**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 June 30,
      2007**





**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**





GENE
      LOGIC INC.





(Exact
      name of registrant as specified in its charter)








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




**50
      West Watkins Mill Road**


**Gaithersburg,
      Maryland 20878**


(Address
      of principal executive offices)


**(301)
      987-1700**


(Registrant’s
      phone number, including area code)








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





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





Large
      accelerated filer o                                      Accelerated
      filer x                                Non-accelerated
      filer o





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





The
      number
      of shares outstanding of the Registrant’s Common Stock, $.01 par value, was
      32,134,014 as of July 31, 2007.









**GENE
      LOGIC INC.**





**TABLE
      OF CONTENTS**




**PART
                I**
            **FINANCIAL
                INFORMATION**Item
                1.
            Financial
                Statements
            3Consolidated
                Condensed Balance Sheets at June 30, 2007 and December 31,
                2006
            3Consolidated
                Condensed Statements of Operations for the Three and Six Months Ended
                June
                30, 2007 and 2006
            4Consolidated
                Condensed Statements of Cash Flows for the Six Months Ended June
                30, 2007
                and 2006
            5Notes
                to Consolidated Condensed Financial Statements
            6Item
                2.
            Management’s
                Discussion and Analysis of Results of
                Operations and Financial Condition
            12Item
                3.
            Quantitative
                and Qualitative Disclosure about Market
                Risk
            17Item
                4.
            Controls
                and Procedures
            18**PART
                II**
            **OTHER
                INFORMATION**Item
                1.
            Legal
                Proceedings
            18Item
                1A.
            Risk
                Factors
            19Item
                2.
            Unregistered
                Sales of Equity Securities and Use
                of Proceeds
            19Item
                3.
            Defaults
                Upon Senior Securities
            19Item
                4.
            Submission
                of Matters to a Vote of Security
                Holders
            19Item
                5.
            Other
                Information
            19Item
                6.
            Exhibits
            19Signatures
            
            20






2.







**PART
      I    FINANCIAL
      INFORMATION**





**Item
      1. Financial
      Statements**


**GENE
      LOGIC INC.**





**CONSOLIDATED
      CONDENSED BALANCE SHEETS**


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




**June
                  30,**
              
              
              **December
                  31,****2007**
              
              
              **2006****(Unaudited)****ASSETS**Current
                  assets:Cash
                  and cash equivalents
              
              $
              20,848
              
              
              $
              25,700Marketable
                  securities available-for-sale
              
              
              15,834
              
              
              
              24,410Accounts
                  receivable, net of allowance of $49 and $45 as of June 30, 2007
                  andDecember
                  31, 2006, respectively
              
              
              566
              
              
              
              3,327Unbilled
                  services
              
              
              712
              
              
              
              589Inventory,
                  net
              
              
              1,968
              
              
              
              2,180Prepaid
                  expenses
              
              
              1,513
              
              
              
              1,260Other
                  current assets
              
              
              2,591
              
              
              
              3,551Total
                  current assets
              
              
              44,032
              
              
              
              61,017Property
                  and equipment, net
              
              
              11,390
              
              
              
              12,829Long-term
                  investments
              
              
              2,964
              
              
              
              2,964Goodwill
              
              
              2,677
              
              
              
              2,677Other
                  intangibles, net
              
              
              7,804
              
              
              
              10,060Other
                  assets
              
              
              657
              
              
              
              726Total
                  assets
              
              $
              69,524
              
              
              $
              90,273**LIABILITIES
                  AND STOCKHOLDERS' EQUITY**Current
                  liabilities:Accounts
                  payable
              
              $
              2,233
              
              
              $
              3,703Payable
                  to Bridge Pharmaceuticals
              
              
              752
              
              
              
              1,727Accrued
                  compensation and employee benefits
              
              
              4,105
              
              
              
              2,883Other
                  accrued expenses
              
              
              2,658
              
              
              
              3,751Accrued
                  restructuring costs
              
              
              818
              
              
              
              1,941Current
                  portion of long-term debt
              
              
              500
              
              
              
              499Deferred
                  revenue
              
              
              3,971
              
              
              
              3,299Total
                  current liabilities
              
              
              15,037
              
              
              
              17,803Deferred
                  revenue
              
              
              -
              
              
              
              228Long-term
                  debt, net of current portion
              
              
              52
              
              
              
              78Deferred
                  rent
              
              
              946
              
              
              
              1,074Total
                  liabilities
              
              
              16,035
              
              
              
              19,183Commitments
                  and contingencies
              
              
              -
              
              
              
              -Stockholders'
                  equity:Preferred
                  stock, $.01 par value; 10,000,000 shares authorized; and no shares
                  issued
                  andoutstanding
                  as of June 30, 2007 and December 31, 2006
              
              
              -
              
              
              
              -Common
                  stock, $.01 par value; 60,000,000 shares authorized;  31,974,805
                  and 31,820,273 sharesissued
                  and outstanding as of June 30, 2007 and December 31, 2006,
                  respectively
              
              
              320
              
              
              
              318Additional
                  paid-in-capital
              
              
              386,873
              
              
              
              386,530Accumulated
                  other comprehensive loss
              
              
              (45
              )
              
              
              (78
              )Accumulated
                  deficit
              
              
              (333,659
              )
              
              
              (315,680
              )Total
                  stockholders' equity
              
              
              53,489
              
              
              
              71,090Total
                  liabilities and stockholders' equity
              
              $
              69,524
              
              
              $
              90,273







See
      accompanying
      notes.




3.






