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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______

FORM 10-K

(Mark One)

|  |  |                                                                                     
|- |  | ------------------------------------------------------------------------------------
|X |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2002OR

|    |  |                                                                                         
|--- |  | ----------------------------------------------------------------------------------------
|___ |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______to ______
Commission File No. 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. Employer   
|Incorporation or organization)  |  | Identification No.)

708 Quince Orchard Road
Gaithersburg, Maryland 20878
(Address of principal executive offices)
Registrants telephone number, including area code: (301) 987-1700
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:COMMON STOCK, $.01 PAR VALUE
(Title of Class)

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 ______

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (Section 229.405 of this chapter) is not contained
herein, and will not be contained, to the best of Registrants knowledge, in
definitive proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K. ______

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). Yes X   No ______

The aggregate market value of the voting stock (which consists solely of
shares of Common Stock) held by non-affiliates of the Registrant as of June 30,
2002 was approximately $238,040,000, based on the closing price on that date of
Common Stock on the Nasdaq National Stock Market.*

The number of shares outstanding of the Registrants Common Stock, $.01
par value, was 27,128,997 as of March 4, 2003.



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|* |  | Excludes 9,918,460 shares of Common Stock held by directors and
executive officers and stockholders whose beneficial ownership exceeds
10% of the shares outstanding on June 30, 2002. Exclusion of shares held
by any person should not be construed to indicate that such person
possesses the power, direct or indirect, to direct or cause the
direction of the management or policies of the Registrant, or that such
person is controlled by or under common control with the Registrant.
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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PART I

ITEM 1: BUSINESS

Certain statements in this discussion are considered forward-looking
statements within the meaning of Section 21E of the Securities Exchange Act of
1934, as amended, including statements regarding our expectations, beliefs,
goals, hopes, strategies, or the like. Such statements are based on
managements current expectations and are subject to a number of factors and
uncertainties that could cause actual results to differ materially from those
described in the forward-looking statements. We caution investors that there
can be no assurance that actual results or business conditions will not differ
materially from those projected or suggested in such forward-looking statements
as a result of various factors, including, but not limited to, the risk factors
discussed in this Annual Report on Form 10-K. We expressly disclaim any
obligation or undertaking to release publicly any updates or revisions to any
forward-looking statements contained herein 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 requires otherwise, references in the following Annual
Report on Form 10-K to Gene Logic, the Company, we, us, and our refer
to Gene Logic Inc.

GeneExpress® and ToxExpress® are registered trademarks of Gene Logic.
BioExpressTM, Genesis Enterprise SystemTM and GXTM are trademarks of Gene
Logic. GeneChip® is a registered trademark of Affymetrix, Inc. Flow-thru
ChipTM is a trademark of MetriGenix, Inc. GencartaTMis a trademark of
Compugen, Ltd.

GENERAL

Gene Logic Inc. is a genomic-based services company that provides genomic
information and bioinformatics products and services to the pharmaceutical and
biotechnology industry. We have applied our expertise in biosample collection,
handling and processing, genomic data production, and data management and
software systems development, to create a broad range of gene expression-based
information solutions that facilitate the drug discovery and development
process. Our mission is to develop products and services based on leading
genomics technologies that improve outcomes and enable improved effectiveness,
productivity and safety in the research efforts of drug discovery and
development companies worldwide.

We were incorporated in September 1994 as a Delaware corporation, and
commenced operations in 1996. Our principal executive offices are located at
708 Quince Orchard Road, Gaithersburg, Maryland 20878. Our telephone number is
301-987-1700. We maintain a Web site at www.genelogic.com, where our
Securities and Exchange Commission (SEC) filings and other information are
available. The information posted on our Web site is not incorporated into
this Annual Report on Form 10-K.

On February 25, 2003, we announced the proposed acquisition of TherImmune
Research Corporation (TherImmune) for approximately $52 million, subject to
adjustment. TherImmune is a privately held, drug development contract research
organization (CRO) specializing in discovery, preclinical and early stage
clinical trial services. The acquisition is subject to completion of the
securities offering, approval of the TherImmune shareholders, completion of a
securities offering of our stock and certain other conditions, including that
the closing price of our stock, during a period prior to closing, be above a
certain minimum level. The acquisition is expected to close early in the
second quarter of 2003.

BUSINESS STRATEGY

Over the past five years, we have spent significant time, effort and
resources on creating what we believe to be the worlds first comprehensive
survey of human gene activityour GeneExpress System. Our business objectives
have been, and will continue to be, (1) to broaden the use of our genomic
information products and services, (2) to seek broader market opportunities for
our products and services and (3) to create an enterprise that is both
efficient and effective in delivering valued research resources and services to
clients. Based on these business objectives, our goal is to create a
sustainably profitable company.

Our business is to provide our GeneExpress System information products and
services to pharmaceutical and biotechnology companies worldwide. Within the
GeneExpress System, our BioExpress business strategy is to grow, through
continued development of new information products and data access packages
tailored to the needs and research interests of our customers and through the
creation of new products and services for customers with more focused needs and
time intensive or infrastructure constraints. Our ToxExpress business strategy
is to market and sell our toxicogenomics discoveries in the form of specific
products and services, including in vivoand in vitroscreening products, and
mechanism of toxicity services, to enable our customers to better understand
the underlying molecular events leading to toxicity and to help elucidate
species specificity of adverse events identified during preclinical assessment.

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We derive substantially all of our revenue from the research and
development expenditures of the pharmaceutical and biotechnology industry. We
believe that outsourcing by our customers for these types of products and
services has increased in the past, and will increase in the future, because of
several factors. These factors include pressures to contain costs, to overcome
limitations on internal capacity, to speed the process of evaluating and
developing new drug targets and candidate compounds, and to take advantage of
leading edge genomics technologies and expertise that provide a more complete
understanding of human biology, but that many potential customers lack
internally. These trends create an opportunity for a company like Gene Logic
to help speed the drug development process or make the process of drug
development more efficient and cost effective. We believe that our products
are valued by customers that want to apply genomics technologies that provide a
more complete understanding of human biology.

PRODUCTS AND SERVICES

GENEEXPRESS SYSTEM

The core of our product and service offering is the GeneExpress System.
The GeneExpress System comprises a broad range of products and services based
on data derived from gene expression studies of human and animal tissues and
cells. It may be used to better understand gene expression patterns, genetic
abnormalities, disease pathways, disease mechanisms of action and mechanisms of
toxicity.

The GeneExpress System is the leading source of gene expression
information. Gene expression analysis tells researchers which genes are
turned on or turned off in a particular cell or tissue sample. Expressed
genes determine which proteins in the cell are synthesized and to what extent.
Specific expression patterns determine the cell type, as well as physiological
conditions within the cell, including disease. Understanding changes in gene
expression provides researchers evidence of which genes and proteins play a
role in a specific disease or physiological state.

We provide our pharmaceutical and biotechnology customers access to our
GeneExpress System primarily through subscription agreements. Typically, our
customers enter into multi-year agreements to obtain non-exclusive access to
our genomic information products. These agreements are often tailored to a
customers needs by providing specific content updates, consisting of clinical
and gene expression data from samples representing specific normal and diseased
states that are most relevant to their drug development strategy. During 2002,
our revenue consisted primarily of these database subscription fees. Some
customers request specific data from our database, rather than ongoing
subscriptions and pay lower fees for such limited data access. To a lesser
extent, we also received revenue from studies and other services performed for
customers and the licensing of certain other GeneExpress products, as well as
software and other related services.

The GeneExpress System products and services can be divided into three,
separate yet interrelated solutions: BioExpress, ToxExpress, and Other Products
and Services.



| |  |  | Our BioExpress solutions are based on the BioExpress System, a broad
database of gene expression data from a wide range of normal and
diseased human tissues, tissues from experimental animals and human and
animal cells, as well as additional annotation information through GX
Gencarta.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Our ToxExpress solutions are based on the ToxExpress Predictive
System, a collection of predictive models based on gene expression
profiles and predictive modeling capabilities derived from tissues and
cells treated with drugs and other compounds associated with toxicity.             
|
| |  |  | Our Other Products and Services solutions are based on our
proprietary Genesis Enterprise System, consisting of proprietary
bioinformatics resources for data mining, analysis and management, as
well as data integration and other custom software and database products
and services.     

The GeneExpress System enables detailed examination of the
interrelationships between the human genome, mechanisms of disease and
mechanisms of toxicity and can be widely applied in drug development research.
In basic research, it can enable the discovery and prioritization of gene
targets. Once drug candidates have been identified, it can enable the
prioritization of compounds based on their potential for human toxicity. In
clinical development, it has the potential to stratify patient populations that
might be best suited for new and existing therapies.

We expect to continue to increase the content of the GeneExpress System,
focusing on tissues and cells of particular interest to our customers. We also
plan to continue to upgrade and develop our proprietary software tools for
analysis and integration of third-party software and content.

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BIOEXPRESS SOLUTIONS

BIOEXPRESS SYSTEM

The BioExpress System is the largest information subset of our GeneExpress
System. It comprises a broad survey of gene expression data derived from
normal and diseased human and animal tissues and a limited number of studies of
pharmaceutically relevant disease models. Our BioExpress System presently
covers more than 400 clinical indications. The primary areas of focus include
extensive disease-staged tissue samples representing oncology, cardiovascular,
central nervous system and inflammatory diseases, developmental biology, as
well as samples of normal (non-diseased) tissue and associated clinical data on
the samples from which the gene expression data is derived. The BioExpress
System provides researchers with gene expression information to study normal
physiology, explore the mechanisms of disease, identify disease-associated
pathways and select and prioritize potential drug targets. Customers generally
use the BioExpress System in basic discovery research to identify and
prioritize novel disease-associated gene targets or to confirm targets found
through other means.

BIOEXPRESS SUITES

BioExpress Suites are disease/indication-specific subsets derived from the
BioExpress System, which provide comprehensive gene expression, genetic and
clinical information from a focused set of normal and diseased tissue samples.
Current Suites that are commercially available include:

|                                     |  |                       
|------------------------------------ |  | ----------------------
| Oncology Suite                     |  |  Inflammation Suite  
| Central Nervous System (CNS)
Suite |  |  Womens Health Suite
| Cardiovascular System (CVS) Suite  |  |  Human Atlas Suite   

We also offer custom versions of this product that consist of customer-defined
data sets.

We continue to assess opportunities to launch additional BioExpress Suite
products, through our disease-focused scientific programs led by individual
scientific directors who work closely with our pharmaceutical and biotechnology
clients to ensure market interest in these and future Suite products.

BIOEXPRESS SERVICES

Our BioExpress Services offer researchers additional, customized tools
that leverage the combination of proprietary gene expression data of the
BioExpress System and our core competencies to further their discovery and
development initiatives. Specific BioExpress Services include:



| |  |  | BioExpress Reports, delivered to customers in report format, which
provide customers with a comprehensive analysis of the activity of one
or more genes in all, or most, human disease and normal states; and
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Sample Processing Services, where we provide gene expression data
from samples provided or specified by customers.                                                                                           

TOXEXPRESS SOLUTIONS

TOXEXPRESS PREDICTIVE SYSTEM

The ToxExpress Predictive System is comprised of gene expression profiles
of rat tissues and cells treated with drugs and other compounds associated with
known classes of toxicity, designed to predict acute and chronic human toxicity
based on single-dose studies in rats and rat cell cultures. These toxicity
profiles are based on focused toxicology surveys, which include time-course,
dose and other study information, derived primarily from rat liver tissue
following in vivotreatment with pharmaceuticals known to be toxic. Additional
toxicology studies have been initiated based on other organ models and cell
types, including kidney, heart, brain and bone marrow. The resulting
toxicology profile information is correlated with studies on primary human and
rat cells to establish in vitromodels of human toxicity. These toxicity
profiles, and the resulting predictive modeling capabilities, can be used to
assess their toxic potentials by comparing them with the gene expression
profiles induced by new drug leads. Detection of potential toxicity early in
the drug discovery and development process allows drug developers to reject
compounds having unacceptable toxicity profiles before incurring the
substantial expenses of traditional animal toxicology studies and clinical
trial failures. We have also seen cases that indicate gene expression profiles
using animal models may predict human toxicity where traditional animal
toxicity screening failed to reveal such effects. Customers use our ToxExpress
Predictive System as a primary tool to assess potential single- or multi-organ
toxicity of proprietary lead compounds using gene expression information.

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TOXSUITES

ToxSuites are organ- or cell type-specific subsets derived from the
ToxExpress Predictive System, and provide comprehensive gene expression and
clinical information from a focused toxic pathology end-point area, such as in
vivoliver. Each ToxSuite contains studies from a specific organ or cell type,
allowing researchers to screen compound classes suspected or at risk of causing
a particular type of toxicity. The current ToxSuite that is commercially
available is: In Vivo Rat Liver Suite.

We continue to assess opportunities to launch additional ToxSuite
products, as we develop the ToxExpress Predictive System to include additional
in vivoand in vitromodels of other key organs of toxicogenomic interest,
including kidney, heart, brain and bone marrow.

TOXEXPRESS SERVICES

To further their drug compound prioritization initiatives, we offer
researchers a broad range of toxicogenomics-related services that provide
additional, customized tools that leverage the predictive models of the
ToxExpress Predictive System and our core competencies. Specific ToxExpress
Services include:



| |  |  | ToxScreen Reports, delivered to customers in report format, which
provide predictive results based on proprietary validated organ- and
cell type-specific predictive models for accessing toxicity of lead
compounds;              
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Molecular Mechanism of Toxicity (ToxMOT) Services, which consist of
in-depth analyses of gene expression changes to explain toxic events in
specific compounds; and                                                                
|
| |  |  | Custom ToxExpress Services, which consist of our applying the
products and technologies of the ToxExpress Predictive System to
customer-specific, compound-related questions, database needs and
modeling development requirements.

OTHER PRODUCTS AND SERVICES

We have developed additional information products and bioinformatics
services for use by our drug development customers. These other products and
services include:



| |  |  | The Genesis Enterprise System, which consists of an enterprise-wide
software platform for gene expression research, and provides
integration, management and analysis capabilities for both genomic data
and associated clinical and experimental annotation information; it can
accommodate data from any source generated using the Affymetrix GeneChip
microarray, and can integrate these data sets directly with existing
GeneExpress data sets;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Bioinformatic Services, which include gene expression data
integration, analysis, quality assessment, custom solutions and clinical
data management;                                                                                                                                                                                                                                                                                                 
|
| |  |  | Data Integration and Management Services, which consist of a broad
range of software tools and related professional services brought
together to create integrated custom products for customers interested
in incorporating GeneExpress System proprietary content and a customers
in-house generated gene expression and sample annotation data; and                                                                                              
|
| |  |  | Custom Databases, which are created under research collaboration
agreements, and comprised of gene expression profiles derived from
analysis of proprietary samples provided to us by specific customers.                                                                                                                                                                                                                                            

CUSTOMERS

We provide genomic-based information products and services to the
pharmaceutical and biotechnology industry. Historically, our customers have
included researchers at global pharmaceutical and biotechnology companies, as
well as mid- to small-sized biopharmaceutical companies and academic
institutions.

PRICING

We offer a broad range of genomic-based information products and services.
Our pricing model is generally based on the product or service being offered,
the potential volume and type of use by the customer, any requirements for
customization and whether the customer is in a commercial or academic setting.
Actual pricing depends on the scope of installation at the customers site, the
magnitude of the research effort and intended use of the information by the
customer, the number of users at the customer site, any content or other
customer driven requirements and whether we provide any custom analysis, data
management, software development or other services to the customer.

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RESEARCH & DEVELOPMENT

We continue to research methods aimed at improving the process currently
employed in the production of our gene expression data using microarray
technology and decreasing the sample size requirements of human tissues used
for gene expression analysis. We also are conducting research on additional
technology platforms. Research and development expenses for the years ended
2002, 2001 and 2000 were $2.4 million, $3.6 million and $3.6 million,
respectively.

BIOREPOSITORY

We have spent the last five years building what we believe to be one of
the worlds most comprehensive collections of diseased and normal tissue
samples, cell cultures and animal models obtained through a network of
contracted collaborations with United States and European institutions and
clinical centers. These samples span more than 400 separate clinical disease
indications with focused collection programs in the critical areas of oncology,
cardiovascular, central nervous system, inflammatory and metabolic diseases, as
well as womens health issues and developmental biology. Human tissue
acquisition is designed to ensure patient confidentiality while at the same
time permitting full clinical record disclosure. The Biorepository collection
process is managed by a group of senior scientific directors and pathologists
who work closely with our pharmaceutical and biotechnology customers to create
a prioritized plan for acquiring and processing relevant normal and diseased
tissue samples likely to be of interest to our customers.

The foundation of the Biorepository is the network of clinical centers,
teaching hospitals, academic medical centers, and commercial providers from
which samples and relevant pathological and clinical data are obtained. Each
clinical center must comply with our and their own institutional protocols for
collection and donation of tissue samples and provide tissue samples and
clinical data records that meet our stringent quality specifications for tissue
types and other requirements. In general, we provide each institution and its
researchers with a combination of funding for training, research, and
infrastructure. In certain cases, we provide access to the gene expression
data specific to their samples and appropriate bioinformatics capabilities of
the GeneExpress System to enable them to manage and analyze such data. This
blend of compensation and limited access to their respective sample data has
proven to be a substantial motivator for our clinical centers to provide us
with samples that meet our rigorous tissue type and quality requirements.

At each center in our network, we work together to establish Institutional
Review Board-approved protocols, including patient informed consents, to ensure
proper acquisition of the tissues and relevant clinical information, but
excluding the name or other information identifying the donors. Tissues are
obtained according to specific handling protocols that preserve their quality.
The samples are shipped to our headquarters together with pathology reports and
slides and detailed clinical data abstracted from patient records.

At December 31, 2002, the Biorepository included over 20,000 samples and
detailed associated clinical data. The resulting data from such samples is
included in the GeneExpress System. Additional samples are available in
inventory for future processing. We will continue to add to the database by
obtaining additional samples of highest interest to our customers.

GENOMIC DATA PRODUCTION

We measure gene expression levels in each human and animal tissue sample
from the Biorepository using the latest GeneChip microarray technology from
Affymetrix. Our genomic data production is an industrial scale application of
this microarray technology and its related reagents, instrumentation and
software. We believe our facilities are adequate for our existing production
needs.

We use Affymetrix products, instrumentation and software and related
reagents to generate our genomic data. In January 1999, we entered into a
three-year agreement with Affymetrix, pursuant to which Affymetrix supplied its
microarrays to us for the development of gene expression databases. During
2001, we renegotiated and extended this agreement for two years, subject to
renewal, commencing January 2002. Under the terms of the new agreement, we
continue to pay Affymetrix subscription fees for access to the microarrays,
purchase the microarrays and related instrumentation and software and expect to
record royalty expense payable to Affymetrix in future years upon meeting
certain GeneExpress subscription revenue thresholds. Our commitments under
other research and license agreements do not represent significant expenditures
in relation to our total research and development expense.

Once each sample has been analyzed, any remaining residual sample or
biomolecules is saved for possible future use. For example, we recently
utilized some of this stored residual material to upgrade the content of the
BioExpress System utilizing newer versions of microarrays from Affymetrix.
This comprehensive upgrade of the BioExpress content was completed during 2002.

DATA MANAGEMENT AND SOFTWARE SYSTEMS DEVELOPMENT

We possess extensive software development expertise and experience in data
management and statistical analysis of large volumes of heterogeneous genomic
data. The data production process generates substantial amounts of gene
expression data, including comprehensive sample data and gene annotations,
which must be managed efficiently and integrated with data from customers in-

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house research efforts and a growing number of public domain genomic and
medical database sources. Our proprietary data management and analysis
software is designed to manage, integrate, explore and query disparate data
sets as if they were part of a single database.

The bioinformatics structure of our GeneExpress System, known as the
Genesis Software System, is an integrated platform comprised of a highly
sophisticated system architecture based on an enterprise-wide, Oracle-based
information warehouse. The information warehouse comprises i) a database of
biological descriptions of the tissue samples and the associated clinical
annotations; ii) a database of quantitative measurements of gene expression
from each of the samples; iii) a database, the GX Gene Index, providing direct
links to curated, public and private sources of genomic information; iv) a
collection of analytical tools for gene expression mining, analysis and
visualization; and v) software for integrating customers proprietary, in-house
gene expression data.

Data mining within the Genesis Software System is performed using our
proprietary high-performance analysis engine. Our GeneExpress System
information products are delivered to customers on turnkey servers with client
software available for rapid installation on local client desktops. These
servers may reside at customer sites or can be accessed remotely via a secure
virtual private network from our main computer facility. We have also
developed high performance GeneExpress data cloning tools to support the
regular content updates and periodic software upgrades for our customers.

We periodically update our Genesis Software System to improve its
performance, analytical power and usability. We also continue to refine the
software to allow the integration and cross analysis of additional types of
genomic data, including sequence, proteomic and other complementary genomic
data sets.

SALES AND MARKETING

We continue to sell or license our genomic-based information products,
services and bioinformatics tools directly to pharmaceutical and biotechnology
customers in North America, Western Europe, and portions of Asia. Our primary
customers are top-tier pharmaceutical companies; revenue from these customers
represented a significant share of our revenue in 2002. The flexible nature of
our information solutions has resulted in additional penetration into smaller
pharmaceutical and biotechnology accounts in 2002. We will continue to
implement new, flexible information products and services to broaden our
product reach and enhance the overall utility of our information across a
greater portion of the drug discovery and development industry and at more
points along the drug research and development process.

We generally market our genomic information products and services
directly. In Japan, we have a nonexclusive distribution agreement with
Amersham Biosciences K.K. (Amersham) through which Amersham markets and
distributes our GeneExpress line of products and services; this was a
significant source of our revenue in 2002. Under this agreement, Amersham
receives a percentage of revenue from sales it generates in Japan.

CUSTOMER SUPPORT

Our Customer Support department provides technical support to our
customers. It is staffed with molecular biologists and bioinformatics
professionals with experience in problem solving, training, and business
management. Customer Support staff provide technical demonstrations of our
GeneExpress System products to potential customers, plan initial deployment of
and provide product training for new customers and provide on-going product
support and any necessary follow on training.

COMPETITION

Competition among entities working in and generating products derived from
genomic information is substantial. A number of companies, government entities
and academic and non-profit institutions are engaged in gene sequencing, gene
discovery, gene expression analysis, toxicogenomics, proteomics and other
genomic services. Some of these companies, institutions and entities have
greater financial and human resources than we do. In addition, we are aware
that certain entities are using, or have announced their intention to use, a
variety of analysis methodologies, including the use of microarrays, to develop
and market to pharmaceutical and biotechnology companies databases containing
gene sequence, gene expression, genetic variation or other genomic information.
Additional competitors may attempt to establish databases containing similar
genomic information in the future.

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We believe there are currently no genomic information products comparable
to our GeneExpress System in terms of the scope and scale of human biology
covered. However, there are a wide variety of tools and technologies available
for drug discovery and development research. We compete for general research
dollars with the companies that provide these tools and technologies on the
basis of many factors, including:



| |  |  | price;                                                                                                                                                                      
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | scope of products and services;                                                                                                                                             
|
| |  |  | technological expertise in using leading genomics technologies;                                                                                                             
|
| |  |  | ability to acquire, handle, process, analyze and present complex
genomic data and clinical annotation information in a time-saving,
quality controlled, and accurate manner;
|
| |  |  | ability to manage large volumes of complex, interrelated genomic information, generated in-house or by customers; and                                                       
|
| |  |  | ability to integrate proprietary genomic content with publicly available and other third-party generated data sets.                                                         

We believe that we compete favorably in each of these areas.

INTELLECTUAL PROPERTY

We seek United States and international patent protection for major
components of our technology platform, including elements of our genomics and
bioinformatics technologies. We also rely on trade secret protection for
certain of our confidential and proprietary information, and we use license
agreements to access external technologies and assets and to provide others
with rights to use certain intellectual property. Our commercial success is
dependent in part on our ability to continue to obtain commercially valuable
patent claims and to protect our patents, trade secrets, trademarks and other
intellectual property to ensure our freedom to operate and to be able to
license such rights when applicable.

We have applied, and intend to file additional applications, for patent
protection on methods of obtaining and using genomic information and on
databases, software, and user interface tools relating to the management and
use of such information. The applications may include claims to methods of
identifying and using gene expression profiles and genetic markers, including
toxicity markers and disease-specific markers. They may also include claims to
novel genes and gene fragments and to novel uses for known genes or gene
fragments. As of December 31, 2002, we had exclusive rights to 50 issued
patents, 20 of which are United States patents, and 138 patent applications, 77
of which are United States patent applications or United States provisional
patent applications, relating to our technology platform.

We seek protection for our trademarks used in connection with our products
and services, including registration of such marks in the United States and
relevant foreign jurisdictions. As of December 31, 2002, we had six United
States and 11 foreign trademark registrations and 12 United States and 14
foreign trademark applications pending.

The term of United States patents filed on or after June 8, 1995 commences
on the date of issuance and terminates 20 years from the earliest effective
filing date of the application. For United States patents filed before that
date, the term is 17 years from the date of issuance. Because the time from
filing to issuance of biotechnology patent applications is often more than
three years, a term that begins at the effective date of filing may result in a
shorter period of patent protection, which may harm our competitive position,
notwithstanding the possibility of term extension in certain circumstances.

With respect to proprietary know-how that is not patentable and for
products and processes for which patents are of questionable value or difficult
to obtain or enforce, we rely on confidentiality agreements and other trade
secret protection measures to protect our interests. We believe that several
elements of our genomic information products involve proprietary know-how,
technology or data that are not covered by patents or patent applications. In
addition, we have developed a proprietary index of gene and gene fragment
sequences which we update on an ongoing basis. While some of these data will
be the subject of patent applications, other data will be maintained as
proprietary trade secret information. We have taken security measures to
protect our proprietary know-how and technologies and confidential data,
including requiring all employees, consultants and customers to enter into
confidentiality agreements, and continue to explore further methods of
protection. In the case of arrangements with our customers that require the
sharing of data, our policy is to make available to our customers only such
data as is relevant to our agreements with such customers, under controlled
circumstances, only during the contractual term of those agreements, and
subject to a duty of confidentiality on the part of our customers. However,
such measures may not adequately protect our data.

We are a party to various license agreements that give us rights to use
technologies and biological materials in our research and development
processes. We may not be able to maintain such rights or obtain new rights as
needed on commercially reasonable terms.

8



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GOVERNMENT REGULATION

REGULATION OF USE OF HUMAN TISSUE

Our access to and use of tissue samples in the expansion of our
GeneExpress products and services may become subject to government regulation,
both in the United States and abroad. United States and foreign government
agencies may also impose restrictions on the use of data derived from human or
other tissue samples. The United States Food and Drug Administration (FDA) has
issued certain final and proposed regulations governing human cellular and
tissue-based products. None of these regulations are currently effective, and
the regulations deal primarily with use of tissue for transplantation, so it is
not clear whether such regulations will have any impact on our operations. If
our access to or use of human tissue samples, or our customers use of data
derived from such samples, were restricted, our business will suffer.

ENVIRONMENTAL REGULATION

Our research and development activities in some cases may involve the
controlled use of biological and other hazardous materials, chemicals and
various radioactive materials. We are subject to federal, state and local laws
and regulations governing the use, storage, handling and disposal of such
materials and certain waste products. The risk of accidental contamination or
injury from these materials cannot be eliminated. In the event of an accident,
we could be held liable for any damages that result, and any liability could
exceed our resources. Other than such laws and regulations governing the
generation, use and disposal of hazardous materials and wastes, and limiting
workplace exposures to these materials, we do not believe our current and
proposed activities are subject to any specific environmental regulation other
than regulations affecting the operations of companies generally.

