##### 



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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q

(Mark One)

|    |  |                                                                                                                                                     
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------
|[X] |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended September 30, 2002           
|   
|    |  | OR                                                                                                                                                  
|   
|[ ] |  | TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from____________ to ____________.

Commission File Number 0-23317



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

---

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

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

---

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

The number of shares outstanding of the Registrants Common Stock, $.01
par value, was 27,050,730 as of October 31, 2002.





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##### 



GENE LOGIC INC.

TABLE OF CONTENTS

PART I                      FINANCIAL INFORMATION

Item 1. Financial Statements

|                                                                                              |  |  |    | 
|--------------------------------------------------------------------------------------------- |  |  | -- | 
|Balance Sheets at September 30, 2002 and December 31, 2001                                    |  |  | 3  | 
|Statements of Operations for the Three and Nine Months Ended September 30, 2002 and 2001      |  |  | 4  | 
|Statements of Cash Flows for the Nine Months Ended September 30, 2002 and 2001                |  |  | 5  | 
|Notes to Financial Statements                                                                 |  |  | 6  | 
|                                                                                             
|Item 2. Managements Discussion and Analysis
of Results of Operations and Financial Condition |  |  | 8  | 
|                                                                                             
|Item 3. Quantitative and Qualitative Disclosure About Market Risk                             |  |  | 11 | 
|                                                                                             
|Item 4. Controls and Procedures                                                               |  |  | 11 | 
|                                                                                             
|PART II                      OTHER INFORMATION                                                |  |  |    | 
|                                                                                             
|Item 6. Exhibits and Reports on Form 8-K                                                      |  |  | 11 | 
|                                                                                             
|Signatures                                                                                    |  |  | 12 | 

2.



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##### 



PART I                      FINANCIAL INFORMATION

Item 1. Financial Statements

GENE LOGIC INC.
BALANCE SHEETS
(in thousands, except share data)

