**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 September 30, 2007****OR****o**
            
            **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**
              
              **06-1411336**(State
                  or other jurisdiction of
              
              (I.R.S.
                  Employerincorporation
                  or organization)
              
              Identification
                  No.)





**50
      West Watkins Mill 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****  o





Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, or a non-accelerated filer.  See definition of
“accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange
      Act.




Large
                accelerated filer     o
            Accelerated
                filer     x
            Non-accelerated
                filer     o





Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act). YES******o**NO   x





The
      number
      of shares outstanding of the Registrant’s Common Stock, $.01 par value, was
      32,172,588 as of October 31, 2007.









**GENE
                  LOGIC INC.****TABLE
                  OF CONTENTS****PART
                  I                      FINANCIAL INFORMATION**Item
                  1.  Financial Statements
              3Consolidated
                  Condensed Balance Sheets at September 30,
                  2007 and December 31, 2006
              3Consolidated
                  Condensed Statements of Operations for the
                  Three and Nine Months Ended September 30, 2007 and
                  2006
              4Consolidated
                  Condensed Statements of Cash Flows for the
                  Nine Months Ended September 30, 2007 and 2006
              5Notes
                  to Consolidated Condensed Financial
                  Statements
              6Item
                  2.  Management’s Discussion and Analysis of
                  Results of Operations and Financial Condition
              12Item
                  3.  Quantitative and Qualitative Disclosure about
                  Market Risk
              18Item
                  4.  Controls and Procedures
              18**PART
                  II                      OTHER INFORMATION**Item
                  1.  Legal Proceedings
              19Item
                  1A.  Risk Factors
              19Item
                  2.  Unregistered Sales of Equity Securities
                  and Use of Proceeds
              20Item
                  3.  Defaults Upon Senior
                  Securities
              20Item
                  4.  Submission of Matters to a Vote of
                  Security Holders
              20Item
                  5.  Other Information
              21Item
                  6.  Exhibits
              21Signatures
              22




2.





**PART
      I FINANCIAL
      INFORMATION**





**Item
      1. Financial
      Statements**


**GENE
      LOGIC INC.**





**CONSOLIDATED
      CONDENSED BALANCE SHEETS**


**(in
      thousands, except share data)**




**September
                  30,**
              
              
              **December
                  31,****2007**
              
              
              **2006****(Unaudited)****ASSETS**Current
                  assets:Cash
                  and cash equivalents
              
              $
              22,640
              
              
              $
              25,700Marketable
                  securities available-for-sale
              
              
              8,917
              
              
              
              24,410Accounts
                  receivable, net of allowance of $49 and $45 as of September 30,
                  2007
                  andDecember
                  31, 2006, respectively
              
              
              615
              
              
              
              3,327Unbilled
                  services
              
              
              602
              
              
              
              589Inventory,
                  net
              
              
              1,156
              
              
              
              2,180Prepaid
                  expenses
              
              
              1,592
              
              
              
              1,260Other
                  current assets
              
              
              2,610
              
              
              
              3,551Total
                  current assets
              
              
              38,132
              
              
              
              61,017Property
                  and equipment, net
              
              
              10,415
              
              
              
              12,829Long-term
                  investments
              
              
              2,964
              
              
              
              2,964Goodwill
              
              
              2,677
              
              
              
              2,677Other
                  intangibles, net
              
              
              7,122
              
              
              
              10,060Other
                  assets
              
              
              483
              
              
              
              726Total
                  assets
              
              $
              61,793
              
              
              $
              90,273**LIABILITIES
                  AND STOCKHOLDERS' EQUITY**Current
                  liabilities:Accounts
                  payable
              
              $
              2,383
              
              
              $
              3,703Payable
                  to Bridge Pharmaceuticals
              
              
              119
              
              
              
              1,727Accrued
                  compensation and employee benefits
              
              
              4,169
              
              
              
              2,883Other
                  accrued expenses
              
              
              2,406
              
              
              
              3,751Accrued
                  restructuring costs
              
              
              309
              
              
              
              1,941Current
                  portion of long-term debt
              
              
              501
              
              
              
              499Deferred
                  revenue
              
              
              5,018
              
              
              
              3,299Total
                  current liabilities
              
              
              14,905
              
              
              
              17,803Deferred
                  revenue
              
              
              137
              
              
              
              228Long-term
                  debt, net of current portion
              
              
              40
              
              
              
              78Deferred
                  rent
              
              
              882
              
              
              
              1,074Total
                  liabilities
              
              
              15,964
              
              
              
              19,183Commitments
                  and contingencies
              
              
              -
              
              
              
              -Stockholders'
                  equity:Preferred
                  stock, $.01 par value; 10,000,000 shares authorized; and no shares
                  issued
                  andoutstanding
                  as of September 30, 2007 and December 31, 2006
              
              
              -
              
              
              
              -Common
                  stock, $.01 par value; 60,000,000 shares authorized;  32,172,588
                  and 31,820,273 sharesissued
                  and outstanding as of September 30, 2007 and December 31, 2006,
                  respectively
              
              
              322
              
              
              
              318Additional
                  paid-in-capital
              
              
              387,109
              
              
              
              386,530Accumulated
                  other comprehensive loss
              
              
              (37
              )
              
              
              (78
              )Accumulated
                  deficit
              
              
              (341,565
              )
              
              
              (315,680
              )Total
                  stockholders' equity
              
              
              45,829
              
              
              
              71,090Total
                  liabilities and stockholders' equity
              
              $
              61,793
              
              
              $
              90,273




See
      accompanying
      notes.




3.




**GENE
      LOGIC INC.**





**CONSOLIDATED
      CONDENSED STATEMENTS OF
      OPERATIONS**


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


**(Unaudited)**




**Three
                  Months Ended**
              
              
              **Nine
                  Months Ended****September
                  30,**
              
              
              **September
                  30,****2007**
              
              
              **2006**
              
              
              **2007**
              
              
              **2006**Revenue:Genomics
                  services
              
              $
              3,684
              
              
              $
              3,698
              
              
              $
              12,356
              
              
              $
              17,129Drug
                  repositioning services
              
              
              841
              
              
              
              6
              
              
              
              879
              
              
              
              36Total
                  revenue
              
              
              4,525
              
              
              
              3,704
              
              
              
              13,235
              
              
              
              17,165Expenses:Database
                  production
              
              
              5,067
              
              
              
              6,029
              
              
              
              15,765
              
              
              
              21,453Research
                  and development
              
              
              2,749
              
              
              
              2,618
              
              
              
              7,859
              
              
              
              7,599Selling,
                  general and administrative
              
              
              5,046
              
              
              
              5,223
              
              
              
              17,044
              
              
              
              17,019Genomics
                  Division restructuring
              
              
              -
              
              
              
              5,377
              
              
              
              -
              
              
              
              5,377Total
                  expenses
              
              
              12,862
              
              
              
              19,247
              
              
              
              40,668
              
              
              
              51,448Loss
                  from operations
              
              
              (8,337
              )
              
              
              (15,543
              )
              
              
              (27,433
              )
              
              
              (34,283
              )Interest
                  (income), net
              
              
              (463
              )
              
              
              (633
              )
              
              
              (1,594
              )
              
              
              (2,162
              )Other
                  (income) expense
              
              
              32
              
              
              
              (66
              )
              
              
              46
              
              
              
              35Write-down
                  of long-term equity investment
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              275Loss
                  from continuing operations
              
              
              (7,906
              )
              
              
              (14,844
              )
              
              
              (25,885
              )
              
              
              (32,431
              )Loss
                  from discontinued operations
              
              
              -
              
              
              
              (11,811
              )
              
              
              -
              
              
              
              (17,307
              )Net
                  loss
              
              $
              (7,906
              )
              
              $
              (26,655
              )
              
              $
              (25,885
              )
              
              $
              (49,738
              )Basic
                  and diluted net loss per share:Loss
                  from continuing operations
              
              $
              (0.25
              )
              
              $
              (0.47
              )
              
              $
              (0.81
              )
              
              $
              (1.02
              )Loss
                  from discontinued operations
              
              
              -
              
              
              
              (0.37
              )
              
              
              -
              
              
              
              (0.54
              )Net
                  loss
              
              $
              (0.25
              )
              
              $
              (0.84
              )
              
              $
              (0.81
              )
              
              $
              (1.56
              )Shares
                  used in computing basic and dilutednet
                  loss per share
              
              
              31,894
              
              
              
              31,810
              
              
              
              31,865
              
              
              
              31,802




See
      accompanying
      notes.




4.




**GENE
      LOGIC INC.**





**CONSOLIDATED
      CONDENSED STATEMENTS OF CASH
      FLOWS**


**(in
      thousands)**


**(Unaudited)**




**Nine
                  Months Ended****September
                  30,****2007**
              
              
              **2006**Cash
                  flows from operating activities:Loss
                  from continuing operations
              
              $
              (25,885
              )
              
              $
              (32,431
              )Adjustments
                  to reconcile loss from continuing operations to net cash
                  flowsfrom
                  continuing operating activities:Depreciation
                  and amortization
              
              
              6,941
              
              
              
              8,132Non-cash
                  Genomics Division restructuring
              
              
              -
              
              
              
              5,377Non-cash
                  stock compensation expense
              
              
              573
              
              
              
              542Other
              
              
              149
              
              
              
              943Changes
                  in continuing operating assets and liabilities:Accounts
                  receivable and unbilled services
              
              
              2,699
              
              
              
              4,078Inventory
              
              
              1,024
              
              
              
              (115
              )Prepaids
                  and other assets
              
              
              852
              
              
              
              (692
              )Accounts
                  payable
              
              
              (1,320
              )
              
              
              (2,458
              )Accrued
                  expenses and deferred rent
              
              
              (16
              )
              
              
              (3,729
              )Accrued
                  restructuring
              
              
              (1,632
              )
              
              
              -Accrued
                  technologies payable
              
              
              -
              
              
              
              (3,492
              )Deferred
                  revenue
              
              
              1,628
              
              
              
              (5,482
              )Net
                  cash flows from continuing operating activities
              
              
              (14,987
              )
              
              
              (29,327
              )Loss
                  from discontinued operations
              
              
              -
              
              
              
