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<SEC-DOCUMENT>0001157523-04-007535.txt : 20040809
<SEC-HEADER>0001157523-04-007535.hdr.sgml : 20040809
<ACCEPTANCE-DATETIME>20040809154911
ACCESSION NUMBER:		0001157523-04-007535
CONFORMED SUBMISSION TYPE:	10-Q
PUBLIC DOCUMENT COUNT:		4
CONFORMED PERIOD OF REPORT:	20040630
FILED AS OF DATE:		20040809

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			ACCELRYS, INC.
		CENTRAL INDEX KEY:			0001002388
		STANDARD INDUSTRIAL CLASSIFICATION:	SERVICES-PREPACKAGED SOFTWARE [7372]
		IRS NUMBER:				330557266
		STATE OF INCORPORATION:			DE
		FISCAL YEAR END:			0331

	FILING VALUES:
		FORM TYPE:		10-Q
		SEC ACT:		1934 Act
		SEC FILE NUMBER:	000-27188
		FILM NUMBER:		04961296

	BUSINESS ADDRESS:	
		STREET 1:		9685 SCRANTON ROAD
		CITY:			SAN DIEGO
		STATE:			CA
		ZIP:			92121-3752
		BUSINESS PHONE:		(858) 799-5000

	MAIL ADDRESS:	
		STREET 1:		9685 SCRANTON ROAD
		CITY:			SAN DIEGO
		STATE:			CA
		ZIP:			92121-3752

	FORMER COMPANY:	
		FORMER CONFORMED NAME:	PHARMACOPEIA INC
		DATE OF NAME CHANGE:	19951018
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-Q
<SEQUENCE>1
<FILENAME>a4697615.htm
<DESCRIPTION>ACCELRYS 10-Q
<TEXT>
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<p ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=3><B>UNITED STATES<BR>
SECURITIES AND EXCHANGE COMMISSION</B><BR></FONT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>Washington, D.C. 20549</B></FONT>
</p>

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<p ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=3><B>FORM 10-Q</B></FONT></p>

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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(Mark One)</FONT></P>

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     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
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     <TD WIDTH=10% valign=top ALIGN=right><FONT FACE="Times New Roman, Times, Serif" SIZE=2>|X|</FONT></TD>
     <TD WIDTH=1% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH=2% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH=85% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE<BR>SECURITIES EXCHANGE ACT OF 1934</B></FONT></TD>
     <TD WIDTH=1% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH=1% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD colspan=9 ALIGN=center><FONT FACE="Times New Roman, Times, Serif" SIZE=2>or</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD valign=top ALIGN=right><FONT FACE="Times New Roman, Times, Serif" SIZE=2>|_|</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE<BR>SECURITIES EXCHANGE ACT OF 1934</B></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
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<P align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=2><BR>For
the period from April 1, 2004 through June 30, 2004 </FONT></P>

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<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Commission File Number:
0-27118 </FONT></P>

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<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=3><B>ACCELRYS, INC.</B><BR>
(Exact name of registrant as specified in its charter)</FONT></p>

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<TR VALIGN="BOTTOM">
     <TH><FONT SIZE="1"></FONT></TH>
     <TH><FONT SIZE="1"></FONT></TH>
     <TH><FONT SIZE="1"></FONT></TH></TR>
<TR VALIGN="TOP">
     <TD align=center WIDTH="275"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">Delaware<BR>
(State or other jurisdiction of<BR>
incorporation or organization)
</FONT></TD>
     <TD WIDTH="50"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TD>
     <TD align=center WIDTH="275"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">33-0557266<BR>(I.R.S. Employer Identification No.)</FONT></TD></TR>
<TR VALIGN="TOP">
     <TD align=center><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><BR>9685 Scranton Road, San Diego, California<BR>(Address of principal executive offices) </FONT></TD>
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TD>
     <TD align=center><FONT FACE="Times New Roman, Times, Serif" SIZE="2">92121-1761<BR>(Zip code)</FONT></TD></TR>
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<P align=center><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><BR>(858) 799-5000<BR>
(Registrant&#146;s telephone number, including area code)</FONT></P>

<P align=center><FONT FACE="Times New Roman, Times, Serif" SIZE="2">Former name: Pharmacopeia, Inc.<BR>
(Former name, former address and former fiscal year, if changed since last report)</FONT></P>

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<TD><P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Indicate
by check mark whether the registrant (1)&nbsp;has filed all reports required to be filed
by Section&nbsp;13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or such shorter period that the registrant was required to file such reports)
and (2)&nbsp;has been subject to such filing requirements for the past 90 days.<BR> Yes |X|
No |_| </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Indicate by check mark whether the
registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes |X|
No |_| </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Indicate the number of shares
outstanding of each of the issuer&#146;s classes of common stock, as of the latest
practicable date: </FONT></P>
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<BR>



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<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Class</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Outstanding at July 30, 2004</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=2 ALIGN=center><HR width=80% NOSHADE COLOR=Black SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=center><HR width=80% NOSHADE COLOR=Black SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Common Stock, $.0001 par value</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>25,095,797 shares</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
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<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>ACCELRYS, INC. </FONT></H1>

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<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Form 10-Q </FONT></H1>

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<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Table of Contents </FONT></H1>
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<TR VALIGN=Bottom>
     <TH align=left ><FONT FACE="Times New Roman, Times, Serif" SIZE=2><U>Item</U></FONT></TH>
     <TH><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH><FONT FACE="Times New Roman, Times, Serif" SIZE=2><U>Page</U></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TD colspan=3 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><BR><A HREF="#PT1FININFO">PART I.  FINANCIAL INFORMATION</A></FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD WIDTH=27% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><BR><A HREF="#Unaudconsol">Item 1</A></FONT></TD>
     <TD WIDTH=72% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><A HREF="#Unaudconsol">Unaudited Consolidated Financial Statements:</A></FONT></TD>
     <TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD></TD>
     <TD></TD>
     <TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><BR><A HREF="#BSheets">Balance Sheets - June 30, 2004 and December 31, 2003</A></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><A HREF="#BSheets">3</A></FONT></TD></TR>
<TR>
     <TD></TD>
     <TD></TD>
     <TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><BR><A HREF="#SofOps">Statements of Operations - Three Months Ended June 30, 2004 and 2003</A></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><A HREF="#SofOps">4</A></FONT></TD></TR>
<TR>
     <TD></TD>
     <TD></TD>
     <TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><BR><A HREF="#SofCashFlows">Statements of Cash Flows - Three Months Ended June 30, 2004 and 2003</A></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><A HREF="#SofCashFlows">5</A></FONT></TD></TR>
<TR>
     <TD></TD>
     <TD></TD>
     <TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><BR><A HREF="#NotestoUnaud">Notes to Unaudited Consolidated Financial Statements</A></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><A HREF="#NotestoUnaud">6</a></FONT></TD></TR>
<TR>
     <TD></TD>
     <TD></TD>
     <TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><BR><A HREF="#PT1IT2">Item 2</A></FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><BR><A HREF="#PT1IT2">Management's Discussion and Analysis of Financial Condition and</A></FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><A HREF="#PT1IT2">Results of Operations</A></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><A HREF="#PT1IT2">9</A></FONT></TD></TR>
<TR>
     <TD></TD>
     <TD></TD>
     <TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><BR><A HREF="#PT1IT3">Item 3</A></FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><BR><A HREF="#PT1IT3">Quantitative and Qualitative Disclosures about Market Risk</A></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><A HREF="#PT1IT3">24</A></FONT></TD></TR>
<TR>
     <TD></TD>
     <TD></TD>
     <TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><BR><A HREF="#PT1IT4">Item 4</A></FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><BR><A HREF="#PT1IT4">Controls and Procedures</A></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><A HREF="#PT1IT4">24</A></FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD colspan=3 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><BR><A HREF="#PARTII">PART II.  OTHER INFORMATION</A></FONT></TD></TR>
<TR>
     <TD></TD>
     <TD></TD>
     <TD></TD></TR>
<TR>
     <TD></TD>
     <TD></TD>
     <TD></TD></TR>
<TR>
     <TD></TD>
     <TD></TD>
     <TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><BR><A HREF="#IT1">Item 1</A></FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><BR><A HREF="#IT1">Legal Proceedings</A></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><A HREF="#IT1">25</A></FONT></TD></TR>
<TR>
     <TD></TD>
     <TD></TD>
     <TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><BR><A HREF="#IT2">Item 2</A></FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><BR><A HREF="#IT2">Changes in Securities and Use of Proceeds</A></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><A HREF="#IT2">25</A></FONT></TD></TR>
<TR>
     <TD></TD>
     <TD></TD>
     <TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><BR><A HREF="#IT3">Item 3</A></FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><BR><A HREF="#IT3">Defaults Upon Senior Securities</A></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><A HREF="#IT3">25</A></FONT></TD></TR>
<TR>
     <TD></TD>
     <TD></TD>
     <TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><BR><A HREF="#IT4">Item 4</A></FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><BR><A HREF="#IT4">Submission of Matters to a Vote of Security Holders</A></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><A HREF="#IT4">25</A></FONT></TD></TR>
<TR>
     <TD></TD>
     <TD></TD>
     <TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><BR><A HREF="#IT5">Item 5</A></FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><BR><A HREF="#IT5">Other Information</A></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><A HREF="#IT5">25</A></FONT></TD></TR>
<TR>
     <TD></TD>
     <TD></TD>
     <TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><BR><A HREF="#IT6">Item 6</A></FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><BR><A HREF="#IT6">Exhibits and Reports on Form 8-K</A></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><A HREF="#IT6">25</A></FONT></TD></TR>
<TR>
     <TD></TD>
     <TD></TD>
     <TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><BR><A HREF="#signature">Signature</A></FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><BR></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><A HREF="#signature">26</A></FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><BR><A HREF="#IndexToExhibits">Index to Exhibits</A></FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><BR></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><A HREF="#IndexToExhibits">27</A></FONT></TD></TR>
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<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2><BR><BR>2 </FONT></P>



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<A NAME="PT1FININFO"></A>
<!-- MARKER FORMAT-SHEET="Head Major Center Bold" FSL="Default" -->
<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=3>PART I &#151;
FINANCIAL INFORMATION </FONT></H1>

<A NAME="Unaudconsol"></A>
<!-- MARKER FORMAT-SHEET="Head Major Left Bold" FSL="Default" -->
<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>Item 1. Unaudited Consolidated
Financial Statements</B> </FONT></P>

<A NAME="BSheets"></A>
<!-- MARKER FORMAT-SHEET="Head Major Center Bold 1" FSL="Default" -->
<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>Accelrys, Inc.<BR>Consolidated
Balance Sheets<BR>(Dollars and share amounts in thousands)</B></FONT></P>

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     <TH align=left COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2>ASSETS</FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>June 30,<BR>2004</FONT></TH>
     <TH valign=top COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>December 31,<BR>2003</FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH align=left COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><HR><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=1><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><HR><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH valign=top COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH align=left COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>(unaudited)</FONT></TH>
     <TH valign=top COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Current assets:</FONT></TD>
<TD colspan=7 ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;Cash and cash equivalents</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>   30,721</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>   26,985</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;Restricted cash</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>7,133</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>--</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;Marketable securities</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>45,972</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>106,546</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;Trade receivables, net of allowance for doubtful accounts</FONT></TD>
<TD colspan=7 ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;of $222 and $505, respectively</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>10,943</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>39,780</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;Prepaid expenses and other current assets</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>6,022</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>4,197</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;Current assets of discontinued operations</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>--</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>3,994</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=Black SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=Black SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total current assets</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>100,791</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>181,502</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2><BR>Property and equipment, net</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>8,206</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>8,441</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Goodwill, net of accumulated amortization of $13,201</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>34,072</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>34,072</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Software development costs, net of accumulated amortization</FONT></TD>
<TD colspan=7 ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;of $28,324 and $26,555, respectively</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>7,821</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>7,634</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Other assets</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>850</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>960</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Long-term assets of discontinued operations</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>--</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>7,058</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=Black SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=Black SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total assets</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  151,740</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  239,667</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=Black SIZE=2></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=Black SIZE=2></TD><TD></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>LIABILITIES AND STOCKHOLDERS' EQUITY</B></FONT></TD>
<TD colspan=7 ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Current liabilities:</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;Accounts payable</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>    2,313</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>    1,850</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;Accrued liabilities</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>16,536</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>18,819</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;Deferred revenue, current portion</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>22,232</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>24,595</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;Current liabilities of discontinued operations</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>--</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>6,420</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=Black SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=Black SIZE=1></TD><TD></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total current liabilities</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>41,081</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>51,684</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><BR>Deferred revenue, long-term</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>5,894</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>4,924</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Lease guarantee, long-term</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>682</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>--</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Long-term liabilities of discontinued operations</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>--</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>325</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2><BR>Stockholders' equity:</FONT></TD>
<TD colspan=7 ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;Preferred stock, $.0001 par value, 2,000 shares authorized,</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;none issued and outstanding</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>--</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>--</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;Common stock, $.0001 par value, 40,000 shares authorized,</FONT></TD>
     <TD colspan=7 ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;25,088 and 24,949 shares issued, respectively</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;Additional paid-in capital</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>243,703</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>287,592</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;Unearned compensation</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(382</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(536</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;Lease guarantee</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(745</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>--</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;Treasury stock, 644 shares</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(8,340</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(8,340</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;Accumulated deficit</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(130,261</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(97,318</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;Accumulated comprehensive income</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>106</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,334</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=Black SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=Black SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total stockholders' equity</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>104,083</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>182,734</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=Black SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=Black SIZE=1></TD><TD></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total liabilities and stockholders' equity</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  151,740</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  239,667</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=Black SIZE=2></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=Black SIZE=2></TD><TD></TD></TR>
</TABLE>



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<TD>
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<P align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=2>See
accompanying notes to these unaudited consolidated financial statements. </FONT></P>

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<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>3</FONT></P>
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<A NAME="SofOps"></A>
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<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>Accelrys, Inc.<BR>Consolidated
Statements of Operations<BR>(Dollars in thousands, except per share data, unaudited)</B></FONT></P>

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</TD>
</TR>
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<BR>


