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

(Mark One)

|    |  |                                                                                        
|--- |  | ---------------------------------------------------------------------------------------
|[X] |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
|    |  | For the quarterly period ended September 30, 2001.                                     

OR

|      |  |                                                                                         
|----- |  | ----------------------------------------------------------------------------------------
|[   ] |  | TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
|      |  | For the transition period from_______________ to
________________.                      

Commission File Number 0-23317



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



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

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

_____________________________________________

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

The number of shares outstanding of the Registrants Common Stock, $.01 par
value, was 26,733,377 as of October 31, 2001.



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GENE LOGIC INC.

TABLE OF CONTENTS

|                                                                          |                                       |  |    |   | 
|------------------------------------------------------------------------- | ------------------------------------- |  | -- | - | 
|PART I                      FINANCIAL INFORMATION                         |                                       |  |    |  
|                                                                         
|Item 1. Financial Statements                                              |                                       |  |    |  
|                                                                         
|Consolidated Balance Sheets at September 30, 2001 and December 31, 2000   |                                       |  | 3  |  
|Consolidated Statements of Operations for the Three and Nine Months Ended |                                       |  |    |  
|                                                                          | September 30, 2001 and 2000           |  |    | 4 | 
|Consolidated Statements of Cash Flows for the Nine Months Ended           |                                       |  |    |  
|                                                                          | September 30, 2001 and 2000           |  |    | 5 | 
|Notes to Consolidated Financial Statements                                |                                       |  | 6  |  
|                                                                         
|Item 2. Managements Discussion and Analysis of Results                   |                                       |  |    |  
|                                                                          | of Operations and Financial Condition |  |    | 9 | 
|                                                                         
|Item 3. Quantitative and Qualitative Disclosure About Market Risk         |                                       |  | 13 |  
|                                                                         
|PART II                      OTHER INFORMATION                            |                                       |  |    |  
|                                                                         
|Item 6. Exhibits and Reports on Form 8-K                                  |                                       |  | 13 |  
|                                                                         
|Signatures                                                                |                                       |  | 14 |  

2.



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PART I                      FINANCIAL INFORMATION

Item 1.  Financial Statements

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

|                                     |                                   |                                                                                                                                                                                  |                                            |                           |          |               |        |              |          |         |        | 
|------------------------------------ | --------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ------------------------- | -------- | ------------- | ------ | ------------ | -------- | ------- | ------ | 
|                                     |                                   |                                                                                                                                                                                  |                                            |                           |          | September 30, |        | December 31,
|                                     |                                   |                                                                                                                                                                                  |                                            |                           |          | 2001          |        | 2000        
|                                     |                                   |                                                                                                                                                                                  |                                            |                           |          |               |        |             
|                                     |                                   |                                                                                                                                                                                  |                                            |                           |          | (Unaudited)   |        |              |          |        
|ASSETS                              
|                                    
|Current Assets:                      |                                   |                                                                                                                                                                                  |                                            |                           |          |               |        |             
|                                     | Cash and cash equivalents         |                                                                                                                                                                                  | $                                          | 192,944                   |          |               | $      | 229,482      |         
|                                     | Accounts receivable               |                                                                                                                                                                                  |                                            | 4,751                     |          |               |        | 2,968        |         
|                                     | Inventory                         |                                                                                                                                                                                  |                                            | 5,356                     |          |               |        | 2,295        |         
|                                     | Prepaid expenses                  |                                                                                                                                                                                  |                                            | 3,020                     |          |               |        | 2,537        |         
|                                     | Other current assets              |                                                                                                                                                                                  |                                            | 5,142                     |          |               |        | 6,382        |         
|                                     |                                   |                                                                                                                                                                                  |                                            |                           |          |               |        |              |         
|                                     |                                   |                                                                                                                                                                                  | Total Current Assets                       |                           |          | 211,213       |        |              |          | 243,664 |       
|Property and Equipment, net          |                                   |                                                                                                                                                                                  | 19,027                                     |                           |          |               | 15,994 |             
|Long-Term Investments                |                                   |                                                                                                                                                                                  | 6,200                                      |                           |          |               | 9,081  |             
|Goodwill, net                        |                                   |                                                                                                                                                                                  | 3,051                                      |                           |          |               | 4,201  |             
|Intangible and Other Assets, net     |                                   |                                                                                                                                                                                  | 17,217                                     |                           |          |               | 16,593 |             
|                                     |                                   |                                                                                                                                                                                  |                                            |                           |          |               |        |              |         
|                                     |                                   |                                                                                                                                                                                  | Total Assets                               |                           | $        | 256,708       |        |              | $        | 289,533 |       
|                                     |                                   |                                                                                                                                                                                  |                                            |                           |          |               |        |              |         
|                                    
|LIABILITIES AND STOCKHOLDERS EQUITY
|                                    
|Current Liabilities:                 |                                   |                                                                                                                                                                                  |                                            |                           |          |               |        |             
|                                     | Accounts payable                  |                                                                                                                                                                                  | $                                          | 9,291                     |          |               | $      | 5,908        |         
|                                     | Litigation settlement payable     |                                                                                                                                                                                  |                                            |                          |          |               |        | 9,000        |         
|                                     | Accrued expenses                  |                                                                                                                                                                                  |                                            | 4,345                     |          |               |        | 9,028        |         
|                                     | Current portion of long-term debt |                                                                                                                                                                                  |                                            | 38                        |          |               |        | 1,335        |         
|                                     | Deferred revenue                  |                                                                                                                                                                                  |                                            | 9,449                     |          |               |        | 7,093        |         
|                                     |                                   |                                                                                                                                                                                  |                                            |                           |          |               |        |              |         
|                                     |                                   |                                                                                                                                                                                  |                                            | Total Current Liabilities |          |               | 23,123 |              |          |         | 32,364 | 
|Deferred Revenue                     |                                   |                                                                                                                                                                                  | 539                                        |                           |          |               | 1,141  |             
|Long-Term Debt                       |                                   |                                                                                                                                                                                  | 310                                        |                           |          |               | 1,631  |             
|Other Noncurrent Liabilities         |                                   |                                                                                                                                                                                  | 997                                        |                           |          |               | 682    |             
|                                     |                                   |                                                                                                                                                                                  |                                            |                           |          |               |        |              |         
|                                     |                                   |                                                                                                                                                                                  |                                            | Total Liabilities         |          |               | 24,969 |              |          |         | 35,818 | 
|                                     |                                   |                                                                                                                                                                                  |                                            |                           |          |               |        |              |         
|Commitments and Contingencies        |                                   |                                                                                                                                                                                  |                                            |                           |          |               |        |             
|Stockholders Equity:                |                                   |                                                                                                                                                                                  |                                            |                           |          |               |        |             
|                                     |                                   | Preferred Stock, $.01 par value; 10,000,000
shares authorized; no shares issued and
outstanding as of September 30, 2001 and
December 31, 2000                                   |                                            |                           |         |               |        |              |         |        
|                                     |                                   | Common Stock, $.01 par value; 60,000,000
shares authorized; 26,712,678 and 26,111,561
shares issued and outstanding as of September
30, 2001 and December 31, 2000, respectively |                                            |                           | 267      |               |        |              | 261      |        
|                                     |                                   | Additional paid-in capital                                                                                                                                                       |                                            |                           | 360,831  |               |        |              | 356,347  |        
|                                     |                                   | Deferred compensation on stock options, net                                                                                                                                      |                                            |                           |         |               |        |              | (738     | )      
|                                     |                                   | Accumulated deficit                                                                                                                                                              |                                            |                           | (129,359 | )             |        |              | (102,155 | )      
|                                     |                                   |                                                                                                                                                                                  |                                            |                           |          |               |        |              |         
|                                     |                                   |                                                                                                                                                                                  | Total Stockholders Equity                 |                           |          | 231,739       |        |              |          | 253,715 |       
|                                     |                                   |                                                                                                                                                                                  |                                            |                           |          |               |        |              |         
|                                     |                                   |                                                                                                                                                                                  | Total Liabilities and Stockholders Equity |                           | $        | 256,708       |        |              | $        | 289,533 |       
|                                     |                                   |                                                                                                                                                                                  |                                            |                           |          |               |        |              |         