              (17,307
              )Adjustments
                  to reconcile loss from discontinued operations to net cash
                  flowsfrom
                  discontinued operating activities:Impairment
                  charges, depreciation and amortization and other non-cash
                  items
              
              
              -
              
              
              
              14,045Changes
                  in discontinued operating assets and liabilities
              
              
              -
              
              
              
              1,659Net
                  cash flows from discontinued operating activities
              
              
              -
              
              
              
              (1,603
              )Net
                  cash flows from operating activities
              
              
              (14,987
              )
              
              
              (30,930
              )Cash
                  flows from investing activities:Purchases
                  of property and equipment
              
              
              (549
              )
              
              
              (1,845
              )Purchases
                  of licenses and patent costs
              
              
              (424
              )
              
              
              (622
              )Software
                  development costs
              
              
              (267
              )
              
              
              (882
              )Database
                  upgrade costs
              
              
              (498
              )
              
              
              (1,974
              )Purchase
                  of marketable securities available-for-sale
              
              
              (17,260
              )
              
              
              (25,256
              )Proceeds
                  from sale and maturity of marketable securities
                  available-for-sale
              
              
              32,794
              
              
              
              42,046Payments
                  related to sale of Preclinical Division
              
              
              (1,843
              )
              
              
              -Net
                  investing activities of discontinued operations
              
              
              -
              
              
              
              (371
              )Net
                  cash flows from investing activities
              
              
              11,953
              
              
              
              11,096Cash
                  flows from financing activities:Proceeds
                  from issuance of common stock to employees
              
              
              10
              
              
              
              145Repayments
                  of an equipment loan
              
              
              (36
              )
              
              
              (35
              )Net
                  financing activities of discontinued operations
              
              
              -
              
              
              
              (107
              )Net
                  cash flows from financing activities
              
              
              (26
              )
              
              
              3Net
                  (decrease) in cash and cash equivalents
              
              
              (3,060
              )
              
              
              (19,831
              )Cash
                  and cash equivalents, beginning of period
              
              
              25,700
              
              
              
              43,946Cash
                  and cash equivalents, end of period
              
              $
              22,640
              
              
              $
              24,115Supplemental
                  disclosure:Interest
                  paid
              
              $
              4
              
              
              $
              16





See
      accompanying notes.





5.




**GENE
      LOGIC INC.**





**Notes
      to Consolidated Condensed Financial
      Statements**


**September
      30, 2007**


**(in
      thousands, except share and per share data)**


**(Unaudited)**





**Note
      1 — Organization and summary of significant accounting
      policies**





*Description
      of Business*





Gene
      Logic
      Inc., including its wholly owned subsidiaries, Gene Logic Ltd. (United Kingdom
      subsidiary) and Gene Logic K.K. (Japan subsidiary), (collectively “Gene Logic”
or the “Company”), employs integrative pharmacology know how that enables the
      Company to determine new development paths for drug candidates provided by
      its
      partners and for which development has been discontinued for reasons other
      than
      safety.  “Integrative pharmacology” is the study of the changes
      produced in living animals by chemical substances, especially drugs, applied
      on
      a whole-animal or organ systems-level basis.  The Company also seeks
      to obtain drug candidates and/or rights to such candidates that it expects
      to
      reposition and, after possible further development by the Company, license
      to
      third parties for the benefit of its own proprietary portfolio.





The
      Company has also developed and commercialized proprietary genomic and
      toxicogenomic databases, toxicogenomic services, software tools and data
      generation and analysis and other related services that enable customers
      worldwide to discover and prioritize drug targets, identify biomarkers, predict
      toxicity and understand mechanisms of toxicity and understand mechanisms of
      action of specific compounds.  In addition, the Company has begun to
      utilize its Genomics assets to research and develop molecular diagnostics for
      human health care.





In
      2006,
      the Company’s services were organized into three business segments: genomics and
      toxicogenomics services (“Genomics Division”), preclinical contract research
      services (“Preclinical Division”) and drug repositioning services (“Drug
      Repositioning and Development Division”).  On December 15, 2006, the
      Company sold its Preclinical Division, which has now been classified as a
      discontinued operation (see Note 4).





The
      Drug
      Repositioning and Development Division is engaged in the business of research
      and development of drug candidates owned by its partners or by the
      Company.  The Company applies its proprietary integrative pharmacology
      program for the purpose of determining new potential therapeutic indications
      for
      compounds that have failed clinical studies for reasons other than
      safety.





The
      Genomics Division licenses proprietary genomics and toxicogenomics databases
      and
      software tools and provides toxicogenomics services, microarray data generation
      and analysis services and other related services.  In 2006, in
      response to an unexpected decline in demand for database subscriptions, the
      Company reduced the staff and operational costs of its Genomics
      Division.  Following consideration of various strategic alternatives
      for its Genomics Division, the Company signed an agreement in October 2007
      to
      sell certain assets (“Genomics Assets”) related to the business of its Genomics
      Division, subject to the approval by the Company’s stockholders (see Note
      2).  The Company will retain full rights in perpetuity to utilize the
      genomics databases for its Drug Repositioning and Development
      Division.  In addition, the Company will also retain those assets
      (“Molecular Diagnostics Assets”) of the Genomics Division related to molecular
      diagnostics and continues to explore strategic alternatives for these
      assets.  The Company has reduced expenses for its Genomics Division
      while continuing to serve new and existing Genomics customers.





*Basis
      of Presentation*





The
      accompanying unaudited consolidated condensed financial statements have been
      prepared in accordance with United States Generally Accepted Accounting
      Principles (“GAAP”) for interim financial information and the instructions to
      Form 10-Q and Article 10 of Regulation S-X.  The consolidated
      condensed balance sheet as of September 30, 2007, consolidated condensed
      statements of operations for the three and nine months ended September 30,
      2007
      and 2006 and the consolidated condensed statements of cash flows for the nine
      months ended September 30, 2007 and 2006 are unaudited, but include all
      adjustments (consisting of normal recurring adjustments) that the Company
      considers necessary for a fair presentation of the financial position, operating
      results and cash flows, respectively, 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 GAAP have been condensed or
      omitted pursuant to the rules and regulations of the United States Securities
      and Exchange Commission (“SEC”).  All material intercompany accounts
      and transactions have been eliminated in consolidation.





As
      a
      result of the Company’s sale of its Preclinical Division on December 15, 2006
      and in accordance with Statement of Financial Accounting Standards No. 144,
      “Accounting for the Impairment or Disposal of Long-Lived Assets”, for 2006 the
      Company has classified the results of operations of the Preclinical Division
      as
      a discontinued operation.  The results of operations for the Genomics
      Division (not including the business associated with the Molecular Diagnostics
      Assets) will not be classified as a discontinued operation until the requisite
      stockholder approval has been obtained (see Note 2).





6.




Results
      for any interim period are not necessarily indicative of results for any future
      interim period or for the entire year.  The accompanying unaudited
      consolidated condensed financial statements should be read in conjunction with
      the consolidated financial statements and notes thereto included in the
      Company’s Annual Report on Form 10-K for the year ended December 31,
      2006.





*Use
      of
      Estimates*





The
      preparation of financial statements in conformity with GAAP requires management
      to make estimates and assumptions that affect the reported amounts of assets
      and
      liabilities and disclosure of contingent assets and liabilities at the date
      of
      the financial statements and the reported amounts of revenue and expenses during
      the reporting period.  Actual results could differ from those
      estimates.





*Inventory*





Inventory
      is stated at the lower of cost or market.  Cost for microarrays and
      laboratory reagents is determined using the first-in, first-out method and
      cost
      for tissue samples is determined using the average cost method.  All
      inventory is reviewed for impairment and appropriate reserves are
      recorded.  All inventory is classified as raw
      materials.  The following table sets forth information on the
      composition of the Company’s inventory as of the indicated periods:





**September
                  30,**
              
              
              **December
                  31,****2007**
              
              
              **2006**Microarrays
              
              $
              946
              
              
              $
              2,233Laboratory
                  reagents
              
              
              210
              
              
              
              510Tissue
                  samples
              
              
              -
              
              
              
              1,7881,156
              
              
              
              4,531Less:Microarray
                  reserves
              
              
              -
              
              
              
              (647
              )Tissue
                  sample reserves
              
              
              -
              
              
              
              (1,704
              )Inventory,
                  net
              
              $
              1,156
              
              
              $
              2,180





*Comprehensive
      Loss*





The
      Company accounts for comprehensive loss as prescribed by Statement of Financial
      Accounting Standards (‘SFAS’) No. 130, “Reporting Comprehensive
      Income”.  Comprehensive income (loss) is the total net income (loss)
      plus all changes in equity during the period except those changes resulting
      from
      investment by and distribution to owners.  Total comprehensive loss
      was $7,898 and $26,573 for the three months ended September 30, 2007 and 2006,
      respectively, and $25,844 and $49,757 for the nine months ended September 30,
      2007 and 2006, respectively.





*New
      Accounting Pronouncements*





In
      September 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS
      No. 157, “Fair Value Measurements” (“SFAS 157”).  SFAS 157 defines
      fair value, establishes a framework for measuring fair value under generally
      accepted accounting principles and expands disclosures about fair value
      measurements.  SFAS 157 emphasizes that fair value is a market-based
      measurement, not an entity-specific measurement, and states that a fair value
      measurement should be determined based on the assumptions that market
      participants would use in pricing the asset or liability.  This
      Statement applies under other accounting pronouncements that require or permit
      fair value measurements, for which the FASB previously concluded in such
      accounting pronouncements that fair value is the relevant measurement
      attribute.  Accordingly, this Statement does not require any new fair
      value measurements.  SFAS 157 is effective for fiscal years beginning
      after November 15, 2007 and the Company intends to adopt it on January 1,
      2008.  The Company is currently evaluating the impact, if any, that
      SFAS 157 will have on its financial position, results of operations and cash
      flows, but does not believe the effect will be material.





In
      June
      2006, the FASB issued Interpretation No. 48, “Accounting for Uncertainty in
      Income Taxes” (“FIN 48”).  FIN 48 clarifies the accounting for
      uncertainty in income taxes in an enterprise’s financial statements in
      accordance with SFAS No. 109, “Accounting for Income Taxes”.  FIN 48
      prescribes a minimum recognition threshold and measurement attribute for
      financial statement recognition and measurement of a tax position.  If
      a tax position does not meet the more-likely-than-not initial recognition
      threshold, the benefit would not be recorded in the financial
      statements.  The Company adopted FIN 48 on January 1, 2007; the
      adoption did not have a material effect on the Company.





