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UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C.  20549

FORM 10-Q

|(Mark One)                                            
|------------------------------------------------------
|                                                      
|x                                                     
|                                                      
|                                                      
|OR                                                    
|                                                      
|o                                                     
|                                                      
|                                                      
|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
  incorporation or organization) |  | (I.R.S. Employer
  Identification No.)
|                                                                 |  |                                       
|610 Professional Drive                                          
|Gaithersburg, Maryland  20879                                   
|(Address of principal executive offices)                        
|(301) 987-1700                                                  
|(Registrants phone number, including area code)                
|                                                                 |  |                                       
|                                                                

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

Indicate
by check mark whether the registrant is an accelerated filer (as defined in
Rule 12b-2 of the Exchange Act).  YES x
NO o

The
number of shares outstanding of the Registrants Common Stock, $.01 par value,
was 31,654,413 as of July 31, 2004.

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GENE LOGIC INC.

TABLE OF CONTENTS

|PART I                                                                                              | FINANCIAL INFORMATION                                                                   |    |   
|--------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------- | -- | --
|                                                                                                    |                                                                                         |    |   
|Item 1.                                                                                             | Financial
  Statements                                                                  |    |   
|                                                                                                    |                                                                                         |    |   
|Consolidated
  Balance Sheets at June 30, 2004 and December 31, 2003                                |                                                                                         | 3 
|Consolidated
  Statements of Operations for the Three and Six Months Ended June 30, 2004 and
  2003 |                                                                                         | 4 
|Consolidated
  Statements of Cash Flows for the Six Months Ended June 30, 2004 and 2003             |                                                                                         | 5 
|Notes to
  Consolidated Financial Statements                                                        |                                                                                         | 6 
|                                                                                                    |                                                                                         |    |   
|Item 2.                                                                                             | Managements
  Discussion and Analysis of Results of Operations and Financial Condition |    | 10
|                                                                                                    |                                                                                         |    |   
|Item 3.                                                                                             | Quantitative
  and Qualitative Disclosure About Market Risk                             |    | 15
|                                                                                                    |                                                                                         |    |   
|Item 4.                                                                                             | Controls
  and Procedures                                                               |    | 16
|                                                                                                    |                                                                                         |    |   
|PART II                                                                                             | OTHER INFORMATION                                                                       |    |   
|                                                                                                    |                                                                                         |    |   
|Item 1.                                                                                             | Legal
  Proceedings                                                                     |    | 16
|                                                                                                    |                                                                                         |    |   
|Item 2.                                                                                             | Changes in
  Securities and Use of Proceeds                                             |    | 16
|                                                                                                    |                                                                                         |    |   
|Item 3.                                                                                             | Defaults
  Upon Senior Securities                                                       |    | 16
|                                                                                                    |                                                                                         |    |   
|Item 4.                                                                                             | Submission
  of Matters to a Vote of Security Holders                                   |    | 16
|                                                                                                    |                                                                                         |    |   
|Item 5.                                                                                             | Other
  Information                                                                     |    | 16
|                                                                                                    |                                                                                         |    |   
|Item 6.                                                                                             | Exhibits
  and Reports on Form 8-K                                                      |    | 17
|                                                                                                    |                                                                                         |    |   
|Signatures                                                                                          |                                                                                         | 18
|                                                                                                    |                                                                                         |    |   

2.

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PART I           FINANCIAL
INFORMATION

Item
1.     Financial Statements

GENE LOGIC INC.

CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)

|                                                                                                                                                                                            |  | June 30,
  2004 |          | December 31,
  2003 | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------- | -------- | ------------------- | 
|                                                                                                                                                                                            |  |                 |          |                     | 
|                                                                                                                                                                                            |  | (Unaudited)     |          |                     | 
|ASSETS                                                                                                                                                                                      |  |                 |          |                     | 
|Current
  assets:                                                                                                                                                                           |  |                 |          |                     | 
|Cash
  and cash equivalents                                                                                                                                                                 |  | $               | 41,030   |                     | 
|Marketable
  securities available-for-sale                                                                                                                                                  |  |                 | 60,063   |                     | 
|Accounts
  receivable, net of allowance of $152 and $57 in 2004 and 2003, respectively                                                                                                      |  |                 | 13,692   |                     | 
|Unbilled
  services                                                                                                                                                                         |  |                 | 4,918    |                     | 
|Inventory,
  net                                                                                                                                                                            |  |                 | 3,008    |                     | 
|Prepaid
  expenses                                                                                                                                                                          |  |                 | 2,152    |                     | 
|Other
  current assets                                                                                                                                                                      |  |                 | 1,526    |                     | 
|                                                                                                                                                                                            |  |                 |          |                     | 
|Total
  current assets                                                                                                                                                                      |  |                 | 126,389  |                     | 
|Property and
  equipment, net                                                                                                                                                               |  |                 | 23,002   |                     | 
|Long-term
  investments                                                                                                                                                                     |  |                 | 4,239    |                     | 
|Goodwill                                                                                                                                                                                    |  |                 | 45,707   |                     | 
|Intangibles,
  net                                                                                                                                                                          |  |                 | 16,399   |                     | 
|Other assets                                                                                                                                                                                |  |                 | 64       |                     | 
|                                                                                                                                                                                            |  |                 |          |                     | 
|Total
  assets                                                                                                                                                                              |  | $               | 215,800  |                     | 
|                                                                                                                                                                                            |  |                 |          |                     | 
|                                                                                                                                                                                            |  |                 |          |                     | 
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                                                        |  |                 |          |                     | 
|Current
  liabilities:                                                                                                                                                                      |  |                 |          |                     | 
|Accounts
  payable                                                                                                                                                                          |  | $               | 6,948    |                     | 
|Accrued
  expenses                                                                                                                                                                          |  |                 | 6,623    |                     | 
|Current
  portion of capital lease obligations                                                                                                                                              |  |                 | 130      |                     | 
|Current
  portion of long-term debt                                                                                                                                                         |  |                 | 493      |                     | 
|Deferred
  revenue                                                                                                                                                                          |  |                 | 6,304    |                     | 
|                                                                                                                                                                                            |  |                 |          |                     | 
|Total
  current liabilities                                                                                                                                                                 |  |                 | 20,498   |                     | 
|Deferred
  revenue                                                                                                                                                                          |  |                 | 1,596    |                     | 
|Capital
  lease obligations, net of current portion                                                                                                                                         |  |                 | 274      |                     | 
|Long-term
  debt, net of current portion                                                                                                                                                    |  |                 | 196      |                     | 
|Other
  noncurrent liabilities                                                                                                                                                              |  |                 | 2,519    |                     | 
|                                                                                                                                                                                            |  |                 |          |                     | 
|Total
  liabilities                                                                                                                                                                         |  |                 | 25,083   |                     | 
|                                                                                                                                                                                            |  |                 |          |                     | 
|Commitments
  and contingencies                                                                                                                                                             |  |                 |         |                     | 
|Stockholders
  equity:                                                                                                                                                                     |  |                 |          |                     | 
|Preferred
  stock, $.01 par value; 10,000,000 shares authorized; and no shares issued
          and outstanding as of June
  30, 2004 and December 31, 2003                                 |  |                 |         |                     | 
|Common
  stock, $.01 par value; 60,000,000 shares authorized; 31,448,563 and
  31,131,198
          shares issued and outstanding
  as of June 30, 2004 and December 31, 2003, respectively |  |                 | 315      |                     | 
|Additional
  paid-in capital                                                                                                                                                                |  |                 | 384,592  |                     | 
|Accumulated
  other comprehensive income                                                                                                                                                    |  |                 | (142     | )                   | 
|Accumulated
  deficit                                                                                                                                                                       |  |                 | (194,048 | )                   | 
|                                                                                                                                                                                            |  |                 |          |                     | 
|Total
  stockholders equity                                                                                                                                                                |  |                 | 190,717  |                     | 
|                                                                                                                                                                                            |  |                 |          |                     | 
|Total
  liabilities and stockholders equity                                                                                                                                                |  | $               | 215,800  |                     | 
|                                                                                                                                                                                            |  |                 |          |                     | 

See accompanying notes.