|                                |                                          |                                                                                                                                                                                  |                                            |                                      |          |               |        |              |          |         |        | 
|------------------------------- | ---------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ------------------------------------ | -------- | ------------- | ------ | ------------ | -------- | ------- | ------ | 
|                                |                                          |                                                                                                                                                                                  |                                            |                                      |          | September 30, |        | December 31,
|                                |                                          |                                                                                                                                                                                  |                                            |                                      |          | 2002          |        | 2001        
|                                |                                          |                                                                                                                                                                                  |                                            |                                      |          |               |        |             
|                                |                                          | (Unaudited)                                                                                                                                                                      |                                            |                                      |          |              
|                                |                                          |                                                                                                                                                                                  |                                            | ASSETS                               |          |               |        |              |          |         |        | 
|Current assets:                 |                                          |                                                                                                                                                                                  |                                            |                                      |          |               |        |             
|                                | Cash and cash equivalents                |                                                                                                                                                                                  | $                                          | 171,876                              |          |               | $      | 128,273      |         
|                                | Marketable securities available-for-sale |                                                                                                                                                                                  |                                            |                                     |          |               |        | 69,545       |         
|                                | Accounts receivable                      |                                                                                                                                                                                  |                                            | 4,429                                |          |               |        | 2,460        |         
|                                | Inventory, net                           |                                                                                                                                                                                  |                                            | 6,559                                |          |               |        | 6,097        |         
|                                | Prepaid expenses                         |                                                                                                                                                                                  |                                            | 2,203                                |          |               |        | 2,348        |         
|                                | Other current assets                     |                                                                                                                                                                                  |                                            | 877                                  |          |               |        | 3,512        |         
|                                |                                          |                                                                                                                                                                                  |                                            |                                      |          |               |        |              |         
|                                |                                          |                                                                                                                                                                                  | Total current assets                       |                                      |          | 185,944       |        |              |          | 212,235 |       
|Property and equipment, net     |                                          |                                                                                                                                                                                  | 15,891                                     |                                      |          |               | 18,358 |             
|Long-term investments           |                                          |                                                                                                                                                                                  | 6,031                                      |                                      |          |               | 4,631  |             
|Notes receivable from employees |                                          |                                                                                                                                                                                  | 65                                         |                                      |          |               | 106    |             
|Goodwill, net                   |                                          |                                                                                                                                                                                  | 2,677                                      |                                      |          |               | 2,677  |             
|Intangibles, net                |                                          |                                                                                                                                                                                  | 21,612                                     |                                      |          |               | 17,480 |             
|Other assets                    |                                          |                                                                                                                                                                                  | 43                                         |                                      |          |               | 1,440  |             
|                                |                                          |                                                                                                                                                                                  |                                            |                                      |          |               |        |              |         
|                                |                                          |                                                                                                                                                                                  | Total assets                               |                                      | $        | 232,263       |        |              | $        | 256,927 |       
|                                |                                          |                                                                                                                                                                                  |                                            |                                      |          |               |        |              |         
|                                |                                          |                                                                                                                                                                                  |                                            | LIABILITIES AND STOCKHOLDERS EQUITY |          |               |        |              |          |         |        | 
|Current liabilities:            |                                          |                                                                                                                                                                                  |                                            |                                      |          |               |        |             
|                                | Accounts payable                         |                                                                                                                                                                                  | $                                          | 5,973                                |          |               | $      | 8,479        |         
|                                | Accrued expenses                         |                                                                                                                                                                                  |                                            | 4,002                                |          |               |        | 5,022        |         
|                                | Current portion of long-term debt        |                                                                                                                                                                                  |                                            | 40                                   |          |               |        | 38           |         
|                                | Deferred revenue                         |                                                                                                                                                                                  |                                            | 9,584                                |          |               |        | 11,512       |         
|                                |                                          |                                                                                                                                                                                  |                                            |                                      |          |               |        |              |         
|                                |                                          |                                                                                                                                                                                  |                                            | Total current liabilities            |          |               | 19,599 |              |          |         | 25,051 | 
|Deferred revenue                |                                          |                                                                                                                                                                                  | 1,628                                      |                                      |          |               | 4,525  |             
|Long-term debt                  |                                          |                                                                                                                                                                                  | 720                                        |                                      |          |               | 300    |             
|Other noncurrent liabilities    |                                          |                                                                                                                                                                                  | 1,060                                      |                                      |          |               | 1,024  |             
|                                |                                          |                                                                                                                                                                                  |                                            |                                      |          |               |        |              |         
|                                |                                          |                                                                                                                                                                                  |                                            | Total liabilities                    |          |               | 23,007 |              |          |         | 30,900 | 
|                                |                                          |                                                                                                                                                                                  |                                            |                                      |          |               |        |              |         
|Commitments and contingencies   |                                          |                                                                                                                                                                                  |                                            |                                      |          |               |        |             
|Stockholders equity:           |                                          |                                                                                                                                                                                  |                                            |                                      |          |               |        |             
|                                |                                          | Preferred stock, $.01 par value; 10,000,000
shares authorized; no shares issued and
outstanding as of September 30, 2002 and
December 31, 2001                                   |                                            |                                      |         |               |        |              |         |        
|                                |                                          | Common stock, $.01 par value; 60,000,000
shares authorized; 27,027,944 and 26,767,837
shares issued and outstanding as of September
30, 2002 and December 31, 2001, respectively |                                            |                                      | 270      |               |        |              | 268      |        
|                                |                                          | Additional paid-in capital                                                                                                                                                       |                                            |                                      | 363,181  |               |        |              | 361,067  |        
|                                |                                          | Accumulated other comprehensive income                                                                                                                                           |                                            |                                      |         |               |        |              | 17       |        
|                                |                                          | Accumulated deficit                                                                                                                                                              |                                            |                                      | (154,195 | )             |        |              | (135,325 | )      
|                                |                                          |                                                                                                                                                                                  |                                            |                                      |          |               |        |              |         
|                                |                                          |                                                                                                                                                                                  | Total stockholders equity                 |                                      |          | 209,256       |        |              |          | 226,027 |       
|                                |                                          |                                                                                                                                                                                  |                                            |                                      |          |               |        |              |         
|                                |                                          |                                                                                                                                                                                  | Total liabilities and stockholders equity |                                      | $        | 232,263       |        |              | $        | 256,927 |       
|                                |                                          |                                                                                                                                                                                  |                                            |                                      |          |               |        |              |         

See accompanying notes.

3.



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##### 



GENE LOGIC INC.
STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(Unaudited)

