---

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

FORM
  10-Q

|(Mark
      One)
|----------------
|                
|þ               
|                
|                
|                
|o               

Commission File Number: 0-23317

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

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

610
  Professional Drive
  Gaithersburg, Maryland 20879
  (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 þNO o

Indicate by check mark whether the  registrant  is an  accelerated
filer (as defined in Rule 12b-2 of the Exchange Act).YES
  þNO o

The  number  of
shares  outstanding  of the  Registrants  Common  Stock, $.01 par value, was
31,739,454 as of April 30, 2005.

---



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GENE
  LOGIC INC.

TABLE
  OF CONTENTS

|PART
      I                                                                                   |  | FINANCIAL
      INFORMATION                                                                 |  |    | 
|---------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------- |  | -- | 
|                                                                                               |  |                                                                                             |  |    | 
|Item
      1.                                                                                  |  | Financial
      Statements                                                                  |  | 3  | 
|                                                                                               |  |                                                                                             | 
|Consolidated
      Balance Sheets at March 31, 2005 and December 31, 2004                      |  | 3                                                                                           | 
|Consolidated
      Statements of Operations for the Three Months Ended March 31, 2005 and 2004 |  | 4                                                                                           | 
|Consolidated
      Statements of Cash Flows for the Three Months Ended March 31, 2005 and 2004 |  | 5                                                                                           | 
|Notes
      to Consolidated Financial Statements                                               |  | 6                                                                                           | 
|                                                                                               |  |                                                                                             |  |    | 
|Item
      2.                                                                                  |  | Managements
      Discussion and Analysis of Results of Operations and Financial Condition |  | 10 | 
|                                                                                               |  |                                                                                             |  |    | 
|Item
      3.                                                                                  |  | Quantitative
      and Qualitative Disclosure About Market Risk                             |  | 15 | 
|                                                                                               |  |                                                                                             |  |    | 
|Item
      4.                                                                                  |  | Controls
      and Procedures                                                               |  | 16 | 
|                                                                                               |  |                                                                                             | 
|PART
      II                                                                                  |  | OTHER
      INFORMATION                                                                     | 
|                                                                                               |  |                                                                                             |  |    | 
|Item
      1.                                                                                  |  | Legal
      Proceedings                                                                     |  | 16 | 
|                                                                                               |  |                                                                                             |  |    | 
|Item
      2.                                                                                  |  | Changes
      in Securities and Use of Proceeds                                             |  | 16 | 
|                                                                                               |  |                                                                                             |  |    | 
|Item
      3.                                                                                  |  | Defaults
      Upon Senior Securities                                                       |  | 16 | 
|                                                                                               |  |                                                                                             |  |    | 
|Item
      4.                                                                                  |  | Submission
      of Matters to a Vote of Security Holders                                   |  | 16 | 
|                                                                                               |  |                                                                                             |  |    | 
|Item
      5.                                                                                  |  | Other
      Information                                                                     |  | 16 | 
|                                                                                               |  |                                                                                             |  |    | 
|Item
      6.                                                                                  |  | Exhibits
      and Reports on Form 8-K                                                      |  | 17 | 
|                                                                                               |  |                                                                                             |  |    | 
|Signatures                                                                                     |  |                                                                                             |  | 18 | 

2.

---



PART I
FINANCIAL INFORMATION

Item 1.
Financial Statements

GENE LOGIC
INC.

CONSOLIDATED
BALANCE SHEETS (in thousands, except share data)

|                                                                                             |  |  | March 31,
2005 |          | December 31,
2004 |  
|-------------------------------------------------------------------------------------------- |  |  | -------------- | -------- | ----------------- | -
|                                                                                             |  |  |                |          |                   |  
|                                                                                             |  |  | (Unaudited)    |          |                   |  
|ASSETS                                                                                      
|Current assets:                                                                              |  | 
|Cash and cash equivalents                                                                    |  |  | $              | 64,695   |                   | $
|Marketable securities available-for-sale                                                     |  |  |                | 33,062   |                   |  
|Accounts receivable, net of allowance of $200 and $436 as of March 31, 2005 and              |  | 
|December 31, 2004, respectively                                                              |  |  |                | 3,598    |                   |  
|Unbilled services                                                                            |  |  |                | 6,614    |                   |  
|Inventory, net                                                                               |  |  |                | 3,346    |                   |  
|Prepaid expenses                                                                             |  |  |                | 2,505    |                   |  
|Other current assets                                                                         |  |  |                | 1,575    |                   |  
|                                                                                             |  |  |                |          |                   |  
|Total current assets                                                                         |  |  |                | 115,395  |                   |  
|Property and equipment, net                                                                  |  |  |                | 27,141   |                   |  
|Long-term investments                                                                        |  |  |                | 4,239    |                   |  
|Goodwill                                                                                     |  |  |                | 45,707   |                   |  
|Intangibles, net                                                                             |  |  |                | 12,039   |                   |  
|Other assets                                                                                 |  |  |                | 62       |                   |  
|                                                                                             |  |  |                |          |                   |  
|Total assets                                                                                 |  |  | $              | 204,583  |                   | $
|                                                                                             |  |  |                |          |                   |  
|LIABILITIES AND STOCKHOLDERS' EQUITY                                                        
|Current liabilities:                                                                         |  | 
|Accounts payable                                                                             |  |  | $              | 5,404    |                   | $
|Accrued compensation and employee benefits                                                   |  |  |                | 5,193    |                   |  
|Other accrued expenses                                                                       |  |  |                | 3,770    |                   |  
|Current portion of capital lease obligations                                                 |  |  |                | 139      |                   |  
|Current portion of long-term debt                                                            |  |  |                | 495      |                   |  
|Current potion of acquired technologies payable                                              |  |  |                | 3,382    |                   |  
|Deferred revenue                                                                             |  |  |                | 11,410   |                   |  
|                                                                                             |  |  |                |          |                   |  
|Total current liabilities                                                                    |  |  |                | 29,793   |                   |  
|Deferred revenue                                                                             |  |  |                | 2,964    |                   |  
|Capital lease obligations, net of current portion                                            |  |  |                | 169      |                   |  
|Long-term debt, net of current portion                                                       |  |  |                | 162      |                   |  
|Acquired technologies payable                                                                |  |  |                | --       |                   |  
|Other noncurrent liabilities                                                                 |  |  |                | 2,566    |                   |  
|                                                                                             |  |  |                |          |                   |  
|Total liabilities                                                                            |  |  |                | 35,654   |                   |  
|                                                                                             |  |  |                |          |                   |  
|Commitments and contingencies                                                                |  |  |                | --       |                   |  
|Stockholders' equity:                                                                        |  | 
|Preferred stock, $.01 par value; 10,000,000 shares authorized; and no shares issued and      |  |  |                |          |                   |  
|outstanding as of March 31, 2005 and December 31, 2004                                       |  |  |                | --       |                   |  
|Common stock, $.01 par value; 60,000,000 shares authorized; 31,739,454 and 31,654,413 shares |  | 
|issued and outstanding as of March 31, 2005 and December 31, 2004, respectively              |  |  |                | 318      |                   |  
|Additional paid-in-capital                                                                   |  |  |                | 385,498  |                   |  
|Accumulated other comprehensive loss                                                         |  |  |                | (120     | )                 |  
|Accumulated deficit                                                                          |  |  |                | (216,767 | )                 |  
|                                                                                             |  |  |                |          |                   |  
|Total stockholders' equity                                                                   |  |  |                | 168,929  |                   |  
|                                                                                             |  |  |                |          |                   |  
|Total liabilities and stockholders' equity                                                   |  |  | $              | 204,583  |                   | $
|                                                                                             |  |  |                |          |                   |  