3.

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GENE LOGIC INC.

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

|                                                                     |  | Three Months Ended
  June 30, |        | Six Months Ended
  June 30, |  
|-------------------------------------------------------------------- |  | ----------------------------- | ------ | --------------------------- | -
|                                                                     |  |                               |        |                             |  
|                                                                     |  | 2004                          |        | 2003                        |  
|                                                                     |  |                               |        |                             |  
|                                                                     |  |                               |        |                             |  
|Revenue:                                                             |  |                               |        |                             |  
|Information
  services                                               |  | $                             | 12,663 |                             | $
|Contract
  study services                                            |  |                               | 5,959  |                             |  
|                                                                     |  |                               |        |                             |  
|Total
  revenue                                                      |  |                               | 18,622 |                             |  
|                                                                     |  |                               |        |                             |  
|Expenses:                                                            |  |                               |        |                             |  
|Cost
  of contract study services                                    |  |                               | 5,623  |                             |  
|Database
  production                                                |  |                               | 10,990 |                             |  
|Research
  and development                                           |  |                               | 357    |                             |  
|Selling,
  general and administrative                                |  |                               | 5,863  |                             |  
|                                                                     |  |                               |        |                             |  
|Total
  expenses                                                     |  |                               | 22,833 |                             |  
|                                                                     |  |                               |        |                             |  
|                                                                     |  |                               |        |                             |  
|Loss
  from operations                                               |  |                               | (4,211 | )                           |  
|                                                                     |  |                               |        |                             |  
|Interest
  (income), net                                             |  |                               | (308   | )                           |  
|Other
  (income) expense                                             |  |                               |       |                             |  
|                                                                     |  |                               |        |                             |  
|                                                                     |  |                               |        |                             |  
|Net
  loss before income tax expense                                 |  |                               | (3,903 | )                           |  
|                                                                     |  |                               |        |                             |  
|Income tax
  expense                                                 |  |                               | 489    |                             |  
|                                                                     |  |                               |        |                             |  
|                                                                     |  |                               |        |                             |  
|Net
  loss                                                           |  | $                             | (4,392 | )                           | $
|                                                                     |  |                               |        |                             |  
|                                                                     |  |                               |        |                             |  
|Basic and
  diluted net loss per share                               |  | $                             | (0.14  | )                           | $
|                                                                     |  |                               |        |                             |  
|                                                                     |  |                               |        |                             |  
|Shares used
  in computing basic and diluted
     net loss per share |  |                               | 31,449 |                             |  
|                                                                     |  |                               |        |                             |  

See accompanying notes.

4.

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GENE LOGIC INC.

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

|                                                                                 |  | Six Months Ended
  June 30, |        
|-------------------------------------------------------------------------------- |  | --------------------------- | -------
|                                                                                 |  |                             |        
|                                                                                 |  | 2004                        |        
|                                                                                 |  |                             |        
|Cash flows
  from operating activities:                                          |  |                             |        
|Net loss                                                                         |  | $                           | (9,902 
|Adjustments
  to reconcile net loss to net cash flows from operating activities: |  |                             |        
|Depreciation
  and amortization                                                  |  |                             | 8,897  
|Loss
  on abandonment of patents                                                 |  |                             | 141    
|Loss
  on disposal of property and equipment                                     |  |                             | 9      
|Changes in
  operating assets and liabilities (net of effects of acquisition):   |  |                             |        
|Accounts
  receivable and unbilled services, net                                 |  |                             | (5,381 
|Inventory,
  net                                                                 |  |                             | 1,972  
|Prepaids
  and other assets                                                      |  |                             | (215   
|Accounts
  payable                                                               |  |                             | 272    
|Accrued
  expenses and other noncurrent liabilities                              |  |                             | 191    
|Deferred
  revenue                                                               |  |                             | (3,076 
|                                                                                 |  |                             |        
|Net
  cash flows from operating activities                                       |  |                             | (7,092 
|                                                                                 |  |                             |        
|Cash flows from
  investing activities:                                          |  |                             |        
|Purchases
  of property and equipment                                            |  |                             | (2,296 
|Purchases
  of licenses and patent costs                                         |  |                             | (200   
|Software
  development costs                                                     |  |                             | (1,844 
|Database
  upgrade costs                                                         |  |                             | (247   
|Repayments of notes receivable from employees                                    |  |                             |       
|Cash
  paid to acquire TherImmune, net of cash acquired                          |  |                             |       
|Purchase
  of marketable securities available-for-sale                           |  |                             | (42,086
|Proceeds from sale and maturity of marketable securities available-for-sale      |  |                             | 44,939 
|                                                                                 |  |                             |        
|Net
  cash flows from investing activities                                       |  |                             | (1,734 
|                                                                                 |  |                             |        
|Cash flows
  from financing activities:                                          |  |                             |        
|Proceeds
  from issuance of common stock                                         |  |                             | 1,219  
|Cash
  used to repay TherImmune debt                                             |  |                             |       
|Repayments
  of capital lease obligations and equipment loans                    |  |                             | (81    
|                                                                                 |  |                             |        
|Net
  cash flows from financing activities                                       |  |                             | 1,138  
|                                                                                 |  |                             |        
|Net decrease
  in cash and cash equivalents                                      |  |                             | (7,688 
|Cash and
  cash equivalents, beginning of period                                 |  |                             | 48,718 
|                                                                                 |  |                             |        
|Cash and
  cash equivalents, end of period                                       |  | $                           | 41,030 
|                                                                                 |  |                             |        
|                                                                                 |  |                             |        
|Supplemental
  disclosure:                                                       |  |                             |        
|Taxes
  paid                                                                     |  | $                           |       
|                                                                                 |  |                             |        
|Interest
  paid                                                                  |  | $                           | 13     
|                                                                                 |  |                             |        
|                                                                                 |  |                             |        
|Non-cash
  transactions:                                                         |  |                             |        
|Issuance
  of common stock in TherImmune acquisition                             |  | $                           |       
|                                                                                 |  |                             |        

See accompanying notes.

5.

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Gene Logic Inc.

