**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**


**FORM
      10-Q**





**(Mark
      One)**


**x**
            **Quarterly
                Report Pursuant To Section 13 Or 15(d) Of The****Securities
                Exchange Act Of 1934****For
                the quarterly period ended March 31,
                2007**





**OR**





**o**
            **Transition
                Report Pursuant To Section 13 Or 15(d) Of The****Securities
                Exchange Act Of 1934****For
                the transition period from _______________ to
                _______________**








**Commission
      File Number: 0-23317**











GENE
      LOGIC INC.





(Exact
      name of registrant as specified in its charter)










**Delaware**
            **06-1411336**(State
                or other jurisdiction of
            (I.R.S.
                Employerincorporation
                or organization)
            Identification
                No.)








**50
      West Watkins Mill Road**


**Gaithersburg,
      Maryland 20878**


(Address
      of principal executive offices)


**(301)
      987-1700**


(Registrant’s
      phone number, including area code)








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





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





Large
                accelerated filer o
            Accelerated
                filerx
            Non-accelerated
                filer o





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





The
      number
      of shares outstanding of the Registrant’s Common Stock, $.01 par value, was
      32,010,276 as of April 30, 2007.












**GENE
        LOGIC INC.**
  **TABLE
        OF CONTENTS**
 **PART
                    I**
                
                **FINANCIAL
                    INFORMATION**Item
                    1.
                Financial
                    Statements
                3Consolidated
                    Condensed Balance Sheets at March 31,
                    2007 and December 31, 2006
                3Consolidated
                    Condensed Statements of
                    Operations for the Three Months Ended March 31, 2007 and
                    2006
                4Consolidated
                    Condensed Statements of Cash Flows for the
                    Three Months Ended March 31, 2007 and 2006
                5Notes
                    to Consolidated Condensed Financial
                    Statements
                6Item
                    2.
                Management’s
                    Discussion and Analysis of Results of
                    Operations and Financial Condition
                11Item
                    3.
                Quantitative
                    and Qualitative Disclosure about Market
                    Risk
                16Item
                    4.
                Controls
                    and Procedures
                17**PART
                    II**
                
                **OTHER
                    INFORMATION**Item
                    1.
                Legal
                    Proceedings
                17Item
                    1A.
                Risk
                    Factors
                17Item
                    2.
                Unregistered
                    Sales of Equity Securities and Use
                    of Proceeds
                17Item
                    3.
                Defaults
                    Upon Senior Securities
                17Item
                    4.
                Submission
                    of Matters to a Vote of Security
                    Holders
                17Item
                    5.
                Other
                    Information
                17Item
                    6.
                Exhibits
                18Signatures
                
                
                19
  2


**PART
      I****FINANCIAL
      INFORMATION**





**Item
      1.****Financial
      Statements**


**GENE
      LOGIC INC.**





**CONSOLIDATED
      CONDENSED BALANCE
      SHEETS**


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


**March
                  31,**
              
              **December
                  31,****2007**
              
              **2006****(Unaudited)****ASSETS**Current
                  assets:Cash
                  and cash equivalents
              
              $
              27,405
              
              $
              25,700Marketable
                  securities available-for-sale
              
              
              15,681
              
              
              24,410Accounts
                  receivable, net of allowance of $45 as of March 31, 2007 andDecember
                  31, 2006
              
              
              943
              
              
              3,327Unbilled
                  services
              
              
              764
              
              
              589Inventory,
                  net
              
              
              2,022
              
              
              2,180Prepaid
                  expenses
              
              
              1,446
              
              
              1,260Other
                  current assets
              
              
              2,681
              
              
              3,551Total
                  current assets
              
              
              50,942
              
              
              61,017Property
                  and equipment, net
              
              
              12,345
              
              
              12,829Long-term
                  investments
              
              
              2,964
              
              
              2,964Goodwill
              
              
              2,677
              
              
              2,677Other
                  intangibles, net
              
              
              8,978
              
              
              10,060Other
                  assets
              
              
              665
              
              
              726Total
                  assets
              
              $
              78,571
              
              $
              90,273**LIABILITIES
                  AND STOCKHOLDERS' EQUITY**Current
                  liabilities:Accounts
                  payable
              
              $
              2,334
              
              $
              3,703Payable
                  to Bridge Pharmaceuticals
              
              
              666
              
              
              1,727Accrued
                  compensation and employee benefits
              
              
              3,803
              
              
              2,883Other
                  accrued expenses
              
              
              2,986
              
              
              3,751Accrued
                  restructuring costs
              
              
              1,342
              
              
              1,941Current
                  portion of long-term debt
              
              
              500
              
              
              499Deferred
                  revenue
              
              
              4,626
              
              
              3,299Total
                  current liabilities
              
              
              16,257
              
              
              17,803Deferred
                  revenue
              
              
              -
              
              
              228Long-term
                  debt, net of current portion
              
              
              66
              
              
              78Deferred
                  rent
              
              
              1,010
              
              
              1,074Total
                  liabilities
              
              
              17,333
              
              
              19,183Commitments
                  and contingencies
              
              
              -
              
              
              -Stockholders'
                  equity:Preferred
                  stock, $.01 par value; 10,000,000 shares authorized; and no shares
                  issued
                  andoutstanding
                  as of March 31, 2007 and December 31, 2006
              
              
              -
              
              
              -Common
                  stock, $.01 par value; 60,000,000 shares authorized; 31,983,139
                  and
                  31,820,273 sharesissued
                  and outstanding as of March 31, 2007 and December 31, 2006,
                  respectively
              
              
              320
              
              
              318Additional
                  paid-in-capital
              
              
              386,762
              
              
              386,530Accumulated
                  other comprehensive loss
              
              
              (58
              )
              
              (78
              )Accumulated
                  deficit
              
              
              (325,786
              )
              
              (315,680
              )Total
                  stockholders' equity
              
              
              61,238
              
              
              71,090Total
                  liabilities and stockholders' equity
              
              $
              78,571
              
              $
              90,273





See
      accompanying notes.




