As previously disclosed in the proxy statement for our 2002 Annual Meeting of Shareholders, we made a loan in 2001 to a senior vice president in the amount of $175 of which $158 remained outstanding on June 30, 2002. The loan bears interest at the rate of 8% and requires regular interest and principal payments, and is expected to be paid in full within the next two years. The outstanding balance is secured by salary, bonus and stock options.

This report may contain certain statements that are forward-looking and involve risks and uncertainties. Words such as "expects", "anticipates", "projects", "estimates", "intends", "plans", "believes", variations of such words and similar expressions are intended to identify such forward looking statements. These statements are based on current expectations and projections made by management and are not guarantees of future performance. Therefore, actual events, outcomes and results may differ materially from what is expressed or forecast in such forward-looking statements. We have identified certain factors that could cause actual results to differ materially from the forward-looking statements under the caption "Cautionary Statements -- Additional Important Factors to be Considered" in Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") in Tripos' Form 10-K for 2001. Except as required under federal securities laws and th e rules and regulations of the SEC, we do not have any intention or obligation to update or revise any forward-looking statements in this Form 10-Q, whether as a result of new information, future events, changes in assumptions or otherwise.

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

As a leader in our industry, we provide the pharmaceutical, biotechnology, agrochemical and other life sciences industries with state-of-the-art discovery chemistry, integrated discovery software products, software consulting services, and discovery research. We combine information technology and scientific research to optimize and accelerate molecular research for the discovery and progression of new products by our customers. Our products include proprietary discovery software tools to manage, analyze and share biological and chemical information; systems integration along with other software consulting services; diverse chemical libraries; and collaborative and contract research for the discovery, synthesis, characterization and optimization of new chemical compounds that are active in biological systems.

We license software and support in the form of one to three-year renewable contracts for any of our more than 50 software modules available for sale. The magnitude of these license fees is dependent on each customer's required usage levels, that is, the number of locations and individual users. Variations in licensing levels range from the low hundred-thousands up to several million dollars and therefore may be sufficient to impact the comparability of quarterly results.

Our integration of chemistry and biological data in the life sciences industries creates a revenue stream for enterprise software consulting services. To serve this market, we maintain a staff of specialists who use our proprietary data integration framework, MetaLayer^TM software, to configure customized solutions for data management. Revenue may be generated on a billable rate per day, or upon achievement of milestones or deliverables and is recognized as services are performed. These contracts may also generate substantial license fee revenue for our proprietary software technologies such as our MetaLayer^TM and ChemCore^TM software. As with our discovery software products, licensing levels may range from the low hundred-thousands up to several million dollars and therefore may be sufficient to impact the comparability of quarterly results.

We develop and manufacture general screening compound libraries for sale to the life sciences industry. Revenue from the sale of these compound libraries is recognized upon shipment to the customer. Individual contracts for the sale of compound libraries may vary greatly in magnitude, from a few hundred dollars to over one million dollars, and thus may affect the comparability of quarterly results. The sale of compound libraries has created the opportunity to offer follow-up discovery research services to customers for design and synthesis of focused libraries for lead optimization. We also market a comprehensive research process to our life sciences customers for rapid and cost effective discovery. This process combines advanced informatics, chemistry and biology products and services, and proprietary discovery technologies for efficient lead development, refinement, and optimization resulting in a tightly integrated process to facilitate synergies in drug discovery. Revenue from these optimization or LeadFocus library design and synthesis contracts may include: technology access fees, billable time (full-time equivalents), milestone payments and royalties.

We also act as a reseller of computer hardware in conjunction with software sales. Hardware sales are generally made to facilitate integration of our software into customer research activities and are not a focus of our sales activities. We act merely as an authorized reseller and do not maintain any inventory. Accordingly, margins on these sales are relatively modest and are typically below 10%.

