##### 



---

---

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

|(Mark One) |  | 
|---------- |  | 





|[X] |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended March 31, 2002
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------

OR



|[   ] |  | TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _______________ to _______________.
|----- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------

Commission File Number 0-23317



---

GENE LOGIC INC.(Exact name of registrant as specified in its charter)



---

|                                                                        |  |                                                
|----------------------------------------------------------------------- |  | -----------------------------------------------
|Delaware
(State or other jurisdiction of
incorporation or organization) |  | 06-1411336
(I.R.S. Employer
Identification No.)

708 Quince Orchard Road
Gaithersburg, Maryland 20878
(Address of principal executive offices)(301) 987-1700
(Registrants phone number, including area code)



---

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days: YES [X] NO [   ]

The number of shares outstanding of the Registrants Common Stock, $.01
par value, was 26,911,079 as of April 30, 2002.



---

---





---



##### 



GENE LOGIC INC.

TABLE OF CONTENTS

|                                                                                              |  |  |    | 
|--------------------------------------------------------------------------------------------- |  |  | -- | 
|PART I    FINANCIAL INFORMATION                                                               |  |  |    | 
|                                                                                             
|Item 1. Financial Statements                                                                  |  |  |    | 
|                                                                                             
|Balance Sheets at March 31, 2002 and December 31, 2001                                        |  |  | 3  | 
|Statements of Operations for the Three Months Ended March 31, 2002 and 2001                   |  |  | 4  | 
|Statements of Cash Flows for the Three Months Ended March 31, 2002 and 2001                   |  |  | 5  | 
|Notes to Financial Statements                                                                 |  |  | 6  | 
|                                                                                             
|Item 2. Managements Discussion and Analysis of Results of Operations and Financial Condition |  |  | 9  | 
|                                                                                             
|Item 3. Quantitative and Qualitative Disclosure About Market Risk                             |  |  | 12 | 
|                                                                                             
|PART II    OTHER INFORMATION                                                                  |  |  |    | 
|                                                                                             
|Item 6. Exhibits and Reports on Form 8-K                                                      |  |  | 12 | 
|                                                                                             
|Signatures                                                                                    |  |  | 13 | 

2



---



##### 



PART I   FINANCIAL INFORMATION

Item 1.   Financial Statements

GENE LOGIC INC.

BALANCE SHEETS
(in thousands, except share data)