<TABLE CELLPADDING="0" CELLSPACING="0" BORDER="0" WIDTH="600">
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=6><FONT FACE="Times New Roman, Times, Serif" SIZE=1>For the Three Months<BR>Ended June 30,</FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=6><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT><HR></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH align=center COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2004</FONT></TH>
     <TH align=center COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2003</FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT><HR></TH>
     <TH COLSPAN="1"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT><HR></TH>
     <TH COLSPAN=1><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD WIDTH="71%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Revenue</FONT></TD>
     <TD WIDTH="1%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD WIDTH="10%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  14,181</FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD WIDTH="10%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  19,090</FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Cost of revenue</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>3,786</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>5,014</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=Black SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=Black SIZE=1></TD><TD></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Gross margin</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>10,395</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>14,076</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=3></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;Research and development</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>4,123</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>4,586</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;Sales and marketing</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>7,769</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>8,957</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;General and administrative</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>4,009</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>4,475</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=Black SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=Black SIZE=1></TD><TD></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total operating costs and expenses</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>15,901</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>18,018</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=Black SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=Black SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Operating loss from continuing operations</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(5,506</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(3,942</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;Interest and other income, net</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>585</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>899</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=Black SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=Black SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Loss from continuing operations before provision for income taxes</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(4,921</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(3,043</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;Provision for income taxes</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>135</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>376</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=Black SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=Black SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Loss from continuing operations</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(5,056</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(3,419</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Discontinued operations:</FONT></TD><TD colspan=7 ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;Loss from discontinued operations</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(1,117</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(345</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=Black SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=Black SIZE=1></TD><TD></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Net loss</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  (6,173</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  (3,764</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=Black SIZE=2></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=Black SIZE=2></TD><TD></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=3></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;Loss from continuing operations per share:</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;- Basic and diluted</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>   (0.21</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>   (0.14</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=Black SIZE=2></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=Black SIZE=2></TD><TD></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=3></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;Loss from discontinued operatios per share:</FONT></TD>
<TD colspan=7 ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;- Basic and diluted</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>   (0.05</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>   (0.01</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=Black SIZE=2></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=Black SIZE=2></TD><TD></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=3></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;Net loss per share:</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;- Basic and diluted</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>   (0.25</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>   (0.16</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=Black SIZE=2></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=Black SIZE=2></TD><TD></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;Weighted average shares of common stock outstanding:</FONT></TD>
      <TD colspan=7 alIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;- Basic and diluted</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>24,323</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>23,707</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=Black SIZE=2></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=Black SIZE=2></TD><TD></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=3></TD></TR>
</TABLE>





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<TD>
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<P align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=2>See
accompanying notes to these unaudited consolidated financial statements. </FONT></P>

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<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>4</FONT></P>

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<A NAME="SofCashFlows"></A>

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<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>Accelrys, Inc.<BR>Consolidated
Statements of Cash Flows<BR>(Dollars in thousands)</B></FONT></P>

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</TD>
</TR>
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<BR>


<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 WIDTH=600>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=6><FONT FACE="Times New Roman, Times, Serif" SIZE=1>For the Three Months<BR>Ended June 30,</FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=5><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT><HR></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH align=center COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2004</FONT></TH>
     <TH align=center COLSPAN=1><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH align=center COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2003</FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT><HR></TH>
     <TH COLSPAN=1><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT><HR></TH>
     <TH COLSPAN=1><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD WIDTH="75%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>OPERATING ACTIVITIES:</FONT></TD>
     <TD WIDTH="1%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD WIDTH="7%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
        <TD WIDTH="4%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD WIDTH="7%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Net loss</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  (6,173</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  (3,764</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Adjustments to reconcile net loss to net cash</FONT></TD>
<TD colspan=7 ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;provided by operating activities</FONT></TD>
<TD colspan=7 ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Depreciation</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,117</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,083</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Amortization</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>884</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,582</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Contribution of stock to 401(k) members</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>159</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>260</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Amortization of unearned compensation</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>143</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>--</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Non-cash compensation</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>--</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>10</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="Bottom" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Changes in assets and liabilities:</FONT></TD>
<TD colspan=7 ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Trade receivables</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(179</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(434</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR VALIGN="Bottom" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Prepaid expenses and other current assets</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(1,681</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(533</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Other assets</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>3</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>92</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="Bottom" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accounts payable</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(2,348</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>436</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accrued liabilities</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(332</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,505</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="Bottom" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Deferred revenue</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>556</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(1,890</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
     <TD COLSPAN="3"></TD>
     <TD COLSPAN="2" ALIGN="RIGHT"><HR NOSHADE COLOR=Black SIZE=1></TD><TD></TD>
     <TD COLSPAN="2" ALIGN="RIGHT"><HR NOSHADE COLOR=Black SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net cash used by operating activities</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(7,851</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(1,653</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR VALIGN="Bottom" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>INVESTING ACTIVITIES:</FONT></TD><TD colspan=7 ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Capital expenditures</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(1,194</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(983</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR VALIGN="Bottom" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Increase in capitalized software development costs</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(975</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(1,145</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Purchases of marketable securities</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(31,079</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(15,973</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR VALIGN="Bottom" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Proceeds from sales of marketable securities</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>78,854</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>12,587</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
     <TD COLSPAN="3"></TD>
     <TD COLSPAN="2" ALIGN="RIGHT"><HR NOSHADE COLOR=Black SIZE=1></TD><TD></TD>
     <TD COLSPAN="2" ALIGN="RIGHT"><HR NOSHADE COLOR=Black SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net cash provided/(used) in investing activities</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>45,606</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(5,514</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR VALIGN="Bottom" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>FINANCING ACTIVITIES:</FONT></TD><TD colspan=7 ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Proceeds from issuance of common stock</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,364</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>986</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="Bottom" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Principal payments on leases payable</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>--</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(3</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
     <TD COLSPAN="3"></TD>
     <TD COLSPAN="2" ALIGN="RIGHT"><HR NOSHADE COLOR=Black SIZE=1></TD><TD></TD>
     <TD COLSPAN="2" ALIGN="RIGHT"><HR NOSHADE COLOR=Black SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net cash provided by financing activities</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,364</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>983</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="Bottom" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Exchange rate effect on cash and cash equivalents</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(350</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>437</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Net cash used in discontinued operations</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(47,752</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(1,346</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=Black SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=Black SIZE=1></TD><TD></TD></TR>
<TR VALIGN="Bottom" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Net decrease in cash and cash equivalents</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(8,983</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(7,093</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Cash and cash equivalents, beginning of period</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>39,704</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>31,579</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=Black SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=Black SIZE=1></TD><TD></TD></TR>
<TR VALIGN="Bottom" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Cash and cash equivalents, end of period</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  30,721</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  24,486</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
     <TD COLSPAN="3"></TD>
     <TD COLSPAN="2" ALIGN="RIGHT"><HR NOSHADE COLOR=Black SIZE=2></TD><TD></TD>
     <TD COLSPAN="2" ALIGN="RIGHT"><HR NOSHADE COLOR=Black SIZE=2></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>SUPPLEMENTAL INFORMATION:</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="Bottom" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Cash paid during the period for:</FONT></TD><TD colspan=7 ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Interest expense</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>       3</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>       5</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=Black SIZE=2></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=Black SIZE=2></TD><TD></TD></TR>
<TR VALIGN="Bottom" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Income tax expense</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>      69</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>     141</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
     <TD COLSPAN="3"></TD>
     <TD COLSPAN="2" ALIGN="RIGHT"><HR NOSHADE COLOR=Black SIZE=2></TD><TD></TD>
     <TD COLSPAN="2" ALIGN="RIGHT"><HR NOSHADE COLOR=Black SIZE=2></TD><TD></TD></TR>
</TABLE>


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<TD>
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<P align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=2><BR><BR>See
accompanying notes to these unaudited consolidated financial statements. </FONT></P>

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<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>5</FONT></P>

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<A NAME="NotestoUnaud"></A>
<!-- MARKER FORMAT-SHEET="Head Major Center Bold 1" FSL="Default" -->
<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>Accelrys, Inc.<BR>Notes
to Unaudited Consolidated Financial Statements</B> </FONT></P>

<!-- MARKER FORMAT-SHEET="Head Major Left Bold" FSL="Default" -->
<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>1. Basis of Presentation</B> </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Large Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
accompanying unaudited consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in the United States for interim financial
information and with instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, these unaudited financial statements do not include all of the information
and disclosures required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation of the financial
statements have been included. Interim results are not necessarily indicative of the
results that may be expected for the year. These financial statements should be read in
conjunction with the audited financial statements and disclosures thereto included in the
Company&#146;s Annual Report (under our former name Pharmacopeia, Inc.) on Form&nbsp;10-K
for the year ended December&nbsp;31, 2003. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On
April 1, 2004 the Company changed its fiscal year end from December 31 to March 31. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Large Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On April
30, 2004 the Company completed the spin-off of the Company&#146;s Drug Discovery segment,
Pharmacopeia Drug Discovery, Inc. (&#147;PDD&#148;), see Note 5. The operations, financial
position and cash flows of PDD have been represented as discontinued operations in the
accompanying financial statements. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On
May 11, 2004, the Company&#146;s shareholders approved the change of the Company&#146;s
name to Accelrys, Inc. from Pharmacopeia, Inc. </FONT></P>

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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>2. Net Loss Per Share</B></FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Company computes net income (loss) per share in accordance with Statement of Financial
Accounting Standard No. 128, &#147;Earnings Per Share&#148; (&#147;SFAS 128&#148;). Under
the provisions of SFAS 128, basic net income (loss) per share is computed by dividing the
net income (loss) for the period by the weighted-average number of common shares
outstanding during the period. Diluted net income (loss) per share is computed by dividing
the net income (loss) for the period by the weighted-average number of common and dilutive
common equivalent shares outstanding during the period. Diluted earnings per share include
the potentially dilutive effect of outstanding stock options, or other dilutive
securities. The Company has a net loss for the periods presented; accordingly, the
inclusion of common stock equivalents for outstanding stock options would be anti-dilutive
and therefore the weighted-average shares used to calculate both basic and diluted loss
per share are the same. </FONT></P>

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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>
3. Stock-Based Compensation</B></FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Statement
of Financial Accounting Standards No. 123, &#147;Accounting for Stock-Based
Compensation&#148; (&#147;SFAS 123&#148;) encourages, but does not require, companies to
record compensation cost for stock-based compensation plans at fair value. As permitted by
SFAS 123, the Company has elected to continue following Accounting Principles Board
Opinion No. 25 &#147;Accounting for Stock Issued to Employees,&#148; (&#147;APB 25&#148;)
and related interpretations, to account for stock-based compensation. Under APB 25, no
compensation expense is recognized at the time of option grant because the exercise price
of the Company&#146;s employee stock option equals the fair market value of the underlying
common stock on the date of grant. </FONT></P>


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<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>6</FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Had
the Company followed the fair value measurement provisions of SFAS 123, the following
table summarizes the pro forma net loss and pro forma net loss per share that would have
been recorded (in thousands, except per share data): </FONT></P>
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</TD>
</TR>
</TABLE>
<BR>

<TABLE CELLPADDING="0" CELLSPACING="0" BORDER="0" WIDTH="600">
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=6><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Three Months Ended June 30,</FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH align=center COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2004</FONT></TH>
     <TH align=center COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2003</FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT><HR></TH>
     <TH COLSPAN="1"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT><HR></TH>
     <TH COLSPAN="1"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH></TR>
<TR VALIGN="Bottom" BGCOLOR="#cceeff">
     <TD WIDTH="73%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Net loss:</FONT></TD>
     <TD WIDTH="1%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="3%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD WIDTH="9%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD WIDTH="9%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
        <TD WIDTH="1%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;As reported</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> (6,173</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> (3,764</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR VALIGN="Bottom" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;Deduct: Total stock-based employee</FONT></TD><TD colspan=7 ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="Bottom" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;compensation expense determined under</FONT></TD><TD colspan=7  ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="Bottom" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;fair value based method for all awards,</FONT></TD><TD colspan=7  ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="Bottom" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;net of related tax effects</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(1,086</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(3,101</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
     <TD COLSPAN="3"></TD>
     <TD COLSPAN="2" ALIGN="RIGHT"><HR NOSHADE COLOR=Black SIZE=1></TD><TD></TD>
     <TD COLSPAN="2" ALIGN="RIGHT"><HR NOSHADE COLOR=Black SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;Pro forma</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> (7,259</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> (6,865</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR VALIGN="Bottom" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Basic and diluted net loss per common share:</FONT></TD><TD colspan=7 ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;As reported</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  (0.25</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  (0.16</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR VALIGN="Bottom" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;Pro forma</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(0.30</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(0.29</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
</TABLE>


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<TR VALIGN=TOP>
<TD>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
fair value of each option granted during 2004 and 2003 is estimated on the date of grant
using the Black-Scholes option-pricing model with the following assumptions: </FONT></P>

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</TD>
</TR>
</TABLE>
<BR>

<TABLE CELLPADDING="0" CELLSPACING="0" BORDER="0" WIDTH="600">
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2004</FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2003</FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT><HR width=95%></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT><HR width=95%></TH></TR>
<TR VALIGN=Bottom>
     <TD WIDTH="65%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Dividend yield</FONT></TD>
     <TD WIDTH="1%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="6%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD WIDTH="11%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>0</FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>%</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD WIDTH="11%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>0</FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>%</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Expected volatility</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>69.31</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>%</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>87.02</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>%</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Risk-free interest rate</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>4.35</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>%</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2.84</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>%</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Expected life (years)</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>3.4</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>6.6</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
</TABLE>


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<TD>
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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B><BR>4. Restructuring</B></FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During
the third quarter of 2002, the Company announced that it was undertaking various actions
to restructure its operations to improve its overall financial performance. As of June 30,
2004 the remaining obligation under this restructuring was related to a closure of a
facility. The following table summarizes the activity and balance of the restructuring
liability during the quarter ended June 30, 2004 (dollars in thousands): </FONT></P>
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</TD>
</TR>
</TABLE>
<BR>

<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 WIDTH=600>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Costs to Exit Lease<BR>Obligations</FONT><HR></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN="Bottom" BGCOLOR="#cceeff">
     <TD WIDTH="71%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Balance at March 31, 2004</FONT></TD>
     <TD WIDTH="1%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="7%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD WIDTH="18%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  1,096</FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Utilization of Reserves:</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Cash</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(56</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=Black SIZE=1></TD><TD></TD></TR>
<TR VALIGN="Bottom" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Balance at June 30, 2004</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  1,040</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
     <TD COLSPAN="3"></TD>
     <TD COLSPAN="2" ALIGN="RIGHT"><HR NOSHADE COLOR=Black SIZE=2></TD><TD></TD></TR>
</TABLE>