3


**GENE
      LOGIC INC.**





**CONSOLIDATED
      CONDENSED STATEMENTS OF
      OPERATIONS**


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


**(Unaudited)**


**Three
                    Months Ended****March
                    31,****2007**
                
                **2006**Revenue:Genomics
                    services
                
                $
                3,269
                
                $
                8,748Drug
                    repositioning services
                
                
                -
                
                
                20Total
                    revenue
                
                
                3,269
                
                
                8,768Expenses:Database
                    production
                
                
                5,298
                
                
                7,795Research
                    and development
                
                
                2,436
                
                
                2,440Selling,
                    general and administrative
                
                
                6,221
                
                
                6,939Total
                    expenses
                
                
                13,955
                
                
                17,174Loss
                    from operations
                
                
                (10,686
                )
                
                (8,406
                )Interest
                    (income), net
                
                
                (615
                )
                
                (773
                )Other
                    (income) expense
                
                
                35
                
                
                (3
                )Write-down
                    of equity investment
                
                
                -
                
                
                275Loss
                    from continuing operations
                
                
                (10,106
                )
                
                (7,905
                )Loss
                    from discontinued operations
                
                
                -
                
                
                (3,892
                )Net
                    loss
                
                $
                (10,106
                )
                $
                (11,797
                )Basic
                    and diluted net loss per share:Loss
                    from continuing operations
                
                $
                (0.32
                )
                $
                (0.25
                )Loss
                    from discontinued operations
                
                
                -
                
                
                (0.12
                )Net
                    loss
                
                $
                (0.32
                )
                $
                (0.37
                )Shares
                    used in computing basic and dilutednet
                    loss per share
                
                
                31,837
                
                
                31,788
  See
        accompanying notes.





4


**GENE
      LOGIC INC.**





**CONSOLIDATED
      CONDENSED STATEMENTS OF CASH
      FLOWS**


**(in
      thousands)**


**(Unaudited)**


**Three
                  Months Ended****March
                  31,****2007**
              
              **2006**Cash
                  flows from operating activities:Loss
                  from continuing operations
              
              $
              (10,106
              )
              $
              (7,905
              )Adjustments
                  to reconcile loss from continuing operations to net cash
                  flowsfrom
                  continuing operating activities:Depreciation
                  and amortization
              
              
              2,435
              
              
              2,784Non-cash
                  stock compensation expense
              
              
              234
              
              
              315Write-down
                  of equity investment
              
              
              -
              
              
              275Changes
                  in continuing operating assets and liabilities:Accounts
                  receivable and unbilled services
              
              
              2,209
              
              
              213Inventory
              
              
              158
              
              
              (694
              )Prepaids
                  and other assets
              
              
              746
              
              
              (1,168
              )Accounts
                  payable
              
              
              (1,367
              )
              
              (510
              )Accrued
                  expenses and deferred rent
              
              
              204
              
              
              (2,804
              )Accrued
                  restructuring
              
              
              (599
              )
              
              -Deferred
                  revenue
              
              
              1,099
              
              
              (4,176
              )Net
                  cash flows from continuing operating activities
              
              
              (4,987
              )
              
              (13,670
              )Loss
                  from discontinued operations
              
              
              -
              
              
              (3,892
              )Adjustments
                  to reconcile net loss from discontinued operations to net cash
                  flowsfrom
                  discontinued operating activities:Impairment
                  charges, depreciation and amortization and other non-cash
                  items
              
              
              -
              
              
              1,275Changes
                  in operating assets and liabilities
              
              
              -
              
              
              517Net
                  cash flows from discontinued operating activities
              
              
              -
              
              
              (2,100
              )Net
                  cash flows from operating activities
              
              
              (4,987
              )
              
              (15,770
              )Cash
                  flows from investing activities:Purchases
                  of property and equipment
              
              
              (499
              )
              
              (1,602
              )Purchases
                  of licenses and patent costs
              
              
              (138
              )
              
              (228
              )Software
                  development costs
              
              
              (106
              )
              
              (275
              )Database
                  upgrade costs
              
              
              (129
              )
              
              (138
              )Purchase
                  of marketable securities available-for-sale
              
              
              (5,888
              )
              
              (10,068
              )Proceeds
                  from sale and maturity of marketable securities
                  available-for-sale
              
              
              14,638
              
              
              12,690Payment
                  related to sale of Preclinical Division
              
              
              (1,174
              )
              
              -Net
                  investing activities of discontinued operations
              
              
              -
              
              
              (244
              )Net
                  cash flows from investing activities
              
              
              6,704
              
              
              135Cash
                  flows from financing activities:Proceeds
                  from issuance of common stock to employees
              
              
              -
              
              
              128Repayments
                  of an equipment loan
              
              
              (12
              )
              
              (13
              )Net
                  financing activities of discontinued operations
              
              
              -
              
              
              (33
              )Net
                  cash flows from financing activities
              
              
              (12
              )
              
              82Net
                  increase (decrease) in cash and cash equivalents
              
              
              1,705
              
              
              (15,553
              )Cash
                  and cash equivalents, beginning of period
              
              
              25,700
              
              
              43,946Cash
                  and cash equivalents, end of period
              
              $
              27,405
              
              $
              28,393Supplemental
                  disclosure:Interest
                  paid
              
              $
              2
              
              $
              6





See
      accompanying notes.