|                                     |                                          |                                                                                                                                                                              |                                            |         |          |             |        |              |          |         |  | 
|------------------------------------ | ---------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ------- | -------- | ----------- | ------ | ------------ | -------- | ------- |  | 
|                                     |                                          |                                                                                                                                                                              |                                            |         |          | March 31,   |        | December 31,
|                                     |                                          |                                                                                                                                                                              |                                            |         |          | 2002        |        | 2001        
|                                     |                                          |                                                                                                                                                                              |                                            |         |          |             |        |             
|                                     |                                          |                                                                                                                                                                              |                                            |         |          | (Unaudited) |        |              |          |        
|ASSETS                               |                                          |                                                                                                                                                                              |                                            |         |          |             |        |             
|Current assets:                      |                                          |                                                                                                                                                                              |                                            |         |          |             |        |             
|                                     | Cash and cash equivalents                |                                                                                                                                                                              | $                                          | 185,135 |          |             | $      | 128,273      |         
|                                     | Marketable securities available-for-sale |                                                                                                                                                                              |                                            |        |          |             |        | 69,545       |         
|                                     | Accounts receivable                      |                                                                                                                                                                              |                                            | 3,382   |          |             |        | 2,460        |         
|                                     | Inventories, net                         |                                                                                                                                                                              |                                            | 6,831   |          |             |        | 6,097        |         
|                                     | Prepaid expenses                         |                                                                                                                                                                              |                                            | 3,157   |          |             |        | 2,348        |         
|                                     | Other current assets                     |                                                                                                                                                                              |                                            | 1,832   |          |             |        | 3,512        |         
|                                     |                                          |                                                                                                                                                                              |                                            |         |          |             |        |             
|                                     |                                          |                                                                                                                                                                              | Total current assets                       |         |          | 200,337     |        |              |          | 212,235 | 
|Property and equipment, net          |                                          |                                                                                                                                                                              | 17,994                                     |         |          |             | 18,358 |             
|Long-term investments                |                                          |                                                                                                                                                                              | 6,021                                      |         |          |             | 4,631  |             
|Notes receivable from employees      |                                          |                                                                                                                                                                              | 101                                        |         |          |             | 106    |             
|Goodwill, net                        |                                          |                                                                                                                                                                              | 2,677                                      |         |          |             | 2,677  |             
|Intangibles, net                     |                                          |                                                                                                                                                                              | 19,590                                     |         |          |             | 17,480 |             
|Other assets                         |                                          |                                                                                                                                                                              | 51                                         |         |          |             | 1,440  |             
|                                     |                                          |                                                                                                                                                                              |                                            |         |          |             |        |             
|                                     |                                          |                                                                                                                                                                              | Total assets                               |         | $        | 246,771     |        |              | $        | 256,927 | 
|                                     |                                          |                                                                                                                                                                              |                                            |         |          |             |        |             
|LIABILITIES AND STOCKHOLDERS EQUITY |                                          |                                                                                                                                                                              |                                            |         |          |             |        |             
|Current liabilities:                 |                                          |                                                                                                                                                                              |                                            |         |          |             |        |             
|                                     | Accounts payable                         |                                                                                                                                                                              | $                                          | 6,659   |          |             | $      | 8,479        |         
|                                     | Accrued expenses                         |                                                                                                                                                                              |                                            | 4,162   |          |             |        | 5,022        |         
|                                     | Current portion of long-term debt        |                                                                                                                                                                              |                                            | 39      |          |             |        | 38           |         
|                                     | Deferred revenue                         |                                                                                                                                                                              |                                            | 11,082  |          |             |        | 11,512       |         
|                                     |                                          |                                                                                                                                                                              |                                            |         |          |             |        |             
|                                     |                                          |                                                                                                                                                                              | Total current liabilities                  |         |          | 21,942      |        |              |          | 25,051  | 
|Deferred revenue                     |                                          |                                                                                                                                                                              | 3,749                                      |         |          |             | 4,525  |             
|Long-term debt                       |                                          |                                                                                                                                                                              | 290                                        |         |          |             | 300    |             
|Other noncurrent liabilities         |                                          |                                                                                                                                                                              | 1,036                                      |         |          |             | 1,024  |             
|                                     |                                          |                                                                                                                                                                              |                                            |         |          |             |        |             
|                                     |                                          |                                                                                                                                                                              | Total liabilities                          |         |          | 27,017      |        |              |          | 30,900  | 
|                                     |                                          |                                                                                                                                                                              |                                            |         |          |             |        |             
|Commitments and contingencies        |                                          |                                                                                                                                                                              |                                            |         |          |             |        |             
|Stockholders equity:                |                                          |                                                                                                                                                                              |                                            |         |          |             |        |             
|                                     |                                          | Preferred stock, $.01 par value; 10,000,000
shares authorized; no shares issued and outstanding as of March 31, 2002 and December 31, 2001                                   |                                            |         |         |             |        |              |         |        
|                                     |                                          | Common stock, $.01 par value; 60,000,000
shares authorized; 26,904,029 and
26,767,837 shares issued and outstanding as of
March 31, 2002 and December 31, 2001,
respectively |                                            |         | 269      |             |        |              | 268      |        
|                                     |                                          | Additional paid-in capital                                                                                                                                                   |                                            |         | 362,343  |             |        |              | 361,067  |        
|                                     |                                          | Accumulated other comprehensive income                                                                                                                                       |                                            |         |         |             |        |              | 17       |        
|                                     |                                          | Accumulated deficit                                                                                                                                                          |                                            |         | (142,858 | )           |        |              | (135,325 | )      
|                                     |                                          |                                                                                                                                                                              |                                            |         |          |             |        |             
|                                     |                                          |                                                                                                                                                                              | Total stockholders equity                 |         |          | 219,754     |        |              |          | 226,027 | 
|                                     |                                          |                                                                                                                                                                              |                                            |         |          |             |        |             
|                                     |                                          |                                                                                                                                                                              | Total liabilities and stockholders equity |         | $        | 246,771     |        |              | $        | 256,927 | 
|                                     |                                          |                                                                                                                                                                              |                                            |         |          |             |        |             

See accompanying notes.

3



---



##### 



GENE LOGIC INC.

STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(Unaudited)

|                                                                     |                                     |                      |        |                              |        |      |        |        |         |  
|-------------------------------------------------------------------- | ----------------------------------- | -------------------- | ------ | ---------------------------- | ------ | ---- | ------ | ------ | ------- | -
|                                                                     |                                     |                      |        | Three Months Ended March 31,
|                                                                     |                                     |                      |        |                             
|                                                                     |                                     |                      |        | 2002                         |        | 2001
|                                                                     |                                     |                      |        |                              |        |     
|Revenue                                                              |                                     | $                    | 11,842 |                              |        | $    | 8,211  |       
|Expenses:                                                            |                                     |                      |        |                              |        |      |        |       
|                                                                     | Research and development            |                      |        | 14,294                       |        |      |        | 15,690 |        
|                                                                     | Selling, general and administrative |                      |        | 5,725                        |        |      |        | 4,793  |        
|                                                                     | Amortization of goodwill            |                      |        |                             |        |      |        | 381    |        
|                                                                     |                                     |                      |        |                              |        |      |        |       
|                                                                     |                                     | Total expenses       |        |                              | 20,019 |      |        |        | 20,864  |  
|                                                                     |                                     |                      |        |                              |        |      |        |       
|                                                                     |                                     | Loss from operations |        |                              | (8,177 | )    |        |        | (12,653 | )
|Interest income, net                                                 |                                     |                      | 839    |                              |        |      | 3,286  |       
|Income tax expense                                                   |                                     |                      | 195    |                              |        |      | 49     |       
|Equity in net loss of unconsolidated investee                        |                                     |                      |       |                              |        |      | 1,189  |       
|                                                                     |                                     |                      |        |                              |        |      |        |       
|                                                                     |                                     | Net loss             |        | $                            | (7,533 | )    |        | $      | (10,605 | )
|                                                                     |                                     |                      |        |                              |        |      |        |       
|Basic and diluted net loss per common share                          |                                     | $                    | (0.28  | )                            |        | $    | (0.40  | )     
|                                                                     |                                     |                      |        |                              |        |      |        |       
|Shares used in computing basic and diluted net loss per common share |                                     |                      | 26,833 |                              |        |      | 26,248 |       
|                                                                     |                                     |                      |        |                              |        |      |        |       