Notes to Financial Statements
June 30, 2004
(in thousands, except share and per share data)
(Unaudited)

Note 1  Organization and summary of
significant accounting policies

Description of Business

Gene Logic
Inc., including its wholly owned subsidiaries, Gene Logic Laboratories Inc.
(formerly TherImmune Research Corporation) and Gene Logic Ltd. (our United
Kingdom subsidiary) (collectively Gene Logic or the Company), is a leading
drug development services company providing a wide range of discovery and
development services to pharmaceutical and biotechnology companies worldwide
and U.S. Government entities.  The
Companys services are organized into two business segments: information services
and contract study services.  The information
services business is based on the Companys gene expression reference database,
the GeneExpress System, for research related to drug discovery and
optimization.  The contract study
services business consists of services used in drug development, including
primarily preclinical toxicity and pharmacology studies and related laboratory
services and, to a lesser extent, Phase I clinical trial services.

Basis of Presentation

On April 1,
2003, TherImmune Research Corporation (TherImmune) was merged into Gene
Logics wholly owned subsidiary, GLA II Corp., later renamed Gene Logic
Laboratories Inc. (Gene Logic Labs). 
The acquisition of TherImmune has been accounted for under the purchase
method of accounting and consolidated financial statements herein reflect the
inclusion of Gene Logic Labs operating results since the acquisition
date.  During the first quarter of 2004,
Gene Logic Ltd. was formed in the United Kingdom to provide sales and customer service
support in Europe, as part of the Companys strategy for international
expansion.  All material intercompany
accounts and transactions have been eliminated in consolidation.

The
accompanying unaudited consolidated financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and the instructions to Form 10-Q and Article 10 of Regulation
S-X.  The consolidated balance sheet as
of June 30, 2004, consolidated statements of operations for the three and six
months ended June 30, 2004 and 2003 and the consolidated statements of cash
flows for the six months ended June 30, 2004 and 2003 are unaudited, but
include all adjustments (consisting of normal recurring adjustments) which the
Company considers necessary for a fair presentation of the financial position,
operating results and cash flows, respectively, for the periods presented.  Although the Company believes that the
disclosures in these financial statements are adequate to make the information
presented not misleading, certain information and footnote information normally
included in financial statements prepared in accordance with accounting
principles generally accepted in the United States have been condensed or
omitted pursuant to the rules and regulations of the Securities and Exchange
Commission.

Results for
any interim period are not necessarily indicative of results for any future
interim period or for the entire year. 
The accompanying unaudited consolidated financial statements should be
read in conjunction with the consolidated financial statements and notes
thereto included in the Companys Annual Report on Form 10-K for the year ended
December 31, 2003.

Use of Estimates

The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States 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.

6.

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Inventory

Inventory
is stated at the lower of cost or market. 
Cost for microarrays and laboratory reagents is determined using the
first-in, first-out method; 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.  Inventory is comprised of:

|                                |  | June 30, 2004 |   | December 31, 2003 |  
|------------------------------- |  | ------------- | - | ----------------- | -
|                                |  |               |   |                   |  
|Microarrays                     |  |               | $ | 425               |  
|Laboratory
  reagents           |  |               |   | 536               |  
|Tissue
  samples                |  |               |   | 3,345             |  
|                                |  |               |   |                   |  
|                                |  |               |   | 4,306             |  
|Less 
  tissue sample reserves |  |               |   | (1,298            | )
|                                |  |               |   |                   |  
|Inventory,
  net                |  |               | $ | 3,008             |  
|                                |  |               |   |                   |  

Comprehensive Loss

The Company
accounts for comprehensive loss as prescribed by Statement of Financial
Accounting Standards No. 130, Reporting Comprehensive Income.  Comprehensive income (loss) is the total net
income (loss) plus all changes in equity during the period except those changes
resulting from investment by owners and distribution to owners.  Total comprehensive loss, which includes
unrealized gains or losses in the Companys marketable securities
available-for-sale, was $4,620 and $4,121 for the three months ended June 30,
2004 and 2003, respectively, and $10,091 and $9,991 for the six months ended
June 30, 2004 and 2003, respectively.

Stock-Based
Compensation Plans

At June 30,
2004, the Company has three stock-based compensation plans: 1997 Equity
Incentive Plan (the Stock Plan), 1997 Non-Employee Directors Stock Option
Plan (the Directors Plan) and Employee Stock Purchase Plan (the
ESPP).  The Company accounts for these
plans under the recognition and measurement principles of Accounting Principles
Board Opinion No. 25, Accounting for Stock Issued to Employees (APB 25),
and related interpretations.  Under APB
25, compensation expense for grants that are compensatory are recorded over the
vesting period only to the extent that the fair value of the underlying stock
on the date of grant exceeds the exercise or acquisition price of the stock or
stock-based award.  Stock options
granted under the Companys Stock Plan and Directors Plan are considered
compensatory and are granted with an exercise price equal to the fair value on
the grant date.  Common stock issued
under the ESPP is considered non-compensatory under APB 25 and is purchased at
85% of the lesser of the market price of the shares at the time of purchase or
the market price on the beginning date of an Offering, as defined under the
plan (or, if later, the date during the Offering when the employee was first
eligible to participate).

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

| |                                                                                                           |  | Three Months Ended
  June 30, |        | Six Months Ended
  June 30, |  
| | --------------------------------------------------------------------------------------------------------- |  | ----------------------------- | ------ | --------------------------- | -
| |                                                                                                           |  |                               |        |                             |  
| |                                                                                                           |  | 2004                          |        | 2003                        |  
| |                                                                                                           |  |                               |        |                             |  
| | Net loss, as
  reported                                                                                   |  | $                             | (4,392 | )                           | $
| | Deduct:
  Stock-based compensation expense determined
       under fair value based method for all awards |  |                               | (487   | )                           |  
| |                                                                                                           |  |                               |        |                             |  
| | Pro forma
  net loss                                                                                      |  | $                             | (4,879 | )                           | $
| |                                                                                                           |  |                               |        |                             |  
| |                                                                                                           |  |                               |        |                             |  
| | Basic and
  diluted net loss per share:                                                                   |  |                               |        |                             |  
| | As
  reported                                                                                             |  | $                             | (0.14  | )                           | $
| | Pro
  forma                                                                                               |  | $                             | (0.16  | )                           | $

New Accounting
Pronouncements

In December
2003, the Financial Accounting Standards Board issued a revised Interpretation
No. 46, Consolidation of Variable Interest Entities (Interpretation No.
46), addressing consolidation of entities in which a company is a primary
beneficiary.  Interpretation No. 46 was
effective immediately for arrangements entered into or modified after January
31, 2003 and during the quarter ended March 31, 2004 for arrangements entered
into or modified before February 1, 2003.  The Company has investments in
several variable interest entities; however, the Company is not a primary
beneficiary in any of these entities. 
Accordingly, the adoption of Interpretation No. 46 had no impact on the
Companys financial position or results of operations.

7.

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Note 2  Segment information

On April 1,
2003, the Company began managing its business as two business segments:
information services and contract study services.  Prior to this date, the Company operated as one business segment,
information services.  Information services
are based on the Companys gene expression reference database, the GeneExpress
System, for research related to drug discovery and optimization.  Contract study services consists of services
used in drug development, including primarily preclinical toxicity and
pharmacology studies and related laboratory services and, to a lesser extent,
Phase I clinical trial services.