HUMAN RESOURCES

As of December 31, 2002, Gene Logic employed 264 individuals full-time, of
whom 67 were engaged in genomic data production, 39 were engaged in content
development, 86 were engaged in software and database development, 36 were
engaged in marketing, sales, deployment and customer support, and 36 were
engaged in finance, general administration and computer information systems. A
significant number of our management and professional employees have had prior
experience with pharmaceutical, biotechnology, diagnostic or medical products,
and computer software or electronics companies. None of our employees is
covered by collective bargaining agreements, and management considers relations
with our employees to be good.

9



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RISK FACTORS

This Annual Report on Form 10-K contains certain forward-looking
statements within the meaning of section 21E of the Securities and Exchange
Commission Act of 1934, as amended. Forward-looking statements are based on
managements current expectations and are therefore subject to certain risks
and uncertainties. Certain risks, including but not limited to those that
follow, could seriously harm our business, financial condition or results of
operations. As a result, these risks could cause the decline of the trading
price of our Common Stock. The reader should carefully consider the risks
described below before making an investment decision. The risks described
below, however, are not the only ones that we face. The reader should also
refer to the other information set forth in this Annual Report on Form 10-K,
including our financial statements and the related notes, and to information
presented elsewhere by management.

TO GENERATE SIGNIFICANT REVENUE, WE MUST RETAIN EXISTING AND OBTAIN ADDITIONAL
CUSTOMERS TO OUR GENEEXPRESS SYSTEM PRODUCTS AND SERVICES.

Our strategy depends on entering into additional agreements to provide
genomic information products and services to pharmaceutical, biotechnology and
other companies and institutions, including our existing customers. Each of
the agreements that we have with our customers is for a specific term, and some
of these agreements are terminable without penalty by our customers prior to
expiration. If any agreements are terminated or expire and are not renewed or
existing customers fail to buy additional products, or if we fail to enter into
agreements with new customers, our business could suffer. In 2003, a number of
our subscription agreements with our customers will come up for renewal.

OUR SALES CYCLE IS LENGTHY AND WE MAY SPEND CONSIDERABLE RESOURCES ON
UNSUCCESSFUL SALES EFFORTS OR MAY NOT BE ABLE TO COMPLETE DEALS ON THE SCHEDULE
WE ANTICIPATE.

Our ability to obtain new customers, retain existing customers through
subscription and/or license renewal, and sell additional products to existing
customers depends upon our current and potential customers belief that our
products can help accelerate their drug discovery and development efforts. Our
sales cycle is typically lengthy because we need to educate our existing and
potential customers and sell the benefits of our products to a variety of
groups within such companies. In addition, each agreement may involve the
negotiation of unique terms. We may expend substantial effort with no
assurance that an agreement will result. Actual and proposed consolidations of
pharmaceutical and biotechnology companies have affected, and may in the future
affect, the timing and progress of our sales efforts. Similarly,
pharmaceutical and biotechnology companies business conditions, budgetary
resources, budgetary timing cycles, and product sales delays are presently
affecting and may continue to affect the timing, progress and success of our
sales efforts.

OUR GENOMIC INFORMATION PRODUCTS AND SERVICES ARE NEW AND AS YET UNPROVEN.

Our genomic information products and services involve new and unproven
approaches. They are based on the assumption that information about gene
expression and gene sequences may help scientists better understand complex
disease processes and drug toxicity. There is limited understanding of the
roles of genes in human biology and pathology. Few therapeutic products based
on gene discoveries have been developed and commercialized. If our customers
fail to find genomic information useful, our current and potential customers
may lose confidence in our Company and our business may suffer as a result.

WE RELY ON MICROARRAYS SUPPLIED BY AFFYMETRIX TO BUILD OUR GENEEXPRESS LINE OF
GENOMIC INFORMATION PRODUCTS.

Our continuing ability to build and update our GeneExpress System products
and services will depend in part on the ability of Affymetrix to supply
adequate quantities of high quality microarrays. Affymetrix provides us with
microarrays under an agreement that expires on January 1, 2004, but which we
have the option to extend for one additional two-year term. This agreement
provides us with nonexclusive access to GeneChip microarrays and
instrumentation and software. If Affymetrix is unable or unwilling to supply
us with GeneChip microarrays and the related instrumentation and software, or
if such microarrays are not available, or if the microarrays are defective, we
may incur additional database and production costs and we may need to obtain
alternative microarray technologies. Alternative microarray technologies may
not be available to us, or may only be available to us on unfavorable terms.
Restricted or curtailed access to microarrays could cause our business to
suffer by delaying or increasing the cost of expansion of our GeneExpress
System products and services and by causing us to be delayed or unable to meet
our content update obligations under our existing GeneExpress System
agreements.

WE HAVE A HISTORY OF OPERATING LOSSES THAT ARE LIKELY TO CONTINUE FOR SOME
TIME.

We have incurred operating losses in each year since our inception. At
December 31, 2002, we had an accumulated deficit of $159.4 million. Our losses
to date have resulted principally from costs incurred in the development of our
genomic information products and

10



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services and selling, general and administrative costs associated with
operations. We expect to incur additional losses in the future and cannot
assure we will achieve profitability.

IF OUR ACCESS TO NECESSARY TISSUE SAMPLES, INFORMATION OR LICENSED TECHNOLOGIES
IS RESTRICTED, WE WILL NOT BE ABLE TO CONTINUE TO DEVELOP OUR BUSINESS.

To continue to build our genomic information products and services, we
need access to normal and diseased human and animal tissue samples, other
biological materials and related clinical and other information. We may not be
able to obtain, or maintain access to, these materials and information on
acceptable terms, if at all. In addition, government regulation in the United
States and foreign countries could result in restricted access to, or use of,
human and other tissue samples and related data. If we lose access to
sufficient numbers or sources of tissue samples, or if tighter restrictions are
imposed on our use of the information generated from tissue samples, our
business will suffer.

In addition, our access to and use of human or other tissue samples in the
expansion of our genomic information products and services may become subject
to government regulation, both in the United States and abroad. United States
and foreign government agencies may also impose restrictions on the use of data
derived from human or other tissue samples. If our access to or use of human
tissue samples or our customers use of data derived from such samples is
restricted, our business will suffer.

ANY INADEQUACY IN THE PROTECTION OF OUR INTELLECTUAL PROPERTY COULD HURT OUR
BUSINESS.

Our success will depend in part on our ability to obtain commercially
valuable patent claims and to protect our intellectual property and our ability
to preserve our freedom to operate when third parties obtain patents related to
our activities. Our patent position is uncertain and involves complex legal
and factual questions. Legal standards relating to the validity and scope of
claims in our technology field are still evolving. Therefore, the degree of
future protection for our proprietary rights is uncertain. In addition, other
organizations, including companies, academic and non-profit institutions and
governmental organizations are developing technology in this field. The risks
and uncertainties that we face with respect to our patents and other
proprietary rights include the following:



| |  |  | the pending patent applications we have filed, or to which we have
exclusive rights, may not result in issued patents or may take longer
than we expect to result in issued patents;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | the claims of any patents which are issued may not provide commercially meaningful protection;                                                                                      
|
| |  |  | we may not be able to develop additional proprietary technologies that are patentable;                                                                                              
|
| |  |  | the patents licensed or issued to us may not provide a basis for commercially viable products or provide a competitive advantage;                                                   
|
| |  |  | other companies may challenge patents licensed or issued to us;                                                                                                                     
|
| |  |  | patents issued to other organizations may restrict our ability to do
business and we may be unable to obtain or maintain licenses on
acceptable terms;                              
|
| |  |  | information may be made publicly available by other organizations
that would adversely affect the value of our products and services;                                               
|
| |  |  | other organizations may independently develop similar or alternative technologies or replicate our technologies; and                                                                
|
| |  |  | other organizations may design around technologies we have licensed and/or patented.                                                                                                

We also rely on confidentiality agreements and other trade secret
protective measures to protect our interests in proprietary know-how and
technology that are not patentable or for which patents are difficult to
enforce. We have taken security measures to protect our proprietary know-how
and confidential data and continue to explore further methods of protection.
While we require all employees, consultants and customers with access to our
trade secrets to enter into confidentiality agreements, we cannot be certain
that we will be able to meaningfully protect our trade secrets. Any material
leak of confidential data into the public domain, or to third parties, could
cause our business, financial condition and results of operations to suffer.
It may be necessary for us to initiate litigation to protect and enforce our
intellectual property rights. Such litigation may involve substantial costs,
diversion of managements time and attention from the operations of our
business and the risk of an adverse outcome.

WE MAY IN THE FUTURE BE SUBJECT TO LITIGATION AND PATENT INFRINGEMENT CLAIMS.

The technologies that we use to develop our products, and those that we
incorporate in our products, may be subject to claims that they infringe the
patents or proprietary rights of others. In particular, we are aware of a
number of patents and patent applications owned by others relating to
individual genes and to the analysis of gene expression or the manufacture and
use of microarrays. The risk of additional litigation may increase as the
genomics, biotechnology and software industries expand, more patents are issued
and other companies engage in other genomic-related businesses. Therefore, we
could be sued by third parties alleging patent infringement.

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Litigation thus may be necessary to:



| |  |  | defend against third party claims of infringement of intellectual property rights;   
| | - |  | -------------------------------------------------------------------------------------
|
| |  |  | assert claims of infringement and otherwise enforce our patents;                     
|
| |  |  | protect our trade secrets or know-how; or                                            
|
| |  |  | determine the enforceability, scope and validity of the proprietary rights of others.

We could incur substantial litigation costs to defend ourselves in patent
suits brought by other companies or to initiate such suits. Substantial
litigation costs and potential adverse outcomes could cause our business,
financial condition and results of operations to suffer. In addition,
litigation could cause disruption in our business activities and divert
managements time and attention from the operation of our business.

INTERNATIONAL PATENT PROTECTION IS UNCERTAIN.

Patent law outside the United States is uncertain and is currently
undergoing review and revision in various countries. Further, the laws of some
foreign countries may not protect our intellectual property rights to the same
extent as United States laws. We may participate in opposition proceedings to
determine the validity of our or our competitors foreign patents, which could
result in substantial costs and diversion of our efforts and may not be
successful in limiting the patent scope of competitors.

THE GENOMICS INDUSTRY IS COMPETITIVE AND EVOLVING RAPIDLY, AND WE MAY FALL
BEHIND OUR COMPETITORS.

Competition exists among entities attempting to identify genes associated
with specific diseases and to develop products and services based on these
discoveries. We face competition in these areas from pharmaceutical,
biotechnology and diagnostic companies, academic and non-profit institutions
and government or other publicly funded agencies, both in the United States and
abroad. We are aware that certain entities are using a variety of gene
expression analysis methodologies, including the use of microarrays, to attempt
to identify disease-related genes. In addition, certain pharmaceutical
companies are developing genomic research programs, either alone or in
partnership with our competitors. In order to compete against existing and
future technologies, we will need to demonstrate to potential customers that
our technologies and capabilities are superior to competing technologies.

Genomic technologies have undergone, and are expected to continue to
undergo, rapid and significant change. Our future success will depend in large
part on maintaining a competitive position in the genomics field and genomics
being shown to be an effective method for drug discovery and development.
Rapid technological development by others or us may result in products or
technologies becoming obsolete before we recover the expenses incurred in
connection with the development of such products or technologies. Products
offered by us could become less competitive compared to less expensive or more
effective drug discovery technologies, including technologies that may be
unrelated to genomics. We may not be able to make the enhancements to our
technology necessary to compete successfully with newly emerging technologies.

OUR REVENUE IS DERIVED PRIMARILY FROM, AND IS SUBJECT TO, RISKS FACED BY THE
PHARMACEUTICAL AND BIOTECHNOLOGY INDUSTRY.

We expect that our revenue in the foreseeable future will be derived
primarily from information products and services provided to our customers.
Accordingly, our success will depend directly upon customer demand for our
genomic information products and services. Our results of operations may
fluctuate substantially due to reductions and/or delays in research and
development expenditures by companies in these industries. These reductions
and/or delays may result from factors such as:



| |  |  | changes in economic conditions;                                                                                         
| | - |  | ------------------------------------------------------------------------------------------------------------------------
|
| |  |  | changes in the regulatory environment affecting our products and services or the products and services of our customers;
|
| |  |  | pricing pressures and reimbursement policies;                                                                           
|
| |  |  | market-driven pressures on companies to consolidate, reduce costs and improve performance;                              
|
| |  |  | other factors affecting customer research and development spending; and                                                 
|
| |  |  | additional regulation of the drug discovery and development process.                                                    

None of these factors is within our control.

ACQUISITION OF THERIMMUNE; ACQUISITIONS WILL CREATE RISKS AND UNCERTAINTIES.

In February 2003, we entered into a definitive agreement to acquire
TherImmune in a transaction currently expected to close early in the second
quarter of 2003, subject to the fulfillment of various conditions, including
that the shareholders of TherImmune approve the transaction, that we complete
our offering of stock to the TherImmune shareholders and that the price of our
stock remain above a certain minimum level. Accordingly, we can not assure
when the transaction will be consummated, if at all. In the future, we may

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acquire other assets, technologies and businesses. We cannot be sure,
however, that acquisition candidates will be available or will be available on
terms acceptable to us. Acquisitions that we may complete involve risks such
as the following:



| |  |  | we may be exposed to unknown liabilities of acquired companies;                                                                                                                                                                                                        
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | our acquisition and integration costs may be higher than we
anticipated and may cause our quarterly and annual results of operations
to fluctuate;                                                                                                                     
|
| |  |  | combining the operations and personnel of the acquired businesses
with our own may be difficult and costly, and integrating or completing
the development and application of acquired technologies may disrupt our
business and divert managements time and attention;
|
| |  |  | our relationships with key customers of acquired businesses may be
impaired due to changes in management and ownership of the acquired
businesses;                                                                                                                     
|
| |  |  | we may be unable to retain key employees of the acquired businesses
or hire enough qualified technical personnel to staff new or expanded
operations;                                                                                                                  
|
| |  |  | we may incur impairment and amortization expenses if an acquisition results in significant goodwill or other intangible assets; and                                                                                                                                    
|
| |  |  | our stockholders will be diluted if we pay for the acquisition with equity securities.                                                                                                                                                                                 

If the TherImmune acquisition is consummated, we will be required to
integrate into our Company their approximately 215 employees, organization,
customers and operations. Additionally, TherImmunes business involves the use
of animals for testing and controlled use of hazardous materials, which
generates biological and hazardous waste for disposal. As a result, we will be
subject to additional governmental regulation and risks of liability. Further,
we expect to record significant goodwill in connection with the acquisition,
which may be subject to future impairment. Any one of these factors,
individually or in the aggregate, could have a material adverse effect on our
results of operations and financial condition. Also, in connection with the
acquisition, we expect to issue shares of our Common Stock to the shareholders
of TherImmune with an aggregate value of approximately $21 million, subject to
adjustment based on the closing price of our stock during a period prior to
closing, which will dilute our stockholders.

The fact that a substantial number of shares of our Common Stock would be
issued in the TherImmune transaction could have a depressive effect on our
stock price. In addition, we have agreed under our agreement with TherImmune
to use our best efforts to register with the SEC shares of our Common Stock
received by its shareholders within 120 days after the closing of the
transaction and to use reasonable efforts to maintain such registration
statement effective for 30 days. TherImmune shareholders may be more likely to
sell their otherwise restricted shares received in the transaction during that
time period, and, if a substantial portion of such shares is then sold, the
market price of our Common Stock may be adversely affected.

WE DEPEND ON KEY EMPLOYEES IN A COMPETITIVE MARKET FOR SKILLED PERSONNEL.

We are highly dependent on the principal members of our management,
operations and scientific staff and have entered into employment agreements
with many of these persons. The loss of any these persons services could have
a material adverse effect on our business.

Our future success also will depend in part on the continued service of
our key scientific, software, bioinformatics and management personnel and our
ability to identify, hire and retain additional personnel. We compete for
qualified personnel and may not be able to continue to attract and retain
personnel necessary for the development of our business.

OUR ACTIVITIES INVOLVE HAZARDOUS MATERIALS AND MAY SUBJECT US TO ENVIRONMENTAL
LIABILITY.

Our research and development involves the controlled use of hazardous and
radioactive materials and biological waste. We are subject to federal, state
and local laws and regulations governing the use, manufacture, storage,
handling and disposal of these materials and certain waste products. Although
we believe that our safety procedures for handling and disposing of these
materials comply with prescribed standards, we cannot completely eliminate the
risk of accidental contamination or injury from these materials. In the event
of an accident, we could be held liable for damages or penalized with fines,
and such liability could exceed our resources.

We believe that we are in compliance in all material respects with
currently applicable environmental laws and regulations and do not expect to
make material additional capital expenditures for environmental control
facilities in the near term. However, we may have to incur significant costs
in the future to comply with environmental laws and regulations.

WE MAY BE EXPOSED TO PRODUCT LIABILITY AND RELATED RISKS.

We may be exposed to claims of liability from the use of products that
either our customers or we provide. For example, we may be subject to claims
of product liability if our GeneExpress System products contain inaccurate
information or if any of our customers develops, commercializes or uses a
product discovered through the use of our genomic information products which
results in injury or death to clinical trial participants or patients.
Although our products are only licensed for use in research and development and
are not

13



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designed to be the only methods used in testing and evaluating drugs in
development, even unsuccessful claims of liability could require substantial
expenses and time to resolve. While we currently maintain professional
liability insurance, our insurance coverage may not be adequate to protect us
against future claims. Furthermore, our customers may not indemnify us against
these types of claims or may not themselves be adequately insured or, in the
case of smaller companies, have a net worth sufficient to satisfy any product
liability claims.

OUR STOCK PRICE IS HIGHLY VOLATILE.

The market price of our Common Stock is likely to continue to be highly
volatile due to risks and uncertainties described in this Annual Report on Form
10-K, as well as other factors including: conditions and publicity regarding
the genomics or life sciences industries generally; sales of substantial
amounts of our stock by existing stockholders; price and volume fluctuations in
the stock market which do not relate to our operating performance; and comments
by securities analysts or our failure to meet analysts expectations.

Furthermore, the stock market has from time to time experienced extreme
price and volume fluctuations that may be unrelated to the operating
performance of particular companies. In addition, in the past, class action
lawsuits have been initiated against biotechnology and pharmaceutical companies
following periods of volatility in the market prices of these companies stock.
In general, decreases in our stock price would reduce the value of our
stockholders investments and could limit our ability to raise necessary
capital or make acquisitions of assets or businesses. If litigation were
instituted on this basis, it could result in substantial costs and would divert
managements attention and resources. This could have a material adverse
effect on our business, financial condition and results of operations.

WE HAVE IMPLEMENTED ANTI-TAKEOVER PROVISIONS THAT MAY REDUCE THE MARKET PRICE
OF OUR COMMON STOCK.

Provisions of our Certificate of Incorporation and By-laws and Delaware
law could make it more difficult for a third party to acquire us, even if the
acquisition would be beneficial to our stockholders. This could prevent the
consummation of a transaction in which our stockholders could receive a
substantial premium over the current market price for their shares.

Our Certificate of Incorporation gives our board of directors the
authority to issue up to 10,000,000 shares of preferred stock and to determine
the price, rights, preferences and privileges and restrictions, including
voting rights, of those shares without any further vote or action by our
stockholders. The rights of the holders of our Common Stock will be subject
to, and may be harmed by, the rights of the holders of any shares of preferred
stock that may be issued in the future. The issuance of preferred stock may
delay, defer or prevent a change in control, as the terms of the preferred
stock that might be issued could potentially prohibit our consummation of any
merger, reorganization, sale of substantially all of our assets, liquidation or
other extraordinary corporate transaction without the approval of the holders
of the outstanding shares of preferred stock. In addition, the issuance of
preferred stock could have a dilutive effect on our stockholders.

We also have a classified board of directors serving staggered three-year
terms. This could delay or limit the removal of incumbent directors or the
assumption of control by stockholders, even if such removal or assumption of
control would be beneficial to stockholders, and also could discourage or make
more difficult a merger, tender offer or proxy contest, even if such events
would be beneficial, in the short term, to the interests of stockholders.

ITEM 2. PROPERTIES

Our headquarters consist of approximately 50,000 square feet of office and
research laboratory space located in Gaithersburg, Maryland under a lease,
which expires in 2007. We also lease approximately 57,000 and 6,000 square
feet of additional research laboratory and office space in two other locations
in Gaithersburg, Maryland under lease arrangements with terms expiring in 2011
and 2007, respectively. We lease approximately 13,000 square feet of office
space in Berkeley, California under lease arrangements with terms expiring in
2004 and 2007.

ITEM 3. LEGAL PROCEEDINGS

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

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

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PART II

ITEM 5. MARKET FOR THE REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

PRICE RANGE OF COMMON STOCK

Our Common Stock has been traded on the Nasdaq National Market under the
symbol GLGC since November 21, 1997. The following table sets forth for the
periods indicated the high and low closing prices for our Common Stock, as
reported by the Nasdaq National Market.

|                             |  |      |        |     |  |   |        | 
|---------------------------- |  | ---- | ------ | --- |  | - | ------ | 
|                             |  | High |        | Low
|                             |  |      |        |    
|Year ended December 31, 2001 |  |      |        |     |  |   |        | 
|First Quarter                |  | $    | 25.125 |     |  | $ | 14.188 | 
|Second Quarter               |  |      | 26.050 |     |  |   | 14.984 | 
|Third Quarter                |  |      | 21.300 |     |  |   | 11.140 | 
|Fourth Quarter               |  |      | 20.800 |     |  |   | 12.400 | 
|Year ended December 31, 2002 |  |      |        |     |  |   |        | 
|First Quarter                |  |      | 19.700 |     |  |   | 14.300 | 
|Second Quarter               |  |      | 18.990 |     |  |   | 11.550 | 
|Third Quarter                |  |      | 12.850 |     |  |   | 7.390  | 
|Fourth Quarter               |  | $    | 8.410  |     |  | $ | 5.800  | 

On March 4, 2003, the last reported sale price of our Common Stock on the
Nasdaq National Market was $4.96. As of March 4, 2003, there were
approximately 255 holders of record of our Common Stock, including one company
acting as holder of record for all investors whose stock is held in street
name.

We have never declared or paid any cash dividends on our capital stock.
We currently intend to retain earnings, if any, to support the development of
our business and do not anticipate paying cash dividends for the foreseeable
future. Payment of future dividends, if any, will be at the discretion of our
board of directors after taking into account various factors, including our
financial condition, results of operations and current and anticipated cash
needs.

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ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA

The selected consolidated financial data set forth below with respect to
our consolidated statements of operations for the years ended December 31,
2002, 2001 and 2000 and with respect to the consolidated balance sheets as of
December 31, 2002 and 2001 have been derived from audited consolidated
financial statements included as part of this Annual Report on Form 10-K. The
statements of operations data for the years ended December 31, 1999 and 1998
and the balance sheet data as of December 31, 2000, 1999 and 1998 are derived
from audited financial statements not included in this Annual Report on Form
10-K. The following selected consolidated financial data should be read in
conjunction with the consolidated financial statements and notes thereto
included elsewhere in this Annual Report on Form 10-K.