See accompanying notes.

3.



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GENE LOGIC INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)

|                                                                     |                                                                     |          |                                                                     |        |                    |        |                   |        |        |         |        |        |         |         |        |        |         |         |  
|-------------------------------------------------------------------- | ------------------------------------------------------------------- | -------- | ------------------------------------------------------------------- | ------ | ------------------ | ------ | ----------------- | ------ | ------ | ------- | ------ | ------ | ------- | ------- | ------ | ------ | ------- | ------- | -
|                                                                     |                                                                     |          |                                                                     |        | Three Months Ended |        | Nine Months Ended
|                                                                     |                                                                     |          |                                                                     |        | September 30,      |        | September 30,    
|                                                                     |                                                                     |          |                                                                     |        |                    |        |                  
|                                                                     |                                                                     |          |                                                                     |        | 2001               |        | 2000              |        | 2001   |         | 2000  
|                                                                     |                                                                     |          |                                                                     |        |                    |        |                   |        |        |         |       
|Revenues                                                             |                                                                     | $        | 11,547                                                              |        |                    | $      | 5,394             |        |        | $       | 29,362 |        |         | $       | 17,512 |       
|Expenses:                                                            |                                                                     |          |                                                                     |        |                    |        |                   |        |        |         |        |        |         |         |        |       
|                                                                     | Research and development                                            |          |                                                                     | 14,521 |                    |        |                   | 11,955 |        |         |        | 45,320 |         |         |        | 31,049 |        
|                                                                     | Selling, general and administrative                                 |          |                                                                     | 4,686  |                    |        |                   | 4,731  |        |         |        | 14,890 |         |         |        | 12,662 |        
|                                                                     | Amortization of goodwill                                            |          |                                                                     | 381    |                    |        |                   | 381    |        |         |        | 1,143  |         |         |        | 1,143  |        
|                                                                     |                                                                     |          |                                                                     |        |                    |        |                   |        |        |         |        |        |         |         |        |       
|                                                                     |                                                                     |          | Total operating expenses                                            |        |                    | 19,588 |                   |        |        | 17,067  |        |        |         | 61,353  |        |        |         | 44,854  |  
|                                                                     |                                                                     |          |                                                                     |        |                    |        |                   |        |        |         |        |        |         |         |        |       
|                                                                     |                                                                     |          | Loss from operations                                                |        |                    | (8,041 | )                 |        |        | (11,673 | )      |        |         | (31,991 | )      |        |         | (27,342 | )
|Interest Income, net                                                 |                                                                     |          | 1,768                                                               |        |                    |        | 3,828             |        |        |         | 7,332  |        |         |         | 9,957  |       
|Other Income                                                         |                                                                     |          |                                                                    |        |                    |        |                  |        |        |         | 83     |        |         |         | 234    |       
|Income Tax Expense                                                   |                                                                     |          | 148                                                                 |        |                    |        |                  |        |        |         | 361    |        |         |         | 160    |       
|Equity in Net Loss of Unconsolidated Investees                       |                                                                     |          | 817                                                                 |        |                    |        |                  |        |        |         | 2,267  |        |         |         |       |       
|                                                                     |                                                                     |          |                                                                     |        |                    |        |                   |        |        |         |        |        |         |         |        |       
|                                                                     |                                                                     |          | Net loss before cumulative effect of change in accounting
principle |        |                    | (7,238 | )                 |        |        | (7,845  | )      |        |         | (27,204 | )      |        |         | (17,311 | )
|Cumulative Effect of Change in Accounting Principle                  |                                                                     |          |                                                                    |        |                    |        |                  |        |        |         |       |        |         |         | 1,322  |       
|                                                                     |                                                                     |          |                                                                     |        |                    |        |                   |        |        |         |        |        |         |         |        |       
|                                                                     |                                                                     | Net loss |                                                                     | $      | (7,238             | )      |                   | $      | (7,845 | )       |        | $      | (27,204 | )       |        | $      | (18,633 | )      
|                                                                     |                                                                     |          |                                                                     |        |                    |        |                   |        |        |         |        |        |         |         |        |       
|Basic and Diluted Net Loss Per Common Share:                         |                                                                     |          |                                                                     |        |                    |        |                   |        |        |         |        |        |         |         |        |       
|                                                                     | Net loss before cumulative effect of change in accounting
principle |          | $                                                                   | (0.27  | )                  |        | $                 | (0.30  | )      |         | $      | (1.03  | )       |         | $      | (0.69  | )      
|                                                                     | Cumulative effect of change in accounting principle                 |          |                                                                     |       |                    |        |                   |       |        |         |        |       |         |         |        | (0.05  | )      
|                                                                     |                                                                     |          |                                                                     |        |                    |        |                   |        |        |         |        |        |         |         |        |       
|                                                                     |                                                                     |          | Net loss                                                            |        | $                  | (0.27  | )                 |        | $      | (0.30   | )      |        | $       | (1.03   | )      |        | $       | (0.75   | )
|                                                                     |                                                                     |          |                                                                     |        |                    |        |                   |        |        |         |        |        |         |         |        |       
|Shares Used in Computing Basic and Diluted Net Loss Per
Common Share |                                                                     |          | 26,665                                                              |        |                    |        | 25,798            |        |        |         | 26,471 |        |         |         | 24,939 |       
|                                                                     |                                                                     |          |                                                                     |        |                    |        |                   |        |        |         |        |        |         |         |        |       