See
accompanying notes.

3.

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GENE LOGIC
INC.

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

|                                               |  |  | Three Months Ended 
March 31, |       
|---------------------------------------------- |  |  | ----------------------------- | ------
|                                               |  |  |                               |       
|                                               |  |  | 2005                          |       
|                                               |  |  |                               |       
|Revenue:                                       |  |  |                               |       
|Genomics and toxicogenomics services           |  |  | $                             | 13,239
|Preclinical contract research services         |  |  |                               | 6,434 
|Drug repositioning and selection services      |  |  |                               | 67    
|                                               |  |  |                               |       
|Total revenue                                  |  |  |                               | 19,740
|Expenses:                                      |  | 
|Cost of preclinical contract research services |  |  |                               | 7,190 
|Database production                            |  |  |                               | 8,182 
|Research and development                       |  |  |                               | 1,461 
|Selling, general and administrative            |  |  |                               | 7,533 
|                                               |  |  |                               |       
|Total expenses                                 |  |  |                               | 24,366
|                                               |  |  |                               |       
|Loss from operations                           |  |  |                               | (4,626
|Interest (income), net                         |  |  |                               | (500  
|Other (income) expense                         |  |  |                               | (25   
|                                               |  |  |                               |       
|Net loss before income tax expense             |  |  |                               | (4,101
|Income tax expense                             |  |  |                               | --    
|                                               |  |  |                               |       
|Net loss                                       |  |  | $                             | (4,101
|                                               |  |  |                               |       
|Basic and diluted net loss per share           |  |  | $                             | (0.13 
|                                               |  |  |                               |       
|Shares used in computing basic and diluted     |  | 
|net loss per share                             |  |  |                               | 31,708
|                                               |  |  |                               |       

See
accompanying notes.

4.

---



GENE LOGIC
INC.

CONSOLIDATED
STATEMENTS OF CASH FLOWS(in thousands)
(Unaudited)

|                                                                               |  |  | March 31 |       
|------------------------------------------------------------------------------ |  |  | -------- | ------
|                                                                               |  |  |          |       
|                                                                               |  |  | 2005     |       
|                                                                               |  |  |          |       
|Cash flows from operating activities:                                          |  |  |          |       
|Net loss                                                                       |  |  | $        | (4,101
|Adjustments to reconcile net loss to net cash flows from operating activities: |  | 
|Depreciation and amortization                                                  |  |  |          | 3,914 
|Loss on abandonment of patents                                                 |  |  |          | --    
|Loss on disposal of property and equipment                                     |  |  |          | --    
|Accrued interest relating to acquired technologies payable                     |  |  |          | 35    
|Changes in operating assets and liabilities:                                   |  | 
|Accounts receivable and unbilled services                                      |  |  |          | 1,147 
|Inventory                                                                      |  |  |          | (1,663
|Prepaids and other assets                                                      |  |  |          | 307   
|Accounts payable                                                               |  |  |          | 148   
|Accrued expenses and other noncurrent liabilities                              |  |  |          | 270   
|Deferred revenue                                                               |  |  |          | 991   
|                                                                               |  |  |          |       
|Net cash flows from operating activities                                       |  |  |          | 1,048 
|                                                                               |  |  |          |       
|Cash flows from investing activities:                                          |  | 
|Purchases of property and equipment                                            |  |  |          | (5,615
|Purchases of licenses and patent costs                                         |  |  |          | (190  
|Software development costs                                                     |  |  |          | (406  
|Database upgrade costs                                                         |  |  |          | (154  
|Purchase of marketable securities available-for-sale                           |  |  |          | --    
|Proceeds from sale and maturity of marketable securities available-for-sale    |  |  |          | 16,632
|                                                                               |  |  |          |       
|Net cash flows from investing activities                                       |  |  |          | 10,267
|                                                                               |  |  |          |       
|Cash flows from financing activities:                                          |  | 
|Proceeds from issuance of common stock to employees                            |  |  |          | 186   
|Repayments of capital lease obligations and equipment loans                    |  |  |          | (43   
|                                                                               |  |  |          |       
|Net cash flows from financing activities                                       |  |  |          | 143   
|                                                                               |  |  |          |       
|Net increase in cash and cash equivalents                                      |  |  |          | 11,458
|                                                                               |  |  |          |       
|Cash and cash equivalents, beginning of period                                 |  |  |          | 53,237
|                                                                               |  |  |          |       
|Cash and cash equivalents, end of period                                       |  |  | $        | 64,695
|                                                                               |  |  |          |       
|Supplemental disclosure:                                                       |  | 
|Taxes paid                                                                     |  |  | $        | --    
|                                                                               |  |  |          |       
|Interest paid                                                                  |  |  | $        | 10    
|                                                                               |  |  |          |       

See
accompanying notes.

5.

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Gene Logic
Inc.