5


**GENE
      LOGIC INC.**





**Notes
      to Consolidated Condensed Financial
      Statements**


**March
      31, 2007**


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


**(Unaudited)**





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





*Description
      of Business*





Gene
      Logic
      Inc., including its wholly owned subsidiaries, Gene Logic Ltd. (United Kingdom
      subsidiary) and Gene Logic K.K. (Japan subsidiary), (collectively “Gene Logic”
or the “Company”), provides pharmaceutical development services that allow the
      Company to uncover new development paths for drug candidates provided by its
      customers and for which development has been discontinued for reasons other
      than
      safety. In addition, the Company has developed and commercialized proprietary
      genomic and toxicogenomic databases, toxicogenomic services, software tools
      and
      other services that enable customers worldwide to discover and prioritize drug
      targets, identify biomarkers, predict toxicity and understand mechanisms of
      toxicity and understand mechanisms of action of specific compounds.





In
      2005
      and 2006, the Company’s services were organized into three business segments:
      genomics and toxicogenomics services (“Genomics Division”), preclinical contract
      research services (“Preclinical Division”) and drug repositioning services
      (“Drug Repositioning Division”). On December 15, 2006, the Company sold its
      Preclinical Division, which has now been classified as discontinued operations
      (see Note 3).





The
      Drug
      Repositioning Division is a pharmaceutical development division that identifies
      and develops new or expanded uses for small molecule therapeutics. The Company
      is building a therapeutic pipeline by applying its proprietary drug indication
      discovery platform to find new and expanded uses for drug candidates supplied
      by
      major pharmaceutical companies. The platform consists of genomics databases
      and
      bioinformatics software and biological screening technologies.





The
      Genomics Division licenses proprietary genomic and toxicogenomics databases
      and
      software tools and provides toxicogenomics services, microarray data generation
      and analysis services and other professional services. In 2006, in response
      to
      its customers’ shifting their research activities from early-stage drug
      discovery into later-stage development and validation efforts and a resulting
      decline in demand for database subscriptions, the Company reduced the staff
      and
      operational costs of its Genomics Division and began to refocus the efforts
      of
      that Division. The Genomics Division continues to license databases and provide
      related services to new and existing customers and is working to expand its
      microarray data generation and analysis capabilities and services.





Management
      also examined the business for new avenues to create value and concluded that
      its expertise in biomarker discovery and validation could be used as a potential
      new platform for molecular diagnostics development. As a result, the Company
      has
      engaged outside financial advisors to explore strategic alternatives for our
      Genomics business, including the potential for molecular diagnostics
      development.





*Basis
      of Presentation*





The
      accompanying unaudited consolidated condensed financial statements have been
      prepared in accordance with United States Generally Accepted Accounting
      Principles (“GAAP”) for interim financial information and the instructions to
      Form 10-Q and Article 10 of Regulation S-X. The consolidated condensed balance
      sheet as of March 31, 2007, consolidated condensed statements of operations
      for
      the three months ended March 31, 2007 and 2006 and the consolidated condensed
      statements of cash flows for the three months ended March 31, 2007 and 2006
      are
      unaudited, but include all adjustments (consisting of normal recurring
      adjustments) that the Company considers necessary for a fair presentation of
      the
      financial position, operating results and cash flows, respectively, for the
      periods presented. Although the Company believes that the disclosures in these
      financial statements are adequate to make the information presented not
      misleading, certain information and footnote information normally included
      in
      financial statements prepared in accordance with GAAP have been condensed or
      omitted pursuant to the rules and regulations of the United States Securities
      and Exchange Commission (“SEC”). All material intercompany accounts and
      transactions have been eliminated in consolidation.





As
      a
      result of the Company’s sale of its Preclinical Division on December 15, 2006
      and in accordance with Statement of Financial Accounting Standards No. 144,
      “Accounting for the Impairment or Disposal of Long-Lived Assets”, the Company
      has classified the results of operations of the Preclinical Division as
      discontinued operations.





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




6




*Use
      of
      Estimates*





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





*Inventory*





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




**March
                  31,**
              
              **December
                  31,****2007**
              
              **2006**Microarrays
              
              $
              1,642
              
              $
              2,233Laboratory
                  reagents
              
              
              405
              
              
              510Tissue
                  samples
              
              
              1,804
              
              
              1,7883,851
              
              
              4,531Less:Microarray
                  reserves
              
              
              (118
              )
              
              (647
              )Tissue
                  sample reserves
              
              
              (1,711
              )
              
              (1,704
              )Inventory,
                  net
              
              $
              2,022
              
              $
              2,180
  *Comprehensive
      Loss*





The
      Company accounts for comprehensive loss as prescribed by Statement of Financial
      Accounting Standards (‘SFAS’) No. 130, “Reporting Comprehensive Income”.
      Comprehensive income (loss) is the total net income (loss) plus all changes
      in
      equity during the period except those changes resulting from investment by
      and
      distribution to owners. Total comprehensive loss was $10,086 and $11,870 for
      the
      three months ended March 31, 2007 and 2006, respectively.





*New
      Accounting Pronouncements*





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





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





The
      Company recognizes interest and penalties related to income tax matters in
      income tax expense. The total amount of interest and penalties recognized in
      the
      Consolidated Condensed Statement of Operations for the three months ended March
      31, 2007 and the Consolidated Condensed Balance Sheet at March 31, 2007 is
      not
      material. The Company and its subsidiaries file consolidated and separate income
      tax returns in the United States and in a number of state and foreign
      jurisdictions. The Company is subject to tax examinations in its major tax
      jurisdictions for all years since inception.