Over time we have invested in collaborative internal drug discovery programs with Arena Pharmaceuticals, Arrow Pharmaceuticals and Signase, Inc. These collaborations have generated patented lead compounds that are actively being validated and pursued by our respective partners. We are unable to predict when and if we will recognize any financial benefit from these collaborations. The costs of these program investments have been expensed in prior years.

We license discovery software tools to customers, provide ongoing support, including upgrades selected by customers, and provide consulting services to customers that enable the integration of our discovery tools to customers' discovery operations. We generally expense research and development costs associated with software enhancements and new software tools. Thus, a significant portion of the costs associated with development and enhancement of software is accounted for as research and development and not as a cost of software sales.

Quarterly expenses include the fixed costs of research and development for software development and new chemistry research along with related overheads. We believe that selling and marketing expenses will be higher in 2002 as a percent to net sales as we grow this organization to capitalize on market opportunities. Additionally, we expect that administrative costs will be lower as a percent of sales during 2002, however, these expenses may rise in future periods as our company grows. Variability in quarterly expenses primarily occurs in relation to the level of revenues for sales compensation, bonuses and for periodic marketing activities such as appearances at trade exhibitions.

Our revenues and expenses vary from quarter to quarter depending upon, among other things, the timing of customers' budget processes, the success of our sales efforts, the lengthy sales cycle and our ability to influence customers and prospective customers to make decisions to outsource portions of their discovery process, the size of the customers' capital expenditure budgets, the ability to produce compound libraries in a timely manner, market acceptance of new products and enhanced versions of existing products, the timing of new product introductions by us and other vendors, changes in pricing policies (ours, partners and other vendors), consolidation in customer base, client involvement in decision points in contracts related to project plans, and changes in general economic and competitive conditions. In addition, we may negotiate a long-term software license contract that may, subject to certain rules of SOP 97-2 and SOP 98-4, be required to be recognized ratably over the life of t he contract. See Note 8 of the Notes to Unaudited Consolidated Financial Statements of this Form 10-Q for a further discussion of revenue recognition policies. A substantial portion of product-based revenues for each quarter is attributable to a limited number of orders and tends to be realized toward the end of each quarter. Thus, as occurred in June 2002, delays or deferrals of sales near the end of a quarter can cause quarterly results to fluctuate substantially. The mix of revenue components can also affect our quarterly results. Variability in the timing, scope, and magnitude of milestone and other service-based payments under existing and future contracts along with our ability to obtain additional contracts can have a significant impact on quarterly and annual revenues.

Net sales for the second quarter of 2002 were $11,064 compared to $10,586 in 2001, an increase of 5%. Net sales for the six-months year-to-date increased 16% and were $23,762 and $20,514 for 2002 and 2001, respectively.

For the three months ended June 30, 2002, discovery software and support revenues ($5,277) were down slightly (2%) from the prior year period ($5,406); however, year-to-date these revenues grew by 43% to $13,920 in 2002 from $9,710 in 2001. Included in our discovery software revenues are collaborative software development projects that increased by 46% to $770 in the second quarter of 2002 compared to the same period in 2001. For the six-month period of 2002, collaborative software development grew by 30% to $1,399 compared to 2001. Progress on our discovery software research collaborations generally remain consistent with contractual requirements for the development and deployment of our LithiumÔ and high throughput screening technologies. Software consulting services revenues accounted for $797 in the three-month period ending June 30, 2002 compared to $2,997 for the same period in 2001. Six-month year-to-date revenues for SCS were $2,243 and $6,055 for 2002 and 2001, respectively. The 73% decline for the quarter and 63% decline for the year-to-date periods are attributable to a modest level of revenue recognition for successfully completed work and lack of additional new contracts. Tripos also experienced unanticipated delays and missed a milestone in the deployment of one complex system that has negatively impacted gross margin and could continue to impede revenue recognition for that project. Discovery research sales, including LeadQuestÔ compound libraries, accounted for $4,736 in the second quarter of 2002 compared to $1,148 in the same period in 2001, an increase of 313%. Discovery research revenues for the six-month periods in 2002 and 2001 were $7,212 and $2,915, respectively, an increase of 147%. This increase in Discovery research business was attributed to multiple orders for compounds in the quarter and year, work on the $100 million strategic compound design and synthesis contract with Pfizer (announced in January 2002), along with discovery research work for other customers. Low margin hardware sales decreased by 75% from $1,035 in 2001 to $254 for the second quarter 2002 and by 79% from $1,834 for the six-month period in 2001 to $387 for the year-to-date period in 2002.

