issuance of common stock of$500, a new capital lease at our research facility of $1,995, issuance ofsubordinated debt of $3,500 to fund part of the acquisition of Optive Researchand the issuance of shares under our employee stock plans of $29.  We had a netincrease in outstanding borrowings on our line of credit with LaSalle Bank of$2,400 that were partially offset by payments on our mortgage and capitalleases of $1,670.  For the six-month period in 2004, the net cash used infinancing activities was $5,645, consisting of payments on bank loans andcapital lease arrangements totaling $9,794, less proceeds from additionalcapital leases of $3,541 and the issuance of shares under our employee stockplans of $635.  

** **

In April 2005, thecompany and LaSalle Bank executed an amendment to the existing creditfacility.  The modified revolving credit facility is now $6,500, which is anincrease of $500 in available credit.  The maturity date on the mortgage loanhas been extended from December 2005 to April 2008.  All other terms andconditions, including covenants, remain unchanged.  At June 30, 2005, we hadborrowings outstanding of $3,000 on the line of credit that were included inshort-term debt.  Also in the first half of 2005 we secured 

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

additional capitalleases of approximately $1,995 to finance equipment for our recently completedlaboratory expansion. 

Activities over andabove normal operations may require additional sources of funding that are notpresently identified.  However, we believe that with our cash, accountsreceivable balances, projected cash flows from operations, access to availableborrowings from LaSalle Bank, and incremental capital leases, if any, we willbe able to meet our liquidity needs and capital expenditure requirements for atleast the next twelve months.  We expect that our capital expenditurerequirements will be substantially lower than in recent years due to thecompletion of our chemistry laboratory expansion.

** **

Despite current capitalmarkets uncertainties, we may decide to seek additional financing to supportour objectives to enhance product development, expand existing markets andenter new markets, expand our chemistry research capabilities, fund participationin new therapeutic collaborations, or enhance our capital base for otherpurposes.  In making decisions regarding access to additional capital, we willconsider the availability and terms of financing alternatives, as well as ourobjective to maintain financial flexibility to support planned andopportunistic growth of our business.  Additional capital may be in the form ofequity or debt securities, and may be raised in public offering or privateplacement transactions.  See "Management's Discussion and Analysis ofFinancial Condition and Results of Operations - Liquidity and CapitalResources", "Cautionary Statements - Additional Important Factors tobe Considered" and Note 12 of the Notes to Consolidated FinancialStatements in our Annual Report on Form 10-K for the year ended December 31,2004 for a discussion of the credit facilities available to us.

** **

** **

**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, 2004.  In addition, with the acquisition of Optive,which closed in the first quarter of 2005, management has determined that theaccounting policies related to goodwill and other intangible assets should beincluded as one of the Company's identified critical accounting policies.  Thecost of acquired companies is allocated first to their identifiable tangibleand intangible assets based on estimated fair values.  Costs allocated toidentifiable intangible assets are generally amortized on a straight-line basisover the remaining estimated useful lives of the assets.  The excess of thepurchase price over the fair value of identifiable assets acquired, net ofliabilities assumed, is recorded as goodwill and is subject to impairment testsat least annually as required by Statement of Financial Accounting StandardsNo. 142, "Goodwill and Other Intangible Assets."  If the impairment testindicates that the carrying value of goodwill exceeds its fair value, than animpairment loss would be required to be recognized in the consolidatedstatements of operations in an amount equal to the excess carrying value. 

** **

Periodic reports on Form10-Q, Form 10-K and other filings with the Securities and Exchange Commission("SEC") on Form 8-K and S-8, can be found on the Tripos web site at www.tripos.comunder the heading Investor Relations - SEC Filings.

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

Our exposure tofinancial markets risk is limited to foreign exchange variances andfluctuations in interest rates.  The Company may be subject to a significantimpact from foreign exchange.  The costs to perform the custom design andsynthesis contract with Pfizer are incurred in British pounds sterling while weare compensated in U.S. dollars for much of the work.  As a result, our grossprofit may be adversely affected by the decline in the U.S. dollar against thepound.  At times, we may mitigate this effect through foreign currency forwardcontracts whose mark-to-market gains or losses are recorded in "OtherIncome".