If
      applicable, the Company would recognize interest and penalties related to income
      tax matters in income tax expense.  No interest and penalties were
      recognized in the Consolidated Condensed Statements of Operations for the three
      and nine months ended September 30, 2007 and the Consolidated Condensed Balance
      Sheet at September 30, 2007.  The Company and its subsidiaries file
      consolidated and separate income tax returns in the United States and in a
      number of state and foreign jurisdictions.  The Company is subject to
      tax examinations in its major tax jurisdictions for all years since
      inception.




7.


**Note
      2 — Proposed sale of Genomics Assets**





On
      October
      15, 2007, the Company announced that it had signed an agreement to sell to
      Ocimum Biosolutions, Inc., Ocimum Biosolutions, LTD or its affiliate
      (collectively “Ocimum”) the Genomics Assets for $10,000 ($7,000 in cash and a
      $3,000 promissory note due 18 months from the date of closing) and the
      assumption, by Ocimum, of certain liabilities and ongoing contractual
      obligations.  The Company has incurred costs to sell its Genomics
      Assets through September 30, 2007 in the amount of $981 and anticipates it
      will
      incur additional costs of approximately $400 in connection with the
      sale.  The sales price is subject to adjustment based on certain
      potential revisions to the carrying value of assets and liabilities at the
      date
      of closing.  Consummation of the sale is subject to the approval by
      the Company’s stockholders.  The Company also is seeking stockholder
      approval for a sale of the assets of the Genomics Division in the event that
      the
      agreement with Ocimum is terminated.





As
      a
      result of the proposed sale of its Genomics Assets, the Company expects to
      record a loss of approximately $3,500, excluding previously recorded selling
      costs, reflecting the sale price, including estimates for the assumption of
      certain liabilities and ongoing contractual obligations by Ocimum, less the
      carrying value of the assets and selling costs as of closing.  The
      loss is expected to be recorded in the fourth quarter of 2007.  The
      Company will continue to evaluate the sale price, carrying value of the assets
      and certain liabilities and estimated selling costs.  Any subsequent
      change to these values could result in a change to the expected
      loss.  The value of the Molecular Diagnostic Assets is not included in
      the determination of the loss from the sale of its Genomics
      Assets.  The sale of the Genomics Assets to Ocimum is subject to
      certain conditions, including the approval by the Company’s stockholders and the
      absence of certain material adverse changes in the Company.  In
      addition, the agreement with Ocimum may be terminated under certain conditions,
      including by the Company in the event of a superior offer.  There is
      no assurance that the sale to Ocimum will be consummated.





In
      conjunction with the proposed sale of its Genomics Assets, the Company is
      seeking stockholder approval to change its name to Ore Pharmaceuticals
      Inc.





**Note
      3 — Stock-based compensation**





At
      September 30, 2007, the Company has the following stock-based compensation
      plans: 1997 Equity Incentive Plan (the “Stock Plan”) and 1997 Non-Employee
      Directors’ Stock Option Plan (the “Directors’ Plan”).  The Company may
      grant both stock option and restricted stock awards under the Stock Plan and
      stock option awards under the Directors’ Plan.  The termination of the
      Employee Stock Purchase Plan was approved by the Company’s Board of Directors in
      June 2007.





Effective
      January 1, 2006, the Company adopted the fair value recognition provisions
      of
      Statement of Financial Accounting Standards No. 123(R) (revised 2004),
“Share-Based Payment,” using the modified prospective transition method and
      therefore did not restate results for prior periods.  For the three
      and nine months ended September 30, 2007, the Company recorded stock-based
      compensation expense of $235 and $573, respectively.  The impact on
      basic and diluted net loss per share for the three and nine months ended
      September 30, 2007 was $0.01 and $0.02, respectively.  For the three
      and nine months ended September 30, 2006, the Company recorded stock-based
      compensation expense of $139 and $689, respectively.  The impact on
      basic and diluted net loss per share for the three and nine months ended
      September 30, 2006 was $0.00 and $0.02, respectively.





*Stock
      Option Awards*





The
      Company determined the fair value of each option grant on the date of grant
      using the Black-Scholes option pricing model for the indicated periods, with
      the
      following assumptions:





**Three
                  Months Ended**
              
              
              **Nine
                  Months Ended****September
                  30,**
              
              
              **September
                  30,****2007**
              
              
              **2006
                  (1)**
              
              
              **2007**
              
              
              **2006**Weighted
                  average fair value of grants
              
              
              $0.59
              
              
              
              –
              
              
              
              $0.75
              
              
              
              $1.11Expected
                  volatility
              
              
              59%
              
              
              
              –
              
              
              
              58%
              
              
              
              53%Risk-free
                  interest rate
              
              
              4.47%
              
              
              
              –
              
              
              4.47%
                  to 4.51%
              
              
              4.49%
                  to 5.11%Expected
                  lives
              
              3
                  years
              
              
              
              –
              
              
              3
                  years
              
              
              3
                  yearsDividend
                  rate
              
              
              0%
              
              
              
              –
              
              
              
              0%
              
              
              
              0%




(1)
      No
      stock options awards were granted during the three months ended September 30,
      2006.




8.




The
      following is a summary of option activity for the nine months ended September
      30, 2007:





**Per
                  Share****Weighted-****Number
                  of**
              
              
              **Average****Shares**
              
              
              **Exercise
                  Price****Outstanding
                  at January 1, 2007**
              
              
              4,528,956
              
              
              $
              6.88Options
                  granted
              
              
              1,603,200
              
              
              $
              1.96Options
                  exercised
              
              
              (34,210
              )
              
              $
              0.30Options
                  cancelled
              
              
              (1,543,178
              )
              
              $
              5.21**Outstanding
                  at September 30, 2007**
              
              
              4,554,768
              
              
              $
              5.76**Exercisable
                  at September 30, 2007**
              
              
              3,226,411
              
              
              $
              7.30





The
      total
      intrinsic value (the difference between the Company’s closing stock price on the
      last trading day of the third quarter of 2007 and the exercise price, multiplied
      by the number of in-the-money options) that would have been received by the
      option holders had all option holders exercised their options on September
      30,
      2007 was zero.  This amount is subject to change based on changes to
      the fair market value of the Company’s Common Stock.





Of
      the
      stock options outstanding at September 30, 2007, 584,332 are stock options
      held
      by employees of the Genomics Division that will be subject to cancellation
      in
      most cases, within three months after the sale of the Genomics Assets, unless
      exercised prior to such cancellation, in accordance with the terms of the Stock
      Plan and stock option award upon the closing of the sale of the Genomics
      Assets.





*Restricted
      Stock Awards*





During
      the
      nine months ended September 30, 2007, the Committee approved grants for shares
      of restricted stock under the Stock Plan subject to certain performance-based
      vesting conditions which, if not met, would result in forfeiture of the shares
      and reversal of any previously recognized related stock-based compensation
      expense.





The
      following is a summary of restricted stock awards activity for the nine months
      ended September 30, 2007:





**Per
                  Share****Weighted-****Average****Number
                  of**
              
              
              **Grant-Date****Shares**
              
              
              **Fair
                  Value****Outstanding
                  at January 1, 2007**
              
              
              -
              
              
              $
              -Restricted
                  stock granted
              
              
              410,003
              
              
              $
              1.62Restricted
                  stock vested
              
              
              (40,000
              )
              
              $
              1.91Restricted
                  stock forfeited
              
              
              (91,898
              )
              
              $
              1.91**Outstanding
                  at September 30, 2007**
              
              
              278,105
              
              
              $
              1.48





Performance-based
      nonvested share awards are recognized as compensation expense over the expected
      vesting period based on the fair value at the date of grant and the number
      of
      shares ultimately expected to vest.  The shares of restricted stock
      outstanding at September 30, 2007 will only vest if certain performance
      milestones are achieved, which the Company believes is probable.





Of
      the
      shares of restricted stock outstanding at September 30, 2007, 40,484 shares
      will
      vest in accordance with the terms of the restricted stock award upon the closing
      of the sale of the Genomics Assets.





As
      of
      September 30, 2007, $867 of total unrecognized compensation cost related to
      stock option and restricted stock awards is expected to be recognized over
      a
      weighted-average period of 1.7 years.  This estimate does not include
      the impact of other possible stock-based awards that may be made during future
      periods.





**Note
      4 — Discontinued operation**





As
      previously discussed in Note 1, in 2006 the Company changed its strategic focus
      and sold its Preclinical Divison for a sale price consisting of (A) $13,500
      paid
      at closing less transaction costs of $1,383 and (B) $1,500 held in escrow for
      12
      months to satisfy potential indemnification obligations under the
      agreement.  In addition, payment and performance under two leases held
      by Gene Logic Laboratories, Inc. continue to be guaranteed by the Company,
      pending the consent of each landlord to and the completion of the assignment
      and
      assumption of those guarantees by Bridge.  If the guarantees are not
      assumed by Bridge, Bridge will indemnify the Company with respect to any claims
      against such guarantees.


9.




As
        a result of the Company’s sale of its
        Preclinical Division on December 15, 2006, the operations of the Preclinical
        Division have been classified as a discontinued operation. Summarized operating
        results from the discontinued operation included in the Company’s Consolidated
        Condensed Statements of Operations for the three and nine months ended September
        30, 2006 are as follows:




**Three
                  Months Ended**
              
              
              **Nine
                  Months Ended****September
                  30,**
              
              
              **September
                  30,****2006
                  (1)**
              
              
              **2006
                  (1)**Revenue
                  from discontinued operation
              
              $
              8,075
              
              
              $
              18,708Loss
                  from discontinued operation
              
              $
              (11,811
              )
              
              $
              (17,307
              )(1)
                  Includes $11,000 impairment charge during the three and nine months
                  ended
                  September 30, 2006.