|                                                                                                                                           |                                                                     |                                                 |         |                                       |        |      |         |       |        |      |         |       |        |   |         |       |        |   |         |       |        |  
|------------------------------------------------------------------------------------------------------------------------------------------ | ------------------------------------------------------------------- | ----------------------------------------------- | ------- | ------------------------------------- | ------ | ---- | ------- | ----- | ------ | ---- | ------- | ----- | ------ | - | ------- | ----- | ------ | - | ------- | ----- | ------ | -
|                                                                                                                                           |                                                                     |                                                 |         | Years Ended December 31,             
|                                                                                                                                           |                                                                     |                                                 |         |                                      
|                                                                                                                                           |                                                                     |                                                 |         | 2002                                  |        | 2001 |         | 2000  |        | 1999 |         | 1998 
|                                                                                                                                           |                                                                     |                                                 |         |                                       |        |      |         |       |        |      |         |      
|                                                                                                                                           |                                                                     |                                                 |         | (in thousands, except per share data)
|Consolidated Statements of Operations Data:                                                                                                |                                                                     |                                                 |         |                                       |        |      |         |       |        |      |         |       |        |   |         |       |        |   |         |      
|Revenue                                                                                                                                    |                                                                     | $                                               | 54,848  |                                       |        | $    | 43,328  |       |        | $    | 26,883  |       |        | $ | 19,202  |       |        | $ | 13,197  |      
|Expenses:                                                                                                                                  |                                                                     |                                                 |         |                                       |        |      |         |       |        |      |         |       |        |   |         |       |        |   |         |      
|                                                                                                                                           |                                                                     | Database production                             |         |                                       | 57,941 |      |         |       | 55,452 |      |         |       | 40,432 |   |         |       | 26,331 |   |         |       | 14,350 |  
|                                                                                                                                           |                                                                     | Selling, general and administrative             |         |                                       | 19,734 |      |         |       | 19,323 |      |         |       | 17,770 |   |         |       | 9,194  |   |         |       | 7,552  |  
|                                                                                                                                           |                                                                     | Research and development                        |         |                                       | 2,367  |      |         |       | 3,577  |      |         |       | 3,582  |   |         |       | 3,239  |   |         |       | 2,255  |  
|                                                                                                                                           |                                                                     | Acquired in-process research and development(1) |         |                                       |       |      |         |       |       |      |         |       |       |   |         |       |       |   |         |       | 35,196 |  
|                                                                                                                                           |                                                                     | Amortization of goodwill                        |         |                                       |       |      |         |       | 1,524  |      |         |       | 1,524  |   |         |       | 1,524  |   |         |       | 381    |  
|                                                                                                                                           |                                                                     |                                                 |         |                                       |        |      |         |       |        |      |         |       |        |   |         |       |        |   |         |      
|Total expenses                                                                                                                             |                                                                     |                                                 | 80,042  |                                       |        |      | 79,876  |       |        |      | 63,308  |       |        |   | 40,288  |       |        |   | 59,734  |      
|                                                                                                                                           |                                                                     |                                                 |         |                                       |        |      |         |       |        |      |         |       |        |   |         |       |        |   |         |      
|Loss from operations                                                                                                                       |                                                                     |                                                 | (25,194 | )                                     |        |      | (36,548 | )     |        |      | (36,425 | )     |        |   | (21,086 | )     |        |   | (46,537 | )    
|Interest (income), net                                                                                                                     |                                                                     |                                                 | (3,139  | )                                     |        |      | (8,645  | )     |        |      | (13,706 | )     |        |   | (685    | )     |        |   | (1,844  | )    
|Other (income) expense                                                                                                                     |                                                                     |                                                 | (250    | )                                     |        |      | (83     | )     |        |      | (234    | )     |        |   | (30     | )     |        |   | 80      |      
|Write-down of equity investments                                                                                                           |                                                                     |                                                 | 753     |                                       |        |      | 2,495   |       |        |      |        |       |        |   |        |       |        |   |        |      
|                                                                                                                                           |                                                                     |                                                 |         |                                       |        |      |         |       |        |      |         |       |        |   |         |       |        |   |         |      
|Net loss before income tax expense, equity in net loss of unconsolidated
investees and cumulative effect of change in accounting principle |                                                                     |                                                 | (22,558 | )                                     |        |      | (30,315 | )     |        |      | (22,485 | )     |        |   | (20,371 | )     |        |   | (44,773 | )    
|Income tax expense                                                                                                                         |                                                                     |                                                 | 1,492   |                                       |        |      | 533     |       |        |      | 210     |       |        |   | 220     |       |        |   | 100     |      
|                                                                                                                                           |                                                                     |                                                 |         |                                       |        |      |         |       |        |      |         |       |        |   |         |       |        |   |         |      
|Net loss before equity in net loss of unconsolidated investees and cumulative effect of
change in accounting principle                     |                                                                     |                                                 | (24,050 | )                                     |        |      | (30,848 | )     |        |      | (22,695 | )     |        |   | (20,591 | )     |        |   | (44,873 | )    
|Equity in net loss of unconsolidated investees                                                                                             |                                                                     |                                                 |        |                                       |        |      | 2,322   |       |        |      |        |       |        |   |        |       |        |   |        |      
|                                                                                                                                           |                                                                     |                                                 |         |                                       |        |      |         |       |        |      |         |       |        |   |         |       |        |   |         |      
|Net loss before cumulative effect of change in accounting principle                                                                        |                                                                     |                                                 | (24,050 | )                                     |        |      | (33,170 | )     |        |      | (22,695 | )     |        |   | (20,591 | )     |        |   | (44,873 | )    
|Cumulative effect of change in accounting principle                                                                                        |                                                                     |                                                 |        |                                       |        |      |        |       |        |      | (1,322  | )     |        |   |        |       |        |   |        |      
|                                                                                                                                           |                                                                     |                                                 |         |                                       |        |      |         |       |        |      |         |       |        |   |         |       |        |   |         |      
|Net loss                                                                                                                                   |                                                                     | $                                               | (24,050 | )                                     |        | $    | (33,170 | )     |        | $    | (24,017 | )     |        | $ | (20,591 | )     |        | $ | (44,873 | )    
|                                                                                                                                           |                                                                     |                                                 |         |                                       |        |      |         |       |        |      |         |       |        |   |         |       |        |   |         |      
|Amounts per share, basic and diluted:                                                                                                      |                                                                     |                                                 |         |                                       |        |      |         |       |        |      |         |       |        |   |         |       |        |   |         |      
|                                                                                                                                           | Net loss before cumulative effect of change in accounting
principle |                                                 | $       | (0.89                                 | )      |      | $       | (1.25 | )      |      | $       | (0.90 | )      |   | $       | (1.04 | )      |   | $       | (2.86 | )     
|                                                                                                                                           | Cumulative effect of change in accounting principle                 |                                                 |         |                                      |        |      |         |      |        |      |         | (0.05 | )      |   |         |      |        |   |         |      |       
|                                                                                                                                           |                                                                     |                                                 |         |                                       |        |      |         |       |        |      |         |       |        |   |         |       |        |   |         |      
|                                                                                                                                           |                                                                     | Net loss                                        |         | $                                     | (0.89  | )    |         | $     | (1.25  | )    |         | $     | (0.95  | ) |         | $     | (1.04  | ) |         | $     | (2.86  | )
|                                                                                                                                           |                                                                     |                                                 |         |                                       |        |      |         |       |        |      |         |       |        |   |         |       |        |   |         |      
|Shares used in computing basic and diluted net loss per
share                                                                              |                                                                     |                                                 | 26,948  |                                       |        |      | 26,540  |       |        |      | 25,209  |       |        |   | 19,833  |       |        |   | 15,681  |      
|                                                                                                                                           |                                                                     |                                                 |         |                                       |        |      |         |       |        |      |         |       |        |   |         |       |        |   |         |      

|                                                   |  |                |         |      |  |      |         |      |  |      |         |  |  |   |        |  |  |   |        | 
|-------------------------------------------------- |  | -------------- | ------- | ---- |  | ---- | ------- | ---- |  | ---- | ------- |  |  | - | ------ |  |  | - | ------ | 
|                                                   |  | December 31,  
|                                                   |  |               
|                                                   |  | 2002           |         | 2001 |  | 2000 |         | 1999 |  | 1998
|                                                   |  |                |         |      |  |      |         |      |  |     
|                                                   |  | (in thousands)
|Consolidated Balance Sheet Data:                   |  |                |         |      |  |      |         |      |  |      |         |  |  |   |        |  |  |   |        | 
|Cash, cash equivalents and marketable securities   |  | $              | 167,102 |      |  | $    | 197,818 |      |  | $    | 229,482 |  |  | $ | 12,446 |  |  | $ | 30,982 | 
|Working capital                                    |  |                | 163,681 |      |  |      | 187,184 |      |  |      | 211,300 |  |  |   | 5,423  |  |  |   | 26,573 | 
|Total assets                                       |  |                | 227,460 |      |  |      | 256,927 |      |  |      | 289,533 |  |  |   | 41,166 |  |  |   | 55,566 | 
|Total long-term debt and capital lease obligations |  |                | 750     |      |  |      | 338     |      |  |      | 2,966   |  |  |   | 4,590  |  |  |   | 5,305  | 
|Total stockholders equity                         |  |                | 204,438 |      |  |      | 226,027 |      |  |      | 253,715 |  |  |   | 23,068 |  |  |   | 41,288 | 



---



|(1) |  | In connection with our acquisition of Oncormed, we incurred a
non-recurring charge of $35.2 million related to the write-off of acquired
in-process research and development.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------

16



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##### 



ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION

OVERVIEW

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

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

The GeneExpress System products and services can be divided into three
solution groups:



| |  |  | BioExpress Solutions, which consist of the BioExpress System,
BioExpress Suites and BioExpress Services, including BioExpress Reports,
Sample Processing Services and Bioinformatics Services;                       
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | ToxExpress Solutions, which consist of the ToxExpress Predictive
System, ToxSuites and ToxExpress Services, including ToxScreen Reports,
ToxMOT Services and Custom ToxExpress Services; and                         
|
| |  |  | Other Products and Services Solutions, which consist of proprietary
bioinformatics resources (the Genesis Enterprise System), data
integration services and other custom software and database products and
services.

Typically, GeneExpress System products, other than Reports, the Genesis
Enterprise System and other software and product-related services, are accessed
under multi-year term subscription agreements with current pricing depending
upon a variety of factors, including the product accessed, the scope of access,
the level and type of information available, the number and type of users, the
application of the product to our customers development efforts, additional
services required and other factors. Pricing for BioExpress Reports depends on
the number of genes and/or tissue samples surveyed and other services provided.
Pricing for ToxScreen Reports depend upon the scope and the number of
compounds analyzed. Pricing for a license to the Genesis Enterprise System
depends upon which elements of the System and services are provided. Pricing
for BioExpress, ToxExpress and Software Services depends upon the level and
type of the services to be rendered. Pricing for customized information
products based on proprietary genomic services under collaboration agreements
are determined on a case-by-case basis and typically include annual access
fees, research support and milestone payments.

Subscription fees for GeneExpress database products are recognized ratably
over the term of the subscription. Fees from customized information products
and services are recognized when custom services are performed or costs are
incurred. Our business agreements may provide the right for early termination
without penalty to our customers.

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

We have incurred operating losses in each year since our inception. At
December 31, 2002, we had an accumulated deficit of $159.4 million. Our losses
have resulted principally from costs incurred in the development of our genomic
information products and services and selling, general and administrative costs
associated with our operations. These costs have exceeded our revenue, which
to date has been generated principally from subscriptions to our GeneExpress
products and services and agreements for our customized information products.
We expect to incur additional operating losses in the future.

17



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##### 



RECENT DEVELOPMENT

On February 25, 2003, we announced the proposed acquisition of TherImmune
for approximately $52 million, subject to adjustment. TherImmune is a
privately held, drug development CRO specializing in discovery, preclinical and
early stage clinical trial services. Under the terms of the agreement, we will
pay approximately $31 million in cash and issue TherImmune shareholders new
shares of our Common Stock, with a value of approximately $21 million, subject
to adjustment based on the closing price of our stock during a period prior to
closing. The acquisition is subject to completion of the securities offering,
approval of the TherImmune shareholders and certain other conditions, including
our Common Stock be above a certain minimum level. The acquisition is expected
to close early in the second quarter of 2003.

If completed, we expect the acquisition of TherImmune will have a
significant impact on our results of operations, liquidity and capital
resources which the following discussion does not take into account.

RESULTS OF OPERATIONS

YEARS ENDED DECEMBER 31, 2002 AND 2001

Revenue increased $11.5 million or 27% to $54.8 million in 2002 from $43.3
million in 2001. The increase in revenue resulted primarily from subscription
fees related to new and existing pharmaceutical and biotechnology GeneExpress
customers. No one customer contributed 10% or more of our revenue for the year
2002; however, revenue from Procter & Gamble and UCB Research each accounted
for 10% or more of revenue for 2001. As of December 31, 2002, we had concluded
all of our obligations under the terms of the GeneExpress subscription
agreement and custom discovery partnership with LG Life Sciences and our
GeneExpress subscription agreement with Genaissance Pharmaceuticals, Inc. Due
to the size of these subscription agreements, we do not expect that the
expiration of these agreements will have a material effect on our business,
financial condition or results of operations. Due to current economic
uncertainty, we continue to experience delays in purchasing decisions among a
number of our existing and potential customers. We expect these delays will
slow our rate of revenue growth for the foreseeable future.

Database production expenses include costs to populate and maintain our
existing core database products, the GeneExpress System and other genomic
information products. Database production expenses increased to $57.9 million
in 2002 from $55.5 million in 2001. These expenses for 2002 increased based on
higher employee and depreciation and amortization costs, offset by lower
expenses relating to microarray usage and agreements with third parties.
Database production expenses are expected to decrease in 2003 as compared to
2002, due to lower microarray usage and agreements with third parties,
partially offset by higher employee costs.

Selling, general and administrative expenses include the costs of
corporate operations, sales and marketing, finance and accounting, legal, human
resources and other general operations. Selling, general and administrative
expenses increased to $19.7 million in 2002 from $19.3 million in 2001, which
was due to normal fluctuations in the costs of operations. When compared to
2002, selling, general and administrative expenses for 2003 are not expected to
increase significantly.

Research and development expenses include the costs associated with our
efforts to improve the processes currently used in the production of our
database products as well as research on additional technology platforms.
Research and development expenses decreased to $2.4 million in 2002 from $3.6
million in 2001, which was primarily due to lower employee costs and laboratory
supplies. When compared to 2002, research and development expenses for 2003
are expected to increase slightly.

In accordance with the Financial Accounting Standards Board Statement of
Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets
(SFAS 142), which we adopted January 1, 2002, we no longer amortize goodwill,
but instead apply annual impairment tests in accordance with the Statement. We
completed the initial impairment analysis upon adoption of SFAS 142 and our
subsequent annual impairment analysis, which resulted in no impairment to
goodwill. Amortization of goodwill was $1.5 million in 2001, as a result of
the acquisition of Oncormed in September 1998.

Net interest income decreased to $3.1 million in 2002 from $8.6 million in
2001, primarily due to a decrease in the rates of return for our investments
in, and to a lesser degree a decline in our balance of, cash, cash equivalents
and marketable securities available-for-sale.

We recorded a write-down of $0.8 million, representing our entire
investment in Metabometrix, Ltd. in 2002 and a write-down of $2.5 million in
our investment in Neuralstem, Inc. (Neuralstem) in 2001 to reflect declines
in their estimated market values.

Income tax expense increased to $1.5 million in 2002 from $0.5 million in
2001, due to tax withholdings on certain payments by our Japanese customers.
We expect income tax expense to increase in 2003 as we recognize a full year of
activity from such customers.

18



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##### 



During 2002, we did not record any additional losses to our investment in
Neuralstem and as of December 31, 2002, the value of our investment was $4.3
million. Because Neuralstem is a privately held company, we cannot predict at
this time whether its value will decline requiring a further write-down of this
investment in the future.

We account for our investment in MetriGenix, Inc. (MetriGenix) using the
equity method. As our investment in MetriGenix was reduced to zero at December
31, 2001 and we have no guarantees or commitment to provide future funding, we
did not record any additional losses to our investment in 2002 and do not
expect to record additional losses in the future. During the year ended
December 31, 2001, we recorded 100% of MetriGenixs losses up to the book value
of our contribution ($0.9 million). We also entered into certain agreements
with MetriGenix including a subscription to GeneExpress and to provide certain
administrative services and subleased space. No revenue has been recorded
related to the subscription through December 31, 2002. For the years ended
December 31, 2002 and 2001, we received fees of $0.8 million and $0.3 million,
respectively, for the reimbursement of costs associated with providing
administrative services and subleased space. These fees will continue as long
as we provide such services and subleased space.

YEARS ENDED DECEMBER 31, 2001 AND 2000

Revenue increased $16.4 million or 61% to $43.3 million in 2001 from $26.9
million in 2000. The increase in revenue resulted primarily from additional
subscribers to our GeneExpress product line, expanded subscription levels for
existing GeneExpress customers and the completion of custom database and other
service deliverables in 2001. Revenue from each of Procter & Gamble and UCB
Research accounted for 10% or more of revenue for 2001 and revenue from each of
Japan Tobacco and Procter & Gamble accounted for 10% or more of revenue for
2000. As of December 31, 2001, we had concluded all of our obligations under
the terms of the agreements with Japan Tobacco and Procter & Gamble.

Database production expenses include costs to populate and maintain our
existing core database product, the GeneExpress System, and other genomic
information products. Database production expenses increased to $55.5 million
in 2001 from $40.4 million in 2000. Of the increase, $4.2 million, $4.2
million, $3.5 million and $2.1 million was due to increased microarray usage,
depreciation and amortization costs, research and consulting agreement costs
and tissue acquisition costs, respectively. Of the increase in depreciation
and amortization costs, $3.4 million was due to amortization expense related to
licenses of technology and software development and database upgrade costs.

Selling, general and administrative expenses include the costs of
corporate operations, sales and marketing, finance and accounting, legal, human
resources and other general operations. Selling, general and administrative
expenses increased to $19.3 million in 2001 from $17.8 million in 2000. Of the
increase in selling, general and administrative expenses, $1.9 million was due
to a full year of activity in 2001 relating to our sales and marketing efforts,
which were established in 2000.

Research and development expenses include the costs associated with our
efforts to improve the processes currently used in the production of our
database products as well as research on additional technology platforms.
Research and development expenses were $3.6 million in 2001 and 2000.

Amortization of goodwill was $1.5 million in 2001 and 2000, as a result of
the acquisition of Oncormed in September 1998.

Net interest income decreased to $8.6 million in 2001 from $13.7 million
in 2000, primarily due to decreases in the rates of return for our investments
in cash, cash equivalents and marketable securities available-for-sale.

During 2001, we accounted for our investment in Neuralstem, a privately
held company in which we initially had a voting stock interest of 26.7%, using
the equity method of accounting. We recognized non-cash losses of $1.5 million
for the year ended December 31, 2001. Effective April 30, 2001, we reduced our
voting stock interest to 14.8% and began accounting for our investment using
the cost method of accounting. Our financial statements do not reflect any
additional share of Neuralstems losses or elimination of intercompany sales
and expenses after such date. During the fourth quarter of 2001, we recorded a
$2.5 million write-down of our investment in Neuralstem to its estimated market
value.

During 2001, we completed a spin-off of our patented Flow-thru Chip
technology to a newly created subsidiary, MetriGenix. We contributed relevant
intellectual property and know-how associated with the Flow-thru Chip
technology and transferred certain employees to the new venture in exchange for
voting common stock. Concurrent with the spin-off, MetriGenix sold voting
preferred stock to certain investors for $15 million, which reduced our voting
ownership interest as of the closing to 54%. The shareholders entered into an
agreement which contains certain restrictions on transfer of MetriGenix stock
and provisions regarding certain matters of corporate governance, including
provisions that provide the investors with veto rights with respect to certain
significant aspects of MetriGenixs operations and with majority representation
on the Board of Directors. As a result, because we do not control MetriGenix,
we account for our investment using the equity method. During the year ended
December 31, 2001, we recorded 100% of MetriGenixs losses up to the value of
our contribution ($0.9 million). We also entered into certain agreements with
MetriGenix including a subscription to GeneExpress and to provide certain
administrative services and subleased space. No revenue was recorded

19



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##### 



related to the subscription in 2001. For the year ended December 31,
2001, we received fees of $0.3 million for the reimbursement of costs
associated with providing administrative services and subleased space. These
fees will continue as long as we provide such services and subleased space.

During 2000, we recorded a cumulative effect of an accounting change of
$1.3 million related to the adoption of Staff Accounting Bulletin No. 101 (SAB
101).

LIQUIDITY AND CAPITAL RESOURCES

From inception through December 31, 2002, we have financed our operations
through the sale of equity securities and payments from customers. In February
2000, we completed a follow-on public offering of 4,680,000 shares of our
Common Stock, generating net proceeds of approximately $247.5 million. As of
December 31, 2002, we had approximately $167.1 million in cash, cash
equivalents and marketable securities available-for-sale, compared to $197.8
million as of December 31, 2001.

Net cash used in operating activities was $20.1 million for the year ended
December 31, 2002 and $17.2 million during the same period in 2001 due to the
continued funding of our operating losses.

During the years ended December 31, 2002 and 2001, our investing
activities, other than purchases and sales and maturities of available-for-sale
securities, consisted primarily of capital expenditures and software
development and database upgrade costs. Capital expenditures for the years
ended December 31, 2002 and 2001 amounted to $1.9 million and $8.3 million,
respectively. For the year ended December 31, 2001, approximately 50% of these
expenditures related to the purchases of laboratory and computer equipment
needed to expand the content of our GeneExpress product line, whereas
approximately 35% related to tenant improvements for the build-out of our
production facility, which was completed in March 2001. We expect laboratory
and computer equipment purchases to continue at a rate similar to that in 2002,
as we expand the content of, and the products derived from, the GeneExpress
System.

We have capitalized software development costs of $7.1 million and $6.2
million for the years ended December 31, 2002 and 2001, respectively. These
costs relate to ongoing efforts to enhance the software platform of our
GeneExpress System. During the year ended December 31, 2002, we capitalized
$3.9 million of costs related to the upgrade of the content in the BioExpress
System, as a result of Affymetrixs release of their GeneChip Human Genome
U-133 Set. Software development and database upgrade costs are being amortized
over their expected useful lives of three and two years, respectively.
Additional software development costs are expected to continue as a result of
ongoing efforts to further enhance the software platform of our GeneExpress
System.

Our financing activities, other than the repayment of capital lease
obligations and equipment loans, primarily consisted of the exercise of stock
options. During the year ended December 31, 2001, we prepaid an equipment loan
in full totaling approximately $1.9 million due to the cost of such capital and
the prevailing interest rate in the market.

In January 1999, we entered into a three-year agreement with Affymetrix,
pursuant to which Affymetrix supplied its microarrays to us for the development
of gene expression databases. During 2001, we renegotiated and extended this
agreement for two years, subject to renewal, commencing January 2002. Under
the terms of the new agreement, we continue to pay Affymetrix subscription fees
for access to the microarrays, purchase the microarrays and related
instrumentation and software and expect to record royalty expense, payable to
Affymetrix, in future years upon meeting certain GeneExpress subscription
revenue thresholds. Our commitments under other research and license
agreements do not represent significant expenditures in relation to our total
research and development expense.

As discussed in Notes 6 and 9 to our Consolidated Financial Statements,
future minimum long-term debt payments and operating lease payments are listed
below:

|                 |  |       |        |        |  |        |       |         |  |         |       |        |  |   |       |  |  |   |       | 
|---------------- |  | ----- | ------ | ------ |  | ------ | ----- | ------- |  | ------- | ----- | ------ |  | - | ----- |  |  | - | ----- | 
|                 |  |       |        |        |  | Within |       | Years 2 |  | Years 4 |       | Beyond
|                 |  | Total |        | Year 1 |  | And 3  |       | And 5   |  | Year 5 
|                 |  |       |        |        |  |        |       |         |  |        
|Long-term debt   |  | $     | 750    |        |  | $      | 40    |         |  | $       | 86    |        |  | $ | 546   |  |  | $ | 78    | 
|Operating leases |  |       | 17,110 |        |  |        | 2,951 |         |  |         | 5,560 |        |  |   | 5,459 |  |  |   | 3,140 | 
|                 |  |       |        |        |  |        |       |         |  |         |       |        |  |   |       |  |  |   |       | 
|Total            |  | $     | 17,860 |        |  | $      | 2,991 |         |  | $       | 5,646 |        |  | $ | 6,005 |  |  | $ | 3,218 | 
|                 |  |       |        |        |  |        |       |         |  |         |       |        |  |   |       |  |  |   |       | 

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 BusinessRisk Factors.

20



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##### 



CHANGE IN ACCOUNTING PRINCIPLE

Effective January 1, 2002, we changed our method of accounting for
goodwill in accordance with SFAS 142. Prior to 2002, we recognized
amortization expense on goodwill in the amount of $1.5 million per year. Under
the new accounting method, we no longer amortize goodwill, but are subject to
annual impairment tests in accordance with this Standard. This accounting
change resulted in a decrease in amortization expense and net loss of $1.5
million for 2002 and future years. Based on the impairment tests performed in
2002, no impairment resulted in the value of goodwill in our financial
statements.

CRITICAL ACCOUNTING POLICIES

We have prepared our financial statements in conformity with accounting
principles generally accepted in the United States and these statements
necessarily include some amounts that are based on informed judgments and
estimates of management. Our significant accounting policies are discussed in
Note 1 of the Notes to Consolidated Financial Statements. As discussed below,
our financial position or results of operations may be materially affected when
reported under different conditions or when using different assumptions in the
application of such policies. In the event estimates or assumptions prove to
be different from actual amounts, adjustments are made in subsequent periods to
reflect more current information. We believe the following critical accounting
policies affect our more significant judgments and estimates used in the
preparation of our consolidated financial statements.

REVENUE RECOGNITION

Our revenue recognition policy is significant because revenue is a key
component of our results of operations. Revenue is generated primarily from
subscriptions to our GeneExpress products and services and is recognized
ratably over the term of each agreement in accordance with SAB 101, as amended
by SAB 101A and 101B. SAB 101 requires four basic criteria be met before
revenue can be recognized: (1) persuasive evidence of an arrangement exists;
(2) delivery has occurred or services rendered; (3) the fee is fixed and
determinable; and (4) collectability is reasonably assured. Determination of
criteria (3) and (4) are based on managements judgments regarding the fixed
nature of the subscription fees taking into account early termination
provisions and the collectability of those fees (see Accounts Receivable).
Revenue recognized for multiple element contracts is allocated to each element
of the arrangement based on the relative fair value of the element. The
determination of fair value of each element is based on managements analysis
of objective evidence from comparable historical sales of the individual
element to our customers. If such evidence of fair value for any element of
the arrangement does not exist, revenue from such element is deferred until
such time that evidence of fair value does exist or is recognized ratably over
the longest performance period of the remaining elements. Should changes in
conditions cause management to determine these criteria are not met for certain
future transactions, revenue recognized for any reporting period could be
adversely affected.

ACCOUNTS RECEIVABLE

Our ability to collect outstanding receivables from our customers is
important to our operating performance and cash flows. Typically, our customer
agreements require advance quarterly payments mitigating such risk, but other
agreements may contain deferred payments. At December 31, 2002, we did not
record an allowance for doubtful accounts as our customers payment history and
our understanding of their ability to make payments did not warrant such
allowance. If the financial condition of our customers were to deteriorate,
resulting in an impairment of their ability to make payments, an allowance for
doubtful accounts may be required.

INVENTORY

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

INVESTMENTS IN EQUITY SECURITIES

We hold equity investments in four companies, none of which are publicly
traded, whose businesses may be complementary to our business. We record an
investment impairment charge when it is believed that an investment has
experienced a decline in value that is other than temporary. Future adverse
changes in market conditions or poor results of operations of the underlying
investee could result in losses or an inability to recover the carrying value
of these investments that may not be reflected in an investments current
carrying value, thereby possibly requiring an impairment charge in the future.

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GOODWILL AND INTANGIBLE ASSETS IMPAIRMENT

We have goodwill and other intangible assets including licenses to
technologies or data, patent costs and software and database development costs.
The determination of their estimated useful lives and whether or not any of
these assets are impaired involves significant judgments including the
following:



| |  |  | our licensed and internally developed intellectual property may not provide valid and economical competitive advantage;
| | - |  | -----------------------------------------------------------------------------------------------------------------------
|
| |  |  | our products may become obsolete before we recover the costs incurred in connection with their development;            
|
| |  |  | our use of such assets; and                                                                                            
|
| |  |  | our market value relative to net book value.                                                                           

Goodwill and other intangible assets are reviewed for impairment on an
ongoing basis under the established accounting guidelines. Changes in business
conditions could potentially cause adjustments to asset valuations, thereby
possibly requiring an impairment charge in the future.

NEW PRONOUNCEMENTS

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

In August 2001, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets (SFAS 144). SFAS 144 addresses the financial
accounting and reporting for the impairment or disposal of long-lived assets.
SFAS 144 supersedes SFAS 121 but retains the fundamental provisions of SFAS 121
for (i) recognition/measurement of impairment of long-lived assets to be held
and used, and (ii) measurement of long-lived assets to be disposed of by sale.
SFAS 144 also supersedes the accounting and reporting provisions of Accounting
Principles Boards No. 30, Reporting the Results of OperationsReporting the
Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions (APB 30), for segments of a
business to be disposed of, but retains APB 30s requirement to report
discontinued operations separately from continuing operations and extends that
reporting to a component of an entity that either has been disposed of or is
classified as held for sale. Our adoption of the provisions of SFAS 144
effective January 1, 2002, had no material impact on our financial statements.

In June 2002, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 146, Accounting for Costs Associated with
Exit or Disposal Activities (SFAS 146), which addresses accounting for
restructuring and similar costs. SFAS No. 146 supersedes previous accounting
guidance, principally Emerging Issues Task Force (EITF) Issue No. 94-3. SFAS
No. 146 requires that the liability for costs associated with an exit or
disposal activity be recognized when the liability is incurred. Under EITF No.
94-3, a liability for exit costs was recognized at the date of a companys
commitment to an exit plan. SFAS No. 146 also establishes that the liability
should initially be measured and recorded at fair value. Accordingly, SFAS No.
146 will affect the timing of recognizing exit and restructuring costs, as well
as the amount recognized. We will adopt this guidance prospectively for exit
or disposal activities after January 1, 2003, and do not expect that adoption
will have a material effect on reported results of operations.

In November 2002, the Financial Accounting Standards Board issued
Interpretation No. 45, Guarantors Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees and Indebtedness of Others. The
Interpretation elaborates on the disclosures to be made by a guarantor in its
interim and annual financial statements about its obligations under certain
guarantees that it has issued. The Interpretation also clarifies that a
guarantor is required to recognize, at the inception of a guarantee, a
liability for the fair value of the obligation undertaken in issuing the
guarantee. The initial recognition and initial measurement provisions of the
Interpretation are applicable on a prospective basis to guarantees issued or
modified after December 31, 2002. The disclosure requirements in this
Interpretation are effective for financial statements of interim or annual
periods ending after December 15, 2002. We have made no guarantees subject to
the liability recognition provisions of the Interpretation. We adopted the
disclosure requirements of the standard for our December 31, 2002 reporting
period.

