##### 



---

---

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



---



FORM 10-K

|     |  |                                                         
|---- |  | --------------------------------------------------------
|[X]  |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE    
|     |  | SECURITIES EXCHANGE ACT OF 1934                         
|     |  | For the fiscal year ended December 31, 2001             
|     |  | OR                                                      
|[  ] |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
|     |  | SECURITIES EXCHANGE ACT OF 1934                         
|     |  | For the transition period from

to                      
|     |  | Commission File 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. X

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 March 1,
2002 was approximately $372,142,000, 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 26,870,709 as of March 1, 2002.

Documents Incorporated By Reference

The Registrants Definitive Proxy Statement to be filed with the
Securities and Exchange Commission (the Commission) pursuant to Regulation
14A in connection with the 2002 Annual Meeting of Stockholders to be held on
June 6, 2002 is incorporated by reference into Part III of this Annual Report
on Form 10-K to the extent stated herein.



---

| | * |  | Excludes 4,343,948 shares of Common Stock held by directors and
executive officers and stockholders whose beneficial ownership exceeds
10% of the shares outstanding on March 1, 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.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



---

---

1



---



##### 



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® is a registered trademark of Gene Logic. BioExpressTM,
ToxExpressTM and Genesis: The Enterprise SystemTM (Genesis or Genesis
Enterprise System) are trademarks of Gene Logic. GeneChip® is a registered
trademark of Affymetrix, Inc. Flow-thru ChipTM is a trademark of MetriGenix,
Inc. GencartaTM is a trademark of Compugen, Ltd.

Overview

We are a leading provider of integrated genomics-based information
products, services and bioinformatics related to gene activity in human disease
and toxicity that enable global pharmaceutical and biotechnology companies to
optimize the time, risk and cost of drug discovery and development.

We were incorporated in Delaware in September 1994, and commenced
operations in 1996. We initiated our first commercial collaboration in 1997
and engaged in custom target discovery research programs with a variety of
pharmaceutical companies. The skills and competencies acquired in conducting
such collaborations became the foundation for the commercial launch of our
genomics-based information product, GeneExpress, in late 1999.

GeneExpress is equal parts biocontent and bioinformatics. It comprises
what we believe to be the worlds most comprehensive survey of gene expression
in human and animal tissues related to disease and drug
toxicity. Gene expression is the degree to which genes in a cell are switched
on or off. GeneExpress consists of three primary products: i) BioExpress,
which is a broad and in-depth survey of gene expression in a wide range of
normal and diseased human tissues, tissues from experimental animals and human
and animal cell lines; ii) ToxExpress, which is a collection of predictive
models based on gene expression profiles and predictive modeling capabilities
derived from tissues and cell lines treated with drugs and other compounds
associated with known classes of toxicity; and iii) Genesis Enterprise System,
which is a proprietary bioinformatics system that allows customers to combine
and analyze detailed clinical histories and full genomic information. The full
range of GeneExpress products allows for detailed examination of the
interrelationships between the human genome, disease processes and mechanisms of toxicity.

Our GeneExpress and its line of products and related services can be used
for a variety of applications. In basic research, GeneExpress can enable the
discovery and prioritization of gene targets. GeneExpress can also enable the
prioritization of compounds based on their potential for human toxicity. In
clinical development, GeneExpress can be used to highlight which categories of
patients might be best suited for new and existing therapies. We plan to
enrich the genomic content of GeneExpress through continued expansion of the
tissue samples representing a broad and in-depth survey of human biology, as
well as possible future usage of the tissue samples using proteomic and other
emerging analytical technologies. We also plan to add to GeneExpress
functionality through continued upgrades to and development of proprietary
software tools for analysis and integration of third-party software and
content.

We collect tissues and cells as part of our Biorepository through a global
network of clinical sites. We generate gene expression information from these
tissues and cells using the latest GeneChip microarray technology manufactured
by Affymetrix. At year-end 2001, GeneExpress contained gene expression
profiles on nearly 12,000 tissue samples. By year-end 2003, we expect to have
complete gene expression profiles from over 30,000 tissue samples, over half of
which will be tissues from a wide range of human organs, each with
comprehensive clinical information, representing a broad and in-depth survey of
human gene expression across most major disease and/or toxic
indication.

Our research and development activities primarily relate to efforts to
expand the content and bioinformatics capabilities of our genomic information
products. Research and development expenses for the years ended December 31,
2001, 2000 and 1999 were $59.0 million, $44.0 million and $29.6 million,
respectively.

2



---



##### 



Our strategy is to market and sell our GeneExpress product line to global
pharmaceutical and biotechnology companies, and to expand our market
opportunities with academic research centers, contract research organizations,
diagnostics manufacturers and other life sciences organizations. Our goal is
to provide genomic information products and services that address the need for
improved efficiency in life science research, drug discovery and drug
development.

We provide our pharmaceutical and biotechnology customers access to our
GeneExpress information products and services primarily through annual
subscription agreements. Typically, our customers enter into multi-year
agreements to obtain non-exclusive access to GeneExpress.
These agreements often require us to provide specific
content updates, consisting of clinical and related gene expression data from samples representing specific normal and diseased states.
During 2001, our
revenue consisted primarily of these database subscription fees. We also
received revenue for the licensing of certain other GeneExpress products, as
well as software and related professional services.

GeneExpress

GeneExpress is constructed of three interrelated databases: i) the
biological descriptions of the tissue samples and the associated clinical data
(see Core CompetenciesBiorepository); ii) the quantitative measurements of
gene expression from the analysis of tissue samples using leading microarray
technology (see Core CompetenciesGenomic Data Production); and iii) the Gene
Index, a collection of publicly available annotation information for genes
represented on the latest GeneChip microarray from Affymetrix, created through
links to over 15 regularly updated public genome databases (see Core
CompetenciesSoftware and Database Management). The three databases can be
manipulated using sophisticated proprietary software, GeneExpress Software
System, which is included as part of a GeneExpress product subscription and is
used to manage these
extensive clinical records and gene expression values.

GeneExpress Product Line

We currently offer a growing line of GeneExpress information products and
services, which are sold to leading pharmaceutical and biotechnology companies
engaged in genomics-based drug discovery and development. Our GeneExpress
product line consists of three primary products: i) BioExpress, from which are
derived DataSuites, CustomSuites, and GeneExpress Reports; ii) ToxExpress; and
iii) Genesis Enterprise System. Current pricing over a three-year term
agreement for full access to GeneExpress ranges between $13 and $16 million,
depending upon a variety of factors, including timing and scope of
installation.

Leveraging our strengths in the field of genomic information products, we
recently announced the launch of a new product, GeneExpress Gencarta, which
will integrate a customized version of primarily human annotated genomic
information from Compugens Gencarta database with the gene expression
information in GeneExpress. This product will be available as an add-on
component to any GeneExpress customer, and anticipated pricing over a
three-year term agreement for access to GeneExpress Gencarta is expected to
range between $0.75 and $1.0 million, depending upon a variety of factors,
including timing and scope of installation.

BioExpress

BioExpress is the largest information subset within GeneExpress, and
comprises a broad gene expression survey of normal and diseased human tissues
and a limited number of studies of pharmaceutically relevant disease models.
BioExpress 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, and
developmental biology, as well as normal samples. BioExpress provides
researchers with gene expression information to study normal physiology,
elucidate the mechanisms of disease, identify disease-associated pathways and
select and prioritize potential drug targets. Customers use BioExpress to
identify and prioritize novel disease-associated gene targets. Current pricing
over a three-year term agreement for access to BioExpress ranges between $9 and
$13 million, depending upon a variety of factors, including timing and scope of
installation.

DataSuites

DataSuites are disease/indication-specific subsets derived from
BioExpress, which provides comprehensive gene expression, genetic and clinical
information from a focused range of normal and diseased tissue samples.
Current DataSuites that are commercially available include the GeneExpress
Oncology DataSuite, the GeneExpress Human Atlas DataSuite, the GeneExpress
Cardiovascular DataSuite, and the GeneExpress Central Nervous System DataSuite.
We continue to assess opportunities to launch additional DataSuite products as
we progress with our disease-focused content strategy, which is based on
indications of significant market interest. Current pricing over a three-year
term agreement for access to the available DataSuites ranges between $2.5 and
$4.5 million, depending upon a variety of factors, including timing and scope
of installation.