**Note
      5 — Restructuring expenses**





During
      2006, the Company initiated a restructuring of its Genomics Division, which
      it
      has substantially completed. The Genomics Division restructuring included the
      termination of 70 employees (none of whom were still employed by the Company
      as
      of December 31, 2006), the acceleration of future costs for certain laboratory
      and office facilities that were no longer needed and the impairment of certain
      intangible assets which the Company determined would no longer be utilized
      by
      the Genomics Division.  The major components of the Genomics Division
      restructuring liability as of September 30, 2007 and activity since January
      1,
      2007 are comprised of:





**Accrual**
                **Balance
                  as of**
                **December
                  31,**
                **2006**
              
              
              **2007
                  Charges**
                **Utilized**
              
              
              **Accrual**
                **Balance
                  as of**
                **September
                  30,**
                **2007**Severance
                  and related benefits
              
              $
              122
              
              
              $
              (122
              )
              
              $
              -Lease
                  obligations
              
              
              1,819
              
              
              
              (1,510
              )
              
              
              309Total
              
              $
              1,941
              
              
              $
              (1,632
              )
              
              $
              309





**Note
      6 — Segment information**





In
      2006,
      the Company managed its business as three business segments: Genomics Division,
      Preclinical Division and Drug Repositioning and Development
      Division.  On December 15, 2006, the Company sold its Preclinical
      Division, which for 2006 has been classified as a discontinued operation (see
      Note 4).





The
      following table presents revenue and operating loss for the Genomics Division
      and Drug Repositioning and Development Division segments, which comprise the
      Company’s continuing operations for the indicated periods.  Management
      uses these measures to evaluate segment performance.  To arrive at
      operating income (loss) for each segment, management has included all direct
      costs for providing the segment’s services and an allocation for corporate
      overhead on a consistent and reasonable basis.  Management has
      excluded interest (income) expense, other (income) expense and
      write-downs.  Operating income (loss) could also exclude certain
      unusual or corporate-related costs in the future.





The
      following table sets forth information on reportable segments for the indicated
      periods:





**Three
                  Months Ended**
              
              
              **Nine
                  Months Ended****September
                  30,**
              
              
              **September
                  30,****2007**
              
              
              **2006**
              
              
              **2007**
              
              
              **2006****Genomics
                  Services**Revenue
              
              $
              3,684
              
              
              $
              3,698
              
              
              $
              12,356
              
              
              $
              17,129Operating
                  loss
              
              
              (4,850
              )
              
              
              (11,832
              )
              
              
              (14,781
              )
              
              
              (23,042
              )Depreciation
                  and amortization expense
              
              
              1,876
              
              
              
              2,304
              
              
              
              6,118
              
              
              
              7,333**Drug
                  Repositioning and Development Services**Revenue
              
              $
              841
              
              
              $
              6
              
              
              $
              879
              
              
              $
              36Operating
                  loss
              
              
              (3,487
              )
              
              
              (3,711
              )
              
              
              (12,652
              )
              
              
              (11,241
              )Depreciation
                  and amortization expense
              
              
              278
              
              
              
              248
              
              
              
              823
              
              
              
              799




10.


A
      reconciliation of segment operating loss to loss from continuing operations
      for
      the indicated periods is as follows:




**Three
                  Months Ended**
              
              
              **Nine
                  Months Ended****September
                  30,**
              
              
              **September
                  30,****2007**
              
              
              **2006**
              
              
              **2007**
              
              
              **2006****Segment
                  Operating Loss**Genomics
                  services
              
              $
              (4,850
              )
              
              $
              (11,832
              )
              
              $
              (14,781
              )
              
              $
              (23,042
              )Drug
                  repositioning and development services
              
              
              (3,487
              )
              
              
              (3,711
              )
              
              
              (12,652
              )
              
              
              (11,241
              )(8,337
              )
              
              
              (15,543
              )
              
              
              (27,433
              )
              
              
              (34,283
              )Interest
                  (income), net
              
              
              (463
              )
              
              
              (633
              )
              
              
              (1,594
              )
              
              
              (2,162
              )Other
                  (income) expense
              
              
              32
              
              
              
              (66
              )
              
              
              46
              
              
              
              35Write-down
                  of equity investment
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              275Loss
                  from continuing operations
              
              $
              (7,906
              )
              
              $
              (14,844
              )
              
              $
              (25,885
              )
              
              $
              (32,431
              )


During
      the
      three months ended September 30, 2007, four customers accounted for 58% of
      the
      Company’s revenue (Customer A-17%, Customer B-15%, Customer C-14% and Customer
      D-12%).  During the nine months ended September 30, 2007, three
      customers each accounted for 52% of the Company’s revenue (Customer C-22%,
      Customer B-16% and Customer D-14%).  During the three months ended
      September 30, 2006, three customers accounted for 56% of the Company’s revenue
      (Customer E-20%, Customer B-20% and Customer D-16%).  During the nine
      months ended September 30, 2006, four customers each accounted for 50% of the
      Company’s revenue (Customer F-14%, Customer E-13%, Customer B-13% and Customer
      D-10%).  Customer A is a Drug Repositioning and Development Division
      customer while Customers B, C, D, E and F are Genomics Division
      customers.





The
      following table sets forth information on the composition of the Company’s total
      revenue from continuing operations by geographic region:




**Geographic
                  Region****North**
                **America**
              
              
              **Europe**
              
              
              **Pacific**
                **Rim**For
                  the three months ended:September
                  30, 2007
              
              
              46%
              
              
              
              39%
              
              
              
              15%September
                  30, 2006
              
              
              35%
              
              
              
              24%
              
              
              
              41%For
                  the nine months ended:September
                  30, 2007
              
              
              56%
              
              
              
              26%
              
              
              
              18%September
                  30, 2006
              
              
              49%
              
              
              
              22%
              
              
              
              29%




11.


**Item
      2. Management’s
      Discussion and Analysis of Results of Operations and Financial
      Condition**





*This
      Quarterly Report on Form 10-Q (“Form 10-Q”) contains forward-looking statements
      regarding future events and the future results of Gene Logic Inc. (“Gene Logic”)
      that are based on current expectations, estimates, forecasts and projections
      about the industries in which Gene Logic operates and the beliefs and
      assumptions of the management of Gene Logic. Words such as “expects,”
“anticipates,” “targets,” “goals,” “projects,” “intends,” “plans,” “believes,”
“seeks,” “estimates,” variations of such words, and similar expressions are
      intended to identify such forward-looking statements.  These
      forward-looking statements are only predictions and are subject to risks,
      uncertainties and assumptions.  Therefore, actual results may differ
      materially and adversely from those expressed in any forward-looking statements.
      Factors that might cause or contribute to such differences include those
      discussed in the Company’s Annual Report on Form 10-K for the year ended
      December 31, 2006 under the section entitled “Risk Factors” and in our
      subsequent filings with the Securities and Exchange Commission.  Gene
      Logic undertakes no obligation to revise or update publicly any forward-looking
      statements to reflect any change in management’s expectations with regard
      thereto or any change in events, conditions, or circumstances on which any
      such
      statements are based.*





Unless
      the
      context otherwise requires, references in this Form 10-Q to “Gene Logic,” “Gene
      Logic Laboratories Inc.,” “Gene Logic Ltd.,” “Gene Logic K.K.,” the “Company,”
“we,” “us,” and “our” refer to Gene Logic Inc. and its wholly owned
      subsidiaries. Gene Logic®, BioExpress® and ToxExpress® are registered trademarks
      of Gene Logic.





**OVERVIEW**





We
      currently conduct our operations through two business segments (we have entered
      into an agreement to sell our Genomics Assets as discussed further
      below):





·
            **Drug
                Repositioning and Development Division:**We obtain drug compounds
                from our pharmaceutical company partners or from other sources that
                have
                already been assessed as safe in human clinical trials, but have
                been
                discontinued by their sponsors for reasons other than
                safety.  We apply our proprietary integrative pharmacology
                program, consisting of biological screening technologies, genomics
                databases and bioinformatics software, to determine new potential
                therapeutic indications for these clinical stage compounds to enable
                our
                partners to return such compounds to clinical
                development.  Under our partnership agreements, we expect to
                share in our partners’ successful development and commercialization of
                these repositioned drug compounds through both milestone payments
                during
                development and royalties from sales.  In most cases, if our
                partner decides not to re-enter a drug candidate into its own development
                pipeline, we are entitled to obtain the development rights to the
                compound.  Using compounds that we obtain either through our
                partner's decision to not pursue further development or from other
                sources, we also expect to use our integrative pharmacology program
                to
                reposition and possibly further develop compounds for our own account
                and
                to establish out-licensing arrangements to complete development and
                commercialization of these
                compounds.





·
            **Genomics
                Division:** Since 1996, we have been primarily devoted to
                developing and commercializing proprietary genomic and toxicogenomic
                databases, toxicogenomic services, software tools and data generation
                and
                analysis and other related services.  The Genomics services we
                provide enable customers worldwide to discover and prioritize drug
                targets, identify biomarkers, predict toxicity and understand mechanisms
                of toxicity and action of specific compounds.  In October 2007,
                we signed an agreement to sell certain assets (“Genomics Assets”) related
                to the business of our Genomics Division, subject to approval by
                the
                Company’s stockholders; however, we will retain those assets (“Molecular
                Diagnostic Assets”) of the Genomics Division related to molecular
                diagnostics and continue to explore strategic alternatives for these
                assets.





In
      2004,
      Gene Logic created a pharmaceutical development division (known as our Drug
      Repositioning and Development Division) within the Company to identify and
      develop new or expanded uses for small molecule therapeutics.  Based
      on advances in our Drug Repositioning and Development Division and changes
      in
      our Genomics business, and after concluding a comprehensive review of our
      strategy, we have decided to focus our resources on becoming a pharmaceutical
      development company.  We are now building a pipeline of potential drug
      candidates by applying our proprietary integrative pharmacology program to
      find
      new and expanded uses for such drug candidates.





In
      2005
      and 2006, we entered into drug development partnerships with Pfizer, Inc.,
      F.
      Hoffmann-La Roche Ltd, Eli Lilly and Company and NV Organon.  In 2007,
      we entered into new drug development partnerships with Abbott Laboratories,
      H.
      Lundbeck A/S, Merck Serono and Solvay Pharmaceuticals B.V.  Based upon
      our experience to date in evaluating more than 100 compounds, we have succeeded
      in determining new hypotheses at the rate of approximately one hypothesis for
      every three compounds evaluated.  Several of these compounds are
      currently in the process of animal model validation.  We anticipate
      that some of these compounds may re-enter development at some point in 2008,
      either under the sponsorship of our partner or under our own
      sponsorship.