See accompanying notes.

4.



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

|                                                         |                                                                             |                                          |         |                   |         |      |         |         |         |  
|-------------------------------------------------------- | --------------------------------------------------------------------------- | ---------------------------------------- | ------- | ----------------- | ------- | ---- | ------- | ------- | ------- | -
|                                                         |                                                                             |                                          |         | Nine Months Ended
|                                                         |                                                                             |                                          |         | September 30,    
|                                                         |                                                                             |                                          |         |                  
|                                                         |                                                                             |                                          |         | 2001              |         | 2000
|                                                         |                                                                             |                                          |         |                   |         |     
|Cash Flows From Operating Activities:                    |                                                                             |                                          |         |                   |         |      |         |        
|Net loss                                                 |                                                                             | $                                        | (27,204 | )                 |         | $    | (18,633 | )      
|Adjustments to reconcile net loss to net cash flows from |                                                                             |                                          |         |                   |         |      |         |        
|                                                         | operating activities:                                                       |                                          |         |                   |         |      |         |         |        
|                                                         | Depreciation and amortization                                               |                                          |         | 8,193             |         |      |         | 3,948   |        
|                                                         | Amortization of goodwill                                                    |                                          |         | 1,143             |         |      |         | 1,143   |        
|                                                         | Amortization of deferred compensation                                       |                                          |         | 738               |         |      |         | 912     |        
|                                                         | Net loss from investment in unconsolidated investees                        |                                          |         | 2,267             |         |      |         |        |        
|                                                         | Loss on disposal of property and equipment                                  |                                          |         | 31                |         |      |         | 52      |        
|                                                         | Other non-cash expenses                                                     |                                          |         | 127               |         |      |         | 732     |        
|Changes in operating assets and liabilities:             |                                                                             |                                          |         |                   |         |      |         |        
|                                                         | Accounts receivable                                                         |                                          |         | (1,546            | )       |      |         | 541     |        
|                                                         | Inventory                                                                   |                                          |         | (3,062            | )       |      |         | 205     |        
|                                                         | Prepaid expenses                                                            |                                          |         | (445              | )       |      |         | (1,069  | )      
|                                                         | Other current assets                                                        |                                          |         | 2,745             |         |      |         | (1,343  | )      
|                                                         | Other assets                                                                |                                          |         | 79                |         |      |         |        |        
|                                                         | Accounts payable                                                            |                                          |         | 3,382             |         |      |         | (128    | )      
|                                                         | Litigation settlement payable                                               |                                          |         | (9,000            | )       |      |         |        |        
|                                                         | Accrued expenses                                                            |                                          |         | (4,389            | )       |      |         | 2,362   |        
|                                                         | Deferred revenue                                                            |                                          |         | 2,187             |         |      |         | (1,388  | )      
|                                                         | Other noncurrent liabilities                                                |                                          |         | 315               |         |      |         | 39      |        
|                                                         |                                                                             |                                          |         |                   |         |      |         |        
|                                                         |                                                                             | Net Cash Flows From Operating Activities |         |                   | (24,439 | )    |         |         | (12,627 | )
|                                                         |                                                                             |                                          |         |                   |         |      |         |        
|Cash Flows From Investing Activities:                    |                                                                             |                                          |         |                   |         |      |         |        
|                                                         | Purchases of property and equipment                                         |                                          |         | (7,636            | )       |      |         | (6,340  | )      
|                                                         | Purchases of licenses and patent costs                                      |                                          |         | (887              | )       |      |         | (617    | )      
|                                                         | Software and database development costs                                     |                                          |         | (4,541            | )       |      |         | (5,216  | )      
|                                                         | Purchase of equity investment                                               |                                          |         | (753              | )       |      |         | (8,081  | )      
|                                                         | (Increases) repayments of notes receivables from employees                  |                                          |         | (27               | )       |      |         | 663     |        
|                                                         | Proceeds from sale and maturity of marketable securities
available-for-sale |                                          |         |                  |         |      |         | 7,155   |        