|                                                                     |                                     |                          |        |                    |        |                   |        |        |        |      |        |        |         |   |        |        |         |  
|-------------------------------------------------------------------- | ----------------------------------- | ------------------------ | ------ | ------------------ | ------ | ----------------- | ------ | ------ | ------ | ---- | ------ | ------ | ------- | - | ------ | ------ | ------- | -
|                                                                     |                                     |                          |        | Three Months Ended |        | Nine Months Ended
|                                                                     |                                     |                          |        | September 30,      |        | September 30,    
|                                                                     |                                     |                          |        |                    |        |                  
|                                                                     |                                     |                          |        | 2002               |        | 2001              |        | 2002   |        | 2001
|                                                                     |                                     |                          |        |                    |        |                   |        |        |        |     
|Revenue                                                              |                                     | $                        | 14,185 |                    |        | $                 | 11,547 |        |        | $    | 40,093 |        |         | $ | 29,362 |       
|Expenses:                                                            |                                     |                          |        |                    |        |                   |        |        |        |      |        |        |         |   |        |       
|                                                                     | Research and development            |                          |        | 17,250             |        |                   |        | 14,521 |        |      |        | 45,658 |         |   |        | 45,320 |        
|                                                                     | Selling, general and administrative |                          |        | 4,269              |        |                   |        | 4,686  |        |      |        | 14,972 |         |   |        | 14,890 |        
|                                                                     | Amortization of goodwill            |                          |        |                   |        |                   |        | 381    |        |      |        |       |         |   |        | 1,143  |        
|                                                                     |                                     |                          |        |                    |        |                   |        |        |        |     
|                                                                     |                                     | Total operating expenses |        |                    | 21,519 |                   |        |        | 19,588 |      |        |        | 60,630  |   |        |        | 61,353  |  
|                                                                     |                                     |                          |        |                    |        |                   |        |        |        |     
|                                                                     |                                     | Loss from operations     |        |                    | (7,334 | )                 |        |        | (8,041 | )    |        |        | (20,537 | ) |        |        | (31,991 | )
|Interest (income), net                                               |                                     |                          | (786   | )                  |        |                   | (1,768 | )      |        |      | (2,410 | )      |         |   | (7,332 | )     
|Other (income)                                                       |                                     |                          |       |                    |        |                   |       |        |        |      | (250   | )      |         |   | (83    | )     
|Income tax expense                                                   |                                     |                          | 409    |                    |        |                   | 148    |        |        |      | 993    |        |         |   | 361    |       
|Equity in net loss of unconsolidated investees                       |                                     |                          |       |                    |        |                   | 817    |        |        |      |       |        |         |   | 2,267  |       
|                                                                     |                                     |                          |        |                    |        |                   |        |        |        |     
|                                                                     |                                     | Net loss                 |        | $                  | (6,957 | )                 |        | $      | (7,238 | )    |        | $      | (18,870 | ) |        | $      | (27,204 | )
|                                                                     |                                     |                          |        |                    |        |                   |        |        |        |     
|Basic and diluted net loss per common share                          |                                     | $                        | (0.26  | )                  |        | $                 | (0.27  | )      |        | $    | (0.70  | )      |         | $ | (1.03  | )     
|                                                                     |                                     |                          |        |                    |        |                   |        |        |        |     
|Shares used in computing basic and diluted net loss per
common share |                                     |                          | 26,992 |                    |        |                   | 26,665 |        |        |      | 26,914 |        |         |   | 26,471 |       
|                                                                     |                                     |                          |        |                    |        |                   |        |        |        |     

See accompanying notes.

4.



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##### 



GENE LOGIC INC.
STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)