CustomSuites

CustomSuites, which combine proprietary information from BioExpress and
customers proprietary information generated either in-house or by us, are
customized DataSuites tailored to the specific research interests of our
customers who wish to define their own content. In certain instances, we
process our customers proprietary samples and integrate that data into
additional customized products. Current pricing over a three-year term
agreement for access to a CustomSuite product ranges between $2.5 and $6.5
million, depending upon a variety of factors, including timing and scope of
installation.

3



---



##### 



GeneExpress Reports

GeneExpress Reports consist of standardized single-gene information
analyses based on gene expression information in BioExpress. Current pricing
for access to GeneExpress Reports is on a pay-per-view basis, and ranges
between $25,000 and $0.3 million, depending on the number of genes and tissue
samples surveyed.

ToxExpress

ToxExpress is comprised of gene expression profiles of tissues and cells
treated with drugs and other compounds associated with known classes of
toxicity that affect specific organs. 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 marketed pharmaceuticals known to be toxic. Additional toxicology studies
have been initiated based on other organ models and cell types, including
kidney, heart and bone marrow. The resulting toxicology profile information is
correlated with studies on primary human and rat cells to establish in vitro
models of human toxicity. These toxicity profiles and the resulting predictive
modeling capabilities can be used as references against which the gene
expression profiles induced by new drug leads can be compared in order to
assess their toxic potentials. 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 ToxExpress and
its predictive models as a primary tool to assess potential single- or
multi-organ toxicity of proprietary lead compounds using gene expression
information. Current pricing over a three-year term agreement for access to
ToxExpress ranges between $4.5 and $7.5 million, depending upon a variety of
factors, including timing and scope of installation.

Genesis Enterprise System and Associated Professional Services

Based on our experience in database integration, we developed the Genesis
Enterprise System, a collection of software and professional services. This
software system is designed to enable customers to manage their own in-house,
proprietary gene expression and sample information in a manner similar to that
used to manage the genomic and clinical information in GeneExpress. Genesis is
content-ready, stand-alone software and a complete enterprise-wide
integration solution. We offer customers integration services in conjunction
with the Genesis, to assist customers with more complex implementations.
Current pricing for a license to Genesis and access to its associated
professional services could range between $0.3 to over $1 million, depending
upon which elements of the system and services are purchased.

Other Products and Services

As a leading provider of genomic information, from time to time we provide
certain customers customized products based on proprietary genomic services.
In the past, we have developed custom gene expression databases, under research
collaboration agreements, tailored to customers specific research interests
and based on the analysis of proprietary samples provided to us by these
customers. Pricing for such projects have been determined on a case-by-case
basis, and typically include annual access fees, research support and milestone
payments.

Going forward, we do not expect to emphasize these types of projects, as
they are not part of our core genomic information products focus.

4



---



##### 



Customers

As of March 18, 2002, we have announced agreements to sell our genomics
information products and services to the following customers:

|                         |  |         |  |         |  |           |  |         |  |         |  |             |  |                 
|------------------------ |  | ------- |  | ------- |  | --------- |  | ------- |  | ------- |  | ----------- |  | ----------------
|                         |  | Bio-    |  | Tox-    |  |           |  | Custom- |  |         |  | GeneExpress |  | Other Products &
|Customer                 |  | Express |  | Express |  | DataSuite |  | Suite   |  | Genesis |  | Reports     |  | Services        
|                         |  |         |  |         |  |           |  |         |  |         |  |             |  |                 
|Artesian Therapeutics    |  |         |  |         |  | X         |  |         |  |         |  |             |  |                 
|AstraZeneca(1)           |  | X       |  | X       |  |           |  |         |  |         |  |             |  |                 
|Athersys                 |  |         |  |         |  |           |  |         |  |         |  | X           |  |                 
|Avalon(1)                |  | X       |  | X       |  |           |  |         |  |         |  |             |  |                 
|Aventis                  |  |         |  |         |  |           |  | X       |  |         |  |             |  |                 
|Biogen                   |  |         |  |         |  |           |  | X       |  |         |  |             |  |                 
|Boehringer Ingelheim(1)  |  | X       |  | X       |  |           |  |         |  |         |  |             |  |                 
|Daiichi                  |  | X       |  |         |  |           |  |         |  |         |  |             |  |                 
|DGI                      |  |         |  |         |  |           |  |         |  |         |  | X           |  |                 
|Genaissance(1)           |  | X       |  | X       |  |           |  |         |  |         |  |             |  |                 
|Genentech                |  | X       |  |         |  |           |  |         |  |         |  |             |  |                 
|GlaxoSmithKline          |  | X       |  |         |  |           |  |         |  | X       |  |             |  |                 
|IDEC                     |  |         |  |         |  | X         |  |         |  |         |  |             |  |                 
|Japan Tobacco(2)         |  |         |  |         |  |           |  |         |  |         |  |             |  | X               
|LG Chemical              |  |         |  |         |  | X         |  |         |  |         |  |             |  | X               
|Morphochem               |  |         |  |         |  | X         |  |         |  |         |  | X           |  | X               
|Neuralstem(1)            |  | X       |  | X       |  |           |  |         |  |         |  |             |  |                 
|NV Organon               |  |         |  | X       |  | X         |  |         |  |         |  |             |  | X               
|Pfizer                   |  |         |  | X       |  |           |  |         |  | X       |  |             |  | X               
|Procter & Gamble(2), (3) |  |         |  |         |  |           |  | X       |  |         |  |             |  | X               
|Proteologics             |  |         |  |         |  |           |  |         |  |         |  | X           |  |                 
|Psychiatric Genomics     |  |         |  |         |  | X         |  |         |  |         |  |             |  |                 
|PsychoGenics             |  |         |  |         |  |           |  | X       |  |         |  |             |  |                 
|Sankyo(1)                |  | X       |  | X       |  |           |  |         |  |         |  |             |  |                 
|Sumitomo(1)              |  | X       |  | X       |  |           |  |         |  |         |  |             |  |                 
|UCB(3)                   |  | X       |  |         |  |           |  | X       |  | X       |  |             |  | X               
|Vertex(2)                |  |         |  |         |  |           |  |         |  |         |  | X           |  |                 
|Wyeth(1)                 |  | X       |  | X       |  |           |  |         |  |         |  |             |  |                 
|ZYCOS                    |  |         |  |         |  |           |  |         |  |         |  | X           |  |                 
|Unnamed biopharma(2)     |  |         |  |         |  |           |  |         |  |         |  | X           |  |                 

|    |                                            
|--- | -------------------------------------------
|(1) | Subscribes to a full GeneExpress
product.  
|(2) | Not expected to generate future revenue.   
|(3) | Represented 10% or more of revenue in 2001.



Core Competencies

The construction of our GeneExpress line of products and services is based
on specific core competencies. These competencies include: i) the
Biorepositorythe acquisition and proper handling of human and animal tissue
samples and associated clinical information used for genomic analysis; ii)
genomic data productionthe analysis of each sample using leading microarray
technologies on an industrial scale; iii) software and database developmentthe
sophisticated bioinformatics interface and data management backbone for
analysis, visualization and management of the resulting genomic information;
and iv) marketing, sales and customer support.

5



---



##### 



Biorepository

We have spent the last four years methodically building what we believe to
be one of the worlds most comprehensive collection of diseased and normal surgical
tissue samples, obtained through a network of contracted collaborations with
U.S. 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 and
inflammatory diseases and developmental biology. Each tissue sample is
acquired under an Institutional Review Board-approved protocol designed to
ensure patient confidentiality and full clinical record disclosure. The
Biorepository collection process is managed by our senior scientific directors,
who work closely with our customers to create a prioritized plan for acquiring and processing
relevant normal and diseased tissue samples.

The foundation of our Biorepository is the network of clinical centers,
teaching hospitals, academic medical centers, and commercial providers from
which we get the tissue samples. Each clinical center has typically required
up to one year to establish a steady inflow of tissue samples and clinical data
records that meet our stringent quality specifications. In general, we provide
each institution and its researchers with a combination of funding for
training, research, and infrastructure, as well as access to the data specific
to their samples. This blend of compensation and limited access to the sample
data has proven to be both a unique and substantial motivator for our clinical
centers to provide us with samples that meet our rigorous quality requirements.
We will pursue additional relationships with clinical centers worldwide as we
continue to populate GeneExpress with gene expression information from tissue
samples representing disease indications that meet the research demands of our
pharmaceutical and biotechnology customers.