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<TD>
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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2><BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During
the quarter ended March 31, 2004, the Company executed a restructuring plan for the
purpose of making Research and Development activities more efficient and reducing general
and administrative costs. The restructuring effort included a reduction in force of 73
Accelrys employees, of which all had been terminated as of June 30, 2004. As a result,
restructuring related charges of approximately $2.8 million were recognized as operating
expense during the quarter ended March 31, 2004. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
following table summarizes the activity and balance of the restructuring reserve liability
during the quarter ended June 30, 2004 (dollars in thousands): </FONT></P>

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<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>7</FONT></P>

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</TD>
</TR>
</TABLE>
<BR>

<TABLE CELLPADDING="0" CELLSPACING="0" BORDER="0" WIDTH="600">
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Accelrys Severance Cost<BR>for Involuntary<BR>Employee Terminations</FONT><HR></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN="Bottom" BGCOLOR="#cceeff">
     <TD WIDTH="73%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Balance at March 31, 2004</FONT></TD>
     <TD WIDTH="1%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="7%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD WIDTH="16%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  616</FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Utilization of Reserves:</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Cash</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(527</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=Black SIZE=1></TD><TD></TD></TR>
<TR VALIGN="Bottom" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Balance at June 30, 2004</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>   89</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
     <TD COLSPAN="3"></TD>
     <TD COLSPAN="2" ALIGN="RIGHT"><HR NOSHADE COLOR=Black SIZE=2></TD><TD></TD></TR>
</TABLE>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B><BR>5. Spin-off of Pharmacopeia Drug Discovery, Inc.</B> </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On
April 30, 2004 the Company completed the spin-off of PDD into an independent, separately
traded, publicly held company through the distribution to its stockholders of a dividend
of one share of PDD common stock for every two shares of Accelrys common stock. The
Company has received an opinion of counsel that the transaction qualified for treatment as
a tax-free spin-off. As a result of this transaction, the Company made a capital
contribution of $46.5 million to PDD and incurred costs of approximately $2.3 million
which were accrued at March 31, 2004, and the majority of which were paid during the
quarter ended June 30, 2004. For the one-month ended April 30, 2004, the discontinued PDD
operations had revenue of $1.3 million and a pretax loss of $(1.1) million. </FONT></P>

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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>6. Guarantee</B></FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Subsequent
to April 30, 2004, the landlords of the New Jersey facilities related to the PDD
operations consented to the assignment of the leases to PDD. Despite the assignment, the
landlords required the Company to guarantee the remaining lease obligation representing
approximately $32.2 million in future payments through April 2016 in event PDD does not
perform under the terms of the lease. The probability weighted, fair market value of this
guarantee was calculated in accordance with Financial Accounting Standard Board
Interpretation No. 46 (FIN 46) &#147;Guarantor&#146;s Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others&#148;
and results in a remaining liability of $745 thousand in short- and long-term liabilities
as of June 30, 2004. </FONT></P>

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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>7. Restricted Cash</B> </FONT></p>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At
June 30, 2004, the Company has a restricted cash balance of $7.1 million consisting of two
separate balances. During the quarter, the Company signed a nine-year sublease agreement
for corporate facilities in San Diego. Under the terms of the sublease, the Company was
required to place $6.6 million in a restricted cash account to ensure performance under
the sublease agreement. The cash restriction decreases over the term of the sublease
agreement. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Additionally,
$500 thousand of cash is restricted under the transition services agreement with PDD in
which the Company agreed to provide certain infrastructure to PDD over a one-year term. At
the end of the term, any remaining cash will be released back to Accelrys. </FONT></P>

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<p ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>8. Income Taxes</B></FONT></p>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Company accounts for income taxes using the liability method. Under the liability method,
deferred income taxes are recognized for the tax consequences of &#147;temporary
differences&#148; by applying enacted statutory tax rates applicable to future years to
differences between the financial carrying amounts and the tax basis of existing assets
and liabilities. The provision for income taxes is based on the Company&#146;s estimates
for taxable income of the various legal entities and jurisdictions used in the tax rate
calculation. </FONT></P>

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<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>8</FONT></P>

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<HR SIZE=5 COLOR=GRAY NOSHADE>

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</TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD>

<A NAME="PT1IT2"></A>
<!-- MARKER FORMAT-SHEET="Head Major Center Bold 1" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>Item 2.
Management&#146;s Discussion and Analysis of Financial Condition and Results<BR>of Operations</B></FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
following discussion and analysis of financial condition and results of operations of
Accelrys, Inc. (&#147;Accelrys&#148; or the &#147;Company&#148;) should be read in
conjunction with the Unaudited Financial Statements and related notes included elsewhere
in this Form 10-Q, and also in conjunction with the Consolidated Financial Statements and
related notes included in the Company&#146;s Form 10-K for the year ended December 31,
2003. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This
report, including, without limitation, this section regarding Management&#146;s Discussion
and Analysis of Financial Condition and Results of Operations, contains forward-looking
statements regarding the Company and its business, financial condition, results of
operations, and prospects. Words such as &#147;expects,&#148; &#147;anticipates,&#148;
&#147;intends,&#148; &#147;plans,&#148; &#147;believes,&#148; &#147;seeks,&#148;
&#147;estimates,&#148; and similar expressions are intended to identify forward-looking
statements, but are not the exclusive means of identifying forward-looking statements in
this Report. Additionally, statements concerning future matters such as the development of
new products, enhancements of technologies, possible changes in legislation, and other
statements regarding matters that are not historical are forward-looking statements. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Although
forward-looking statements in this Report reflect the good faith judgment of the
Company&#146;s management, such statements can only be based on facts and factors
currently known by the Company. Consequently, forward-looking statements are inherently
subject to risks and uncertainties and actual results and outcomes may differ materially
from the results and outcomes discussed in or anticipated by the forward-looking
statements. The Company undertakes no obligation to revise or update any forward-looking
statements in order to reflect any event or circumstance that may arise after the date of
this Report. Readers are urged not to place undue reliance on these forward-looking
statements, which speak only as of the date of this Report. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Company&#146;s registration statements on Form S-1 (Reg. No. 33-98246), most recent Form
10-K, and this Report, describe certain risk factors and uncertainties that may cause
actual results, levels of activity, performance, or achievements to be materially
different from any future results, levels of activity, performance, or achievements
expressed or implied by such forward-looking statements. These risk factors and
uncertainties should be considered in connection with any investment in the Company&#146;s
common stock. </FONT></P>

<!-- MARKER FORMAT-SHEET="Head Center Underline" FSL="Default" -->
<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2><U>BUSINESS OVERVIEW</U> </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Large Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
develop and commercializes molecular modeling and simulation software for the life
sciences and materials research markets, cheminformatics and decision support systems, and
bioinformatics tools including gene sequence analysis. On April 30, 2004, the Company spun
off its drug discovery subsidiary, Pharmacopeia Drug Discovery, Inc. (&#147;PDD&#148;),
which integrates proprietary small molecule combinatorial and medicinal chemistry,
high-throughput screening, in-vitro pharmacology, computational methods and informatics to
discover and optimize lead compounds and drug candidates. The spin-off of PDD resulted in
PDD becoming an independent, separately traded, publicly held company. This was
accomplished through the distribution to its stockholders of a dividend of one share of
PDD common stock for every two shares of Accelrys common stock. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As
of June 30, 2004 the Company employed approximately 503 employees and is headquartered in
San Diego, California. </FONT></P>

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<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>9</FONT></P>

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</TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD>
<!-- MARKER FORMAT-SHEET="Head Center Underline" FSL="Default" -->
<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2><U>RESULTS OF OPERATIONS</U> </FONT></P>

<!-- MARKER FORMAT-SHEET="Head Left" FSL="Default" -->
<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>THREE MONTHS ENDED JUNE
30, 2004 AND 2003 </FONT></P>

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</TD>
</TR>
</TABLE>
<BR>

<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 WIDTH=600>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=15><FONT FACE="Times New Roman, Times, Serif" SIZE=1>For the Three Months<BR>Ended June 30,</FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=15><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT><HR></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=6><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2004</FONT></TH>
     <TH COLSPAN=6><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2003</FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Change</FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH align=left COLSPAN=6><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT><HR width=87%></TH>
     <TH align=left COLSPAN=6><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT><HR width=87%></TH>
     <TH align=right COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT><HR width=84%></TH></TR>
<TR VALIGN="Bottom" BGCOLOR="#cceeff">
     <TD WIDTH="53%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Revenue</FONT></TD>
     <TD WIDTH="1%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD WIDTH="6%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  14,181</FONT></TD>
        <TD WIDTH="3%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD WIDTH="6%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>100</FONT></TD>
        <TD WIDTH="3%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>%</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD WIDTH="6%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  19,090</FONT></TD>
        <TD WIDTH="3%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD WIDTH="6%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>100</FONT></TD>
        <TD WIDTH="3%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>%</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD WIDTH="2%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-26</FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>%</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Cost of revenue</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>3,786</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>27</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>%</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>5,014</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>26</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>%</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-24</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>%</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=5><HR NOSHADE COLOR=Black SIZE=1></TD>
     <TD COLSPAN=1></TD>
     <TD COLSPAN=5 ALIGN=RIGHT><HR NOSHADE COLOR=Black SIZE=1></TD><TD></TD>
     <TD COLSPAN=1 ALIGN=RIGHT></TD>
     <TD COLSPAN=3 ALIGN=RIGHT><HR NOSHADE COLOR=Black SIZE=1></TD><TD></TD></TR>
<TR VALIGN="Bottom" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Gross Margin</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>10,395</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>73</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>%</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>14,076</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>74</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>%</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-26</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>%</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=3></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;Research and development</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>4,123</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>29</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>%</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>4,586</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>24</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>%</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-10</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>%</FONT></TD></TR>
<TR VALIGN="Bottom" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;Sales and marketing</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>7,769</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>55</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>%</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>8,957</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>47</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>%</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-13</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>%</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;General and administrative</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>4,009</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>28</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>%</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>4,475</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>23</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>%</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-10</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>%</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=5><HR NOSHADE COLOR=Black SIZE=1></TD>
     <TD COLSPAN=1></TD>
     <TD COLSPAN=5 ALIGN=RIGHT><HR NOSHADE COLOR=Black SIZE=1></TD><TD></TD>
     <TD COLSPAN=1 ALIGN=RIGHT></TD>
     <TD COLSPAN=3 ALIGN=RIGHT><HR NOSHADE COLOR=Black SIZE=1></TD><TD></TD></TR>
<TR VALIGN="Bottom" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total operating costs and expenses</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>15,901</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>112</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>%</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>18,018</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>94</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>%</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-12</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>%</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
     <TD COLSPAN="3"></TD>
     <TD COLSPAN="5"><HR NOSHADE COLOR=Black SIZE=1></TD>
     <TD COLSPAN="1"></TD>
     <TD COLSPAN="5" ALIGN="RIGHT"><HR NOSHADE COLOR=Black SIZE=1></TD><TD></TD>
     <TD COLSPAN="1" ALIGN="RIGHT"></TD>
     <TD COLSPAN="3" ALIGN="RIGHT"><HR NOSHADE COLOR=Black SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Operating loss from continuing operations</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(5,506</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-39</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>%</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(3,942</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-21</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>%</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>40</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>%</FONT></TD></TR>
<TR VALIGN="Bottom" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;Interest and other income, net</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>585</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>4</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>%</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>899</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>5</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>%</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-35</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>%</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
     <TD COLSPAN="3"></TD>
     <TD COLSPAN="5"><HR NOSHADE COLOR=Black SIZE=1></TD>
     <TD COLSPAN="1"></TD>
     <TD COLSPAN="5" ALIGN="RIGHT"><HR NOSHADE COLOR=Black SIZE=1></TD><TD></TD>
     <TD COLSPAN="1" ALIGN="RIGHT"></TD>
     <TD COLSPAN="3" ALIGN="RIGHT"><HR NOSHADE COLOR=Black SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Loss from continuing operations before provision</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;for income taxes</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(4,921</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-35</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>%</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(3,043</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-16</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>%</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>62</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>%</FONT></TD></TR>
<TR VALIGN="Bottom" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;Provision for income taxes</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>135</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>%</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>376</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>%</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-64</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>%</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
     <TD COLSPAN="3"></TD>
     <TD COLSPAN="5"><HR NOSHADE COLOR=Black SIZE=1></TD>
     <TD COLSPAN="1"></TD>
     <TD COLSPAN="5" ALIGN="RIGHT"><HR NOSHADE COLOR=Black SIZE=1></TD><TD></TD>
     <TD COLSPAN="1" ALIGN="RIGHT"></TD>
     <TD COLSPAN="3" ALIGN="RIGHT"><HR NOSHADE COLOR=Black SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Loss from continuing operations</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(5,056</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-36</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>%</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(3,419</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-18</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>%</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>48</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>%</FONT></TD></TR>
<TR VALIGN="Bottom" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Discontinued operations:</FONT></TD>
<TD colspan=16 ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;Loss from Discontinued Operations</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(1,117</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-8</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>%</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(345</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-2</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>%</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>224</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>%</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=5><HR NOSHADE COLOR=Black SIZE=1></TD>
     <TD COLSPAN=1></TD>
     <TD COLSPAN=5 ALIGN=RIGHT><HR NOSHADE COLOR=Black SIZE=1></TD><TD></TD>
     <TD COLSPAN=1 ALIGN=RIGHT></TD>
     <TD COLSPAN=3 ALIGN=RIGHT><HR NOSHADE COLOR=Black SIZE=1></TD><TD></TD></TR>
<TR VALIGN="Bottom" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Net Loss</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  (6,173</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-44</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>%</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  (3,764</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-20</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>%</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>64</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>%</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
     <TD COLSPAN="3"></TD>
     <TD COLSPAN="5"><HR NOSHADE COLOR=Black SIZE=2></TD>
     <TD COLSPAN="1"></TD>
     <TD COLSPAN="5" ALIGN="RIGHT"><HR NOSHADE COLOR=Black SIZE=2></TD><TD></TD>
     <TD COLSPAN="1" ALIGN="RIGHT"></TD>
     <TD COLSPAN="3" ALIGN="RIGHT"><HR NOSHADE COLOR=Black SIZE=2></TD><TD></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=3></TD></TR>
</TABLE>