Notes to
Consolidated Financial Statements March 31, 2005 (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  Laboratories  Inc.
(formerly  TherImmune  Research  Corporation),  Gene  Logic Ltd.  (our United  Kingdom
subsidiary)  and Gene Logic K.K.  (our  Japan  subsidiary),  (collectively  Gene
Logic or  the  Company),  provides drug discovery and development
services to pharmaceutical  and  biotechnology  companies  worldwide and U.S. Government
entities.  From  April  1,  2003 to  December  31,  2004,  the  Companys  services
were  organized  into  two  business  segments:  genomics  and  toxicogenomics  services
and  preclinical  contract  research  services.  Beginning  in  2005, the Company added a
third  business  segment:  drug  repositioning  and  selection  services.  The  genomics
and  toxicogenomics  services  business  consists of proprietary  gene  expression  and
toxicogenomics  databases,  software  tools,  various  toxicogenomics  reports  and data
generation  and  professional  services  for  use  in  discovering  and  prioritizing
drug  targets,  identifying  biomarkers,  and  predicting  toxicity and providing
insights into efficacy of specific compounds for  customers.  The  preclinical  contract
research  services  business  consists  of  in-vivo  animal  testing  research  studies
and  related  laboratory services used to assess the safety and pharmacologic  effects
of  compounds  for  customers.  The  drug  repositioning  and  selection  services
business,  which  resulted  from the  acquisition  of  certain  technologies  in 2004
(the  Horizon  technologies),  continues  to be  developed  and  consists  of
services  to  assist  customers  in  (i)  identifying  alternative  indications  for
failed,  stalled  or  deprioritized  compounds;  (ii)  expanding  indications  for
currently  marketed drugs; and, (iii) prioritizing and identifying  indications for
compounds entering preclinical development.

The combination
of the Companys  genomics and  toxicogenomics  services  and preclinical  contract
research services may sometimes be referred to  as its historical business.

Basis of
Presentation

The
accompanying  unaudited  consolidated financial statements have been  prepared  in
accordance  with  U.S.  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  balance  sheet  as  of  March  31,
2005,  consolidated  statements of  operations  for the three months ended March 31, 2005
and  2004 and the consolidated  statements of cash flows for the three months  ended
March  31,  2005  and  2004  are  unaudited,  but  include  all  adjustments  (consisting
of  normal  recurring  adjustments)  which the  Company  considers  necessary for a fair
presentation  of the financial  position,  operating  results  and  cash  flows,
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 U.S.
Securities  and Exchange  Commission  (SEC).  All  material  intercompany
accounts  and  transactions  have  been  eliminated in consolidation.

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
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, 2004.

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.

Reclassifications

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

6.

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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:

|                             |  |  | March 31,
2005 |        | December 31, 
2004 |  
|---------------------------- |  |  | -------------- | ------ | ------------------ | -
|                             |  |  |                |        |                    |  
|Microarrays                  |  |  | $              | 1,842  |                    | $
|Laboratory reagents          |  |  |                | 489    |                    |  
|Tissue samples               |  |  |                | 2,601  |                    |  
|                             |  |  |                |        |                    |  
|                             |  |  |                | 4,932  |                    |  
|Less: tissue sample reserves |  |  |                | (1,586 | )                  |  
|                             |  |  |                |        |                    |  
|Inventory, net               |  |  | $              | 3,346  |                    | $
|                             |  |  |                |        |                    |  

Foreign
Currency Transactions

Foreign
currency  transaction  gains and  losses  are  included  in the  Consolidated  Statements
of  Operations.  During the three months ended  March 31, 2005, foreign currency gains
totaled $25.

Comprehensive
Loss

The Company
accounts for  comprehensive  loss as prescribed by Statement  of Financial  Accounting
Standards  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 owners and  distribution  to owners.
Total  comprehensive  loss,  which includes  unrealized  gains or losses in the  Companys
marketable  securities  available-for-sale,  was  $4,085  and  $5,471 for the three
months ended March 31, 2005 and 2004, respectively.

Stock-Based
Compensation Plans

At March  31,
2005,  the  Company  has three  stock-based  compensation  plans: 1997 Equity Incentive
Plan (the Stock Plan),  1997 Non-Employee  Directors Stock Option Plan
(the Directors Plan) and Employee Stock  Purchase Plan (the ESPP).
The Company  accounts for these plans under  the  recognition  and  measurement
principles of Accounting  Principles  Board Opinion No. 25,  Accounting for Stock
Issued to Employees (APB  25), and related  interpretations.  Under APB
25, compensation  expense  for grants that are  compensatory  are recorded over the
vesting  period  only to the extent  that the fair value of the  underlying  stock on the
date of grant exceeds the exercise or acquisition  price of the stock or  stock-based
award.  Stock options  granted  under the  Companys  Stock  Plan and  Directors Plan
are considered  compensatory  and are granted  with an  exercise  price  equal to the
fair  value  on the  grant  date.  Common stock issued under the ESPP is considered
non-compensatory under  APB 25 and is  purchased at 85% of the lesser of the market price
of the  shares at the time of  purchase  or the  market  price on the  beginning  date of
an offering,  as defined under the plan (or, if later,  the date  during  the  offering
when  the  employee  was  first  eligible  to  participate).  In 2005,  the ESPP was
suspended  after the  January 31,  2005  purchase,  as a  result  of  the  Companys
pending  adoption  of  Statement  of  Financial  Accounting  Standards  (SFAS)  No.
123(R),  Share-Based Payment.

7.

---



The following
table  illustrates the effect on net loss and net loss per  share  as  if  the  Company
had  applied  the  fair  value  recognition  provisions  of  Statement  of Financial
Accounting  Standards  No. 123,  Accounting  for  Stock-Based  Compensation,
to  stock-based  employee  compensation for the three months ended March 31:

|                                                             |  |  | 2005 |        | 2004 |  
|------------------------------------------------------------ |  |  | ---- | ------ | ---- | -
|                                                             |  |  |      |        |      |  
|Net loss, as reported                                        |  |  | $    | (4,101 | )    | $
|Add: Stock-based employee compensation expense included      |  |  |      |        |      |  
|in reported net loss                                         |  |  |      | --     |      |  
|Deduct: Stock-based employee compensation expense determined |  | 
|under fair value-based method for all awards                 |  |  |      | (615   | )    |  
|                                                             |  |  |      |        |      |  
|Pro forma net loss                                           |  |  | $    | (4,716 | )    | $
|                                                             |  |  |      |        |      |  
|Basic and diluted net loss per share:                        |  | 
|As reported                                                  |  |  | $    | (0.13  | )    | $
|Pro forma                                                    |  |  | $    | (0.15  | )    | $

New Accounting
Pronouncements

In 2004,  the
Financial  Accounting  Standards  Board  issued  SFAS No.  123(R),  Share-Based
Payment, (SFAS  123(R))  and in  2005,  the SEC  approved  a new rule that will
require an  adoption  date of January 1,  2006 for the Company.  The new  statement  will
require all  share-based  payments to  employees  to be  recognized  in the  financial
statements  based on their fair  values.  Currently,  the Company  accounts  for its
share-based  payments to employees  under the intrinsic  value method of  accounting  set
forth in  Accounting  Principles  Board  Opinion No. 25,  Accounting  for Stock
Issued to Employees. Additionally,  the Company  complies  with  the  stock-based
employee  compensation  disclosure  requirements  of  SFAS  No.  148,  Accounting
for  Stock-Based  Compensation-Transition and Disclosure.