At each center within our network, we have established Institutional
Review Board-approved protocols, including patient informed consents, to ensure
proper acquisition of the tissues and relevant clinical information. Tissues
are obtained according to specific handling protocols that preserve their
quality. The samples are shipped to our headquarters together with pathology
data extracted from patient records. To obtain normal and treated experimental
animal tissues, we have contracted with a clinical research organization that
specializes in this area. At our facilities, samples undergo rigorous quality
control and examination by board-certified pathologists. The process includes
taking photomicrographs of histologically stained thin sections prepared from
each sample, which can be viewed using GeneExpress.

At December 31, 2001, the Biorepository included nearly 12,000 samples
fully incorporated into the content of GeneExpress, as well as an additional
several thousand samples in inventory and not yet processed. We anticipate
doubling the number of samples in GeneExpress by year-end 2002.

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
Affymetrixs technology and all related reagents, instrumentation and software.
Production activities take place in a newly opened, 57,000 square foot
facility, of which we currently occupy 33,000 square feet. A substantial
portion of our production environment is dependent on the use of Affymetrix
products, instrumentation and software and related reagents. We recently
negotiated a new agreement with Affymetrix to obtain GeneChip microarrays and
instrumentation and software, for our use in generating gene expression
information, on a nonexclusive basis, with
volume discounted prices, quality specifications and terms relating to the timing of deliveries.
We agreed to purchase a minimum of $15.1 million in products and services from Affymetrix in 2002. We
also agreed to pay Affymetrix a royalty
in future years
upon meeting certain GeneExpress subscription revenue thresholds. This latest
agreement will expire January 1, 2004, but may be extended up to two additional
years. If Affymetrix licenses their microarray technology to others, including
our competitors, for similar uses, our business may suffer. The agreement
limits us from buying microarrays from third parties if Affymetrix provides
reasonable evidence that those third party microarrays materially infringe
Affymetrixs intellectual property rights.

Our genomic data production process entails high-throughput analysis of
human tissue samples and cell lines to identify each samples individual gene
expression profile. The expression levels of the genes in each sample are
measured using the latest GeneChip microarrays from Affymetrix. Labeled cRNA
sequences from a tissue sample bind to complementary DNA sequences on the
GeneChip microarray and are detected using a fluorescent stain. The positions
of the fluorescent spots on the chip are detected and then identified as to
which genes were expressed in the sample. The intensity of the fluorescent
spot represents a precise, quantitative measure of the level of gene
expression. Each measure is permanently stored and can be compared across
every other sample that has been analyzed in a similar manner within
GeneExpress.

Once each sample has been analyzed, any remaining residual sample, or
biomolecule, is stored for possible reuse. For example, we are using stored
residual material to upgrade the content of BioExpress utilizing the most
recent GeneChip microarrays from Affymetrix. We anticipate completion of this
upgrade by mid-year 2002.

Software and Database Management

We possess extensive software development expertise and experience in data
management and analysis of high volumes of heterogeneous genomic data. The
data production process generates very large amounts of gene expression data,
including comprehensive

6



---



##### 



sample data and gene annotations, which must be managed efficiently and
integrated with data from customers in-house research efforts, as well as a
growing number of public domain genomic and medical database sources. These
various databases often have different, incompatible structures. Our
proprietary data management and analysis software is designed to manage,
integrate, explore and query such disparate data sets as if they were part of a
single database.

The bioinformatics structure of GeneExpress is a highly sophisticated
system architecture based on an enterprise-wide information warehouse. This
warehouse is comprised of three interrelated databases: i) the biological
descriptions of the tissue samples and the associated clinical data; ii)
quantitative measurements of gene expression in the samples; and iii) the Gene
Index. These three interrelated databases are hosted on the latest Oracle
server technology. Running on top of the information warehouse, through a
structure known as the analysis engine, is a layer of software analysis
tools.

Our GeneExpress 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 each of
our customers.

Data mining within GeneExpress is performed using a proprietary
high-performance analysis engine. This engine provides rapid access to gene
expression information organized as a collection of two dimensional main-memory
matrices. Various matrices cover different types of gene expression and other
genomic information, where these data are classified by species, GeneChip
version, or methods used to generate raw gene expression data. Since these
individual methods of data generation are generally imprecise, we have
developed an infrastructure that can support multiple methods to ensure
cross-method validation, as well as refined analysis results. Exploration and
analysis of GeneExpress content is carried out by our GeneExpress Explorer
client-user interface. We developed our proprietary GeneExpress Software
System using the Java programming environment and a CORBA mechanism for
communication in a three-tier architecture, which comprises a database server,
analysis engine and query processor middle-ware and user interface client.

We periodically update our GeneExpress Software System to improve its
performance, analytical power and usability. We continue to conduct research
and development on refining 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, Marketing and Customer Support

We are currently marketing and selling GeneExpress products and services
directly to our pharmaceutical and biotechnology customers in North America,
Western Europe, and portions of Asia.
We will continue to seek
opportunities to sell complementary, third-party products and technologies
through distribution agreements, for use in downstream applications. Moreover,
we plan to market our genomic information products and services to diagnostic
companies, contract research organizations, and academic and governmental
research groups.

We generally market our genomic information products and services directly.
However, in September 2000, we entered into a nonexclusive distribution
agreement with Amersham Biosciences K.K. (ABKK) (formerly Amersham Pharmacia
Biotech K.K.) to sell and market, our GeneExpress line of products and services
in Japan. Under this agreement, ABKK receives a percentage of revenue that
results from sales in Japan.

MetriGenix

In July 2001, we completed the transfer of our patented Flow-thru Chip
technology into a subsidiary, MetriGenix, which is focused on further
developing and commercializing the technology in the form of a multigene
screening tool for pharmaceutical, biotechnology and other life science
customers. We contributed to MetriGenix relevant intellectual property
associated with the Flow-thru Chip and we transferred certain employees, in
exchange for 54% of the then outstanding voting stock, represented by Class A
Common Stock. A group of investors paid $15 million in cash in
exchange for the then remaining voting stock, represented by Series A Preferred
Stock. We and the investors entered into a stockholders agreement, which contains certain
restrictions on transfer
of MetriGenix stock and provisions regarding certain matters of
corporate governance.
We sublease space to MetriGenix and provide various administrative, marketing and
other services for monthly fees, which are intended to reimburse us for our costs, and we have entered into a GeneExpress
subscription with MetriGenix, for which we recorded no revenue in 2001.

Competition

Competition among entities working in and generating products derived from
genomic information is intense. A number of companies, institutions and
government-financed entities are engaged in gene sequencing, gene discovery,
gene expression analysis, toxicogenomics, proteomics and other genomic
services. Many 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. We
expect that additional competitors may attempt to establish databases
containing these types of genomic information in the future.

7



---



##### 



We are aware that a number of companies and institutions are pursuing
efforts to amass repositories of human clinical samples, cell lines, and animal
models. We face competition from these and other entities in
gaining access to cells, tissues and nucleic acid samples used in building our
genomic information products.

Extensive research efforts and rapid technological progress characterize
the current genomics industry. New developments are expected to continue and
discoveries by others could render our genomic information products and
services noncompetitive. In addition, significant levels of research in drug
discovery and development occur in universities and other non-profit research
institutions. These entities have become increasingly active in seeking patent
protection and licensing revenue for their research results. These entities
also compete with us in recruiting talented scientists, software developers,
bioinformaticists and others with key managerial experience.

We believe there are no genomic information products comparable to
GeneExpress, 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.

Future competition will come from existing competitors, as well as other
entities seeking to develop new technologies for drug discovery and development
based on genomics, proteomics, bioinformatics and other related technologies.
Certain pharmaceutical and biotechnology companies have significant need for
genomic information and may choose to develop or acquire competing technologies
to meet their needs. Our agreement with Affymetrix provides us with
nonexclusive access to GeneChip microarrays for use in building GeneExpress.
Our competitors could obtain licenses to use GeneChip technology or other
technologies to develop their own genomic information products for internal use
or may use such technologies to develop competitive products and services.

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 technological advantage in terms of using the
latest, and most widely accepted genomic technologies. Rapid technological
development may result in products or technologies becoming obsolete before the
expenses incurred in their development can be recovered. Our products could be
made obsolete by less expensive or more effective drug discovery and
development technologies and products, including technologies unrelated to
genomics.

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 both to access external technologies and assets and to convey
certain intellectual property rights to others. 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.

As of December 31, 2001, we had exclusive rights to 40 issued patents, 20
of which are United States patents, and 164 patent applications, 108 of which
are United States patent applications or United States provisional patent
applications, relating to our technologies. We have exclusive rights to United
States patents covering key aspects of gene expression analysis.