In
      2006,
      in response to an unexpected decline in demand for database subscriptions,
      we
      reduced the staff and operational costs of our Genomics
      Division.  Following consideration of various strategic alternatives
      for our Genomics Division, we signed an agreement in October 2007 to sell our
      Genomics Assets to Ocimum Biosolutions Inc., Ocimum Biosolutions, LTD or its
      affiliate (collectively “Ocimum”) for $10 million ($7 million in cash and a $3
      million promissory note due 18 months from the date of closing) and the
      assumption, by Ocimum, of certain liabilities and ongoing contractual
      obligations.  We have incurred costs to sell our Genomics Assets
      through September 30, 2007 in the amount of $1.0 million and we anticipate
      we
      will incur additional costs of approximately $0.4 million in connection with
      the
      sale.  Under the terms of the agreement, we will retain the exclusive,
      perpetual right to use our genomics databases for drug repositioning and
      development on behalf of our pharmaceutical company partners and in our own
      drug
      development programs.  We also retain the Molecular Diagnostics Assets
      and continue to explore strategic alternatives for these assets.




12.




As
      a
      result of the sale of our Genomics Assets, we expect to record a loss of
      approximately $3.5 million, excluding previously recorded selling costs,
      reflecting the sale price, including estimates for the assumption of certain
      liabilities and ongoing contractual obligations by Ocimum, less the carrying
      value of the assets and selling costs as of closing.  The loss is
      expected to be recorded in the fourth quarter of 2007.  We will
      continue to evaluate the sale price, carrying value of the assets and certain
      liabilities and estimated selling costs.  Any subsequent change to
      these values could result in a change to the expected loss.  The value
      of our Molecular Diagnostics Assets is not included in the determination of
      the
      loss from the sale of our Genomics Assets.  The sale of our Genomics
      Assets to Ocimum is subject to certain conditions, including the approval by
      the
      Company’s stockholders and the absence of certain material adverse changes in
      the Company.  In addition, the agreement with Ocimum may be terminated
      under certain conditions, including by us in the event of a superior
      offer.  There is no assurance that the sale to Ocimum will be
      consummated.  We are also seeking stockholder approval for a sale of
      the assets of the Genomics Division in the event that the agreement with Ocimum
      is terminated.





In
      2006,
      we sold Gene Logic Laboratories Inc. to Bridge Pharmaceuticals, Inc. (“Bridge”)
      for (A) $13.5 million paid at closing less transaction costs of $1.4 million
      and
      (B) $1.5 million held in escrow for 12 months to satisfy potential
      indemnification obligations under the agreement.  In addition, payment
      and performance under two leases held by Gene Logic Laboratories, Inc. continue
      to be guaranteed by us, pending the consent of each landlord to and the
      completion of the assignment and assumption of those guarantees by
      Bridge.  If the guarantees are not assumed by Bridge, Bridge will
      indemnify us with respect to any claims against such guarantees.





Currently,
      the majority of our revenue comes from our Genomics
      Division.  Historically, we have derived a majority of our Genomics
      Division revenue from licenses to our databases in the form of multi-year
      subscriptions and annual subscriptions to our smaller databases or a subset
      of
      our larger databases.  We have also granted perpetual licenses to our
      data and/or software tools.  We also generate revenue from providing
      other services, including microarray data generation and analysis services,
      various toxicogenomics reports and other related services.  Fees for
      subscriptions to our databases are payable ratably over the life of the
      agreement for multi-year agreements and ratably or up-front for shorter-term
      agreements.  In the case of perpetual licenses and data generation and
      analysis and other services, fees are payable upon delivery of the data,
      software or service.  Generally, our Genomics Division contracts may
      be terminated in the event of breach by either party that is not cured within
      the applicable cure period.





Our
      drug
      repositioning and development agreements vary somewhat as to specific terms,
      but
      generally consist of the following:





·
            We
                agree with a partner on a group of drug candidates to be
                evaluated.  Our partner provides samples of the candidate and,
                at our expense, we analyze each candidate using our integrative
                pharmacology program;


·
            As
                to drug candidates for which we have identified new uses and that
                our
                partners take back into development, we are entitled to receive
                success-based payments when certain milestones are
                achieved.  The totals range from $60-100+ million per compound
                and in most cases include the following individual
                milestones:


o
            Notice
                of re-initiation of development,


o
            Filing
                of an Investigational New Drug (“IND”) with the
                FDA,


o
            Establishment
                of proof of concept in a Phase II clinical
                trial,


o
            Commencement
                of a Phase III clinical trial, and


o
            Receipt
                of market approval in the United States, in Europe, or in Japan;
                and


·
            As
                to drug candidates returned by our partners to commercial development,
                we
                are entitled to receive royalty payments, as a percentage of sales,
                that
                range from single- to low double-digits and are generally tiered
                according
                to sales volume.





Our
      agreement with NV Organon involves co-ownership and co-development of
      repositioned drug candidates, and it therefore differs substantially from our
      other agreements.





In
      most
      cases, if our partner decides not to take the drug candidate back into
      development, we have development rights that, if we elect to exercise them,
      would entitle our partner to receive milestone payments and royalties on
      sales.  We may choose to license such candidates to a third party for
      development, or we may invest in further development to increase a particular
      candidate’s value prior to out-licensing.





We
      acquired our first proprietary drug candidate, GL1001, from
      Millennium.  Through the application of our integrative pharmacology
      program, we have determined a new therapeutic hypothesis, inflammatory bowel
      disease, for this compound.  This is not the indication for which this
      compound was originally intended.  Using an *in vivo* model, we
      have now validated our hypothesis to treat inflammatory bowel
      disease.  We are continuing to invest in further development of this
      compound as we seek to secure a partner to facilitate its advanced stages of
      development.





We
      may
      also obtain drug candidates from third parties, such as those we obtain from
      our
      partners.  In this repositioning scenario, we may choose either to
      out-license without further development, or we may invest in further development
      prior to out-licensing.





13.




From
      time
      to time, we may license certain of our non-core technologies to third parties,
      as most recently evidenced by our licensing of certain technology rights to
      Lundbeck.





We
      have
      incurred net losses in each year since our inception, including losses of $54.7
      million in 2006, $48.3 million in 2005 and $28.5 million in 2004.  At
      September 30, 2007, we had an accumulated deficit of $341.6
      million.  Our losses have resulted principally from costs incurred in
      the development, marketing and sale of services from our Genomics and
      Preclinical Divisions, development of the Drug Repositioning and Development
      Division, the impairment of our Preclinical Division goodwill and acquisitions
      of research and development.  These costs have exceeded our revenue
      and we expect to incur additional losses in the future.





**RESULTS
      OF CONTINUING OPERATIONS**





*Three
      Months Ended September 30, 2007 and 2006*





**Revenue.**
      We derive most of our revenue from our Genomics Division
      services.  Revenue increased $0.8 million, or 22%, to $4.5 million for
      the three months ended September 30, 2007 from $3.7 million for the same period
      in 2006.  This increase was largely due to the revenue recorded by the
      Drug Repositioning and Development Division as a result of an agreement signed
      at the end of the second quarter of 2007 with Lundbeck for licensing of certain
      technology rights unrelated to its drug repositioning partnership. During three
      months ended September 30, 2007, four customers accounted for 58% of our total
      revenue.  During the three months ended September 30, 2006, three
      customers accounted for 56% of our total revenue.





Compared
      to the same period in 2006, we expect revenue for the fourth quarter of 2007
      to
      decrease significantly due in part to customer uncertainty concerning our
      decision to sell our Genomics Assets.





**Database
      Production Expense.** Database production expenses, which consist
      primarily of costs to provide microarray data generation and analysis services
      and costs related to the acquisition and processing of tissues and overhead
      expenses needed to generate the content for the BioExpress and ToxExpress System
      databases, decreased to $5.1 million for the three months ended September 30,
      2007 from $6.0 million for the same period in 2006.  The decrease
      reflects the favorable impact of the restructuring of the Genomics Division
      with
      reductions in employee and facilities costs of $0.9 million and a decrease
      of
      $0.4 million in depreciation and amortization expense, partially offset by
      an
      increase in amounts spent on adding new Genomics database content of $0.6
      million.  For the remainder of 2007, we expect database production
      expenses to continue to decrease primarily due to lower employee and facility
      costs as a result of the Genomics Division restructuring.





**Research
      and Development Expense.**Research and development expenses, which
      consist primarily of costs associated with the evaluation of customer-supplied
      drug candidates and, to a lesser degree, further development of our proprietary
      drug candidate, GL1001**,**increased slightly to $2.7 million for
      the three months ended September 30, 2007 from $2.6 million for the same period
      in 2006.  The increase primarily reflects increased expenses
      associated with *in vivo* efficacy models to evaluate suitability of
      certain drug candidates for re-entering clinical trials for their proposed
      indications and further development of GL1001, partially offset by $0.5 million
      in lower spending due to the virtual elimination of research and development
      related to the Genomics Division.  For the remainder of 2007, we
      expect research and development expenses to increase modestly, as we continue
      to
      evaluate drug candidates supplied by our drug discovery partners and we will
      incur additional expenses because of our decision to pursue further development
      of GL1001.





**Selling,
      General and Administrative Expense.**Selling, general and administrative
      expenses, which consist primarily of sales, marketing, accounting, legal, human
      resources and other general corporate expenses, decreased to $5.0 million for
      three months ended September 30, 2007 from $5.2 million for the same period
      in
      2006. ****The decrease is largely due to a reduction of $0.8
      million in employee costs for our Genomics Division and Corporate staff plus
      other cost savings, partially offset by increased expenses in 2007 of $0.5
      million in costs associated with the sale of our Genomics Assets and $0.4
      million in employee retention benefits meant to stabilize our workforce during
      this time of transition.****For 2007, we expect selling,
      general and administrative expenses to remain at the same level as in
      2006.





**Net
      Interest Income.**Net interest income decreased slightly to $0.5 million
      for the three months ended September 30, 2007 from $0.6 million for 2006, due
      to
      a decrease in the balance of our cash and cash equivalents and marketable
      securities available-for-sale, partially offset by increases in our rates of
      return on investments.