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<TABLE WIDTH=600 CELLSPACING=0 CELLPADDING=0 BORDER=0>
<TR VALIGN=TOP>
<TD>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2><BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Revenue</B>
decreased 26% to $14.2 million in the quarter ended June 30, 2004 compared to $19.1
million in the quarter ended June 30, 2003. The decrease in revenue was attributed to the
early annual software license renewal of $700 thousand, at the customer&#146;s request, in
March 2004 as compared to the scheduled annual renewal in June 2004, the discontinuance of
delivering low margin disparate consulting work of $1.0 million, finalization of our last
consortium in 2003 of $700 thousand, and the effects of transitioning from up-front
revenue recognition to subscription revenue accounting as a result of contractual changes
made to our licensing agreement of approximately $2.0 million. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
January 2004 we issued a new license offering, which requires subscription accounting.
Under this new license, revenue is recognized ratably over the license term. This
contrasts with our previous annual license offering, whereby we recognized 64% of the
license revenue in the quarter in which the license was executed and amortized the other
36% of the revenue over the remaining term of the contract to reflect the costs of
post-sales support. The unrecognized revenue, amortized over the remaining term of the
agreement, will be accounted for as &#147;deferred revenue&#148; on the balance sheet. The
Company also licenses its software on perpetual licenses whereby we recognize 85% of the
license revenue in the quarter in which the license is executed and amortize the remaining
15% of the revenue over the term of the maintenance agreement. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Cost
of revenue</B> decreased 24% to $3.8 million in the quarter ended June 30, 2004 compared
to $5.0 million in the quarter ended June 30, 2003. The decrease was a result of the
completion of the amortization of acquired technologies completed in 2003, lower royalties
due to a decrease in orders and lower costs associated with the fulfillment of consulting
work as a result of lower consulting revenue. These costs remained consistent as a percent
of revenue. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Research
and development</B> expenses decreased 10% to $4.1 million in the quarter ended June 30,
2004 compared to $4.6 million in the quarter ended June 30, 2003. The decrease in research
and development expense is due primarily to cost savings associated with the January 2004
restructuring. These costs increased as a percent of revenue due to a decrease in revenue,
as described above. </FONT></P>


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<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>10</FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Software
research and development expense consists primarily of the employment-related costs of
personnel associated with developing new products, enhancing existing products, testing
software products and developing product documentation. Software research and development
expense is capitalized in accordance with Statement of Financial Accounting Standards No.
86, &#147;Accounting for the Cost of Computer Software to be Sold, Leased or Otherwise
Marketed&#148; (SFAS 86). Capitalized software development costs consist primarily of the
employment-related costs and consulting fees paid to consultants in relation to the
development of products that have not yet been released. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
following table shows the breakout of research and development costs and the amount of
capitalized software development for the periods indicated: </FONT></P>

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</TD>
</TR>
</TABLE>
<BR>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="600">
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=9><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Three Months Ended June 30, 2004</FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=9><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT><HR></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2004</FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2003</FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>% Change</FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT><HR width=95%></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT><HR width=95%></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT><HR width=95%></TH></TR>
<TR VALIGN=Bottom>
     <TD WIDTH="69%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Research and development:</FONT></TD>
     <TD WIDTH="1%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="3%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD WIDTH="6%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD WIDTH="6%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD WIDTH="6%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="Bottom" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Gross software development costs</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 5.1</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 5.7</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-11</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>%</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Capitalized software development costs</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(0.9</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(1.1</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-14</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>%</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=3 ALIGN=RIGHT><HR NOSHADE COLOR=Black SIZE=1 width=90%></TD>
     <TD COLSPAN=3 ALIGN=RIGHT><HR NOSHADE COLOR=Black SIZE=1 width=90%></TD>
     <TD COLSPAN=3 ALIGN=RIGHT><HR NOSHADE COLOR=Black SIZE=1 width=90%></TD></TR>
<TR VALIGN="Bottom" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total research and development costs</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 4.1</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 4.6</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-10</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>%</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
     <TD COLSPAN="3"></TD>
     <TD COLSPAN="3" ALIGN="RIGHT"><HR NOSHADE COLOR=Black SIZE=2 width=90%></TD>
     <TD COLSPAN="3" ALIGN="RIGHT"><HR NOSHADE COLOR=Black SIZE=2 width=90%></TD>
     <TD COLSPAN="3" ALIGN="RIGHT"><HR NOSHADE COLOR=Black SIZE=2 width=90%></TD></TR>
</TABLE>



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<TR VALIGN=TOP>
<TD>
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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2><BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Sales
and marketing</B> expenses decreased by 13% to $7.8 million in the quarter ended June 30,
2004 compared to $9.0 million in the quarter ended June 30, 2003. The decrease in sales
and marketing expenses is primarily attributable to lower head-count. These costs have
increased as a percent of revenue due to a decrease in revenue, as described above. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>General
and administrative</B> expenses decreased 10% to $4.0 million in the quarter ended June
30, 2004 compared to $4.5 million in the quarter ended June 30, 2003. The decrease in
general and administrative is due to lower head-count and lower corporate charges as a
result of the spin-off of the PDD business. These costs have increased as a percent of
revenue due to a decrease in revenue, as described above. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Net
interest and other income</B> decreased 35% to $0.6 million in the quarter ended June 30,
2004 compared to $0.9 million in the quarter ended June 30, 2003. The decrease is due to
lower average investment balances as the Company made a capital contribution to PDD under
the terms of the spin-off agreement. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Provision
for income tax</B> expense decreased to $0.1 million for the quarter ended June 30, 2004
compared to $0.4 million for quarter ended June 30, 2003. The decrease is due to the
increased loss. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Loss
from discontinued operations</B> increased to $1.1 million for the one month ended April
30, 2004, which is the date of the spin-off of the PDD business, compared to $0.3 million
loss in the quarter ended June 30, 2004. The Company will not incur any further
discontinued operation losses in the future from the PDD business. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A
<B>net loss</B> of ($6.2) million or ($.25) per share was reported for the June 2004
quarter compared to a net loss of ($3.8) million or ($.16) per share recognized in the
June 2003 quarter. The results for the June 2004 quarter included a net loss from
discontinued Pharmacopeia Drug Discovery (PDD) operations of ($1.1) million. The
comparable net loss from the discontinued PDD operations in the June 2003 quarter was
($345) thousand. The loss from discontinued operations represented ($.05) per share in
2004 and ($.01) per share in 2003. </FONT></P>


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<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>11</FONT></P>

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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>LIQUIDITY AND CAPITAL
RESOURCES </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Company has funded its activities to date primarily through the sale of equity securities,
software licenses, software maintenance and related services. Also, prior to the spin-off
of PDD funding was provided through the sale of drug discovery services. As of June 30,
2004, the Company had cash, restricted cash, cash equivalents, and marketable securities
of $83.8 million compared to $141.6 million as of March 31, 2004. On April 30, 2004, the
Company made a capital contribution to PDD of $46.5 million in cash and securities and
incurred costs of approximately $ 2.3 million which were accrued at March 31, 2004 and the
majority of which were paid during the quarter ended June 30, 2004. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Cash
used in operations increased by $6.2 million in the quarter ended June 30, 2004 compared
to the quarter ended June 30, 2003. The increase is primarily attributable to an increased
loss, payments made under the January 2004 restructuring plan and payments made pursuant
to the spin-off of PDD, as referred to above. Cash provided by investing activities
increased by $51.1 million in the quarter ended June 30, 2004 compared to the quarter
ended June 30, 2003 due to the sale of marketable securities to fund the capital
contribution to the PDD business under the contractual agreements of the spin-off. Cash
provided by financing activities increased by $0.4 million in the quarter ended June 30,
2004 compared to the quarter ended June 30, 2003 due to option exercises. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
following summarizes our long-term contractual obligations as of March 31, 2004 (in
thousands). This table has been updated from the Company&#146;s most recently filed 10-K
to include the effects of the assignment of the PDD leases to PDD, the guarantee of the
PDD leases and the corporate facility lease in San Diego, discussed in footnotes 6 and 7
above. </FONT></P>

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</TD>
</TR>
</TABLE>
<BR>

<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 WIDTH=600>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=15><FONT FACE="Times New Roman, Times, Serif" SIZE=1><U>Payments Due by Period</U></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH align=left COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1><BR><U>Contractual Obligations</U></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1><BR><U>Total</U></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1><BR><U>Less than 1 Year</U></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1><BR><U>1 to 3 Years</U></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1><BR><U>4 to 5 Years</U></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1><BR><U>After 5 Years</U></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TD WIDTH=28% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><BR>Operating leases</FONT></TD>
     <TD WIDTH=1% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH=3% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD WIDTH=9% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 45,645</FONT></TD>
        <TD WIDTH=4% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD WIDTH=9% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  3,909</FONT></TD>
        <TD WIDTH=4% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD WIDTH=9% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  7,571</FONT></TD>
        <TD WIDTH=4% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD WIDTH=9% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  7,129</FONT></TD>
        <TD WIDTH=4% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD WIDTH=9% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 27,036</FONT></TD>
        <TD WIDTH=2% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=3><HR NOSHADE COLOR=Black SIZE=1></TD>
     <TD COLSPAN=3><HR NOSHADE COLOR=Black SIZE=1></TD>
     <TD COLSPAN=3><HR NOSHADE COLOR=Black SIZE=1></TD>
     <TD COLSPAN=3><HR NOSHADE COLOR=Black SIZE=1></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=Black SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;Total</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 45,645</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  3,909</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  7,571</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  7,129</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 27,036</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=3><HR NOSHADE COLOR=Black SIZE=2></TD>
     <TD COLSPAN=3><HR NOSHADE COLOR=Black SIZE=2></TD>
     <TD COLSPAN=3><HR NOSHADE COLOR=Black SIZE=2></TD>
     <TD COLSPAN=3><HR NOSHADE COLOR=Black SIZE=2></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=Black SIZE=2></TD><TD></TD></TR>
</TABLE>





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<TR VALIGN=TOP>
<TD>
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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Company anticipates that its capital requirements may increase in future periods as a
result of seasonal sales trends, additional research and development activities, and the
acquisition of additional equipment. The Company&#146;s capital requirements may also
increase in future periods as the Company seeks to expand its technology platform through
investments, licensing arrangements, technology alliances, or acquisitions. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Company anticipates that its existing capital resources will be adequate to fund the
Company&#146;s operations at least through the next twelve months. However, there can be
no assurance that changes will not occur that would consume available capital resources
before then. The Company&#146;s capital requirements depend on numerous factors, including
the ability of the Company to continue to generate software sales, competing technological
and market developments, the cost of filing, prosecuting, defending, and enforcing patent
claims and other intellectual property rights and the outcome of related litigation, the
purchase of additional capital equipment, and acquisitions of other businesses or
technologies. There can be no assurance that additional funding, if necessary, will be
available on favorable terms, if at all. The Company&#146;s forecasts of the period of
time through which its financial resources will be adequate to support its operations are
forward looking information, and actual results could vary. The factors described earlier
in this paragraph will impact the Company&#146;s future capital requirements and the
adequacy of its available funds. </FONT></P>

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<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>12</FONT></P>

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<!-- MARKER FORMAT-SHEET="Head Center Underline" FSL="Default" -->
<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2><U>RISK FACTORS</U> </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Large Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>
You should carefully consider the risks described below before investing in our
publicly-traded securities. The risks described below are not the only ones facing us. Our
business is also subject to the risks that affect many other companies, such as
competition, technological obsolescence, labor relations, general economic conditions,
geopolitical changes and international operations. Additional risks not currently known to
us or that we currently believe are immaterial also may impair our business operations and
our liquidity.</I> </FONT></P>

<!-- MARKER FORMAT-SHEET="Head Left" FSL="Default" -->
<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>CERTAIN RISKS RELATED TO
THE SPIN-OFF OF PDD </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Large Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>There
can be no assurance that Accelrys will be successful on a stand-alone basis. </I>Our Board
of Directors approved the plan to separate the Accelrys and PDD businesses through the
spin-off to our stockholders of 100% of the outstanding shares of common stock of PDD
which transaction was completed on April 30, 2004. The transaction has resulted in PDD
being an independent, publicly-traded company. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
believe that separating PDD from Accelrys will resolve difficulties we have encountered
regarding the effective operation and development of the two businesses within a single
publicly-traded corporation. We further believe the spin-off will enhance the performance
of Accelrys by providing the company with greater focus on its software business and with
a clearer story to enable investors to better evaluate the company and assign an
appropriate market valuation. There can be no assurance that Accelrys, as a stand-alone
entity, will be able to benefit from these items. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Large Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accelrys
has not been an independent company, and will no longer be able to rely on the financial
and other resources and the cash flows generated from the combined Accelrys and PDD
operations. Previously, we operated our businesses as part of a broader corporate
organization rather than as a stand-alone company. Historically, certain corporate
functions had been centralized for PDD and Accelrys; after a transition period following
the distribution, each company will be responsible for fulfilling these functions
independently. Our estimates concerning the costs for independent corporate administrative
functions (such as overhead functions, corporate governance, securities compliance,
exchange listing and investor relations services) may be substantially lower than the
actual costs incurred. As a result, it will be difficult for anyone to accurately forecast
future operating performance for Accelrys. Further, Accelrys may need to obtain financing
on a stand-alone basis after the spin-off, which may be difficult because financial and
other resources may not be as strong as they were prior to the distribution. Any future
financing will have to be raised without reference to or reliance on the financial
condition of the historical consolidated company. There can be no assurance that Accelrys
will be able to obtain financing after the distribution on acceptable terms, or at all. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>The
combined market value of our shares and those of PDD after the spin-off may not be equal
to or greater than the market value of our shares prior to the distribution.</I> There is
no assurance that an active public market for our common stock will be sustained. In
addition, the smaller size of the market capitalization of the Company after the
distribution compared to our market capitalization prior to the distribution may result in
our loss of stock research analyst coverage, which could adversely impact each
entity&#146;s stock market following. Further, the market price of our stock may fluctuate
substantially, as in recent years the stock market has experienced significant price and
volume changes and the Company&#146;s stock price has been volatile. In addition,
following the distribution, our current stockholders will now own separate securities in
PDD and the Company. The possibility remains that some stockholders may sell shares of our
common stock for various reasons, including the fact that the business profile or market
capitalization of that entity as a stand-alone company does not fit their investment
objectives. Given the large concentration of our stockholdings among our top six
stockholders, substantial sales of shares by one or more of these stockholders could
depress the market price for our shares. </FONT></P>