The patent positions of pharmaceutical, biopharmaceutical and
biotechnology companies, including our own patent position, are generally
uncertain and involve complex legal and factual questions. Our business could
be hurt by any of the following:



| |  |  | the pending patent applications that we own or to which we have exclusive rights may not result in issued patents;                                                                                        
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | the claims of any patents which are issued may not provide meaningful protection;                                                                                                                         
|
| |  |  | we may not be successful in developing additional proprietary technologies that are patentable;                                                                                                           
|
| |  |  | patents licensed or issued to us or our customers may not provide a
basis for commercially viable products or provide us with any
competitive advantages, and they may be challenged by third parties; and
|
| |  |  | others may have patents that relate to our technology or business,
which we might infringe and be unable to license on appropriate terms.                                                                 

In addition, patent law relating to the scope of claims in the technology
fields in which we operate is still evolving. For example, the U.S. Patent and
Trademark Office has issued guidelines relating to the patentability of
inventions, including biotechnology inventions, that have not been conclusively
evaluated by the courts and that might limit the scope of available patent
protection. The degree of future protection for our proprietary rights,
therefore, is uncertain. Furthermore, others may independently develop similar
or alternative technologies, duplicate any of our technologies, and if patents
are licensed or issued to us, design around the patented technologies licensed
to or developed by us. In addition, we could incur substantial costs in
litigation if we are required to defend ourselves in patent suits brought by
third parties or if we initiate such suits.

8



---



##### 



We are aware of a number of United States patents and patent applications
and related foreign patents and patent applications owned by third parties
relating to the analysis of gene expression or the manufacture or use of DNA
microarrays. These other technologies may provide third parties with
competitive advantages over us and may hurt our business. In addition, some
third party patent applications contain broad claims, and it is not possible to
determine whether or not such claims will be narrowed during prosecution and/or
will be allowed and issued as patents, even if such claims appear to cover
prior art or have other defects. An owner or licensee of a patent in the field
may threaten or file an infringement action and we may or may not prevail in
any such action. The cost of defending an infringement action may be
substantial, which could significantly increase our expenses and increase our
losses. Furthermore, required licenses may not be made available on
commercially viable terms, if at all. Failure to obtain any required license
could prevent us from utilizing or commercializing one or more of our genomic
information products.

We have applied, and intend to file additional applications, for patent
protection for methods relating to gene expression, for the disease-specific
and toxin-induced patterns of gene expression that we identify and for the
individual disease genes and targets we discover. Such patents may include
claims relating to novel genes and gene fragments and to novel uses for known
genes or gene fragments identified through our discovery programs, as well as
to related business methods, databases and software tools. However, we may not
be able to obtain commercially meaningful patent protection for our
discoveries; even if patents are issued, the scope of the coverage or
protection they would afford is uncertain. Failure to secure such meaningful
patent protection would endanger our competitive position.

Several commercial and academic entities are attempting to identify and
patent gene fragments and full-length genes, the functions of which have not
been characterized, as well as fully characterized genes. There is substantial
uncertainty regarding possible patent protection for gene fragments or genes
without a well-characterized biological function or correlation with specific
diseases. To the extent any patents issue to other parties on such partial or
full-length genes, the risk increases that our potential products and processes
and those of our customers may give rise to claims of patent infringement. The
public availability of partial or full sequence information or the existence of
patent applications related thereto, even if not accompanied by relevant
function or disease association, prior to the time we apply for patent
protection on a corresponding gene could hinder our ability to obtain patent
protection with respect to such gene or to the related expression patterns or
its use in associated microarray technologies. Furthermore, others may have
filed, and in the future are likely to file, patent applications covering
genes, gene products or expression profiles that are similar, or identical to,
any for which we may seek patent protection. These patent applications may
have priority over patent applications filed by us. Any legal action against
us or our customers claiming damages and seeking to enjoin our commercial
activities relating to the affected products and processes could, in addition
to subjecting us to potential liability for damages, require us and our
customers to obtain a license in order to continue to manufacture or market the
affected products and processes. Neither we nor our customers may prevail in
any such action and any license required under any patent may not be available
on commercially acceptable terms, if at all. There is significant litigation in
the pharmaceutical and biotechnology industries regarding patent and other
intellectual property rights. If we become involved in such litigation, it
could consume a substantial portion of our managerial and financial resources
and negatively impact our financial results.

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 difficult to enforce, we rely on
trade secret protection and confidentiality agreements 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. Some of these data will be the subject of patent applications,
whereas 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 and continue to explore further methods of
protection. While we require all employees, consultants and customers to enter
into confidentiality agreements, we cannot be certain that proprietary
information will not be disclosed, that others will not independently develop
substantially equivalent proprietary information and techniques or otherwise
gain access to our trade secrets, or that we can meaningfully protect our trade
secrets. 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. Any material leak of
confidential data into the public domain or to third parties may cause our
business, financial condition and results of operations to be harmed.

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 on commercially
reasonable terms, if at all. Failure by us to maintain such rights could harm
our business.

9



---



##### 



Government Regulation

Regulation of Use of Human Tissue

Our access to and use of human or other tissue samples in the expansion of
our GeneExpress products and services may become subject to government
regulation, both in the United States and abroad. U.S. 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 final and proposed regulations governing human cellular and tissue-based
products. None of these regulations are currently effective, and it is
uncertain whether or how they will impact our operations. 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.

Environmental Regulation

Our research and development activities in some cases 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 government regulation other
than regulations affecting the operations of companies generally.

Human Resources

As of March 1, 2002, Gene Logic employed 272 individuals full-time, of
whom 71 were engaged in genomic data production, 37 were engaged in content
development, 88 were engaged in software and database development, 38 were
engaged in marketing, sales, deployment and customer support, and 38 were
engaged in finance, general administration and computer information systems.
Of our employees, 77 have doctoral degrees and 72 hold other advanced degrees.
A significant number of our management and professional employees have had
prior experience with pharmaceutical, biotechnology, diagnostic or medical
products, computer software or electronics companies. None of our employees is
covered by collective bargaining agreements, and management considers relations
with its employees to be good.

Executive Officers

The names and ages of all executive officers as of March 1, 2002 and their
respective positions and offices with us are set forth below.

|                          |  |     |    |          |  |                                                    
|------------------------- |  | --- | -- | -------- |  | ---------------------------------------------------
|Name                      |  | Age |    | Position
|                          |  |     |    |         
|Mark D. Gessler           |  |     | 40 |          |  | Chairman, Chief Executive Officer and President    
|Philip L. Rohrer, Jr.     |  |     | 45 |          |  | Chief Financial Officer                            
|Y. Douglas Dolginow, M.D. |  |     | 47 |          |  | Senior Vice President, Pharmacogenomics            
|Victor M. Markowitz, D.Sc |  |     | 48 |          |  | Senior Vice President and Chief Information Officer
|David S. Murray           |  |     | 55 |          |  | Senior Vice President, Marketing and Sales         

Mark D. Gesslerhas served as our Chairman of the Board of Directors since
April 2001, as our Chief Executive Officer since June 2000 and as our President
since January 1999. Mr. Gessler served as our Chief Operating Officer from
January 1999 until June 2000. From prior to March 1997 to October 1999, Mr.
Gessler served as our Chief Financial Officer. From prior to March 1997 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 our Chief Financial Officer since
October 1999. Since prior to March 1997 until 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 our 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. Prior thereto, Dr. Dolginow served
as medical director for several clinical laboratories, and since prior to March
1997, 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 our 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 September 1997 to September 1998. Prior thereto, Dr.
Markowitz was a staff scientist at Lawrence Berkeley National Laboratory and

10



---



##### 



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.

David S. Murrayhas served as our Senior Vice President, Marketing and
Sales, since January 2000. From prior to March 1997 to January 2000, Mr.
Murray held various positions with Dun & Bradstreet Corporation, a business
information provider, including Executive Vice President, U.S. Prior thereto,
Mr. Murray served in various executive capacities in the worldwide operations
for that company.

11



---



##### 



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, the following
could seriously harm the Companys business, financial condition or results of
operations. As a result, these risks could cause the decline of the trading
price of the Companys common stock and 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 the Company faces. The
reader should also refer to the other information set forth in this Annual
Report on Form 10-K, including the Companys 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 Products and Services.

Our strategy depends on entering into additional agreements to provide
genomic information products and services to pharmaceutical, biotechnology and
other companies, 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.