**GENE
      LOGIC INC.**





**CONSOLIDATED
      CONDENSED STATEMENTS OF OPERATIONS**


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


**(Unaudited)**




**Three
                  Months Ended**
              
              
              **Six
                  Months Ended****June
                  30,**
              
              
              **June
                  30,****2007**
              
              
              **2006**
              
              
              **2007**
              
              
              **2006**Revenue:Genomics
                  services
              
              $
              5,403
              
              
              $
              4,683
              
              
              $
              8,672
              
              
              $
              13,431Drug
                  repositioning services
              
              
              38
              
              
              
              9
              
              
              
              38
              
              
              
              29Total
                  revenue
              
              
              5,441
              
              
              
              4,692
              
              
              
              8,710
              
              
              
              13,460Expenses:Database
                  production
              
              
              5,401
              
              
              
              7,629
              
              
              
              10,699
              
              
              
              15,424Research
                  and development
              
              
              2,674
              
              
              
              2,541
              
              
              
              5,110
              
              
              
              4,981Selling,
                  general and administrative
              
              
              5,778
              
              
              
              4,856
              
              
              
              11,999
              
              
              
              11,795Total
                  expenses
              
              
              13,853
              
              
              
              15,026
              
              
              
              27,808
              
              
              
              32,200Loss
                  from operations
              
              
              (8,412
              )
              
              
              (10,334
              )
              
              
              (19,098
              )
              
              
              (18,740
              )Interest
                  (income), net
              
              
              (517
              )
              
              
              (755
              )
              
              
              (1,132
              )
              
              
              (1,528
              )Other
                  (income) expense
              
              
              (22
              )
              
              
              103
              
              
              
              13
              
              
              
              100Write-down
                  of equity investment
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              275Loss
                  from continuing operations
              
              
              (7,873
              )
              
              
              (9,682
              )
              
              
              (17,979
              )
              
              
              (17,587
              )Loss
                  from discontinued operations
              
              
              -
              
              
              
              (1,604
              )
              
              
              -
              
              
              
              (5,496
              )Net
                  loss
              
              $
              (7,873
              )
              
              $
              (11,286
              )
              
              $
              (17,979
              )
              
              $
              (23,083
              )Basic
                  and diluted net loss per share:Loss
                  from continuing operations
              
              $
              (0.25
              )
              
              $
              (0.30
              )
              
              $
              (0.56
              )
              
              $
              (0.56
              )Loss
                  from discontinued operations
              
              
              -
              
              
              
              (0.05
              )
              
              
              -
              
              
              
              (0.17
              )Net
                  loss
              
              $
              (0.25
              )
              
              $
              (0.35
              )
              
              $
              (0.56
              )
              
              $
              (0.73
              )Shares
                  used in computing basic and dilutednet
                  loss per share
              
              
              31,865
              
              
              
              31,809
              
              
              
              31,851
              
              
              
              31,798




See
      accompanying notes.




4.






**GENE
      LOGIC INC.**





**CONSOLIDATED
      CONDENSED STATEMENTS OF CASH FLOWS**


**(in
      thousands)**


**(Unaudited)**






**Six
                  Months Ended****June
                  30,****2007**
              
              
              **2006**Cash
                  flows from operating activities:Loss
                  from continuing operations
              
              $
              (17,979
              )
              
              $
              (17,587
              )Adjustments
                  to reconcile loss from continuing operations to net cash
                  flowsfrom
                  continuing operating activities:Depreciation
                  and amortization
              
              
              4,787
              
              
              
              5,580Non-cash
                  stock compensation expense
              
              
              338
              
              
              
              433Other
                  impairments
              
              
              143
              
              
              
              675Write-down
                  of equity investment
              
              
              -
              
              
              
              275Changes
                  in continuing operating assets and liabilities:Accounts
                  receivable and unbilled services
              
              
              2,638
              
              
              
              3,799Inventory
              
              
              212
              
              
              
              (389
              )Prepaids
                  and other assets
              
              
              776
              
              
              
              (434
              )Accounts
                  payable
              
              
              (1,470
              )
              
              
              (2,665
              )Accrued
                  expenses and deferred rent
              
              
              198
              
              
              
              (3,385
              )Accrued
                  restructuring
              
              
              (1,123
              )
              
              
              -Deferred
                  revenue
              
              
              444
              
              
              
              (4,232
              )Net
                  cash flows from continuing operating activities
              
              
              (11,036
              )
              
              
              (17,930
              )Loss
                  from discontinued operations
              
              
              -
              
              
              
              (5,496
              )Adjustments
                  to reconcile loss from discontinued operations to net cash
                  flowsfrom
                  discontinued operating activities:Impairment
                  charges, depreciation and amortization and other non-cash
                  items
              
              
              -
              
              
              
              2,213Changes
                  in discontinued operating assets and liabilities
              
              
              -
              
              
              
              2,540Net
                  cash flows from discontinued operating activities
              
              
              -
              
              
              
              (743
              )Net
                  cash flows from operating activities
              
              
              (11,036
              )
              
              
              (18,673
              )Cash
                  flows from investing activities:Purchases
                  of property and equipment
              
              
              (541
              )
              
              
              (1,668
              )Purchases
                  of licenses and patent costs
              
              
              (339
              )
              
              
              (425
              )Software
                  development costs
              
              
              (194
              )
              
              
              (628
              )Database
                  upgrade costs
              
              
              (162
              )
              
              
              (887
              )Purchase
                  of marketable securities available-for-sale
              
              
              (8,343
              )
              
              
              (19,275
              )Proceeds
                  from sale and maturity of marketable securities
                  available-for-sale
              
              
              16,953
              
              
              
              22,715Payment
                  related to sale of Preclinical Division
              
              
              (1,174
              )
              
              
              -Net
                  investing activities of discontinued operations
              
              
              -
              
              
              
              (334
              )Net
                  cash flows from investing activities
              
              
              6,200
              
              
              
              (502
              )Cash
                  flows from financing activities:Proceeds
                  from issuance of common stock to employees
              
              
              8
              
              
              
              145Repayments
                  of an equipment loan
              
              
              (24
              )
              
              
              (23
              )Net
                  financing activities of discontinued operations
              
              
              -
              
              
              
              (69
              )Net
                  cash flows from financing activities
              
              
              (16
              )
              
              
              53Net
                  (decrease) in cash and cash equivalents
              
              
              (4,852
              )
              
              
              (19,122
              )Cash
                  and cash equivalents, beginning of period
              
              
              25,700
              
              
              
              43,946Cash
                  and cash equivalents, end of period
              
              $
              20,848
              
              
              $
              24,824Supplemental
                  disclosure:Interest
                  paid
              
              $
              3
              
              
              $
              12




See
      accompanying notes.