|                                                         |                                                                             |                                          |         |                   |         |      |         |        
|                                                         |                                                                             | Net Cash Flows From Investing Activities |         |                   | (13,844 | )    |         |         | (12,436 | )
|                                                         |                                                                             |                                          |         |                   |         |      |         |        
|Cash Flows From Financing Activities:                    |                                                                             |                                          |         |                   |         |      |         |        
|                                                         | Proceeds from issuance of common stock in public
offering                   |                                          |         |                  |         |      |         | 262,080 |        
|                                                         | Issuance costs of public offering                                           |                                          |         |                  |         |      |         | (14,624 | )      
|                                                         | Proceeds from issuance of other common stock                                |                                          |         | 3,829             |         |      |         | 4,728   |        
|                                                         | Proceeds from exercise of warrant                                           |                                          |         | 534               |         |      |         |        |        
|                                                         | Repayments of capital lease obligations and equipment
loans                 |                                          |         | (2,618            | )       |      |         | (996    | )      
|                                                         |                                                                             |                                          |         |                   |         |      |         |        
|                                                         |                                                                             | Net Cash Flows From Financing Activities |         |                   | 1,745   |      |         |         | 251,188 |  
|                                                         |                                                                             |                                          |         |                   |         |      |         |        
|Net (Decrease) Increase in Cash and Cash Equivalents     |                                                                             |                                          | (36,538 | )                 |         |      | 226,125 |        
|Cash and Cash Equivalents, beginning of period           |                                                                             |                                          | 229,482 |                   |         |      | 5,294   |        
|                                                         |                                                                             |                                          |         |                   |         |      |         |        
|Cash and Cash Equivalents, end of period                 |                                                                             | $                                        | 192,944 |                   |         | $    | 231,419 |        
|                                                         |                                                                             |                                          |         |                   |         |      |         |        
|Supplemental Disclosure:                                 |                                                                             |                                          |         |                   |         |      |         |        
|                                                         | Interest paid                                                               |                                          | $       | 149               |         |      | $       | 248     |        
|                                                         |                                                                             |                                          |         |                   |         |      |         |        
|Non-Cash Transactions:                                   |                                                                             |                                          |         |                   |         |      |         |        
|                                                         | Promissory note received from sale of investment                            |                                          | $       | 2,654             |         |      | $       |        |        
|                                                         |                                                                             |                                          |         |                   |         |      |         |        
|                                                         | Spin-off of assets to unconsolidated investee                               |                                          | $       | 817               |         |      | $       |        |        
|                                                         |                                                                             |                                          |         |                   |         |      |         |        
|                                                         | Capital lease termination                                                   |                                          | $       |                  |         |      | $       | 288     |        
|                                                         |                                                                             |                                          |         |                   |         |      |         |        

See accompanying notes.

5.



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GENE LOGIC INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2001
(Unaudited)

Note 1.  Summary of Significant Accounting Policies

Basis of Presentation

The unaudited consolidated financial statements include the accounts of
Gene Logic Inc. and its subsidiaries (the Company). The accompanying
unaudited consolidated financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Article 10 of Regulation S-X. The
consolidated balance sheet as of September 30, 2001, consolidated statements of
operations for the three and nine months ended September 30, 2001 and 2000 and
the consolidated statements of cash flows for the nine months ended September
30, 2001 and 2000 are unaudited, but include all adjustments (consisting of
normal recurring adjustments) which the Company considers necessary for a fair
presentation of the financial position, operating results and cash flows for
the periods presented. Although the Company believes that the disclosures in
these financial statements are adequate to make the information presented not
misleading, certain information and footnote information normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to the rules and regulations
of the Securities and Exchange Commission.

Results for any interim period are not necessarily indicative of results
for any future interim period or for the entire year. The accompanying
unaudited 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, 2000.

Inventory

Inventory is stated at the lower of cost or market. Cost is determined
using the first-in, first-out method. Inventory consists primarily of
Affymetrix, Inc. GeneChip® microarrays, tissue samples and laboratory reagents.
All inventory at September 30, 2001 is classified as raw materials.

Change in Accounting Method

Effective January 1, 2000, the Company changed its method of accounting
for revenue in accordance with Staff Accounting Bulletin No. 101, Revenue
Recognition in Financial Statements. Prior to 2000, the Company recognized as
revenue certain nonrefundable up-front payments for the value of data
purchased, transfer of technology or other contractual rights that were not
contingent upon future performance under the terms of the agreement
either upon
signing of the agreement or when collected. Under the new accounting method
adopted retroactive to January 1, 2000, the Company now defers these
nonrefundable up-front payments and recognizes them as revenue systematically
over the life of the related collaboration agreements. The cumulative effect of
the change on prior years resulted in a charge of $1.3 million, which is
included in the net loss for the nine months ended September 30, 2000.