*Nine
      Months Ended September 30, 2007 and 2006*





**Revenue.**We derive most of our revenue from our Genomics Division
      services.  Revenue decreased $3.9 million, or 23%, to $13.2 million
      for the nine months ended September 30, 2007 from $17.2 million for the same
      period in 2006.  The revenue decrease was caused primarily by our
      customers’ having shifted their emphasis from research on early stage drug
      development, for which many of our Genomics Division services are targeted,
      into
      later-stage development and validation efforts.  The 2007 results
      reflect the absence of $5.7 million in subscription fees from expired
      agreements, partially offset from $0.8 million in revenue for the Drug
      Repositioning and Development Division agreement with Lundbeck for licensing
      of
      certain technology rights unrelated to its drug repositioning partnership and
      $0.7 million in fees for subscriptions from new and expanded arrangements with
      our customers. During the nine months ended September 30, 2007, three customers
      accounted for 52% of our total revenue.  During the nine months ended
      September 30, 2006, four customers accounted for 50% of our total
      revenue.




14.


**Database
      Production Expense.**Database production expenses, which consist
      primarily of costs to provide microarray data generation and analysis services
      and costs related to the acquisition and processing of tissues and overhead
      expenses needed to generate the content for the BioExpress and ToxExpress System
      databases, decreased to $15.8 million for the nine months ended September 30,
      2007 from $21.5 million for the same period in 2006.  The decrease
      reflects the favorable impact of the restructuring of the Genomics Division
      with
      reductions in employee and facilities costs of $3.4 million and a decrease
      of
      $1.0****million in depreciation and amortization
      expense.





**Research
      and Development Expense.**Research and development expenses, which
      consist primarily of costs associated with the evaluation of customer-supplied
      drug candidates and, to a lesser degree, further development of our proprietary
      drug candidate, GL1001, increased slightly to $7.9 million for the nine months
      ended September 30, 2007 from $7.6 million for the same period in
      2006.  The increase primarily reflects increased expenses associated
      with *in vivo* efficacy models to evaluate suitability of certain drug
      candidates for re-entering clinical trials for their proposed indications and
      further development of GL1001, partially offset by $1.4 million in lower
      spending due to the virtual elimination of research and development related
      to
      the Genomics Division.





**Selling,
      General and Administrative Expense.** Selling, general and administrative
      expenses, which consist primarily of sales, marketing, accounting, legal, human
      resources and other general corporate expenses, remained flat at $17.0 million
      for nine months ended September 30, 2007 and 2006.  The increase in
      expenses of $1.4 million in employee retention benefits meant to stabilize
      our
      workforce during this time of transition, $1.0 million in costs associated
      with
      the Genomics sales process and $0.9 million in executive severance and retention
      benefits were offset by****a reduction of $2.5 million in
      employee costs for our Genomics Division and Corporate staff plus other costs
      savings.





**Net
      Interest Income.**Net interest income decreased to $1.6 million for the
      nine months ended September 30, 2007 from $2.2 million for 2006, due to a
      decrease in the balance of our cash and cash equivalents and marketable
      securities available-for-sale, partially offset by increases in our rates of
      return on investments.





**Write-down
      of Equity Investment.** For the nine months ended September 30, 2006, in
      connection with our investment in Xceed Molecular (“Xceed”, formerly MetriGenix
      Corporation) we recorded a $0.3 million write-down of a warrant which was
      terminated.  At September 30, 2007, the book value of our investment
      in Xceed was $3.0 million.





**LIQUIDITY
      AND CAPITAL RESOURCES**





From
      inception through September 30, 2007, we have financed our operations and
      acquisitions through the issuance and sale of equity securities and payments
      from customers.  As of September 30, 2007, we had approximately $31.6
      million in cash, cash equivalents and marketable securities available-for-sale,
      compared to $50.1 million as of December 31, 2006.





Net
      cash
      from operating activities from continuing operations was negative $15.0 million
      for the nine months ended September 30, 2007 compared to negative
**$**29.3 million for the same period in 2006, primarily due to
      the
      timing of customer payments and payments in 2006 to Millennium and under our
      compensation and retention plans.  We presently anticipate that our
      use of cash in the fourth quarter of 2007 will be lower than the third quarter
      of 2007.





During
      the
      nine months ended September 30, 2007 and 2006, our investing activities
      consisted primarily of purchases, sales and maturities of available-for-sale
      securities, capital expenditures and payments related to the sale of our
      Preclinical Division.  Capital expenditures for the nine months ended
      September 30, 2007 and 2006 were $0.5 million and $1.8 million,
      respectively.  The decrease in capital expenditures was primarily due
      to the absence of 2006 equipment purchases used to expand our microarray data
      generation and analysis capacity and capabilities.**** For
      the remainder of 2007, we expect the level of capital expenditures to be less
      than $0.5 million.





On
      December 15, 2006, we announced the closing of the sale of our Preclinical
      Division to Bridge for a sale price consisting of (A) $13.5 million paid at
      closing less transaction costs of $1.4 million and (B) $1.5 million held in
      escrow for 12 months to satisfy potential indemnification obligations under
      the
      agreement.  In January 2007, we repaid $1.2 million to Bridge in
      conjunction with the final reconciliation of cash balances associated with
      the
      sale of our Preclinical Division.  In July 2007, we paid $0.7 million
      to Bridge for the final adjustment to the sale price.





In
      October
      2007, we signed an agreement to sell our Genomics Assets to Ocimum for $10
      million ($7 million in cash and a $3 million promissory note due 18 months
      from
      the date of closing) and the assumption, by Ocimum, of certain liabilities
      and
      ongoing contractual obligations.  The sale price is subject to
      adjustment based on certain potential revisions to the carrying value of assets
      and liabilities at the date of closing.  Consummation of the sale is
      subject to the approval by the Company’s stockholders.  In connection
      with the sale of our Genomics Assets, we expect to pay accrued employee
      retention benefits of approximately $1.6 million****meant to
      stabilize the Genomics Division employees during this transition and $1.1
      million in associated transaction costs that are either accrued to date, but
      not
      yet paid or anticipated through closing.





15.




Specific
      future financial commitments from continuing operations as of September 30,
      2007
      are set forth in the following table:





**Within****Total**
              
              
              **3
                  Months**
              
              
              **2008
                  & 2009**
              
              
              **2010
                  & 2011**
              
              
              **Beyond
                  2011**Long-term
                  debt
              
              $
              544
              
              
              $
              463
              
              
              $
              81
              
              
              $
              -
              
              
              $
              -Operating
                  leases
              
              
              4,982
              
              
              
              465
              
              
              
              2,804
              
              
              
              1,428
              
              
              
              285Total
              
              $
              5,526
              
              
              $
              928
              
              
              $
              2,885
              
              
              $
              1,428
              
              
              $
              285


We
      believe
      that existing cash, cash equivalents and marketable securities
      available-for-sale, anticipated payments from customers and net proceeds from
      the proposed sale of the Genomics Assets 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 “Risk Factors” in our
      Annual Report on Form 10-K for the year ended December 31, 2006 and in our
      subsequent filings with the Securities and Exchange Commission.





**CRITICAL
      ACCOUNTING POLICIES**





Our
      consolidated condensed financial statements are prepared in accordance with
      accounting principles generally accepted in the United States, which require
      management to make estimates and assumptions that affect the reported amounts
      of
      assets and liabilities at the date of the financial statements and the reported
      amounts of revenue and expenses during the reporting period.  Actual
      results could differ from these estimates.  The following discussion
      highlights what we believe to be the critical accounting policies and judgments
      made in the preparation of these consolidated condensed financial
      statements.





***REVENUE
      RECOGNITION***





Revenue
      is
      recognized in accordance with the SEC’s Staff Accounting Bulletin No. 104,
“Revenue Recognition” (“SAB 104”).  SAB 104 requires that four basic
      criteria be met before revenue can be recognized: 1) persuasive evidence of
      an
      arrangement exists; 2) delivery has occurred or services rendered; 3) the fee
      is
      fixed and determinable; and 4) collectability is reasonably
      assured.  As to 1), our business practices require that our services
      be performed pursuant to contracts with our customers.  As to 2), we
      recognize revenue when services are rendered to our
      customers.  Determination of 3) and 4) are based on management’s
      judgments regarding the fixed nature of our arrangements, taking into account
      termination provisions and the collectability of fees under our
      arrangements.  Should changes in conditions cause management to
      determine these criteria are not met for certain future arrangements, revenue
      recognized for any reporting period would be adjusted and could be adversely
      affected.





In
      accordance with Emerging Issues Task Force Issue No. 00-21, “Revenue
      Arrangements with Multiple Deliverables”, revenue recognized for any
      multiple-element contract is allocated to each element of the arrangement based
      on the relative fair value of the element.  The determination of fair
      value of each element is based on our analysis of objective evidence from
      comparable internal or third-parties’ sales of the individual
      element.  If we are unable to determine evidence of fair value for any
      undelivered element of the arrangement, revenue for the arrangement is deferred
      and recognized using the revenue recognition method appropriate to the
      predominant undelivered element.





**Genomics
      Services Revenue.** The majority of Genomics services revenue consists of
      fees earned under subscription agreements and perpetual licenses for all or
      parts of our gene expression databases, the BioExpress System and ToxExpress
      System, and software tools.  In addition, we derive a smaller but
      growing percentage of revenue from providing other services, including
      microarray data generation and analysis services, various toxicogenomics reports
      and other related services.  Revenue from subscription agreements is
      recognized ratably over the period during which the customer has access to
      the
      database.  Certain subscription agreements have included a right of
      early termination (which, in some instances, is subject to conditions) by the
      customer, without penalty, on a specified date prior to the normal expiration
      of
      the term.  If any agreement has a right of early termination, revenue
      is recognized ratably over the subscription term up to the possible date of
      early termination, based on subscription fees earned under the agreement through
      the possible date of early termination.  If such early termination
      does not occur, the balance of the subscription fees earned under the agreement
      is recognized as revenue ratably over the remaining term of the
      agreement.  Revenue from perpetual licenses to data and software for
      which the Company is not obligated to provide continuing support or services
      is
      recognized when the data and/or software has been delivered.  Revenue
      from perpetual licenses for which the Company is obligated to provide continuing
      support or services is recognized during the period such support or services
      are
      performed.  Revenue from other services, including our data generation
      and analysis services, is recognized when the services are
      performed.  Our agreements generally provide for termination in the
      event of a breach of the agreement by either party or a bankruptcy or insolvency
      of either party.