7


**Note
      2 — Stock-based compensation**





At
      March
      31, 2007, the Company has the following 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 ESPP was suspended effective February 1, 2005.





Effective
      January 1, 2006, the Company adopted the fair value recognition provisions
      of
      Statement of Financial Accounting Standards No. 123(R) (revised 2004),
“Share-Based Payment,” using the modified prospective transition method and
      therefore did not restate results for prior periods. For the three months ended
      March 31, 2007 and 2006, the Company recorded stock-based compensation expense
      of $234 and $315, respectively. The impact on basic and diluted net loss per
      share for the three months ended March 31, 2007 and 2006 was $0.01.





*Stock
      Option Awards*





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




**Three
                  Months Ended****March
                  31,****2007**
              
              **2006**Expected
                  volatility
              
              
              58%
              
              
              52%Risk-free
                  interest rate
              
              
              4.47%
              
              
              4.49%Expected
                  lives
              
              
              3
                  years
              
              
              3
                  yearsDividend
                  rate
              
              
              0%
              
              
              0%





The
      following is a summary of option activity for the three months ended March
      31,
      2007:


**Weighted-**
              
              **Aggregate****Number
                  of**
              
              **Average**
              
              **Intrinsic****Shares**
              
              **Exercise
                  Price**
              
              **Value****Outstanding
                  at January 1, 2007**
              
              
              4,528,956
              
              $
              6.88Options
                  granted
              
              
              1,196,770
              
              $
              2.05Options
                  exercised
              
              
              -
              
              $
              -Options
                  cancelled
              
              
              (501,172
              )
              $
              6.20**Outstanding
                  at March 31, 2007**
              
              
              5,224,554
              
              $
              5.84
              
              $
              309**Exercisable
                  at March 31, 2007**
              
              
              3,785,154
              
              $
              7.19
              
              $
              75




The
      aggregate intrinsic value in the table above represents the total intrinsic
      value (the difference between the Company’s closing stock price on the last
      trading day of the first quarter of 2007 and the exercise price, multiplied
      by
      the number of in-the-money options) that would have been received by the option
      holders had all option holders exercised their options on March 31, 2007. This
      amount is subject to change based on changes to the fair market value of the
      Company’s Common Stock.




*Restricted
      Stock Awards*





During
      the
      three months ended March 31, 2007, the Committee approved grants for shares
      of
      restricted stock under the Stock Plan subject to certain performance-based
      vesting conditions which, if not met, would result in forfeiture of the shares.





8


The
      following is a summary of restricted stock awards activity for the three months
      ended March 31, 2007:


**Weighted-****Average****Number
                  of**
              
              **Grant-Date****Shares**
              
              **Fair
                  Value****Outstanding
                  at January 1, 2007**
              
              
              -
              
              $
              -Restricted
                  stock granted
              
              
              162,866
              
              $
              1.91Restricted
                  stock vested
              
              
              (40,000
              )
              $
              1.91Restricted
                  stock forfeited
              
              
              -
              
              $
              -**Outstanding
                  at March 31, 2007**
              
              
              122,866
              
              $
              1.91





Performance-based
      nonvested share awards are recognized as compensation expense over the expected
      vesting period based on the fair value at the date of grant and the number
      of
      shares ultimately expected to vest. As of March 31, 2007, the remaining 122,866
      outstanding shares of restricted stock will only vest if certain performance
      milestones are achieved. At March 31, 2007, the Company believes that the
      achievement of the performance milestones is probable.





As
      of
      March 31, 2007, $1,012 of total unrecognized compensation cost related to stock
      option and restricted stock awards is expected to be recognized over a
      weighted-average period of 1.8 years. This estimate does not include the impact
      of other possible stock-based awards that may be made during future
      periods.





**Note
      3 — Discontinued Operations**





As
      previously discussed in Note 1, in 2006 the Company changed its strategic focus
      and sold its Preclinical Divison for a sales price of $15,000, consisting of
      (A)
      $13,500 paid at closing less transaction costs of $1,383 and (B) $1,500 held
      in
      escrow for 12 months to satisfy potential indemnification obligations under
      the
      agreement. The sales price remains subject to final adjustment to reflect
      certain changes in working capital and the assumption of certain liabilities
      associated with the business. In addition, the Company’s guarantee of two leases
      continue in effect pending their assumption by the buyer and the Company
      provides certain transition services under an agreement with the buyer. If
      either of the guarantees cannot be assumed by the buyer, then the buyer is
      obligated to indemnify the Company with respect to such guarantee.





As
      a
      result of the Company’s sale of its Preclinical Division on December 15, 2006,
      the operations of the Preclinical Division have been classified as discontinued
      operations. Summarized operating results from the discontinued operations
      included in the Company’s Consolidated Condensed Statements of Operations for
      the three months ended March 31, 2006 are as follows :




**Three
                  Months Ended****March
                  31,****2006**Revenue
                  from discontinued operations
              
              $
              4,034Loss
                  from discontinued operations
              
              $
              (3,892
              )


**Note
      4 — Restructuring Expenses**




During
      2006, the Company initiated a restructuring of its Genomics Division, which
      it
      expects to substantially complete by December 31, 2007. The Genomics Division
      restructuring included the termination of 70 employees, the acceleration of
      future costs for certain laboratory and office facilities that were no longer
      needed and the impairment of certain intangible assets which were determined
      would no longer be utilized by the Genomics Division. The major components
      of
      the Genomics Division restructuring liability as of March 31, 2007 and activity
      since January 1, 2007 are comprised of:




**Accrual**
                **Balance
                  as of December 31, 2006**
              
              **2007
                  Charges**
                **Utilized**
              
              **Accrual**
                **Balance
                  as of**
                **March
                  31,**
                **2007**Severance
                  and related benefits
              
              $
              122
              
              $
              (87
              )
              $
              35Lease
                  obligations
              
              
              1,819
              
              
              (512
              )
              
              1,307Total
              
              $
              1,941
              
              $
              (599
              )
              $
              1,342


9





**Note
      5 — Segment information**





In
      2005
      and 2006, the Company managed its business as three business segments: Genomics
      Division, Preclinical Division and Drug Repositioning Division. On December
      15,
      2006, the Company sold its Preclinical Division, which has been classified
      as
      discontinued operations (see Note 3).