New Pronouncements

In June 2001, the Financial Accounting Standards Board issued Statements
of Financial Accounting Standards No. 141, Business Combinations, and No.
142, Goodwill and Other Intangible Assets, effective for fiscal years
beginning after December 15, 2001. Under the new standards, goodwill will no
longer be amortized, but will be subject to annual impairment tests in
accordance with the Statements. Other intangible assets will continue to be
amortized over their expected useful lives.

6.



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##### 



The Company will apply the new standards on accounting for goodwill and
other intangible assets beginning in the first quarter of 2002. Application of
the nonamortization provisions of the Statement is expected to result in a
decrease in net loss of $1.5 million per year. Prior to June 30, 2002, the
Company will perform the first of the required impairment tests of goodwill as
of January 1, 2002. As of September 30, 2001, the Company does not believe the
adoption of this standard will have a material effect on the financial position
or results of operations of the Company.

Reclassifications

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

Note 2.  Long-Term Investments

During 2000, the Company purchased a 26.7% voting stock interest in
Neuralstem, Inc., formerly NeuralStem BioPharmaceuticals, Ltd. (Neuralstem),
a privately held unconsolidated investee. The investment was accounted for
under the equity method of accounting. Through April 30, 2001, the Company
recorded its equity share of losses of Neuralstem and intercompany transactions
were eliminated in the accompanying financial statements. Effective April 30,
2001, following a repurchase of shares by Neuralstem which reduced the
Companys voting stock interest to 14.8%, the Company began accounting for its
investment in Neuralstem under the cost method of accounting and the financial
statements do not reflect any additional share of Neuralstems losses or
elimination of intercompany sales and expenses after such date. Neuralstem
repurchased the shares for approximately $2.7 million, payable pursuant to a
promissory note. The Companys equity share of losses of Neuralstem was $1.5
million for the nine months ended September 30, 2001. The Companys
intercompany sales and expenses with Neuralstem were $0.7 million and $0.8
million, respectively, for the nine months ended September 30, 2001.

Note 3.  Spin-Off of Assets

During July 2001, the Company completed a spin-off of its patented
Flow-thru Chip technology into a new company, MetriGenix, Inc. (MetriGenix).
The Companys contribution to the new venture consisted mainly of relevant
intellectual property and know-how associated with the Flow-thru Chip
technology. Concurrent with the spin-off, MetriGenix completed a private
financing which reduced the Companys voting ownership interest to 54%. In
connection with the financing, the Company provided the new investors,
including affiliates of two members of the Board of Directors of the Company, certain veto
rights and voting control, made certain representations and
warranties to the investors and entered into certain agreements with
MetriGenix including a subscription to the GeneExpress Suite and to
provide services and subleased space. Accordingly, MetriGenix is no longer being
consolidated; instead the Company accounts for its investment in MetriGenix
using the equity method. During the three months ended September 30, 2001, the
Company recorded its proportionate share of MetriGenixs operating losses up to
the book value of its contribution ($0.8 million). As the Companys investment
in MetriGenix has been reduced to zero as of September 30, 2001 and there is no
commitment to provide further funding, the Company does not expect to record
any additional share of MetriGenixs operating losses in its financial
statements in the future.

Note 4.  Segment Information

Statement of Financial Accounting Standards No. 131, Disclosure about
Segments of an Enterprise and Related Information establishes standards for
reporting information about operating segments in annual and interim financial
statements and related disclosures about its products, services, geographic
areas and major customers. The Companys operations are treated as one
operating segment.

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

|                            |                    |  |                 |    |   |  |   |    |   |  |   |    |   |  |  |    |   |  |  |    |   |  |  |    |  
|--------------------------- | ------------------ |  | --------------- | -- | - |  | - | -- | - |  | - | -- | - |  |  | -- | - |  |  | -- | - |  |  | -- | -
|                            |                    |  | Major Customers
|                            |                    |  |                
|                            |                    |  | A               |    | B |  | C |    | D |  | E |    | F
|                            |                    |  |                 |    |   |  |   |    |   |  |   |    |  
|For the three months ended: |                    |  |                 |    |   |  |   |    |   |  |   |    |   |  |  |    |   |  |  |    |   |  |  |   
|                            | September 30, 2001 |  |                 |   |   |  |   |   |   |  |   | 16 | % |  |  |   |   |  |  |   |   |  |  |   |  
|                            | September 30, 2000 |  |                 | 34 | % |  |   | 21 | % |  |   |   |   |  |  |   |   |  |  | 12 | % |  |  | 10 | %
|                           
|For the nine months ended:  |                    |  |                 |    |   |  |   |    |   |  |   |    |   |  |  |    |   |  |  |    |   |  |  |   
|                            | September 30, 2001 |  |                 |   |   |  |   | 11 | % |  |   | 11 | % |  |  |   |   |  |  |   |   |  |  |   |  
|                            | September 30, 2000 |  |                 | 36 | % |  |   | 23 | % |  |   |   |   |  |  | 12 | % |  |  |   |   |  |  |   |  