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
constituencies within such companies. In addition, each agreement involves 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, aggregate
budgetary resources, as well as budgetary timing cycles, of pharmaceutical and
biotechnology companies can also affect the timing and progress 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. Our information
products may not enable our customers to identify drug targets and drug leads.
Even if they are successful in identifying drug targets and drug leads based on
their discoveries made using our genomic information products, our customers
may not be able to discover or develop commercially viable products. We are not aware
 if any of our customers have developed or commercialized any
therapeutic or diagnostic products based on our information products. If our
pharmaceutical and biotechnology 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.

12



---



##### 



We Rely on GeneChip Microarrays Supplied by
Affymetrix to Build Our GeneExpress
Line of Genomic Information Products.

Our ability to continue to build and update our GeneExpress line of
products will depend in part on the ability of Affymetrix to supply adequate
quantities of high quality GeneChip microarrays, which are widely accepted as
the state-of-the-art in microarray technology. Affymetrix provides us with
GeneChip microarrays under an agreement that expires on January 1, 2004, but
which we have the option to extend for up to one additional two-year term.
This agreement provides us with nonexclusive access to GeneChip microarrays and
instrumentation and software. If Affymetrix licenses GeneChip microarrays to
others, including our competitors, for similar uses, our business may suffer.
The agreement also prohibits us from buying microarrays from third parties if
Affymetrix provides reasonable evidence that those third party microarrays
materially infringe Affymetrixs intellectual property rights. If Affymetrix
is unable or unwilling to supply us with GeneChip microarrays, or if such
microarrays are not available, or if the microarrays are defective, we will
need to obtain access to 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 GeneChip
microarrays could cause our business to suffer by delaying or increasing the
cost of expansion of our GeneExpress line of products and by causing us to be
delayed or unable to meet our content update obligations under our GeneExpress
agreements.

We Have a History of Operating Losses Which Are
Likely to Continue for Some Time.

We have incurred operating losses in each year since our inception. At
December 31, 2001, we had accumulated operating losses of $135.3 million. Our
losses to date have resulted principally from costs incurred in the development
of our genomic information products and services, the $35.2 million
non-recurring charge incurred in connection with our acquisition of Oncormed in
1998 and selling, general and administrative costs associated with operations.
We commenced development of GeneExpress in early 1999 and released the first
commercial version in late 1999. As of March 2002, we have pharmaceutical and
biotechnology customers worldwide utilizing our GeneExpress products and
services and expect to dedicate substantially all of our resources for the
foreseeable future to further developing and maintaining its genomic content
and bioinformatics capabilities. While we recognize revenue from our genomic
information products and services, we also 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 compete
with many other companies for these materials and 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. 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.

Some of our genomics and bioinformatics technologies have been acquired or
licensed from third parties, and we expect to acquire or license additional
technologies from third parties. Our product development activities could
suffer if we are not able to establish access to new or additional technologies
that we believe are important to our business.

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. Our patent
position is generally 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. 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 competitive advantage;                                                                                                       
|
| |  |  | other companies may challenge patents licensed or issued to us;                                                                                                                     
|
| |  |  | patents issued to other companies may restrict our ability to do business;                                                                                                          
|
| |  |  | other companies may independently develop similar or alternative technologies or replicate our technologies; and                                                                    
|
| |  |  | other companies may design around technologies we have licensed and/or patented.                                                                                                    

We may apply for patent protection for methods relating to gene expression
and disease-specific patterns of gene expression that we identify, as well as
individual disease genes and targets that we discover. These patent
applications may include claims relating to novel genes and gene fragments and
to novel uses for known genes or gene fragments identified from the use of our
genomic information

13



---



##### 



products. We may not be able to obtain meaningful patent protection for
our discoveries. Even if patents are issued, their scope of coverage or
protection may be uncertain.

We also rely on trade secret protection and confidentiality agreements 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 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 will 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 receive notices from third parties alleging patent infringement.

Litigation thus may be necessary to:



| |  |  | assert claims of infringement;                                                       
| | - |  | -------------------------------------------------------------------------------------
|
| |  |  | 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 many countries. Further, the laws of some
foreign countries may not protect our intellectual property rights to the same
extent as U.S. 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. Finally, some of our patent
protection in the United States is not available to us in foreign countries
under the laws of those countries.

Our Business and the Products Developed Using
the Information in Our Databases
May Be Subject to Government Regulation.

Any new drug developed by the efforts of our pharmaceutical and
biotechnology customers must undergo an extensive regulatory review process in
the United States and other countries before it can be marketed. This
regulatory process can take many years and require substantial expense.
Changes in FDA policies and the policies of similar foreign regulatory bodies
can increase the delay for each new drug, product license and biological
license application. We expect similar delays in the regulatory review process
for any diagnostic product, where similar review, or other approval, is
required. Even if marketing clearance is obtained, a marketed product and its
manufacturer are subject to continuing review. Discovery of previously unknown
problems with a product may result in withdrawal of the product from the
market.

We are not aware that any product resulting from the use of our genomic
information products and services has been released for commercialization in
the United States, or elsewhere. In addition, no investigational new drug
application has been submitted for any such product candidate. We rely on our
customers to file such applications and to direct the regulatory review
process. We cannot be certain if or when our customers will submit any
applications for regulatory review, or whether our customers will be able to
obtain marketing clearance for any products on a timely basis, if at all. If
our customers fail to obtain required governmental clearances, it will prevent
them from marketing drugs or diagnostic products until such clearance can be
obtained, if at all. The occurrence of any of these events may cause our
business, financial condition and results of operations to 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.

14



---



##### 



We May Have Difficulty Managing Our Growth.

We expect to continue to experience significant growth in the number of
customers and the scope of our operations. This growth may continue to place a
significant strain on our management and operations. Our ability to manage
this growth will depend upon our ability to broaden our management team and our
ability to attract, hire and retain skilled employees. Our success will also
depend on the ability of our officers and key employees to continue to
implement and improve our operational and other systems, to manage an
increasing number of customer relationships and to hire, train and manage our
employees. Our future success is heavily dependent upon growth and acceptance
of our genomic information products and services. If we cannot scale our
business appropriately or otherwise adapt to anticipated growth in this area, a
key part of our strategy may not be successful. In addition, we must continue
to invest in customer support resources as the number of customers for our
information products and their requests for support increase. Our customers
typically have worldwide operations and may require support at multiple U.S.
and foreign sites.

The Genomics Industry Is Intensely 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 research 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 chip-based systems, to
attempt to identify disease-related genes. In addition, numerous
pharmaceutical companies are developing genomic research programs, either alone
or in partnership with our competitors. Competition among such entities is
intense and is expected to increase. 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.

Some of our competitors have substantially greater capital resources,
research and development staffs, facilities, manufacturing and marketing
experience, distribution channels and human resources than do we. These
competitors may discover, characterize or develop important genes, drug
targets, drug leads or drugs that occur in advance of our customers efforts,
or which are more effective than those developed by our customers.
Furthermore, these competitors may obtain regulatory approvals of their drugs
more rapidly than our customers. Moreover, our competitors may obtain patent
protection or other intellectual property rights that would limit our rights or
our customers ability to use our products to commercialize therapeutic or
diagnostic products. We also face competition from these and other entities in
gaining access to cells, tissues and nucleic acid samples used in building our
genomic information products and services. Any of these developments could
have a material adverse effect on our business.

Future competition will come from existing competitors, as well as other
companies seeking to develop new technologies for drug discovery based on gene
sequencing, target gene identification, bioinformatics and related
technologies. In addition, certain pharmaceutical and biotechnology companies
have significant needs for genomic information and may choose to develop or
acquire competing technologies to meet such needs.

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. Rapid
technological development by us or others 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 by 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 Are Derived Primarily from, and Are
Subject to, Risks Faced by the Pharmaceutical and Biotechnology Industries.

We expect that our revenue in the foreseeable future will be derived
primarily from products provided to the pharmaceutical and biotechnology
industries. Accordingly, our success will depend directly upon customer demand
for our genomic information products and services. Our operating results 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;          
|
| |  |  | pricing pressures and reimbursement policies;                          
|
| |  |  | market-driven pressures on companies to consolidate and reduce costs;  
|
| |  |  | other factors affecting customer research and development spending; and
|
| |  |  | additional regulation of drug development.                             

None of these factors is within our control.

15



---



##### 



Multiple Factors Beyond Our Control May Cause
Fluctuations in Our Operating
Results and May Cause Our Business to Suffer.