5.


**GENE
      LOGIC INC.**





**Notes
      to Consolidated Condensed Financial Statements**


**June
      30, 2007**


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


**(Unaudited)**





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





*Description
      of Business*





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





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





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





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





Following
      consideration of various strategic alternatives for its Genomics Division,
      the
      Company is concentrating its efforts on investigating the possibility of a
      sale
      of all or parts of its Genomics business.  Such a transaction is
      likely to require shareholder approval.  The Company is being assisted in
      this process by an investment bank, Aquilo Partners.  The Company has
      reduced expenses of its Genomics Division while continuing to serve new and
      existing Genomics customers.





*Basis
      of Presentation*





The
      accompanying unaudited consolidated condensed financial statements have been
      prepared in accordance with United States Generally Accepted Accounting
      Principles (“GAAP”) for interim financial information and the instructions to
      Form 10-Q and Article 10 of Regulation S-X.  The consolidated
      condensed balance sheet as of June 30, 2007, consolidated condensed statements
      of operations for the three and six months ended June 30, 2007 and 2006 and
      the
      consolidated condensed statements of cash flows for the six months ended June
      30, 2007 and 2006 are unaudited, but include all adjustments (consisting of
      normal recurring adjustments) that the Company considers necessary for a fair
      presentation of the financial position, operating results and cash flows,
      respectively, for the periods presented.  Although the Company
      believes that the disclosures in these financial statements are adequate to
      make
      the information presented not misleading, certain information and footnote
      information normally included in financial statements prepared in accordance
      with GAAP have been condensed or omitted pursuant to the rules and regulations
      of the United States Securities and Exchange Commission (“SEC”).  All
      material intercompany accounts and transactions have been eliminated in
      consolidation.





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





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





6.






*Use
      of
      Estimates*





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





*Inventory*





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




**June
                  30,**
              
              
              **December
                  31,****2007**
              
              
              **2006**Microarrays
              $
              1,626
              
              
              $
              2,233Laboratory
                  reagents
              
              303
              
              
              
              510Tissue
                  samples
              
              1,754
              
              
              
              1,7883,683
              
              
              
              4,531Less:Microarray
                  reserves
              
              -
              
              
              
              (647
              )Tissue
                  sample reserves
              
              (1,715
              )
              
              
              (1,704
              )Inventory,
                  net
              $
              1,968
              
              
              $
              2,180







*Comprehensive
      Loss*





The
      Company accounts for comprehensive loss as prescribed by Statement of Financial
      Accounting Standards (‘SFAS’) No. 130, “Reporting Comprehensive
      Income”.  Comprehensive income (loss) is the total net income (loss)
      plus all changes in equity during the period except those changes resulting
      from
      investment by and distribution to owners.  Total comprehensive loss
      was $7,860 and $11,314 for the three months ended June 30, 2007 and 2006,
      respectively, and $17,946 and $23,184 for the six months ended June 30, 2007
      and
      2006, respectively.





*New
      Accounting Pronouncements*





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





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





If
      applicable, the Company would recognize interest and penalties related to income
      tax matters in income tax expense.  No interest and penalties were
      recognized in the Consolidated Condensed Statements of Operations for the three
      and six months ended June 30, 2007 and the Consolidated Condensed Balance Sheet
      at June 30, 2007.  The Company and its subsidiaries file consolidated
      and separate income tax returns in the United States and in a number of state
      and foreign jurisdictions.  The Company is subject to tax examinations
      in its major tax jurisdictions for all years since inception.





7.






**Note
      2 — Stock-based compensation**





At
      June
      30, 2007, the Company has the following stock-based compensation plans: 1997
      Equity Incentive Plan (the “Stock Plan”) and 1997 Non-Employee Directors’ Stock
      Option Plan (the “Directors’ Plan”).  The termination of the Employee
      Stock Purchase Plan was approved by the Company’s Board of Directors in June
      2007.





Effective
      January 1, 2006, the Company adopted the fair value recognition provisions
      of
      Statement of Financial Accounting Standards No. 123(R) (revised 2004),
“Share-Based Payment,” using the modified prospective transition method and
      therefore did not restate results for prior periods.  For the three
      and six months ended June 30, 2007, the Company recorded stock-based
      compensation expense of $104 and $338, respectively.  The impact on
      basic and diluted net loss per share for the three and six months ended June
      30,
      2007 was $0.00 and $0.01, respectively.  For the three and six months
      ended June 30, 2006, the Company recorded stock-based compensation expense
      of
      $235 and $550, respectively.  The impact on basic and diluted net loss
      per share for the three and six months ended June 30, 2006 was $0.01 and $0.02,
      respectively.





*Stock
      Option Awards*





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




**Three
                  Months Ended**
              
              **Six
                  Months Ended****June
                  30,**
              
              **June
                  30,****2007**
              
              **2006**
              
              **2007**
              
              **2006**Weighted
                  average fair value of grants
              $0.82
              
              $1.04
              
              $0.78
              
              $1.11Expected
                  volatility
              59%
              
              57%
              
              58%
              
              55%Risk-free
                  interest rate
              4.51%
              
              5.11%
              
              4.47%
                  to 4.51%
              
              4.49%
                  to 5.11%Expected
                  lives
              3
                  years
              
              3
                  years
              
              3
                  years
              
              3
                  yearsDividend
                  rate
              0%
              
              0%
              
              0%
              
              0%







The
      following is a summary of option activity for the six months ended June 30,
      2007:




**Per
                  Share****Weighted-**
              
              
              **Aggregate****Number
                  of**
              
              
              **Average**
              
              
              **Intrinsic****Shares**
              
              
              **Exercise
                  Price**
              
              
              **Value****Outstanding
                  at January 1, 2007**
              
              
              4,528,956
              
              
              $
              6.88Options
                  granted
              
              
              1,368,200
              
              
              $
              2.06Options
                  exercised
              
              
              (25,000
              )
              
              $
              0.30Options
                  cancelled
              
              
              (745,688
              )
              
              $
              5.24**Outstanding
                  at June 30, 2007**
              
              
              5,126,468
              
              
              $
              5.86
              
              
              $
              10**Exercisable
                  at June 30, 2007**
              
              
              3,808,197
              
              
              $
              7.14
              
              
              $
              10







The
      aggregate intrinsic value in the table above represents the total intrinsic
      value (the difference between the Company’s closing stock price on the last
      trading day of the second quarter of 2007 and the exercise price, multiplied
      by
      the number of in-the-money options) that would have been received by the option
      holders had all option holders exercised their options on June 30,
      2007.  This amount is subject to change based on changes to the fair
      market value of the Company’s Common Stock.