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

This Report on Form 10-Q contains forward-looking statements that involve
risks and uncertainties. We generally use words such as anticipate,
estimate, plan, project, continuing, ongoing, expect, management
believes, we believe, we intend and similar expressions to indicate when
we are making forward-looking statements. You should not place undue reliance
on these forward-looking statements. The forward-looking statements speak only
as of the date on which they are made, and we undertake no obligation to update
any forward-looking statement. Forward-looking statements include statements
about the performance and utility of our products, the timing and availability
of products under development, the ability of our customers to develop products
identified using our products, the adequacy of capital resources and other
expectations, plans, objectives, assumptions or future events. These statements
involve estimates, assumptions and uncertainties that could cause actual
results to differ materially from those expressed in this Report on Form 10-Q.
These risks and uncertainties include, but are not limited to, the extent of
utilization of genomic information by the pharmaceutical and biotechnology
industries in research and product development, our ability to retain existing and
obtain additional database customers in a timely manner, risks relating to the development of
genomic database products and their use by existing and potential
customers and ultimate consumers, our reliance on Affymetrix for
GeneChip microarrays and other sole source suppliers, our ability to
limit losses and become profitable, our ability to timely supply
customers with customized and new products,
continued access to necessary human and animal tissue samples, the impact of
technological advances and competition, our ability to enforce our intellectual
property rights, and the impact of the intellectual property rights of others,
as well as other risks and uncertainties included in our Annual Report on Form
10-K for the year ended December 31, 2000 filed with the Securities and
Exchange Commission.

Unless the context requires otherwise, references in this Report on Form
10-Q to Gene Logic, the Company, we, us, and our refer to Gene Logic
Inc. and its subsidiaries.

GeneExpress® is a registered trademark of Gene Logic. GeneChip® is a
registered trademark of Affymetrix, Inc. Flow-thru Chip is a trademark of
MetriGenix, Inc. Trade names and trademarks of other companies appearing in
this Report on Form 10-Q are the property of their respective holder.

Overview

We were incorporated in September 1994 and have devoted substantially all
of our resources to the development, marketing and sales of our genomics
technologies, bioinformatics systems and database products for use in
pharmaceutical, biotechnology, life sciences, diagnostic and agricultural
product research and development.

In March 1999, following two years during which we developed custom gene
expression databases designed for our customers internal research and
development programs, we began developing the GeneExpress Suite of databases,
our large-scale reference database of gene expression information. The
GeneExpress Suite of databases contains information from and about a broad
range of normal and diseased human tissues, tissues from experimental animals,
human and animal cell lines and tissues that have been treated with various
drugs. We completed development of the first commercial version of the
GeneExpress Suite in November 1999. We currently market the GeneExpress Suite
through nonexclusive subscriptions to customers in the pharmaceutical,
biotechnology, life sciences and diagnostic industries, and are developing
related products to market to the academic and government life science research
community. We sold our first subscription to the GeneExpress Suite in December
1999.

Typically, GeneExpress subscription agreement terms are for three years
with annual subscription fees ranging from $1.5 million to $4.0 million,
depending upon the level and type of information our customers obtain.
Individual DataSuites, or disease-specific subsets from the
GeneExpress Suite,
are sold for a lesser amount. Customers for our custom discovery gene
expression databases can provide us with various combinations of recurring
technology and database access fees, research fees, additional payments upon
the attainment of research and product development milestones, royalty payments
based on sales of any products resulting from their use of our products and
nonrefundable up-front payments. In

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addition, our business agreements can provide the right for early
termination without penalty to the customer.

Subscription fees to the GeneExpress Suite are recognized systematically
over the term of the subscription. Technology and database access fees are
recognized systematically over the term of each customer agreement. We
recognize revenues from research and development support when they are earned,
which is ordinarily when the work is performed or costs are incurred. Milestone
payments and royalties are recognized when they are earned in accordance with
the applicable performance requirements and contractual terms. Nonrefundable
up-front payments received are recognized as revenue systematically over the
term of the agreement. Under collaboration agreements in which we create
research databases in exchange for fixed fees, revenues from such
collaborations are recognized on the percentage-of-completion method.

Payments to access the GeneExpress Suite of databases are expected to be
our primary source of revenue for the foreseeable future. We have not received,
and do not expect to receive, significant royalty or other revenues from
development and commercialization of products by our customers using our
databases and other technology for several years, if at all. Revenues may be
subject to significant fluctuation in both timing and amount, and, therefore,
our results of operations for any period may not be comparable to the results
of operations for any other period.

We have incurred operating losses in each year since our inception. At
September 30, 2001, we had accumulated losses of $129.4 million. Our losses
have resulted principally from costs incurred in the development of our gene
expression databases, a $35.2 million non-recurring charge incurred in
connection with our acquisition of Oncormed, Inc. and selling, general and
administrative costs associated with our operations. These costs have exceeded
our revenues which, to date, have been generated principally from agreements
for our custom databases and subscriptions to the GeneExpress Suite of
databases. We expect to incur additional operating losses in the future.

Results of Operations

Three and Nine Months Ended September 30, 2001 and 2000

Revenues increased $6.2 million or 114% to $11.5 million during the three
months ended September 30, 2001 from $5.4 million for the same period in 2000.
Revenues increased $11.9 million or 68% to $29.4 million during the nine months
ended September 30, 2001 from $17.5 million for the same period in 2000. The
increase in revenues resulted primarily from additional customers for the
GeneExpress Suite of databases, which was introduced in December of 1999, and
the completion of custom database deliverables in 2001. Amounts from UCB
Research comprised 16% of revenue for the three months ended September 30,
2001. We expect revenue from UCB Research also to be significant in the fourth
quarter of 2001. Amounts from each of Proctor & Gamble and UCB Research
accounted for greater than 10% of revenue for the nine months ended September
30, 2001. Amounts from each of American Home Products Corp.s Wyeth-Ayerst
Laboratories, Genaissance, Japan Tobacco and Procter & Gamble accounted for
greater than 10% of revenue for the three months ended September 30, 2000.
Amounts from each of Aventis CropScience, Japan Tobacco and Procter & Gamble
accounted for greater than 10% of revenue for the nine months ended September
30, 2000.