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





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




**Three
                  Months Ended****March
                  31,****2007**
              
              **2006****Genomics
                  Services**Revenue
              
              $
              3,269
              
              $
              8,748Operating
                  loss
              
              
              (6,092
              )
              
              (4,530
              )Depreciation
                  and amortization expense
              
              
              2,178
              
              
              2,503**Drug
                  Repositioning Services**Revenue
              
              $
              -
              
              $
              20Operating
                  loss
              
              
              (4,594
              )
              
              (3,876
              )Depreciation
                  and amortization expense
              
              
              257
              
              
              281





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




**Three
                  Months Ended****March
                  31,****2007**
              
              **2006****Segment
                  Operating Loss**Genomics
                  services
              
              $
              (6,092
              )
              $
              (4,530
              )Drug
                  repositioning services
              
              
              (4,594
              )
              
              (3,876
              )(10,686
              )
              
              (8,406
              )Interest
                  (income), net
              
              
              (615
              )
              
              (773
              )Other
                  (income) expense
              
              
              35
              
              
              (3
              )Write-down
                  of equity investment
              
              
              -
              
              
              275Loss
                  from continuing operations
              
              $
              (10,106
              )
              $
              (7,905
              )
  During
      the
      three months ended March 31, 2007, three customers each accounted for 10% or
      more of the Company’s revenue (Customer A-22%, Customer B-20% and Customer
      C-13%). During the three months ended March 31, 2006, two customers each
      accounted for 10% or more of the Company’s revenue (Customer D-27% and Customer
      E-12%). The following table sets forth information on the composition of the
      Company’s total revenue from continuing operations by geographic
      region:


**Geographic
                  Region****North
                  America**
              
              **Europe**
              
              **Pacific
                  Rim**For
                  the three months ended:March
                  31, 2007
              
              
              36%
              
              
              31%
              
              
              33%March
                  31, 2006
              
              
              62%
              
              
              16%
              
              
              22%




10




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





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





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





**Overview**





We
      currently conduct our operations through two business segments:





·
            **Drug
                Repositioning Division:**Our
                partners provide us with drug candidates that have already been assessed
                as safe in human clinical trials, and whose development for their
                original
                indications has been discontinued. We apply, at our own expense,
                our drug
                indication discovery platform to identify new uses for these
                clinical-stage drug candidates. This platform consists of genomics
                databases and bioinformatics software developed by Gene Logic over
                the
                past 10 years, and biological screening technologies acquired from
                Millennium Pharmaceuticals, Inc. (“Millennium”) and which subsequently
                have undergone further development. Our drug development partnerships
                are
                generally structured to provide us with milestone payments for drug
                candidates that our partners return to clinical development for
                indications that we have identified, and long-term value in the form
                of
                royalties or other co-ownership
                positions.





·
            **Genomics
                Division:**Since 1996, we have been primarily devoted to developing and
                commercializing proprietary genomic and toxicogenomic databases,
                toxicogenomic services, software tools and other services. The Genomics
                services we provide enable customers worldwide to discover and prioritize
                drug targets, identify biomarkers, predict toxicity and understand
                mechanisms of toxicity and action of specific
                compounds.





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





In
      2005
      and 2006, we entered into drug development partnerships with Pfizer, Inc.,
      F.
      Hoffmann-La Roche Ltd, Eli Lilly and Company and NV Organon. In May 2007, we
      entered into a new drug development partnership with Abbott Laboratories. In
      2006, we began evaluating more than 40 drug candidates for our drug development
      partners. We have been able to develop alternative indication hypotheses for
      25%-33% of these candidates for which evaluation is complete. Some of the
      candidates for which we have found new indications have or will progress to *in
      vivo* efficacy
      models to evaluate and support their suitability for re-entering clinical trials
      for the proposed new indications. We expect that some portion of the drug
      candidates will have successful outcomes in the *in
      vivo* tests and
      re-enter clinical trials, but we do not yet have sufficient data to estimate
      the
      rate of clinical trial re-entry. We do not expect any of these drug candidates
      to re-enter clinical trials until after 2007.





In
      2006,
      in response to our customers’ shifting their research activities from
      early-stage drug discovery into later-stage development and validation efforts
      and a resulting decline in demand for database subscriptions, we reduced the
      staff and operational costs of our Genomics Division and began to refocus the
      efforts of that Division. The Genomics Division continues to license databases
      and provide related services to new and existing customers and is working to
      expand its microarray data generation and analysis capabilities and services.
      Management also examined the business for new avenues to create value and
      concluded that its expertise in biomarker discovery and validation could be
      used
      as a potential new platform for molecular diagnostics development. As a result,
      we have engaged outside financial advisors to explore strategic alternatives
      for
      our Genomics business, including the potential for molecular diagnostics
      development.