*Restricted
      Stock Awards*





During
      the
      six months ended June 30, 2007, the Committee approved grants for shares of
      restricted stock under the Stock Plan subject to certain performance-based
      vesting conditions which, if not met, would result in forfeiture of the shares
      and reversal of any previously recognized related stock-based compensation
      expense.




8.





The
      following is a summary of restricted stock awards activity for the six months
      ended June 30, 2007:




**Per
                  Share****Weighted-****Average****Number
                  of**
              
              
              **Grant-Date****Shares**
              
              
              **Fair
                  Value****Outstanding
                  at January 1, 2007**
              
              -
              
              
              $
              -Restricted
                  stock granted
              
              190,003
              
              
              $
              1.96Restricted
                  stock vested
              
              (40,000
              )
              
              $
              1.91Restricted
                  stock forfeited
              
              (60,471
              )
              
              $
              1.91**Outstanding
                  at June 30, 2007**
              
              89,532
              
              
              $
              2.02


Performance-based
      nonvested share awards are recognized as compensation expense over the expected
      vesting period based on the fair value at the date of grant and the number
      of
      shares ultimately expected to vest.  As of June 30, 2007, the
      remaining 89,532 outstanding shares of restricted stock will only vest if
      certain performance milestones are achieved.  At June 30, 2007, the
      Company believes that the achievement of the performance milestones is
      probable.





As
      of June
      30, 2007, $765 of total unrecognized compensation cost related to stock option
      and restricted stock awards is expected to be recognized over a weighted-average
      period of 1.7 years.  This estimate does not include the impact of
      other possible stock-based awards that may be made during future
      periods.





**Note
      3 — Discontinued Operations**





As
      previously discussed in Note 1, in 2006 the Company changed its strategic focus
      and sold its Preclinical Divison for a sales price of $15,000 (before
      transaction costs), consisting of (A) $13,500 paid at closing less transaction
      costs of $1,383 and (B) $1,500 held in escrow for 12 months to satisfy potential
      indemnification obligations under the agreement.  In addition, the
      Company’s guarantee of two leases continue in effect pending their assignment to
      and assumption by the buyer.  If the guarantees are not assumed by the
      buyer, then the buyer will indemnify the Company with respect to such
      guarantees.





As
      a result of the Company’s sale of its
      Preclinical Division on December 15, 2006, the operations of the Preclinical
      Division have been classified as discontinued operations. Summarized operating
      results from the discontinued operations included in the Company’s Consolidated
      Condensed Statements of Operations for the three and six months ended June
      30,
      2006 are as follows:




**Three
                  Months Ended**
              
              
              **Six
                  Months Ended****June
                  30,**
              
              
              **June
                  30,****2006**
              
              
              **2006**Revenue
                  from discontinued operations
              $
              6,600
              
              
              $
              10,634Loss
                  from discontinued operations
              $
              (1,604
              )
              
              $
              (5,496
              )







**Note
      4 — Restructuring Expenses**





During
      2006, the Company initiated a restructuring of its Genomics Division, which
      it
      expects to substantially complete by December 31, 2007.  The Genomics
      Division restructuring included the termination of 70 employees, the
      acceleration of future costs for certain laboratory and office facilities that
      were no longer needed and the impairment of certain intangible assets which
      were
      determined would no longer be utilized by the Genomics Division.  The
      major components of the Genomics Division restructuring liability as of June
      30,
      2007 and activity since January 1, 2007 are comprised of:




**Accrual**
                **Balance
                  as of December 31,**
                **2006**
              
              
              **2007
                  Charges**
                **Utilized**
              
              
              **Accrual**
                **Balance
                  as of**
                **June
                  30,**
                **2007**Severance
                  and related benefits
              
              $
              122
              
              
              $
              (98
              )
              
              $
              24Lease
                  obligations
              
              
              1,819
              
              
              
              (1,025
              )
              
              
              794Total
              
              $
              1,941
              
              
              $
              (1,123
              )
              
              $
              818


9.









**Note
      5 — Segment information**





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




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





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




**Three
                  Months Ended**
              
              
              **Six
                  Months Ended****June
                  30,**
              
              
              **June
                  30,****2007**
              
              
              **2006**
              
              
              **2007**
              
              
              **2006****Genomics
                  Services**Revenue
              
              $
              5,403
              
              
              $
              4,683
              
              
              $
              8,672
              
              
              $
              13,431Operating
                  loss
              
              
              (3,841
              )
              
              
              (6,680
              )
              
              
              (9,933
              )
              
              
              (11,210
              )Depreciation
                  and amortization expense
              
              
              2,064
              
              
              
              2,526
              
              
              
              4,242
              
              
              
              5,029**Drug
                  Repositioning Services**Revenue
              
              $
              38
              
              
              $
              9
              
              
              $
              38
              
              
              $
              29Operating
                  loss
              
              
              (4,571
              )
              
              
              (3,654
              )
              
              
              (9,165
              )
              
              
              (7,530
              )Depreciation
                  and amortization expense
              
              
              288
              
              
              
              270
              
              
              
              545
              
              
              
              551







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




**Three
                  Months Ended**
              
              
              **Six
                  Months Ended****June
                  30,**
              
              
              **June
                  30,****2007**
              
              
              **2006**
              
              
              **2007**
              
              
              **2006****Segment
                  Operating Loss**Genomics
                  services
              
              $
              (3,841
              )
              