SFAS 123(R)
permits  companies to adopt its  requirements  using one of  two methods:

- A modified  prospective method
in which  compensation cost  is recognized  beginning  with the  effective  date  (a)
based on the  requirements  of SFAS  123(R) for  all  share-based  payments  granted
after  the  effective  date and (b)  based on the  requirements  of SFAS 123 for all
awards  granted  to  employees  prior to the  effective  date of SFAS  123(R)  that
remain unvested on the effective date.
- A  modified  retrospective method
which  includes  the  requirements  of the  modified  prospective  method  described
above,  but also  permits  companies  to  restate based on the amounts previously
recognized  under  SFAS  123  for  purposes  of  pro  forma  disclosures  for  either
(a)  all  prior  periods  presented or (b) prior interim  periods of the year  of
adoption.

The Company
plans to adopt SFAS 123(R)  using the  modified-prospective  method and while the Company
has not estimated  the financial  statement  impact of adoption as the Company has not
yet completed its  evaluation,  the impact is expected to be significant.

Note 2  Segment
information

Beginning in
2005,  the Companys  operations  are organized  into three  business  segments:
genomics and toxicogenomics  services,  preclinical  contract  research  services  and
drug  repositioning  and  selection  services,  which are more fully  described in Note
1. From April 1, 2003  to December 31,  2004,  the Company  operated as two business
segments:  genomics and toxicogenomics  services and preclinical  contract research
services.  The prior periods  segment  information has been restated to  conform to
the current period presentation.

The following
table  presents  revenue and operating  income (loss) for  each of these  segments.
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 and income tax expense and could also exclude  certain  unusual or
corporate-related  costs in the future.  In addition,  while  the Companys
Consolidated  Statements of Operations include adjustments  to reflect the  elimination
of  inter-segment  transactions,  individual  segments may include these types of
transactions.  Management  does not  believe  these  transactions  are  material  and
believes  that  their  inclusion  would  not  impact  either  managements  or
shareholders understanding  of  the  operations  of  the  segments.  For  purpose
of  clarity,  revenue is reported  net of  inter-segment  transactions.  The  Company
does not identify or allocate,  nor does  management  evaluate,  assets  by  segment.
Amortization  and  depreciation  is  allocated  by  segment as shown below.

8.

---



The following
table sets forth  information on reportable  segments for  the three months ended March
31:

|                                          |  |  | 2005 |        | 2004 |  
|----------------------------------------- |  |  | ---- | ------ | ---- | -
|                                          |  |  |      |        |      |  
|Genomics and Toxicogenomics Services      |  |  |      |        |      |  
|Revenue                                   |  |  | $    | 13,239 |      | $
|Operating income (loss) (1)               |  |  |      | 833    |      |  
|Preclinical Contract Research Services    |  | 
|Revenue                                   |  |  | $    | 6,434  |      | $
|Operating income (loss) (2)               |  |  |      | (3,002 | )    |  
|Drug Repositioning and Selection Services |  | 
|Revenue                                   |  |  | $    | 67     |      | $
|Operating income (loss) (3)               |  |  |      | (2,457 | )    |  

|(1) |  | Includes
amortization and depreciation expense of $2,809 and $3,592  for the three months ended
March 31, 2005 and 2004, respectively.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------

|(2) |  | Includes
amortization and depreciation expense of $987 and $886 for  the three months ended March
31, 2005 and 2004, respectively.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------

|(3) |  | Includes
amortization  and  depreciation  expense  of $118 for the  three months ended March 31,
2005.
|--- |  | ------------------------------------------------------------------------------------------------------

A
reconciliation  of segment  operating income (loss) to net loss before  income tax
expense for the three months ended March 31 is as follows:

|                                          |  |  | 2005 |        | 2004 |  
|----------------------------------------- |  |  | ---- | ------ | ---- | -
|                                          |  |  |      |        |      |  
|Segment Operating Income (Loss)           |  |  |      |        |      |  
|Genomics and toxicogenomics services      |  |  | $    | 833    |      | $
|Preclinical contract research services    |  |  |      | (3,002 | )    |  
|Drug repositioning and selection services |  |  |      | (2,457 | )    |  
|                                          |  |  |      |        |      |  
|                                          |  |  |      | (4,626 | )    |  
|Interest (income), net                    |  |  |      | (500   | )    |  
|Other (income) expense                    |  |  |      | (25    | )    |  
|                                          |  |  |      |        |      |  
|Net loss before income tax expense        |  |  | $    | (4,101 | )    | $
|                                          |  |  |      |        |      |  

During  the
three  months  ended  March 31,  2005,  Takeda,  a  Japanese  pharmaceutical company,
accounted for greater than 10% of the Companys  total  revenue  and  such  revenue
is  included  in  the  genomics  and  toxicogenomics  services  business  segment.
During  the  three  months  ended  March 31,  2004,  no  customer  accounted  for 10% or
more of the  Companys total revenue.  The following table sets forth  information
on  the composition of the Companys total revenue by geographic region:

|                            |  |  |  | Geographic Region | 
|--------------------------- |  |  |  | ----------------- | 
|                            |  |  |  |                   | 
|                            |  |  |  | North America     | 
|For the three months ended: |  |  |  |                   | 
|March 31, 2005              |  |  |  | 54%               | 
|March 31, 2004              |  |  |  | 52%               | 

9.

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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 that are difficult to
predict. 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, 2004 under the section entitled Risks
Related to Our Business and Industry. 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.  GeneExpress®,  BioExpress®,
ToxExpress® and  ASCENTA® are  registered  trademarks  of Gene  Logic.  Genesis
Enterprise  System and  ToxShield  are  trademarks  of Gene  Logic. GeneChip® is
a registered trademark of Affymetrix, Inc.

Overview

We  provide
drug  discovery  and  development  solutions  to  the  pharmaceutical  industry,  for
use  throughout  the  drug  development  process,  to assist in the  development  of
therapeutic  compounds in a  more timely, efficient, and cost-effective manner.

Our solutions
consist of:

- Genomics and  Toxicogenomics
Services:  we help customers to  discover and prioritize  drug targets,  identify
biomarkers,  and predict  toxicity and provide  insights  into efficacy of  specific
compounds  through  the  use  of  gene  expression  technologies,  proprietary  reference
databases  and  bioinformatics software and professional services.
- Preclinical Contract Research
Services: we enable customers to assess the safety and pharmacologic effects of
candidate compounds with the intention of gaining regulatory approval to proceed
with human trials on prioritized compounds, through the use of in-vivo animal
testing research studies and related laboratory services.
- Drug Repositioning and Selection
Services:  we can assist in  (i)  identifying  alternative  indications  for  customers failed,
stalled or deprioritized  compounds,  (ii) expanding  indications  for customers currently
marketed  drugs,  and  (iii)  prioritizing  and  identifying  indications  for  customers compounds
entering preclinical development.