|                                                                               |                                                                              |                                          |         |                   |         |      |         |        |         |  
|------------------------------------------------------------------------------ | ---------------------------------------------------------------------------- | ---------------------------------------- | ------- | ----------------- | ------- | ---- | ------- | ------ | ------- | -
|                                                                               |                                                                              |                                          |         | Nine Months Ended
|                                                                               |                                                                              |                                          |         | September 30,    
|                                                                               |                                                                              |                                          |         |                  
|                                                                               |                                                                              |                                          |         | 2002              |         | 2001
|                                                                               |                                                                              |                                          |         |                   |         |     
|Cash flows from operating activities:                                          |                                                                              |                                          |         |                   |         |      |         |       
|Net loss                                                                       |                                                                              | $                                        | (18,870 | )                 |         | $    | (27,204 | )     
|Adjustments to reconcile net loss to net cash flows from operating activities: |                                                                              |                                          |         |                   |         |      |         |       
|                                                                               | Depreciation and amortization                                                |                                          |         | 9,996             |         |      |         | 8,193  |        
|                                                                               | Amortization of goodwill                                                     |                                          |         |                  |         |      |         | 1,143  |        
|                                                                               | Amortization of deferred compensation                                        |                                          |         |                  |         |      |         | 738    |        
|                                                                               | Net loss from investment in unconsolidated investees                         |                                          |         |                  |         |      |         | 2,267  |        
|                                                                               | Gain from the sale of equity investment                                      |                                          |         | (250              | )       |      |         |       |        
|                                                                               | Loss on disposal of property and equipment                                   |                                          |         | 12                |         |      |         | 31     |        
|                                                                               | Loss on abandonment of patent costs                                          |                                          |         | 667               |         |      |         |       |        
|                                                                               | Other non-cash expenses                                                      |                                          |         |                  |         |      |         | 127    |        
|Changes in operating assets and liabilities:                                   |                                                                              |                                          |         |                   |         |      |         |       
|                                                                               | Accounts receivable                                                          |                                          |         | (1,969            | )       |      |         | (1,546 | )      
|                                                                               | Inventory, net                                                               |                                          |         | (462              | )       |      |         | (3,062 | )      
|                                                                               | Prepaid expenses                                                             |                                          |         | 145               |         |      |         | (445   | )      
|                                                                               | Other current assets                                                         |                                          |         | 2,633             |         |      |         | 2,745  |        
|                                                                               | Other assets                                                                 |                                          |         | 8                 |         |      |         | 79     |        
|                                                                               | Accounts payable                                                             |                                          |         | (2,506            | )       |      |         | 3,382  |        
|                                                                               | Litigation settlement payable                                                |                                          |         |                  |         |      |         | (9,000 | )      
|                                                                               | Accrued expenses                                                             |                                          |         | (1,020            | )       |      |         | (4,389 | )      
|                                                                               | Deferred revenue                                                             |                                          |         | (5,825            | )       |      |         | 2,187  |        
|                                                                               | Other noncurrent liabilities                                                 |                                          |         | 36                |         |      |         | 315    |        
|                                                                               |                                                                              |                                          |         |                   |         |      |         |       
|                                                                               |                                                                              | Net cash flows from operating activities |         |                   | (17,405 | )    |         |        | (24,439 | )
|                                                                               |                                                                              |                                          |         |                   |         |      |         |       
|Cash flows from investing activities:                                          |                                                                              |                                          |         |                   |         |      |         |       
|                                                                               | Purchases of property and equipment                                          |                                          |         | (1,674            | )       |      |         | (7,636 | )      
|                                                                               | Purchases of licenses and patent costs                                       |                                          |         | (1,415            | )       |      |         | (887   | )      
|                                                                               | Software development and database upgrade costs                              |                                          |         | (9,252            | )       |      |         | (4,541 | )      
|                                                                               | Sale (Purchase) of equity investment                                         |                                          |         | 1,240             |         |      |         | (753   | )      
|                                                                               | Repayments of (Increases in) notes receivable from employees                 |                                          |         | 43                |         |      |         | (27    | )      
|                                                                               | Proceeds from sale and maturity of marketable securities available-for-sale  |                                          |         | 69,528            |         |      |         |       |        
|                                                                               |                                                                              |                                          |         |                   |         |      |         |       
|                                                                               |                                                                              | Net cash flows from investing activities |         |                   | 58,470  |      |         |        | (13,844 | )
|                                                                               |                                                                              |                                          |         |                   |         |      |         |       
|Cash flows from financing activities:                                          |                                                                              |                                          |         |                   |         |      |         |       
|                                                                               | Proceeds from issuance of common stock                                       |                                          |         | 2,116             |         |      |         | 3,829  |        
|                                                                               | Proceeds from exercise of warrant                                            |                                          |         |                  |         |      |         | 534    |        
|                                                                               | Proceeds from note payable                                                   |                                          |         | 450               |         |      |         |       |        
|                                                                               | Repayments of equipment loans                                                |                                          |         | (28               | )       |      |         | (2,618 | )      
|                                                                               |                                                                              |                                          |         |                   |         |      |         |       
|                                                                               |                                                                              | Net cash flows from financing activities |         |                   | 2,538   |      |         |        | 1,745   |  
|                                                                               |                                                                              |                                          |         |                   |         |      |         |       
|Net increase (decrease) in cash and cash equivalents                           |                                                                              |                                          | 43,603  |                   |         |      | (36,538 | )     
|Cash and cash equivalents, beginning of period                                 |                                                                              |                                          | 128,273 |                   |         |      | 229,482 |       
|                                                                               |                                                                              |                                          |         |                   |         |      |         |       
|Cash and cash equivalents, end of period                                       |                                                                              | $                                        | 171,876 |                   |         | $    | 192,944 |       
|                                                                               |                                                                              |                                          |         |                   |         |      |         |       
|Supplemental disclosure:                                                       |                                                                              |                                          |         |                   |         |      |         |       
|                                                                               | Taxes paid                                                                   |                                          | $       | 1,006             |         |      | $       | 334    |        
|                                                                               |                                                                              |                                          |         |                   |         |      |         |       
|                                                                               | Interest paid                                                                |                                          | $       | 12                |         |      | $       | 149    |        
|                                                                               |                                                                              |                                          |         |                   |         |      |         |       
|Non-cash transactions:                                                         |                                                                              |                                          |         |                   |         |      |         |       
|                                                                               | Equity investment received as partial payment for a GeneExpress subscription |                                          | $       | 1,000             |         |      | $       |       |        
|                                                                               |                                                                              |                                          |         |                   |         |      |         |       
|                                                                               | Promissory note received from sale of investment                             |                                          | $       |                  |         |      | $       | 2,654  |        
|                                                                               |                                                                              |                                          |         |                   |         |      |         |       
|                                                                               | Spin-off of assets to unconsolidated investee                                |                                          | $       |                  |         |      | $       | 817    |        
|                                                                               |                                                                              |                                          |         |                   |         |      |         |       

See accompanying notes.