See accompanying notes.

4



---



##### 



GENE LOGIC INC.

STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)

|                                                                         |                                                                             |                                          |         |                    |        |      |         |        |         |  
|------------------------------------------------------------------------ | --------------------------------------------------------------------------- | ---------------------------------------- | ------- | ------------------ | ------ | ---- | ------- | ------ | ------- | -
|                                                                         |                                                                             |                                          |         | Three Months Ended
|                                                                         |                                                                             |                                          |         | March 31,          |        |      |         |       
|                                                                         |                                                                             |                                          |         |                    |        |      |         |       
|                                                                         |                                                                             |                                          |         | 2002               |        | 2001
|                                                                         |                                                                             |                                          |         |                    |        |      |         |       
|Cash flows from operating activities:                                    |                                                                             |                                          |         |                    |        |      |         |       
|Net loss                                                                 |                                                                             | $                                        | (7,533  | )                  |        | $    | (10,605 | )     
|Adjustments to reconcile net loss to net cash from operating activities: |                                                                             |                                          |         |                    |        |      |         |       
|                                                                         | Depreciation and amortization                                               |                                          |         | 2,959              |        |      |         | 2,909  |        
|                                                                         | Amortization of goodwill                                                    |                                          |         |                   |        |      |         | 381    |        
|                                                                         | Amortization of deferred compensation                                       |                                          |         |                   |        |      |         | 279    |        
|                                                                         | Net loss from investment in unconsolidated investee                         |                                          |         |                   |        |      |         | 1,189  |        
|Changes in operating assets and liabilities:                             |                                                                             |                                          |         |                    |        |      |         |       
|                                                                         | Accounts receivable                                                         |                                          |         | (922               | )      |      |         | 123    |        
|                                                                         | Inventories                                                                 |                                          |         | (734               | )      |      |         | (945   | )      
|                                                                         | Prepaid expenses                                                            |                                          |         | (809               | )      |      |         | (485   | )      
|                                                                         | Other current assets                                                        |                                          |         | 1,680              |        |      |         | 2,490  |        
|                                                                         | Other assets                                                                |                                          |         |                   |        |      |         | (152   | )      
|                                                                         | Accounts payable                                                            |                                          |         | (1,820             | )      |      |         | 4,471  |        
|                                                                         | Litigation settlement payable                                               |                                          |         |                   |        |      |         | (9,000 | )      
|                                                                         | Accrued expenses                                                            |                                          |         | (860               | )      |      |         | (2,888 | )      
|                                                                         | Deferred revenue                                                            |                                          |         | (1,206             | )      |      |         | 458    |        
|                                                                         | Other noncurrent liabilities                                                |                                          |         | 12                 |        |      |         | 236    |        
|                                                                         |                                                                             |                                          |         |                    |        |      |         |       
|                                                                         |                                                                             | Net cash flows from operating activities |         |                    | (9,233 | )    |         |        | (11,539 | )
|                                                                         |                                                                             |                                          |         |                    |        |      |         |       
|Cash flows from investing activities:                                    |                                                                             |                                          |         |                    |        |      |         |       
|                                                                         | Purchases of property and equipment                                         |                                          |         | (1,021             | )      |      |         | (4,677 | )      
|                                                                         | Purchases of licenses and patent costs                                      |                                          |         | (785               | )      |      |         | (315   | )      
|                                                                         | Software and database development costs                                     |                                          |         | (2,895             | )      |      |         | (1,349 | )      
|                                                                         | Proceeds from sale and maturity of marketable securities available-for-sale |                                          |         | 69,528             |        |      |         |       |        
|                                                                         |                                                                             |                                          |         |                    |        |      |         |       
|                                                                         |                                                                             | Net cash flows from investing activities |         |                    | 64,827 |      |         |        | (6,341  | )
|                                                                         |                                                                             |                                          |         |                    |        |      |         |       
|Cash flows from financing activities:                                    |                                                                             |                                          |         |                    |        |      |         |       
|                                                                         | Proceeds from issuance of common stock                                      |                                          |         | 1,277              |        |      |         | 2,043  |        
|                                                                         | Proceeds from exercise of warrant                                           |                                          |         |                   |        |      |         | 534    |        
|                                                                         | Repayments of equipment loans                                               |                                          |         | (9                 | )      |      |         | (348   | )      
|                                                                         |                                                                             |                                          |         |                    |        |      |         |       
|                                                                         |                                                                             | Net cash flows from financing activities |         |                    | 1,268  |      |         |        | 2,229   |  
|                                                                         |                                                                             |                                          |         |                    |        |      |         |       
|Net increase (decrease) in cash and cash equivalents                     |                                                                             |                                          | 56,862  |                    |        |      | (15,651 | )     
|Cash and cash equivalents, beginning of period                           |                                                                             |                                          | 128,273 |                    |        |      | 229,482 |       
|                                                                         |                                                                             |                                          |         |                    |        |      |         |       
|Cash and cash equivalents, end of period                                 |                                                                             | $                                        | 185,135 |                    |        | $    | 213,831 |       
|                                                                         |                                                                             |                                          |         |                    |        |      |         |       
|Supplemental disclosure:                                                 |                                                                             |                                          |         |                    |        |      |         |       
|                                                                         | Taxes paid                                                                  |                                          | $       | 150                |        |      | $       |       |        
|                                                                         |                                                                             |                                          |         |                    |        |      |         |       
|                                                                         | Interest paid                                                               |                                          | $       | 4                  |        |      | $       | 58     |        
|                                                                         |                                                                             |                                          |         |                    |        |      |         |       