The EITF Issue No. 00-21, Accounting for Revenue Arrangement with
Multiple Deliverables (Issue No. 00-21), addresses circumstances involving
the delivery or performance of multiple products, services, and/or rights to
use assets, and for which performance may occur at different points in time or
over different periods of time. The issue also addresses whether the different
revenue-generating activities, or deliverables, are sufficiently separable, and
there exists sufficient evidence of their fair values to separately account for
some or all of the deliverables. The issue applies to all contractual
arrangements under which a vendor will perform multiple revenue-generating
activities. Issue No. 00-21 is effective for all revenue arrangements entered
into in fiscal periods beginning after June 15, 2003, with early adoption
permitted. We will adopt this guidance prospectively for all revenue
arrangements entered into after January 1, 2003. We do not believe that the
impact of adoption will be material to our results of operations.

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

We have limited exposure to financial market risks, including changes in
interest rates. At December 31, 2002, we had cash and cash equivalents of
approximately $107.0 million and marketable securities available-for-sale of
$60.1 million. We invest our excess cash primarily in money market funds,
obligations of the United States government and its agencies and marketable
debt securities of companies with strong credit ratings. These instruments
have maturities of twenty-four months or less when purchased. We do not utilize
derivative financial instruments, derivative commodity instruments or other
market risk sensitive instruments, positions or transactions in any material
fashion. Accordingly, we believe that, while the instruments we hold are
subject to changes in the financial standing of the issuer of such securities,
we are not subject to any material risks arising from changes in foreign
currency exchange rates, commodity prices, equity prices or other market
changes that affect market risk sensitive instruments. Based on our cash and
cash equivalents and marketable securities available-for-sale balances at
December 31, 2002, a 100 basis point adverse movement in interest rates would
have resulted in an increase in the net loss for the year ended December 31,
2002 by approximately $1.7 million. Actual changes in rates may differ from
the hypothetical assumptions used in computing this exposure.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Our Consolidated Financial Statements and notes thereto, together with the
Report of Independent Auditors thereon, appear on pages F-1 through F-18 of
this Annual Report on Form 10-K and are incorporated herein by reference.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

IDENTIFICATION OF DIRECTORS

The following table sets forth the names of the members of the Board of
Directors. Also set forth is certain other information with respect to each
such persons age, the periods during which he has served as a director and
positions currently held with Gene Logic.

|                                   |  |     |    |       |  |          |      |                                 |  |            |      |  |  |                                                 |  | 
|---------------------------------- |  | --- | -- | ----- |  | -------- | ---- | ------------------------------- |  | ---------- | ---- |  |  | ----------------------------------------------- |  | 
|                                   |  |     |    |       |  |          |      |                                 |  | Expiration |      |  |  |                                                
|                                   |  |     |    |       |  | Director |      | Of                              |  |            |      | 
|Director                           |  | Age |    | Since |  | Term     |      | Positions Held With The Company
|                                   |  |     |    |       |  |          |      |                                
|Charles L. Dimmler III (1)(2)      |  |     | 61 |       |  |          | 1996 |                                 |  |            | 2003 |  |  | Director                                       
|G. Anthony Gorry, Ph.D. (1)(2)(3)  |  |     | 62 |       |  |          | 1997 |                                 |  |            | 2003 |  |  | Director                                       
|Jules Blake, Ph.D. (1)(2)          |  |     | 78 |       |  |          | 1994 |                                 |  |            | 2004 |  |  | Director                                       
|Michael J. Brennan, M.D., Ph.D.    |  |     | 45 |       |  |          | 1995 |                                 |  |            | 2004 |  |  | Director                                       
|Mark D. Gessler                    |  |     | 41 |       |  |          | 2000 |                                 |  |            | 2005 |  |  | Chairman, Chief Executive Officer and President
|J. Stark Thompson, Ph.D. (1)(2)(3) |  |     | 61 |       |  |          | 2002 |                                 |  |            | 2005 |  |  | Director                                       



---

|(1) |  | Member of Audit Committee.       
|--- |  | ---------------------------------
|   
|(2) |  | Member of Compensation Committee.
|   
|(3) |  | Member of Nominating Committee.  

Set forth below is biographical information for each member of the Board
of Directors.

Charles L. Dimmler IIIhas served as a director since May 1996. In 2001,
he became Chief Investment Officer of H. Lundbeck A/S, a pharmaceutical company
listed on the Copenhagen stock exchange. In 2001, Mr. Dimmler was President
and Chief Executive Officer and thereafter became Chairman of the Board of
Directors of Lundbeck, Inc., a pharmaceutical company and subsidiary of H.
Lundbeck A/S. From January 2000 to September 2001, Mr. Dimmler served as a
Managing Director of Burrill & Company, a private merchant banking firm
specializing in the life science industries. From prior to March 1998 until
December 1999, Mr. Dimmler was an investment officer of Cross Atlantic Partners
Funds and an operating officer of Cross Atlantic Partners, Inc., a manager of
private equity funds. From prior to March 1998 until December 1998, Mr.
Dimmler was a General Partner of Hambro International Equity Partners, a
private equity fund.

G.     Anthony Gorry, Ph.D.has served as a director since January 1997.
Since July 2000, Dr. Gorry has been the Friedkin Professor

23



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of Management and Professor of Computer Science at Rice University where
he also serves as the Director of the Center for Technology in Teaching and
Learning. From prior to March 1998 through July 2000, he was Vice President,
Information Technology at Rice. Dr. Gorry directs a training grant on
computational biology funded by the National Library of Medicine. He is also
Adjunct Professor of Neuroscience at Baylor College of Medicine. Dr. Gorry
holds a B.Eng. from Yale University, an M.S. in chemical engineering from the
University of California, Berkeley and a Ph.D. in computer science from the
Massachusetts Institute of Technology. He is a Member of the Institute of
Medicine of the National Academy of Sciences and a Fellow of the American
College of Medical Informatics.

Jules Blake, Ph.D.has served as a director since our inception in
September 1994. From 1973 until his retirement in 1989, Dr. Blake served as
Vice President of Research and Development and Vice President, Corporate
Scientific Affairs, for Colgate-Palmolive, Inc. Dr. Blake serves on the board
of directors of the public company Martek Biosciences Corporation. Dr. Blake
holds a Ph.D. in organic chemistry from the University of Pennsylvania.

Michael J. Brennan, M.D., Ph.D.has served as a director since December
1995 and was our Chairman of the Board of Directors from March 2000 through
April 2001. He served as our Chief Executive Officer from December 1995
through June 2000 and as our President from December 1995 through January 1999.
Since September 2000, Dr. Brennan has been a General Partner of Oxford
Biosciences Partners, a venture capital firm specializing in the financing of
early stage healthcare companies. Dr. Brennan received a Ph.D. in neurobiology
and an M.D. from the University of Witwatersrand, Johannesburg, South Africa.

Mark D. Gesslerhas served as Chairman of the Board of Directors since
April 2001, as Chief Executive Officer since June 2000 and as President since
January 1999. Mr. Gessler has also served as a director since March 2000.
From January 1999 through June 2000, Mr. Gessler served as our Chief Operating
Officer. From prior to March 1998 to October 1999, Mr. Gessler served as our
Chief Financial Officer. From prior to March 1998 to January 1999, Mr. Gessler
served as our Senior Vice President, Corporate Development. Mr. Gessler holds
an MBA from the University of Tennessee.

J.     Stark Thompson, Ph.D.has served as a director since February 2002.
From 1988 until his retirement in 2000, Dr. Thompson served as the President,
Chief Executive Officer and as a director of Life Technologies, Inc., a
developer, manufacturer and supplier of products and services for life science
research. Dr. Thompson has a Ph.D. in Physiological Chemistry from Ohio State
University.

IDENTIFICATION OF EXECUTIVE OFFICERS

The names and ages of all executive officers as of December 31, 2002 and
their respective positions and offices with us are set forth below.

|                          |  |     |    |          |  |                                                     
|------------------------- |  | --- | -- | -------- |  | ----------------------------------------------------
|Name                      |  | Age |    | Position
|                          |  |     |    |         
|Mark D. Gessler           |  |     | 41 |          |  | Chairman, Chief Executive Officer and President     
|Philip L. Rohrer, Jr.     |  |     | 46 |          |  | Chief Financial Officer                             
|Y. Douglas Dolginow, M.D. |  |     | 48 |          |  | Senior Vice President, Pharmacogenomics             
|Victor M. Markowitz, D.Sc |  |     | 49 |          |  | Senior Vice President and Chief Information Officer 
|F. Dudley Staples, Jr.    |  |     | 55 |          |  | Senior Vice President, Secretary and General Counsel

Mark D. Gesslerhas served as Chairman of the Board of Directors since
April 2001, as Chief Executive Officer since June 2000 and as President since
January 1999. Mr. Gessler has also served as a director since March 2000.
From January 1999 through June 2000, Mr. Gessler served as our Chief Operating
Officer. From prior to March 1998 to October 1999, Mr. Gessler served as our
Chief Financial Officer. From prior to March 1998 to January 1999, Mr. Gessler
served as our Senior Vice President, Corporate Development. Mr. Gessler holds
an MBA from the University of Tennessee.

Philip L. Rohrer, Jr.has served as Chief Financial Officer since October
1999. From prior to March 1998 to August 1999, Mr. Rohrer served as Chief
Financial Officer of BioWhittaker Inc., a biotechnology supply company. Prior
thereto, he held other operations positions with that company. Mr. Rohrer
holds an A.B. in biology from Hood College and an M.S.M. from Frostburg State
University.

Y. Douglas Dolginow, M.D.has served as Senior Vice President,
Pharmacogenomics since September 1998. Prior to September 1998, Dr. Dolginow
served as President, Chief Operating Officer and as a director of Oncormed,
Inc., a gene therapy biotechnology company, which was acquired by Gene Logic in
September 1998. Prior thereto, Dr. Dolginow served as medical director for
several clinical laboratories, and since prior to March 1998, he has been an
active member of the Clinical Faculty at the University of California, San
Francisco. Dr. Dolginow received a M.D. from the University of Kansas.

Victor M. Markowitz, D.Sc.has served as Senior Vice President and Chief
Information Officer since March 2000. He was Senior Vice President, Data
Management Systems from September 1998 to March 2000 and Vice President, Data
Management Systems from

24



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prior to March 1998 to September 1998. Prior thereto, Dr. Markowitz was a
staff scientist at Lawrence Berkeley National Laboratory and project leader in
the laboratorys Data Management Research and Development Group. Dr. Markowitz
received his M.Sc. and D.Sc. degrees in computer science from Technion, the
Israel Institute of Technology.

F. Dudley Staples, Jr.has served as Senior Vice President, Secretary and
General Counsel since May 2002. From September 1999 to June 2001, Mr. Staples
served as General Counsel of Online Office Supplies Company, an online seller
of office supplies and subsidiary of eCommerce Industries, Inc., and then as
Associate General Counsel of eCommerce Industries, Inc. From prior to March
1998 until August 1999, Mr. Staples served as General Counsel and Corporate
Secretary of BioWhittaker Inc., a biotechnology supply company. Mr. Staples
holds a J.D. degree from the University of Virginia School of Law and a B.A.
from Williams College.

COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934

Section 16(a) of the Exchange Act of 1934, as amended, requires our
directors and Named Executive Officers (as such term is defined below under
Item 11  Executive Compensation  Summary of Compensation), and persons who
own more than ten percent of a registered class of our equity securities, to
file with the SEC initial reports of ownership and reports of changes in
ownership of Common Stock and other equity securities of Gene Logic Inc.
Officers, directors and greater than ten percent stockholders are required by
SEC regulation to furnish us with copies of all Section 16(a) forms they file.

To our knowledge, in 2002, based solely on a review of the copies of such
reports furnished to us and written representations that no other reports were
required, all reports required by Section 16(a) with respect to our officers,
directors and beneficial owners of greater than ten percent of our stock were
filed timely except that one report each covering one transaction each, was not
filed timely by Drs. Dolginow and Thompson with respect to 2002 and by Dr.
Brennan and Mr. Gessler with respect to 2001; and one report on Form 4 each
covering an aggregate of thirteen cancellations of options in connection with
our tender offer for outstanding stock options, was not filed by Drs. Brennan,
Dolginow and Markowitz and Messrs. Gessler and Rohrer, Jr., although the
transactions subsequently were reported on Form 5.

ITEM 11. EXECUTIVE COMPENSATION

COMPENSATION OF DIRECTORS

Each non-employee director currently receives $20,000 per year. Starting
in 2003, each non-employee director also receives a fee of $500 per Board
meeting, whether in person or by telephone, and per Committee meetings not held
in conjunction with a full Board meeting, whether in person or by telephone,
and each committee chairman receives an additional $1,000 per year for serving
as a chairman. The members of the Board of Directors are also eligible for
reimbursement for their expenses incurred in connection with attendance at
Board meetings in accordance with our policy.

Each non-employee director also receives automatic stock option grants
under the 1997 Non-Employee Directors Stock Option Plan (the Directors
Plan). Only non-employee directors or an affiliate of such directors (as
defined in Internal Revenue Code of 1986, as amended (the Code)) are eligible
to receive options under the Directors Plan. Options granted under the
Directors Plan are not intended by us to qualify as incentive stock options
under the Code. During 2002, in accordance with the Directors Plan, we
granted options covering 15,000 shares to three non-employee directors and
30,000 shares to one of our non-employee directors, at an exercise price per
share of $12.89 and $16.31, respectively, under the Directors Plan. One-time
option grants have been made to certain non-employee directors under the 1997
Equity Incentive Plan (the Incentive Plan) in certain previous years. The
options were all granted with an exercise price equal to the fair market value
of our Common Stock on the date of grant.

25



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COMPENSATION OF EXECUTIVE OFFICERS

SUMMARY OF COMPENSATION

The following table shows for the years ended December 31, 2002, 2001 and
2000, compensation paid to our Chief Executive Officer and our four most highly
compensated executive officers and one additional executive officer who, but
for the fact that he was no longer employed at such date would have been
included in the table, at December 31, 2002 (the Named Executive Officers).

|                            |                                                     |      |                     |            |              |           |            |         |  |                |         |         |  |  |              |     |            |  |              |         | 
|--------------------------- | --------------------------------------------------- | ---- | ------------------- | ---------- | ------------ | --------- | ---------- | ------- |  | -------------- | ------- | ------- |  |  | ------------ | --- | ---------- |  | ------------ | ------- | 
|                            |                                                     |      |                     |            |              |           |            |         |  |                |         |         |  |  |              |     |            |  | Long-Term   
|                            |                                                     |      |                     |            |              |           |            |         |  |                |         |         |  |  |              |     |            |  | Compensation
|                            |                                                     |      |                     |            |              |           |            |         |  |                |         |         |  |  |              |     |            |  | Awards      
|                            |                                                     |      | Annual Compensation |            |              |           |            |         | 
|                            |                                                     |      |                     |            | Other Annual |           | Securities
|                            |                                                     |      |                     |            |              |           |            |         |  |                |         |         |  |  | Compensation |     | Underlying
|Name And Principal Position |                                                     | Year |                     | Salary ($) |              | Bonus ($) |            | ($)(1)  |  | Options (#)(8)
|                            |                                                     |      |                     |            |              |           |            |         |  |               
|Mark D. Gessler             |                                                     |      | 2002                |            |              |           | 400,000    |         |  |                | 208,872 |         |  |  |             |     |            |  |             |        
|                            | Chief Executive Officer and President (2)           |      |                     | 2001       |              |           |            | 400,000 |  |                |         | 249,986 |  |  |              |    |            |  |              | 100,000 | 
|                            |                                                     |      | 2000                |            |              |           | 375,000    |         |  |                | 512,500 | (3)     |  |  |             |     |            |  | 220,000      |        
|Philip L. Rohrer, Jr.       |                                                     |      | 2002                |            |              |           | 260,000    |         |  |                | 194,942 | (4)     |  |  |             |     |            |  |             |        
|                            | Chief Financial Officer                             |      |                     | 2001       |              |           |            | 238,271 |  |                |         | 93,064  |  |  |              |    |            |  |              | 70,000  | 
|                            |                                                     |      | 2000                |            |              |           | 200,000    |         |  |                | 86,000  |         |  |  |             |     |            |  | 50,000       |        
|Y. Douglas Dolginow, M.D.   |                                                     |      | 2002                |            |              |           | 273,989    |         |  |                | 85,737  |         |  |  |              |     |            |  |             |        
|                            | Senior Vice President, Pharmacogenomics             |      |                     | 2001       |              |           |            | 273,989 |  |                |         | 67,517  |  |  |              |     |            |  |              | 60,000  | 
|                            |                                                     |      | 2000                |            |              |           | 262,200    |         |  |                | 66,666  |         |  |  |             |     |            |  | 50,000       |        
|Victor M. Markowitz, D.Sc   |                                                     |      | 2002                |            |              |           | 292,320    |         |  |                | 91,817  |         |  |  |             |     |            |  |             |        
|                            | Senior Vice President and Chief Information Officer |      |                     | 2001       |              |           |            | 292,320 |  |                |         | 129,255 |  |  |              |    |            |  |              | 60,000  | 
|                            |                                                     |      | 2000                |            |              |           | 275,000    |         |  |                | 125,000 |         |  |  |             |     |            |  | 50,000       |        
|David S. Murray             |                                                     |      | 2002                |            |              |           | 254,968    |         |  |                | 152,288 |         |  |  |             |     |            |  |             |        
|                            | Senior Vice President, Marketing and Sales (5)      |      |                     | 2001       |              |           |            | 275,832 |  |                |         | 233,171 |  |  |              |    |            |  |              | 52,000  | 
|                            |                                                     |      | 2000                |            |              |           | 253,159    |         |  |                | 265,000 |         |  |  | 84,795       | (6) |            |  | 160,000      |        
|F. Dudley Staples           |                                                     |      | 2002                |            |              |           | 121,160    |         |  |                | 18,059  |         |  |  |             |     |            |  | 65,000       |        
|                            | Senior Vice President, General Counsel(7)           |      |                     | 2001       |              |           |            |        |  |                |         |        |  |  |              |    |            |  |              |        | 
|                            |                                                     |      | 2000                |            |              |           |           |         |  |                |        |         |  |  |             |     |            |  |             |        



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|(1) |  | As permitted by rules promulgated by the SEC, no amounts are shown for
any perquisites, where such amounts do not exceed the lesser of 10% of
salary plus bonus or $50,000.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Mr. Gessler served as Chief Operating Officer until June 2000 and as
Chief Executive Officer since June 2000.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   
|(3) |  | Includes a bonus in special recognition of the successful completion of
our follow-on public offering in 2000 in the amount of $237,500.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   
|(4) |  | Includes a bonus for outstanding performance in 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   
|(5) |  | Mr. Murray is no longer employed by Gene Logic, effective in December
2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   
|(6) |  | Includes reimbursement for relocation expenses.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   
|(7) |  | Mr. Staples joined Gene Logic in May 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   
|(8) |  | In 2002, we initiated a tender offer for outstanding stock options held
by our employees. Under the terms of the tender offer, eligible employees
could tender options that were granted with an exercise price equal to or
greater than $11.00 per share, subject to additional requirements for any
options granted after May 4, 2002. Once tendered and accepted, the old
options were cancelled and each employee who tendered options is now
entitled, subject to meeting certain conditions, to receive new options
for 80% of the number of shares available under the cancelled options at
the fair market value on the date of the grant. One of the conditions to
receiving the new options is that the individual must still be employed by
Gene Logic on the grant date, which is expected to be between June 12,
2003 and July 11, 2003. The following Named Executive Officers tendered
options for the following numbers of shares: Mr. Gessler  320,000 shares;
Mr. Rohrer, Jr.  120,000 shares; Dr. Dolginow  110,000 shares; and Dr.
Markowitz  110,000 shares. Assuming they meet the conditions of the
tender offer, such Named Executive Officers would be entitled to receive
new options for the following number of shares: Mr. Gessler  256,000
shares; Mr. Rohrer, Jr.  96,000 shares; Dr.

26



---



##### 





| |  | Dolginow  88,000 shares; and Dr. Markowitz  88,000 shares. Neither the old
options, which were canceled as of December 11, 2002, nor the new options
that may be issued in 2003, are included in the chart above.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

STOCK OPTION GRANTS AND EXERCISES

The following tables show for the year ended December 31, 2002, certain
information regarding options granted to, exercised by, and held at year-end
by, the Named Executive Officers:

OPTION GRANTS IN 2002

|                          |  |                      |        |              |  |                    |      |            |  |        |      |                         |  |  |         |                         |  |                      |        |  |  |  |         | 
|------------------------- |  | -------------------- | ------ | ------------ |  | ------------------ | ---- | ---------- |  | ------ | ---- | ----------------------- |  |  | ------- | ----------------------- |  | -------------------- | ------ |  |  |  | ------- | 
|                          |  |                      |        |              |  |                    |      |            |  |        |      |                         |  |  |         |                         |  | Potential Realizable
|                          |  | Individual Grants    |        |              |  |                    |      |            |  |        |      | Value at Assumed Annual
|                          |  |                      |        |              |  |                    |      |            |  |        |      | Rates of Stock Price   
|                          |  |                      |        |              |  | % Of Total Options |      |            |  |        |      |                         |  |  |         | Appreciation for Option
|                          |  | Number of Securities |        | Granted to   |  | Exercise or        |      |            |  |        |      | Term (3)(4)            
|                          |  | Underlying Options   |        | Employees in |  | Base Price         |      | Expiration |  |       
|Name                      |  | Granted (#)          |        | 2002(1)      |  | ($/Sh)(2)          |      | Date       |  | 5% ($) |      | 10% ($)                
|                          |  |                      |        |              |  |                    |      |            |  |        |      |                        
|Mark D. Gessler           |  |                      |       |              |  |                    |     |            |  |        |     |                         |  |  |        |                         |  |                      |       |  |  |  |        | 
|Philip L. Rohrer, Jr.     |  |                      |       |              |  |                    |     |            |  |        |     |                         |  |  |        |                         |  |                      |       |  |  |  |        | 
|Y. Douglas Dolginow, M.D. |  |                      |       |              |  |                    |     |            |  |        |     |                         |  |  |        |                         |  |                      |       |  |  |  |        | 
|Victor M. Markowitz, D.Sc |  |                      |       |              |  |                    |     |            |  |        |     |                         |  |  |        |                         |  |                      |       |  |  |  |        | 
|David S. Murray           |  |                      |       |              |  |                    |     |            |  |        |     |                         |  |  |        |                         |  |                      |       |  |  |  |        | 
|F. Dudley Staples         |  |                      | 65,000 |              |  |                    | 15.4 |            |  |        | 8.81 |                         |  |  | 7/31/12 |                         |  |                      | 93,324 |  |  |  | 487,802 | 



---



|(1) |  | Based on options to purchase 421,600 shares of Common Stock granted to
employees in 2002, including the Named Executive Officers.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | The exercise price is equal to the fair market value of our Common Stock
on the date of grant. All of the above options are subject to the terms
of our Incentive Plan and are exercisable only as they vest.                                                                                                                                                                                                                                                                                                                                                                                                                       
|   
|(3) |  | The potential realizable value is calculated based on the term of the
option at its time of grant (10 years) and the fair market value per share
of our Common Stock as of December 31, 2002 of $6.29. It is calculated
assuming that the stock price on the date of grant appreciates at the
indicated annual rate, compounded annually. The total appreciation of the
options over their 10-year terms at 5% and 10% is 63% and 159%,
respectively, and do not reflect our estimate or projection of the future
stock price performance. Actual gains, if any, are dependent on the
actual future performance of our Common Stock.
|   
|(4) |  | In 2002, we initiated a tender offer for outstanding stock options held
by our employees. (See Summary of Compensation.)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

AGGREGATED OPTION EXERCISES IN 2002 AND 2002 YEAR-END OPTION VALUES

|                          |  |                    |        |                 |  |                            |         |                            |  |                        |                  |                      |  |  |                  | 
|------------------------- |  | ------------------ | ------ | --------------- |  | -------------------------- | ------- | -------------------------- |  | ---------------------- | ---------------- | -------------------- |  |  | ---------------- | 
|                          |  |                    |        |                 |  |                            |         |                            |  | Number of Securities   |                  | Value of Unexercised
|                          |  |                    |        |                 |  |                            |         |                            |  | Underlying Unexercised |                  | In-The-Money Options
|                          |  |                    |        |                 |  |                            |         |                            |  | Options at 2002        |                  | at 2002             
|                          |  | Shares Acquired on |        | Value           |  | Year-End (#)(2)            |         | Year-End ($)(3)           
|Name                      |  | Exercise (#)       |        | Realized ($)(1) |  | Exercisable/ Unexercisable |         | Exercisable/ Unexercisable
|                          |  |                    |        |                 |  |                            |         |                           
|Mark D. Gessler           |  |                    |       |                 |  |                            |        |                            |  |                        | 183,499 / 6,250  |                      |  |  | 372,024 / 9,625  | 
|Philip L. Rohrer, Jr.     |  |                    |       |                 |  |                            |        |                            |  |                        | 101,062 / 23,438 |                      |  |  | 86,105 / 19,969  | 
|Y. Douglas Dolginow, M.D. |  |                    | 12,000 |                 |  |                            | 144,600 |                            |  |                        | 92,667 / 6,250   |                      |  |  | 216,624 / 15,875 | 
|Victor M. Markowitz, D.Sc |  |                    |       |                 |  |                            |        |                            |  |                        | 185,552 / 2,084  |                      |  |  | 451,885 / 3,209  | 
|David S. Murray           |  |                    |       |                 |  |                            |        |                            |  |                        | 172,415 / --     |                      |  |  | -- / --          | 
|F. Dudley Staples         |  |                    |       |                 |  |                            |        |                            |  |                        | 6,770 / 58,230   |                      |  |  | -- / --          | 



---



|(1) |  | Based on the fair market value per share of our Common Stock at the date
of exercise (based on the closing sales price reported on the Nasdaq
National Market for the date of exercise), less the exercise price.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

27



---



##### 





|(2) |  | In connection with our tender offer for outstanding stock options in
2002, the following Named Executive Officers tendered options for the
following numbers of shares: Mr. Gessler  320,000 shares; Mr. Rohrer, Jr.
 120,000 shares; Dr. Dolginow  110,000 shares; and Dr. Markowitz 
110,000 shares. Assuming they meet the conditions of the tender offer,
such Named Executive Officers would be entitled to receive new options for
the following number of shares: Mr. Gessler  256,000 shares; Mr. Rohrer,
Jr.  96,000 shares; Dr. Dolginow  88,000 shares; and Dr. Markowitz 
88,000 shares. Neither the old options, which were canceled as of
December 11, 2002, nor the new options that may be issued in 2003 are
included in the chart above.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(3) |  | Based on the fair market value per share of our Common Stock of $6.29 at
December 31, 2002, less the exercise price, multiplied by the number of
shares underlying the option.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

EMPLOYMENT AGREEMENTS AND TERMINATIONS OF EMPLOYMENT ARRANGEMENTS

Messrs. Gessler, Rohrer and Staples and Drs.
 Dolginow and Markowitz each
has an employment agreement with us, subject to automatic renewal after the
initial term for successive one-year periods unless terminated. The agreements
provide for payment of salary and annual bonuses. In the event of termination
of an agreement by Gene Logic without cause (other than in connection with a
change of control), Messrs. Gessler and Rohrer and Dr. Markowitz would each
receive severance pay in an amount equal to 50% (25% in the case of Dr.
Markowitz) of his respective annual salary as then in effect. Dr. Dolginow
would receive severance pay in the amount of half of his salary and bonus then
in effect or an amount in accordance with a Company-wide severance plan then
applicable to Senior Vice Presidents, whichever is greater and any balance
remaining on a specified additional incentive bonus.