We expect that
a large  percentage  of our genomics  and  toxicogenomics  services  revenue  will
continue  to  be  derived  from  subscription  agreements.  Typically,  our  customers
enter  into  multi-year  subscription  agreements  for  our  larger  databases,  and
annual  or  multi-year  subscription  agreements  for  certain  of  our  smaller
databases,  to  obtain  non-exclusive  access  to  all or  parts  of our  BioExpress
System  and/or  ToxExpress  System  databases.  These  subscription  agreements  may be
for a full  database  or a portion of a  database  tailored to a customers needs
and most relevant to their drug  development  strategy.  Some  of  our  subscription
agreements  contain  periodic  update  requirements  that,  if not  met,  could  result
in a  reduction  in  license  fees  or  possible  breach  of  the  respective  agreement.
Certain  customers  also  have  an  option,  for  additional  consideration,  upon
expiration  of  their  subscription,  to  elect to  retain and use  certain  information,
but  without any right to further  updates or services.

Pricing for
these  subscriptions is generally dependent upon such issues  as the database  solution
being  offered,  the extent and type of use by  the  customer,  the number of users at
the customer  site,  the scope of  installation at the customers  site,
requirements  for  customization,  any content  requirements  and whether we provide any
custom analysis or  data  management  services.  Contracts  under  these  subscription
agreements  may  be  terminated  by  either  party  if the  other  party  breaches  the
agreement  and  fails  to cure  such  breach  within  any  applicable  cure period or in
the event of a bankruptcy of either party.  In addition,  certain subscription
agreements include a right of early  termination,  which in some  instances  is subject
to  conditions,  by a  customer  without  penalty  on a  specified  date  prior  to the
normal  expiration of the term.  Contracts  with our  customers,  other than our
Japanese  customers,  are  dollar-denominated.  Contracts  with  our  Japanese
customers,  beginning in 2005, are payable in Japanese Yen and  may be subject to
fluctuations  due to  changes  in  currency  exchange  rates.

We also derive
a smaller,  but growing,  percentage  of our revenue from  sales  of  various
toxicogenomics  reports  and  data  generation  and  professional  services.  The scope
of services  provided is based on the  customers  needs;  pricing for these
services is  generally  dependent  upon such  issues as the number of samples or
compounds  analyzed,  the  type of  analysis  performed,  the  starting  material
provided  by the  customer,  the type of GeneChip  microarray  used for the  services
and  requirements for  customization.  Generally,  contracts for services may  be
terminated by either party if the other party  breaches the agreement  and fails to cure
such breach  within any  applicable  cure period or in  the event of a bankruptcy of
either party.

10.

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Our preclinical
contract research services revenue is primarily derived  from fixed price  contracts.  In
addition,  we derive  revenue from cost  plus contracts,  most of which are with U.S.
Government entities.  Under  fixed price contracts,  we bear the cost of overruns,  but
we benefit if  the costs are lower  than  anticipated.  Cost plus  contracts  contain a
budget  for the study  based on labor and other cost  estimates.  We are  reimbursed for
our costs within  specified  limits,  subject to periodic  audit,  and  receive  a  fixed
fee.  If  our  costs  are  lower  than  anticipated,  the savings are  realized by our
customers.  If our costs  are  higher  than  estimated,  we are  required  to work  only
up to the  maximum  contract  value.  Our  costs are  subject  to audit by the U.S.
Government  and if such costs are  reduced  upon  audit,  we may have to  refund  amounts
paid to us.  Contracts  may range in duration from a few  weeks to several  years.  For
most fixed price  contracts,  a portion of  the  contract  price  is due at the  time
the  study  starts,  with the  balance  payable upon the  achievement  of  milestones
over the studys  duration.  Costs under cost plus contracts are reimbursed  monthly
along  with a pro  rata  portion  of the  fixed  fee.  Most of our  preclinical  contract
research  services  contracts may be terminated by the customer  at  any  time,  subject
to  payment  to us of  any  direct  costs  plus  applicable  indirect costs incurred
prior to  termination,  plus direct  and  indirect  costs  incurred  to  terminate  a
study  and,  in  some  instances, a portion of our profit or fixed fee, or a cancellation
fee.

Prior  to
2005,  we did not  derive  any  revenue  from  our  new  drug  repositioning and
selection services,  which are currently under further  development.

We have
incurred  operating  losses in each year  since our  inception,  including  losses of
$28.5  million in 2004,  $24.8  million in 2003 and  $24.1  million  in  2002.  At  March
31,  2005,  we had an  accumulated  deficit of $216.8  million.  Our losses have resulted
principally  from  costs  incurred in the  development,  marketing and sale of our
genomics  and toxicogenomics  services.  These costs have exceeded our revenue and  we
expect to incur additional operating losses in the future.

Results of
Operations

Three Months
Ended March 31, 2005 and 2004

Total Revenue.
Total revenue decreased $0.5 million, or 2%, to $19.7 million for the three months
ended March 31, 2005 from $20.2 million for the same period in 2004. During the
three months ended March 31, 2005, Takeda, a Japanese pharmaceutical company,
accounted for greater than 10% of our revenue and such revenue is included in the
genomics and toxicogenomics services business segment. During the three months ended
March 31, 2004, no customer accounted for 10% or more of our revenue. Four
customers accounted for approximately 31% of our total revenue for the three months
ended March 31, 2005. During the three months ended March 31, 2005 and 2004, 35%
and 32% of our revenue, respectively, was from customers in the Pacific Rim, and 11%
and 16% of our revenue, respectively, was from customers in Europe.

Genomics and
Toxicogenomics Services Revenue.Revenue from our genomics and toxicogenomics
services, which consisted primarily of fees from subscription agreements to our
BioExpress System and ToxExpress System databases, was $13.2 million for the three
months ended March 31, 2005, a decrease of $0.6 million, or 4%, from $13.8 million
for the same period in 2004. The decrease represents reduced revenue of $1.2
million in subscription fees from agreements that expired in 2004 and of $0.8 million
from the extensions of certain agreements at reduced service levels. These
decreases were partially offset by $0.8 million in fees for subscriptions from new
customers and expanded agreements with existing customers and $0.8 million from a
one-time purchase of data in the three months ended March 31, 2005. In 2005,
subscription agreements for our BioExpress System and ToxExpress System databases
with ten customers will be subject to agreement extension discussions. These
customers accounted for 31% of our total 2004 revenue and 46% of our 2004 genomics and
toxicogenomics revenue. Since the beginning of 2005, we have renegotiated three of
these agreements, of which two will result in lower future revenue than under the prior
agreements and, in the case of one agreement, included a one-time purchase of data
during the three months ended March 31, 2005. Negotiations are either under way or
will commence during the year for the remaining seven agreements. There is no
assurance that we will extend these remaining subscription agreements or that such
extended subscription agreements will be on terms comparable to the existing
subscription agreements. For 2005, we expect modest revenue growth in our
genomics and toxicogenomics services.