The
following table presents the results of operations by these segments used by
management to evaluate performance.  The
information services segment operating income (loss) consists of revenue for this
segment less database production and research and development expenses.  The contract study services segment
operating income consists of revenue for this segment less costs related to
contract studies.  The Company does not
identify or allocate, nor does management evaluate, selling, general and
administrative expenses and assets by business segment.  Inter-segment transactions are eliminated in
the determination of segment operating income (loss).  Amortization and depreciation is allocated by business segment as
shown below.  The following table sets
forth information on reportable segments for:

| |                                                                                                          | Three Months
  Ended June 30, |   | Six Months
  Ended June 30, |  
| | -------------------------------------------------------------------------------------------------------- | ----------------------------- | - | --------------------------- | -
| |                                                                                                          |                               |   |                             |  
| |                                                                                                          | 2004                          |   | 2003                        |  
| |                                                                                                          |                               |   |                             |  
| | Information Services                                                                                     |                               |   |                             |  
| | Revenue                                                                                                  |                               | $ | 12,663                      |  
| | Operating
  income (loss)(1)                                                                             |                               |   | 1,316                       |  
| |                                                                                                          |                               |   |                             |  
| | Contract Study Services                                                                                  |                               |   |                             |  
| | Revenue                                                                                                  |                               | $ | 5,959                       |  
| | Operating
  income (2)                                                                                   |                               |   | 336                         |  
| |                                                                                                          |                               |   |                             |  
| | Reconciliation of segment operating income (loss) to net loss before
  income tax expense is as follows: |                              
| |                                                                                                          |                              
| | Segment Operating income (loss)                                                                          |                               |   |                             |  
| | Information
  Services                                                                                   |                               | $ | 1,316                       |  
| | Contract
  Study Services                                                                                |                               |   | 336                         |  
| |                                                                                                          |                               |   |                             |  
| |                                                                                                          |                               |   | 1,652                       |  
| | Selling,
  general and administrative expenses                                                           |                               |   | 5,863                       |  
| | Interest
  (income), net                                                                                 |                               |   | (308                        | )
| | Other
  (income) expense                                                                                 |                               |   |                            |  
| |                                                                                                          |                               |   |                             |  
| | Net
  loss before income tax expense                                                                     |                               | $ | (3,903                      | )
| |                                                                                                          |                               |   |                             |  
| |                                                                                                          |                               |   |                             |  

(1)Includes an allocation of amortization
and depreciation of $3,349 and $3,373 for the three months ended June 30, 2004
and 2003, respectively, and $6,819 and $6,872 for the six months ended June 30,
2004 and 2003, respectively.(2)Includes an allocation of amortization and depreciation of $520
and $385 for the three months ended June 30, 2004 and 2003, respectively, and $968 and $385 for the six months ended June
30, 2004 and 2003, respectively.

For the
three months and six months ended June 30, 2004 and 2003, no customer accounted
for 10% or more of the Companys revenue. 
The following is a breakdown of the Companys total revenue by
geographic region:

|                              |  | Geographic Region |   
|----------------------------- |  | ----------------- | --
|                              |  |                   |   
|                              |  | North
  America   |   
|                              |  |                   |   
|For the
  three months ended: |  |                   |   
|June
  30, 2004               |  |                   | 53
|June
  30, 2003               |  |                   | 55
|For the six
  months ended:   |  |                   |   
|June
  30, 2004               |  |                   | 52
|June
  30, 2003               |  |                   | 48

Note 3  Subsequent events

In July
2004, the Company acquired a technology program and an associated research team
from Millennium Pharmaceuticals, Inc. (Millennium).  The newly acquired technologies, which are currently under
development, include: in vivo compound imaging, in vitro
pathway screening, predictive and genetic ADME capabilities and metabolomics
technologies for use in preclinical and clinical drug

8.

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development.  Also, the Company acquired the MC-4
antagonist therapeutic program from Millennium, which the Company expects to
out-license following further preclinical and therapeutic indication expansion
efforts.  In addition, the Company
entered into a drug development services agreement with Millennium in which the
Company will use the newly acquired technologies to repurpose a Millennium
compound in exchange for up-front fees, and if the compound successfully
reenters Millenniums drug development pipeline, milestone and royalty
payments.

Consideration
paid by the Company includes: (i) $3,500 payable in cash or stock, at the
Companys election, to Millennium in 2006; (ii) $1,000 in cash and stock to
certain employees who left Millennium and joined the Company; and (iii)
grant-back licenses to certain technologies acquired from Millennium.  In addition, Millennium received a license
to use the Companys ToxExpress® database for three years, valued at
$4,500.  The Company also contractually
agreed to spend at least $8,500 over the next 18 months to develop and
commercialize the acquired technologies and, subject to achieving certain
performance milestones by the end of the first 18 months, an additional $6,500
over the subsequent 12 months.  The
Company is currently evaluating the acquired technologies and purchased
in-process research and development activities.  Upon completion of its valuation, the Company expects to record a
one-time purchased research and development charge in the third quarter of
2004.

In July
2004, the Company formed Gene Logic K.K., a Japanese wholly owned subsidiary,
to provide customer service support in Japan.

9.

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

Certain statements contained in this
Quarterly Report on Form 10-Q constitute forward-looking statements within
the meaning of the United States Private Securities Litigation Reform Act of
1995, as amended.  Such statements are
typically identified by words or phrases such as believe, expect,
anticipate, intend, estimate, may, goals, hopes, strategies, and
similar expressions or future or conditional verbs such as will, should,
would, and could.  These statements
are based on managements current expectations and involve estimates,
assumptions, risks and uncertainties that could cause actual results to differ
materially from those stated or implied by the forward-looking statements.  The Company assumes no obligation to update
any forward-looking statements herein, which speak only as of the date of this
Quarterly Report on Form 10-Q.  These
risks and uncertainties are those set forth in Item 1. BusinessRisks Related
To Our Business in our Annual Report on Form 10-K for the year ended December
31, 2003, in our Current Report on Form 8-K filed July 26, 2004 and other risks
that we disclose from time to time in our other filings with the Securities and
Exchange Commission.

Unless the context requires otherwise, references in this Quarterly
Report on Form 10-Q to Gene Logic, the Company, we, us, and our refer
to Gene Logic Inc.  GeneExpress® and
ToxExpress® are registered trademarks of Gene Logic.  GeneChip® is a registered trademark of Affymetrix, Inc.

OVERVIEW

We are a leading drug development
services company providing a wide range of discovery and development services
to pharmaceutical and biotechnology companies worldwide and U.S. Government
entities.  Our services are designed to
assist in improving the predictive value of research activities and product
success rates.  We manage our business
as two segments: information services and contract study services.  Our information services business is based
on our gene expression reference database, the GeneExpress System, for research
related to drug discovery and optimization. 
These services primarily consist of subscriptions to the GeneExpress
System.  Our contract study services
business consists of services used in drug development, including primarily
preclinical safety and pharmacology studies and related laboratory services
and, to a lesser extent, Phase I clinical trial services.  As part of our strategy for international
expansion, during the first quarter and third quarter of 2004, we established
Gene Logic Ltd. in the United Kingdom and Gene Logic K.K. in Japan,
respectively, to provide sales and customer service support.  During the third quarter of 2004, we
acquired a technology program and an associated research team from Millennium
Pharmaceuticals, Inc. (Millennium). 
We plan to combine the newly acquired technology program with our core
information and preclinical capabilities to build a new drug development
service to identify new therapeutic indications for customers drugs.