Our revenue and results of operations may fluctuate significantly,
depending on a variety of factors, including the following:



| |  |  | our success in selling, and changes in the demand for, our products;                                                                                                                 
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | the pricing of our products;                                                                                                                                                         
|
| |  |  | the timing of our new product introductions, if any;                                                                                                                                 
|
| |  |  | the cost, quality and availability of cell and tissue samples,
reagents and related components and technologies, including those
supplied to us pursuant to contractual arrangements;
|
| |  |  | the timing of upgrades to our GeneExpress Software System;                                                                                                                           
|
| |  |  | the timing of content updates to GeneExpress products;                                                                                                                               
|
| |  |  | costs, if any, associated with our equity investments;                                                                                                                               
|
| |  |  | the success or failures of our partners in developing additional content and technologies;                                                                                           
|
| |  |  | changes in the research and development budgets of our customers and potential customers;                                                                                            
|
| |  |  | the introduction of new products and services by our competitors;                                                                                                                    
|
| |  |  | regulatory actions;                                                                                                                                                                  
|
| |  |  | expenses related to the outcomes of litigation and other proceedings related to intellectual property rights;                                                                        
|
| |  |  | the cost and timing of our adoption of new technologies; and                                                                                                                         
|
| |  |  | the supply and quality of raw materials supplied by third parties.                                                                                                                   

In particular, revenue from our genomic information business are unpredictable because:



| |  |  | the sales cycle for our information products is lengthy; and                                
| | - |  | --------------------------------------------------------------------------------------------
|
| |  |  | we are dependent upon continued commercial demand for the information we gather and provide.

We cannot control many of these factors. In addition, if our revenue in a
particular period do not meet expectations, we may not be able to adjust our
expenditures in that period, which could cause our business to suffer. We
believe that period-to-period comparisons of our financial results will not
necessarily be meaningful. One should not rely on these comparisons as an
indication of our future performance. If our operating results in any future
period fall below the expectations of securities analysts and investors, our
stock price may fall significantly.

Any Future Acquisitions Will Create Risks and Uncertainties.

We may 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. Future 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 operating results 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 may be diluted if we pay for the acquisition with equity securities.                                                                                                                                                                                  

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 experience
intense competition for qualified personnel. We may not be able to continue to
attract and retain personnel necessary for the development of our business.

16



---



##### 



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 legally 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 this liability could exceed our resources.

We believe that we are in compliance in all material respects with
applicable environmental laws and regulations and currently 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
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 we or our customers provide. For example, we may be subject to product
liability if our GeneExpress products contain inaccurate information, or if our
information is derived based on Affymetrix microarrays that are proven
defective, or if any of our customers develops or commercializes a product
discovered through the use of our genomic information products which results in
injury or death to clinical trial participants or patients. 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.

We May Need to Raise Additional Funds in the Future.

While we believe that existing cash, cash equivalents and marketable
securities and anticipated payments from customers will be sufficient to
support our operations for the foreseeable future, at some point we could
require additional funding. We may choose to raise additional capital due to
market conditions or strategic considerations even if we have sufficient funds
for our operating plan. We may seek funding through public or private equity
offerings, debt financings or arrangements with customers. If we raise
additional capital by issuing equity or convertible debt securities, this
issuance may dilute share ownership and future investors may be granted rights
superior to those of current shareholders.

Additional financing may not be available when needed, or, if available,
may not be available on favorable terms. If we cannot obtain adequate
financing on acceptable terms when such financing is required, our business
will be adversely affected.

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 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.

17



---



##### 



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 between two locations in
Gaithersburg, Maryland under lease arrangements with terms expiring in 2010 and
2007, respectively. We lease approximately 13,000 square feet of office space
in Berkeley, California under two 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.

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, 2000 |  |      |         |     |  |   |        | 
|First Quarter                |  | $    | 144.625 |     |  | $ | 24.750 | 
|Second Quarter               |  |      | 46.250  |     |  |   | 18.438 | 
|Third Quarter                |  |      | 35.500  |     |  |   | 16.563 | 
|Fourth Quarter               |  |      | 25.813  |     |  |   | 14.563 | 
|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 | 

On March 1, 2002, the last reported sale price of our common stock on the
Nasdaq National Market was $16.52. As of March 1, 2002, there were
approximately 259 holders of record of the Companys Common Stock.

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, operating results and current and anticipated cash needs.

18



---



##### 



ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA

The selected consolidated financial data set forth below with respect to
the Companys consolidated statements of operations for the years ended
December 31, 2001, 2000 and 1999 and with respect to the consolidated balance
sheets at December 31, 2001 and 2000 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,
1998 and 1997 and the balance sheet data at December 31, 1999, 1998 and 1997
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,             
|                                                                                                                       |                                                                     |                                                 |         |                                      
|                                                                                                                       |                                                                     |                                                 |         | 2001                                  |        | 2000 |         | 1999  |        | 1998 |         | 1997 
|                                                                                                                       |                                                                     |                                                 |         |                                       |        |      |         |       |        |      |         |      
|                                                                                                                       |                                                                     |                                                 |         | (in thousands, except per share data)
|Consolidated Statements of Operations Data:                                                                            |                                                                     |                                                 |         |                                       |        |      |         |       |        |      |         |       |        |   |         |       |        |   |        |      
|Revenue                                                                                                                |                                                                     | $                                               | 43,328  |                                       |        | $    | 26,883  |       |        | $    | 19,202  |       |        | $ | 13,197  |       |        | $ | 2,047  |      
|Expenses:                                                                                                              |                                                                     |                                                 |         |                                       |        |      |         |       |        |      |         |       |        |   |         |       |        |   |        |      
|                                                                                                                       |                                                                     | Research and development                        |         |                                       | 59,029 |      |         |       | 44,014 |      |         |       | 29,570 |   |         |       | 16,605 |   |        |       | 6,061 |  
|                                                                                                                       |                                                                     | Selling, general and administrative             |         |                                       | 19,323 |      |         |       | 17,770 |      |         |       | 9,194  |   |         |       | 7,552  |   |        |       | 3,825 |  
|                                                                                                                       |                                                                     | Acquired in-process research and development(1) |         |                                       |       |      |         |       |       |      |         |       |       |   |         |       | 35,196 |   |        |       |      |  
|                                                                                                                       |                                                                     | Amortization of goodwill                        |         |                                       | 1,524  |      |         |       | 1,524  |      |         |       | 1,524  |   |         |       | 381    |   |        |       |      |  
|                                                                                                                       |                                                                     |                                                 |         |                                       |        |      |         |       |        |      |         |       |        |   |         |       |        |   |        |      
|Total expenses                                                                                                         |                                                                     |                                                 | 79,876  |                                       |        |      | 63,308  |       |        |      | 40,288  |       |        |   | 59,734  |       |        |   | 9,886  |      
|                                                                                                                       |                                                                     |                                                 |         |                                       |        |      |         |       |        |      |         |       |        |   |         |       |        |   |        |      
|Loss from operations                                                                                                   |                                                                     |                                                 | (36,548 | )                                     |        |      | (36,425 | )     |        |      | (21,086 | )     |        |   | (46,537 | )     |        |   | (7,839 | )    
|Interest income, net                                                                                                   |                                                                     |                                                 | 8,645   |                                       |        |      | 13,706  |       |        |      | 685     |       |        |   | 1,844   |       |        |   | 745    |      
|Other income (expense)                                                                                                 |                                                                     |                                                 | 83      |                                       |        |      | 234     |       |        |      | 30      |       |        |   | (80     | )     |        |   |       |      
|Write-down of Neuralstem investment                                                                                    |                                                                     |                                                 | 2,495   |                                       |        |      |        |       |        |      |        |       |        |   |        |       |        |   |       |      
|Income tax expense                                                                                                     |                                                                     |                                                 | 533     |                                       |        |      | 210     |       |        |      | 220     |       |        |   | 100     |       |        |   | 100    |      
|                                                                                                                       |                                                                     |                                                 |         |                                       |        |      |         |       |        |      |         |       |        |   |         |       |        |   |        |      
|Net loss before equity in net loss of unconsolidated investees and
cumulative effect of change in accounting principle |                                                                     |                                                 | (30,848 | )                                     |        |      | (22,695 | )     |        |      | (20,591 | )     |        |   | (44,873 | )     |        |   | (7,194 | )    
|Equity in net loss of unconsolidated investees                                                                         |                                                                     |                                                 | 2,322   |                                       |        |      |        |       |        |      |        |       |        |   |        |       |        |   |       |      
|                                                                                                                       |                                                                     |                                                 |         |                                       |        |      |         |       |        |      |         |       |        |   |         |       |        |   |        |      
|Net loss before cumulative effect of change in accounting principle                                                    |                                                                     |                                                 | (33,170 | )                                     |        |      | (22,695 | )     |        |      | (20,591 | )     |        |   | (44,873 | )     |        |   | (7,194 | )    
|Cumulative effect of change in accounting principle                                                                    |                                                                     |                                                 |        |                                       |        |      | (1,322  | )     |        |      |        |       |        |   |        |       |        |   |       |      
|                                                                                                                       |                                                                     |                                                 |         |                                       |        |      |         |       |        |      |         |       |        |   |         |       |        |   |        |      
|Net loss                                                                                                               |                                                                     |                                                 | (33,170 | )                                     |        |      | (24,017 | )     |        |      | (20,591 | )     |        |   | (44,873 | )     |        |   | (7,194 | )    
|Accretion of mandatory redemption value of preferred stock                                                             |                                                                     |                                                 |        |                                       |        |      |        |       |        |      |        |       |        |   |        |       |        |   | 1,286  |      
|                                                                                                                       |                                                                     |                                                 |         |                                       |        |      |         |       |        |      |         |       |        |   |         |       |        |   |        |      
|Net loss attributable to common stockholders                                                                           |                                                                     | $                                               | (33,170 | )                                     |        | $    | (24,017 | )     |        | $    | (20,591 | )     |        | $ | (44,873 | )     |        | $ | (8,480 | )    
|                                                                                                                       |                                                                     |                                                 |         |                                       |        |      |         |       |        |      |         |       |        |   |         |       |        |   |        |      
|Amounts per common share, basic and diluted:                                                                           |                                                                     |                                                 |         |                                       |        |      |         |       |        |      |         |       |        |   |         |       |        |   |        |      
|                                                                                                                       | Net loss before cumulative effect of change in accounting
principle |                                                 | $       | (1.25                                 | )      |      | $       | (0.90 | )      |      | $       | (1.04 | )      |   | $       | (2.86 | )      |   | $      | (3.97 | )    
|                                                                                                                       | Cumulative effect of change in accounting principle                 |                                                 |         |                                      |        |      |         | (0.05 | )      |      |         |      |        |   |         |      |        |   |        |      |      
|                                                                                                                       |                                                                     |                                                 |         |                                       |        |      |         |       |        |      |         |       |        |   |         |       |        |   |        |      
|                                                                                                                       |                                                                     | Net loss attributable to common stockholders    |         | $                                     | (1.25  | )    |         | $     | (0.95  | )    |         | $     | (1.04  | ) |         | $     | (2.86  | ) |        | $     | (3.97 | )
|                                                                                                                       |                                                                     |                                                 |         |                                       |        |      |         |       |        |      |         |       |        |   |         |       |        |   |        |      
|Shares used in computing basic and diluted net loss per common
share                                                   |                                                                     |                                                 | 26,540  |                                       |        |      | 25,209  |       |        |      | 19,833  |       |        |   | 15,681  |       |        |   | 2,138  |      
|                                                                                                                       |                                                                     |                                                 |         |                                       |        |      |         |       |        |      |         |       |        |   |         |       |        |   |        |      