Research and development expenses increased to $14.5 million and $45.3
million for the three and nine months ended September 30, 2001, respectively,
from $12.0 million and $31.0 million for the same periods in 2000. Of the
increase in research and development expenses for the three months ended
September 30, 2001 and 2000, $1.6 million was due to increased usage of
Affymetrix GeneChip microarrays. Of the increase in research and development
expenses for the nine months ended September 30, 2001 and 2000, $5.4 million
and $3.2 million was due to increased tissue acquisitions and Affymetrix
GeneChip microarray usage and research and consulting agreements,
respectively. During the three and nine months ended September 30, 2001 and
2000, depreciation and amortization costs increased $1.2

10.



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million and $4.2 million, respectively. Of these increases, $0.8 million
and $3.1 million was due to amortization expense related to licenses of
technology and database development costs for the same periods, respectively.
Increased spending for research and development will continue and is necessary
to expand and enhance the content and bioinformatic capabilities of the
GeneExpress Suite of databases.

Selling, general and administrative expenses were $4.7 million and $14.9
million for the three and nine months ended September 30, 2001, respectively,
as compared to $4.7 million and $12.7 million for the same periods in 2000.
These costs include the costs of corporate operations, finance and accounting,
human resources and other general operations. Selling, general and
administrative expenses for the three months ended September 30, 2001 were
comparable to the expenses in the same period of 2000. Of the increase in
selling, general and administrative expenses for the nine months ended
September 30, 2001 and 2000, $1.5 million was due to the establishment and
further development of our sales and marketing efforts including expenses
related to increased personnel. Selling, general and administrative expenses
are expected to moderately increase as we expand our product offerings and
sales and marketing efforts.

Amortization of goodwill acquired as a result of the acquisition of
Oncormed in September 1998 was $0.4 million and $1.1 million during the three
and nine months ended September 30, 2001 and 2000, respectively.
Accounting
for goodwill will be changed effective January 1, 2002 as a result of our
adoption of a new accounting standard for goodwill and other
intangible assets. See New Pronouncements.

Net interest income decreased to $1.8 million and $7.3 million for the
three and nine months ended September 30, 2001, respectively, from $3.8 million
and $10.0 million for the same periods in 2000, primarily due to
decreases in the rates of return for our investments in cash and cash
equivalents.

During the nine months ended September 30, 2001, we recognized our share
of losses in Neuralstem, Inc., a privately held company in which we initially
had a voting stock interest of 26.7%, using the equity method of accounting.
Such non-cash losses amounted to $1.5 million for the nine months ended
September 30, 2001 and intercompany sales and expenses were $0.7
million and $0.8 million, respectively, for the same period. Effective April 30, 2001, we sold back to Neuralstem a
portion of our shares for approximately $2.7 million, payable with a promissory
note. As a result of the repurchase, which reduced our voting stock interest to
14.8%, we began accounting for our investment using the cost method of
accounting and our financial results do not reflect any additional share of
Neuralstems losses after April 30, 2001.

During July 2001, we
completed a spin-off of our patented Flow-thru Chip technology into a new company, MetriGenix, Inc. Our contribution to
the new venture consisted mainly of relevant intellectual property
and know-how associated with the Flow-thru Chip technology. Concurrent with the spin-off, MetriGenix completed a
private financing which reduced our voting ownership interest to 54%.
In connection with the financing, we provided the new investors,
including affiliates of two members of our Board of Directors,
certain veto rights and voting control, made certain representations and
warranties to the investors and entered into certain agreements with
MetriGenix including a subscription to the GeneExpress Suite and to
provide services and subleased space. Accordingly, MetriGenix is no
longer being consolidated; instead we account for our investment in
MetriGenix using the equity method. During the three months ended
September 30, 2001, we recorded our proportionate share of
MetriGenixs operating losses up to the book value of our
contribution ($0.8 million). As our investment in MetriGenix has been
reduced to zero as of September 30, 2001 and there is no commitment
to provide further funding, we do not expect to record any additional
share of MetriGenixs operating losses in our financial statements in
the future.

During the nine months ended September 30, 2000, we recorded a cumulative
effect of an accounting change of $1.3 million related to the adoption of SAB
101.

Liquidity and Capital Resources

From inception through September 30, 2001, we have financed our operations
through the sale of equity securities and payments from customers. In February
2000, we completed a public offering of 4,680,000 shares of our common stock,
generating net proceeds of approximately $247.5 million. As of September 30,
2001, we had approximately $192.9 million in cash and marketable securities,
compared to $229.5 million as of December 31, 2000.

Net cash used in
operating activities was $24.4 million for the nine
months ended September

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30, 2001 compared to $12.6 million during the same period in 2000. The net
decrease in operating working capital for the nine months ended September 30,
2001 as compared to the same period in 2000 was primarily due to the timing of
payments for the Companys obligations, including the payment to Incyte
Genomics, Inc. of $9.0 million in connection with the settlement of litigation.