See accompanying notes.

5



---



##### 



GENE LOGIC INC.

NOTES TO FINANCIAL STATEMENTS
March 31, 2002
(Unaudited)

Note 1  Summary of Significant Accounting Policies

Basis of Presentation

For the three months ended March 31, 2001, the unaudited financial
statements include the accounts of Gene Logic Inc. and its wholly owned
subsidiary (the Company). The Company and its wholly owned subsidiary were
merged in the fourth quarter of 2001. The accompanying unaudited financial
statements have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions to Form
10-Q and Article 10 of Regulation S-X. The balance sheet as of March 31, 2002,
statements of operations for the three months ended March 31, 2002 and 2001 and
the statements of cash flows for the three months ended March 31, 2002 and 2001
are unaudited, but include all adjustments (consisting of normal recurring
adjustments) which the Company considers necessary for a fair presentation of
the financial position, operating results and cash flows for the periods
presented. Although the Company believes that the disclosures in these
financial statements are adequate to make the information presented not
misleading, certain information and footnote information normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to the rules and regulations
of the Securities and Exchange Commission.

Results for any interim period are not necessarily indicative of results
for any future interim period or for the entire year. The accompanying
unaudited financial statements should be read in conjunction with the financial
statements and notes thereto included in the Companys Annual Report on Form
10-K for the year ended December 31, 2001.

Segment Information

The Company currently operates in one business segment  the development
of products related to genomic information. The Company is managed and operated
as one business segment. Accordingly, the Company does not prepare financial
information for separate product areas and does not have separate reportable
segments as defined by Statement of Financial Accounting Standards No. 131,
Disclosure about Segments of an Enterprise and Related Information.

The following is a breakdown of revenue by major customers exceeding ten
percent (10%) of such revenue:

|                            |                |  |                 |    |   |  |  |    |  
|--------------------------- | -------------- |  | --------------- | -- | - |  |  | -- | -
|                            |                |  | Major Customers
|                            |                |  |                
|                            |                |  | A               |    | B
|                            |                |  |                 |    |  
|For the three months ended: |                |  |                 |    |   |  |  |   
|                            | March 31, 2002 |  |                 | 11 | % |  |  |   |  
|                            | March 31, 2001 |  |                 |   |   |  |  | 13 | %

New Accounting Pronouncements

In August 2001, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets (SFAS 144). SFAS 144 addresses the financial
accounting and reporting for the impairment or disposal of long-lived assets.
SFAS 144 supersedes SFAS 121 but retains the fundamental provisions of SFAS 121
for (i) recognition/measurement of impairment of long-lived assets to be held
and used and (ii) measurement of long-lived assets to be disposed of by sale.
SFAS 144 also supersedes the accounting and reporting provisions of Accounting
Principles Board Opinion No. 30, Reporting the Results of Operations 
Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions
(APB 30), for segments of a business to be disposed of but retains APB 30s
requirement to report discontinued operations separately from continuing
operations and extends that reporting to a component of an entity that either
has been disposed of or is classified as held for sale. The Company adopted the
provisions of SFAS 144 effective January 1, 2002, which had no material impact
on the Companys financial statements.

6



---



##### 



Reclassifications

Certain reclassifications have been made to the prior periods financial
statements to conform with the current periods presentation.