In connection with Mr. Murrays termination, we entered into an agreement
to pay severance in the amount of $298,828 payable over thirteen months, a
portion of his bonus for 2002 in the amount of $57,538 and certain outplacement
services and healthcare coverage.

In furtherance of the stated goals of attracting and retaining executive
officers and other key employees who contribute to our long-term success, we
have an Executive Severance Plan (the Retention Plan). The purpose of the
Retention Plan is to encourage eligible executives to continue as our employees
in the event of a change of control. The Retention Plan also provides for
severance benefits to those employees if their employment with Gene Logic is
terminated, under certain circumstances, shortly before or after the change of
control.

The Retention Plan provides the following benefits for our senior
executive officers, which includes our Chairman of the Board, Chief Executive
Officer, President, Chief Financial Officer and Senior Vice Presidents, and
certain employees selected by the Compensation Committee who hold the title of
vice president, director or senior director, upon a change in control:



| | (a) |  | immediate vesting of any unvested stock options;                                                                                                             
| | --- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (b) |  | in the event of involuntary termination without cause or constructive
termination within 13 months following or three months preceding the
change of control,



| | (i)   |  | payment of 12 months salary and the maximum bonus for which
such employee is eligible,                                                      
| | ----- |  | --------------------------------------------------------------------------------------------------------------------------------------------
|
| | (ii)  |  | payment of outplacement services, and                                                                                                       
|
| | (iii) |  | continued payment of group health care costs for up to 12
months for the employee and dependents enrolled in the health plan at
termination;



| | (c) |  | in the event of death or disability within 13 months following the
change of control,
| | --- |  | -------------------------------------------------------------------------------------



| | (i)  |  | payment of six months salary and the maximum bonus for which
such employee is eligible, and                                                  
| | ---- |  | ---------------------------------------------------------------------------------------------------------------------------------------------
|
| | (ii) |  | continued payment of group health care costs for up to six
months for the employee and dependents enrolled in the health plan at
termination.

28



---



##### 



EQUITY COMPENSATION PLAN INFORMATION

The table below sets forth certain information with respect to our Common
Stock which is authorized for issuance under our equity compensation plans as
of December 31, 2002.

|                                                      |  |                   |           |                   |  |                     |       |                     |  |                     |           | 
|----------------------------------------------------- |  | ----------------- | --------- | ----------------- |  | ------------------- | ----- | ------------------- |  | ------------------- | --------- | 
|                                                      |  | (a)               |           | (b)               |  | (c)                
|                                                      |  |                   |           |                   |  | Number of          
|                                                      |  |                   |           |                   |  |                     |       |                     |  | securities         
|                                                      |  |                   |           |                   |  |                     |       |                     |  | remaining available
|                                                      |  | Number of         |           |                   |  |                     |       | for future issuance
|                                                      |  | securities to be  |           |                   |  |                     |       | under equity       
|                                                      |  | issued upon       |           | Weighted-average  |  | compensation plans 
|                                                      |  | exercise of       |           | exercise price of |  | (excluding         
|                                                      |  | outstanding       |           | outstanding       |  | securities         
|                                                      |  | options, warrants |           | options, warrants |  | reflected in column
|Plan Category                                         |  | and rights        |           | and rights        |  | (a))               
|                                                      |  |                   |           |                   |  |                    
|Stock option plans
approved by
stockholders(1)        |  |                   | 2,639,836 |                   |  | $                   | 11.83 |                     |  |                     | 4,227,274 | 
|Employee Stock
Purchase Plan
approved by
stockholders |  |                   |          |                   |  |                     |      |                     |  |                     | 250,079   | 



---



|(1) |  | In 2002, we initiated a tender offer for outstanding stock options held
by our employees. (See Summary of Compensation.)
|--- |  | ------------------------------------------------------------------------------------------------------------------------

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The Compensation Committee consists of G. Anthony Gorry, Ph.D. (chairman),
Jules Blake, Ph.D., J. Stark Thompson, Ph.D. and Charles L. Dimmler III. No
member of the Compensation Committee was at any time during the year ended
December 31, 2002 an officer or employee of Gene Logic.

29



---



##### 



ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth certain information regarding the ownership
of our Common Stock as of March 4, 2003 by: (i) each director; (ii) each of the
Named Executive Officers; (iii) all of our Named Executive Officers and
directors as a group; and (iv) all those known by Gene Logic to be beneficial
owners of more than five percent of our Common Stock.

|                                                                       |  |                             |           |                  |  |  |      | 
|---------------------------------------------------------------------- |  | --------------------------- | --------- | ---------------- |  |  | ---- | 
|                                                                       |  | Beneficial Ownership (1)(2)
|                                                                       |  |                            
|Name and Address                                                       |  | Number Of Shares            |           | Percent Of Total
|                                                                       |  |                             |           |                 
|Brown Capital Management, Inc. (3)                                     |  |                             | 3,434,290 |                  |  |  | 12.7 | 
|Waddell & Reed Investment Management Company (4)                       |  |                             | 3,288,575 |                  |  |  | 12.1 | 
|Royce & Associates, LLC (5)                                            |  |                             | 3,265,000 |                  |  |  | 12.0 | 
|Kern Capital Management, LLC (6)                                       |  |                             | 1,815,300 |                  |  |  | 6.7  | 
|Wellington Management Company, LLP (7)                                 |  |                             | 1,751,417 |                  |  |  | 6.5  | 
|Michael J. Brennan, M.D., Ph.D. (8,9)                                  |  |                             | 595,343   |                  |  |  | 2.2  | 
|Mark D. Gessler (8,9)                                                  |  |                             | 378,870   |                  |  |  | 1.4  | 
|Victor M. Markowitz, D.Sc. (9)                                         |  |                             | 187,636   |                  |  |  | *    | 
|Y. Douglas Dolginow, M.D. (9)                                          |  |                             | 136,762   |                  |  |  | *    | 
|Philip L. Rohrer, Jr. (9)                                              |  |                             | 120,929   |                  |  |  | *    | 
|G. Anthony Gorry, Ph.D. (9)                                            |  |                             | 107,000   |                  |  |  | *    | 
|Charles L. Dimmler, III (9)                                            |  |                             | 79,901    |                  |  |  | *    | 
|Jules Blake, Ph.D. (9)                                                 |  |                             | 74,500    |                  |  |  | *    | 
|F. Dudley Staples, Jr. (9)                                             |  |                             | 12,787    |                  |  |  | *    | 
|David S. Murray                                                        |  |                             | 4,076     |                  |  |  | *    | 
|J. Stark Thompson, Ph.D.                                               |  |                             | 200       |                  |  |  | *    | 
|All directors and Named Executive Officers
as a group (11 persons) (9) |  |                             | 1,870,419 |                  |  |  | 6.0  | 



---

* Represents beneficial ownership of less than 1%.



|(1) |  | This table is based upon information supplied by officers, directors and
principal stockholders and Schedules 13D and 13G filed with the SEC.
Beneficial ownership is determined in accordance with the rules of the SEC
and generally includes voting or investment power with respect to
securities. Except as indicated by footnote, and subject to community
property laws where applicable, the persons named in the table above have
sole voting and investment power with respect to all shares of Common
Stock shown as beneficially owned by them. Percentage of beneficial
ownership is based on 27,128,997 shares of Common Stock outstanding as of
March 4, 2003.                                                                                                     
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | In 2002, we initiated a tender offer for outstanding stock options held
by our employees. The following Named Executive Officers tendered options
for the following numbers of shares: Mr. Gessler  320,000 shares; Mr.
Rohrer, Jr.  120,000 shares; Dr. Dolginow  110,000 shares; and Dr.
Markowitz  110,000 shares. Assuming they meet the conditions of the
tender offer, such Named Executive Officers would be entitled to receive
new options for the following number of shares: Mr. Gessler  256,000
shares; Mr. Rohrer, Jr.  96,000 shares; Dr. Dolginow  88,000 shares; and
Dr. Markowitz  88,000 shares. Neither the old options, which were
canceled as of December 11, 2002, nor the new options that may be issued
in 2003, are included in the chart above.
|   
|(3) |  | Based on a Schedule 13G/A filed with the SEC on February 11, 2003, Brown
Capital Management, Inc. has sole voting power with respect to 2,283,790
shares and sole dispositive power with respect to 3,434,290 shares. Its
address is 1201 N. Calvert Street, Baltimore, Maryland 21202.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

30



---



##### 





|(4) |  | Based on a Schedule 13G/A filed with the SEC on February 14, 2003, the
shares may be deemed to be beneficially owned by one or more investment
companies or other managed accounts that are advised or sub-advised by
Waddell & Reed Investment Management Company, an investment advisory
subsidiary of Waddell & Reed, Inc. Waddell & Reed, Inc. is a subsidiary
of Waddell & Reed Financial Services, Inc., which is a subsidiary of
Waddell & Reed Financial, Inc. Waddell & Reed Investment Management
Company has sole voting and dispositive power with respect to all of the
shares. The address of each of the Waddell affiliates is 6300 Lamar
Avenue, Overland Park, Kansas 66202.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(5) |  | Based on a Schedule 13G filed with the SEC on February 5, 2003, Royce &
Associates, LLC has sole voting power and sole dispositive power with
respect all of the shares. Its address is 1414 Avenue of the Americas,
New York, New York 10019.                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   
|(6) |  | Based on a Schedule 13G/A filed with the SEC on February 14, 2003, Kern
Capital Management, LLC has sole voting power with respect to 1,770,900
shares and sole dispositive power with respect to 1,815,300 shares.
Robert E. Kern and David G. Kern are controlling members of Kern Capital
Management, LLC and as such may be deemed to be the beneficial owner of
all of the shares, with shared voting power with respect to 1,770,900
shares and shared dispositive power with respect to 1,815,300 shares. The
address of each of Kern Capital Management, LLC, Robert E. Kern and David
G. Kern is 114 West 47th Street, Suite 1926, New York, New York 10036.                        
|   
|(7) |  | Based on a Schedule 13G/A filed with the SEC on February 12, 2003,
Wellington Management Company, LLP has shared voting power with respect to
1,225,000 shares and shared dispositive power with respect to 1,751,417
shares. Its address is 75 State Street, Boston, Massachusetts 02109.                                                                                                                                                                                                                                                                                                                                                                                                   
|   
|(8) |  | Includes 75,000 shares held of record by the Brennan Family Limited
Partnership and 10,000 shares held of record by Gessler Family Limited
Partnership.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   
|(9) |  | Includes shares subject to options which, for the individuals shown, are
exercisable within 60 days of March 4, 2003 as follows: Dr. Brennan 
260,692 shares; Mr. Gessler  189,749 shares; Dr. Markowitz  187,636
shares; Dr. Dolginow  98,917 shares; Mr. Rohrer, Jr.  111,479 shares;
Dr. Gorry  105,000 shares; Mr. Dimmler  50,000 shares; Dr. Blake 
72,500 shares; Mr. Staples  12,187 shares; and all directors and Named
Executive Officers as a group  1,088,160 shares.                                                                                                                                                                                                  

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

During April 1999, we issued a promissory note in the amount of $150,000
to Dr. Dolginow to offset tax liabilities for unrealized capital gains
resulting from stock option exercises. The secured promissory note bears
interest at 5.25%. Dr. Dolginows note is required to be repaid in four equal
annual installments together with accrued interest. As of March 4, 2003, the
outstanding balance on this loan, including unpaid interest, was $39,229 and
will be paid in full during April 2003.

During July 2000, we entered into a consulting agreement, which was
terminated effective May 31, 2002, with Dr. Gorry pursuant to which he provided
consulting services with respect to development of our products and was paid
$100,000 for such services.

In July 2001, we completed the transfer of our Flow-thru Chip technology
into a subsidiary, MetriGenix, and MetriGenix completed a $15 million equity
financing involving the sale of 46% of its voting stock, represented by Series
A Preferred Stock, to a group of investors. The investors include a Burrill
investment limited partnership (which purchased 27% of the preferred stock), in
which Mr. Dimmler, a director, was an affiliate of the general partner of the
Burrill investment limited partnership, and several Oxford investment limited
partnerships (which purchased 47% of the preferred stock). Dr. Brennan, a
director, is one of several general partners in the general partner of each of
the Oxford investment limited partnerships. We and the investors entered into
a stockholders agreement, which contains certain restrictions on transfer of
MetriGenix stock, provisions regarding certain matters of corporate governance,
including provisions that provide the investors with veto rights with respect
to significant aspects of MetriGenixs operations and with majority
representation on the Board of Directors, approval rights with respect to
related party transactions and informational requirements. We sublease space
to MetriGenix and provide various administrative services for monthly fees,
which are intended to reimburse us for costs incurred by us in providing such
subleased space and administrative services. We also entered into a
GeneExpress subscription with MetriGenix, for which we recorded no revenue for
the years ended December 31, 2002 and 2001. That agreement was amended to
continue access to the BioExpress System, which would otherwise have expired as
of the end of 2002.

In connection with the formation of MetriGenix, Messrs. Gessler, Murray
and Rohrer and Drs. Brennan and Dolginow purchased, respectively, 125,000,
50,000, 100,000, 100,000 and 20,000 restricted shares of common stock of
MetriGenix at a purchase price of $0.30 per share. The shares vest over three
years, subject to earlier vesting in the case of certain events such as a
change of control or an initial public offering of stock. We loaned Dr.
Dolginow and Messrs. Murray and Rohrer $6,000, $15,000 and $30,000,
respectively, to fund the purchases, in exchange for promissory notes due
August 2008 or earlier under certain circumstances, bearing interest at 5.64%,
with full recourse against the borrowers and secured by a pledge of the stock.
MetriGenix may repurchase unvested shares in certain circumstances and the
shares are subject to certain restrictions on transfer. When Mr. Murray
terminated employment with

31



---



##### 



Gene Logic in December 2002, he paid off his loan and accrued interest,
received 25,781 shares of common stock of MetriGenix and forfeited any right to
the remaining 24,219 shares previously issued to him.

In 2002, we derived 5.5% of our total revenue from agreements with
customers in which various limited partnerships affiliated with Oxford
Biosciences Partners are investors. Dr. Brennan has a general partnership
interest in the general partner of each of the Oxford investment limited
partnerships. These agreements are on terms no more favorable than those
available to other third-party customers.

We have entered into indemnity agreements with certain officers and all
directors which provide, among other things, that we will indemnify such
officer or director, under the circumstances and to the extent provided for
therein, for expenses (including attorney fees), witness fees, damages,
judgments, fines and settlements he may be required to pay in actions or
proceedings to which he is or may be made a party by reason of his position as
a director, officer or other agent of ours, and otherwise to the full extent
permitted under Delaware law and our Amended and Restated Bylaws.

ITEM 14. CONTROLS AND PROCEDURES

As of December 31, 2002, an evaluation was performed under the supervision
and with the participation of our management, including the Chief Executive
Officer and Chief Financial Officer, of the effectiveness of the design and
operation of our disclosure controls and procedures. Based on that evaluation,
our management, including the Chief Executive Officer and Chief Financial
Officer, concluded that our disclosure controls and procedures were effective
as of December 31, 2002.

There have been no significant changes in our internal controls or in
other factors that could significantly affect internal controls subsequent to
December 31, 2002.

PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENTS AND SCHEDULES AND REPORTS ON FORM 8-K

(a)1. Financial Statements

|                                                                                            |  |      |     | 
|------------------------------------------------------------------------------------------- |  | ---- | --- | 
|                                                                                            |  | Page
|                                                                                            |  |     
|Consolidated Financial Statements of Gene Logic Inc.                                        |  |      |     | 
|Report of Independent Auditors                                                              |  |      | F-2 | 
|Consolidated Balance Sheets as of December 31, 2002 and 2001                                |  |      | F-3 | 
|Consolidated Statements of Operations for the three years ended December 31, 2002           |  |      | F-4 | 
|Consolidated Statements of Stockholders Equity for the three years ended December 31, 2002 |  |      | F-5 | 
|Consolidated Statements of Cash Flows for the three years ended December 31, 2002           |  |      | F-6 | 
|Notes to Consolidated Financial Statements                                                  |  |      | F-7 | 

(a)2. Financial Statement Schedules

Schedule IIValuation and Qualifying Accounts

All other schedules for which provision is made in the applicable
accounting regulations of the SEC are not required under the related
instruction or are inapplicable and therefore have been omitted.

(a)3. Index to Exhibits

|        |  |                                                                                                       
|------- |  | ------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                       
|Number  |  | Description of Document                                                                               
|        |  |                                                                                                       
|3.1     |  | Amended and Restated Certificate
        of Incorporation.(1)                                         
|3.2     |  | By-Laws, as amended and restated.(5)                                                                  
|4.1     |  | Reference is made to Exhibits
        3.1 and 3.2.                                                    
|4.2     |  | Specimen stock certificate.(1)                                                                        
|*10.1   |  | Form of Indemnity Agreement
        entered into between Registrant and its directors and officers.(1)
|*10.2   |  | Registrants 1997 Equity
        Incentive Plan, as amended (the Stock Plan).(2)                    
|*10.3   |  | Form of Stock Option Agreement
        under the Stock Plan.(1)                                       
|*10.4   |  | Form of Stock Option Grant
        Notice.(1)                                                         
|*10.5   |  | Registrants Employee
        Stock Purchase Plan, as amended, and related offering document.(2)      
|*10.6   |  | Registrants 1997 Non-Employee
        Directors Stock Option Plan, as amended.(2)                   

32



---



##### 



|        |  |                                                                                                                                                                                   
|------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                                   
|Number  |  | Description of Document                                                                                                                                                           
|        |  |                                                                                                                                                                                   
|*10.7   |  | Form of Nonstatutory Stock
        Option under the 1997 Non-Employee Directors Stock Option Plan.(1)                                                                            
|*10.12  |  | Employment Agreement, dated
        June 7, 2001, between the Registrant and Michael J. Brennan.(12)                                                                              
|*10.14  |  | Employment Agreement, dated
        May 16, 1996, between the Registrant and Mark D. Gessler.(1)                                                                                  
|*10.15  |  | Amendment to the Employment
        Agreement, dated July 9, 1997, between the Registrant and Mark D.
        Gessler.(1)                                                         
|10.22   |  | Lease Agreement, dated August 22,
        1997, between Registrant and ARE-708 Quince Orchard, LLC.(1)                                                                            
|10.22a  |  | First Amendment to Lease,
        dated July 21, 2000, between Registrant and ARE-708 Quince Orchard,
        LLC.(7)                                                             
|*10.45  |  | Amended and Restated Employment
        Agreement, dated April 1, 1999, between Registrant and Y. Douglas
        Dolginow.(3)                                                    
|10.50   |  | Agreement, effective January 1,
        2002, between Registrant and Affymetrix, Inc.(12)(C)                                                                                      
|*10.53  |  | Promissory Note, dated April 8,
        1999 between the Registrant and Y. Douglas Dolginow.(3)                                                                                   
|*10.54  |  | Pledge and Security Agreement,
        dated April 8, 1999, between the Registrant and Y. Douglas Dolginow.(3)                                                                    
|*10.55  |  | Executive Severance Plan,
        as amended February 2001.(8)                                                                                                                    
|*10.58  |  | Employment Agreement, dated
        October 11, 1999, between Registrant and Philip L. Rohrer, Jr.(4)                                                                             
|*10.59  |  | Employment Agreement, dated
        January 4, 2000, between Registrant and David S. Murray.(5)                                                                                   
|10.62   |  | Series A Preferred Stock
        Purchase Agreement, dated April 20, 2000, between Registrant and
        Neuralstem, Inc. (formerly Neuralstem Biopharmaceutical, Ltd.)(5)(A)    
|*10.63  |  | Employment Agreement, dated
        September 1, 1997, between Registrant and Victor M. Markowitz.(5)                                                                             
|10.67   |  | Lease Agreement, dated July 21,
        2000 between Registrant and ARE-50 West Watkins Mill, LLC.(6)                                                                             
|10.70   |  | Stock Repurchase Agreement,
        dated April 30, 2001, between Registrant and Neuralstem, Inc.(9)(B)                                                                           
|10.71   |  | Put Option Agreement, dated
        April 30, 2001, between Registrant and Neuralstem, Inc.(9)(B)                                                                                 
|10.72   |  | Promissory Note, dated April 30,
        2001, between Registrant and Neuralstem, Inc.(9)                                                                                         
|*10.73  |  | Agreements between certain
        Named Executive Officers, the Registrant, and MetriGenix, Inc. with respect
        to the purchase of restricted stock of MetriGenix, Inc.(10)
|*10.75  |  | Employment Agreement, dated
        May 30, 2002, between Registrant and Dudley Staples.(11)                                                                                      
|*10.76  |  | Severance Pay Agreement and
        General Release, dated December 23, 2002, between Registrant and
        David S. Murray.                                                     
|10.99   |  | Certification pursuant to
        18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
        the Sarbanes-Oxley Act of 2002.                                           
|21.1    |  | List of Subsidiaries.                                                                                                                                                             
|23.1    |  | Consent of Ernst & Young
        LLP, Independent Auditors.                                                                                                                       



---

* Indicates management compensatory plan, contract or arrangement.



|(1)  |  | Filed as an exhibit to Registrants Registration Statement on Form S-1,
filed October 7, 1997, as amended, (No. 333-37317) and incorporated herein
by reference.                           
|---- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    
|(2)  |  | Filed as an exhibit to Registrants Proxy Statement with respect to the
Annual Meeting of Stockholders held on June 6, 2002, filed on April 12,
2002, and incorporated herein by reference.
|    
|(3)  |  | Filed as an exhibit to Registrants Quarterly Report on Form 10-Q for the
quarter ended June 30, 1999, filed on August 13, 1999, and incorporated
herein by reference.                     
|    
|(4)  |  | Filed as an exhibit to Registrants Annual Report on Form 10-K for the
fiscal year ended December 31, 1999, filed on March 30, 2000, and
incorporated herein by reference.                 
|    
|(5)  |  | Filed as an exhibit to Registrants Quarterly Report on From 10-Q for the
quarter ended March 31, 2000, filed on May 15, 2000, and incorporated
herein by reference.                       
|    
|(6)  |  | Filed as an exhibit to Registrants Quarterly Report on Form 10-Q for the
quarter ended September 30, 2000, filed on November 14, 2000, and
incorporated herein by reference.              
|    
|(7)  |  | Filed as an exhibit to Registrants Annual Report on Form 10-K for the
fiscal year ended December 31, 2000, filed on March 29, 2001, and
incorporated herein by reference.                  
|    
|(8)  |  | Filed as an exhibit to Registrants Quarterly Report on Form 10-Q for the
quarter ended March 31, 2001, filed on May 11, 2001, and incorporated
herein by reference.                        
|    
|(9)  |  | Filed as an exhibit to registrants Quarterly Report on Form 10-Q for the
quarter ended June 30, 2001, filed on August 14, 2001, and incorporated
herein by reference.                     
|    
|(10) |  | Filed as an exhibit to Registrants Quarterly Report on Form 10-Q for the
quarter ended September 30, 2001, filed on November 14, 2001, and
incorporated herein by reference.               

33



---



##### 





|(11) |  | Filed as an exhibit to Registrants Quarterly Report on Form 10-Q for the
quarter ended June 30, 2002, filed on August 9, 2002, and incorporated
herein by reference.                                                                                             
|---- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    
|(12) |  | Filed as an exhibit to Registrants Annual Report on Form 10-K for the
fiscal year ended December 31, 2001, filed on March 28, 2002, and
incorporated herein by reference.                                                                                        
|    
|(A)  |  | Confidential treatment has been granted with respect to certain portions
of this exhibit pursuant to an Order Granting Application Under the
Securities Exchange Act of 1934 and Rule 24b-2 Thereunder Respecting
Confidential Treatment dated August 24, 2000.  
|    
|(B)  |  | Confidential treatment has been granted with respect to certain portions
of this exhibit pursuant to an Order Granting Application Under the
Securities Exchange Act of 1934 and Rule 24b-2 Thereunder Respecting
Confidential Treatment dated November 14, 2001.
|    
|(C)  |  | Confidential treatment has been requested with respect to certain
portions of this exhibit. Omitted portions have been filed separately
with the SEC.                                                                                                            
|    
|(b)  |  | Reports on Form 8-K                                                                                                                                                                                                                                              

No reports on Form 8-K were filed during the three months ended December
31, 2002.

34



---



##### 



SIGNATURE

Pursuant to the requirements of Section 13 or 15(d) 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, on the 19th day of
March, 2003.



| | GENE LOGIC INC.
| | ---------------



| | By: /s/ MARK D. GESSLER
          Mark D. Gessler
Chairman of the Board,
Chief Executive Officer and President
| | --------------------------------------------------------------------------------------------------------------

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.

|                                                         |  |                                                                                           |  |               
|-------------------------------------------------------- |  | ----------------------------------------------------------------------------------------- |  | --------------
|Name                                                     |  | Position                                                                                  |  | Date          
|                                                         |  |                                                                                           |  |               
|/s/ MARK D. GESSLER
(Mark D. Gessler)                    |  | Chairman of the Board, Chief Executive
Officer and President(Principal Executive Officer) |  | March 19, 2003
|                                                        
|                                                        
|/s/ PHILIP L. ROHRER, JR.
(Philip L. Rohrer, Jr.)        |  | Chief Financial Officer(Principal Financial and Accounting Officer)                       |  | March 19, 2003
|                                                        
|                                                        
|/s/ JULES BLAKE
(Jules Blake, Ph.D.)                     |  | Director                                                                                  |  | March 19, 2003
|                                                        
|                                                        
|/s/ MICHAEL J. BRENNAN
(Michael J. Brennan, M.D., Ph.D.) |  | Director                                                                                  |  | March 19, 2003
|                                                        
|                                                        
|/s/ CHARLES L. DIMMLER, III
(Charles L. Dimmler III)     |  | Director                                                                                  |  | March 19, 2003
|                                                        
|                                                        
|/s/ G. ANTHONY GORRY
(G. Anthony Gorry, Ph.D.)           |  | Director                                                                                  |  | March 19, 2003
|                                                        
|                                                        
|/s/ J. STARK THOMPSON
(J. Stark Thompson, Ph.D.)         |  | Director                                                                                  |  | March 19, 2003

CERTIFICATIONS

I, Mark D. Gessler, certify that:



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



| | a) |  | designed such disclosure controls and procedures to
ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to Gene
Logic by others within those entities, particularly during the
period in which this annual report is being prepared;
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | evaluated the effectiveness of the registrants
disclosure controls and procedures as of a date within 90 days
prior to the filing date of this annual report (the Evaluation
Date); and                                                                                                          
|
| | c) |  | presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;                                                                                                                                

35



---



##### 





| | 5. |  | The registrants other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrants auditors and the
audit committee of registrants board of directors (or persons
performing the equivalent functions):
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a) |  | all significant deficiencies in the design or operation
of internal controls which could adversely affect the registrants
ability to record, process, summarize and report financial data
and have identified for the registrants auditors any material
weaknesses in internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | any fraud, whether or not material, that involves
management or other employees who have a significant role in the
registrants internal controls; and                                                                                                                                        



| | 6. |  | The registrants other certifying officer and I have indicated in
this annual report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                     |  |     |  |                                                           
|-------------------- |  | --- |  | ----------------------------------------------------------
|Date: March 19, 2003 |  | By: |  | /s/ Mark D. GesslerMark D. Gessler
Chief Executive Officer

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



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



| | a) |  | designed such disclosure controls and procedures to
ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to Gene
Logic by others within those entities, particularly during the
period in which this annual report is being prepared;
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | evaluated the effectiveness of the registrants
disclosure controls and procedures as of a date within 90 days
prior to the filing date of this annual report (the Evaluation
Date); and                                                                                                          
|
| | c) |  | presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;                                                                                                                                



| | 5. |  | The registrants other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrants auditors and the
audit committee of registrants board of directors (or persons
performing the equivalent functions):
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a) |  | all significant deficiencies in the design or operation
of internal controls which could adversely affect the registrants
ability to record, process, summarize and report financial data
and have identified for the registrants auditors any material
weaknesses in internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | any fraud, whether or not material, that involves
management or other employees who have a significant role in the
registrants internal controls; and                                                                                                                                        



| | 6. |  | The registrants other certifying officer and I have indicated in
this annual report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                     |  |     |  |                                                                       
|-------------------- |  | --- |  | ----------------------------------------------------------------------
|Date: March 19, 2003 |  | By: |  | /s/ Philip L. Rohrer, Jr.Philip L. Rohrer, Jr.
Chief Financial Officer

36



---



##### 



Gene Logic Inc.
Index to Consolidated Financial Statements

|                                                                                            |  |      |     | 
|------------------------------------------------------------------------------------------- |  | ---- | --- | 
|                                                                                            |  | Page
|                                                                                            |  |     
|Report of Independent Auditors                                                              |  |      | F-2 | 
|Consolidated Balance Sheets as of December 31, 2002 and 2001                                |  |      | F-3 | 
|Consolidated Statements of Operations for the three years ended December 31, 2002           |  |      | F-4 | 
|Consolidated Statements of Stockholders Equity for the three years ended December 31, 2002 |  |      | F-5 | 
|Consolidated Statements of Cash Flows for the three years ended December 31, 2002           |  |      | F-6 | 
|Notes to Consolidated Financial Statements                                                  |  |      | F-7 | 

F-1



---



##### 



Report of Independent Auditors

The Board of Directors and Shareholders
Gene Logic Inc.