Our information services revenue consists
primarily of fees earned under subscription agreements with pharmaceutical and
biotechnology companies for all or parts of our gene expression reference
database, the GeneExpress System.  Each
of the subscription agreements with our GeneExpress System customers is
typically for a specific multi-year term. 
Certain subscription agreements include a right of early termination
(which, in some instances, is subject to conditions) by the customer, without
penalty, on a specified date prior to the normal expiration of the term.  Our revenue from such subscription
agreements is recognized ratably over the period during which the customer has
access to the GeneExpress System.

Our contract study services revenue is
primarily derived from fixed price contracts with pharmaceutical and
biotechnology companies.  In addition,
we derive revenue from cost plus contracts with U.S. Government entities.  Revenue is recognized on fixed price
contracts as services are performed, based primarily upon the percentage of
hours worked (including subcontractor hours) compared to the total estimated
hours for the contract.  We believe that
hours worked is the best measure of proportional performance under fixed price
contracts.  Revenue is recognized on
cost plus contracts on the basis of the direct costs incurred plus indirect
costs and an allocable portion of the fee earned.

Revenue from our customers may be subject
to significant fluctuation in both timing and amount; therefore, our results of
operations for any period may not be comparable to the results of operations
for any other period or predictive of any long-term trend.

During 2004, we are focusing on the
following initiatives:

| |  | renewing
  GeneExpress System subscription agreements with our top-tier pharmaceutical
  company customers;                                                                                               
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | preparing
  for international expansion by establishing sales and customer support
  efforts in Europe and Japan;                                                                                         
| |  | improving
  gross margins on our contract study services business;                                                                                                                                        
| |  | continuing
  to add capacity and build infrastructure to achieve anticipated revenue
  growth; and                                                                                                        
| |  | ongoing
  development and commercialization of the technology program acquired from
  Millennium to provide a new drug development service to identify new
  therapeutic indications for customers drugs.

We have incurred operating losses in each year since our inception,
including losses of $24.8 million in 2003, $24.1 million in 2002 and $33.2
million in 2001.  At June 30, 2004, we
had an accumulated deficit of $194.0 million. 
Our losses have resulted principally from costs

10.

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incurred in the development
of our GeneExpress System and selling, general and administrative costs associated
with our operations.  These costs have
exceeded our revenue and we expect to incur additional operating losses in the
future.

RESULTS OF OPERATIONS

Three Months Ended
June 30, 2004 and 2003

Total
Revenue.  Total revenue decreased
$0.8 million, or 4%, to $18.6 million for the three months ended June 30, 2004
from $19.4 million for the same period in 2003.  During the three months ended June 30, 2004 and 2003, no customer
accounted for 10% or greater of our revenue.

Information
Services Revenue.  Revenue from our information services
business, which consisted primarily of fees from subscription agreements to our
GeneExpress System, was $12.7 million for the three months ended June 30, 2004,
a decrease of $0.4 million, or 3%, from $13.1 million for the same period in
2003.  The decrease in revenue consisted
primarily of the absence of $1.4 million resulting from the conclusion or reduction in scope of
agreements with primarily biotechnology and smaller pharmaceutical companies,
partially offset by $0.9 million in subscription fees from new customers and
expanded agreements with and additional fees from existing customers.  In 2004, seven subscription agreements,
accounting for 27% of our 2003 revenue, would expire by their terms, unless
renegotiated.  Since the beginning of 2004, we have renegotiated four of these agreements (Sumitomo, Boehringer Ingelheim, Sankyo and UCB Research)
providing, as to two of these agreements, for reduced services and, consequently, less revenue to us than from the prior agreements. Agreements with Artesian and
AstraZeneca terminated. These two agreements together represented 6% of 2003 revenue. However, negotiations continue for a new agreement with AstraZeneca
and Avalon Pharmaceuticals. Finally, in addition to the seven customers discussed above, in the third quarter of 2004 we completed our
renegotiations with N.V. Organon, resulting in a new agreement to provide comprehensive toxicogenomics services,
thereby replacing the previous subscription agreement that terminated in 2003. For 2004, we expect modest
revenue growth in our information services business, mainly due to the current
economic uncertainty causing cautious spending by, and delays in purchase
decisions among, a number of our existing and potential customers and the
reduced ability of smaller companies to raise capital with which to purchase
our services.

Contract
Study Services Revenue.  Revenue from our contract study services
business, which consisted of fees from services related to drug development,
including primarily preclinical safety and pharmacology studies and related
laboratory services, was $6.0 million for the three months ended June 30, 2004,
a decrease of $0.4 million, from $6.3 million for the same period in 2003.  The decrease in revenue consisted primarily
of a decrease of $1.1 million in Phase I clinical trial services due to the
restructuring of that service group, partially offset by an increase of $0.7
million in preclinical studies.  For
2004, we expect our contract study services revenue to increase due to
recognition of a full years revenue and modest growth in our preclinical safety
and pharmacology study services.

Cost
of Contract Study Services Revenue.  Cost of contract study services revenue, which consisted primarily of
all identifiable direct and indirect costs related to conducting contract study
services, including direct and indirect labor, study materials, facility costs
and depreciation, increased to $5.6 million for the three months ended June 30,
2004 from $5.1 million for the same period in 2003.  The increase in 2004 consisted primarily of a $0.5 million
increase in employee costs and depreciation expense as we continue to invest in
our business infrastructure.  Our gross
margin for the second quarter of 2004 was 6% as compared to 20% for the same
period in 2003.  The decrease in our
gross margin resulted primarily from higher employee costs and depreciation
expense reflecting increased investment in our infrastructure, as well as the
negative effect of lower revenue in 2004. 
In future quarters, we expect slight improvements in our gross margin
resulting from anticipated increases in sales volume and price and reduced
outsourcing expenses.

Database
Production Expense.  Database
production expenses, which consisted primarily of costs related to the
acquisition and processing of tissues and overhead expenses needed to generate
the content of the GeneExpress System, decreased to $11.0 million for the three
months ended June 30, 2004 from $12.1 million for the same period in 2003.  The decrease in 2004 consisted primarily of
a $0.5 million reduction in employee costs due to the rebalancing of our
workforce in 2003 and a $0.5 million reduction in database content generation
expenses, primarily resulting from more focused content development of our
GeneExpress System.  For 2004, we expect database production
expenses to be slightly below 2003 levels, reflecting our continuing efforts to
focus content development in areas of most interest to our customers.