Periodically,
      we enter into contractual arrangements with multiple deliverables.  If
      we are unable to determine objectively and reliably the fair value of individual
      undelivered elements, we recognize all revenue using the revenue recognition
      method appropriate to the predominant undelivered element.  We also
      defer the direct and incremental expenses associated with the delivery of
      services for which revenue has been deferred and recognize these expenses as
      we
      recognize the related revenue.  The timing of revenue recognition
      associated with agreements we enter into in future periods may also be dependent
      on our ability to objectively and reliably determine the fair value of
      deliverables included in those agreements.




16.


***GOODWILL
      AND OTHER INTANGIBLE ASSSETS IMPAIRMENT***





We’ve
      previously recorded value for goodwill and other intangible assets, including
      licenses to technologies or data, patent costs and software development and
      database upgrade costs.  The determination of whether or not these
      other intangible assets are impaired involves significant judgment, including
      the following: (i) our licenses and internally developed intellectual property
      may not provide valid and economical competitive advantage or may become
      obsolete; and (ii) services may become obsolete before we recover the costs
      incurred in connection with their development.





Under
      Statement of Financial Accounting Standards No. 142, “Goodwill and Other
      Intangible Assets”, we are required to perform an annual impairment test of our
      goodwill and periodic reviews of our other intangible assets.  In
      addition, we are required to test for impairment at any point we have an
      indication that impairment may exist.  We have elected to perform our
      annual impairment test of goodwill as of October 1.  The goodwill
      impairment test that we have historically selected consisted of a ten-year
      discounted cash flow analysis, including the determination of a terminal value,
      and required management to make various judgments and assumptions, including
      revenue growth rates and discount rates, which management believed to be
      reasonable.





As
      part of
      our annual testing of goodwill in 2006, we determined that no impairment existed
      in the carrying value of goodwill of our Genomics Division.  However,
      due to the restructuring of our Genomics Division, we recorded impairment
      charges of $1.3 million in the third quarter of 2006 for certain intangible
      assets which we determined would no longer be utilized by our Genomics
      Division.





Our
      assessment of the fair value of our divisions is dependent on subjective
      estimates we make of inherently uncertain future net cash flows, including
      estimates of terminal values, estimates of fair value obtained in a formal
      sales
      process or in the recent case of the Genomics Division, the sale price under
      an
      agreement to sell such assets.  Accordingly, our estimates of future
      net cash flows may change as market conditions and circumstances
      dictate.  In connection with the sale of our Genomics Assets, we
      expect a majority of the carrying value of our goodwill as of September 30,
      2007
      will be allocated to the disposition of such assets.  Future
      impairment tests of goodwill and other intangibles may result in additional
      impairment charges based on changing estimates.





***ACCOUNTS
      RECEIVABLE AND UNBILLED SERVICES***





Our
      ability to collect outstanding receivables and unbilled services from our
      customers is critical to our operating performance and cash
      flows.  Typically, arrangements with our customers require that the
      payments for our services be made in advance, based upon the achievement of
      milestones or in accordance with predetermined payment schedules.  We
      have an allowance for doubtful accounts based on our estimate of accounts
      receivable that are at risk of collection.  If the financial condition
      of our customers were to deteriorate, resulting in an impairment of their
      ability to make payments, an increase in the allowance for doubtful accounts
      may
      be required.





***INVENTORY***





We
      maintain an inventory of microarrays and reagents used to generate genomic
      data
      for our databases and for services in our Genomics Division.  This
      inventory is valued at the lower of cost or market.  Certain items in
      inventory may be considered impaired, obsolete, or excessive and as such, we
      may
      establish an allowance to reduce the carrying value of these items to their
      net
      realizable value.  Based on certain estimates, assumptions and
      judgments made from information available at the time, we determine the
      appropriate amount of any such inventory allowance.  If these
      estimates or assumptions, or the market for the use of our microarrays and
      reagents change, we may be required to record additional reserves.





***EQUITY
      INVESTMENTS***





We
      hold an
      equity investment in one company (Xceed Molecular, formerly MetriGenix
      Corporation) with a remaining book value of $3.0 million as of September 30,
      2007.  We record an investment impairment charge when it is believed
      that an investment has experienced a decline in value that is
      other-than-temporary.  Future adverse changes in market conditions or
      poor operating results of the underlying investee could result in our inability
      to recover the carrying value of this investment that may not be reflected
      in
      such an investment’s current carrying value, thereby possibly requiring an
      impairment charge in the future.





***STOCK-BASED
      COMPENSATION***





In
      the
      first quarter of 2006, we adopted Statement of Financial Accounting Standards
      No. 123 (revised 2004), “Share-Based Payment” (“SFAS 123R”).  SFAS
      123R requires us to expense the fair value of stock-based compensation awards
      of
      our various stock-based compensation programs over the requisite service period
      of the award.  We estimate the fair value of our stock-based
      compensation using fair value pricing models which require the use of
      significant assumptions for expected volatility of our common stock, life of
      stock options and forfeiture rates.  Future adverse changes in such
      assumptions could result in us recording increased stock-based compensation
      expenses for stock-based compensation awards granted/issued in the
      future.




17.




**RECENTLY
      ISSUED ACCOUNTING PRONOUNCEMENTS**





In
      September 2006, the Financial Accounting Standards Board (“FASB”) issued
      Statement of Financial Accounting Standards No. 157, “Fair Value Measurements”
(“SFAS 157”).  SFAS 157 defines fair value, establishes a framework
      for measuring fair value under generally accepted accounting principles and
      expands disclosures about fair value measurements.  SFAS 157
      emphasizes that fair value is a market-based measurement, not an entity-specific
      measurement, and states that a fair value measurement should be determined
      based
      on the assumptions that market participants would use in pricing the asset
      or
      liability.  This Statement applies under other accounting
      pronouncements that require or permit fair value measurements, for which the
      FASB previously concluded in such accounting pronouncements that fair value
      is
      the relevant measurement attribute.  Accordingly, this Statement does
      not require any new fair value measurements.  SFAS No. 157 is
      effective for fiscal years beginning after November 15, 2007, which we intend
      to
      adopt on January 1, 2008.  We are currently evaluating the impact, if
      any, that SFAS 157 will have on our financial position, results of operations
      and cash flows, but do not believe the effect will be material.





In
      June
      2006, the FASB issued Interpretation No. 48, “Accounting for Uncertainty in
      Income Taxes” (“FIN 48”).  FIN 48 clarifies the accounting for
      uncertainty in income taxes in an enterprise’s financial statements in
      accordance with SFAS No. 109, “Accounting for Income Taxes”.  FIN 48
      prescribes a minimum recognition threshold and measurement attribute for
      financial statement recognition and measurement of a tax position.  If
      a tax position does not meet the more-likely-than-not initial recognition
      threshold, the benefit would not be recorded in the financial
      statements.  We adopted FIN 48 on January 1, 2007; the adoption did
      not have a material effect on us.





If
      applicable, we would recognize interest and penalties related to income tax
      matters in income tax expense.  No interest and penalties were
      recognized in the Consolidated Condensed Statements of Operations for the three
      and nine months ended September 30, 2007 and the Consolidated Condensed Balance
      Sheet at September 30, 2007.  We and our subsidiaries file
      consolidated and separate income tax returns in the United States and in a
      number of state and foreign jurisdictions.  We are subject to tax
      examinations in our major tax jurisdictions for all years since
      inception.





**Item
      3.            Quantitative
      and Qualitative Disclosure about Market Risk**





We
      have
      exposure to financial market risks, including changes in interest
      rates.  At September 30, 2007, we had cash and cash equivalents of
      $22.6 million and marketable securities available-for-sale of an additional
      $8.9
      million.  We invest our excess cash primarily in money market funds,
      obligations of the United States Government and its agencies and marketable
      debt
      securities of companies with strong credit ratings.  These instruments
      have maturities of twenty-four months or less when purchased.  We do
      not utilize derivative financial instruments, derivative commodity instruments
      or other market risk sensitive instruments, positions or transactions in any
      material fashion.  Accordingly, we believe that, while the instruments
      we hold are subject to changes in the financial standing of the issuer of such
      securities, we are not subject to any material risks arising from changes in
      foreign currency exchange rates, commodity prices, equity prices or other market
      changes that affect market risk sensitive instruments.  Based on our
      cash and cash equivalents and marketable securities available-for-sale balances
      at September 30, 2007, a hypothetical 100 basis point adverse movement in
      interest rates would have resulted in an increase in the net loss from
      continuing operations of approximately $0.2 million for the nine months ended
      September 30, 2007.  Actual changes in rates may differ from the
      hypothetical assumptions used in computing this exposure.





Since
      the
      beginning of 2005 and as a result of changing our distribution arrangements
      in
      Japan, we have been subject to risk from changes in foreign exchange rates
      relating to revenue from our Japanese customers, as such agreements are now
      denominated in Japanese Yen.  Such changes could result in foreign
      currency exchange gains or losses.  As a policy, we convert our
      customer payments made in Japanese Yen to United States dollars upon receipt
      of
      such payment.  Revenue derived from the Pacific Rim as a percentage of
      total revenue was 18% for the nine months ended September 30, 2007 and was
      primarily derived from our customers in Japan.  Exchange rate
      fluctuations between the United States Dollar and Japan Yen could result in
      positive or negative fluctuations in the amounts relating to revenue reported
      in
      our consolidated condensed financial statements.  A hypothetical 10%
      adverse change in average foreign currency movements would have resulted in
      an
      increase in the net loss of $0.1 million for the nine months ended September
      30,
      2007.  There can be no assurance that losses related to this currency
      risk will not occur.