We have audited the accompanying consolidated balance sheets of Gene Logic
Inc. as of December 31, 2002 and 2001, and the related consolidated statements
of operations, shareholders equity, and cash flows for each of the three years
in the period ended December 31, 2002. Our audits also included the financial
statement schedule listed in the Index at Item 15(a). These financial
statements and schedule are the responsibility of the Companys management.
Our responsibility is to express an opinion on these financial statements and
schedule based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Gene Logic
Inc. at December 31, 2002 and 2001, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 2002 in conformity with accounting principles generally accepted
in the United States. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statements taken
as a whole, presents fairly in all material respects the information set forth
therein.

As discussed in Note 1 to the consolidated financial statements, in 2002
the Company adopted Statement of Financial Accounting Standards No. 142,
Goodwill and Other Intangible Assets. Also, as discussed in Note 1, in 2000
the Company changed its method of revenue recognition for certain nonrefundable
up-front customer payments.

/s/ ERNST & YOUNG LLP

Baltimore, Maryland
February 7, 2003, except as to Note 13, as
to which the date is February 25, 2003

F-2



---



##### 



Gene Logic Inc.

Consolidated Balance Sheets
as of December 31, 2002 and 2001
(in thousands, except share data)

|                                       |                                                                                                                                                                    |                                            |                                      |          |         |      |        |          |         |  |  | 
|-------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ------------------------------------------ | ------------------------------------ | -------- | ------- | ---- | ------ | -------- | ------- |  |  | 
|                                       |                                                                                                                                                                    |                                            |                                      |          |         | 2002 |        | 2001    
|                                       |                                                                                                                                                                    |                                            |                                      |          |         |      |        |         
|                                       |                                                                                                                                                                    |                                            |                                      | ASSETS   |         |      |        |          |         |  |  | 
|Current assets:                        |                                                                                                                                                                    |                                            |                                      |          |         |      |        |         
|                                       | Cash and cash equivalents                                                                                                                                          |                                            | $                                    | 106,957  |         |      | $      | 128,273  |        
|                                       | Marketable securities available-for-sale                                                                                                                           |                                            |                                      | 60,145   |         |      |        | 69,545   |        
|                                       | Accounts receivable                                                                                                                                                |                                            |                                      | 4,793    |         |      |        | 2,460    |        
|                                       | Inventory, net                                                                                                                                                     |                                            |                                      | 8,936    |         |      |        | 6,097    |        
|                                       | Prepaid expenses                                                                                                                                                   |                                            |                                      | 1,610    |         |      |        | 2,348    |        
|                                       | Other current assets                                                                                                                                               |                                            |                                      | 1,117    |         |      |        | 3,512    |        
|                                       |                                                                                                                                                                    |                                            |                                      |          |         |      |        |         
|                                       |                                                                                                                                                                    | Total current assets                       |                                      |          | 183,558 |      |        |          | 212,235 | 
|Property and equipment, net            |                                                                                                                                                                    |                                            | 14,770                               |          |         |      | 18,358 |         
|Long-term investments                  |                                                                                                                                                                    |                                            | 5,268                                |          |         |      | 4,631  |         
|Notes receivable from employees        |                                                                                                                                                                    |                                            | 50                                   |          |         |      | 106    |         
|Goodwill                               |                                                                                                                                                                    |                                            | 2,677                                |          |         |      | 2,677  |         
|Intangibles, net                       |                                                                                                                                                                    |                                            | 21,094                               |          |         |      | 17,480 |         
|Other assets                           |                                                                                                                                                                    |                                            | 43                                   |          |         |      | 1,440  |         
|                                       |                                                                                                                                                                    |                                            |                                      |          |         |      |        |         
|                                       |                                                                                                                                                                    | Total assets                               |                                      | $        | 227,460 |      |        | $        | 256,927 | 
|                                       |                                                                                                                                                                    |                                            |                                      |          |         |      |        |         
|                                       |                                                                                                                                                                    |                                            | LIABILITIES AND STOCKHOLDERS EQUITY |          |         |      |        |          |         |  | 
|Current liabilities:                   |                                                                                                                                                                    |                                            |                                      |          |         |      |        |         
|                                       | Accounts payable                                                                                                                                                   |                                            | $                                    | 8,225    |         |      | $      | 8,479    |        
|                                       | Accrued expenses                                                                                                                                                   |                                            |                                      | 5,187    |         |      |        | 5,022    |        
|                                       | Current portion of long-term debt                                                                                                                                  |                                            |                                      | 40       |         |      |        | 38       |        
|                                       | Deferred revenue                                                                                                                                                   |                                            |                                      | 6,425    |         |      |        | 11,512   |        
|                                       |                                                                                                                                                                    |                                            |                                      |          |         |      |        |         
|                                       |                                                                                                                                                                    | Total current liabilities                  |                                      |          | 19,877  |      |        |          | 25,051  | 
|Deferred revenue                       |                                                                                                                                                                    |                                            | 1,363                                |          |         |      | 4,525  |         
|Long-term debt, net of current portion |                                                                                                                                                                    |                                            | 710                                  |          |         |      | 300    |         
|Other noncurrent liabilities           |                                                                                                                                                                    |                                            | 1,072                                |          |         |      | 1,024  |         
|                                       |                                                                                                                                                                    |                                            |                                      |          |         |      |        |         
|                                       |                                                                                                                                                                    | Total liabilities                          |                                      |          | 23,022  |      |        |          | 30,900  | 
|                                       |                                                                                                                                                                    |                                            |                                      |          |         |      |        |         
|Commitments and contingencies          |                                                                                                                                                                    |                                            |                                     |          |         |      |       |         
|Stockholders equity:                  |                                                                                                                                                                    |                                            |                                      |          |         |      |        |         
|                                       | Preferred stock, $.01 par value; 10,000,000 shares authorized; and no shares issued
and outstanding as of December 31, 2002 and 2001                               |                                            |                                      |         |         |      |        |         |        
|                                       | Common stock, $.01 par value; 60,000,000 shares authorized; 27,056,487 and 26,767,837
shares issued and outstanding as of December 31, 2002 and 2001, respectively |                                            |                                      | 271      |         |      |        | 268      |        
|                                       | Additional paid-in capital                                                                                                                                         |                                            |                                      | 363,294  |         |      |        | 361,067  |        
|                                       | Accumulated other comprehensive income                                                                                                                             |                                            |                                      | 248      |         |      |        | 17       |        
|                                       | Accumulated deficit                                                                                                                                                |                                            |                                      | (159,375 | )       |      |        | (135,325 | )      
|                                       |                                                                                                                                                                    |                                            |                                      |          |         |      |        |         
|                                       |                                                                                                                                                                    | Total stockholders equity                 |                                      |          | 204,438 |      |        |          | 226,027 | 
|                                       |                                                                                                                                                                    |                                            |                                      |          |         |      |        |         
|                                       |                                                                                                                                                                    | Total liabilities and stockholders equity |                                      | $        | 227,460 |      |        | $        | 256,927 | 
|                                       |                                                                                                                                                                    |                                            |                                      |          |         |      |        |         

The accompanying notes are an integral part of these consolidated financial
statements.

F-3



---



##### 



Gene Logic Inc.
Consolidated Statements of Operations
for the Years Ended December 31, 2002, 2001 and 2000
(in thousands, except per share data)

|                                                              |                                     |                                                                                                                                            |                      |        |         |         |        |        |         |         |         |        |         |         |  
|------------------------------------------------------------- | ----------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------ | -------------------- | ------ | ------- | ------- | ------ | ------ | ------- | ------- | ------- | ------ | ------- | ------- | -
|                                                              |                                     |                                                                                                                                            |                      |        | 2002    |         | 2001   |        | 2000   
|                                                              |                                     |                                                                                                                                            |                      |        |         |         |        |        |        
|Revenue                                                       |                                     | $                                                                                                                                          | 54,848               |        |         | $       | 43,328 |        |         | $       | 26,883  |       
|Expenses:                                                     |                                     |                                                                                                                                            |                      |        |         |         |        |        |         |         |         |       
|                                                              | Database production                 |                                                                                                                                            |                      | 57,941 |         |         |        | 55,452 |         |         |         | 40,432 |        
|                                                              | Selling, general and administrative |                                                                                                                                            |                      | 19,734 |         |         |        | 19,323 |         |         |         | 17,770 |        
|                                                              | Research and development            |                                                                                                                                            |                      | 2,367  |         |         |        | 3,577  |         |         |         | 3,582  |        
|                                                              | Amortization of goodwill            |                                                                                                                                            |                      |       |         |         |        | 1,524  |         |         |         | 1,524  |        
|                                                              |                                     |                                                                                                                                            |                      |        |         |         |        |        |         |         |         |       
|                                                              |                                     |                                                                                                                                            | Total expenses       |        |         | 80,042  |        |        |         | 79,876  |         |        |         | 63,308  |  
|                                                              |                                     |                                                                                                                                            |                      |        |         |         |        |        |         |         |         |       
|                                                              |                                     |                                                                                                                                            | Loss from operations |        |         | (25,194 | )      |        |         | (36,548 | )       |        |         | (36,425 | )
|Interest (income), net                                        |                                     |                                                                                                                                            | (3,139               | )      |         |         | (8,645 | )      |         |         | (13,706 | )     
|Other (income)                                                |                                     |                                                                                                                                            | (250                 | )      |         |         | (83    | )      |         |         | (234    | )     
|Write-down of equity investments                              |                                     |                                                                                                                                            | 753                  |        |         |         | 2,495  |        |         |         |        |       
|                                                              |                                     |                                                                                                                                            |                      |        |         |         |        |        |         |         |         |       
|                                                              |                                     | Net loss before income tax expense, equity in net loss of
unconsolidated investees and cumulative effect of change in
accounting principle |                      |        | (22,558 | )       |        |        | (30,315 | )       |         |        | (22,485 | )      
|Income tax expense                                            |                                     |                                                                                                                                            | 1,492                |        |         |         | 533    |        |         |         | 210     |       
|                                                              |                                     |                                                                                                                                            |                      |        |         |         |        |        |         |         |         |       
|                                                              |                                     | Net loss before equity in net loss of unconsolidated investees and
cumulative effect of change in accounting principle                     |                      |        | (24,050 | )       |        |        | (30,848 | )       |         |        | (22,695 | )      
|Equity in net loss of unconsolidated investees                |                                     |                                                                                                                                            |                     |        |         |         | 2,322  |        |         |         |        |       
|                                                              |                                     |                                                                                                                                            |                      |        |         |         |        |        |         |         |         |       
|                                                              |                                     | Loss before cumulative effect of change in accounting principle                                                                            |                      |        | (24,050 | )       |        |        | (33,170 | )       |         |        | (22,695 | )      
|                                                              |                                     | Cumulative effect of change in accounting principle                                                                                        |                      |        |        |         |        |        |        |         |         |        | 1,322   |        
|                                                              |                                     |                                                                                                                                            |                      |        |         |         |        |        |         |         |         |       
|                                                              |                                     | Net loss                                                                                                                                   |                      | $      | (24,050 | )       |        | $      | (33,170 | )       |         | $      | (24,017 | )      
|                                                              |                                     |                                                                                                                                            |                      |        |         |         |        |        |         |         |         |       
|Basic and diluted net loss per share:                         |                                     |                                                                                                                                            |                      |        |         |         |        |        |         |         |         |       
|                                                              |                                     | Loss before cumulative effect of change in accounting principle                                                                            |                      | $      | (0.89   | )       |        | $      | (1.25   | )       |         | $      | (0.90   | )      
|                                                              |                                     | Cumulative effect of change in accounting principle                                                                                        |                      |        |        |         |        |        |        |         |         |        | (0.05   | )      
|                                                              |                                     |                                                                                                                                            |                      |        |         |         |        |        |         |         |         |       
|                                                              |                                     | Net loss                                                                                                                                   |                      | $      | (0.89   | )       |        | $      | (1.25   | )       |         | $      | (0.95   | )      
|                                                              |                                     |                                                                                                                                            |                      |        |         |         |        |        |         |         |         |       
|Shares used in computing basic and diluted net loss per share |                                     |                                                                                                                                            | 26,948               |        |         |         | 26,540 |        |         |         | 25,209  |       
|                                                              |                                     |                                                                                                                                            |                      |        |         |         |        |        |         |         |         |       

The accompanying notes are an integral part of these consolidated financial
statements.

F-4



---



##### 



Gene Logic Inc.

Consolidated Statements of Stockholders Equity
for the Years Ended December 31, 2000, 2001 and 2002
(in thousands, except number of shares)

|                                                                                      |  |                      |            |            |  |         |     |              |  |               |         |             |  |               |        |   |  |   |     |   |  |   |          |   |  |   |         |  
|------------------------------------------------------------------------------------- |  | -------------------- | ---------- | ---------- |  | ------- | --- | ------------ |  | ------------- | ------- | ----------- |  | ------------- | ------ | - |  | - | --- | - |  | - | -------- | - |  | - | ------- | -
|                                                                                      |  | Stockholders' Equity |            |            |  |        
|                                                                                      |  |                      |            |            |  |        
|                                                                                      |  | Common Stock         |            |            |  |         |     |              |  |               |         | Accumulated |  |               |        |   |  |   |     |  
|                                                                                      |  |                      |            | Additional |  |         |     |              |  | Other         |         |             |  |               |        |   |  |  
|                                                                                      |  | Number               |            | Par        |  | Paid-In |     | Deferred     |  | Comprehensive |         | Accumulated |  | Comprehensive
|                                                                                      |  | of Shares            |            | Value      |  | Capital |     | Compensation |  | Income (Loss) |         | Deficit     |  | Loss         
|                                                                                      |  |                      |            |            |  |         |     |              |  |               |         |             |  |              
|Balance at January 1, 2000                                                            |  |                      | 20,005,688 |            |  | $       | 200 |              |  | $             | 103,497 |             |  | $             | (2,488 | ) |  | $ | (3  | ) |  | $ | (78,138  | ) |  | $ |         |  
|Issuance of common stock in connection
with exercise of stock options                 |  |                      | 1,163,240  |            |  |         | 11  |              |  |               | 4,633   |             |  |               |       |   |  |   |    |   |  |   |         |   |  |   |         |  
|Issuance of common stock in connection
with Employee Stock Purchase Plan              |  |                      | 159,875    |            |  |         | 2   |              |  |               | 647     |             |  |               |       |   |  |   |    |   |  |   |         |   |  |   |         |  
|Issuance of common stock in connection
with exercise of warrants                      |  |                      | 102,758    |            |  |         | 1   |              |  |               | (1      | )           |  |               |       |   |  |   |    |   |  |   |         |   |  |   |         |  
|Issuance of common stock in connection
with secondary offering, net of
issuance costs |  |                      | 4,680,000  |            |  |         | 47  |              |  |               | 247,410 |             |  |               |       |   |  |   |    |   |  |   |         |   |  |   |         |  
|Issuance of stock options to consultants                                              |  |                      |           |            |  |         |    |              |  |               | 732     |             |  |               |       |   |  |   |    |   |  |   |         |   |  |   |         |  
|Net change in unrealized losses from
marketable securities                            |  |                      |           |            |  |         |    |              |  |               |        |             |  |               |       |   |  |   | 3   |   |  |   |         |   |  | $ | 3       |  
|Write-off of forfeited stock options                                                  |  |                      |           |            |  |         |    |              |  |               | (571    | )           |  |               | 571    |   |  |   |    |   |  |   |         |   |  |   |         |  
|Amortization of deferred compensation                                                 |  |                      |           |            |  |         |    |              |  |               |        |             |  |               | 1,179  |   |  |   |    |   |  |   |         |   |  |   |         |  
|Net loss                                                                              |  |                      |           |            |  |         |    |              |  |               |        |             |  |               |       |   |  |   |    |   |  |   | (24,017  | ) |  |   | (24,017 | )
|                                                                                      |  |                      |            |            |  |         |     |              |  |               |         |             |  |               |        |   |  |   |     |   |  |   |          |   |  |   |         |  
|Comprehensive loss                                                                    |  |                      |           |            |  |         |    |              |  |               |        |             |  |               |       |   |  |   |    |   |  |   |         |   |  | $ | (24,014 | )
|                                                                                      |  |                      |            |            |  |         |     |              |  |               |         |             |  |               |        |   |  |   |     |   |  |   |          |   |  |   |         |  
|Balance at December 31, 2000                                                          |  |                      | 26,111,561 |            |  |         | 261 |              |  |               | 356,347 |             |  |               | (738   | ) |  |   |    |   |  |   | (102,155 | ) |  |   |         |  
|Issuance of common stock in connection
with exercise of stock options                 |  |                      | 515,857    |            |  |         | 6   |              |  |               | 2,222   |             |  |               |       |   |  |   |    |   |  |   |         |   |  |   |         |  
|Issuance of common stock in connection
with Employee Stock Purchase Plan              |  |                      | 111,213    |            |  |         | 1   |              |  |               | 1,838   |             |  |               |       |   |  |   |    |   |  |   |         |   |  |   |         |  
|Issuance of common stock in connection
with exercise of a warrant                     |  |                      | 29,206     |            |  |         |    |              |  |               | 533     |             |  |               |       |   |  |   |    |   |  |   |         |   |  |   |         |  
|Net change in unrealized gains from
marketable securities                             |  |                      |           |            |  |         |    |              |  |               |        |             |  |               |       |   |  |   | 17  |   |  |   |         |   |  | $ | 17      |  
|Acceleration of vesting of stock options                                              |  |                      |           |            |  |         |    |              |  |               | 127     |             |  |               |       |   |  |   |    |   |  |   |         |   |  |   |         |  
|Amortization of deferred compensation                                                 |  |                      |           |            |  |         |    |              |  |               |        |             |  |               | 738    |   |  |   |    |   |  |   |         |   |  |   |         |  
|Net loss                                                                              |  |                      |           |            |  |         |    |              |  |               |        |             |  |               |       |   |  |   |    |   |  |   | (33,170  | ) |  |   | (33,170 | )
|                                                                                      |  |                      |            |            |  |         |     |              |  |               |         |             |  |               |        |   |  |   |     |   |  |   |          |   |  |   |         |  
|Comprehensive loss                                                                    |  |                      |           |            |  |         |    |              |  |               |        |             |  |               |       |   |  |   |    |   |  |   |         |   |  | $ | (33,153 | )
|                                                                                      |  |                      |            |            |  |         |     |              |  |               |         |             |  |               |        |   |  |   |     |   |  |   |          |   |  |   |         |  
|Balance at December 31, 2001                                                          |  |                      | 26,767,837 |            |  |         | 268 |              |  |               | 361,067 |             |  |               |       |   |  |   | 17  |   |  |   | (135,325 | ) |  |   |         |  
|Issuance of common stock in connection
with exercise of stock options                 |  |                      | 149,873    |            |  |         | 2   |              |  |               | 881     |             |  |               |       |   |  |   |    |   |  |   |         |   |  |   |         |  
|Issuance of common stock in connection
with Employee Stock Purchase Plan              |  |                      | 138,777    |            |  |         | 1   |              |  |               | 1,346   |             |  |               |       |   |  |   |    |   |  |   |         |   |  |   |         |  
|Net change in unrealized gains from
marketable securities                             |  |                      |           |            |  |         |    |              |  |               |        |             |  |               |       |   |  |   | 231 |   |  |   |         |   |  | $ | 231     |  
|Net loss                                                                              |  |                      |           |            |  |         |    |              |  |               |        |             |  |               |       |   |  |   |    |   |  |   | (24,050  | ) |  |   | (24,050 | )
|                                                                                      |  |                      |            |            |  |         |     |              |  |               |         |             |  |               |        |   |  |   |     |   |  |   |          |   |  |   |         |  
|Comprehensive loss                                                                    |  |                      |           |            |  |         |    |              |  |               |        |             |  |               |       |   |  |   |    |   |  |   |         |   |  | $ | (23,819 | )
|                                                                                      |  |                      |            |            |  |         |     |              |  |               |         |             |  |               |        |   |  |   |     |   |  |   |          |   |  |   |         |  
|Balance at December 31, 2002                                                          |  |                      | 27,056,487 |            |  | $       | 271 |              |  | $             | 363,294 |             |  | $             |       |   |  | $ | 248 |   |  | $ | (159,375 | ) |  |   |         |  
|                                                                                      |  |                      |            |            |  |         |     |              |  |               |         |             |  |               |        |   |  |   |     |   |  |   |          |   |  |   |         |  

The accompanying notes are an integral part of these consolidated financial
statements.

F-5



---



##### 



Gene Logic Inc.

Consolidated Statements of Cash Flows
for the Years Ended December 31, 2002, 2001 and 2000
(in thousands)

|                                                     |                                                                                |                                                      |                                          |         |        |         |          |         |        |         |         |         |        |         |  
|---------------------------------------------------- | ------------------------------------------------------------------------------ | ---------------------------------------------------- | ---------------------------------------- | ------- | ------ | ------- | -------- | ------- | ------ | ------- | ------- | ------- | ------ | ------- | -
|                                                     |                                                                                |                                                      |                                          |         | 2002   |         | 2001     |         | 2000  
|                                                     |                                                                                |                                                      |                                          |         |        |         |          |         |       
|Cash Flows From Operating Activities:                |                                                                                |                                                      |                                          |         |        |         |          |         |        |         |         |        
|                                                     | Net loss                                                                       |                                                      | $                                        | (24,050 | )      |         | $        | (33,170 | )      |         | $       | (24,017 | )     
|                                                     | Adjustments to reconcile net loss to net cash flows from operating activities: |                                                      |                                          |         |        |         |          |         |        |         |         |         |       
|                                                     |                                                                                | Depreciation and amortization                        |                                          |         | 13,535 |         |          |         | 11,034 |         |         |         | 6,812  |        
|                                                     |                                                                                | Amortization of goodwill                             |                                          |         |       |         |          |         | 1,524  |         |         |         | 1,524  |        
|                                                     |                                                                                | Amortization of deferred compensation                |                                          |         |       |         |          |         | 738    |         |         |         | 1,179  |        
|                                                     |                                                                                | Net loss from investment in unconsolidated investees |                                          |         |       |         |          |         | 2,322  |         |         |         |       |        
|                                                     |                                                                                | Gain from the sale of equity investment              |                                          |         | (250   | )       |          |         |       |         |         |         |       |        
|                                                     |                                                                                | Write-down of investments                            |                                          |         | 753    |         |          |         | 2,495  |         |         |         |       |        
|                                                     |                                                                                | Loss on abandonment of patent costs                  |                                          |         | 1,147  |         |          |         |       |         |         |         |       |        
|                                                     |                                                                                | Other non-cash expense                               |                                          |         |       |         |          |         | 127    |         |         |         | 732    |        
|                                                     |                                                                                | Loss on disposal of property and equipment           |                                          |         | 71     |         |          |         | 45     |         |         |         | 52     |        
|Changes in Operating Assets and Liabilities:         |                                                                                |                                                      |                                          |         |        |         |          |         |        |         |         |        
|                                                     |                                                                                | Accounts receivable                                  |                                          |         | (2,333 | )       |          |         | 745    |         |         |         | 581    |        
|                                                     |                                                                                | Inventory, net                                       |                                          |         | (2,839 | )       |          |         | (3,802 | )       |         |         | (560   | )      
|                                                     |                                                                                | Prepaids and other assets                            |                                          |         | 3,140  |         |          |         | 2,345  |         |         |         | (7,665 | )      
|                                                     |                                                                                | Accounts payable                                     |                                          |         | (254   | )       |          |         | 2,572  |         |         |         | 1,402  |        
|                                                     |                                                                                | Litigation settlement payable                        |                                          |         |       |         |          |         | (9,000 | )       |         |         | 9,000  |        
|                                                     |                                                                                | Accrued expenses and other noncurrent liabilities    |                                          |         | 213    |         |          |         | (3,370 | )       |         |         | 6,380  |        
|                                                     |                                                                                | Deferred revenue                                     |                                          |         | (9,249 | )       |          |         | 8,235  |         |         |         | 2,562  |        
|                                                     |                                                                                |                                                      |                                          |         |        |         |          |         |        |         |         |        
|                                                     |                                                                                |                                                      | Net Cash Flows From Operating Activities |         |        | (20,116 | )        |         |        | (17,160 | )       |         |        | (2,018  | )
|                                                     |                                                                                |                                                      |                                          |         |        |         |          |         |        |         |         |        
|Cash Flows From Investing Activities:                |                                                                                |                                                      |                                          |         |        |         |          |         |        |         |         |        
|                                                     | Purchases of property and equipment                                            |                                                      |                                          | (1,944  | )      |         |          | (8,349  | )      |         |         | (9,685  | )     
|                                                     | Sale (Purchase) of equity investments                                          |                                                      |                                          | 1,250   |        |         |          | (753    | )      |         |         | (8,081  | )     
|                                                     | Purchases of licenses and patent costs                                         |                                                      |                                          | (1,810  | )      |         |          | (995    | )      |         |         | (7,194  | )     
|                                                     | Software development costs                                                     |                                                      |                                          | (7,141  | )      |         |          | (6,200  | )      |         |         | (4,220  | )     
|                                                     | Database upgrade costs                                                         |                                                      |                                          | (3,885  | )      |         |          | (167    | )      |         |         | (3,846  | )     
|                                                     | Repayments of (Increase in) notes receivable from employees                    |                                                      |                                          | 57      |        |         |          | (30     | )      |         |         | 663     |       
|                                                     | Proceeds from sale and maturity of marketable securities available-for-sale    |                                                      |                                          | 79,870  |        |         |          |        |        |         |         | 7,155   |       
|                                                     | Purchase of marketable securities available-for sale                           |                                                      |                                          | (70,239 | )      |         |          | (69,528 | )      |         |         |        |       
|                                                     |                                                                                |                                                      |                                          |         |        |         |          |         |        |         |         |        
|                                                     |                                                                                |                                                      | Net Cash Flows From Investing Activities |         |        | (3,842  | )        |         |        | (86,022 | )       |         |        | (25,208 | )
|                                                     |                                                                                |                                                      |                                          |         |        |         |          |         |        |         |         |        
|Cash Flows From Financing Activities:                |                                                                                |                                                      |                                          |         |        |         |          |         |        |         |         |        
|                                                     | Proceeds from issuance of Common Stock in public offering                      |                                                      |                                          |        |        |         |          |        |        |         |         | 262,080 |       
|                                                     | Issuance costs of public offering                                              |                                                      |                                          |        |        |         |          |        |        |         |         | (14,623 | )     
|                                                     | Proceeds from issuance of other Common Stock                                   |                                                      |                                          | 2,230   |        |         |          | 4,067   |        |         |         | 5,293   |       
|                                                     | Proceeds from exercise of warrant                                              |                                                      |                                          |        |        |         |          | 534     |        |         |         |        |       
|                                                     | Proceeds from issuance of note payable                                         |                                                      |                                          | 450     |        |         |          |        |        |         |         |        |       
|                                                     | Repayments of capital lease obligations and equipment loans                    |                                                      |                                          | (38     | )      |         |          | (2,628  | )      |         |         | (1,336  | )     
|                                                     |                                                                                |                                                      |                                          |         |        |         |          |         |        |         |         |        
|                                                     |                                                                                |                                                      | Net Cash Flows From Financing Activities |         |        | 2,642   |          |         |        | 1,973   |         |         |        | 251,414 |  
|                                                     |                                                                                |                                                      |                                          |         |        |         |          |         |        |         |         |        
|Net (Decrease) Increase in Cash and Cash Equivalents |                                                                                |                                                      | (21,316                                  | )       |        |         | (101,209 | )       |        |         | 224,188 |        
|Cash and Cash Equivalents, beginning of period       |                                                                                |                                                      | 128,273                                  |         |        |         | 229,482  |         |        |         | 5,294   |        
|                                                     |                                                                                |                                                      |                                          |         |        |         |          |         |        |         |         |        
|Cash and Cash Equivalents, end of period             |                                                                                | $                                                    | 106,957                                  |         |        | $       | 128,273  |         |        | $       | 229,482 |        
|                                                     |                                                                                |                                                      |                                          |         |        |         |          |         |        |         |         |        
|Supplemental Disclosure:                             |                                                                                |                                                      |                                          |         |        |         |          |         |        |         |         |        
|                                                     | Taxes paid                                                                     |                                                      | $                                        | 1,316   |        |         | $        | 463     |        |         | $       | 210     |       
|                                                     |                                                                                |                                                      |                                          |         |        |         |          |         |        |         |         |        
|                                                     | Interest paid                                                                  |                                                      | $                                        | 16      |        |         | $        | 153     |        |         | $       | 408     |       
|                                                     |                                                                                |                                                      |                                          |         |        |         |          |         |        |         |         |        
|Non-Cash Transactions:                               |                                                                                |                                                      |                                          |         |        |         |          |         |        |         |         |        
|                                                     | Equity investment received as partial payment for a GeneExpress Subscription   |                                                      | $                                        | 1,000   |        |         | $        |        |        |         | $       |        |       
|                                                     |                                                                                |                                                      |                                          |         |        |         |          |         |        |         |         |        
|                                                     | Promissory note received from sale of investment                               |                                                      | $                                        |        |        |         | $        | 2,654   |        |         | $       |        |       
|                                                     |                                                                                |                                                      |                                          |         |        |         |          |         |        |         |         |        
|                                                     | Spin-off of assets to unconsolidated investee                                  |                                                      | $                                        |        |        |         | $        | 871     |        |         | $       |        |       
|                                                     |                                                                                |                                                      |                                          |         |        |         |          |         |        |         |         |        
|                                                     | Capital lease termination                                                      |                                                      | $                                        |        |        |         | $        |        |        |         | $       | 288     |       
|                                                     |                                                                                |                                                      |                                          |         |        |         |          |         |        |         |         |        