Also
      in
      2006, we announced the closing of the sale of Gene Logic Laboratories Inc.
      to
      Bridge Pharmaceuticals, Inc. (“Bridge”) for a sales price of $15.0 million,
      consisting of (A) $13.5 million paid at closing less transaction costs of $1.4
      million and (B) $1.5 million held in escrow for 12 months to satisfy potential
      indemnification obligations under the agreement. The purchase price remains
      subject to adjustment for certain changes in working capital and the assumption
      of certain liabilities associated with the business. In addition, we provide
      certain transition services under an agreement with Bridge and our guarantees
      of
      two leases continue in effect pending their assignment to and assumption by
      Bridge. If the guarantees are not assumed by Bridge, then Bridge will indemnify
      us with respect to such guarantees.





11




Currently,
      our revenue comes from our Genomics Division. Historically, we have derived
      a
      majority of our Genomics Division revenue from licenses to our databases in
      the
      form of multi-year subscriptions and annual subscriptions to our smaller
      databases or a subset of our larger databases. We have also granted perpetual
      licenses to our data and/or software tools. We also generate revenue from
      providing other services, including various toxicogenomics reports, microarray
      data generation and analysis and other professional services. Fees are payable
      ratably over the life of the agreement for multi-year agreements, ratably or
      up-front for shorter-term agreements and, in the case of perpetual licenses,
      upon delivery of the data or software. Generally, our Genomics Division
      contracts may be terminated in the event of breach by either party not cured
      within any applicable cure period. In the past, we have invested in new database
      content, upgraded our databases and developed new versions of our software
      tools. Future investments will be limited as we continue the transformation
      of
      Gene Logic into a biopharmaceutical company.





We
      have
      developed partnerships with five pharmaceutical partners: Pfizer, Inc., F.
      Hoffmann-La Roche Ltd, Eli Lilly and Company, NV Organon and Abbott
      Laboratories. Our agreement with NV Organon involves co-ownership and
      co-development of repositioned drug candidates, and it therefore differs
      substantially from our other agreements. Our other drug repositioning and
      development agreements vary somewhat as to specific terms, but generally conform
      to the following:




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


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


o
            Notice
                of re-initiation of development,


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


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


o
            Commencement
                of a Phase III clinical trial, and


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


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





In
      most
      cases, if our partner decides not to take the drug candidate back into
      development, we have development rights that would entitle our partner to
      receive milestone payments and royalties on sales. We may choose to license
      such
      candidates to a third party for development, or we may invest in further
      development to increase a particular candidate’s value prior to outlicensing. We
      have acquired certain rights from Millennium to a drug candidate for which
      we
      have identified potential new indications.





We
      have
      incurred net losses in each year since our inception, including losses of $54.7
      million in 2006, $48.3 million in 2005 and $28.5 million in 2004. At March
      31,
      2007, we had an accumulated deficit of $325.8 million. Our losses have resulted
      principally from costs incurred in the development, marketing and sale of
      services from our Genomics and Preclinical Divisions, development of the Drug
      Repositioning Division, the impairment of our Preclinical Division goodwill
      and
      acquisitions of research and development. These costs have exceeded our revenue
      and we expect to incur additional losses in the future.





**Results
      of Continuing Operations**





*Three
      Months Ended March 31, 2007 and 2006*





**Revenue.** We
      primarily derive our revenue from our Genomics Division services. To date,
      we
      have recorded no meaningful revenue from our Drug Repositioning Division.
      Revenue decreased $5.5 million, or 63%, to $3.3 million for the three months
      ended March 31, 2007 from $8.8 million for the same period in 2006. The 2007
      decrease in revenue resulted from declining subscription revenue, the absence
      of
      anticipated sales of perpetual licenses to database products and slower than
      anticipated sales growth for microarray data generation and analysis services.
      These changes were caused primarily by our customers’ having shifted their
      emphasis from research on early stage drug development, for which many of our
      Genomics Division services are targeted, into later-stage development and
      validation efforts. The 2007 results reflect the absence of $3.8 million in
      subscription fees from expired agreements and $1.9 million less for perpetual
      license fees. During three months ended March 31, 2007, three customers each
      accounted for greater than 10% of our total revenue. During the three months
      ended March 31, 2006, two customers accounted for greater than 10% of our total
      revenue.





Revenue
      for our Genomics Services for the first quarter of 2007 does not include $1.9
      million in revenue, which was deferred to a future period, associated with
      a
      single contract accounted for as a multiple-element arrangement, with respect
      to
      which nearly all services were performed and delivered in the first quarter
      of
      2007. We expect to record such revenue later in 2007 as the remaining services
      are performed and delivered. We anticipate entering into additional
      multiple-element agreements in the future, as we expand our portfolio of service
      offerings and reduce our reliance on subscription agreements, which may result
      in uneven revenue due to the nature of revenue recognition associated with
      multiple-element arrangements.





12




Our
      remaining long-term subscriptions are due to expire by their terms in 2008.
      For
      2007, we expect to derive increasing amounts of revenue from our other services
      and reduce our reliance on revenue from subscription agreements.





**Database
      Production Expense.** Database
      production expenses, which consist primarily of costs to provide microarray
      data
      generation and analysis services and costs related to the acquisition and
      processing of tissues and overhead expenses needed to generate the content
      for
      the BioExpress and ToxExpress System databases, decreased to $5.3 million for
      the three months ended March 31, 2007 from $7.8 million for the same period
      in
      2006. The decrease reflects the favorable impact of the restructuring of the
      Genomics Division and lower amounts spent on adding new Genomics database
      content. For 2007, we expect database production expenses to decrease due to
      lower employee and facility costs as a result of the Genomics Division
      restructuring.