Note 2  Goodwill and intangible assets

As of January 1, 2002, the Company adopted Statement of Financial
Accounting Standards No. 142, Goodwill and Other Intangible Assets (SFAS No.
142), which addresses the financial accounting and reporting standards for the
acquisition of intangible assets outside of a business combination and for
goodwill and other intangible assets subsequent to their acquisition. This
accounting standard requires that goodwill be separately disclosed from other
intangible assets in the balance sheet, and no longer be amortized but tested
for impairment on a periodic basis.

In accordance with SFAS No. 142, the Company discontinued the amortization
of goodwill effective January 1, 2002. A reconciliation of previously reported
net loss and loss per common share to the pro forma amounts adjusted for the
exclusion of goodwill amortization is as follows:

|                                             |  |                              |        |      |  |   |         |  
|-------------------------------------------- |  | ---------------------------- | ------ | ---- |  | - | ------- | -
|                                             |  | Three Months Ended March 31,
|                                             |  |                             
|                                             |  | 2002                         |        | 2001
|                                             |  |                              |        |     
|Reported net loss                            |  | $                            | (7,533 | )    |  | $ | (10,605 | )
|Add: Goodwill amortization                   |  |                              |       |      |  |   | 381     |  
|                                             |  |                              |        |      |  |   |         |  
|Pro forma adjusted net loss                  |  | $                            | (7,533 | )    |  | $ | (10,224 | )
|                                             |  |                              |        |      |  |   |         |  
|Basic and diluted net loss per common share: |  |                              |        |      |  |   |        
|Report net loss                              |  | $                            | (0.28  | )    |  | $ | (0.40   | )
|Add: Goodwill amortization                   |  |                              |       |      |  |   | 0.01    |  
|                                             |  |                              |        |      |  |   |         |  
|Pro forma adjusted net loss                  |  | $                            | (0.28  | )    |  | $ | (0.39   | )
|                                             |  |                              |        |      |  |   |         |  

There were no changes in the carrying amount of goodwill for the quarter
ended March 31, 2002 based on the initial impairment test performed as of
January 1, 2002 which resulted in no impairment to the value of goodwill in the
Companys financial statements. Additionally, as required by the statement,
intangible assets that do not meet the criteria for recognition apart from
goodwill must be reclassified. As a result of the Companys analysis, no
reclassifications were required as of March 31, 2002.

7



---



##### 



Information regarding the Companys other intangible assets is as follows:

|                               |                            |   |                |        |                   |   |        |        | 
|------------------------------ | -------------------------- | - | -------------- | ------ | ----------------- | - | ------ | ------ | 
|                               |                            |   | March 31, 2002 |        | December 31, 2001
|                               |                            |   |                |        |                  
|Carrying amount:               |                            |   |                |        |                   |   |        |       
|                               | Licenses                   |   | $              | 8,915  |                   |   | $      | 8,140  | 
|                               | Patent costs               |   |                | 2,555  |                   |   |        | 2,541  | 
|                               | Software development costs |   |                | 13,405 |                   |   |        | 11,578 | 
|                               | Database development costs |   |                | 5,081  |                   |   |        | 4,013  | 
|                               |                            |   |                |        |                   |   |        |       
|Total carrying amount          |                            | $ | 29,956         |        |                   | $ | 26,272 |       
|                               |                            |   |                |        |                   |   |        |       
|Accumulated amortization:      |                            |   |                |        |                   |   |        |       
|                               | Licenses                   |   | $              | 3,448  |                   |   | $      | 3,067  | 
|                               | Patent costs               |   |                | 297    |                   |   |        | 257    | 
|                               | Software development costs |   |                | 3,887  |                   |   |        | 3,146  | 
|                               | Database development costs |   |                | 2,734  |                   |   |        | 2,322  | 
|                               |                            |   |                |        |                   |   |        |       
|Total accumulated amortization |                            | $ | 10,366         |        |                   | $ | 8,792  |       
|                               |                            |   |                |        |                   |   |        |       
|Net carrying value:            |                            |   |                |        |                   |   |        |       
|                               | Licenses                   |   | $              | 5,467  |                   |   | $      | 5,073  | 
|                               | Patent costs               |   |                | 2,258  |                   |   |        | 2,284  | 
|                               | Software development costs |   |                | 9,518  |                   |   |        | 8,432  | 
|                               | Database development costs |   |                | 2,347  |                   |   |        | 1,691  | 
|                               |                            |   |                |        |                   |   |        |       
|Total net carrying value       |                            | $ | 19,590         |        |                   | $ | 17,480 |       
|                               |                            |   |                |        |                   |   |        |       

Amortization expense for the three months ended March 31, 2002 was $1.6
million. Estimated amortization expense for each of the five succeeding
years ended December 31 is as follows:

|                          |  |   |       | 
|------------------------- |  | - | ----- | 
|2002 (remaining 9 months) |  | $ | 5,401 | 
|2003                      |  |   | 6,246 | 
|2004                      |  |   | 4,067 | 
|2005                      |  |   | 1,775 | 
|2006                      |  |   | 337   | 