Net sales for the Company's activities outside of North America represented approximately 72% for the three months ended June 30, 2002 and 58% for the first half of the year compared to 46% and 54%, respectively for the same period in 2001. Net sales in Europe increased 76% for the second quarter of 2002 compared to 2001 and accounted for 64% and 38% of net sales for the three-month periods, respectively. The increase in Europe for 2002 is principally related to the on-track performance to-date in the chemistry collaboration with Pfizer's European research location. Net sales in the Pacific Rim, principally Japan, increased 7% compared to the second quarter of 2001 and accounted for 8% of net

sales for the respective periods. Sales to existing customers represent 93% of total net sales for the six-month period ending June 30, 2002.

Cost of sales for the six-month period ending June 30, 2002 increased 41% to $7,765 compared to the same period in 2001. Cost of sales were $4,732 and $2,809 for the second quarter of 2002 and 2001, respectively, an increase of 68%. Included in the cost of sales for the second quarter is an incremental expense of $829 for costs associated with a software consulting services project that is experiencing unanticipated delays. These incremental costs with no corresponding revenue in this period represent the recognition of the estimated loss on this contract as accounted for under the "completed contract method". In addition, higher discovery research and compound revenues resulted in an increase in costs of sales. Cost of sales as a percent of total net sales was 43% and 27% for the three-month periods and 33% and 27% for the six-month periods in 2002 and 2001, respectively.

Gross profit margin percentage for the second quarter 2002 decreased to 57% from 73% of total net sales in the second quarter of 2001. For the six months year-to-date, gross margin percentage decreased to 67% in 2002 from 73% in 2001. The decrease in gross profit resulted from the accrual of the estimated loss on a software consulting services contract in which achievement of a milestone was unexpectedly delayed along with the effect of delayed purchase decisions of our higher margin discovery software products and a shift in the mix of revenues from our product and service offerings.

Sales and marketing expenses increased 70% to $4,437 from $2,602 for the second quarter of 2002 compared to 2001 and by 60% to $8,371 from $5,238 for the six-months year-to-date compared to 2001. Sales and marketing expenses as a percentage of net sales were 40% and 25% for the second three-month periods in 2002 and 2001, respectively. The increase in sales and marketing expenses is driven by additions to the sales and marketing organization and the amortization related to our contribution to the five-year joint marketing effort with Accenture to offer combined expertise in enterprise consulting and knowledge management services. Additionally, product advertisement increased over the prior year in an effort to increase public awareness and inform current and potential customers of Tripos products.

Research and development expenses increased to $3,071 from $2,612 and represented 28% and 25% of net sales for the second three-month periods in 2002 and 2001, respectively. Six month year-to-date R&D expenses were $6,295 in 2002 compared to $4,917 in 2001, 26% and 24% of net sales, respectively. The increases in expense dollars and percentage of net sales reflect preparation and startup costs for the previously announced strategic design and synthesis discovery research project with Pfizer along with collaborative software development agreements whose costs are included in R&D reflecting the uncertain outcome from this type of research.

General and administrative expenses increased 10% for the second quarter of 2002 to $1,649 from $1,503 in 2001, and represent 15% and 14% of net sales for the respective periods. For the six-month period ending June 30, 2002, G&A expense was $3,169 compared to $2,980 in 2001, a 6% increase. The increase in G&A for the quarter and year-to-date periods is principally related to corporate matters and investor relations activity.