              $
              (6,680
              )
              
              $
              (9,933
              )
              
              $
              (11,210
              )Drug
                  repositioning services
              
              
              (4,571
              )
              
              
              (3,654
              )
              
              
              (9,165
              )
              
              
              (7,530
              )(8,412
              )
              
              
              (10,334
              )
              
              
              (19,098
              )
              
              
              (18,740
              )Interest
                  (income), net
              
              
              (517
              )
              
              
              (755
              )
              
              
              (1,132
              )
              
              
              (1,528
              )Other
                  (income) expense
              
              
              (22
              )
              
              
              103
              
              
              
              13
              
              
              
              100Write-down
                  of equity investment
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              275Loss
                  from continuing operations
              
              $
              (7,873
              )
              
              $
              (9,682
              )
              
              $
              (17,979
              )
              
              $
              (17,587
              )







During
      the
      three months ended June 30, 2007, three customers each accounted for 10% or
      more
      of the Company’s revenue (Customer A-41%, Customer B-13% and Customer
      C-12%).  During the six months ended June 30, 2007, three customers
      each accounted for 10% or more of the Company’s revenue (Customer A-26%,
      Customer B-16% and Customer C-15%).  During the three months ended
      June 30, 2006, four customers each accounted for 10% or more of the Company’s
      revenue (Customer D-16%, Customer B-16%, Customer C-13% and Customer
      E-11%).  During the six months ended June 30, 2006, three customers
      each accounted for 10% or more of the Company’s revenue (Customer F-18%,
      Customer D-11% and Customer B-11%).





10.






The
      following table sets forth information on the composition of the Company’s total
      revenue from continuing operations by geographic region:






**Geographic
                  Region****North**
                **America**
              
              **Europe**
              
              **Pacific**
                **Rim**For
                  the three months ended:June
                  30, 2007
              75%
              
              13%
              
              12%June
                  30, 2006
              36%
              
              34%
              
              30%For
                  the six months ended:June
                  30, 2007
              60%
              
              20%
              
              20%June
                  30, 2006
              53%
              
              22%
              
              25%


11.






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





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





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





**Overview**





We
      currently conduct our operations through two business segments:





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





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





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





In
      2005
      and 2006, we entered into drug development partnerships with Pfizer, Inc.,
      F.
      Hoffmann-La Roche Ltd, Eli Lilly and Company and NV Organon.  In 2007,
      we entered into new drug development partnerships with Abbott Laboratories
      and
      H. Lundbeck A/S.  To date, we have evaluated more than 70 drug
      candidates for our drug development partners.  We have been able to
      develop alternative indication hypotheses for 25%-33% of these candidates for
      which evaluation is complete.  Some of the candidates for which we
      have found new indications have progressed or will progress to *in vivo*
      efficacy models to evaluate and support their suitability for re-entering
      clinical trials for the proposed new indications.  We expect that some
      portion of the drug candidates will have successful outcomes in the *in
      vivo* tests and re-enter clinical trials, but we do not yet have sufficient
      data to estimate the rate of clinical trial re-entry.  We do not
      expect any of these drug candidates to re-enter clinical trials until after
      2007.





In
      2006,
      in response to our customers’ shifting their research activities from
      early-stage drug discovery into later-stage development and validation efforts
      and a resulting decline in demand for database subscriptions, we reduced the
      staff and operational costs of our Genomics Division and began to refocus the
      efforts of that Division.  The Genomics Division continues to license
      databases and provide related services to new and existing customers and is
      working to expand its microarray data generation and analysis capabilities
      and
      services.  Following consideration of various strategic alternatives
      for our Genomics Division, we are concentrating our efforts on
      investigating the possibility of a sale of all or parts of our Genomics
      business.  Such a transaction is likely to require shareholder
      approval.  We are being assisted in this process by an investment
      bank, Aquilo Partners.  We have reduced expenses of our Genomics
      Division while continuing to serve new and existing Genomics
      customers.





Also
      in
      2006, we sold Gene Logic Laboratories Inc. to Bridge Pharmaceuticals, Inc.
      (“Bridge”) for $15.0 million (before transaction costs), consisting of (A) $13.5
      million paid at closing less transaction costs of $1.4 million and (B) $1.5
      million held in escrow for 12 months to satisfy potential indemnification
      obligations under the agreement.  In addition, our guarantees of two
      leases continue in effect pending their assignment to and assumption by Bridge.
      If the guarantees are not assumed by Bridge, then Bridge will indemnify us
      with
      respect to such guarantees.





12.






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





Our
      drug
      repositioning and development agreements vary somewhat as to specific terms,
      but
      generally conform to the following:





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


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


o
            Notice
                of re-initiation of development,


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


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


o
            Commencement
                of a Phase III clinical trial, and


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


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





Our
      agreement with NV Organon involves co-ownership and co-development of
      repositioned drug candidates, and it therefore differs substantially from our
      other agreements.





In
      most
      cases, if our partner decides not to take the drug candidate back into
      development, we have development rights that, if we elect to exercise them,
      would entitle our partner to receive milestone payments and royalties on
      sales.  We may choose to license such candidates to a third party for
      development, or we may invest in further development to increase a particular
      candidate’s value prior to outlicensing.  We are seeking a partner for
      the clinical development of our first proprietary drug candidate, GL1001, a
      compound acquired from Millennium.  We have validated with an *in
      vivo* model our hypothesis that this compound could be used to develop a
      drug to treat inflammatory bowel disease.  From time to time, we may
      license certain of our non-core technologies to third parties, as most recently
      evidenced by our licensing of certain technology rights controlled by us to
      Lundbeck.





We
      have
      incurred net losses in each year since our inception, including losses of $54.7
      million in 2006, $48.3 million in 2005 and $28.5 million in 2004.  At
      June 30, 2007, we had an accumulated deficit of $333.7 million.  Our
      losses have resulted principally from costs incurred in the development,
      marketing and sale of services from our Genomics and Preclinical Divisions,
      development of the Drug Repositioning Division, the impairment of our
      Preclinical Division goodwill and acquisitions of research and
      development.  These costs have exceeded our revenue and we expect to
      incur additional losses in the future.