8



---



##### 



Item 2.   Managements Discussions and Analysis of Results of Operations and Financial Condition

This Quarterly Report contains certain forward-looking statements within
the meaning of the United States Private Securities Litigation Reform Act of
1995. These statements involve risks and uncertainties that could cause actual
results to differ materially from those expressed in this Quarterly Report.
These risks and uncertainties include, but are not limited to, the extent of
utilization of genomic information by the pharmaceutical and biotechnology
industries in research and product development, our ability to retain existing
and obtain additional customers, risks relating to the development of genomic
information products and their use by existing and potential customers and
ultimate consumers, our reliance on Affymetrix, Inc. for
GeneChip® microarrays
and other sole source suppliers, our ability to limit our losses and become
profitable, continued access to necessary human and animal tissue samples, our
ability to enforce our intellectual property rights, and the impact of
intellectual property rights of others, as well as other risks and
uncertainties included in our filings with the Securities and Exchange
Commission, including our Annual Report on Form 10-K for the year ended
December 31, 2001. We assume no obligation to update any forward-looking
statements contained in this Quarterly Report.

Unless the context requires otherwise, references in this Quarterly Report
to Gene Logic, the Company, we, us, and our refer to
Gene Logic Inc.

GeneExpress® is a registered trademark of Gene Logic. BioExpressTM,
ToxExpressTM and Genesis: The GeneExpress Enterprise SystemTM (Genesis or
Genesis Enterprise System) are trademarks of Gene Logic. GeneChip® is a
registered trademark of Affymetrix, Inc.

Overview

We were incorporated in September 1994 and have devoted substantially all
of our resources to the development, marketing and sales of genomic information
and bioinformatics products and services to pharmaceutical and biotechnology
companies for use in drug discovery and drug development.

We commenced operations in 1996 and in 1997 began developing custom gene
expression databases designed for our customers internal research and
development programs targeted to specific therapeutic areas of interest. The
skills and competencies acquired in creating such customized information
products became the foundation for developing GeneExpress, our large-scale
reference database of gene expression information, in early 1999. GeneExpress
comprises what we believe to be one of the worlds most comprehensive surveys
of gene expression in human and animal tissues related to disease and drug
toxicity. The first commercial version of GeneExpress was launched in late
1999. Currently, we market and sell our GeneExpress line of products and
services to pharmaceutical and biotechnology customers worldwide. We sold our
first subscription to GeneExpress in December 1999.

Our GeneExpress information products and services consist of three primary
products: BioExpress, from which are derived DataSuites, CustomSuites and
GeneExpress Reports; ToxExpress; and Genesis Enterprise System and its
associated professional services. Typically, GeneExpress products are accessed
under three-year term subscription agreements with current aggregate pricing
ranging between $2.5 million and $16.0 million, depending upon a variety of
factors, including the product accessed and the level and type of information.
Current pricing for GeneExpress Reports is on a pay-per-view basis and ranges
between $25,000 and $0.3 million, depending on the number of genes and tissue
samples surveyed. Current pricing for a license to Genesis and its associated
professional services range from $0.3 million to over $1.0 million, depending
upon which elements of the system and services are purchased. Pricing for
customized information products based on proprietary genomic services under
collaboration agreements have been determined on a case-by-case basis and
typically include annual access fees, research support and milestone payments.

Subscription fees to GeneExpress products are recognized systematically
over the term of the subscription. Fees from GeneExpress Report purchases are
recognized upon delivery of the report(s). Fees associated with Genesis
licenses are currently recognized ratably over the term of the initial
maintenance provision under the license agreement. Integration services fees
are recognized on the percentage-of-completion method. Fees from customized
information products are recognized when custom services are performed or costs
are incurred. Milestone payments related to customized information products
are recognized when they are earned in accordance with the applicable
performance requirements and contractual terms. Under agreements in which we
create databases in exchange for fixed fees, revenue from such agreements is
recognized on the percentage-of-completion method. Our business agreements may
provide the right for early termination without penalty to our customers.

Our future profitability will depend in part on the continued successful
commercialization of our GeneExpress products and services through the
establishment of agreements with additional customers, renewal of agreements
with, and agreements for additional products for, existing customers. Payments
to access our GeneExpress products and services are expected to be our primary
source of revenue for the foreseeable future. We have not received, and do not
expect to receive, significant royalty or other revenue from development and
commercialization of products by our customers using our customized information
products based on proprietary genomic services. Revenue from our customers may
be subject to significant fluctuation in both timing and amount and, therefore,
our results of operations for any period may not be comparable to the results
of operations for any other period.

9



---



##### 



We have incurred operating losses in each year since our inception. At
March 31, 2002, we had accumulated operating losses of $142.9 million. Our
losses have resulted principally from costs incurred in the development of our
genomic information products and services, a $35.2 million non-recurring charge
incurred in connection with our acquisition of Oncormed and selling, general
and administrative costs associated with our operations. These costs have
exceeded our revenue, which to date have been generated principally from
subscriptions to our GeneExpress products and services and agreements for our
customized information products. We expect to incur additional operating
losses in the future.