Preclinical
Contract Research Services Revenue.Revenue from our preclinical contract
research services, which consisted of fees from preclinical safety and pharmacology
studies and related laboratory services, was flat at $6.4 million for the three
months ended March 31, 2005 and 2004. We expect flat to reduced revenue for the first
half of 2005, followed by improvement for the second half of 2005, as we begin to
realize the impact of ongoing facilities renovations and increased capacity.

Cost
  of Preclinical Contract Research Services Revenue.Cost of preclinical contract research services revenue, which consisted of direct
  and indirect costs related to conducting preclinical safety and pharmacology
  studies and related laboratory services, including direct and indirect labor,
  study materials and facility costs and depreciation, increased to $7.2 million
  for the three months ended March 31, 2005 from $6.5 million for the same period
  in 2004. The increase reflects $0.4 million in costs incurred to perform a study
  that was unsatisfactory and resulted in no revenue to us, and higher employee
  and facility costs associated with our capacity expansion anticipated for the
  second half of 2005. As a

11.

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result,  our
gross  margins  decreased  to a negative 12%  for the three months  ended March 31, 2005
from  negative 1% in the same  period in 2004.  We expect  negative  gross  margins to
continue for the  first  half of 2005,  and expect  gradual  improvements  throughout
the  second  half  of  2005,  resulting  from  anticipated  operational  efficiencies and
increasing revenue from our expanded capacity.

Database
Production Expense. Database production expenses, which consisted primarily of
costs related to the acquisition and processing of tissues and overhead expenses
needed to generate the content of the BioExpress System and ToxExpress System
databases, decreased to $8.2 million for the three months ended March 31, 2005 from
$12.2 million for the same period in 2004. The decrease consisted primarily of a
$2.5 million reduction in database content generation expenses, including lower
costs for acquiring tissues and certain agreements with third parties, a decrease
of $0.9 million in depreciation and amortization expense and a $0.4 million
reduction in employee costs. For 2005, we expect database production expenses to
decrease modestly, reflecting our continuing efforts to reduce the costs of adding
content.

Research and
Development Expense. Research and development expenses, which now consist
primarily of costs associated with our ongoing development of our drug
repositioning and selection technologies, increased to $1.5 million for the three
months ended March 31, 2005 from $0.4 million for the same period in 2004. The
increase was primarily a result of development efforts relating to our drug
repositioning and selection technologies, which began in mid-2004. For 2005, we
expect research and development expenses to increase significantly as we
continue to develop our drug repositioning and selection technologies (see Liquidity
and Capital Resources).

Selling,
General and Administrative Expense. Selling, general and administrative expenses,
which consisted primarily of sales, marketing, accounting, legal, human resources
and other general corporate expenses, increased to $7.5 million for the three
months ended March 31, 2005 from $6.3 million for the same period in 2004. The
increase consisted primarily of a $1.2 million increase in employee incentive
compensation costs and an increase in the number of our employees. For 2005, we
expect selling, general and administrative expenses to increase due to increases
in employee costs and expenses related to efforts to commercialize our drug
repositioning and selection services.

Net Interest
Income. Net interest income increased to $0.5 million for the three months ended
March 31, 2005 from $0.3 million for the same period in 2004, due primarily to an
increase in our rates of return.

Income Tax
Expense. Income tax expense, which historically consisted of a 10% withholding tax on
certain payments by our Japanese customers, did not occur for the three months ended
March 31, 2005 compared to $0.6 million for the same period in 2004, reflecting the
impact of the elimination of the withholding tax effective July 1, 2004, as a result
of the new tax treaty between the U.S. and Japan.

Liquidity and
Capital Resources

From  inception
through March 31, 2005, we have financed our operations  and acquisitions  through the
issuance and sale of equity securities and  payments  from  customers.  As of March 31,
2005,  we had  approximately  $97.8  million  in cash,  cash  equivalents  and
marketable  securities  available-for-sale, compared to $102.9 million as of December 31,
2004.

Net cash
provided by operating  activities increased to $1.0 million for  the three months  ended
March 31, 2005 from a negative  $0.4 million for  the same period in 2004, primarily due
to an improvement in operations.

During the
three  months  ended March 31, 2005 and 2004,  our  investing  activities  consisted
primarily of purchases,  sales and  maturities of  available-for-sale  securities,
capital  expenditures  and  software  development  costs.  Capital  expenditures  for the
three  months  ended  March 31,  2005 and 2004  amounted  to $5.6  million  and $0.8
million,  respectively.  The increase in capital  expenditures  was  primarily due  to
costs to increase our preclinical  contract  research capacity and to  renovate our
database  production  facility.  For the remainder of 2005,  we expect to incur capital
expenditures  of  approximately  $10 million  (including $3.9 million  committed at March
31, 2005), due to additional  facility build-out requirements and equipment purchases.

We have
capitalized  software development costs of $0.4 million and $1.0  million  for  the
three  months  ended  March  31,  2005  and  2004,  respectively.  These  costs  relate
to ongoing  efforts  to enhance  the  software  platform  of  our  BioExpress  System
and  ToxExpress  System  databases.  The  decrease in software  development  costs was
primarily  due to a  reduction  in our  software  development  workforce.  Software
development  costs are being  amortized over their expected  useful life  of three years.
Software  development costs are expected to continue in  2005,  but at a reduced rate, as
a result of ongoing  efforts to further  enhance the software  platform of our
BioExpress  System and ToxExpress  System  databases.  In  addition,  in  2005  we
expect  to  incur  approximately  $5.5 million of database upgrade costs, as we enhance
the  content of our BioExpress System database using the latest  commercially  available
microarray  platform from Affymetrix.  Database upgrade costs  have been and will
continue to be amortized over their estimated  useful  life of two years.

Our  financing
activities,  other than the  repayment of capital  lease  obligations and an equipment
loan,  primarily  consisted of the exercise  of stock options and participation in our
Employee Stock Purchase Plan.

12.