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<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>13</FONT></P>

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<!-- MARKER FORMAT-SHEET="Para Large Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>If
the distribution is taxable, stockholders could be required to pay tax on the fair market
value of the shares of PDD common stock received, and we could incur a corporate tax
liability.</I> If the spin-off fails to qualify as a tax-free distribution for U.S.
federal income tax purposes, our stockholders who received PDD shares would be treated as
if they had received a taxable distribution in an amount equal to the fair market value of
the PDD common stock received. In such event, a corporate income tax could also be payable
by us on the excess of the fair market value of the PDD stock over our adjusted tax basis
in the stock. Further, even if the distribution is tax-free to our stockholders, we could
be subject to corporate income tax on any gain inherent in PDD&#146;s stock if one or more
persons acquire a 50% or greater interest in PDD as part of a plan or series of related
transactions that included the spin-off. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>We
may be required to indemnify PDD, or may not be able to collect on indemnification rights
from PDD</I>. As part of the spin-off, we and PDD have agreed to indemnify one another
after the distribution with respect to the indebtedness, liabilities and obligations that
will be retained by our respective companies. One such obligation includes a guarantee by
us of PDD&#146;s obligations under the existing New Jersey laboratory and headquarters
leases, with respect to which PDD will indemnify us should we be required to make any
payment under the guarantee. These indemnification obligations could be significant.
PDD&#146;s ability to satisfy any such indemnification obligations (including, without
limitation, PDD&#146;s commitment to indemnify us in the event of our payment under our
guarantee of its leases) will depend upon PDD&#146;s future financial strength. We cannot
assure you that, if PDD becomes obligated to indemnify us for any substantial obligations,
PDD will have the ability to do so. There also can be no assurance that we will be able to
satisfy any indemnification obligations to PDD. Any required payment by PDD or us could
have a material adverse effect on its or our business, and any failure by PDD or us to
satisfy its obligations could have a material adverse effect on the other company&#146;s
business. </FONT></P>

<!-- MARKER FORMAT-SHEET="Head Left" FSL="Default" -->
<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>CERTAIN RISKS RELATED TO
OUR BUSINESS </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>
Pharmaceutical and biotechnology companies may discontinue or decrease their use of our
services and products.<B></B></I><B> </B>We are dependent on pharmaceutical and
biotechnology companies. These companies (together with diversified chemical and other
industrial companies) comprise the principal market for our Accelrys modeling, simulation,
data analysis and related software products and services. In addition, these companies
have frequently utilized outside software vendors for key tools used in drug discovery and
chemical development, rather than developing needed information and analysis tools
internally. Our revenue depends to a large extent on research and development expenditures
by the pharmaceutical, biotechnology, and chemical industries, particularly companies in
these industries adding new and improved technologies to accelerate their drug discovery
and chemical development initiatives. The willingness of these companies to expand or
continue is dependent on the benefits of new software tools versus their costs of
licensure. Since a large proportion of our software customers license our products on an
annual basis or buy maintenance contracts from us annually, if their spending priorities
shift, our revenue may be impacted. Also, general economic downturns in our
customers&#146; industries or any decrease in research and development expenditures could
harm our operations. </FONT></P>


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<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>14</FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>
Our ability to increase revenue and grow our business is dependent upon our success in
adding new customers and expanding our existing customer relationships.</I> In order to
generate the additional revenue needed to grow, we must add new customers and retain, and
expand upon, our existing customer relationships. These efforts depend significantly upon,
among other factors: </FONT></P>

<UL>
<LI><FONT FACE="Times New Roman, Times, Serif" SIZE=2>our successful development of new products;</FONT>
<LI><FONT FACE="Times New Roman, Times, Serif" SIZE=2>the success of our business development, sales and marketing efforts; and</FONT>
<LI><FONT FACE="Times New Roman, Times, Serif" SIZE=2>the willingness of current and potential biotechnology, pharmaceutical, chemical,
petrochemical and diversified technology customers to invest in new modeling, simulation
and informatics solutions.</FONT>
</UL>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If
we are unable to add revenue from additional or expanded customer relationships, we may
not be able to grow our business. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>
Our future profitability is uncertain. </I>We generated losses in 2002, 2003, the three
months ended March 31, 2004 and June 30, 2004. Continuing net losses may limit our ability
to fund our operations and we may not generate income from operations in the future. Our
future profitability depends upon many factors, including several that are beyond our
control. These factors include: </FONT></P>

<UL>
<LI><FONT FACE="Times New Roman, Times, Serif" SIZE=2>changes in the demand for our products and services,;</FONT>
<LI><FONT FACE="Times New Roman, Times, Serif" SIZE=2>the introduction of competitive software;</FONT>
<LI><FONT FACE="Times New Roman, Times, Serif" SIZE=2>our ability to license desirable technologies;</FONT>
<LI><FONT FACE="Times New Roman, Times, Serif" SIZE=2>changes in the research and development budgets of our customers and potential customers; and</FONT>
<LI><FONT FACE="Times New Roman, Times, Serif" SIZE=2>our ability to successfully, cost effectively and timely develop, introduce and market new
products, services and product enhancements.</FONT>
</UL>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>
We operate in business lines that change rapidly and in unexpected ways.</I> Rapid
technological change and uncertainty due to new and emerging technologies characterize the
software, drug discovery and chemical development industries. We may be unable to develop,
integrate and market, on a timely basis, the new and enhanced products and services
necessary to keep pace with competitors. Our products and services may be rendered
obsolete by the offerings of our competitors. Failure to anticipate or to respond to
changing technologies, or significant delays in the development or introduction of
products or services, could cause customers to delay or decide against purchases of our
products or services. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>
Failure to attract and retain skilled personnel could have a material adverse effect on
us.</I> Our success depends in part on the continued service of key scientific, software,
sales, business development, engineering and management personnel and our ability to
identify, hire and retain additional personnel. There is intense competition for qualified
personnel. Immigration laws may further restrict our ability to attract or hire qualified
personnel. We may not be able to continue to attract and retain the personnel necessary
for the development of our business. Failure to attract and retain key personnel could
have a material adverse effect on our business, financial condition and results of
operations. Further, we are highly dependent on the principal members of our scientific
and management staff. One or more of these key employees could retire or otherwise leave
our employ within the foreseeable future, and the loss of any of these people could have a
material adverse effect on our business, financial condition and results of operations. We
do not, and do not intend to, maintain key person life insurance on the life of any
employee. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>
We may be unable to develop strategic relationships with large pharmaceutical,
biotechnology, chemical and technology companies. </I> A component of our business
strategy is to develop strategic relationships with larger pharmaceutical, biotechnology,
chemical and technology companies. We believe that through such relationships we can add
revenue, expand our distribution channels, maximize our research and development
resources, improve our competitive position and increase market awareness and acceptance
of scientific software products. To date, we have entered into significant strategic
relationships with such companies as IBM, Oracle and HP. There can be no assurance that
any such relationship will continue, that relationships with similar large organizations
can be developed, or that any such existing or new alliances will produce substantial
revenue or profit opportunities. </FONT></P>

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<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>15</FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>
We are subject to risks associated with the operation of an international business.
</I>For the three months ended June 30, 2004, approximately 56% of the Company&#146;s
consolidated revenue was derived from customers outside the United States, both through
international subsidiaries and on an export basis. Approximately 26% of our revenue was
derived from customers in Europe and approximately 30% was derived from customers in the
Asia/Pacific region. We anticipate that international revenue will continue to account for
a significant percentage of future overall revenue. Our international operations continue
to expand, with functions such as software development, sales and customer support
increasingly being performed outside the United States. In this connection, we intend to
continue the expansion of our development center in Bangalore, India. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our
non-U.S. operations are subject to risks inherent in the conduct of international
business, including: </FONT></P>

<UL>
<LI><FONT FACE="Times New Roman, Times, Serif" SIZE=2>unexpected changes in regulatory requirements;</FONT>
<LI><FONT FACE="Times New Roman, Times, Serif" SIZE=2>longer payment cycles;</FONT>
<LI><FONT FACE="Times New Roman, Times, Serif" SIZE=2>currency exchange rate fluctuations;</FONT>
<LI><FONT FACE="Times New Roman, Times, Serif" SIZE=2>import and export license requirements;</FONT>
<LI><FONT FACE="Times New Roman, Times, Serif" SIZE=2>tariffs and other barriers;</FONT>
<LI><FONT FACE="Times New Roman, Times, Serif" SIZE=2>political unrest, terrorism and economic instability;</FONT>
<LI><FONT FACE="Times New Roman, Times, Serif" SIZE=2>disruption of our operations due to local labor conditions;</FONT>
<LI><FONT FACE="Times New Roman, Times, Serif" SIZE=2>limited intellectual property protection;</FONT>
<LI><FONT FACE="Times New Roman, Times, Serif" SIZE=2>difficulties in collecting trade receivables;</FONT>
<LI><FONT FACE="Times New Roman, Times, Serif" SIZE=2>difficulties in managing distributors or representatives;</FONT>
<LI><FONT FACE="Times New Roman, Times, Serif" SIZE=2>difficulties in managing an organization spread over various countries;</FONT>
<LI><FONT FACE="Times New Roman, Times, Serif" SIZE=2>difficulties in staffing foreign subsidiary or joint venture operations; and</FONT>
<LI><FONT FACE="Times New Roman, Times, Serif" SIZE=2>potentially adverse tax consequences.</FONT>
</UL>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our
success depends, in part, on our ability to anticipate and address these risks. There can
be no assurance that these or other factors will not adversely affect our business or
operating results. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
may not be able to sustain or increase international revenue. Any of the foregoing factors
may have a material adverse effect on our international operations and, therefore, our
business, financial condition and results of operations. Our direct international sales
generally are denominated in local currencies. Fluctuations in the value of currencies in
which we conduct business relative to the United States dollar result in currency
transaction gains and losses, and the impact of future exchange rate fluctuations cannot
be accurately predicted. Future fluctuations in currency exchange rates may have a
material adverse impact on revenue from international sales, and thus on our business,
financial condition and results of operations. When deemed appropriate, we may engage in
currency exchange rate hedging transactions in an attempt to mitigate the impact of
adverse exchange rate fluctuations. However, currency hedging policies may not be
successful, and they may increase the negative impact of exchange rate fluctuations. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>
Investments in Sales and Business Development Efforts.</I> Accelrys products and services
involve lengthy sales and business development cycles, often requiring us to expend
considerable financial and personnel resources without any assurance that revenue will be
recognized. These sales and business development cycles typically are long for a number of
reasons. Software sales cycles are impacted by the time and resources required to educate
potential customer organizations as to the value and comparative advantages of our
products. As a result, we may expend substantial funds and effort to negotiate agreements
for collaborative relationships, services and products, but may ultimately be unable to
consummate the related transaction. In these circumstances, our results of operations and
ability to achieve profitability are adversely affected. </FONT></P>

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<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>16</FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>
Consolidation within the pharmaceutical and biotechnology industries may lead to fewer
potential customers for our products and services. </I>A significant portion of our
customer base consists of pharmaceutical and biotechnology companies. Continued
consolidation within the pharmaceutical and biotechnology industries may result in fewer
customers for our products and services. If one of the parties to a consolidation uses the
products or services of our competitors, we may lose existing customers as a result of
such consolidation. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>
Our operations may be interrupted by the occurrence of a natural disaster or other
catastrophic event at our primary facilities.<B></B></I><B> </B>Our research and
development operations and administrative functions are primarily conducted at our
facilities in San Diego, California, Cambridge, United Kingdom, and Bangalore, India.
Although we have contingency plans in effect for natural disasters or other catastrophic
events, catastrophic events could still disrupt our operations. Even though we carry
business interruption insurance policies, we may suffer losses as a result of business
interruptions that exceed the coverage available under our insurance policies. Any natural
disaster or catastrophic event in our facilities or the areas in which they are located
could have a significant negative impact on our operations. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>
Because our stock price may be volatile, our stock price could experience substantial
declines.<B></B></I><B> </B>The market price of our common stock has historically
experienced and may continue to experience volatility. Our quarterly operating results,
changes in general conditions in the economy or the financial markets and other
developments affecting us or our competitors could cause the market price of our common
stock to fluctuate substantially. In addition, in recent years, the stock market has
experienced significant price and volume fluctuations and, during the past two years, the
stock market (and in particular technology companies) has experienced significant
decreases in market value. This volatility and the recent market decline has affected the
market prices of securities issued by many companies, often for reasons unrelated to their
operating performance, and may adversely affect the price of our common stock. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>
As institutions hold the majority of our Common Stock in large blocks, substantial sales
by these stockholders could depress the market price for our shares.</I> As of July 2004,
the top ten institutional holders of our common stock held approximately 53% of our
outstanding common stock. As a result, if one or more of these major stockholders were to
sell all or a portion of their holdings, or if the market were to perceive that such sale
or sales may occur, the market price of our common stock may fall significantly. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>
Because we do not intend to pay dividends, you will benefit from an investment in our
common stock only if it appreciates in value.<B></B></I><B> </B>We have never declared or
paid any cash dividends on our common stock. We currently intend to retain our future
earnings, if any, to finance the expansion of our business and do not expect to pay any
cash dividends in the foreseeable future. As a result, the success of your investment in
our common stock will depend entirely upon any future appreciation in its value. There is
no guarantee that our common stock will appreciate in value or even maintain the price at
which you purchased your shares. </FONT></P>