Results of Operations

Three Months Ended March 31, 2002 And 2001

Revenue increased $3.6 million or 44% to $11.8 million for the three
months ended March 31, 2002 from $8.2 million for the same period in 2001. The
increase in revenue resulted primarily from additional subscribers to our
GeneExpress product line and expanded subscription levels for existing
GeneExpress customers. Revenue from UCB Research accounted for 10% or more of
revenue for the three months ended March 31, 2002 and revenue from Procter &
Gamble accounted for 10% or more of revenue for the three months ended March
31, 2001. As of December 31, 2001, we had concluded all of our obligations
under the terms of the agreements with Japan Tobacco and Procter & Gamble and
no revenue was recognized during the three months ended March 31, 2002 for
these customers.

Research and development expenses decreased to $14.3 million for the three
months ended March 31, 2002 from $15.7 million for the same period in 2001. The
decrease in research and development expenses was largely due to lower expenses
as a result of our efforts in upgrading GeneExpress using the new Affymetrix
GeneChip Human Genome U-133 Set. The costs of upgrading GeneExpress are being
capitalized and will be amortized to expense over a two-year period which is
anticipated to begin in the third quarter of 2002. The decrease in such
expenses was partially offset by higher usage of other Affymetrix microarrays
used primarily to generate data for ToxExpress. Research and development
expenses are expected to increase during the year due to our continued
expansion of our GeneExpress product lines content, release of the GeneExpress upgrade and enhancements to its bioinformatics capabilities and development
of new product offerings.

Selling, general and administrative expenses increased to $5.7 million for
the three months ended March 31, 2002 from $4.8 million for the same period in
2001. These costs include the costs of corporate operations, finance and
accounting, human resources and other general operations. Of the increase in
selling, general and administrative expenses, $0.7 million was due to the
further development of our sales and marketing efforts. Selling, general and
administrative expenses are expected to increase slightly as we expand our
product offerings and related sales and marketing efforts.

In accordance with the Financial Accounting Standards Board Statement of
Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets,
which we adopted January 1, 2002, we no longer amortize goodwill, but instead
apply annual impairment tests in accordance with the Statement. We completed
the initial impairment analysis upon its adoption, which resulted in no
impairment to goodwill. Amortization of goodwill was $0.4 million for the three
months ended March 31, 2001, as a result of the acquisition of Oncormed in
September 1998.

Net interest income decreased to $0.8 million for the three months ended
March 31, 2002 from $3.3 million for the same period in 2001 primarily due to a
decrease in the rates of return for our investments in, and to a lesser degree
a decline in our balance of, cash, cash equivalents and marketable securities
available-for-sale.

During 2000, we purchased a 26.7% voting stock interest in Neuralstem,
Inc., a privately held unconsolidated investee. The investment was accounted
for under the equity method of accounting. Through April 30, 2001, we recorded
our equity share of losses of Neuralstem and intercompany transactions were
eliminated in the accompanying financial statements. Effective April 30, 2001,
as our voting stock interest was reduced below 15%, we began accounting for our investment in
Neuralstem under the cost method of accounting and our financial statements do
not reflect any additional share of Neuralstems losses or elimination of
intercompany sales and expenses after such date. At March 31, 2002, the
value of our investment was $4.3 million.

Liquidity and Capital Resources

From inception through March 31, 2002, we have financed our operations
through the sale of equity securities and payments from customers. In February
2000, we completed a follow-on public offering of 4,680,000 shares of our
common stock, generating net

10



---



##### 



proceeds of approximately $247.5 million. As of March 31, 2002, we had
approximately $185.1 million in cash, cash equivalents and marketable
securities, compared to $197.8 million as of December 31, 2001.

Net cash used in operating activities was $9.2 million for the three
months ended March 31, 2002 compared to $11.5 million during the same period in
2001. The negative operating working capital for the three months ended March
31, 2002 and 2001 was primarily due to the continued funding of our operating
losses.

During the three months ended March 31, 2002 and 2001, our investing
activities, other than purchases and sales and maturities of available-for-sale
securities, consisted primarily of capital expenditures and software and
database development costs. Capital expenditures for the three months ended
March 31, 2002 and 2001 amounted to $1.0 million and $4.7 million,
respectively. For the three months ended March 31, 2001, approximately $3.2
million of these expenditures related to the build-out of our production
facility, which was completed in March 2001. We expect laboratory and computer
equipment purchases to continue as we expand the content of, and the products
derived from, GeneExpress.

We have capitalized software costs of $1.8 million and $1.3 million for
the three months ended March 31, 2002 and 2001, respectively. These costs
relate to ongoing efforts to enhance Genesis, the software platform of our
GeneExpress product line. During the three months ended March 31, 2002, we
capitalized $1.1 million of database development costs related to the upgrade
of data in GeneExpress as a result of Affymetrixs release of their GeneChip
Human Genome U133 Set. These costs will continue in 2002 and are expected to be
greater than those incurred for the previous upgrade in 2000. Software and
database development costs are being amortized over their expected useful lives
of three and two years, respectively. Additional software and database
development costs are expected to continue as a result of ongoing efforts to
further enhance our GeneExpress line of products and services.