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In  July  2004,
we  purchased  certain  technologies  (the  Horizon  technologies)  and hired
an associated  research  team from  Millennium  Pharmaceuticals,  Inc. (Millennium).
We contractually agreed to spend  at least $8.5  million  over the first  eighteen
months  following  the  purchase  to  develop  and  commercialize  the  Horizon
technologies;  however,  we currently  expect to invest  substantially  more. Since the
purchase of the Horizon  technologies,  we have recorded $4.5 million in  expenditures
related  to  this  commitment.  In  addition,  subject  to  achieving  certain
performance  milestones  by the  end  of  the  first  eighteen  months  and  depending
upon the  level of  spending  in prior  periods, we may be required  contractually to
invest up to an additional  $6.0  million  over  the  subsequent  twelve  months.  As
part  of  the  consideration,  we agreed to pay $3.5  million in cash or stock,  at our
election, to Millennium in the first quarter of 2006.

To generate our
gene  expression  data, we use  Affymetrix  microarrays,  instrumentation and software.
Under the terms of the agreement,  we pay  Affymetrix annual  subscription fees for
access to their microarrays and  a license to use their technology.  We purchase
microarrays and related  instrumentation  and software and beginning in 2005 pay
royalties  based  on  a  percentage  of  revenue  from  subscriptions  agreements  to
our  BioExpress System and ToxExpress  System databases.  For 2005, we agreed  to
purchase a minimum of $9.5  million in  products  and  services  from  Affymetrix.  As of
March 31,  2005,  we have  purchased  $2.2 million in  products and services related to
this commitment.

The following
table sets forth  information  as to minimum  payments we  anticipate regarding specific
future financial commitments:

|                                      |  |  | Total |        | Within 9 
Months |   | 2006 & 2007 |  | 2008 & 2009 |        | Beyond 2009 |  
|------------------------------------- |  |  | ----- | ------ | ---------------- | - | ----------- |  | ----------- | ------ | ----------- | -
|                                      |  |  |       |        |                  |   |             |  |             |        |             |  
|Capital lease obligations             |  |  | $     | 308    |                  | $ | 103         |  | $           | 205    |             | $
|Long-term debt                        |  |  |       | 657    |                  |   | 483         |  |             | 96     |             |  
|Facility renovations and              |  | 
|equipment purchases                   |  |  |       | 3,916  |                  |   | 3,916       |  |             | --     |             |  
|Technology program funding commitment |  |  |       | 4,034  |                  |   | 4,034       |  |             | --     |             |  
|Acquired technologies payable         |  |  |       | 3,500  |                  |   | --          |  |             | 3,500  |             |  
|Payment obligations to Affymetrix     |  |  |       | 7,752  |                  |   | 7,752       |  |             | --     |             |  
|Operating leases                      |  |  |       | 30,881 |                  |   | 4,530       |  |             | 12,285 |             |  
|                                      |  |  |       |        |                  |   |             |  |             |        |             |  
|Total                                 |  |  | $     | 51,048 |                  | $ | 20,818      |  | $           | 16,086 |             | $
|                                      |  |  |       |        |                  |   |             |  |             |        |             |  

We  believe
that  existing  cash,  cash  equivalents  and  marketable  securities  available-for-sale
and anticipated  payments from customers  will be  sufficient  to  support  our
operations  for  the  foreseeable  future.  These  estimates are  forward-looking
statements  that involve  risks and  uncertainties.  Our actual future  capital
requirements  and  the  adequacy  of our  available  funds  will  depend  on many
factors,  including  those  discussed  under  Risks  Related to Our  Business and
Industry in our Annual Report on Form 10-K for the year ended  December  31, 2004.

Critical
Accounting Policies

Our
consolidated  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
financial statements.

Revenue
Recognition

Genomics and
Toxicogenomics Services Revenue. Genomics and toxicogenomics services revenue
consists primarily of fees earned under subscription agreements for all or parts
of our gene expression reference databases, the BioExpress System and ToxExpress
System. In addition, we derive a smaller, but growing, percentage of revenue from
providing other services, including various toxicogenomics reports and data
generation and professional services. Each of the subscription agreements for our
BioExpress System and ToxExpress System customers is typically for a specific
multi-year term. Revenue from such subscription agreements is recognized ratably
over the period during which the customer has access to the BioExpress System
and/or ToxExpress System databases. Such agreements provide for termination in the
event of a breach of the agreement by either party or a bankruptcy or
insolvency of either party. Certain subscription agreements include 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 an 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 other services is recognized when the
reports and/or data have been delivered or when the services have been performed.

13.

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Preclinical
Contract Research Services Revenue. Preclinical contract research services revenue
is primarily derived from fixed price contracts with pharmaceutical and
biotechnology companies. In addition, we derive revenue from cost plus
contracts with U.S. Government entities. Revenue is recognized on fixed price
contracts as services are performed, based primarily upon the percentage of hours
worked (including subcontractor hours) compared to the total estimated hours for the
contract. We believe that hours worked is the best measure of proportional
performance under fixed price contracts. Revenue is recognized on cost plus
contracts on the basis of the direct costs incurred plus indirect costs and an
allocable portion of the fee earned. Billings under government contracts are based
on provisional billing rates which permit recovery of fringe benefits, overhead and
general and administrative expenses not exceeding certain limits. These indirect
expense rates are subject to review by the U.S. Government on an annual
basis. When the final determination of the allowable rates for any year has been
made, billings may be adjusted accordingly. Cost and profit estimates are reviewed
periodically as the work progresses, and adjustments, if needed, are reflected in
the period in which the estimates are revised. Provisions for estimated losses on
uncompleted contracts are made in the period in which such losses are determined.

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  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  ratably  over  the  longest  performance
period of the elements.

Our revenue
recognition policy is significant  because revenue is a key  component  of our  results
of  operations.  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.  In addition,  management  reviews  costs billed under our  government
contracts to ensure compliance with governmental  regulations  and cost and profit
estimates on uncompleted  contracts.  Should changes  in conditions  cause  management to
determine these criteria are not met  for certain future arrangements,  that billed costs
under our government  contracts  are not  allowed  or that  cost or  profit  estimates
change  resulting in losses under such  contracts,  revenue  recognized  for any
reporting period would be adjusted and could be adversely affected.

Goodwill and
Intangible Assets Impairment

In 2003,  we
recorded  goodwill  of $43.0  million  as a result  of the  acquisition  of  TherImmune.
In  addition,  weve  previously  recorded  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;  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 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 selected  consists of a ten-year
discounted  cash  flow  analysis,  including  the  determination  of  a  terminal value,
and requires  management to make various  judgments and  assumptions,  including  revenue
growth rates and discount rates,  which  management  believes are  reasonable.  Our
annual  impairment test as of  October 1, 2004 did not indicate an impairment  of our
goodwill.  There  can be no guarantee  that changing  conditions in future years would
not  result in a different conclusion.