**Results
      of Continuing Operations**





*Three
      Months Ended June 30, 2007 and 2006*





**Revenue.**
      We primarily derive our revenue from our Genomics Division
      services.  To date, there has been no meaningful revenue for our Drug
      Repositioning Division.  Revenue increased $0.7 million, or 16%, to
      $5.4 million for the three months ended June 30, 2007 from $4.7 million for
      the
      same period in 2006.  The result for the three months ended June 30,
      2007 reflect the recognition of $2.0 million in revenue associated with a single
      contract accounted for as a multiple-element arrangement for which revenue
      was
      deferred and for which nearly all services were performed and delivered during
      the first quarter of 2007.  The increase in revenue was partially
      offset by the absence of $1.1 million in subscription fees from expired
      agreements.  During three months ended June 30, 2007, three customers
      each accounted for greater than 10% of our total revenue.  During the
      three months ended June 30, 2006, four customers each accounted for greater
      than
      10% of our total revenue.





We
      could
      enter into additional multiple-element agreements in the future that may result
      in uneven revenue due to the nature of revenue recognition associated with
      multiple-element arrangements.





13.






Our
      remaining long-term subscriptions are due to expire by their terms in
      2008.  For 2007, to partially offset the decline in revenue from
      subscriptions to our databases, we expect to record increasing amounts of
      revenue for data generation and analysis services.  In addition, over
      the next 12 months we expect to record $2.6 million of revenue associated with
      our licensing of certain technology rights controlled by us to
      Lundbeck.





**Database
      Production Expense.** Database production expenses, which consist
      primarily of costs to provide microarray data generation and analysis services
      and costs related to the acquisition and processing of tissues and overhead
      expenses needed to generate the content for the BioExpress and ToxExpress System
      databases, decreased to $5.4 million for the three months ended June 30, 2007
      from $7.6 million for the same period in 2006.  The decrease reflects
      the favorable impact of the restructuring of the Genomics Division with
      reductions in employee and facilities costs of $1.1 million, a decrease in
      amounts spent on adding new Genomics database content of $0.5 million and a
      decrease of $0.4 million in depreciation and amortization
      expense.  For the remainder of 2007, we expect database production
      expenses to continue to decrease primarily due to lower employee and facility
      costs as a result of the Genomics Division restructuring.





**Research
      and Development Expense.**Research and development expenses, which
      consist primarily of costs associated with the evaluation of customer-supplied
      drug candidates and ongoing development of our drug indication discovery
      platform, increased to $2.7 million for the three months ended June 30, 2007
      from $2.5 million for the same period in 2006.  The increase primarily
      reflects increased expenses associated with *in vivo* efficacy models to
      evaluate suitability of certain drug candidates for re-entering clinical trials
      for their proposed indications and employee costs, partially offset by $0.5
      million in lower spending due to the virtual elimination of research and
      development related to the Genomics Division.  For the remainder of
      2007, we expect research and development expenses to increase modestly, as
      we
      continue to evaluate drug candidates supplied by our drug discovery partners
      and
      further develop our indication discovery platform.  In addition, we
      will incur additional expenses because of our decision to pursue further
      development of GL1001.





**Selling,
      General and Administrative Expense.**Selling, general and administrative
      expenses, which consist primarily of sales, marketing, accounting, legal, human
      resources and other general corporate expenses, increased to $5.8 million for
      three months ended June 30, 2007 from $4.9 million for the same period in
      2006.  The increase is largely due to increased expenses in 2007 of
      $0.5 million in employee retention benefits meant to stabilize our workforce
      during this time of transition and the effect of the reversal in 2006 of a
      $0.4
      million expense under our 2006 employee incentive compensation plan resulting
      from adverse performance in our Genomics Division.****For
      2007, we expect selling, general and administrative expenses to remain at the
      same level as in 2006.





**Net
      Interest Income.**Net interest income decreased to $0.5 million for the
      three months ended June 30, 2007 from $0.8 million for 2006, due to a decrease
      in the balance of our cash and cash equivalents and marketable securities
      available-for-sale, partially offset by increases in our rates of return on
      investments.





*Six
      Months Ended June 30, 2007 and 2006*





**Revenue.**We primarily derive our revenue from our Genomics Division
      services.  To date, we have recorded no meaningful revenue from our
      Drug Repositioning Division. Revenue decreased $4.8 million, or 35%, to $8.7
      million for the six months ended June 30, 2007 from $13.5 million for the same
      period in 2006.  The revenue decrease was caused primarily by our
      customers’ having shifted their emphasis from research on early stage drug
      development, for which many of our Genomics Division services are targeted,
      into
      later-stage development and validation efforts.  The 2007 results
      reflect the absence of $4.9 million in subscription fees from expired
      agreements.  During six months ended June 30, 2007, three customers
      each accounted for greater than 10% of our total revenue.  During the
      six months ended June 30, 2006, three customers each accounted for greater
      than
      10% of our total revenue.





**Database
      Production Expense.**Database production expenses, which consist
      primarily of costs to provide microarray data generation and analysis services
      and costs related to the acquisition and processing of tissues and overhead
      expenses needed to generate the content for the BioExpress and ToxExpress System
      databases, decreased to $10.7 million for the six months ended June 30, 2007
      from $15.4 million for the same period in 2006.  The decrease reflects
      the favorable impact of the restructuring of the Genomics Division with
      reductions in employee and facilities costs of $2.5 million, a decrease in
      amounts spent on adding new Genomics database content of $0.9 million and a
      decrease of $0.6 million in depreciation and amortization expense.





**Research
      and Development Expense.**Research and development expenses, which
      consist primarily of costs associated with the evaluation of customer-supplied
      drug candidates and ongoing development of our drug indication discovery
      platform, increased slightly to $5.1 million for the six months ended June
      30,
      2007 from $5.0 million for the same period in 2006.  The increase
      primarily reflects increased expenses associated with *in vivo* efficacy
      models to evaluate suitability of certain drug candidates for re-entering
      clinical trials for their proposed indications and employee costs, partially
      offset by $0.9 million in lower spending due to the virtual elimination of
      research and development related to the Genomics Division.