5.



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##### 



GENE LOGIC INC.
NOTES TO FINANCIAL STATEMENTS
September 30, 2002
(in thousands, except per share data)
(Unaudited)

Note 1  Summary of significant accounting policies

Basis of Presentation

For the three and nine months ended September 30, 2001, the unaudited
financial statements include the accounts of Gene Logic Inc. (the Company)
and its wholly owned subsidiary. The Company and its wholly owned subsidiary
were merged in the fourth quarter of 2001. The accompanying unaudited financial
statements have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions to Form
10-Q and Article 10 of Regulation S-X. The balance sheet as of September 30,
2002, statements of operations for the three and nine months ended September
30, 2002 and 2001 and the statements of cash flows for the nine months ended
September 30, 2002 and 2001 are unaudited, but include all adjustments
(consisting of normal recurring adjustments) which the Company considers
necessary for a fair presentation of the financial position, operating results
and cash flows for the periods presented. Although the Company believes that
the disclosures in these financial statements are adequate to make the
information presented not misleading, certain information and footnote
information normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to the rules and regulations of the Securities and Exchange
Commission.

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

Segment Information

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

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

|                            |                    |  |       |           |   |  |  |    |  
|--------------------------- | ------------------ |  | ----- | --------- | - |  |  | -- | -
|                            |                    |  | Major | Customers
|                            |                    |  |       |          
|                            |                    |  | A     |           | B
|                            |                    |  |       |           |  
|For the three months ended: |                    |  |       |           |   |  |  |   
|                            | September 30, 2002 |  |       |          |   |  |  |   |  
|                            | September 30, 2001 |  |       | 16        | % |  |  |   |  
|For the nine months ended:  |                    |  |       |           |   |  |  |   
|                            | September 30, 2002 |  |       |          |   |  |  |   |  
|                            | September 30, 2001 |  |       | 11        | % |  |  | 11 | %

Reclassifications

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

Note 2  Goodwill and intangible assets

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

6.



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##### 



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

|                                             |  |                    |        |                   |  |      |        |      |  |   |         |   |  |   |         |  
|-------------------------------------------- |  | ------------------ | ------ | ----------------- |  | ---- | ------ | ---- |  | - | ------- | - |  | - | ------- | -
|                                             |  | Three Months Ended |        | Nine Months Ended
|                                             |  | September 30,      |        | September 30,    
|                                             |  |                    |        |                  
|                                             |  | 2002               |        | 2001              |  | 2002 |        | 2001
|                                             |  |                    |        |                   |  |      |        |     
|Reported net loss                            |  | $                  | (6,957 | )                 |  | $    | (7,238 | )    |  | $ | (18,870 | ) |  | $ | (27,204 | )
|Add: Goodwill amortization                   |  |                    |       |                   |  |      | 381    |      |  |   |        |   |  |   | 1,143   |  
|                                             |  |                    |        |                   |  |      |        |      |  |   |         |   |  |   |         |  
|Pro forma adjusted net loss                  |  | $                  | (6,957 | )                 |  | $    | (6,857 | )    |  | $ | (18,870 | ) |  | $ | (26,061 | )
|                                             |  |                    |        |                   |  |      |        |      |  |   |         |   |  |   |         |  
|Basic and diluted net loss per common share: |  |                    |        |                   |  |      |        |      |  |   |         |   |  |   |         |  
|Reported net loss                            |  | $                  | (0.26  | )                 |  | $    | (0.27  | )    |  | $ | (0.70   | ) |  | $ | (1.03   | )
|Add: Goodwill amortization                   |  |                    |       |                   |  |      | 0.01   |      |  |   |        |   |  |   | 0.04    |  
|                                             |  |                    |        |                   |  |      |        |      |  |   |         |   |  |   |         |  
|Pro forma adjusted net loss                  |  | $                  | (0.26  | )                 |  | $    | (0.26  | )    |  | $ | (0.70   | ) |  | $ | (0.99   | )
|                                             |  |                    |        |                   |  |      |        |      |  |   |         |   |  |   |         |  

There were no changes in the carrying amount of goodwill for the quarter
ended September 30, 2002 based on the initial impairment test performed as of
January 1, 2002, which resulted in no impairment to the value of goodwill in
the Companys financial statements. Additionally, as required by SFAS No. 142,
intangible assets that do not meet the criteria for recognition apart from
goodwill must be reclassified. As a result of the Companys analysis, no
reclassifications were required upon the adoption of this standard.