**Research
      and Development Expense.** Research
      and development expenses, which consist primarily of costs associated with
      the
      evaluation of customer-supplied drug candidates and ongoing development of
      our
      drug indication discovery platform, remained flat at $2.4 million for the three
      months ended March 31, 2007 and 2006. For 2007, we expect research and
      development expenses to increase modestly, as we continue to evaluate drug
      candidates supplied by our drug discovery partners and further develop our
      indication discovery platform. In addition, we will incur additional expenses
      if
      we decide to pursue further development of a drug candidate for which we
      acquired certain rights from Millennium in 2006.





**Selling,
      General and Administrative Expense.** Selling,
      general and administrative expenses, which consist primarily of sales,
      marketing, accounting, legal, human resources and other general corporate
      expenses, decreased to $6.2 million for three months ended March 31, 2007 from
      $6.9 million for the same period in 2006. The decrease is largely due to a
      reduction of $1.2 million in employee costs for Genomics Division and Corporate
      staff and fees received of $0.4 million for the reimbursement of costs
      associated with providing Bridge certain transition services, partially offset
      by $0.9 million in executive severance and retention benefits. For 2007, we
      expect selling, general and administrative expenses to remain at the same level
      as in 2006.





**Net
      Interest Income.** Net
      interest income decreased to $0.6 million for the three months ended March
      31,
      2007 from $0.8 million for 2006, due to a decrease in the balance of our cash
      and cash equivalents and marketable securities available-for-sale, offset by
      increases in our rates of return on investments.





**Write-down
      of Equity Investment.** In
      connection with our investment in Xceed Molecular (“Xceed”, formerly MetriGenix
      Corporation), we recorded a $0.3 million write-down of a warrant which was
      terminated during the three months ended March 31, 2006. At March 31, 2007,
      the
      remaining book value of our investment in Xceed was $3.0 million.





**LIQUIDITY
      AND CAPITAL RESOURCES**





From
      inception through March 31, 2007, we have financed our operations and
      acquisitions through the issuance and sale of equity securities and payments
      from customers. As of March 31, 2007, we had approximately $43.1 million in
      cash, cash equivalents and marketable securities available-for-sale, compared
      to
      $50.1 million as of December 31, 2006.





Net
      cash
      from operating activities from continuing operations was negative $5.0 million
      for the three months ended March 31, 2007 compared to negative $13.7 million
      for
      the same period in 2006, primarily due to the timing of customer payments
      (including prepayments) for our services in 2005 and payments under our
      compensation and retention plans in 2006. We presently anticipate that our
      use
      of cash for the second quarter of 2007 will be similar to our use of cash for
      the first quarter of 2007; however, we expect our use of cash in the second
      half
      of 2007 will be lower than for the first half of 2007.





During
      the
      three months ended March 31, 2007 and 2006, our investing activities consisted
      primarily of purchases, sales and maturities of available-for-sale securities,
      capital expenditures and a payment related to the sale of our Preclinical
      Division. Capital expenditures for the three months ended March 31, 2007 and
      2006 were $0.5 million and $1.6 million, respectively. The decrease in capital
      expenditures was primarily due to 2006 equipment purchases to expand our
      microarray data generation and analysis capacity and capabilities. **** For the
      remainder of 2007, we expect the level of capital expenditures to not be
      significant.





On
      December 15, 2006, we announced the closing of the sale of our Preclinical
      Division to Bridge for a sales price of $15.0 million, consisting of (A) $13.5
      million paid at closing less transaction costs of $1.4 million and (B) $1.5
      million held in escrow for 12 months to satisfy potential
      indemnification obligations under the agreement. For the three months ended
      March 31, 2007, we paid Bridge $1.2 million related to the sale of our
      Preclinical Division. For the remainder of 2007, we expect to pay Bridge $0.7
      million related to the sale of our Preclinical Division.




13


Specific
      future financial commitments from continuing operations as of March 31, 2007
      are
      set forth in the following table:


**Within****Total**
              
              **9
                  Months**
              
              **2008
                  & 2009**
              
              **2010
                  & 2011**
              
              **Beyond
                  2011**Long-term
                  debt
              
              
              572
              
              
              491
              
              
              54
              
              
              27
              
              
              -Operating
                  leases
              
              
              5,911
              
              
              1,394
              
              
              2,804
              
              
              1,428
              
              
              285Total
              
              $
              6,483
              
              $
              1,885
              
              $
              2,858
              
              $
              1,455
              
              $
              285


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 “Risk Factors” in our Annual
      Report on Form 10-K for the year ended December 31, 2006 and in our subsequent
      filings with the Securities and Exchange Commission.





**CRITICAL
      ACCOUNTING POLICIES**





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





***REVENUE
      RECOGNITION***





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





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





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




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





14




***GOODWILL
      AND OTHER INTANGIBLE ASSETS IMPAIRMENT***





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





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





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





Our
      assessment of the fair value of our divisions is dependent on subjective
      estimates we make of inherently uncertain future net cash flows, including
      estimates of terminal values. Accordingly, our estimates for future periods
      of
      net cash flows and the potential terminal value of our Genomics Division may
      change as market conditions and circumstances dictate. Future impairment tests
      of goodwill for our Genomics Division and other intangibles may result in
      additional impairment charges based on these changing estimates.





***ACCOUNTS
      RECEIVABLE AND UNBILLED SERVICES***





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





***INVENTORY***





We
      maintain an inventory of tissue samples collected from various commercial and
      academic sites that are used to expand the content of our 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 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.





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





***EQUITY
      INVESTMENTS***





We
      hold an
      equity investment in one company (Xceed Molecular, formerly MetriGenix
      Corporation) with a remaining book value of $3.0 million as of March 31, 2007.
      We record an investment impairment charge when it is believed that an investment
      has experienced a decline in value that is other-than-temporary. Future adverse
      changes in market conditions or poor operating results of the underlying
      investee could result in our inability to recover the carrying value of this
      investment that may not be reflected in such an investment’s current carrying
      value, thereby possibly requiring an impairment charge in the
      future.