**Item
      4. Controls and
      Procedures**





**EVALUATION
      OF DISCLOSURE CONTROLS AND PROCEDURES**





As
      of
      September 30, 2007, under the supervision and with the participation of our
      management, including the Chief Executive Officer (“CEO”) and Chief Financial
      Officer (“CFO”), an evaluation was performed of the effectiveness of the design
      and operation of our “disclosure controls and procedures” (“Disclosure
      Controls”).  These are controls and procedures designed to reasonably
      assure that information required to be disclosed in our reports filed under
      the
      Exchange Act, such as this Form 10-Q, is recorded, processed, summarized and
      reported within the time periods specified in the rules and forms of the United
      States Securities and Exchange Commission (“SEC”).  Disclosure
      Controls are also designed to reasonably assure that such information is
      accumulated and communicated to our management, including the CEO and CFO as
      appropriate, to allow timely decisions regarding required
      disclosure.  Based on that evaluation, our CEO and CFO have concluded
      that, as of September 30, 2007, our disclosure controls and procedures were
      effective to provide reasonable assurance that information required to be
      disclosed in our Exchange Act reports is recorded, processed, summarized and
      reported within the time periods specified by the SEC, and that material
      information relating to us is made known to management, including the CEO and
      CFO, particularly during the period when our periodic reports are being
      prepared.




18.




Our
      management, including the CEO and CFO, does not expect that our Disclosure
      Controls or our internal control over financial reporting will prevent or detect
      all errors and all instances of fraud.  A control system, no matter
      how well designed and operated, can provide only reasonable, not absolute,
      assurance that the control system’s objectives will be met.  The
      design of a control system must reflect the fact that there are resource
      constraints, and the benefits of controls must be considered relative to their
      costs.  Further, because of the inherent limitations in all control
      systems, no evaluation of controls can provide absolute assurance that
      misstatements due to error or fraud will not occur or that all control issues
      and instances of fraud, if any, within the Company have been
      detected.  These inherent limitations include the realities that
      judgments in decision-making can be faulty and that breakdowns can occur because
      of simple error or mistake.  Controls can also be circumvented by the
      individual acts of some persons, by collusion of two or more people, or by
      management override of the controls.  The design of any system of
      controls is based, in part, on certain assumptions about the likelihood of
      future events and there can be no assurance that any design will succeed in
      achieving its stated goals under all potential future
      conditions.  Projections of any evaluation of the effectiveness of
      controls to future periods are subject to risks.  Over time, controls
      may become inadequate because of changes in conditions or deterioration in
      the
      degree of compliance with policies or procedures.





**CHANGES
      IN INTERNAL CONTROL OVER FINANCIAL REPORTING**





There
      were
      no changes in our internal controls over financial reporting during the third
      quarter of 2007 that materially affected or are reasonably likely to materially
      affect our internal controls over financial reporting.





**PART
      IIOTHER
      INFORMATION**





**Item
      1. Legal
      Proceedings**





We
      are not
      currently a party to any material legal proceedings.





**Item
      1A.          Risk
      Factors**





The
      following risk factors, which have been included in a preliminary proxy
      statement recently filed with the SEC and expected to be mailed to the Company’s
      stockholders in order to seek their approval of the sale of our Genomics Assets,
      should be added to those previously disclosed in the Company's Annual Report
      on
      Form 10-K for the year ended December 31, 2006 and our other subsequent filings
      with the SEC:





**IF
      THE GENOMICS ASSETS ARE SOLD, OUR REMAINING BUSINESS AND ASSETS WILL BE LESS
      DIVERSIFIED AND HAVE YET TO PRODUCE SUBSTANTIAL REVENUE AND AN INVESTMENT IN
      OUR
      BUSINESS IS RISKY WITH NO GUARANTEE OF SUCCESS.**





After
      selling the Genomics Assets, we will focus our efforts on operating our Drug
      Repositioning and Development Division.  We may invest in other assets
      in the future or seek to merge, be acquired by or combine with another company
      that has products or technologies, but we have no current specific plans to
      do
      so at this time.  We may encounter unanticipated difficulties or
      challenges as we work to implement our new business focus.  If we are
      unable to address and overcome such difficulties or challenges, we may not
      be
      successful with our new business focus.





**THE
      SALE OF THE GENOMICS ASSETS TO OCIMUM MAY NOT BE COMPLETED IF THE CONDITIONS
      TO
      CLOSING ARE NOT SATISIFIED OR WAIVED.**





There
      is a
      risk that the sale of the Genomics Assets to Ocimum may not be completed because
      the conditions to closing, including approval of the transaction by our
      stockholders and the absence of a material adverse event affecting the Company
      or the Genomics Assets before the closing, may not be satisfied or
      waived.  If the transaction is not completed, we may be unable to find
      another buyer for the Genomics Assets or the terms offered by another buyer
      may
      not be as favorable to us as those in the asset purchase agreement with Ocimum,
      we may divert resources away from our Drug Repositioning and
      Development  Division, our business could be seriously harmed, and we
      may be forced to shut down the Genomics Division and incur substantial costs
      associated with such a shut-down, including lease payments of approximately
      $4
      million and employee severance payments of approximately $2.5
      million.





**THE
      AMOUNT OF NET PROCEEDS THAT WE WILL RECEIVE IS SUBJECT TO
      UNCERTAINTIES.**





Pursuant
      to the asset purchase agreement with Ocimum, the amount that we receive from
      Ocimum is subject to the possibility of reduction by virtue of a purchase price
      adjustment based on certain balance sheet adjustments.  In addition,
      the amount of net proceeds is subject to further reduction after the closing
      if
      Ocimum successfully asserts claims to indemnification pursuant to the
      indemnification provisions of the asset purchase agreement and because a portion
      of the consideration is payable with a promissory note, there can be no
      assurance that Ocimum will pay the amount due under the promissory note in
      a
      timely way or at all.  Further, we may have unforeseen liabilities and
      expenses that must be satisfied from the after-tax net proceeds of the sale
      to
      Ocimum, leaving less to fund our remaining operations.  If we do not
      have sufficient cash to fund our remaining operations, we may need to seek
      to
      obtain equity or debt financing, which may not be possible under satisfactory
      terms, if at all; our business may be seriously harmed, and we may be forced
      into bankruptcy.




19.




**WE
      MAY NOT PARTICIPATE IN A SUPERIOR OFFER FOR THE GENOMICS ASSETS UNLESS WE PAY
      A
      TERMINATION FEE TO OCIMUM.**





The
      asset
      purchase agreement requires us to pay Ocimum a termination fee equal to $400,000
      if we terminate the asset purchase agreement prior to closing as a result of
      our
      determining to accept an unsolicited acquisition proposal that we determine
      to
      be a superior proposal.





**IF
      THE SALE TO OCIMUM IS NOT COMPLETED, WE INTEND TO EXPLORE OTHER POTENTIAL
      TRANSACTIONS; HOWEVER, THERE MAY NOT BE ANY OTHER OFFERS FROM POTENTIAL
      ACQUIERERS OR THE OFFERS MAY NOT BE AS GOOD AS THE OCIMUM
      OFFER.**





If
      the
      sale of the Genomics Assets to Ocimum is not completed, we intend to explore
      other strategic alternatives, including, if approved by our stockholders, a
      sale
      of all or substantially all of the Genomics Division assets to another party
      on
      or before June 30, 2008 at a price not less than $6,000,000 and on such terms
      as
      the Board of Directors approve at such time.  There can be no
      assurance that any potential transaction will provide consideration equal to
      or
      greater than the purchase price proposed to be paid by Ocimum in the
      transaction, or that we will be able to complete an alternate
      transaction.





**OUR
      COMMON STOCK MAY BE LESS LIQUID AFTER THE TRANSACTION, AND YOU MAY FIND IT
      MORE
      DIFFICULT TO DISPOSE OF YOUR SHARES.**





Our
      Common
      Stock is currently traded on the NASDAQ Stock Market under the symbol
“GLGC.”  Following the completion of the proposed transaction, we
      expect that the Common Stock will continue to be traded on the NASDAQ Stock
      Market.  Our listing on the NASDAQ Global Market is conditioned upon
      our continued compliance with the NASDAQ Marketplace Rules, including a rule
      that requires that the minimum bid price per share for our Common Stock not
      be
      less than $1.00 for 30 consecutive trading days. Given the recent price levels
      for our Common Stock, and the fact that it is impossible to predict the trading
      price of our Common Stock following the closing of the sale of the Genomics
      Assets to Ocimum, we cannot assure you that we will be able to continue to
      comply with such rules.  If we fail to comply and cannot remedy our
      noncompliance during any applicable notice or grace periods, our Common Stock
      could be delisted from the NASDAQ Global Market.  The delisting of our
      Common Stock would likely have a material adverse effect on the trading price,
      volume and marketability of our Common Stock.  Upon a delisting from
      the NASDAQ Global Market, our Common Stock would become subject to the penny
      stock rules of the SEC, in which event it is possible that the price of our
      Common Stock would further decline and likely that our stockholders would find
      it more difficult to sell their shares.





**FAILURE
      TO COMPLETE THE SALE OF THE GENOMICS ASSETS TO OCIMUM COULD CAUSE OUR STOCK
      PRICE TO DECLINE.**





If
      a sale
      of the Genomics Assets to Ocimum is not completed, our stock price may decline
      due to the following potential consequences:




·
            we
                may not be able to sell our Genomics Assets for values equaling or
                exceeding those currently estimated by us; in particular, the Genomics
                Assets could be substantially diminished in
                value;


·
            the
                failure to complete the asset sale may create substantial doubt as
                to our
                ability to effectively implement our current business strategies;
                and


·
            our
                costs related to the asset sale, such as legal, accounting and financial
                advisor fees, must be paid even if the asset sale is not
                completed.





**Item
      2. Unregistered Sales of
      Equity Securities and Use of Proceeds**





None.





**Item
      3.            Defaults
      Upon Senior Securities**





None.





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





None.




20.




**Item
      5.            Other
      Information**





None.





**Item
      6.            Exhibits**




31
            Certifications
                pursuant to Rule 13a-14(a)/15d-14(a).32
            Certifications
                pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
                906 of
                the Sarbanes-Oxley Act of 2002.




21.




**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:
              November
                  9, 2007
              
              By:
              /s/   
                Philip L. Rohrer, Jr.Philip
                  L. Rohrer, Jr.Chief
                  Financial Officer(*Principal
                  Financial and
                  Accounting**Officer)*




22.