**Selling,
      General and Administrative Expense.** Selling, general and administrative
      expenses, which consist primarily of sales, marketing, accounting, legal, human
      resources and other general corporate expenses, increased slightly to $12.0
      million for six months ended June 30, 2007 from $11.8 million for the same
      period in 2006.  The increase is largely due to increased expenses of
      $1.0 million in employee retention benefits meant to stabilize our workforce
      during this time of transition and $0.9 million in executive severance and
      retention benefits, partially offset by****a reduction of
      $1.7 million in employee costs for our Genomics Division and Corporate
      staff.





14.






**Net
      Interest Income.**Net interest income decreased to $1.1 million for the
      six months ended June 30, 2007 from $1.5 million for 2006, due to a decrease
      in
      the balance of our cash and cash equivalents and marketable securities
      available-for-sale, partially offset by increases in our rates of return on
      investments.





**Write-down
      of Equity Investment.** For the six months ended June 30, 2006, in
      connection with our investment in Xceed Molecular (“Xceed”, formerly MetriGenix
      Corporation) we recorded a $0.3 million write-down of a warrant which was
      terminated.  At June 30, 2007, the book value of our investment in
      Xceed was $3.0 million.





**Liquidity
      and Capital Resources**





From
      inception through June 30, 2007, we have financed our operations and
      acquisitions through the issuance and sale of equity securities and payments
      from customers.  As of June 30, 2007, we had approximately $36.7
      million in cash, cash equivalents and marketable securities available-for-sale,
      compared to $50.1 million as of December 31, 2006.





Net
      cash
      from operating activities from continuing operations was negative $11.0 million
      for the six months ended June 30, 2007 compared to negative $17.9 million for
      the same period in 2006, primarily due to the timing of customer payments and
      payments under our compensation and retention plans.  We presently
      anticipate that our use of cash in the second half of 2007 will be lower than
      for the first half of 2007.  Our cash usage for the third quarter of
      2007 will include the remaining $0.7 million payment to Bridge related to the
      sale of our Preclinical Division and a $0.4 million executive severance
      payment.





During
      the
      six months ended June 30, 2007 and 2006, our investing activities consisted
      primarily of purchases, sales and maturities of available-for-sale securities,
      capital expenditures and a payment related to the sale of our Preclinical
      Division.  Capital expenditures for the six months ended June 30, 2007
      and 2006 were $0.5 million and $1.7 million, respectively.  The
      decrease in capital expenditures was primarily due to the absence of 2006
      equipment purchases used to expand our microarray data generation and analysis
      capacity and capabilities.**** For the remainder of 2007, we
      expect the level of capital expenditures to be insignificant.





On
      December 15, 2006, we announced the closing of the sale of our Preclinical
      Division to Bridge for a sales price of $15.0 million (before transaction
      costs), consisting of (A) $13.5 million paid at closing less transaction costs
      of $1.4 million and (B) $1.5 million held in escrow for 12 months to satisfy
      potential indemnification obligations under the agreement.  In
      January 2007, we repaid $1.2 million to Bridge in conjunction with the final
      reconciliation of cash balances associated with the sale of our Preclinical
      Division.





Specific
      future financial commitments from continuing operations as of June 30, 2007
      are
      set forth in the following table:





**Within****Total**
              
              
              **6
                  Months**
              
              
              **2008
                  & 2009**
              
              
              **2010
                  & 2011**
              
              
              **Beyond
                  2011**Long-term
                  debt
              
              $
              558
              
              
              $
              477
              
              
              $
              54
              
              
              $
              27
              
              
              $
              -Operating
                  leases
              
              
              5,447
              
              
              
              930
              
              
              
              2,804
              
              
              
              1,428
              
              
              
              285Total
              
              $
              6,005
              
              
              $
              1,407
              
              
              $
              2,858
              
              
              $
              1,455
              
              
              $
              285





We
      believe
      that existing cash, cash equivalents and marketable securities
      available-for-sale and anticipated payments from customers will be sufficient
      to
      support our operations for the foreseeable future.  These estimates
      are forward-looking statements that involve risks and
      uncertainties.  Our actual future capital requirements and the
      adequacy of our available funds will depend on many factors, including those
      discussed under “Risk Factors” in our Annual Report on Form 10-K for the year
      ended December 31, 2006 and in our subsequent filings with the Securities and
      Exchange Commission.





**Critical
      Accounting Policies**





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





***Revenue
      Recognition***





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





15.






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





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





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





***Goodwill
      and Other Intangible Assets Impairment***





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





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





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





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





***Accounts
      Receivable and Unbilled Services***





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





16.






***Inventory***





We
      maintain an inventory of tissue samples collected from various commercial and
      academic sites that are used to expand the content of our
      databases.  We assess the quality and supply of samples in excess of
      our current requirements in determining appropriate reserves.  Our
      methods for calculating these reserves are based both on historical performance
      and management estimates.  Inventory reserves are reviewed for
      adjustment on an ongoing basis.  Changes in tissue quality and/or our
      requirements for their use could potentially cause adjustments to these reserves
      in future periods.





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





***Equity
      Investments***





We
      hold an
      equity investment in one company (Xceed Molecular, formerly MetriGenix
      Corporation) with a remaining book value of $3.0 million as of June 30,
      2007.  We record an investment impairment charge when it is believed
      that an investment has experienced a decline in value that is
      other-than-temporary.  Future adverse changes in market conditions or
      poor operating results of the underlying investee could result in our inability
      to recover the carrying value of this investment that may not be reflected
      in
      such an investment’s current carrying value, thereby possibly requiring an
      impairment charge in the future.





***Stock-based
      Compensation***





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





**Recently
      Issued Accounting Pronouncements**





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





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





If
      applicable, we would recognize interest and penalties related to income tax
      matters in income tax expense.  No interest and penalties were
      recognized in the Consolidated Condensed Statements of Operations for the three
      and six months ended June 30, 2007 and the Consolidated Condensed Balance Sheet
      at June 30, 2007.  We and our subsidiaries file consolidated and
      separate income tax returns in the United States and in a number of state and
      foreign jurisdictions.  We are subject to tax examinations in our
      major tax jurisdictions for all years since inception.