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

|                               |                            |   |               |        |              |   |        |        | 
|------------------------------ | -------------------------- | - | ------------- | ------ | ------------ | - | ------ | ------ | 
|                               |                            |   | September 30, |        | December 31,
|                               |                            |   | 2002          |        | 2001        
|                               |                            |   |               |        |             
|Carrying amount:               |                            |   |               |        |              |   |        |       
|                               | Licenses                   |   | $             | 9,133  |              |   | $      | 8,140  | 
|                               | Patent costs               |   |               | 2,296  |              |   |        | 2,541  | 
|                               | Software development costs |   |               | 16,943 |              |   |        | 11,578 | 
|                               | Database upgrade costs     |   |               | 7,899  |              |   |        | 4,013  | 
|                               |                            |   |               |        |              |   |        |        | 
|Total carrying amount          |                            | $ | 36,271        |        |              | $ | 26,272 |       
|                               |                            |   |               |        |              |   |        |        | 
|Accumulated amortization:      |                            |   |               |        |              |   |        |       
|                               | Licenses                   |   | $             | 4,243  |              |   | $      | 3,067  | 
|                               | Patent costs               |   |               | 378    |              |   |        | 257    | 
|                               | Software development costs |   |               | 6,082  |              |   |        | 3,146  | 
|                               | Database upgrade costs     |   |               | 3,956  |              |   |        | 2,322  | 
|                               |                            |   |               |        |              |   |        |        | 
|Total accumulated amortization |                            | $ | 14,659        |        |              | $ | 8,792  |       
|                               |                            |   |               |        |              |   |        |        | 
|Net carrying value:            |                            |   |               |        |              |   |        |       
|                               | Licenses                   |   | $             | 4,890  |              |   | $      | 5,073  | 
|                               | Patent costs               |   |               | 1,918  |              |   |        | 2,284  | 
|                               | Software development costs |   |               | 10,861 |              |   |        | 8,432  | 
|                               | Database upgrade costs     |   |               | 3,943  |              |   |        | 1,691  | 
|                               |                            |   |               |        |              |   |        |        | 
|Total net carrying value       |                            | $ | 21,612        |        |              | $ | 17,480 |       
|                               |                            |   |               |        |              |   |        |        | 

Amortization expense for the three and nine months ended September 30,
2002 was $2.3 million and $5.9 million, respectively. Amortization expense for
the three and nine months ended September 30, 2001 was $1.4 million and $4.1
million, respectively. Estimated amortization expense for existing intangible
assets for each of the five succeeding years ended December 31 will be as
follows:

|                          |  |   |       | 
|------------------------- |  | - | ----- | 
|2002 (remaining 3 months) |  | $ | 2,434 | 
|2003                      |  |   | 8,828 | 
|2004                      |  |   | 5,739 | 
|2005                      |  |   | 2,447 | 
|2006                      |  |   | 210   | 

7.



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

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

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

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

Overview

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

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

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

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

8.



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

We have incurred operating losses in each year since our inception. At
September 30, 2002, we had accumulated operating losses of $154.2 million. Our
losses have resulted principally from costs incurred in the development of our
genomic information products and services, a $35.2 million non-recurring charge
incurred in connection with our acquisition of Oncormed and selling, general
and administrative costs associated with our operations. These costs have
exceeded our revenue, which to date have been generated principally from
subscriptions to our GeneExpress products and services and agreements for our
customized information products. We expect to incur additional operating
losses in the future.

Results of Operations

Three And Nine Months Ended September 30, 2002 And 2001

Revenue increased $2.6 million, or 23%, to $14.2 million for the three
months ended September 30, 2002 from $11.5 million for the same period in 2001.
Revenue increased $10.7 million, or 37%, to $40.1 million for the nine months
ended September 30, 2002 from $29.4 million for the same period in 2001. The
increase in revenue resulted primarily from additional subscribers to our
GeneExpress product line and expanded subscription levels for existing certain
GeneExpress customers. For the three months ended September 30, 2001, UCB
Research accounted for greater than 10% of revenue. For the nine months ended
September 30, 2001, each of Proctor & Gamble and UCB Research accounted for
greater than 10% of revenue. During the third quarter of 2002, our GeneExpress
subscription agreements with Psychiatric Genomics and PsychoGenics terminated
by mutual agreement and the GeneExpress subscription agreement and custom
discovery partnership with LG Life Sciences (formerly LG Chemical) will
conclude on December 31, 2002 in accordance with the terms of the agreement.
We do not expect that these events will have a material effect on our business,
financial condition or results of operations. Due to current economic
uncertainty, we continue to experience delays in purchase decisions among a
number of our existing and potential customers. We expect these delays will
slow our revenue growth for the foreseeable future.