During the nine months ended September 30, 2001 and 2000, our investing
activities, other than sales and maturities of available-for-sale securities,
consisted primarily of capital expenditures, software and database
development costs and an $8.1 million equity investment in
Neuralstem in 2000. Capital expenditures for the nine months ended September 30,
2001 amounted to $7.6 million and were primarily due to tenant improvements
related to our new production facility, which was completed in March 2001.
Capital expenditures for the nine months ended September 30, 2000 amounted to
$6.3 million and were largely due to purchases of laboratory and
computer equipment needed
to expand the content of the GeneExpress Suite of databases. We expect
laboratory and computer equipment purchases to continue as we expand the
content of, and the products derived from, the GeneExpress Suite of databases.

We have capitalized software costs of $4.5 million and $3.1 million for
the nine months ended September 30, 2001 and 2000, respectively. These costs
relate to ongoing efforts to enhance the GeneExpress Software System, the
software platform of the GeneExpress Suite of databases. During the nine months
ended September 30, 2000, we capitalized $2.2 million of database development
costs related to the update of data in the GeneExpress Suite as a result of
Affymetrixs release of their HU-95 Human Genome GeneChip set. Software and
database development costs are being amortized over their expected useful lives
of three and two years, respectively. Software development and database
development costs are expected to continue as a result of ongoing efforts to
further enhance the GeneExpress Suite of databases and its related products.

Our financing activities, other than the repayment of capital lease
obligations and equipment loans, consisted of the issuance of common stock
primarily through our public offering in February 2000, the exercise of stock
options and the exercise of a warrant in February 2001. During the three months
ended September 30, 2001, we repaid an equipment loan in full totaling
approximately $1.9 million due to the cost of such capital and the prevailing
interest rates in the market.

In January 1999, we entered into a three-year agreement with Affymetrix,
pursuant to which Affymetrix supplies its GeneChip microarrays to us for the
development of gene expression databases. Under the terms of the agreement, we
pay Affymetrix subscription fees for access to the microarrays, purchase the
microarrays and related instrumentation and software, and will pay royalties to
Affymetrix on revenues generated from certain database subscription fees. Our
commitments under other research and license agreements do not represent
significant expenditures in relation to our total research and development
expense.

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

We believe that existing cash and cash equivalents and anticipated
payments from customers will be sufficient to support our operations for the
foreseeable future. These estimates are forward-looking statements that involve
risks and uncertainties. Our actual future capital requirements and the
adequacy of our available funds will depend on many factors, including those
discussed under Risk Factors in our Annual Report on Form 10-K for the year
ended December 31, 2000.

Change in Accounting Principle

Effective January 1, 2000, we changed our method of accounting for revenue
in accordance with Staff Accounting Bulletin No. 101, Revenue Recognition in
Financial Statements. Prior to 2000, we

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recognized as revenue certain nonrefundable up-front payments for the
value of data purchased, transfer of technology or other contractual rights
that were not contingent upon future performance under the terms of the
agreement either upon signing of the agreement or when collected. Under the new
accounting method adopted retroactive to January 1, 2000, we now defer these
nonrefundable up-front payments and recognize them as revenue systematically
over the life of the related collaboration agreements. The cumulative effect of
the change on prior years resulted in a charge of $1.3 million, which is
included in the net loss for the nine months ended September 30, 2000.

New Pronouncements

In June 2001, the Financial Accounting Standards Board issued Statements
of Financial Accounting Standards No. 141, Business Combinations, and No.
142, Goodwill and Other Intangible Assets, which we will be required to adopt
on January 1, 2002. Under the new standards, goodwill will no longer be
amortized, but will be subject to annual impairment tests in accordance with
the Statements. Other intangible assets will continue to be amortized over
their expected useful lives.

We will apply the new standards on accounting for goodwill and other
intangible assets beginning in the first quarter of 2002. Application of the
nonamortization provisions of the Statement is expected to result in a decrease
in net loss of $1.5 million per year. Prior to June 30, 2002, we will perform
the first of the required impairment tests of goodwill as of January 1, 2002.
As of September 30, 2001, we do not believe the adoption of this standard will
have a material effect 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 September 30, 2001, we had cash and cash equivalents of
approximately $192.9 million. Cash and cash equivalents consisted of money
market accounts, investment-grade commercial paper and government agency notes.
Based on the cash balance at September 30, 2001, a 100 basis point adverse
movement in interest rates would result in an increase in net loss for the
three and nine months ended September 30, 2001 by approximately $0.5 million
and $1.4 million, respectively. Actual changes in rates may differ from the
hypothetical assumptions used in computing this exposure.

PART II                      OTHER INFORMATION

Item 5.  Exhibits and Reports on Form 8-K

|   |  |                                                                                                                                                                                          
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|A) |  | Exhibits:                                                                                                                                                                                
|  
|   |  | *10.73     Agreements between certain named executive officers, the
Registrant and MetriGenix, Inc. with respect to
               
 the purchase of restricted stock of MetriGenix, Inc.
|  
|B) |  | Reports on Form 8-K:                                                                                                                                                                     
|  
|   |  | No reports on Form 8-K were filed during the three months ended
September 30, 2001.                                                                                                      






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SIGNATURES

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



|                          |  |                 |  |                                             
|------------------------- |  | --------------- |  | --------------------------------------------
|                          |  | GENE LOGIC INC.
|                         
|                         
|Date:   November 14, 2001 |  | By:             |  | /s/ Philip L. Rohrer, Jr.                   
|                          |  |                 |  |                                             
|                          |  |                 |  | Philip L. Rohrer, Jr.                       
|                          |  |                 |  | Chief Financial Officer                     
|                          |  |                 |  | (Principal Financial and Accounting Officer)

14.