|                                                   |  |                |         |      |  |      |         |      |  |      |        |  |  |   |        |  |  |   |        | 
|-------------------------------------------------- |  | -------------- | ------- | ---- |  | ---- | ------- | ---- |  | ---- | ------ |  |  | - | ------ |  |  | - | ------ | 
|                                                   |  | December 31,  
|                                                   |  |               
|                                                   |  | 2001           |         | 2000 |  | 1999 |         | 1998 |  | 1997
|                                                   |  |                |         |      |  |      |         |      |  |     
|                                                   |  | (in thousands)
|Consolidated Balance Sheet Data:                   |  |                |         |      |  |      |         |      |  |      |        |  |  |   |        |  |  |   |        | 
|Cash, cash equivalents and marketable securities   |  | $              | 197,818 |      |  | $    | 229,482 |      |  | $    | 12,446 |  |  | $ | 30,982 |  |  | $ | 46,621 | 
|Working capital                                    |  |                | 187,184 |      |  |      | 211,300 |      |  |      | 5,423  |  |  |   | 26,573 |  |  |   | 42,455 | 
|Total assets                                       |  |                | 256,927 |      |  |      | 289,533 |      |  |      | 41,166 |  |  |   | 55,566 |  |  |   | 53,972 | 
|Total long-term debt and capital lease obligations |  |                | 338     |      |  |      | 2,966   |      |  |      | 4,590  |  |  |   | 5,305  |  |  |   | 1,551  | 
|Total stockholders equity                         |  | $              | 226,027 |      |  | $    | 253,715 |      |  | $    | 23,068 |  |  | $ | 41,288 |  |  | $ | 46,067 | 



---

|(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.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------

19



---



##### 



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 genomics
information and bioinformatics products and services to pharmaceutical and
biotechnology companies for use in drug discovery and drug development.

We commenced operations in 1996 and in
1997 began developing custom gene
expression databases 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 GeneExpress, our large-scale
reference database of gene expression information, in early 1999. GeneExpress
comprises what we believe to be one of the worlds most comprehensive survey of gene
expression in human and animal tissues related to disease and
drug toxicity. The first commercial version of GeneExpress was launched in
late 1999. Currently, we market and sell our GeneExpress line of products and
services to pharmaceutical and biotechnology customers worldwide. We sold our
first subscription to GeneExpress in December 1999.

Our GeneExpress information products and services consist of three primary
products: BioExpress, from which are derived DataSuites, CustomSuites and
GeneExpress Reports; ToxExpress; and Genesis Enterprise System and its
associated professional services. Typically, GeneExpress products are accessed
under three-year term subscription agreements with current aggregate pricing
ranging between $2.5 and $16 million, depending upon a variety of factors,
including the product accessed and the level and type of information. Current
pricing for GeneExpress Reports is on a pay-per-view basis and ranges between
$25,000 and $0.3 million, depending on the number of genes and tissue samples
surveyed. Current pricing for a license to Genesis and its associated
professional services range from $0.3 million to over $1.0 million, depending
upon which elements of the system and services are purchased. Pricing for
customized information products based on proprietary genomic services under
collaboration agreements have been determined on a case-by-case basis and
typically include annual access fees, research support and milestone payments.

Subscription fees to GeneExpress products are recognized systematically over the term
of the subscription. Fees from GeneExpress Report purchases are recognized
upon delivery of the report(s). Fees associated with Genesis licenses are
currently recognized ratably over the term of the initial maintenance provision
under the license agreement. Integration services fees are recognized on the
percentage-of-completion method. Fees from customized information products are
recognized when custom services are performed or costs are incurred. Milestone
payments related to customized information products are recognized when they
are earned in accordance with the applicable performance requirements and
contractual terms. Under agreements in which we create databases in exchange
for fixed fees, revenue from such agreements is recognized on the
percentage-of-completion method. 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, renewal of agreements
with, and agreements for additional products for, existing customers. Payments
to access our GeneExpress products and services are expected to be our primary
source of revenue for the foreseeable future. We have not received, and do not
expect to receive, significant royalty or other revenue from development and
commercialization of products by our customers using our customized information
products based on proprietary genomic services. Revenue from our customers may
be subject to significant fluctuation in both timing and amount and, therefore,
our results of operations for any period may not be comparable to the results
of operations for any other period.

We have incurred operating losses in each year since our inception. At
December 31, 2001, we had accumulated operating losses of $135.3 million. Our
losses have resulted principally from costs incurred in the development of our
genomic information products and services ($59.0 million, $44.0 million and
$29.6 million for the years ended December 31, 2001, 2000 and 1999,
respectively), a $35.2 million non-recurring charge incurred in connection with
our acquisition of Oncormed and selling, general and administrative costs
associated with our operations. These costs have exceeded our revenue, which
to date have 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.

Results of Operations

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.

20



---



##### 



Research and development expenses increased to $59.0 million in 2001 from
$44.0 million in 2000. Of the increase in research and development expenses,
$4.3 million, $4.2 million, $3.4 million and $2.1 million was due to increased
Affymetrix GeneChip 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 and database development costs. Research and development expenses have
increased and will continue to increase due to our continued expansion of our
GeneExpress product lines content, upgrades to the database and to our
 bioinformatics capabilities and development of new product
offerings.