Research and development expenses primarily consist of the costs incurred
in developing, expanding and maintaining our GeneExpress products. For the
three and nine months ended September 30, 2002, research and development
expenses increased to $17.3 million and $45.7 million, respectively, from $14.5
million and $45.3 million for the same periods in 2001. The increase in
research and development expenses for the three months ended September 30, 2002
compared to the same period in 2001 was due to greater tissue acquisition
costs, higher depreciation and amortization expenses as a result of new
software releases and the upgrade to the GeneExpress database and customer
hardware deployment costs offset somewhat by lower expenses for agreements with
third parties. Research and development costs remained relatively constant for
the nine months ended September 30, 2002 when compared to the same period of
2001 despite increased depreciation and amortization expenses, higher employee
costs and patent abandonment costs. These increases were offset by lower
expenses for agreements with third parties and decreased microarray usage in
the first half of 2002 due to our efforts in upgrading the GeneExpress database
utilizing the newest version of the Affymetrix GeneChip. Research and
development expenses for the fourth quarter of 2002 are expected to be lower
when compared to the third quarter of 2002 due to the type and quantity of new
content added to the GeneExpress database and lower customer hardware
deployment costs.

Selling, general and administrative expenses include the costs of
corporate operations, sales and marketing, finance and accounting, legal, human
resources and other general operations. Selling, general and administrative
expenses decreased to $4.3 million for the three months ended September 30,
2002 from $4.7 million for the same period in 2001, which was due to normal
fluctuations in the costs of operations. For the nine months ended September
30, 2002, selling, general and administrative expenses remained relatively
constant when compared to the same period in 2001. When compared to the third
quarter of 2002, selling, general and administrative expenses for the fourth
quarter of 2002 are not expected to increase significantly.

In accordance with SFAS 142, which we adopted January 1, 2002, we no
longer amortize goodwill, but instead apply annual impairment tests in
accordance with the Statement. We completed the initial impairment analysis
upon its adoption, which resulted in no impairment to goodwill. Amortization of
goodwill was $0.4 million and $1.1 million for the three and nine months ended
September 30, 2001, respectively, and was the result of the acquisition of
Oncormed in September 1998.

Net interest income decreased to $0.8 million and $2.4 million for the
three and nine months ended September 30, 2002 from $1.8 million and $7.3
million for the same periods in 2001, primarily due to a decrease in the rates
of return for our investments in, and to a lesser degree a decline in our
balance of, cash, cash equivalents and marketable securities
available-for-sale.

9.



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Other income increased to $0.3 million for the nine months ended September
30, 2002 from $0.1 million for the same periods in 2001, due to the gain
recognized from the sale of an equity investment in 2002.

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

Liquidity and Capital Resources

From inception through September 30, 2002, we have financed our operations
through the sale of equity securities and payments from customers. As of
September 30, 2002, we had approximately $171.9 million in cash, cash
equivalents and marketable securities, compared to $197.8 million as of
December 31, 2001.

Net cash used in operating activities was $17.4 million for the nine
months ended September 30, 2002 compared to $24.4 million during the same
period in 2001. The negative operating cash flow for the nine months ended
September 30, 2002 and 2001 was primarily due to the continued funding of our
operating losses.

During the nine months ended September 30, 2002 and 2001, our investing
activities, other than purchases and sales and maturities of available-for-sale
securities, consisted primarily of capital expenditures and software
development and database upgrade costs. Capital expenditures for the nine
months ended September 30, 2002 and 2001 amounted to $1.7 million and $7.6
million, respectively. For the nine months ended September 30, 2001,
approximately $3.2 million of these expenditures related to the build-out of
our production facility, which was completed in March 2001, and $2.2 million
were computer equipment purchases to support our GeneExpress database. We
expect laboratory and computer equipment purchases to continue as we expand the
content of, and the products derived from, the GeneExpress database.