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<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>17</FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>
Anti-takeover provisions under the Delaware general corporation law, provisions in our
certificate of incorporation and bylaws, and our adoption of a stockholder rights plan may
render more difficult the accomplishment of mergers or the assumption of control by a
principal stockholder, making more difficult the removal of management</I>. Certain
provisions of the Delaware General Corporation Law may delay or deter attempts to secure
control of our company without the consent of our management. Also, our governing
documents provide for a staggered board of directors, which will make it more difficult
for a potential acquirer to gain control of our Board of Directors. In 2002, we adopted a
stockholder rights plan, which is triggered upon commencement or announcement of a hostile
tender offer or when any one person or group acquires 15% or more of our common stock. The
rights plan, once triggered, enables stockholders to purchase our common stock, and the
stock of the entity acquiring us, at reduced prices. These provisions of our governing
documents and stockholder rights plan, and of Delaware law, could have the effect of
delaying, deferring or preventing a change of control including without limitation a proxy
contest, making more difficult the acquisition of a substantial block of our common stock.
The provisions could also limit the price that investors might be willing to pay in the
future for shares of our common stock. Further, the existence of these anti-takeover
measures may cause potential bidders to look elsewhere, rather than initiating acquisition
discussions with us. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>
If we consume cash more quickly than expected, we may be unable to raise additional
capital and we may be forced to curtail operations. </I>We anticipate that our existing
capital resources will be adequate to fund our operations for at least the next twelve
months<B><I>. </I></B><I></I> However, changes may occur that would consume available
capital resources before that time. Our capital requirements will depend on numerous
factors, including: </FONT></P>

<UL>
<LI><FONT FACE="Times New Roman, Times, Serif" SIZE=2>costs associated with software sales;</FONT>
<LI><FONT FACE="Times New Roman, Times, Serif" SIZE=2>competing technological and market developments;</FONT>
<LI><FONT FACE="Times New Roman, Times, Serif" SIZE=2> the cost of filing, prosecuting, defending and enforcing patent claims and other intellectual
property rights and the outcome of related litigation;</FONT>
<LI><FONT FACE="Times New Roman, Times, Serif" SIZE=2>the purchase of additional capital equipment; and</FONT>
<LI><FONT FACE="Times New Roman, Times, Serif" SIZE=2>acquisitions of other businesses or technologies.</FONT>
</UL>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If
we determine that we must raise additional capital, we may attempt to do so through public
or private financings involving debt or equity. However, additional capital may not be
available on favorable terms, or at all. If adequate funds are not available, we may be
required to curtail operations significantly or to obtain funds by entering into
arrangements with collaborative partners or others that may require us to relinquish
rights to certain of our technologies, products or potential markets that we would not
otherwise relinquish. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>
If we choose to acquire new and complementary businesses, products or technologies instead
of developing them ourselves, we may be unable to complete these acquisitions or to
successfully integrate an acquired business or technology in a cost-effective and
non-disruptive manner. </I>From time to time, we may choose to acquire complementary
businesses, products or technologies instead of developing them ourselves. We do not know
if we will be able to complete any acquisitions, or whether we will be able to
successfully integrate any acquired businesses, operate them profitably or retain their
key employees. Integrating any business, product or technology we acquire could be
expensive and time-consuming, disrupt our ongoing business and distract company
management. In addition, in order to finance any acquisition, we might need to raise
additional funds through public or private equity or debt financings. In that event, we
could be forced to obtain financing on less than favorable terms and, in the case of
equity financing that may result in dilution to our stockholders. If we are unable to
integrate any acquired entities, products or technologies effectively, our business will
suffer. In addition, under certain circumstances, amortization of assets or charges
resulting from the costs of acquisitions could harm our business and operating results. </FONT></P>

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<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>18</FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>
Our ability to increase Accelrys software revenue may depend upon increased market
acceptance of our products and services</I>. Accelrys products are currently used
primarily by molecular modeling and simulation and gene sequence analyses specialists. Our
strategy is to expand usage of our products and services by marketing and distributing our
software, in part through our desktop-based products, client-server solutions, and related
services to a broader, more diversified group of biologists, chemists, and engineers. If
we cannot expand our customer base by selling our desktop-based products, client-server
solutions, and related services, we may not be able to increase our software revenue, or
such revenue may decline. In general, increased market acceptance and greater market
penetration of our software products depend upon several factors, including: </FONT></P>


<UL>
<LI><FONT FACE="Times New Roman, Times, Serif" SIZE=2>overall product performance;</FONT>
<LI><FONT FACE="Times New Roman, Times, Serif" SIZE=2>ease of implementation and use;</FONT>
<LI><FONT FACE="Times New Roman, Times, Serif" SIZE=2>accuracy of simulation;</FONT>
<LI><FONT FACE="Times New Roman, Times, Serif" SIZE=2>breadth and integration of product offerings;</FONT>
<LI><FONT FACE="Times New Roman, Times, Serif" SIZE=2>the extent to which users achieve the intended research and development benefits
from their use of the products and services; and</FONT>
<LI><FONT FACE="Times New Roman, Times, Serif" SIZE=2>willingness of customers to pay for such use.</FONT>
</UL>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our
software products and services may not achieve market acceptance or penetration in their
target industries or other industries. Failure to increase market acceptance or
penetration may restrict substantially the future growth of our software business and may
have a material adverse effect on our company as a whole. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>
We may be unable to develop and market new Accelrys products that are necessary to
increase revenue</I>. The success of our software business plan depends heavily upon
increases in revenue. Our strategy is to increase software revenue in a number of ways,
including: </FONT></P>

<UL>
<LI><FONT FACE="Times New Roman, Times, Serif" SIZE=2>adding more computational modeling,
simulation, and analyses tools to our current portfolio of tools for chemists and biologists;</FONT>
<LI><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
offering more informatics solutions that capture and manage the data created by
customers&#146; drug discovery and chemical development activities, including the data
created by the use of computational modeling, simulation, and analysis software; </FONT>
<LI><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
creating and marketing genomic, biological and/or chemical data content for use in
conjunction with the software offered to support customers&#146; drug discovery
activities; and </FONT>
<LI><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
developing more knowledge management workflow software to automate the flow of genomic,
biological and chemical data and information and project status between and among
workgroups and the enterprise. </FONT>
<LI><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
Developing enhanced modeling and informatics tools to address the needs of companies
engaged in nanotechnology research. </FONT>
</UL>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
do not have sufficient historical or comparative sales data to rely upon to indicate that
our new products or data content services will achieve the desired level of commercial
success. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>
We face strong competition in the scientific software sector</I>. The market for our
software products is intensely competitive, subject to rapid change and significantly
affected by new product introductions, pricing strategies and other market activities of
industry participants. Competition currently comes from the following principal sources: </FONT></P>

<UL>
<LI><FONT FACE="Times New Roman, Times, Serif" SIZE=2>other molecular simulation software packages and
software for analysis of chemical and biological data;</FONT>
</UL>

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<UL>
<LI><FONT FACE="Times New Roman, Times, Serif" SIZE=2>desktop software applications, including chemical
drawing, molecular modeling and analytical data simulation applications;</FONT>
<LI><FONT FACE="Times New Roman, Times, Serif" SIZE=2> consulting and outsourcing services;</FONT>
<LI><FONT FACE="Times New Roman, Times, Serif" SIZE=2>other types of simulation software provided to engineers;</FONT>
<LI><FONT FACE="Times New Roman, Times, Serif" SIZE=2>firms supplying databases, such as chemical or genomic information databases, database management
systems and information technology; and</FONT>
<LI><FONT FACE="Times New Roman, Times, Serif" SIZE=2>academic and government sponsored institutes focused on nanotechnology.</FONT>
</UL>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
addition, some of our software licenses grant the right to sublicense our software. As a
result, our software customers and third-party licensees could develop specific simulation
applications using our software developer&#146;s kit and compete with us by distributing
these programs to our potential customers. Customers or licensees could also develop their
own simulation technology or informatics software and cease using our software products
and services. Some of our competitors and potential competitors in this sector have longer
operating histories than us and have greater financial, technical, marketing, research and
development and other resources. Many of our software competitors offer products and
services directed at more specific markets than those we target, enabling these
competitors to focus a greater proportion of their efforts on these markets. Some
offerings that compete with our software products are developed and made available at
lower cost by governmental organizations and academic institutions, and these entities may
be able to devote substantial resources to product development and also offer their
products to users for little or no charge. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Finally,
we also face competition from open source software initiatives, in which developers
provide software and intellectual property free over the internet. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>
If we are unable to license software to, or collect receivables from, our early stage
biotechnology customers, it may have a material adverse effect on our operating
results.</I> We license our modeling, simulation, data analysis and informatics software
to smaller, development stage biotechnology customers. Often these customers have limited
or no operating history, and require considerable funding to launch their businesses. As
we have experienced in recent quarters, they often significantly scale back, or altogether
cease, operations. Therefore, there is considerable risk in counting on these types of
entities for revenue growth. For entities that remain in business, transactions with these
customers carry a higher degree of financial risk. Our customers, particularly our
development stage customers, are vulnerable to, and may be impacted by, the current
tightening of available credit and capital, and general economic slowdown occurring in the
United States and our other key markets. As a result of these conditions, our customers
may be unable to license or, if under a license, may be unable to pay for, Accelrys
software products. If we are not able to collect such amounts, we may be required to
write-off significant accounts receivable and recognize bad debt expense. As a result of
the exposures above and other potential exposures, we recorded a provision for doubtful
accounts of $1.3 million and $0.4 million in 2002 and 2003, respectively. Failure of these
businesses, write-offs and difficulties associated with collection of receivables from
these customers, could materially adversely affect our operating results. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>
Defects or malfunctions in our software products, or in the products of our software
technology partners, could hurt our reputation among software customers and expose us to
liability.</I> Our software business and the level of customer acceptance of our products
depend upon the continuous, effective and reliable operation of our computer software and
related tools and functions. Defects could occur in current or future Accelrys products.
To the extent that our software malfunctions and our customers&#146; use of our products
is interrupted, our software reputation and business could suffer. We may also be subject
to liability for the defects and malfunctions of third party technology partners and
others with whom our software products and services are integrated. </FONT></P>

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<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>20</FONT></P>

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</TD>
</TR>
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<BR>

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<TR VALIGN=TOP>
<TD>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>
Our quarterly operating results in the software business could vary significantly</I>. We
have historically experienced stronger financial performance in the third and fourth
calendar quarters of each year followed by a comparative decline in the first and second
quarters. Quarterly operating results may continue to fluctuate as a result of a number of
factors, including lengthy sales cycles, market acceptance of new products and upgrades,
timing of new product introductions, changes in pricing policies, changes in general
economic and competitive conditions, seasonal slowdowns, and the timing and integration of
acquisitions. Additionally, changes in the timing of revenue recognition may result if
subscription sales increase. We also expect to continue to experience fluctuations in
quarterly operating results due to general and industry specific economic conditions that
may affect the research and development expenditures of pharmaceutical and biotechnology
companies. Due to the possibility of fluctuations in our revenue and expenses, we believe
that quarter-to-quarter comparisons of our operating results are not a good indication of
our future performance. </FONT></P>

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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>CERTAIN RISKS RELATED TO
INTELLECTUAL PROPERTY </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>
Positions taken by the U.S. patent and trademark office or non-U.S. patent and trademark
officials may preclude us from obtaining sufficient or timely protection for our
intellectual property. </I>The patent positions of pharmaceutical and biotechnology
companies are uncertain and involve complex legal and factual questions. The coverage
claimed in a patent application can be significantly reduced before the patent is issued.
There is a significant risk that the scope of a patent may not be sufficient to prevent
third parties from marketing other products or technologies with the same functionality of
our products and technologies. Consequently, some or all of our patent applications may
not issue into patents, and any issued patents may provide ineffective remedies or be
challenged or circumvented. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>
Third parties may have filed patent applications of which we may or may not have
knowledge, and which may adversely affect our business. </I>Patent applications in the
U.S. are maintained in secrecy for 18 months from filing or until a patent issues. Under
certain circumstances, patent applications are never published but remain in secrecy until
issuance. As a result, others may have filed patent applications for products or
technology covered by one or more pending patent applications upon which we are relying.
There may be third-party patents, patent applications and other intellectual property or
information relevant to our software, chemical compositions and other technologies which
are not known to us and that block or compete with our software or other technologies, or
limit the scope of patent protection available to us. Moreover, from time to time, patents
may issue which block or compete with our software or other technologies, or limit the
scope of patent protection available to us. Litigation may be necessary to enforce patents
issued to us or to determine the scope and validity of the intellectual property rights of
third parties. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>
We may not be able to protect adequately the trade secrets and confidential information
that we disclose to our employees. </I>We rely upon trade secrets, technical know-how and
continuing technological innovation to develop and maintain our competitive position.
Competitors through their independent discovery (or improper means, such as unauthorized
disclosure or industrial espionage) may come to know our proprietary information. We
generally require employees and consultants to execute confidentiality and
assignment-of-inventions agreements. These agreements typically provide that all materials
and confidential information developed by or made known to the employee or consultant
during his, her or its relationship with us are to be kept confidential, and that all
inventions arising out of the employee&#146;s or consultant&#146;s relationship with us
are our exclusive property. Our employees and consultants may breach these agreements, and
in some instances we may not have an adequate remedy. Additionally, in some instances, we
may have failed to require that employees and consultants execute confidentiality and
assignment-of-inventions agreements. </FONT></P>

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<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>21</FONT></P>

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</TD>
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<BR>