***STOCK-BASED
      COMPENSATION***





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





15




**RECENTLY
      ISSUED ACCOUNTING PRONOUNCEMENTS**





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





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





We
      recognize interest and penalties related to income tax matters in income tax
      expense. The total amounts of interest and penalties recognized in the
      Consolidated Condensed Statement of Operations for the three months ended March
      31, 2007 and the Consolidated Condensed Balance Sheet at March 31, 2007 is
      not
      material. We and our subsidiaries file consolidated and separate income tax
      returns in the United States and in a number of state and foreign jurisdictions.
      We are subject to tax examinations in our major tax jurisdictions for all years
      since inception.





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





We
      have
      exposure to financial market risks, including changes in interest rates. At
      March 31, 2007, we had cash and cash equivalents of $27.4 million and marketable
      securities available-for-sale of an additional $15.7 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, 2007, a hypothetical 100 basis point
      adverse movement in interest rates would have resulted in an increase in the
      net
      loss from continuing operations of approximately $0.1 million for the three
      months ended March 31, 2007. Actual changes in rates may differ from the
      hypothetical assumptions used in computing this exposure.





Since
      the
      beginning of 2005 and as a result of changing our distribution arrangements
      in
      Japan, we have been subject to risk from changes in foreign exchange rates
      relating to revenue from our Japanese customers, as such agreements are now
      denominated in Japanese Yen. Such changes could result in foreign currency
      exchange gains or losses. As a policy, we convert our customer payments made
      in
      Japanese Yen to United States dollars upon receipt of such payment. Revenue
      derived from the Pacific Rim as a percentage of total revenue was 33% for the
      three months ended March 31, 2007 and was primarily derived from our customers
      in Japan. Exchange rate fluctuations between the United States Dollar and Japan
      Yen could result in positive or negative fluctuations in the amounts relating
      to
      revenue reported in our consolidated condensed financial statements. A
      hypothetical 10% adverse change in average foreign currency movements would
      have
      resulted in an increase in the net loss of less than $0.1 million for the three
      months ended March 31, 2007. There can be no assurance that losses related
      to
      this currency risk will not occur.




16


**Item****4.****Controls
      and Procedures**





**EVALUATION
      OF DISCLOSURE CONTROLS AND PROCEDURES**





As
      of
      March 31, 2007, under the supervision and with the participation of our
      management, including the Chief Executive Officer (“CEO”) and Chief Financial
      Officer (“CFO”), an evaluation was performed of the effectiveness of the design
      and operation of our “disclosure controls and procedures” (“Disclosure
      Controls”). These are controls and procedures designed to reasonably assure that
      information required to be disclosed in our reports filed under the Exchange
      Act, such as this Form 10-Q, is recorded, processed, summarized and reported
      within the time periods specified in the rules and forms of the United States
      Securities and Exchange Commission (“SEC”). Disclosure Controls are also
      designed to reasonably assure that such information is accumulated and
      communicated to our management, including the CEO and CFO as appropriate, to
      allow timely decisions regarding required disclosure. Based on that evaluation,
      our CEO and CFO have concluded that, as of March 31, 2007, our disclosure
      controls and procedures were effective to provide reasonable assurance that
      information required to be disclosed in our Exchange Act reports is recorded,
      processed, summarized and reported within the time periods specified by the
      SEC,
      and that material information relating to us is made known to management,
      including the CEO and CFO, particularly during the period when our periodic
      reports are being prepared.





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





**CHANGES
      IN INTERNAL CONTROL OVER FINANCIAL REPORTING**





There
      were
      no changes in our internal controls over financial reporting during the first
      quarter of 2007 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
      1A.****Risk
      Factors**





None.





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





None.





**Item
      3.****Defaults
      Upon Senior Securities**





None.





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





None.





**Item
      5.****Other
      Information**





None.





17




**Item
      6.****Exhibits**




10.50c
            Biotech
                Access Agreement, effective January 1, 2007, between Registrant and
                Affymetrix, Inc.


10.50d
            Service
                Provider Agreement, effective January 1, 2007, between Registrant
                and
                Affymetrix, Inc.


*10.58a
            Second
                Amendment to Executive Employment Agreement, dated as of February
                23,
                2007, between Registrant and Philip L. Rohrer, Jr.


10.80a
            Guarantee,
                dated April 1, 2003, of lease agreement for premises at 610 Professional
                Drive, Gaithersburg, MD 20879, between TherImmune Research Corporation
                (Tenant) and Oxbridge Development at Crown Pointe, L.C. (Landlord).


10.81b
            Guarantee,
                dated April 1, 2003, of lease agreement for premises at 620 Professional
                Drive, Gaithersburg, MD 20879, between TherImmune Research Corporation
                (Tenant) and Oxbridge Development at Crown Pointe, L.C.
                (Landlord).


*10.88a
            Second
                Amendment to Employment Agreement, dated as of February 23, 2007,
                between
                Registrant and V. W. Brinkerhoff, III.


*10.92a
            2007
                Gene Logic Incentive Compensation
                Plan.


*10.93b
            Amendment
                to Employment Agreement, dated December 6, 2006, between Registrant
                and
                Larry Tiffany.


*10.93c
            Executive
                Employment Agreement, dated February 1, 2007, between Registrant
                and Larry
                Tiffany.


*10.96
            Form
                of Restricted Stock Agreement under the Stock Plan.


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





_____________________


*  Indicates
      management compensatory plan, contract or arrangement.





18


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




19