Our financing activities, other than the repayment of equipment loans,
consisted of the exercise of stock options and the exercise of a warrant in
February 2001.

In January 1999, we entered into a three-year agreement with Affymetrix,
pursuant to which Affymetrix supplied its GeneChip microarrays to us for the
development of gene expression databases. During 2001, we renegotiated and
extended this agreement for two years, subject to renewal, commencing January
2002. Under the terms of the new agreement, we continue to pay Affymetrix
subscription fees for access to the microarrays, purchase the microarrays and
related instrumentation and software and expect to record royalty expense,
payable to Affymetrix, in future years upon meeting certain GeneExpress
subscription revenue thresholds. During 2002, we have agreed to purchase from
Affymetrix a minimum of $15.1 million in products and services. Our commitments
under other research and license agreements do not represent significant
expenditures in relation to our total research and development expense.

During January 2001, we paid Incyte Genomics, Inc. $9.0 million in
connection with the settlement of litigation. As part of the settlement
agreement, we acquired a worldwide, nonexclusive license for the terms of the
relevant patents. A portion of the payment to Incyte has been recorded as a
license and is being amortized over its expected useful life of five years.

We believe that existing cash and cash equivalents
and anticipated payments from customers will be sufficient to support our
operations for the foreseeable future. These estimates are forward-looking
statements that involve risks and uncertainties. Our actual future capital
requirements and the adequacy of our available funds will depend on many
factors, including those discussed under Business  Risk Factors in our
Annual Report on Form 10-K for the year ended December 31, 2001.

New Pronouncements

In June 2001, the Financial Accounting Standards Board issued Statements
of Financial Accounting Standards No. 141, Business Combinations, and No.
142, Goodwill and Other Intangible Assets, which we adopted on January 1,
2002. Under the new standards, goodwill is no longer being amortized, but is
subject to annual impairment tests in accordance with the Statements. Other
intangible assets continue to be amortized over their expected useful lives.
We applied the new standards on accounting for goodwill and other intangible
assets beginning in the first quarter of 2002. Application of the
nonamortization provisions of the Statement resulted in a decrease in
amortization expenses and net loss of $0.4 million for the three months ended
March 31, 2002. We completed the first of the required impairment tests of
goodwill as of January 1, 2002, resulting in no impairment to goodwill.

In August 2001, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets (SFAS 144). SFAS 144 addresses the financial
accounting and reporting for the impairment or disposal of long-lived assets.
SFAS 144 supersedes SFAS 121 but retains the fundamental provisions of SFAS 121
for (i) recognition/measurement of impairment of long-lived assets to be held
and used and (ii) measurement of long-lived assets to be disposed of by sale.
SFAS 144 also supersedes the accounting and reporting provisions of Accounting
Principles Boards No. 30, Reporting the Results of Operations  Reporting the
Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions (APB 30), for segments of a
business to be disposed of but retains APB 30s requirement to report
discontinued operations separately from continuing operations and extends that
reporting to a component of an entity that either has been

11



---



##### 



disposed of or is classified as held for sale. We adopted the provisions
of SFAS 144 effective January 1, 2002, which had no material impact on our
financial statements.

Item 3.   Quantitative and Qualitative Disclosure about Market Risk

We have limited exposure to financial market risks, including changes in
interest rates. At March 31, 2002, we had cash and cash equivalents of
approximately $185.1 million. Cash and cash equivalents consisted of money
market accounts, investment-grade commercial paper and government agency notes.
Based on the cash balance at March 31, 2002, a 100 basis point adverse movement
in interest rates would result in an increase in net loss for the three months
ended March 31, 2002 by approximately $0.5 million. Actual changes in rates may
differ from the hypothetical assumptions used in computing this exposure.

PART II   OTHER INFORMATION

Item 6.   Exhibits and Reports on Form 8-K



| | A) |  | Exhibits:                                                                      
| | -- |  | -------------------------------------------------------------------------------
|
| |    |  | None.                                                                          
|
| | B) |  | Reports on Form 8-K:                                                           
|
| |    |  | No reports on Form 8-K were filed during the three months ended March
31, 2002.

12



---



##### 



SIGNATURES

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.



|                   |  |                |  |                                                                                          
|------------------ |  | -------------- |  | -----------------------------------------------------------------------------------------
|                   |  | GENE LOGIC INC
|                  
|                  
|Date: May 10, 2002 |  | By:            |  | /s/   Philip L. Rohrer, Jr.                                                              
|                   |  |                |  |                                                                                          
|                   |  |                |  | Philip L. Rohrer, Jr.
Chief Financial Officer(Principal Financial and Accounting Officer)

13