The accompanying notes are an integral part of these consolidated financial
statements.

F-6



---



##### 



Gene Logic Inc.

Notes to Consolidated Financial Statements
December 31, 2002, 2001 and 2000
(in thousands, except share and per share data)

Note 1  Organization and Summary of Significant Accounting Policies

Organization and Business

Gene Logic Inc. (the Company) was incorporated in Delaware on September
22, 1994. The Company is a genomic-based services company that provides
genomic information and bioinformatics products and services to the
pharmaceutical and biotechnology industries. The Company has applied expertise
in biosample collection, handling and processing, genomic data production, and
data management and software systems development, to create a broad range of
gene expression-based information solutionsthe GeneExpress Systemthat
facilitate the drug discovery and development process. The Companys mission
is to develop products and services based on leading genomics technologies that
improve results and enable improved effectiveness, productivity and safety in
the research efforts of drug discovery and development companies worldwide.

Principles of Consolidation

The consolidated financial statements for the years ended December 31,
2001 and 2000 include the accounts of Gene Logic Inc. and its wholly owned
subsidiary, Gene Logic Acquisition Corp. The Company and its wholly owned
subsidiary were merged in the fourth quarter of 2001. All material
intercompany accounts and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets,
liabilities, revenue and expenses in the financial statements and in the
disclosures of contingent assets and liabilities. While actual results could
differ from those estimates, management believes that actual results will not
be materially different from amounts provided in the accompanying financial
statements.

Comprehensive Loss

The Company accounts for comprehensive loss as prescribed by Statement of
Financial Accounting Standards No. 130, Reporting Comprehensive Income.
Comprehensive income (loss) is the total net income (loss) plus all changes in
equity during the period except those changes resulting from investment by
owners and distribution to owners. Total comprehensive loss was $23,819,
$33,153 and $24,014 for the years ended December 31, 2002, 2001 and 2000,
respectively.

Concentration of Credit Risk

Cash, cash equivalents and marketable securities available-for-sale are
financial instruments that potentially subject the Company to concentrations of
credit risk. The estimated fair value of financial instruments approximates
the carrying value based on available market information. The Company
primarily invests its excess available funds in money market funds, corporate
commercial paper and notes and bills issued by the U.S. government and its
agencies and, by policy, seeks to ensure both liquidity and safety of
principal. The policy also limits investments to certain types of instruments
issued by institutions with strong investment grade credit ratings and places
restrictions on their terms, geographic origin and concentrations by type and
issuer.

Cash and Cash Equivalents

Cash and cash equivalents are defined as liquid investments with
maturities of 90 days or less when purchased. All other investments are
reported as marketable securities available-for-sale. Cash and cash
equivalents as of December 31, 2002 and 2001 are comprised of:

|                             |  |      |         |      |  |   |         | 
|---------------------------- |  | ---- | ------- | ---- |  | - | ------- | 
|                             |  | 2002 |         | 2001
|                             |  |      |         |     
|Cash                         |  | $    | 2,306   |      |  | $ | 3,677   | 
|Money market funds           |  |      | 104,651 |      |  |   |        | 
|Corporate commercial paper   |  |      |        |      |  |   | 116,607 | 
|Government agency securities |  |      |        |      |  |   | 7,989   | 
|                             |  |      |         |      |  |   |         | 
|Total                        |  | $    | 106,957 |      |  | $ | 128,273 | 
|                             |  |      |         |      |  |   |         | 

F-7



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##### 



Marketable Securities Available-for-Sale

All marketable securities are classified as available-for-sale.
Available-for-sale securities are carried at fair value, with unrealized gains
and losses reported as other comprehensive income (loss) included in
stockholders equity. Realized gains and losses and declines in value judged
to be other than temporary for available-for-sale securities are included in
other income (expense). The cost of securities sold is based on the specific
identification method.

As of December 31, 2002, the Companys investment portfolio consisted of
corporate bonds and U.S. government and its agencies notes and bonds. All
marketable securities had original maturities greater than 90 days, but less
than two years. As of December 31, 2002, all of the Companys investments were
classified as current as the Company may not hold its investments until
maturity in order to take advantage of market conditions.

|                             |  |           |        |                  |  |            |     |  |  |   |        | 
|---------------------------- |  | --------- | ------ | ---------------- |  | ---------- | --- |  |  | - | ------ | 
|                             |  | Amortized |        | Gross Unrealized |  |            |     | 
|                             |  | Cost      |        | Gains            |  | Fair Value
|                             |  |           |        |                  |  |           
|Corporate bonds              |  | $         | 7,769  |                  |  | $          | 63  |  |  | $ | 7,832  | 
|Government securities        |  |           | 4,998  |                  |  |            | 53  |  |  |   | 5,051  | 
|Government agency securities |  |           | 47,130 |                  |  |            | 132 |  |  |   | 47,262 | 
|                             |  |           |        |                  |  |            |     |  |  |   |        | 
|Total                        |  | $         | 59,897 |                  |  | $          | 248 |  |  | $ | 60,145 | 
|                             |  |           |        |                  |  |            |     |  |  |   |        | 

Inventory

Inventory is stated at the lower of cost or market. Cost is determined
using the first-in, first-out method for microarrays and laboratory reagents
and the average cost basis for tissue samples. All inventory is reviewed for
impairment and appropriate reserves are recorded. At December 31, 2002 and
2001, all inventory is classified as raw materials:

|                              |  |      |       |      |  |   |       |  
|----------------------------- |  | ---- | ----- | ---- |  | - | ----- | -
|                              |  | 2002 |       | 2001
|                              |  |      |       |     
|Microarrays                   |  | $    | 3,695 |      |  | $ | 2,370 |  
|Laboratory reagents           |  |      | 803   |      |  |   | 990   |  
|Tissue samples                |  |      | 5,018 |      |  |   | 2,971 |  
|                              |  |      |       |      |  |   |       |  
|                              |  |      | 9,516 |      |  |   | 6,331 |  
|Less  tissue sample reserves |  |      | (580  | )    |  |   | (234  | )
|                              |  |      |       |      |  |   |       |  
|Inventory, net                |  | $    | 8,936 |      |  | $ | 6,097 |  
|                              |  |      |       |      |  |   |       |  

Property and Equipment

Property and equipment is carried at cost, less accumulated depreciation
and amortization. Depreciation and amortization is recorded using the
straight-line method over the estimated useful lives of the assets as follows:

|                              |  |                                            
|----------------------------- |  | -------------------------------------------
|Furniture                     |  | 3-10 years                                 
|Computer and office equipment |  | 1-5 years                                  
|Laboratory equipment          |  | 1-5 years                                  
|Leasehold improvements        |  | Lesser of the lease term or the useful life

Long-Term Investments

The Company has made equity investments in companies whose businesses may
be complementary to the Companys business. Investments in which the Company
has the ability to exercise significant influence over the investee, but less
than a controlling voting interest, are accounted for under the equity method
of accounting. Under the equity method of accounting, the Companys share of
the investees earnings or losses are included in operations to the extent the
Company has an investment in the investee recorded as an asset (see Note 3
relating to Neuralstem, Inc. (Neuralstem) and MetriGenix, Inc.
(MetriGenix), respectively). The Company accounts for its other investments
under the cost method of accounting, as the Company holds less than 20% of the
voting stock outstanding under such arrangements and does not exert significant
influence over these companies.

Goodwill

Goodwill, from the acquisition of Oncormed, Inc. in 1998, represents the
excess of the purchase price over the fair market value of the net assets
acquired. Goodwill was being amortized over five years at a rate of
approximately $1,524 per year through December 31, 2001. Amortization expense
was $1,524 for each of the years ended December 31, 2001 and 2000. Accumulated
amortization of goodwill was $4,953 as of December 31, 2001.

F-8



---



##### 



The Company adopted the provisions of Financial Accounting Standards Board
Statement No. 142, Goodwill and Other Intangible Assets (SFAS 142)
effective January 1, 2002 and as a result discontinued the amortization of
goodwill as such, no amortization was recorded in 2002. Based on the initial
impairment test performed as of January 1, 2002 and the subsequent annual
impairment test at October 1, 2002, no impairment exists in the value of
goodwill.

Intangibles and Other Assets

Intangibles and other assets consist primarily of licenses, patent costs,
software development costs and database upgrade costs.

The Company has licensed from third parties the proprietary rights and
technical information covered by various patents and patent applications.
These licenses will continue for the term of the agreement or the life of the
respective patent, whichever is shorter. License costs are being amortized
over their expected useful lives, but not greater than the term of the
agreement or the life of the respective patent. Certain agreements call for
the payment of royalties and maintenance fees.

Patent costs include issued patents and patent applications and are stated
at cost. Amortization of issued patent costs is recorded using the
straight-line method over the shorter of their expected useful life or the
legal lives of the patents, generally for periods ranging up to 20 years. The
Company wrote-off certain patent costs in the amount of $1,147 during the year
ended December 31, 2002 after determining that the technologies underlying such
patents and applications would no longer be utilized in the Companys business.

In accordance with the provisions of the Financial Accounting Standards
Board Statement No. 86, Accounting for the Costs of Computer Software to be
Sold, Leased or Otherwise Marketed, the Company has capitalized certain
software development costs incurred in developing certain products upon the
demonstration of technological feasibility. Software development costs are
being amortized over their expected useful life of three years upon release of
the software or upgrades.

Database upgrade costs include purchases of data to integrate into the
Companys products and upgrades of existing gene expression data utilizing
Affymetrixs most recent microarrays. Costs capitalized from upgrades are
primarily microarrays and related reagents. These costs are capitalized and
amortized over their expected useful life of three and two years, respectively,
upon release of the update.

Impairment of Long-Lived Assets

Long-lived assets, consisting principally of property and equipment,
long-term investments and intangible assets (including licenses, patent costs,
software development costs and database upgrade costs), are evaluated for
possible impairment through a review of undiscounted expected future cash
flows. If an impairment loss is indicated, the Company will measure the amount
of the impairment by comparing the carrying value of the asset to the present
value of the expected future cash flows associated with the use of the asset.

Research and Development

Research and development costs are charged to operations when incurred or
acquired.

Database Production

Costs to populate and maintain the Companys existing core database
product, the GeneExpress System, and other genomic information products are
expensed as incurred. These costs include direct labor, microarrays, tissues,
licensing agreements, reagents, outside consultants and overhead.

Revenue Recognition

Subscription fees to the GeneExpress System are recognized ratably over
the term of the subscription agreement. Fees from customized information
products and services are recognized when they are earned, which is ordinarily
when the work is performed or costs are incurred. Nonrefundable up-front
payments are recognized as revenue ratably over the term of the related
agreement.

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

F-9



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##### 



Effective January 1, 2000, the Company changed its method of accounting
for revenue in accordance with SEC Staff Accounting Bulletin No. 101, Revenue
Recognition in Financial Statements. Prior to 2000, the Company recognized as
revenue certain nonrefundable up-front payments for the value of data
purchased, transfer of technology or other contractual rights that were not
contingent upon future performance under the terms of the agreement upon
signing of the agreement or when collected. Under the new accounting method
adopted retroactive to January 1, 2000, the Company now defers these
nonrefundable up-front payments and recognizes them as revenue ratably over the
life of the related agreements. The cumulative effect of the change on prior
years resulted in a charge of $1,322, which is included in the net loss for the
year ended December 31, 2000. The effect of the change on the years ended
December 31, 2001 and 2000, was to increase revenue and decrease net loss
before the cumulative effect of the accounting change by $497 ($0.02 per
share) and $825 ($0.03 per share), respectively. The change had no effect on
the year ended December 31, 2002.

Segment Information

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

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

|                    |                   |  |                 |    |   |  |   |    |   |  |  |    |  
|------------------- | ----------------- |  | --------------- | -- | - |  | - | -- | - |  |  | -- | -
|                    |                   |  | Major Customers
|                    |                   |  |                
|                    |                   |  | A               |    | B |  | C
|                    |                   |  |                 |    |   |  |  
|For the year ended: |                   |  |                 |    |   |  |   |    |   |  |  |   
|                    | December 31, 2002 |  |                 |   |   |  |   |   |   |  |  |   |  
|                    | December 31, 2001 |  |                 |   |   |  |   | 11 | % |  |  | 16 | %
|                    | December 31, 2000 |  |                 | 32 | % |  |   | 18 | % |  |  |   |  

Revenue from customers located in Japan accounted for 29%, 17% and 34% of
revenue in 2002, 2001 and 2000, respectively. Revenue from customers located
in the United Kingdom accounted for 11% of revenue in 2002. Revenue from
customers located in Germany accounted for 11% of revenue in 2000.

Income Taxes

The Company accounts for income taxes under the provisions of Statement of
Financial Accounting Standards No. 109, Accounting for Income Taxes (SFAS
109). Under the asset and liability method of SFAS 109, deferred tax assets
and liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases and net operating loss and tax
credit carryforwards. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. Under
SFAS 109, the effect on deferred tax assets and liabilities of a change in tax
rates is recognized in operations in the period that includes the enactment
date.

Basic and Diluted Net Loss Per Share

Net loss per share is computed using the weighted average number of shares
of Common Stock outstanding. Common equivalent shares from all outstanding
stock options and warrants are excluded from the computation, as their effect
is antidilutive.

F-10



---



##### 



Stock Option Plans

At December 31, 2002, the Company has two stock-based employee
compensation plans, which are described more fully in Note 11. The Company
accounts for those plans under the recognition and measurement principles of
Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees (APB 25), and related interpretations. Under APB 25, compensation
expense is recorded over the vesting period to the extent that the fair value
of the underlying stock on the date of grant exceeds the exercise or
acquisition price of the stock or stock-based award. The following table
illustrates the effect on net loss and loss per share if the Company had
applied the fair value recognition provisions of Statement of Financial
Accounting Standards No. 123, Accounting for Stock Based Compensation (SFAS
123), to stock-based employee compensation for the years ended December 31:

|                                                                                                          |             |   |         |       |      |   |         |       |   |   |         |       |  
|--------------------------------------------------------------------------------------------------------- | ----------- | - | ------- | ----- | ---- | - | ------- | ----- | - | - | ------- | ----- | -
|                                                                                                          |             |   | 2002    |       | 2001 |   | 2000   
|                                                                                                          |             |   |         |       |      |   |        
|Net loss, as reported                                                                                     |             | $ | (24,050 | )     |      | $ | (33,170 | )     |   | $ | (24,017 | )    
|Add: Stock-based employee
compensation expense included in
reported net loss                              |             |   |        |       |      |   | 738     |       |   |   | 1,179   |      
|Deduct: Stock-based employee
compensation expense determined
under fair value based method for
all awards |             |   | (15,336 | )     |      |   | (25,821 | )     |   |   | (37,782 | )    
|                                                                                                          |             |   |         |       |      |   |         |       |   |   |         |      
|Pro forma net loss                                                                                        |             | $ | (39,386 | )     |      | $ | (58,253 | )     |   | $ | (60,620 | )    
|                                                                                                          |             |   |         |       |      |   |         |       |   |   |         |      
|Basic and diluted net loss per share:                                                                     |             |   |         |       |      |   |         |       |   |   |         |      
|                                                                                                          | As reported |   | $       | (0.89 | )    |   | $       | (1.25 | ) |   | $       | (0.95 | )
|                                                                                                          | Pro forma   |   | $       | (1.47 | )    |   | $       | (2.19 | ) |   | $       | (2.40 | )

The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option pricing model for the years ended December 31,
2002, 2001 and 2000, with the following assumptions:

|                        |  |                |  |                |     |                |  |      |  |  |  | 
|----------------------- |  | -------------- |  | -------------- | --- | -------------- |  | ---- |  |  |  | 
|                        |  | 2002           |  | 2001           |     | 2000          
|                        |  |                |  |                |     |               
|Expected volatility     |  | 71%            |  |                | 76% |                |  | 143% | 
|Risk-free interest rate |  | 2.04% to 4.42% |  | 2.99% to 4.69% |     | 5.04% to 6.70%
|Expected lives          |  | 3 years        |  | 3 years        |     | 3 years       
|Dividend rate           |  | 0%             |  |                | 0%  |                |  | 0%   | 

Reclassifications

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

New Accounting Pronouncements

In August 2001, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets (SFAS 144). SFAS 144 addresses the financial
accounting and reporting for the impairment or disposal of long-lived assets.
SFAS 144 supersedes SFAS 121 but retains the fundamental provisions of SFAS 121
for (i) recognition/measurement of impairment of long-lived assets to be held
and used and (ii) measurement of long-lived assets to be disposed of by sale.
SFAS 144 also supersedes the accounting and reporting provisions of Accounting
Principles Board Opinion No. 30, Reporting the Results of Operations 
Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions
(APB 30), for segments of a business to be disposed of, but retains APB 30s
requirement to report discontinued operations separately from continuing
operations and extends that reporting to a component of an entity that either
has been disposed of or is classified as held for sale. The Company adopted
the provisions of SFAS 144 effective January 1, 2002, which had no material
impact on the Companys financial statements.

In June 2002, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 146, Accounting for Costs Associated with
Exit or Disposal Activities (SFAS 146), which addresses accounting for
restructuring and similar costs. SFAS No. 146 supersedes previous accounting
guidance, principally Emerging Issues Task Force (EITF) Issue No. 94-3
(Issue No. 94-3). SFAS No. 146 requires that the liability for costs
associated with an exit or disposal activity be recognized when the liability
is incurred. Under Issue No. 94-3, a liability for exit costs was recognized
at the date of a companys commitment to an exit plan. SFAS No. 146 also
establishes that the liability should initially be measured and recorded at
fair value. Accordingly, SFAS No. 146 will affect the timing of recognizing
exit and restructuring costs as well as the amount recognized. The Company
will adopt this guidance prospectively for exit or disposal activities after
January 1, 2003, and does not expect that adoption will have a material effect
on reported results of operations.

In November 2002, the Financial Accounting Standards Board issued
Interpretation No. 45, Guarantors Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees and Indebtedness of Others. The
Interpretation elaborates on the disclosures to be made by a guarantor in its
interim and annual financial statements about its obligations under certain
guarantees that it has issued. The Interpretation also clarifies that a
guarantor is required to recognize, at the inception of a guarantee, a
liability for the fair value
F-11

of the obligation undertaken in issuing the guarantee. The initial
recognition and initial measurement provisions of the Interpretation are
applicable on a prospective basis to guarantees issued or modified after
December 31, 2002. The disclosure requirements in this Interpretation are
effective for financial statements of interim or annual periods ending after
December 15, 2002. The Company has made no guarantees subject to the liability
recognition provisions of the Interpretation. The Company adopted the
disclosure requirements of the standard for its December 31, 2002 reporting
period.

The EITF Issue No. 00-21, Accounting for Revenue Arrangement with
Multiple Deliverables (Issue No. 00-21), addresses circumstances involving
the delivery or performance of multiple products, services, and/or rights to
use assets, and for which performance may occur at different points in time or
over different periods of time. The issue also addresses whether the different
revenue-generating activities, or deliverables, are sufficiently separable, and
there exists sufficient evidence of their fair values to separately account for
some or all of the deliverables. The issue applies to all contractual
arrangements under which a vendor will perform multiple revenue-generating
activities. Issue No. 00-21 is effective for all revenue arrangements entered
into in fiscal periods beginning after June 15, 2003, with early adoption
permitted. The Company will adopt this guidance prospectively for all revenue
arrangements entered into after January 1, 2003. The Company does not believe
that the impact of adoption will be material to the Companys results of
operations.

Note 2  Property and equipment

Property and equipment includes the following as of December 31, 2002 and
2001:

|                                                 |  |      |         |      |  |   |         |  
|------------------------------------------------ |  | ---- | ------- | ---- |  | - | ------- | -
|                                                 |  | 2002 |         | 2001
|                                                 |  |      |         |     
|Furniture                                        |  | $    | 1,495   |      |  | $ | 1,495   |  
|Computer and office equipment                    |  |      | 13,142  |      |  |   | 12,675  |  
|Laboratory equipment                             |  |      | 9,550   |      |  |   | 9,085   |  
|Leasehold improvements                           |  |      | 8,269   |      |  |   | 8,137   |  
|                                                 |  |      |         |      |  |   |         |  
|                                                 |  |      | 32,456  |      |  |   | 31,392  |  
|Less  accumulated depreciation and amortization |  |      | (17,686 | )    |  |   | (13,034 | )
|                                                 |  |      |         |      |  |   |         |  
|Property and equipment, net                      |  | $    | 14,770  |      |  | $ | 18,358  |  
|                                                 |  |      |         |      |  |   |         |  

Depreciation expense was $5,451, $5,405 and $3,895 for the years ended
December 31, 2002, 2001 and 2000, respectively. Capitalized interest in
relation to leasehold improvements was $100 for the year ended December 31,
2001.

Note 3  Long-term investments

During 2000, the Company purchased a 26.7% voting stock interest in
Neuralstem, a privately held unconsolidated investee. The investment was
accounted for under the equity method of accounting. Through April 30, 2001,
the Company recorded its equity share of losses of Neuralstem and intercompany
transactions were eliminated in the accompanying financial statements.
Effective April 30, 2001, the Companys voting stock interest was reduced to
14.8% and the Company began accounting for its investment in Neuralstem under
the cost method of accounting. The financial statements do not reflect any
additional share of Neuralstems losses or elimination of intercompany sales
and expenses after such date. The Companys equity share of losses of
Neuralstem was $1,492 through April 30, 2001. During the fourth quarter of
2001, the Company recorded a $2,495 write-down of its investment to reflect
Neuralstems estimated market value. At December 31, 2002, the value of the
Companys investment in Neuralstem was $4,268.

During 2001, the Company completed a spin-off of its patented Flow-thru
Chip technology to a newly created subsidiary, MetriGenix. The Company
contributed relevant intellectual property and know-how associated with the
Flow-thru Chip technology, and transferred certain employees, to the new
venture in exchange for voting common stock. Concurrent with the spin-off,
MetriGenix completed a private equity financing of voting preferred stock,
which reduced the Companys voting ownership interest to 54% as of the closing.
The shareholders entered into an agreement, which contains certain restrictions
on transfer of MetriGenix stock and provisions regarding certain matters of
corporate governance, including provisions that provide the investors with veto
rights with respect to certain significant aspects of MetriGenixs operations.
As a result, because the Company does not control MetriGenix, the Company
accounts for its investment using the equity method. During the year ended
December 31, 2001, the Company recorded 100% of MetriGenixs losses up to the
value of the Companys contribution ($871). As the Companys investment in
MetriGenix has been reduced to zero at December 31, 2001 and there is no
guarantee or commitment to provide future funding, the Company does not expect
to record additional losses related to this investment in the future. The
Company also entered into certain agreements with MetriGenix including a
subscription to GeneExpress and to provide certain administrative services and
subleased space. No revenue has been recorded related to the subscription for
the years ended December 31, 2002 and 2001. For the years ended December 31,
2002 and 2001, the Company received fees of $793 and $256, respectively, for
the reimbursement of costs associated with providing administrative services
and subleased space. These fees will continue as long as the Company provides
such services and subleased space.