Research
and Development Expense.  Research
and development expenses decreased to $0.4 million for the three months ended
June 30, 2004 from $0.5 million for the same period in 2003.  Such expenses included the costs associated
with our efforts to improve the processes currently used in the production of
our GeneExpress System, as well as evaluations of alternative technology
platforms.  As a result of our funding
commitment for further development of the technologies newly acquired from
Millennium, we expect research and development expenses to increase by
approximately $1.3 million to $1.8 million per quarter by the end of 2004.  In addition, we are currently
evaluating the acquired technologies and purchased in-process research and
development activities.  Upon completion
of our valuation, we expect to record a one-time purchased research and
development charge in the third quarter of 2004.

11.

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Selling,
General and Administrative Expense.  Selling, general and administrative expenses, which consisted primarily
of costs of sales and marketing, finance and accounting, legal, human resources
and other general corporate operations, remained flat at $5.9 million for the
three months ended June 30, 2004 as compared to the same period in 2003.  In future quarters, we expect selling,
general and administrative expenses to increase modestly due to anticipated
costs in establishing international sales and customer support efforts in
Europe and Japan and marketing efforts relating to our new drug
development services.

Net
Interest Income.  Net
interest income decreased to $0.3 million for the three months ended June 30,
2004 from $0.4 million for the same period in 2003, due primarily to a decline
in our balance of cash, cash equivalents and marketable securities
available-for-sale and, to a lesser degree, a decline in the rates of return.

Other Income.  Other income decreased to $0 for the three
months ended June 30, 2004 from $0.2 million for the same period in 2003, due
to realized gains on sales of marketable securities available-for-sale in 2003
that did not recur in 2004.

Income Tax Expense.  Income tax expense, which consisted of a
Japanese government withholding tax on certain payments by our Japanese
customers, decreased to $0.5 million for the three months ended June 30, 2004
from $0.6 million for the same period in 2003. 
In 2004, the U.S. and Japan agreed to a new tax treaty, which will result
in the elimination of the withholding tax effective July 1, 2004.  For 2004, we expect income tax expense to
decrease significantly as a result of this elimination of the Japanese
withholding tax.

Six Months Ended
June 30, 2004 and 2003

Total
Revenue.  Total revenue increased
$6.7 million, or 21%, to $38.8 million for the three months ended June 30, 2004
from $32.2 million for the same period in 2003.  During the six months ended June 30, 2004 and 2003, no customer
accounted for 10% or greater of our revenue.

Information
Services Revenue.  Revenue from our information services
business, which consisted primarily of fees from subscription agreements to our
GeneExpress System, was $26.5 million for the six months ended June 30, 2004,
an increase of $0.7 million, or 3%, from $25.8 million for the same period in
2003.  The increase in revenue consisted
primarily of $3.0 million in subscription fees from new customers and expanded
agreements with and additional fees from existing customers and $0.6 million
reflecting a full period of revenue for the current period from customers whose
subscriptions began partway through 2003, partially offset by the absence of $3.2 million resulting from
the conclusion or reduction in scope of agreements with primarily biotechnology
and smaller pharmaceutical companies.

Contract
Study Services Revenue.  Revenue from our contract study services
business, which consisted of fees from services related to drug development,
including primarily preclinical safety and pharmacology studies and related
laboratory services, was $12.4 million for the six months ended June 30, 2004,
an increase of $6.0 million, from $6.3 million for the same period in
2003.  The increase in 2004 was a result
of our acquisition of TherImmune on April 1, 2003.

Cost
of Contract Study Services Revenue.  Cost of contract study services revenue, which consisted primarily of
all identifiable direct and indirect costs related to conducting contract study
services, including direct and indirect labor, study materials, facility costs
and depreciation, increased to $11.6 million for the six months ended June 30,
2004 from $5.1 million for the same period in 2003.  The increase in 2004 was a result of our acquisition of
TherImmune on April 1, 2003.

Database
Production Expense.  Database
production expenses, which consisted primarily of costs related to the
acquisition and processing of tissues and overhead expenses needed to generate
the content of the GeneExpress System, decreased to $23.6 million for the six
months ended June 30, 2004 from $25.7 million for the same period in 2003.  The decrease in 2004 consisted primarily of
a $1.4 million reduction in database content generation expenses, primarily
resulting from more focused content development of our GeneExpress System, and a
$0.7 million reduction in employee costs due to the rebalancing of our
workforce in 2003.

Research
and Development Expense.  Research
and development expenses decreased to $0.7 million for the six months ended
June 30, 2004 from $1.1 million for the same period in 2003, primarily due to a
$0.3 million reduction in employee costs. 
Such expenses included the costs associated with our efforts to improve
the processes currently used in the production of our GeneExpress System, as
well as evaluations of alternative technology platforms.

Selling,
General and Administrative Expense.  Selling, general and administrative expenses, which consisted primarily
of costs of sales and marketing, finance and accounting, legal, human resources
and other general corporate operations, increased to $12.3 million for the six
months ended June 30, 2004 from $10.4 million for the same period in 2003.  The increase in 2004 was a result of our
acquisition of TherImmune on April 1, 2003.

Net
Interest Income.  Net
interest income decreased to $0.6 million for the six months ended June 30,
2004 from $1.0 million for the same period in 2003, due primarily to a decline
in our balance of cash, cash equivalents and marketable securities
available-for-sale and, to a lesser degree, a decline in the rates of return.

12.

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Other Income.  Other income decreased to $0 for the six
months ended June 30, 2004 from $0.3 million for the same period in 2003, due
to realized gains on sales of marketable securities available-for-sale in 2003
that did not recur in 2004.

Income Tax Expense.  Income tax expense, which consisted of a
Japanese government withholding tax on certain payments by our Japanese
customers, remained flat at $1.1 million for the six months ended June 30, 2004
as compared to the same period in 2003.

LIQUIDITY AND CAPITAL RESOURCES

From inception through June 30, 2004, we
have financed our operations and acquisitions through the issuance and sale of
equity securities and payments from customers. 
As of June 30, 2004, we had approximately $101.1 million in cash, cash
equivalents and marketable securities available-for-sale, compared to $111.8
million as of December 31, 2003.

Net cash used in operating activities
decreased to $7.1 million for the six months ended June 30, 2004 from $7.5
million for the same period in 2003, primarily due to the timing of customer
and vendor payments.  Due to uncertainty
caused by recent changes to the tax treaty between the U.S. and Japan, cash
payments in the amount of $8.8 million from our Japanese distributor were
deferred from the second quarter of 2004 until the third quarter of 2004.

During the six months ended June 30, 2004
and 2003, our investing activities consisted primarily of purchases, sales and
maturities of available-for-sale securities, capital expenditures, software
development costs and in 2003, the acquisition of TherImmune.  Capital expenditures for the six months
ended June 30, 2004 and 2003 amounted to $2.3 million and $0.5 million,
respectively.  The increase in capital
expenditures was primarily due to additional build-out of our facilities and
related equipment purchases in order to expand our capacity and
capabilities.  We expect to continue to
incur capital expenditures due to additional facility build-out requirements
and equipment purchases.  In 2003, we
expended $30.4 million for the purchase of TherImmune.