Our foreign exchangerisk is presently limited to currencies that historically have exhibited onlyminor fluctuations although during 2004 and currently, these currencies haveshown more significant variation.  Assets outside the United States areprimarily located in England.  Our investments in foreign subsidiaries with afunctional currency other than the U.S. dollar are not hedged.  The net assetsin foreign subsidiaries translated into U.S. dollars using the year-endexchange rates were approximately $15.5 million at December 31, 2004.  Thepotential reduction in fair value resulting from a hypothetical 10% adversechange in foreign currency exchange rates would have been approximately $1.6million at December 31, 2004.  Any loss in fair value of permanently invested fundswould be reflected in Other Comprehensive Income and would not impact our netincome. 

Our interest rate riskis attributable to borrowings under the line-of-credit and mortgage loan thatare tied to the bank's prime rate or short-term LIBOR rates.  We monitor ourexposure to floating interest rate risk on line-of-credit borrowings along withthe outstanding balance on the mortgage loan and may endeavor to mitigate thisrisk through the use of appropriate hedging instruments.

**Item 4.  Controls and Procedures (as amended)**

**(a)     *Restatementof Previously Issued Financial Statements. ***As more fully describedin Note 14 of the notes to the Company's consolidated financial statements, wehave restated our consolidated financial statements for the three and six-monthsended June 30, 2005 and 2004.  As the result of the restatements of ourpreviously issued financial statements, management has reassessed the impact ofthe restatements on its disclosure controls and internal controls overfinancial reporting for the interim periods in 2005.  Previously reportedamounts for 2004 were not affected.

(b)     ***Controlsand Procedures.*********We maintain disclosure controls andprocedures that are designed to ensure that information required to bedisclosed in the reports we file or submit with the Securities and ExchangeCommission (the "Commission") is recorded, processed, summarized and reportedwithin the time periods specified in the Commission's rules and forms, and thatsuch information is accumulated and communicated to management, including ourprincipal executive officer and principal financial officer, as appropriate, toallow timely decisions regarding required disclosure based on the definition of"disclosure controls and procedures" in Rule 13a-15(e) and 15d-15(e)promulgated under the Exchange Act.  In designing and evaluating the disclosurecontrols and procedures, management recognized that any controls andprocedures, no matter how well designed and operated, can provide onlyreasonable assurance of achieving the desired control objectives, andmanagement is required to apply judgment in evaluating our controls andprocedures.  In connection with the original filing of our Quarterly Report onForm 10-Q for the quarter ended June 30, 2005, management, with theparticipation of the principal executive officer and principal financialofficer, conducted an evaluation of the effectiveness of our disclosurecontrols and procedures as of June 30, 2005 at the reasonable assurance leveland concluded that our disclosure controls and procedures were effective as of June30, 2005.  In light of the restatements referred to in (a) above,management, with the participation of our principal executive officer andprincipal financial officer, reevaluated our disclosure controls and procedures

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as of June 30, 2005 at the reasonable assurance level.  Based onthis reevaluation and following the identification of the following materialweakness in our internal control over financial reporting, management concludedthat our disclosure controls and procedures were not effective as of June 30,2005:

As a resultof the error described above in Note 14 of the Notes to Consolidated FinancialStatements, the Company determined, and the Audit Committee concurred, that amaterial weakness existed with respect to its determination of the completenessand accuracy and monitoring of foreign exchange transaction gains/lossesrelated to certain intercompany balances.  This determination was disclosed ina Current Report on Form 8-K filed March 6, 2006.  This control deficiencyresulted in the restatement of the Company's condensed consolidated financialstatements for the fiscal quarters ending March 31, 2005, June 30, 2005 andSeptember 30, 2005 and the Company has filed a Form 10−Q/A for each ofthose fiscal quarters.  Accordingly, the Audit Committee has agreed withmanagement's assessment that its disclosure controls and procedures were noteffective and this control deficiency constituted a material weakness in itsinternal control over financial reporting as of December 31, 2005.  A materialweakness is a control deficiency or combination of control deficiencies thatresults in more than a remote likelihood that a material misstatement of theannual or interim financial statements will not be prevented or detected.