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<TR VALIGN=TOP>
<TD>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>
Foreign laws may not afford us sufficient protections for our intellectual property, and
we may not seek patent protection outside the United States. </I>We believe that our
success depends, in part, upon our ability to obtain international protection for our
intellectual property. However, the laws of some foreign countries may not be as
comprehensive as those of the U.S. and may not be sufficient to protect our proprietary
rights abroad. In addition, we may decide not to pursue patent protection outside the
United States, because of cost and confidentiality concerns. Accordingly, our
international competitors could obtain foreign patent protection for, and market overseas,
products and technologies for which we are seeking U.S. patent protection. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>
We may not be able to adequately defend our intellectual property from third party
infringement, and third party challenges to our intellectual property may adversely affect
our rights and be costly and time consuming. </I>Some of our competitors have, or are
affiliated with companies having, substantially greater resources than we have, and those
competitors may be able to sustain the costs of complex patent litigation to a greater
degree and for longer periods of time than us. Uncertainties resulting from the initiation
and continuation of any patent or related litigation could have a material adverse effect
on our ability to compete in the marketplace pending resolution of the disputed matters.
If our competitors prepare and file patent applications in the United States that claim
technology also claimed by us, we may have to participate in interference proceedings
declared by the U.S. Patent and Trademark Office to determine the priority of invention,
which could result in substantial costs to us, even if the outcome is favorable to us.
Similarly, opposition proceedings may occur overseas, which may result in the loss or
narrowing of the scope of claims or legal rights. Such proceedings will at least result in
delay in the issuance of enforceable claims. An adverse outcome could subject us to
significant liabilities to third parties and require us to license disputed rights from
third parties or cease using the technology. Despite our efforts to protect our
proprietary rights, unauthorized parties may attempt to copy aspects of our products or to
obtain and use information that we regard as proprietary. In limited instances, we have
licensed source codes of certain products to customers or collaborators. For these
reasons, policing unauthorized use of our software products may be difficult. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>
A patent issued to us may not be sufficiently broad to protect adequately our rights in
intellectual property to which the patent relates. </I>Even if patents are issued to us,
these patents may not sufficiently protect our interest in our software or other
technologies because the scope of protection provided by any patents issued to or licensed
by us are subject to the uncertainty inherent in patent law. Third parties may be able to
design around these patents or develop unique products providing effects similar to our
products. In addition, others may discover uses for our software or technologies other
than those uses covered in our patents, and these other uses may be separately patentable.
A number of pharmaceutical and biotechnology companies, software organizations and
research and academic institutions, have developed technologies, filed patent applications
or received patents on various technologies that may be related to our business. Some of
these technologies, patent applications or patents may conflict with our technologies,
patent applications or patents. These conflicts could also limit the scope of patents, if
any, that we may be able to obtain, or result in the denial of our patent applications. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>
We may be subject to claims of infringement by third parties. </I>Third parties may claim
infringement by us of their intellectual property rights. In addition, to the extent our
employees are involved in research areas similar to those areas in which they were
involved at their former employers, we may be subject to claims that one of our employees,
or we, have inadvertently or otherwise used or disclosed the alleged trade secrets or
other proprietary information of a former employer. From time to time, we have received
letters claiming or suggesting that our products or</FONT></P>

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<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>22</FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>activities may infringe third party
patents or other intellectual property rights. Our products may infringe patent or other
intellectual property rights of third parties. A number of patents may have been issued or
may be issued in the future that could cover certain aspects of our technology and that
could prevent us from using technology that we use or expect to use. We may be required to
seek licenses for, or otherwise acquire rights to, technology as a result of claims of
infringement. We may not possess proper ownership or access rights to the intellectual
property we use. Third parties or other companies may bring infringement suits against us.
We expect, in general, that software product developers will be subject to more
infringement claims as the number of products and competitors in our industry segments
grows and the functionality of products in different industry segments overlaps. Any
claims, with or without merit, could be time consuming to defend, result in costly
litigation, divert management&#146;s attention and resources, cause product shipment
delays or require us to enter into royalty or licensing agreements. Royalty or licensing
agreements, if required, may not be available on terms acceptable to us, if at all. In the
event of a successful claim of product infringement against us, our failure or inability
to license or design around the infringed technology could have a material adverse effect
on our business, financial condition and results of operations. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>
<B></B></I><B>SHOULD ONE OR MORE OF THE ABOVE-DESCRIBED RISKS OR UNCERTAINTIES
MATERIALIZE, OR SHOULD THE UNDERLYING ASSUMPTIONS PROVE INCORRECT, OUR ACTUAL RESULTS MAY
VARY MATERIALLY FROM THOSE ANTICIPATED.</B> </FONT></P>

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<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>23</FONT></P>

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<A NAME="PT1IT3"></A>
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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>Item 3. Quantitative and
Qualitative Disclosures about Market Risk</B> </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The Company is exposed to various
market risks consisting primarily of changes in foreign currency exchange rates. The
Company&#146;s international sales generally are denominated in local currencies. In the
quarter ended June 30, 2004, approximately 56% of the Company&#146;s consolidated revenue
was derived from customers outside the United States (including 26% from customers in
Europe and 30% from customers in the Asia/Pacific region). As such, the Company&#146;s
exchange rate risk is greatest for Dollar/Euro and Dollar/Yen fluctuations. When deemed
appropriate, the Company engages in exchange rate-hedging transactions in an attempt to
mitigate the impact of adverse exchange rate fluctuations. At June 30, 2004, the Company
had no hedging transactions in effect. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The Company does not use derivative
financial instruments for trading or speculative purposes. However, the Company regularly
invests excess cash in money markets and time deposits that are subject to changes in
short-term interest rates. The Company believes that the market risk arising from holding
these financial instruments is minimal. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The Company&#146;s exposure to market
risks associated with changes in interest rates relates primarily to the increase or
decrease in the amount of interest income earned on its investment portfolio since the
Company has minimal debt. The Company ensures the safety and preservation of invested
funds by limiting default risks, market risk, and reinvestment risk. The Company mitigates
default risk by investing in investment grade securities. A hypothetical 100 basis point
adverse move in interest rates along the entire interest rate yield curve would not
materially affect the fair value of the Company&#146;s interest sensitive financial
instruments at June 30, 2004. </FONT></P>

<A NAME="PT1IT4"></A>
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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>Item 4. Controls and
Procedures</b></FONT></p>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Company&#146;s management, with the participation of the Company&#146;s Chief Executive
Officer and Chief Financial Officer, has evaluated the effectiveness of the Company&#146;s
disclosure controls and procedures as of June 30, 2004. Based on that evaluation, the
Company&#146;s Chief Executive Officer and Chief Financial Officer have concluded that the
Company&#146;s disclosure controls and procedures were effective as of June 30, 2004.
There were no material changes in the Company&#146;s internal control over financial
reporting during the three months ended June 30, 2004. </FONT></P>


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<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>24</FONT></P>

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<A NAME="PARTII"></A>
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<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>PART II &#151; OTHER
INFORMATION</B></FONT></p>

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</TD>
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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></P>


<A NAME="IT1"></A>
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<TR VALIGN=TOP>
<TD WIDTH=150><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>Item 1.</B></FONT></TD>
<TD WIDTH=450><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Legal Proceedings</FONT></TD>
</TR>
</TABLE>
<BR>


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<TD WIDTH=150><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=450><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
The
Company is not a party to any material litigation and is not aware of any threatened
material litigation. </FONT></TD>
</TR>
</TABLE>
<BR>

<A NAME="IT2"></A>
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<TD WIDTH=150><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>Item 2.</B></FONT></TD>
<TD WIDTH=450><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Changes in Securities and Use of Proceeds &#150; None </FONT></TD>
</TR>
</TABLE>
<BR>

<A NAME="IT3"></A>
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<TD WIDTH=150><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>Item 3.</B></FONT></TD>
<TD WIDTH=450><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Defaults upon Senior Securities &#150; None</FONT></TD>
</TR>
</TABLE>
<BR>

<A NAME="IT4"></A>
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<TABLE WIDTH=600 CELLPADDING=0 CELLSPACING=0>
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<TD WIDTH=150><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>Item 4.</B></FONT></TD>
<TD WIDTH=450><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Submission of Matters to a Vote of Security Holders -None</FONT></TD>
</TR>
</TABLE>
<BR>

<A NAME="IT5"></A>
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<TD WIDTH=150><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>Item 5.</B></FONT></TD>
<TD WIDTH=450><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Other Information &#150; None</FONT></TD>
</TR>
</TABLE>
<BR>

<A NAME="IT6"></A>
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<TD WIDTH=150><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>Item 6.</B></FONT></TD>
<TD WIDTH=450><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Exhibits and Reports on Form 8-K</FONT></TD>
</TR>
</TABLE>
<BR>

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<TD WIDTH=150><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
<TD WIDTH=450><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(a) Exhibits - See Exhibit Index</FONT></TD>
</TR>
</TABLE>
<BR>

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<TD WIDTH=150><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
<TD WIDTH=450><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(b) Reports on Form 8-K</FONT></TD>
</TR>
</TABLE>
<BR>


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<TD align=right WIDTH=200><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(i)&nbsp;&nbsp;</FONT></TD>
<TD WIDTH=400><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Current report on Form 8-K filed April 9, 2004 reporting that a press release
was issued announcing that the proposed spin-off of Pharmacopeia Drug
Discovery,&nbsp;Inc. is expected to occur by the end of April&nbsp;2004.</FONT></TD>
</TR>
</TABLE>
<BR>


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<TD align=right WIDTH=200><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(ii)&nbsp;&nbsp;</FONT></TD>
<TD WIDTH=400><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Current report on Form 8-K filed April 15, 2004 reporting that a press release
was issued announcing the declaration of a dividend of all the outstanding
shares of common stock of Pharmacopeia Drug Discovery,&nbsp;Inc., the drug
discovery business being spun off by the Company.</FONT></TD>
</TR>
</TABLE>
<BR>


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<TD align=right WIDTH=200><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(iii)&nbsp;&nbsp;</FONT></TD>
<TD WIDTH=400><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Current report on Form 8-K filed April&nbsp;19, 2004, the Company issued a press
release announcing the that the Securities and Exchange Commission has declared
effective the registration statement on Form&nbsp;10 of Pharmacopeia Drug
Discovery,&nbsp;Inc. (&#147;PDD&#148;).</FONT></TD>
</TR>
</TABLE>
<BR>


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<TABLE WIDTH=600 CELLPADDING=0 CELLSPACING=0>
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<TD align=right WIDTH=200><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(iv)&nbsp;&nbsp;</FONT></TD>
<TD WIDTH=400><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Current report on Form 8-K filed April 20, 2004 reporting that a press release
was issued announcing that the Securities and Exchange Commission has declared
effective the registration statement on Form&nbsp;10 of Pharmacopeia Drug
Discovery,&nbsp;Inc. (&#147;PDD&#148;).</FONT></TD>
</TR>
</TABLE>
<BR>


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<TD align=right WIDTH=200><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(v)&nbsp;&nbsp;</FONT></TD>
<TD WIDTH=400><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Fair disclosure report on Form 8-K filed April 22, 2004 reporting that a press
release was issued that the Company expects to make presentations concerning its
business to certain investors.</FONT></TD>
</TR>
</TABLE>
<BR>


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<TD align=right WIDTH=200><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(vi)&nbsp;&nbsp;</FONT></TD>
<TD WIDTH=400><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Current report on Form 8-K filed May 3, 2004 reporting that a the Company, then
the sole stockholder of Pharmacopeia Drug Discovery, Inc. (&#147;PDD&#148;),
distributed all outstanding shares of common stock, par value $.01 per share, of
PDD to the holders of common stock of the Company.&nbsp;</FONT></TD>
</TR>
</TABLE>
<BR>


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<TD align=right WIDTH=200><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(vii)&nbsp;&nbsp;</FONT></TD>
<TD WIDTH=400><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Current report on Form 8-K filed on May 5, 2004 reporting that the Company
issued a press release announcing the financial results for the quarter ended
March&nbsp;31, 2004.&nbsp;</FONT></TD>
</TR>
</TABLE>
<BR>

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<TD>

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<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>25</FONT></P>

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<A NAME="signature"></A>
<!-- MARKER FORMAT-SHEET="Head Major Center Bold" FSL="Default" -->
<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>SIGNATURE</B></FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>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, thereunto duly authorized. </FONT></P>

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     <TH><FONT SIZE="1"></FONT></TH>
     <TH><FONT SIZE="1"></FONT></TH></TR>
<TR VALIGN="TOP">
     <TD WIDTH="300"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TD>
     <TD WIDTH="300"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">ACCELRYS, INC.<BR><BR>By:  <U>/s/John J. Hanlon</U>
<BR><BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;John J. Hanlon<BR>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Executive Vice President and<BR>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Chief Financial Officer (Duly Authorized<BR>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Officer and Chief Financial Officer)<BR><BR>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Date:  August 6, 2004</FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TD>
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TD></TR>
</TABLE>


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<TD>
<BR><BR>
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<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>26</FONT></P>

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<A NAME="IndexToExhibits"></A>
<!-- MARKER FORMAT-SHEET="Head Major Center Bold" FSL="Default" -->
<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>ACCELRYS, INC. </FONT></H1>

<!-- MARKER FORMAT-SHEET="Head Major Center Bold" FSL="Default" -->
<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>INDEX TO EXHIBITS </FONT></H1>

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</TD>
</TR>
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<BR>






<TABLE WIDTH="600" BORDER="0" CELLPADDING="0" CELLSPACING="0">
<TR VALIGN="BOTTOM">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE="2">No.</FONT></TD>
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TD>
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE="2">EXHIBIT</FONT></TD></TR>
<TR VALIGN="TOP">
     <TD WIDTH="50"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><BR>31.1</FONT></TD>
     <TD WIDTH="100"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TD>
     <TD WIDTH="450"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><BR>Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and
<BR>Rule 15d-14(a) of the Securities Exchange Act, as amended</FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><BR>31.2</FONT></TD>
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TD>
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><BR>Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and
<BR>Rule 15d-14(a) of the Securities Exchange Act, as amended</FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><BR>32</FONT></TD>
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TD>
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><BR>Certification of Chief Executive Officer and the Chief Financial Officer pursuant to 18 U.S.C.
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002</FONT></TD></TR>
</TABLE>

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<TD>

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<P>_________________ </P>

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<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>27</FONT></P>

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</TD>
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<BR>

</BODY>
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</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31.1
<SEQUENCE>2
<FILENAME>a4697615ex311.htm
<DESCRIPTION>EXHIBIT 31.1
<TEXT>
<HTML>
<HEAD>
<TITLE></TITLE>
</HEAD>
<BODY>

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<TD>
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<P ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Exhibit 31.1 </FONT></P>

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<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>CERTIFICATION OF CHIEF
EXECUTIVE OFFICER </FONT></H1>

<!-- MARKER FORMAT-SHEET="Head Right-TNR" FSL="Project" -->
<P ALIGN=center><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(Pursuant to Rule&nbsp;13a-14 of the<BR>
Securities Exchange Act of 1934, as amended,<BR>as
Adopted Pursuant to Section&nbsp;302 of the Sarbanes-Oxley Act of 2002) </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Project" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>I, Mark J. Emkjer, certify that: </FONT></P>

<!-- MARKER FORMAT-SHEET="Para (List) Flush Lv 0- TNR" FSL="Project" -->
     <P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1.&nbsp;&nbsp;&nbsp;&nbsp;
          I have reviewed this quarterly report on Form 10-Q of Accelrys, Inc.; </FONT></P>