Other income decreased from $2,444 for the second quarter in 2001 to $1,202 for the comparable period in 2002. During the three- and six-month periods in 2001 we realized a net gain of $2,387 on the sale of one hundred thousand shares of Arena Pharmaceuticals at $27 per share during Arena's initial public offering. During the second quarter of 2002, we continued selling shares of Arena under a program initiated earlier in 2002 and realized gains from the sale of one hundred thirty seven thousand shares at an average price of $8 per share. For the six month period in 2002, we sold an aggregate of two hundred fifty thousand shares of Arena at an average price of approximately $9 per share.

Income tax benefit was $341 for the second three-month period in 2002, which represents an effective tax rate of 21%. For the same period in 2001, income tax expense was $1,226, a 35% effective rate. The rate reduction for 2002 reflects management's estimated usage of net operating losses in the U.K. during the current tax year ending December 31, 2002.

For the six-month period ending June 30, 2002, net cash provided by operations was $3,250 primarily due to decreases in trade accounts receivable of $7,086, an increase in deferred revenue of $2,888 along with depreciation and amortization of $620 and $352 respectively, which were offset by a decrease in accounts payable and accrued expenses of $3,279 along with a increases in notes receivable of $964 and prepaid expenses of $1,633 less the gain from the sale of shares of Arena ($1,817). The increase in prepaid expenses is partially due to deferred costs from the performance of service-based contracts that will be recognized with the corresponding revenue in future periods. For the six-month period ending June 30, 2001, net cash provided by operations was $3,100 primarily due to net income of $3,010, a decrease in trade accounts receivable of $3,674, an increase in accounts payable and accrued expenses of $1,611 along with depreciation and amortization of $942 and $114 respectively, whic h were offset by increases in prepaid expenses of

$221, inventories of $226, notes receivables of $860 and a decrease in deferred revenue of $2,199 less a gain of $2,725 for the sale of Arena shares in the period.

Cash used by investing activities during the first six months of 2002 were for property and equipment acquisitions ($1,243), net investments in Signase, Inc. ($500), A.M. Pappas's TechAMP II life sciences fund ($335), capitalized development costs for our ChemCoreÔ technology ($770) which were partially offset by the $2,237 of gross proceeds from the sale of Arena shares. For the first six months of 2001, cash provided from investing activities was generated from the proceeds from the sale of shares of Arena ($2,894) which offset capital expenditures of $1,260 and an investment in A.M. Pappas's TechAMP II life sciences fund of $525.

Cash provided by financing activities for 2002 included the payment of accrued dividends upon the conversion of the Series B Preferred Stock by LION Bioscience ($892) and the reduction of outstanding debt ($413) offset by proceeds from the exercise of employee stock options of $1,587. For the same six-month period in 2001, the net cash provided by financing activities of $869 resulted from proceeds from stock option exercises reduced by debt repayments.

We anticipate that working capital of $20,827, together with continued cash flow from operations, payments to be received under current and contemplated strategic partnership contracts, the U.K. grant assistance, our $4,000 bank line of credit and anticipated access to equipment lease financing, will be sufficient to fund and our operations and commitments for at least the next twelve months including our announced chemistry laboratory expansion. For a description of certain factors that could adversely affect the Company's future capital requirements and the adequacy of its available funds, including factors that are beyond the Company's control, see the discussion under the caption "Cautionary Statements-Additional Important Factors to be Considered" in the Company's Annual Report on Form 10-K for the year ended December 31, 2001.

Item 1.     Legal Proceedings

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

Item 2.     Changes in Securities

          None

Item 3.     Defaults upon Senior Securities

          None

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

Item 5.     Other Information

          None

Item 6.     Exhibits and Reports on Form 8-K

          (a) List of Exhibits

None

          (b) No reports on Form 8-K were required to be filed during the period from April 1, 2002 to June 30, 2002.

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