We have capitalized software costs of $5.4 million and $4.5 million for
the nine months ended September 30, 2002 and 2001, respectively. These costs
relate to ongoing efforts to enhance our Genesis Enterprise System, the
software platform of our GeneExpress product line. During the nine months ended
September 30, 2002, we capitalized $3.9 million of costs related to the upgrade
of data in the GeneExpress database as a result of Affymetrixs release of
their GeneChip Human Genome U-133 Set, which was substantially completed in the
second quarter of 2002. Software development and database upgrade costs are
being amortized over their expected useful lives of three and two years,
respectively. Capitalization of additional software development and database
upgrade costs is expected to continue as a result of ongoing efforts to further
enhance our GeneExpress line of products and services.

Our financing activities, other than the repayment of equipment loans,
consisted primarily of the exercise of stock options. During the nine months
ended September 30, 2001, we repaid an equipment loan in full totaling
approximately $1.9 million due to the cost of such capital and the prevailing
interest rates in the market.

In January 1999, we entered into a three-year agreement with Affymetrix,
pursuant to which Affymetrix supplies its GeneChip microarrays to us for the
development of gene expression databases. During 2001, we renegotiated and
extended this agreement for two years, subject to renewal, commencing January
2002. Under the terms of the new agreement, we continue to pay Affymetrix
subscription fees for access to its microarrays, purchase the microarrays and
related instrumentation and software and expect to incur royalty expense in
future years upon meeting certain revenue thresholds related to GeneExpress
database subscriptions. During 2002, we have agreed to purchase from Affymetrix
a minimum of $15.1 million in products and services, of which we expect to
purchase approximately $4.0 million to $5.0 million in the fourth quarter of
2002. Our microarray inventory at December 31, 2002 is expected to increase
over our September 30, 2002 inventory by approximately $2.5 million. Our
commitments under other research and license agreements do not represent
significant expenditures in relation to our total research and development
expense.

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

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

10.



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Item 3. Quantitative and Qualitative Disclosure about Market Risk

We have limited exposure to financial market risks, including changes in
interest rates. At September 30, 2002, we had cash and cash equivalents of
approximately $171.9 million. Cash and cash equivalents consist of money market
accounts and investment-grade commercial paper. Based on the cash balance at
September 30, 2002, a 100 basis point decline in interest rates would result in
an increase in net loss for the three and nine months ended September 30, 2002
of approximately $0.4 million and $1.3 million, respectively. Actual changes in
rates may differ from the hypothetical assumptions used in computing this
exposure.

Item 4. Controls and Procedures

As of September 30, 2002, an evaluation was performed under the
supervision and with the participation of our management, including the Chief
Executive Officer and Chief Financial Officer, of the effectiveness of the
design and operation of our disclosure controls and procedures. Based on that
evaluation, our management, including the Chief Executive Officer and Chief
Financial Officer, concluded that our disclosure controls and procedures were
effective as of September 30, 2002.

There have been no significant changes in our internal controls or in
other factors that could significantly affect internal controls subsequent to
September 30, 2002.

PART II                      OTHER INFORMATION

Item 6. Exhibits and Reports on Form 8-K

A) Exhibits:



| | 10.99 |  | Certification pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
| | ----- |  | -----------------------------------------------------------------------------------------------------------------------

B) Reports on Form 8-K:



| |  |  | No reports on Form 8-K were filed during the three months ended
September 30, 2002.
| |  |  | -----------------------------------------------------------------------------------

11.



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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: November 13, 2002 |  | By:             |  | /s/ Philip L. Rohrer, Jr.Philip L. Rohrer, Jr.
Chief Financial Officer
(Principal Financial and Accounting Officer)

CERTIFICATIONS

I, Philip L. Rohrer, Jr., certify that:



| | 1. |  | I have reviewed this quarterly report on Form 10-Q of Gene Logic
Inc.;                                                                                                                                                                                                                                                        
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | 2. |  | Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
|
| | 3. |  | Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;                   
|
| | 4. |  | The registrants other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:                                                                                                         

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|                        |  |     |  |                                                                       
|----------------------- |  | --- |  | ----------------------------------------------------------------------
|Date: November 13, 2002 |  | By: |  | /s/ Philip L. Rohrer, Jr.Philip L. Rohrer, Jr.
Chief Financial Officer

12.



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CERTIFICATIONS

I, Mark D. Gessler, certify that:



| | 1. |  | I have reviewed this quarterly report on Form 10-Q of Gene Logic
Inc.;                                                                                                                                                                                                                                                        
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | 2. |  | Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
|
| | 3. |  | Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;                   
|
| | 4. |  | The registrants other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:                                                                                                         

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|      |  |                   |  |     |  |                                                           
|----- |  | ----------------- |  | --- |  | ----------------------------------------------------------
|Date: |  | November 13, 2002 |  | By: |  | /s/ Mark D. GesslerMark D. Gessler
Chief Executive Officer

13.