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





We
      have
      exposure to financial market risks, including changes in interest
      rates.  At June 30, 2007, we had cash and cash equivalents of $20.8
      million and marketable securities available-for-sale of an additional $15.8
      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, 2007, a hypothetical 100 basis point adverse movement in interest
      rates would have resulted in an increase in the net loss from continuing
      operations of approximately $0.2 million for the six months ended June 30,
      2007.  Actual changes in rates may differ from the hypothetical
      assumptions used in computing this exposure.





17.






Since
      the
      beginning of 2005 and as a result of changing our distribution arrangements
      in
      Japan, we have been subject to risk from changes in foreign exchange rates
      relating to revenue from our Japanese customers, as such agreements are now
      denominated in Japanese Yen.  Such changes could result in foreign
      currency exchange gains or losses.  As a policy, we convert our
      customer payments made in Japanese Yen to United States dollars upon receipt
      of
      such payment.  Revenue derived from the Pacific Rim as a percentage of
      total revenue was 20**%**for the six months ended June 30, 2007
      and was primarily derived from our customers in Japan.  Exchange rate
      fluctuations between the United States Dollar and Japan Yen could result in
      positive or negative fluctuations in the amounts relating to revenue reported
      in
      our consolidated condensed financial statements.  A hypothetical 10%
      adverse change in average foreign currency movements would have resulted in
      an
      increase in the net loss of less than $0.1 million for the six months ended
      June
      30, 2007.  There can be no assurance that losses related to this
      currency risk will not occur.





**Item
      4. Controls and
      Procedures**





**Evaluation
      of Disclosure Controls and Procedures**





As
      of June
      30, 2007, under the supervision and with the participation of our management,
      including the Chief Executive Officer (“CEO”) and Chief Financial Officer
      (“CFO”), an evaluation was performed of the effectiveness of the design and
      operation of our “disclosure controls and procedures” (“Disclosure
      Controls”).  These are controls and procedures designed to reasonably
      assure that information required to be disclosed in our reports filed under
      the
      Exchange Act, such as this Form 10-Q, is recorded, processed, summarized and
      reported within the time periods specified in the rules and forms of the United
      States Securities and Exchange Commission (“SEC”).  Disclosure
      Controls are also designed to reasonably assure that such information is
      accumulated and communicated to our management, including the CEO and CFO as
      appropriate, to allow timely decisions regarding required
      disclosure.  Based on that evaluation, our CEO and CFO have concluded
      that, as of June 30, 2007, our disclosure controls and procedures were effective
      to provide reasonable assurance that information required to be disclosed in
      our
      Exchange Act reports is recorded, processed, summarized and reported within
      the
      time periods specified by the SEC, and that material information relating to
      us
      is made known to management, including the CEO and CFO, particularly during
      the
      period when our periodic reports are being prepared.





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





**Changes
      in Internal Control Over Financial Reporting**





There
      were
      no changes in our internal controls over financial reporting during the second
      quarter of 2007 that materially affected or are reasonably likely to materially
      affect our internal controls over financial reporting.





**PART
      II                    OTHER
      INFORMATION**





**Item
      1.  Legal
      Proceedings**





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





18.






**Item
      1A. Risk
      Factors**





The
      following risk factor should be added to those previously disclosed in the
      Company's Annual Report on Form 10-K for the year ended December 31, 2006 and
      our other subsequent filings with the SEC.





**We
      may be Unable to Sell All or Parts of Our Genomics Division on Terms We Deem
      Satisfactory and the Effort to Sell that Business may have Adverse Effects
      on
      the Business.**





Although
      we are concentrating our efforts on investigating the possibility of a sale
      of
      all or parts of our Genomics Division, we may not be able to sell all or parts
      of that Division on satisfactory terms.  If we are unsuccessful in
      completing a sale, further restructuring or other strategic disposition of
      that
      Division may be necessary.  In addition, the effort to sell such
      business may further adversely affect our ability to retain employees or
      customers and could result in recognition of impairments to the value of the
      assets used in the Genomics Division.





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





None.





**Item
      3. Defaults Upon Senior
      Securities**





None.





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





The
      Company held its Annual Meeting of Stockholders on June 7, 2007 (“Annual
      Meeting”).  At the Annual Meeting, the Company’s stockholders elected
      three directors to the Company’s Board of Directors and ratified the selection
      of our independent registered public accounting firm, as described
      below.  At the Annual Meeting, 27,941,563 shares, out of a total of
      31,983,139 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**
              
              **Withheld**1
              To
                  elect three directors to hold office until the 2010 Annual
                  Meetingof
                  Stockholders or his earlier resignation or removal.Michael
                  J. Brennan, M.D, Ph.D.
              
              27,366,165
              
              575,398Mark
                  J. Gabrielson
              
              27,352,306
              
              589,257David
                  L. Urdal, Ph.D.
              
              27,262,904
              
              678,659The
                  following individuals' term of office as a director continue
                  afterthe
                  meeting: Charles L. Dimmler, III; Frank L. Douglas, M.D.,
                  Ph.D.;Mark
                  D. Gessler; G. Anthony Gorry, Ph.D.; Lloyd I. Miller, III
                  andJ.
                  Stark Thompson, Ph.D.**For**
              
              **Against**
              
              **Abstain**2
              To
                  ratify the selection of Ernst & Young LLP as the
                  Company's
              
              27,646,754
              
              247,106
              
              47,704independent
                  registered public accounting firm for the year endingDecember
                  31, 2007.







**Item
      5. Other
      Information**





None.





**Item
      6. Exhibits**




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






19.






**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 9, 2007
              By:
              /s/
                  Philip L. Rohrer,
                  Jr.Philip
                  L. Rohrer, Jr.Chief
                  Financial Officer(*Principal
                  Financial and
                  Accounting
                  Officer**)*




20.