We have capitalized software development
costs of $1.8 million and $3.5 million for the six months ended June 30, 2004
and 2003, respectively.  These costs
relate to ongoing efforts to enhance the software platform of our GeneExpress
System.  The decrease in software
development costs was primarily due to the rebalancing of our workforce.  Software development costs are being amortized over their expected
useful life of three years.  For
2004, software development costs are expected to continue (at a reduced
rate due to our workforce rebalancing) as a result of ongoing efforts to
further enhance the software platform of our GeneExpress System.  In addition, in 2004 we expect to incur
modest database upgrade costs to further enhance certain content of our
GeneExpress System.

Our financing activities, other than the
repayment of capital lease obligations and equipment loans, consisted of the
exercise of stock options and participation in our Employee Stock Purchase
Plan.  In connection with the TherImmune
acquisition in 2003, we repaid $6.0 million in debt of TherImmune.

In July 2004, we completed our purchase
of a technology program and an associated research team from Millennium.  As part of the consideration, we agreed to
pay $3.5 million in cash or stock, at our election, to Millennium in 2006 and
$1 million in cash and stock to certain employees who left Millennium and
joined us.  In addition, we also
contractually agreed to spend at least $8.5 million over the next 18 months to
develop and commercialize the acquired technologies and, subject to achieving
certain performance milestones by the end of the first 18 months, an additional
$6.5 million over the subsequent 12 months.

Future minimum capital lease payments,
long-term debt payments, payment obligations under our Affymetrix agreement (as
described in our Annual Report on Form 10-K for the year ended December 31,
2003), our funding commitment relating to the technology program acquired from
Millennium and operating lease payments are listed below:

| |                                                 |  | Total |        | Within 6
  Months |  | 2005 & 2006 |       | 2007 & 2008 |  | Beyond 2008 |  
| | ----------------------------------------------- |  | ----- | ------ | ----------------- |  | ----------- | ----- | ----------- |  | ----------- | -
| |                                                 |  |       |        |                   |  |             |       |             |  |             |  
| | Capital lease obligations                       |  | $     | 457    |                   |  | $           | 80    |             |  |             | $
| | Long-term
  debt                                |  |       | 689    |                   |  |             | 471   |             |  |             |  
| | Payment
  obligations                           |  |       | 6,000  |                   |  |             | 2,000 |             |  |             |  
| | Technology program
  funding 
       commitment |  |       | 8,500  |                   |  |             | 2,265 |             |  |             |  
| | Operating
  leases                              |  |       | 31,770 |                   |  |             | 2,571 |             |  |             |  
| |                                                 |  |       |        |                   |  |             |       |             |  |             |  
| | Total                                           |  | $     | 47,416 |                   |  | $           | 7,387 |             |  |             | $
| |                                                 |  |       |        |                   |  |             |       |             |  |             |  

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 Item 1. BusinessRisks Related to Our Business in our
Annual Report on Form 10-K for the year ended

13.

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December 31, 2003 and also in our
Current Report on Form 8-K filed on July 26, 2004.

CRITICAL ACCOUNTING POLICIES

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

REVENUE
RECOGNITION

Information
Services Revenue.  Information services revenue consists primarily of
fees earned under subscription agreements for all or parts of the Companys
gene expression reference database, the GeneExpress System.  Each of the subscription agreements with our
GeneExpress System customers is typically for a specific multi-year term.  Our revenue from such subscription
agreements is recognized ratably over the period during which the customer has
access to the GeneExpress System.  Such
agreements provide for termination in the event of a breach of the agreement by
either party or a bankruptcy or insolvency of either party.  Certain subscription agreements include a
right of early termination (which, in some instances, is subject to conditions)
by the customer, without penalty, on a specified date prior to the normal
expiration of the term.  If an agreement
has a right of early termination, revenue is recognized ratably over the
subscription term up to the possible date of early termination, based on subscription
fees earned under the agreement through the possible date of early
termination.  If such early termination
does not occur, the balance of the subscription fees earned under the agreement
is recognized as revenue ratably over the remaining term of the agreement.

Revenue recognized for multiple element contracts is allocated to each
element of the arrangement based on the relative fair value of the
element.  The determination of fair
value of each element is based on our analysis of objective evidence from
comparable sales of the individual element. 
If such evidence of fair value for any element of the arrangement does
not exist, revenue from such element is deferred until such time that evidence
of fair value does exist or is recognized ratably over the longest performance
period of the remaining elements.

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

Our revenue recognition policy is
significant because revenue is a key component of our results of
operations.  Revenue is recognized in
accordance with the Securities and Exchange Commissions (SEC) Staff
Accounting Bulletin (SAB) No. 104, Revenue Recognition (SAB 104). SAB 104 requires four basic
criteria be met before revenue can be recognized: 1) persuasive evidence of an
arrangement exists; 2) delivery has occurred or services rendered; 3) the fee
is fixed and determinable; and 4) collectability is reasonably assured.  As to 1), our business practices require
that our services be performed pursuant to contracts with our customers.  As to 2), we recognize revenue when services
are rendered to our customers.  Determination
of 3) and 4) are based on managements judgments regarding the fixed nature of
our arrangements taking into account termination provisions and the
collectability of fees under our arrangements. 
In addition, management reviews costs billed under our government
contracts to ensure compliance with governmental regulations and cost and
profit estimates on uncompleted contracts. 
Should changes in conditions cause management to determine these
criteria are not met for certain future arrangements, that billed costs under
our government contracts are not allowed or that cost or profit estimates
change resulting in losses under such contracts, revenue recognized for any
reporting period would be adjusted and could be adversely affected.

GOODWILL
ANDINTANGIBLE ASSETS IMPAIRMENT

We have recorded goodwill of $43.0
million and an intangible asset, customer relationships, of $2.5 million as a
result of the acquisition of TherImmune. 
Prior to the acquisition, we had recorded goodwill and other intangible
assets, including licenses to technologies or data, patent costs and software development
and database upgrade costs.  The
determination of their estimated useful lives and whether or not any of these
assets are impaired involves significant judgment, including the following:

| |  | our licenses
  and internally developed intellectual property may not provide valid and
  economical competitive advantage;
| | - | ---------------------------------------------------------------------------------------------------------------------------
| |  | our services
  may become obsolete before we recover the costs incurred in connection with
  their development;            
| |  | our use of
  such assets; and                                                                                              

14.

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| |  | the fair
  value of each business segment relative to its book value.
| | - | ---------------------------------------------------------------------

Under Statement of Financial Accounting
Standards No. 142, Goodwill and Other Intangible Assets, we are required to
perform annual impairment tests of our goodwill and intangible assets and more
frequently in certain circumstances.  We
have elected to test for goodwill impairment as of October 1 of each year.  The goodwill impairment test is a two-step
process, which requires management to make judgments in determining what
assumptions to use in the calculation. 
Our annual impairment assessment as of October 1, 2003 did not indicate
impairment of our goodwill.  The
calculation includes managements assumptions relating to projected growth in
revenue and gross margins and discount rates. 
Should conditions change in the future causing management to determine
that these rates should be reduced, the resulting effect would be a reduction
in the fair value of a reporting unit. 
As such, this could adversely affect the reported value of goodwill and
cause us to have an impairment of goodwill.