F-12



---



##### 



Under an agreement with Avalon Pharmaceuticals, Inc. (Avalon), the
Company received convertible preferred stock in 1999 and 2002 as partial
payment for a subscription to the GeneExpress System. The Company accounts for
this investment under the cost method of accounting, as the Company holds less
than 10% of Avalons voting stock outstanding and does not exert significant
influence over Avalon. During 2002, the Company sold 50% of its Avalon
holdings for a gain of $250. At December 31, 2002, the value of the Companys
investment in Avalon was $1,000.

During 2002, the Company recorded a $753 write-down of its investment in
Metabometrix, Ltd. (Metabometrix) due to a decline in Metabometrix estimated
market value that was deemed to be other than temporary. The Company accounts
for this investment under the cost method of accounting, as the Company holds
less than 10% of Metabometrixs voting stock outstanding and does not exert
significant influence over Metabometrix.

Note 4  Intangible assets

As of January 1, 2002, the Company adopted SFAS 142, which addresses the
financial accounting and reporting standards for goodwill and other intangible
assets. This Standard requires that goodwill be separately disclosed from
other intangible assets in the balance sheet, and no longer be amortized, but
tested for impairment on a periodic basis.

In accordance with SFAS No. 142, the Company discontinued the amortization
of goodwill effective January 1, 2002. A reconciliation of previously reported
net loss and net loss per share to the pro forma amounts adjusted for the
exclusion of goodwill amortization for the years ended December 31 is as
follows:

|                                      |  |      |         |      |  |      |         |   |  |   |         |  
|------------------------------------- |  | ---- | ------- | ---- |  | ---- | ------- | - |  | - | ------- | -
|                                      |  | 2002 |         | 2001 |  | 2000
|                                      |  |      |         |      |  |     
|Reported net loss                     |  | $    | (24,050 | )    |  | $    | (33,170 | ) |  | $ | (24,017 | )
|Add: Goodwill amortization            |  |      |        |      |  |      | 1,524   |   |  |   | 1,524   |  
|                                      |  |      |         |      |  |      |         |   |  |   |         |  
|Pro forma adjusted net loss           |  | $    | (24,050 | )    |  | $    | (31,646 | ) |  | $ | (22,493 | )
|                                      |  |      |         |      |  |      |         |   |  |   |         |  
|Basic and diluted net loss per share: |  |      |         |      |  |      |         |   |  |   |         |  
|Reported net loss                     |  | $    | (0.89   | )    |  | $    | (1.25   | ) |  | $ | (0.95   | )
|Add: Goodwill amortization            |  |      |        |      |  |      | 0.06    |   |  |   | 0.06    |  
|                                      |  |      |         |      |  |      |         |   |  |   |         |  
|Pro forma adjusted net loss           |  | $    | (0.89   | )    |  | $    | (1.19   | ) |  | $ | (0.89   | )
|                                      |  |      |         |      |  |      |         |   |  |   |         |  

As required by SFAS No. 142, intangible assets that do not meet the
criteria for recognition apart from goodwill must be reclassified. As a result
of the Companys analysis, no reclassifications were required upon the adoption
of this Standard.

Information regarding the Companys other intangible assets at December 31
is as follows:

|                               |                            |   |        |        |      |   |        |        | 
|------------------------------ | -------------------------- | - | ------ | ------ | ---- | - | ------ | ------ | 
|                               |                            |   | 2002   |        | 2001
|                               |                            |   |        |        |     
|Carrying amount:               |                            |   |        |        |      |   |        |       
|                               | Licenses                   |   | $      | 8,966  |      |   | $      | 8,140  | 
|                               | Patent costs               |   |        | 2,228  |      |   |        | 2,541  | 
|                               | Software development costs |   |        | 17,998 |      |   |        | 11,578 | 
|                               | Database upgrade costs     |   |        | 5,738  |      |   |        | 4,013  | 
|                               |                            |   |        |        |      |   |        |       
|Total carrying amount          |                            | $ | 34,930 |        |      | $ | 26,272 |       
|                               |                            |   |        |        |      |   |        |       
|Accumulated amortization:      |                            |   |        |        |      |   |        |       
|                               | Licenses                   |   | $      | 4,491  |      |   | $      | 3,067  | 
|                               | Patent costs               |   |        | 129    |      |   |        | 257    | 
|                               | Software development costs |   |        | 6,773  |      |   |        | 3,146  | 
|                               | Database upgrade costs     |   |        | 2,443  |      |   |        | 2,322  | 
|                               |                            |   |        |        |      |   |        |       
|Total accumulated amortization |                            | $ | 13,836 |        |      | $ | 8,792  |       
|                               |                            |   |        |        |      |   |        |       
|Net carrying value:            |                            |   |        |        |      |   |        |       
|                               | Licenses                   |   | $      | 4,475  |      |   | $      | 5,073  | 
|                               | Patent costs               |   |        | 2,099  |      |   |        | 2,284  | 
|                               | Software development costs |   |        | 11,225 |      |   |        | 8,432  | 
|                               | Database upgrade costs     |   |        | 3,295  |      |   |        | 1,691  | 
|                               |                            |   |        |        |      |   |        |       
|Total net carrying value       |                            | $ | 21,094 |        |      | $ | 17,480 |       
|                               |                            |   |        |        |      |   |        |       

F-13



---



##### 



Amortization expense for the years ended December 31, 2002, 2001 and 2000
was $8,076, $5,638 and $2,943, respectively. Estimated amortization expense
for existing intangible assets for each of the five succeeding years ending
December 31 will be as follows:

|     |  |   |       | 
|---- |  | - | ----- | 
|2003 |  | $ | 9,188 | 
|2004 |  |   | 6,330 | 
|2005 |  |   | 3,005 | 
|2006 |  |   | 439   | 
|2007 |  |   | 57    | 

Note 5  Accrued expenses

Accrued expenses consist of the following as of December 31, 2002 and
2001:

|                            |  |      |       |      |  |   |       | 
|--------------------------- |  | ---- | ----- | ---- |  | - | ----- | 
|                            |  | 2002 |       | 2001
|                            |  |      |       |     
|Property additions          |  | $    | 89    |      |  | $ | 378   | 
|Professional fees           |  |      | 804   |      |  |   | 841   | 
|Payroll, taxes and benefits |  |      | 4,146 |      |  |   | 3,604 | 
|Consulting fees             |  |      | 148   |      |  |   | 199   | 
|                            |  |      |       |      |  |   |       | 
|Accrued expenses            |  | $    | 5,187 |      |  | $ | 5,022 | 
|                            |  |      |       |      |  |   |       | 

Note 6  Long-term debt

Long-term debt at December 31, 2002 and 2001 consists of the following:

|                                                                                                                                                       |  |      |     |      |  |   |     |  
|------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ---- | --- | ---- |  | - | --- | -
|                                                                                                                                                       |  | 2002 |     | 2001
|                                                                                                                                                       |  |      |     |     
|Facility loan  bearing interest at 5.0%
per annum and due in quarterly
installments through September 2009                                            |  | $    | 300 |      |  | $ | 338 |  
|Facility loan bearing interest at 4.5%
and due March 2007. The loan will be
forgiven or due upon demand depending on
Maryland-based employment levels |  |      | 450 |      |  |   |    |  
|                                                                                                                                                       |  |      |     |      |  |   |     |  
|                                                                                                                                                       |  |      | 750 |      |  |   | 338 |  
|Less  current portion                                                                                                                                 |  |      | (40 | )    |  |   | (38 | )
|                                                                                                                                                       |  |      |     |      |  |   |     |  
|Long-term debt                                                                                                                                         |  | $    | 710 |      |  | $ | 300 |  
|                                                                                                                                                       |  |      |     |      |  |   |     |  

As of December 31, 2002, principal payments on long-term debt for the
years ending December 31 are as follows:

|                    |  |   |     | 
|------------------- |  | - | --- | 
|2003                |  | $ | 40  | 
|2004                |  |   | 42  | 
|2005                |  |   | 44  | 
|2006                |  |   | 47  | 
|2007                |  |   | 499 | 
|2008 and thereafter |  |   | 78  | 
|                    |  |   |     | 
|                    |  | $ | 750 | 
|                    |  |   |     | 

Interest expense was $16, $153, and $408 for the years ended December 31,
2002, 2001 and 2000, respectively.

Note 7  Stockholders equity

On February 1, 2000, the Company completed a follow-on public offering of
its Common Stock at $56.00 per share. The Company sold 4,680,000 shares,
including the underwriters over-allotment option. Net proceeds to the
Company, after deducting the underwriting discounts and commissions and
offering expenses, were approximately $247,545.

F-14



---



##### 



Note 8  Income taxes

Income tax expense reflected in the consolidated statements of operations
represents withholding taxes on certain payments by foreign customers. The
actual income tax expense for the years ended December 31, 2002, 2001 and 2000
is different from the amount computed by applying the statutory federal income
tax rates to losses before income tax expense. The reconciliation of these
differences is as follows:

|                                                     |  |      |        |      |  |      |         |   |  |   |         |  
|---------------------------------------------------- |  | ---- | ------ | ---- |  | ---- | ------- | - |  | - | ------- | -
|                                                     |  | 2002 |        | 2001 |  | 2000
|                                                     |  |      |        |      |  |     
|Tax benefit at federal statutory rate                |  | $    | (8,177 | )    |  | $    | (11,279 | ) |  | $ | (8,166  | )
|State income taxes, net of federal income tax effect |  |      | (1,111 | )    |  |      | (1,527  | ) |  |   | (1,105  | )
|Benefit from stock option compensation               |  |      | (488   | )    |  |      | (1,723  | ) |  |   | (12,846 | )
|Other                                                |  |      | 1,368  |      |  |      | 1,554   |   |  |   | (145    | )
|Increase in valuation allowance                      |  |      | 9,900  |      |  |      | 13,508  |   |  |   | 22,472  |  
|                                                     |  |      |        |      |  |      |         |   |  |   |         |  
|Income tax expense                                   |  | $    | 1,492  |      |  | $    | 533     |   |  | $ | 210     |  
|                                                     |  |      |        |      |  |      |         |   |  |   |         |  

The tax effect of cumulative temporary differences at December 31, 2002
and 2001 is as follows:

|                          |                                     |  |        |         |      |  |        |         |  
|------------------------- | ----------------------------------- |  | ------ | ------- | ---- |  | ------ | ------- | -
|                          |                                     |  | 2002   |         | 2001
|                          |                                     |  |        |         |     
|Deferred Tax Assets:      |                                     |  |        |         |      |  |        |        
|                          | NOL and tax credit carryforwards    |  | $      | 73,463  |      |  | $      | 63,946  |  
|                          | Contract revenue                    |  |        | 1,494   |      |  |        | 1,748   |  
|                          | Net loss in unconsolidated investee |  |        | 2,150   |      |  |        | 1,809   |  
|                          | Depreciation                        |  |        | 917     |      |  |        |        |  
|                          | Accrued vacation                    |  |        | 507     |      |  |        | 410     |  
|                          | Other                               |  |        | 1,056   |      |  |        | 760     |  
|                          |                                     |  |        |         |      |  |        |        
|                          |                                     |  | 79,587 |         |      |  | 68,673 |        
|                          | Less  valuation allowance          |  |        | (75,028 | )    |  |        | (65,128 | )
|                          |                                     |  |        |         |      |  |        |        
|                          | Net deferred tax assets             |  | $      | 4,559   |      |  | $      | 3,545   |  
|                          |                                     |  |        |         |      |  |        |        
|Deferred Tax Liabilities: |                                     |  |        |         |      |  |        |        
|                          | Capitalized software costs          |  | $      | 4,335   |      |  | $      | 3,257   |  
|                          | Depreciation                        |  |        |        |      |  |        | 136     |  
|                          | Unrealized gains                    |  |        | 96      |      |  |        |        |  
|                          | Other                               |  |        | 128     |      |  |        | 152     |  
|                          |                                     |  |        |         |      |  |        |        
|                          | Net deferred tax liabilities        |  | $      | 4,559   |      |  | $      | 3,545   |  
|                          |                                     |  |        |         |      |  |        |        

At December 31, 2002, Net Operating Loss carryforwards (NOLs) for income
tax purposes were $181,799, including approximately $30,000
related to the acquisition of Oncormed. The Company also has research and
development tax credit carryforwards of $3,252 as of December 31,
2002. The carryforwards, if not utilized, will expire in increments from 2008
through 2022. Utilization of the net operating losses and credits may be
subject to an annual limitation as provided by the Internal Revenue Code of
1986, and there can be no guarantee that such NOLs and tax credits will ever be
fully utilized. As a result of cumulative losses, the Company has recorded a
full valuation allowance against its net deferred tax assets as management
believes it is more likely than not that the assets will not be realizable.

F-15



---



##### 



Contingencies

Clinical trials, manufacturing, marketing and sale of any of the Companys
customers potential therapeutic or diagnostic products may expose the Company
to liability claims from the use of such products. The Company currently
maintains professional liability insurance.

Litigation

The Company is not subject to any pending litigation.

Note 10  401(k) retirement plan

During 1996, the Company established the Gene Logic Inc. 401(k) Retirement
Plan (the 401(k) Plan) for its employees under Section 401(k) of the Internal
Revenue Code. Under this plan, all employees 18 years of age or older and with
at least one day of service with the Company are eligible, starting on the
calendar quarter, to contribute up to 15% of their combined salary and bonus.
Employee contributions are 100% vested. The Company is not required to make
any contributions to the 401(k) Plan and has not made any contributions through
December 31, 2002.

Note 11  Stock-based compensation

During 1996, the Company instituted a stock
plan (the Stock Plan), which
has been amended and restated and, whereby the Compensation Committee (the
Committee) of the Companys Board of Directors, at its discretion, can grant
options, award stock bonuses or provide opportunities to make direct purchases of restricted stock
to employees, certain directors and consultants of the Company and related
corporations. The Stock Plan authorizes the grant of options for up to
9,600,000 shares of Common Stock. In 2002, the Board of Directors amended the Stock Plan to eliminate future stock bonuses and grants of restricted stock. At December 31, 2002, there were 3,929,774
shares available for issuance under the Stock Plan. During 1997, the Company
adopted a Directors stock plan (the Directors Plan) to provide for granting
of options to non-employee directors of the Company. The Directors Plan is
administered by the Committee which is authorized to grant options of up to
575,000 shares of Common Stock. At December 31, 2002, there were 297,500
shares available for issuance under the Directors Plan. Options are to be
granted at the fair market value of the Common Stock at the grant date. The
options, awards and opportunities to purchase stock expire at the earlier of
termination or the date specified by the Committee at the date of grant, but
not more than ten years. During 1997, the Company adopted an Employee Stock
Purchase Plan (the Purchase Plan) covering an aggregate of 750,000 shares of
Common Stock. The Purchase Plan allows employees to purchase shares of Common Stock of the Company at each purchase date through payroll
deductions of up to a maximum of 15% of their combined salary and bonus, at 85%
of the lesser of either the market price of the shares at the time of purchase
or the market price at the employees eligibility date. In 2002, the Board
imposed a limit of 600 shares per purchaser per purchase date. At December 31,
2002, there were 250,079 shares available for issuance under the Purchase Plan.

The following is a roll forward of option activity for the years ended
December 31, 2002, 2001 and 2000:

|                             |                          |  |           |            |        |  |                     |            |          |   |       |       | 
|---------------------------- | ------------------------ |  | --------- | ---------- | ------ |  | ------------------- | ---------- | -------- | - | ----- | ----- | 
|                             |                          |  |           |            |        |  | Shares Subject to  
|                             |                          |  |           |            |        |  | Outstanding Options
|                             |                          |  |           |            |        |  |                    
|                             |                          |  | Shares    |            |        |  |                     |            | Weighted
|                             |                          |  | Available |            |        |  |                     |            | Average 
|                             |                          |  | For Grant |            | Shares |  | Exercise Price     
|                             |                          |  |           |            |        |  |                    
|Balance at January 1, 2000   |                          |  | 2,017,547 |            |        |  | 3,929,014           |            |          | $ | 4.41  |      
|                             | Additional authorization |  |           | 1,500,000  |        |  |                     |           |          |   | $     |      | 
|                             | Options granted          |  |           | (2,466,560 | )      |  |                     | 2,466,560  |          |   | $     | 46.82 | 
|                             | Options exercised        |  |           |           |        |  |                     | (1,163,721 | )        |   | $     | 4.02  | 
|                             | Options cancelled        |  |           | 694,087    |        |  |                     | (694,087   | )        |   | $     | 19.66 | 
|                             |                          |  |           |            |        |  |                     |            |          |   |       |      
|Balance at December 31, 2000 |                          |  | 1,745,074 |            |        |  | 4,537,766           |            |          | $ | 25.16 |      
|                             | Options granted          |  |           | (1,657,657 | )      |  |                     | 1,657,657  |          |   | $     | 16.10 | 
|                             | Options exercised        |  |           |           |        |  |                     | (515,857   | )        |   | $     | 4.31  | 
|                             | Options cancelled        |  |           | 681,160    |        |  |                     | (681,160   | )        |   | $     | 40.46 | 
|                             |                          |  |           |            |        |  |                     |            |          |   |       |      
|Balance at December 31, 2001 |                          |  | 768,577   |            |        |  | 4,998,406           |            |          | $ | 22.23 |      
|                             | Additional authorization |  |           | 1,250,000  |        |  |                     |           |          |   | $     |      | 
|                             | Options granted          |  |           | (496,600   | )      |  |                     | 496,600    |          |   | $     | 13.95 | 
|                             | Options exercised        |  |           |           |        |  |                     | (149,873   | )        |   | $     | 5.88  | 
|                             | Options cancelled        |  |           | 2,705,297  |        |  |                     | (2,705,297 | )        |   | $     | 31.77 | 
|                             |                          |  |           |            |        |  |                     |            |          |   |       |      
|Balance at December 31, 2002 |                          |  | 4,227,274 |            |        |  | 2,639,836           |            |          | $ | 11.83 |      
|                             |                          |  |           |            |        |  |                     |            |          |   |       |      

F-16



---



##### 



Options to purchase a total of 2,092,207, 2,961,240 and 2,003,371 at
December 31, 2002, 2001 and 2000, respectively, were exercisable. The
weighted-average grant-date fair value of options granted during the years
ended December 31, 2002, 2001 and 2000 was $6.85, $8.43 and $37.66,
respectively.

During the year ended December 31, 2002, the Company initiated a tender
offer for outstanding stock options held by employees of the Company. Under
the terms of the tender offer, eligible employees could tender stock options
that were granted with an exercise price equal to or greater than $11.00 per
share subject to additional requirements for any stock option granted after May
4, 2002. Once tendered and accepted, the old stock options were cancelled and
each employee who tendered stock options would be entitled, subject to meeting
certain conditions, to receive new stock options for 80% of the number of
shares available under the cancelled stock options at the fair market value on
the date of the grant which is expected to be between June 12, 2003 and July
11, 2003. One of the conditions to receiving the new stock options is that the
individual must still be employed by the Company on the date of grant. Of the
eligible stock options, 2,290,207 stock options were tendered and cancelled;
assuming that the conditions of the tender offer are met, the Company expects
to grant options up to 1,832,159 shares with respect to this program in 2003.

The following table summarizes information about stock options outstanding
at December 31, 2002:

|               |  |                     |           |                     |  |           |  |                |       |          |  |  |           |  |  |   |       |  |  | 
|-------------- |  | ------------------- | --------- | ------------------- |  | --------- |  | -------------- | ----- | -------- |  |  | --------- |  |  | - | ----- |  |  | 
|               |  | Options Outstanding |           | Options Exercisable
|               |  |                     |           |                    
|               |  |                     |           |                     |  | Weighted  |  |                |       |          |  |  |           |  |  |   |       | 
|               |  | Number              |           | Average             |  | Weighted  |  | Number         |       | Weighted
|               |  | Outstanding at      |           | Remaining           |  | Average   |  | Exercisable at |       | Average 
|Range of       |  | December 31,        |           | Contractual         |  | Exercise  |  | December 31,   |       | Exercise
|Exercise Price |  | 2002                |           | Life                |  | Price     |  | 2002           |       | Price   
|               |  |                     |           |                     |  |           |  |                |       |         
|$0.15$4.13    |  |                     | 673,271   |                     |  | 5.4 Years |  | $              | 2.88  |          |  |  | 650,030   |  |  | $ | 2.84  | 
|$4.14$8.50    |  |                     | 888,918   |                     |  | 6.5 Years |  | $              | 5.41  |          |  |  | 754,120   |  |  | $ | 5.25  | 
|$8.51$14.00   |  |                     | 527,852   |                     |  | 8.9 Years |  | $              | 12.04 |          |  |  | 253,573   |  |  | $ | 12.43 | 
|$14.01$62.88  |  |                     | 549,795   |                     |  | 7.7 Years |  | $              | 32.98 |          |  |  | 434,484   |  |  | $ | 36.20 | 
|               |  |                     |           |                     |  |           |  |                |       |          |  |  |           |  |  |   |       | 
|$0.15$62.88   |  |                     | 2,639,836 |                     |  | 6.9 Years |  | $              | 11.83 |          |  |  | 2,092,207 |  |  | $ | 11.80 | 
|               |  |                     |           |                     |  |           |  |                |       |          |  |  |           |  |  |   |       | 

Note 12  Related party transactions

In connection with the formation of MetriGenix, affiliates of two members
of the Companys Board of Directors purchased an aggregate of 73.3% of
MetriGenixs preferred stock and the Company entered into certain agreements
with MetriGenix, including a subscription to the GeneExpress System from which
the Company derived no revenue for the years ended December 31, 2002 and 2001
and to provide certain administrative services and subleased space (see Note
3). Fees charged to MetriGenix for administrative services and subleased space
totaled $793 and $256 for the years ended December 31, 2002 and 2001,
respectively. In addition, certain officers and a director of the Company
purchased restricted shares of common stock of MetriGenix and the Company
issued promissory notes to four of these officers representing loans issued to
them to fund payment for the shares. As of December 31, 2002, two of the
promissory notes are outstanding.

Note 13  Subsequent events

On February 25, 2003, the Company announced the proposed acquisition of
TherImmune Research Corporation (TherImmune) for approximately $52,000,
subject to adjustment. TherImmune is a privately held, drug development
contract research organization specializing in discovery, preclinical and early
stage clinical trial services. Under the terms of the agreement, the Company
will pay approximately $31,000 in cash and issue TherImmune shareholders new
shares of Common Stock of the Company, with a value of approximately $21,000,
subject to adjustment based on the closing price of the Companys stock during
a period prior to closing. The acquisition is subject to completion of the
securities offering, approval of the TherImmune shareholders and certain other
conditions, including the Companys Common Stock be above a certain minimum
level. The acquisition is expected to close early in the second quarter of
2003.

F-17



---



##### 



Note 14  Quarterly results of operations (unaudited)

The following is a summary of the quarterly results of operations for the
years ended December 31, 2002 and 2001.

|                                                               |  |          |         |         |  |              |        |             |  |   |        |   |  |   |        |  
|-------------------------------------------------------------- |  | -------- | ------- | ------- |  | ------------ | ------ | ----------- |  | - | ------ | - |  | - | ------ | -
|                                                               |  | March 31 |         | June 30 |  | September 30 |        | December 31
|                                                               |  |          |         |         |  |              |        |            
|2002                                                           |  |          |         |         |  |              |        |             |  |   |        |   |  |   |        |  
|Revenue                                                        |  | $        | 11,842  |         |  | $            | 14,066 |             |  | $ | 14,185 |   |  | $ | 14,755 |  
|Net loss before equity in net loss of
unconsolidated investees |  |          | (7,533  | )       |  |              | (4,380 | )           |  |   | (6,957 | ) |  |   | (5,180 | )
|Equity in net loss of unconsolidated investees                 |  |          |        |         |  |              |       |             |  |   |       |   |  |   |       |  
|                                                               |  |          |         |         |  |              |        |             |  |   |        |   |  |   |        |  
|Net loss                                                       |  | $        | (7,533  | )       |  | $            | (4,380 | )           |  | $ | (6,957 | ) |  | $ | (5,180 | )
|                                                               |  |          |         |         |  |              |        |             |  |   |        |   |  |   |        |  
|Basic and diluted net loss per share:                          |  |          |         |         |  |              |        |             |  |   |        |   |  |   |        |  
|Net loss before equity in net loss of
unconsolidated investees |  | $        | (0.28   | )       |  | $            | (0.16  | )           |  | $ | (0.26  | ) |  | $ | (0.19  | )
|Equity in net loss of unconsolidated investees                 |  |          |        |         |  |              |       |             |  |   |       |   |  |   |       |  
|                                                               |  |          |         |         |  |              |        |             |  |   |        |   |  |   |        |  
|Net loss                                                       |  | $        | (0.28   | )       |  | $            | (0.16  | )           |  | $ | (0.26  | ) |  | $ | (0.19  | )
|                                                               |  |          |         |         |  |              |        |             |  |   |        |   |  |   |        |  
|2001                                                           |  |          |         |         |  |              |        |             |  |   |        |   |  |   |        |  
|Revenue                                                        |  | $        | 8,211   |         |  | $            | 9,603  |             |  | $ | 11,547 |   |  | $ | 13,966 |  
|Net loss before equity in net loss of
unconsolidated investees |  |          | (9,416  | )       |  |              | (9,102 | )           |  |   | (6,421 | ) |  |   | (5,912 | )
|Equity in net loss of unconsolidated investees                 |  |          | 1,189   |         |  |              | 261    |             |  |   | 817    |   |  |   | 54     |  
|                                                               |  |          |         |         |  |              |        |             |  |   |        |   |  |   |        |  
|Net loss                                                       |  | $        | (10,605 | )       |  | $            | (9,363 | )           |  | $ | (7,238 | ) |  | $ | (5,966 | )
|                                                               |  |          |         |         |  |              |        |             |  |   |        |   |  |   |        |  
|Basic and diluted net loss per share:                          |  |          |         |         |  |              |        |             |  |   |        |   |  |   |        |  
|Net loss before equity in net loss of
unconsolidated investees |  | $        | (0.36   | )       |  | $            | (0.34  | )           |  | $ | (0.24  | ) |  | $ | (0.22  | )
|Equity in net loss of unconsolidated investees                 |  |          | (0.05   | )       |  |              | (0.01  | )           |  |   | (0.03  | ) |  |   |       |  
|                                                               |  |          |         |         |  |              |        |             |  |   |        |   |  |   |        |  
|Net loss                                                       |  | $        | (0.40   | )       |  | $            | (0.35  | )           |  | $ | (0.27  | ) |  | $ | (0.22  | )
|                                                               |  |          |         |         |  |              |        |             |  |   |        |   |  |   |        |  

F-18



---



##### 



Gene Logic Inc.
Schedule II  Valuation and Qualifying Accounts
December 31, 2002, 2001 and 2000
(in thousands)

Reserve for Tissue samples

|                  |  |            |     |          |  |             |     |  |  |   |     | 
|----------------- |  | ---------- | --- | -------- |  | ----------- | --- |  |  | - | --- | 
|                  |  | Balance at |     |          |  |             |     |  |  |  
|                  |  | Beginning  |     | New      |  | Balance at 
|                  |  | of Year    |     | Reserves |  | End of Year
|                  |  |            |     |          |  |            
|December 31, 2002 |  | $          | 234 |          |  | $           | 346 |  |  | $ | 580 | 
|December 31, 2001 |  | $          |    |          |  | $           | 234 |  |  | $ | 234 |