<!-- MARKER FORMAT-SHEET="Para (List) Flush Lv 0- TNR" FSL="Project" -->
     <P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2.&nbsp;&nbsp;&nbsp;&nbsp;
          Based on my knowledge, this report does not contain any untrue statement of a
          material fact or omit to state a material fact necessary to make the statements
          made, in light of the circumstances under which such statements were made, not
          misleading with respect to the period covered by this report; </FONT></P>

<!-- MARKER FORMAT-SHEET="Para (List) Flush Lv 0- TNR" FSL="Project" -->
     <P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>3.&nbsp;&nbsp;&nbsp;&nbsp;
          Based on my knowledge, the financial statements, and other financial information
          included in this report, fairly present in all material respects the financial
          condition, results of operations and cash flows of the registrant as of, and
          for, the periods presented in this report; </FONT></P>

<!-- MARKER FORMAT-SHEET="Para (List) Flush Lv 0- TNR" FSL="Project" -->
     <P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>4.&nbsp;&nbsp;&nbsp;&nbsp;
          The registrant&#146;s other certifying officers and I are responsible for
          establishing and maintaining disclosure controls and procedures (as defined in
          Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
          reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the
          registrant and have: </FONT></P>

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</TD>
</TR>
</TABLE>
<BR>

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               <TABLE WIDTH=600 CELLPADDING=0 CELLSPACING=0>
                    <TR VALIGN=TOP>
                    <TD ALIGN=RIGHT WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>a) </FONT></TD>
                    <TD ALIGN=LEFT WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;

                     Designed such disclosure controls and procedures, or caused such disclosure
                    controls and procedures to be designed under our supervision, to ensure that
                    material information relating to the registrant, including its consolidated
                    subsidiaries, is made known to us by others within those entities, particularly
                    during the period in which this report is being prepared; </FONT></TD>
                    </TR>
                    </TABLE>
                    <BR>

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               <TABLE WIDTH=600 CELLPADDING=0 CELLSPACING=0>
                    <TR VALIGN=TOP>
                    <TD ALIGN=RIGHT WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>b) </FONT></TD>
                    <TD ALIGN=LEFT WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;

                     Designed such internal control over financial reporting, or caused such
                    internal control over financial reporting to be designed under our supervision,
                    to provide reasonable assurance regarding the reliability of financial reporting
                    and the preparation of financial statements for external purposes in accordance
                    with generally accepted accounting principles; </FONT></TD>
                    </TR>
                    </TABLE>
                    <BR>

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               <TABLE WIDTH=600 CELLPADDING=0 CELLSPACING=0>
                    <TR VALIGN=TOP>
                    <TD ALIGN=RIGHT WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>c) </FONT></TD>
                    <TD ALIGN=LEFT WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;

                     Evaluated the effectiveness of the registrant&#146;s disclosure controls and
                    procedures and presented in this report our conclusions about the effectiveness
                    of the disclosure controls and procedures, as of the end of the period covered
                    by this report based on such evaluation; and </FONT></TD>
                    </TR>
                    </TABLE>
                    <BR>

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               <TABLE WIDTH=600 CELLPADDING=0 CELLSPACING=0>
                    <TR VALIGN=TOP>
                    <TD ALIGN=RIGHT WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>d) </FONT></TD>
                    <TD ALIGN=LEFT WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;

                     Disclosed in this report any change in the registrant&#146;s internal control
                    over financial reporting that occurred during the registrant&#146;s most recent
                    fiscal quarter that has materially affected, or is reasonably likely to
                    materially affect, the registrant&#146;s internal control over financial
                    reporting; and </FONT></TD>
                    </TR>
                    </TABLE>
                    <BR>

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<TABLE WIDTH=600 CELLSPACING=0 CELLPADDING=0 BORDER=0>
<TR VALIGN=TOP>
<TD>
<!-- MARKER FORMAT-SHEET="Para (List) Flush Lv 0- TNR" FSL="Project" -->
     <P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>5.&nbsp;&nbsp;&nbsp;&nbsp;
          The registrant&#146;s other certifying officers and I have disclosed, based on
          our most recent evaluation of internal control over financial reporting, to the
          registrant&#146;s auditors and the audit committee of registrant&#146;s board of
          directors (or persons performing the equivalent functions): </FONT></P>

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</TD>
</TR>
</TABLE>
<BR>

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               <TABLE WIDTH=600 CELLPADDING=0 CELLSPACING=0>
                    <TR VALIGN=TOP>
                    <TD ALIGN=RIGHT WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>a) </FONT></TD>
                    <TD ALIGN=LEFT WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;

                     All significant deficiencies and material weaknesses in the design or operation
                    of internal control over financial reporting which are reasonably likely to
                    adversely affect the registrant&#146;s ability to record, process, summarize and
                    report financial information; and </FONT></TD>
                    </TR>
                    </TABLE>
                    <BR>

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               <TABLE WIDTH=600 CELLPADDING=0 CELLSPACING=0>
                    <TR VALIGN=TOP>
                    <TD ALIGN=RIGHT WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>b) </FONT></TD>
                    <TD ALIGN=LEFT WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;

                     Any fraud, whether or not material, that involves management or other employees
                    who have a significant role in the registrant&#146;s internal control over
                    financial reporting. </FONT></TD>
                    </TR>
                    </TABLE>
                    <BR>

<!-- MARKER FORMAT-SHEET="Head Left-TNR" FSL="Project" -->
<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Date: August 6, 2004 </FONT></P>



<TABLE WIDTH="600" BORDER="0" CELLPADDING="0" CELLSPACING="0">
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     <TH><FONT SIZE="1"></FONT></TH>
     <TH><FONT SIZE="1"></FONT></TH></TR>
<TR VALIGN="TOP">
     <TD WIDTH="300"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TD>
     <TD WIDTH="300"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><U>/s/Mark J. Emkjer&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U><BR>
Mark J. Emkjer<BR>President and Chief Executive Officer<BR>(Principal Executive Officer)</FONT></TD></TR>
</TABLE>

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<TD>

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<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2><BR><BR>28</FONT></P>

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</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31.2
<SEQUENCE>3
<FILENAME>a4697615ex312.htm
<DESCRIPTION>EXHIBIT 31.2
<TEXT>
<HTML>
<HEAD>
<TITLE></TITLE>
</HEAD>
<BODY>


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<TD>
<!-- MARKER FORMAT-SHEET="Head Right-TNR" FSL="Project" -->
<P ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Exhibit 31.2 </FONT></P>

<!-- MARKER FORMAT-SHEET="Head Major Center Bold-TNR" FSL="Project" -->
<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>CERTIFICATION OF CHIEF
FINANCIAL OFFICER</B> </FONT></P>

<!-- MARKER FORMAT-SHEET="Head Major Center Bold-TNR" FSL="Project" -->
<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(Pursuant
to Rule&nbsp;13a-14 of the<BR>Securities Exchange Act of 1934, as amended,<BR>
as Adopted Pursuant to Section&nbsp;302 of the Sarbanes-Oxley Act of 2002)</FONT>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Project" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>I, John J. Hanlon, certify that: </FONT></P>

<!-- MARKER FORMAT-SHEET="Para (List) Flush Lv 0- TNR" FSL="Project" -->
     <P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1.&nbsp;&nbsp;&nbsp;&nbsp;
          I have reviewed this quarterly report on Form 10-Q of Accelrys, Inc.; </FONT></P>

<!-- MARKER FORMAT-SHEET="Para (List) Flush Lv 0- TNR" FSL="Project" -->
     <P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2.&nbsp;&nbsp;&nbsp;&nbsp;
          Based on my knowledge, this report does not contain any untrue statement of a
          material fact or omit to state a material fact necessary to make the statements
          made, in light of the circumstances under which such statements were made, not
          misleading with respect to the period covered by this report; </FONT></P>

<!-- MARKER FORMAT-SHEET="Para (List) Flush Lv 0- TNR" FSL="Project" -->
     <P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>3.&nbsp;&nbsp;&nbsp;&nbsp;
          Based on my knowledge, the financial statements, and other financial information
          included in this report, fairly present in all material respects the financial
          condition, results of operations and cash flows of the registrant as of, and
          for, the periods presented in this report; </FONT></P>

<!-- MARKER FORMAT-SHEET="Para (List) Flush Lv 0- TNR" FSL="Project" -->
     <P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>4.&nbsp;&nbsp;&nbsp;&nbsp;
          The registrant&#146;s other certifying officers and I are responsible for
          establishing and maintaining disclosure controls and procedures (as defined in
          Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
          reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the
          registrant and have: </FONT></P>

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</TD>
</TR>
</TABLE>
<BR>


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               <TABLE WIDTH=600 CELLPADDING=0 CELLSPACING=0>
                    <TR VALIGN=TOP>
                    <TD ALIGN=RIGHT WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>a) </FONT></TD>
                    <TD ALIGN=LEFT WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;

                     Designed such disclosure controls and procedures, or caused such disclosure
                    controls and procedures to be designed under our supervision, to ensure that
                    material information relating to the registrant, including its consolidated
                    subsidiaries, is made known to us by others within those entities, particularly
                    during the period in which this report is being prepared; </FONT></TD>
                    </TR>
                    </TABLE>
                    <BR>

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               <TABLE WIDTH=600 CELLPADDING=0 CELLSPACING=0>
                    <TR VALIGN=TOP>
                    <TD ALIGN=RIGHT WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>b) </FONT></TD>
                    <TD ALIGN=LEFT WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;

                     Designed such internal control over financial reporting, or caused such
                    internal control over financial reporting to be designed under our supervision,
                    to provide reasonable assurance regarding the reliability of financial reporting
                    and the preparation of financial statements for external purposes in accordance
                    with generally accepted accounting principles; </FONT></TD>
                    </TR>
                    </TABLE>
                    <BR>

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               <TABLE WIDTH=600 CELLPADDING=0 CELLSPACING=0>
                    <TR VALIGN=TOP>
                    <TD ALIGN=RIGHT WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>c) </FONT></TD>
                    <TD ALIGN=LEFT WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;

                     Evaluated the effectiveness of the registrant&#146;s disclosure controls and
                    procedures and presented in this report our conclusions about the effectiveness
                    of the disclosure controls and procedures, as of the end of the period covered
                    by this report based on such evaluation; and </FONT></TD>
                    </TR>
                    </TABLE>
                    <BR>

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               <TABLE WIDTH=600 CELLPADDING=0 CELLSPACING=0>
                    <TR VALIGN=TOP>
                    <TD ALIGN=RIGHT WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>d) </FONT></TD>
                    <TD ALIGN=LEFT WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;

                     Disclosed in this report any change in the registrant&#146;s internal control
                    over financial reporting that occurred during the registrant&#146;s most recent
                    fiscal quarter that has materially affected, or is reasonably likely to
                    materially affect, the registrant&#146;s internal control over financial
                    reporting; and </FONT></TD>
                    </TR>
                    </TABLE>
                    <BR>


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<TABLE WIDTH=600 CELLSPACING=0 CELLPADDING=0 BORDER=0>
<TR VALIGN=TOP>
<TD>
<!-- MARKER FORMAT-SHEET="Para (List) Flush Lv 0- TNR" FSL="Project" -->
     <P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>5.&nbsp;&nbsp;&nbsp;&nbsp;
          The registrant&#146;s other certifying officers and I have disclosed, based on
          our most recent evaluation of internal control over financial reporting, to the
          registrant&#146;s auditors and the audit committee of registrant&#146;s board of
          directors (or persons performing the equivalent functions): </FONT></P>

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</TD>
</TR>
</TABLE>
<BR>

<!-- MARKER FORMAT-SHEET="Para (List) Flush Lv 1- TNR" FSL="Project" -->
               <TABLE WIDTH=600 CELLPADDING=0 CELLSPACING=0>
                    <TR VALIGN=TOP>
                    <TD ALIGN=RIGHT WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>a) </FONT></TD>
                    <TD ALIGN=LEFT WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;

                     All significant deficiencies and material weaknesses in the design or operation
                    of internal control over financial reporting which are reasonably likely to
                    adversely affect the registrant&#146;s ability to record, process, summarize and
                    report financial information; and </FONT></TD>
                    </TR>
                    </TABLE>
                    <BR>

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                    <TD ALIGN=RIGHT WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>b) </FONT></TD>
                    <TD ALIGN=LEFT WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;

                     Any fraud, whether or not material, that involves management or other employees
                    who have a significant role in the registrant&#146;s internal control over
                    financial reporting. </FONT></TD>
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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Date: August 6, 2004 </FONT></P>



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     <TD WIDTH="300"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><U>/s/John J. Hanlon&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U><BR>
John J. Hanlon<BR>Executive Vice President<BR>and Chief Financial Officer<BR>(Principal Financial Officer)</FONT></TD></TR>
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<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2><BR><BR>29</FONT></P>

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<TYPE>EX-32
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<DESCRIPTION>EXHIBIT 32
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<P ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Exhibit 32 </FONT></P>

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<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>ACCELRYS, INC.<BR><BR>
CERTIFICATION<BR>PURSUANT TO 18 U.S.C. SECTION 1350,<BR>AS ADOPTED PURSUANT TO SECTION<BR>906 OF THE SARBANES-OXLEY ACT OF 2002</FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>I, Mark J. Emkjer, President and
Chief Executive Officer of Accelrys, Inc. (the &#147;Company&#148;) and I, John J. Hanlon,
Executive Vice President and Chief Financial Officer of the Company, certify, pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that: </FONT></P>

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                    <TD ALIGN=LEFT WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;

                     The Quarterly Report on Form 10-Q of the Company for the quarter ended June 30,
                    2004, (the &#147;Report&#148;) fully complies with the requirements of Section
                    13(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78m); and </FONT></TD>
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                    <TD ALIGN=LEFT WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;

                     The information contained in the Report fairly presents, in all material
                    respects, the financial condition and results of operations of the Company. </FONT></TD>
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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><U>/s/Mark J. Emkjer&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U><BR>
Mark J. Emkjer<BR>President and Chief Executive Officer<BR></FONT></P>

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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><BR><U>/s/John J. Hanlon&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U><BR>
John J. Hanlon<BR>Executive Vice President<BR>and Chief Financial Officer</FONT></P>

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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>August 6, 2004 </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>A signed original of this written
statement required by Section 906 has been provided to the Company and will be retained by
the Company and furnished to the Securities and Exchange Commission or its staff upon
request. </FONT></P>

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<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2><BR><BR>30</FONT></P>

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