ACCOUNTS
RECEIVABLE AND UNBILLED SERVICES

Our ability to collect outstanding
receivables and unbilled services from our customers is critical to our
operating performance and cash flows. 
Typically, arrangements with our customers require that the payments for
our services be made in advance, based upon the achievement of milestones or in
accordance with predetermined payment schedules.  In the past, we have not had a history of collectability problems
with our customers; however, we have recorded an allowance for doubtful
accounts at June 30, 2004 based on our estimate of accounts receivable that are
at risk of collection.  Further, as we
continue to expand our customer base, the risk of collectability may increase
and management will continue to make estimates as to collectability of such
accounts.  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 GeneExpress System. 
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 that might have a material impact on our financial statements.

EQUITY
INVESTMENTS

We hold equity investments in several
companies whose businesses may be complementary to our business.  We record an investment impairment charge
when it is believed that an investment has experienced a decline in value that
is other than temporary.  Future adverse
changes in market conditions or poor operating results of the underlying
investee could result in an inability to recover the carrying value of these
investments that may not be reflected in any one of these investments current
carrying value, thereby possibly requiring us to record an impairment charge in
the future.

RECENTLY ISSUED
ACCOUNTING PRONOUNCEMENTS

In December 2003, the Financial
Accounting Standards Board issued a revised Interpretation No. 46,
Consolidation of Variable Interest Entities (Interpretation No. 46),
addressing consolidation of entities in which a company is a primary
beneficiary.  Interpretation No. 46 was
effective immediately for arrangements entered into or modified after January
31, 2003 and during the quarter ended March 31, 2004 for arrangements entered
into or modified before February 1, 2003.  We have investments in several
variable interest entities; however, we are not a primary beneficiary in any of
these entities.  Accordingly, the
adoption of Interpretation No. 46 had no impact on our financial position or
results of operations.

Item 3.     Quantitative and Qualitative Disclosure about Market Risk

We
have limited exposure to financial market risks, including changes in interest
rates.  At June 30, 2004, we had cash
and cash equivalents of approximately $41.0 million and marketable securities
available-for-sale of an additional $60.1 million.  We invest our excess cash primarily in money market funds,
obligations of the United States government and its agencies and marketable
debt securities of companies with strong credit ratings.  These instruments have maturities of
twenty-four months or less when purchased. 
We do not utilize derivative financial instruments, derivative commodity
instruments or other market risk sensitive instruments, positions or
transactions in any material fashion. 
Accordingly, we believe that, while the instruments we hold are subject
to changes in the financial standing of the issuer of such securities, we are
not subject to any material risks arising from changes in foreign currency exchange
rates, commodity prices, equity prices or other market changes that affect
market risk sensitive instruments. 
Based on our cash and cash equivalents and marketable securities
available-for-sale balances at June 30, 2004, a 100 basis point adverse movement
in interest rates would have resulted in an increase in the net loss of
approximately $0.3 million and $0.5 million for the three and six months ended
June 30, 2004, respectively.  Actual
changes in rates may differ from the hypothetical assumptions used in computing
this exposure.

15.

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Item
4.     Controls and Procedures

During the first quarter of 2004, we
installed a new accounting system (and modified our internal controls where
necessary) that allowed us to eliminate two separate accounting systems, one
for Gene Logic and one resulting from the acquisition of TherImmune.  The new system has enabled us to maintain,
and in certain instances improve, the effectiveness of our internal controls.

As of June 30, 2004, an evaluation was
performed under the supervision and with the participation of our management,
including the Chief Executive Officer and Chief Financial Officer, of the
effectiveness of the design and operation of our disclosure controls and
procedures.  Based on that evaluation,
our management, including the Chief Executive Officer and Chief Financial
Officer, concluded that our disclosure controls and procedures were effective
as of June 30, 2004.

PART
II          OTHER INFORMATION

Item 1.     Legal
Proceedings

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

Item 2.     Change
in Securities and Use of Proceeds

None.

Item 3.     Defaults
Upon Senior Securities

None.

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

The Company
held its Annual Meeting of Stockholders on June 5, 2004 (Annual
Meeting).  At the Annual Meeting, the
Companys stockholders elected two directors to the Companys Board of
Directors and ratified the selection of our independent auditors, as described
below.  At the Annual Meeting, 25,982,956
shares, out of a total of 31,448,091 shares of Common Stock outstanding at the
record date, were represented in person or by proxy.

The proposals considered at the Annual Meeting were voted on as
follows:

|  |                                                                                                                                                                                | For        |  | Against |  | Withheld 
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ---------- |  | ------- |  | ---------
|  |                                                                                                                                                                                |            |  |         |  |          
|1 | To elect two
  directors to hold office until the 2007 Annual
  Meeting of Stockholders or his earlier resignation or 
  removal.                                              |            |  |         |  |          
|  |                                                                                                                                                                                |            |  |         |  |          
|  | Jules Blake,
  Ph.D.                                                                                                                                                           | 20,633,721 |  | N/A     |  | 5,349,235
|  | Michael J.
  Brennan, M.D., Ph.D.                                                                                                                                              | 21,963,517 |  | N/A     |  | 4,019,439
|  |                                                                                                                                                                                |            |  |         |  |          
|  | The following
  individuals term of office as a directorcontinue after the meeting: Mark D.
  Gessler; J. StarkThompson; Charles L. Dimmler III; and G. AnthonyGorry,
  Ph.D. |            |  |         |  |          

|  |                                                                                                                             | For        |  | Against |  | Withheld
|- | --------------------------------------------------------------------------------------------------------------------------- | ---------- |  | ------- |  | --------
|  |                                                                                                                             |            |  |         |  |         
|2 | To ratify
  the selection of Ernst & Young LLP as theCompanys independent auditors
  for the year endingDecember 31, 2004. | 25,301,774 |  | 634,284 |  | 46,898  

Item 5.     Other
Information

None.

16.

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Item 6.     Exhibits
and Reports on Form 8-K

| | A) | Exhibits:                                                                                                                                                                                  
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                            
| |    | 31                                                                                                                                                                                         
| |    |                                                                                                                                                                                            
| |    | 32                                                                                                                                                                                         
| |    |                                                                                                                                                                                            
| | B) | Reports on Form 8-K:                                                                                                                                                                       
| |    |                                                                                                                                                                                            
| |    | During the
  three months ended June 30, 2004, the Company filed the following reports:                                                                                                    
| |    |                                                                                                                                                                                            
| |    | The Current
  Report on Form 8-K, filed on April 23, 2004, with respect to the Companys
  financial results for the three months ended March 31, 2004.                                    
| |    |                                                                                                                                                                                            
| |    | In addition,
  on July 26, 2004, the Company filed a Current Report on Form 8-K with respect
  to the Companys acquisition of a technology program from Millennium
  Pharmaceuticals, Inc.

17.

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SIGNATURES

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

|      |                  | GENE LOGIC INC. |                                                                    
|----- | ---------------- | --------------- | -------------------------------------------------------------------
|      |                  |                 |                                                                    
|      |                  |                 |                                                                    
|Date: | August 6,
  2004 | By:             | /s/ Philip L. Rohrer, Jr.                                          
|      |                  |                 |                                                                    
|      |                  |                 | Philip L. Rohrer, Jr.                                              
|      |                  |                 | Chief Financial Officer(Principal Financial and Accounting Officer)

18.

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