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.  In  the  past,  we  have  generally  not  had a  history  of
collectability  problems  with  our  customers;  however,  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 tissue  samples  collected  from  various  commercial  and  academic  sites
that are used to expand the  content of  our BioExpress  System and ToxExpress  System
databases.  We assess the  quality and supply of samples in excess of our current
requirements  in  determining  appropriate  reserves.  Our methods for  calculating
these  reserves  are  based  both  on  historical  performance

14.

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and  management
estimates.  Inventory  reserves  are  reviewed  for  adjustment  on  an  ongoing basis.
Changes in tissue quality  and/or our  requirements  for  their use could  potentially
cause  adjustments  to these  reserves  in  future periods.

Equity
Investments

We hold equity
investments in several companies whose businesses may be  complementary  to our
business.  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 these
investments  that  may  not  be  reflected  in an  investments  current  carrying
value,  thereby possibly  requiring an impairment charge in the  future.

Recently Issued
Accounting Pronouncements

In 2004,  the
Financial  Accounting  Standards  Board  issued a revised  Statement  of  Financial
Accounting  Standards  (SFAS)  No.  123(R),  Share-Based  Payment, (SFAS
123(R)) and in 2005,  the SEC approved a  new rule that will  require  us to adopt the
statement  on  January  1,  2006.  The new  statement  will  require  all  share-based
payments  to  employees to be recognized in the  financial  statements  based on their
fair  values.  Currently,  we account  for our  share-based  payments to  employees
under the intrinsic  value method of accounting  set forth in  Accounting  Principles
Board  Opinion  No.  25,  Accounting  for Stock  Issued  to  Employees. Additionally,
we comply  with the  stock-based  employee  compensation  disclosure  requirements  of
SFAS  No.  148,  Accounting for Stock-Based Compensation-Transition and Disclosure.

SFAS 123(R)
permits  companies to adopt its  requirements  using one of  two methods:

- A modified  prospective method
in which  compensation cost  is recognized  beginning  with the  effective  date  (a)
based on the  requirements  of SFAS  123(R) for  all  share-based  payments  granted
after  the  effective  date and (b)  based on the  requirements  of SFAS 123 for all
awards  granted  to  employees  prior to the  effective  date of SFAS  123(R)  that
remain unvested on the effective date.
- A  modified  retrospective method
which  includes  the  requirements  of the  modified  prospective  method  described
above,  but also  permits  companies  to  restate based on the amounts previously
recognized  under  SFAS  123  for  purposes  of  pro  forma  disclosures  either (a) all
prior periods presented  or  (b)  prior  interim  periods  of  the  year  of  adoption.

We plan to
adopt SFAS 123(R) using the  modified-prospective  method and  while we have not
estimated the financial  statement  impact of adoption  as we have not yet completed our
evaluation,  the impact is expected to  be significant.

Item 3.
Quantitative and Qualitative Disclosure about Market Risk

We have limited
exposure to financial market risks,  including  changes  in interest rates.  At March 31,
2005, we had cash and cash  equivalents  of  approximately  $64.7  million  and
marketable  securities  available-for-sale  of  an  additional  $33.1  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
March 31,  2005,  a  hypothetical  100 basis point  adverse  movement in  interest  rates
would have  resulted  in an increase in the net loss of  approximately  $0.2  million for
the three  months ended March 31, 2005.  Actual  changes in rates may differ  from the
hypothetical  assumptions  used in computing this exposure.

As  a  result
of  changing  our  distribution  arrangements  in  Japan,  beginning  in 2005  we are
subject  to risk  from  changes  in  foreign  exchange  rates  relating to revenue  from
our  subscription  agreements  with our Japanese  customers,  as payments will be made in
Japanese Yen.  Such changes could result in foreign currency  exchange gains or losses.
Revenue  derived from the Pacific Rim as a percentage  of total revenue  was 35% for the
three  months  ended  March 31,  2005 and was  primarily  derived  from  our  customers
in  Japan.  Exchange  rate  fluctuations  between the U.S.  dollar and the  currencies
of these  countries  could  result in positive or negative  fluctuations in the amounts
relating to  revenue  reported  in  our  consolidated  financial  statements.  A
hypothetical  10% adverse change in average foreign  currency  movements  would have
resulted  in an  increase  in the net loss of  approximately  $0.5  million for the
three months ended March 31, 2005.  There can be  no assurance that losses related to
this currency risk will not occur.

15.

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Item 4.
Controls and Procedures

Evaluation of
Disclosure Controls and Procedures

As of March 31,
2005, an evaluation was performed  under the supervision  and with the  participation  of
our  management,  including  the CEO and  CFO,  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 U.S.  Securities  and  Exchange  Commissions
(SECs)  rules  and  forms.  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 March 31, 2005, 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 Gene
Logic  is  made  known  to  management,  including  the  CEO  and  CFO,  particularly
during  the period  when our  periodic  reports  are being  prepared.

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 error
and all 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 controls  effectiveness  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  first  quarter
of 2005  that  materially  affected  or are  reasonably  likely to  materially  affect
our  internal  controls  over  financial reporting.

PART II OTHER
INFORMATION

Item 1. Legal
Proceedings

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

Item 2. Change
in 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.

Item 5. Other
Information

None.

16.

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Item 6.
Exhibits and Reports on Form 8-K

|A) |  | Exhibits:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   |  | 31                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   |  | 32                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|B) |  | Reports
      on Form 8-K:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   |  | During the three months ended March 31, 2005, the
           Company filed the following reports:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   |  | The  Current  Report on Form 8-K,
filed on February 4, 2005,  with  respect  to  the  FDA  warning  letter  received by the
Company on February 1, 2005.

The Current  Report on Form 8-K,
filed on February 18, 2005,  with  respect  to  the  Companys  financial  results
for the three and twelve  months ended  December 31, 2004.

The  Current  Report on Form
8-K/A,  filed on  February  23,  2005,  with respect to the Companys  approval  of
certain  increases  in  compensation  for  non-employee  Directors  and  a  non-executive
Chairman position.

The Current  Report on Form 8-K,
filed on February 24, 2005,  with  respect to the  Companys  approval of a  cash
incentive  compensation plan, pursuant to  which participating  executive officers of the
Company  will be  eligible  to earn  incentive  compensation  based  on  2005  Company
and  individual performance.

The  Current  Report  on Form
8-K,  filed on March 10,  2005,  with respect to the Company  entering  into an
employment  agreement  with V.W.  Brinkerhoff,  III,  to serve as a Senior Vice
President  of  the Company and  General  Manager,  Gene Logic  Laboratories Inc.

17.

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SIGNATURES

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

|      |              | GENE
      LOGIC INC.
|----- | ------------ | ---------------------
|      |              |                      
|Date: | May 10, 2005 | By:                  
|      |              |                      
|      |              |                      
|      |              |                      

18.

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