As a resultof this determination that the controls in place over the process oftranslating certain intercompany balances did not operate effectively as of and during the year ended December 31, 2005, the Company and its independentregistered accountants have performed additional procedures during the fourthquarter of 2005 closing process to address the control failure that occurred,including: a) performing additional recalculations of foreign exchangetransaction gains/losses on the intercompany balances and other comprehensiveincome ending balance; b) reconfirmation of intercompany settlements related tothese balances; and c) rectified the errors within the consolidatingspreadsheet application.  The Audit Committee believes that these correctiveactions, taken as a whole, will successfully mitigate the material weaknessdescribed above and the Company will continue to perform these enhancedprocedures as part of their normal closing process.  

As a resultof these remedial actions (restatement of reported results and implementationof additional controls), the Chief Executive Officer and Chief FinancialOfficer are filing new certifications as of the date of this Quarterly Reporton Form 10-Q/A pursuant to Section 302 an Section 906 of the Sarbanes-Oxley Actof 2002 and the requirements of Rule 12b-15 under the Securities Exchange Actof 1934.

During the quarterlyperiod covered by this report and except as disclosed in this Item 4, therewere no changes in the Company's internal control over financial reporting thathave materially affected, or are reasonably likely to materially affect, theCompany's internal control over financial reporting.

** **

** **

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**PART II**

**OTHER INFORMATION**

Item 1.     LegalProceedings

          Noupdates.  See "Contingent Liabilities" in the Notes to Unaudited Financial Statementsabove for a general description.  Reference is made to the "Legal Proceedings"section of our Form 10-K for the year ending December 31, 2004 for a detaileddescription of legal proceedings.

** **

Item 2.     Changes inSecurities and Use of Proceeds

          None

Item 3.     Defaultsupon Senior Securities

          None

Item 4.     Submissionof Matters to a Vote of Security Holders

Two matters weresubmitted to a vote of the shareholders of the Company at its Annual Meeting ofShareholders on May 11, 2005:

1) The followingdirectors were elected to serve for the ensuing year or until the earlier ofdeath, resignation or removal.  Votes cast were as follows:

|                   | Votes           | Votes                           |
|-------------------|-----------------|---------------------------------|
|                   | "For" | "Withhold  Authority" |
| Ralph S. Lobdell  | 7,788,742       | 1,638,064                       |
| Alfred Alberts    | 7,800,742       | 1,626,064                       |
| Stewart Carrell   | 7,642,315       | 1,784,491                       |
| John P. McAlister | 9,109,592       | 317,214                         |
| Gary Meredith     | 7,786,315       | 1,640,491                       |
| Ferid Murad       | 7,345,906       | 2,080,900                       |

2) To ratify theadoption of the 2005 Equity Incentive Compensation Plan with a reserve ofshares authorized for issuance of 800,000.  The measure was approved based onthe following voting results:

| Votes "For" | Votes  "Against" | Votes  "Abstain" | Broker  "Non-votes" |
|-----------------------|----------------------------|----------------------------|-------------------------------|
| 4,022,106             | 2,633,880                  | 21,984                     | 3,410,054                     |

Item 5.     OtherInformation

          None

Item 6.     Exhibits 

31.1      Section 302Certification of the Chief Executive Officer*

31.1      Section 302Certification of the Chief Executive Officer**

31.2      Section 302Certification of the Chief Financial Officer*

31.2      Section 302Certification of the Chief Financial Officer**

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

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

* Previously filed

** Filed herewith

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**TRIPOS, INC.**

**SIGNATURES**

** **

Pursuant to therequirements of the Securities Exchange Act of 1934, the Registrant has dulycaused this report to be signed on its behalf by the undersigned hereunto dulyauthorized.

TRIPOS, INC.

| Date: | March 29, 2006 | /s/ John P. McAlister                 |
|-------|----------------|---------------------------------------|
|       |                | President and                         |
|       |                | Chief Executive Officer               |
|       |                |                                       |
| Date: | March 29, 2006 | /s/ B. James Rubin                    |
|       |                | Senior Vice President,                |
|       |                | Chief Financial Officer and Secretary |
|       |                |                                       |
| Date: | March 29, 2006 | /s/ John D. Yingling                  |
|       |                | Vice President,                       |
|       |                | Chief Accounting Officer and          |
|       |                | Assistant Secretary                   |

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