Selling, general and administrative expenses increased to $19.3 million in
2001 from $17.8 million in 2000. These costs include the costs of corporate
operations, finance and accounting, human resources and other general
operations. 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. Selling, general and
administrative expenses are expected to increase slightly as we expand our
product offerings and related sales and marketing efforts.

Amortization of goodwill was $1.5 million in 2001 and 2000, as a result of
the acquisition of Oncormed in September 1998. In accordance with the
Financial Accounting Standards Board Statement of Financial Accounting
Standards No. 142, Goodwill and Other Intangible Assets, which we adopted
January 1, 2002, we no longer amortize goodwill, but instead beginning in 2002
will apply annual impairment tests in accordance with the Statement. We
completed the initial impairment analysis upon its adoption, which resulted in
no impairment to goodwill.

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, Inc., 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 sold back to Neuralstem a portion of our shares for approximately $2.7
million, payable with a promissory note. As a result of the repurchase, which
reduced our voting stock interest to 14.8%, we began accounting for our
investment using the cost method of accounting. During the fourth quarter of
2001, we recorded a $2.5 million write-down of our investment in Neuralstem to
its estimated market value. At December 31, 2001, following the write-down,
the value of our investment, including the promissory note, was $4.3 million.
We cannot predict at this time whether an additional write-down of this
investment will be required.

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). As our investment in MetriGenix has been reduced to zero at
December 31, 2001 and we have no commitment to provide future funding, we do
not expect to record additional losses related to our investment in the future.
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 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 and are expected to approximate $0.5 million in
2002.

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

Years Ended December 31, 2000 and 1999

Revenue increased $7.7 million or 40% to $26.9 million in 2000 from $19.2
million in 1999. The increase in revenue resulted primarily from additional
subscribers to our GeneExpress product line, which was introduced in late 1999.
Revenue in 2000 include the increase of $0.8 million after giving the effect to
the adoption of SEC Staff Accounting Bulletin No. 101 Revenue Recognition in
Financial Statements (SAB 101), which we adopted in the fourth quarter of
2000 with retroactive application to January 1, 2000. Revenue from each of
Japan Tobacco and Procter & Gamble accounted for 10% or more of revenue for
2000, and revenue from each of Aventis CropScience, Japan Tobacco and Procter &
Gamble accounted for 10% or more of revenue for 1999.

Research and development expenses increased to $44.0 million in 2000 from
$29.6 million in 1999. Of the increase in research and development expenses,
$7.4 million was due to increased tissue acquisition and processing costs and
Affymetrix GeneChips usage and the remainder was primarily attributed to $2.6
million in research agreement expenses. These increases were necessary to
expand and enhance the content and product offerings of GeneExpress.

Selling, general and administrative expenses increased to $17.8 million in
2000 from $9.2 million in 1999. These costs include the costs

21



---



##### 



of corporate operations, finance and accounting, human resources and other
general operations. Of the increase in selling, general and administrative
expenses, $5.8 million was due to the establishment of our sales and marketing
efforts and the remainder of the increase was due to continued expansion of our
operations.

Amortization of goodwill was $1.5 million in 2000 and 1999, as a result of
the acquisition of Oncormed in September 1998.

Net interest income increased to $13.7 million in 2000 from $0.7 million
in 1999 primarily due to investment of the proceeds of our follow-on public
offering of common stock in February 2000.

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

Liquidity and Capital Resources

From inception through December 31, 2001, 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, 2001, we had approximately $197.8 million in cash, cash
equivalents and marketable securities available-for-sale, compared to $229.5
million as of December 31, 2000.

Net cash used in operating activities was $17.2 million for the year ended
December 31, 2001 compared to $2.0 million during the same period in 2000. The
net decrease in operating working capital for the year ended December 31, 2001
as compared to the same period in 2000 was primarily due to the continued
funding of our operating losses.

During the years ended December 31, 2001 and 2000, our investing
activities, other than purchases and sales and maturities of available-for-sale
securities, consisted primarily of capital expenditures, software and database
development costs and an $8.1 million equity investment in Neuralstem in 2000.
Capital expenditures for the years ended December 31, 2001 and 2000 amounted to
$8.3 million and $9.7 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. During the same period in 2000, these allocations were
approximately 75% and 25%, respectively. We expect laboratory and computer
equipment purchases to continue as we expand the content of, and the products
derived from, GeneExpress.

We have capitalized software costs of
$6.2 million and $4.2 million for
the years ended December 31, 2001 and 2000, respectively. These costs relate to
ongoing efforts to enhance Genesis, the software
platform of our GeneExpress product line. During the year ended December 31,
2000, we capitalized $3.8 million of database development costs related to the
purchase of data from N.V. Organon and the update of data in GeneExpress as a
result of Affymetrixs release of their GeneChip Human Genome U95 Set. During
2002, we will upgrade our GeneExpress as a result of Affymetrixs release of
the GeneChip Human Genome U133 Set. These costs will be greater than those
incurred for the previous upgrade in 2000. Software and database development
costs are being amortized over their expected useful lives of three and two
years, respectively. Additional, software development and database development
costs are expected to continue as a result of ongoing efforts to further
enhance our GeneExpress line of products and services.

Our financing activities, other than the repayment of capital lease
obligations and equipment loans, consisted of the issuance of common stock
primarily through our follow-on public offering in February 2000, the exercise
of stock options and the exercise of a warrant in February 2001. 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 rates in the market.

In January 1999, we entered into a
three-year agreement with Affymetrix,
pursuant to which Affymetrix supplied its GeneChip 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.
During 2002, we have agreed to purchase from Affymetrix a minimum of $15.1 million in
products and services. Our commitments under other research and license
agreements do not represent significant expenditures in relation to our total
research and development expense.

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

22



---



##### 



As discussed in Notes 7 and 11 to our consolidated financial statements,
future minimum long-term debt payments, operating lease payments and purchase
commitments are listed below:

|                    |  |       |        |        |  |        |        |         |  |         |       |        |  |   |       |  |  |   |       | 
|------------------- |  | ----- | ------ | ------ |  | ------ | ------ | ------- |  | ------- | ----- | ------ |  | - | ----- |  |  | - | ----- | 
|                    |  |       |        |        |  | Within |        | Years 2 |  | Years 4 |       | Beyond
|                    |  | Total |        | Year 1 |  | and 3  |        | and 5   |  | Year 5 
|                    |  |       |        |        |  |        |        |         |  |        
|Long-term debt      |  | $     | 338    |        |  | $      | 38     |         |  | $       | 82    |        |  | $ | 91    |  |  | $ | 127   | 
|Operating leases    |  |       | 20,921 |        |  |        | 2,875  |         |  |         | 5,752 |        |  |   | 5,541 |  |  |   | 6,753 | 
|Purchase commitment |  |       | 15,100 |        |  |        | 15,100 |         |  |         |      |        |  |   |      |  |  |   |      | 
|                    |  |       |        |        |  |        |        |         |  |         |       |        |  |   |       |  |  |   |       | 
|Total               |  | $     | 36,359 |        |  | $      | 18,013 |         |  | $       | 5,834 |        |  | $ | 5,632 |  |  | $ | 6,880 | 
|                    |  |       |        |        |  |        |        |         |  |         |       |        |  |   |       |  |  |   |       | 

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.

Change in Accounting Principle

Effective January 1, 2000, we changed our method of accounting for revenue
in accordance with SAB 101. Prior to 2000, we recognized as revenue certain
nonrefundable up-front payments for the value of data purchased, transfer of
technology or other contractual rights that were not contingent upon future
performance under the terms of the agreement either upon signing of the
agreement or when collected. Under the new accounting method adopted
retroactive to January 1, 2000, we now defer these nonrefundable up-front
payments and recognize them as revenue systematically over the life of the
related collaboration agreements. The cumulative effect of the change on prior
years resulted in a charge of $1.3 million, which is included in the net loss
for the year ended December 31, 2000.

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 our 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 judgements
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
systematically 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 are 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 systematically
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
critical 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, 2001, 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.

23



---



##### 



Investments in Equity Securities

We hold equity investments in 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 operating results 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.

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 judgements 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 capitalization 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 will no longer be amortized, but will
be subject to annual impairment tests in accordance with the Statements. Other
intangible assets will continue to be amortized over their expected useful
lives. We will apply the new standards on accounting for goodwill and other
intangible assets beginning in the first quarter of 2002. Application of the
nonamortization provisions of the Statement is expected to result in a decrease
in amortization expenses and net loss of $1.5 million per year. As of March 1,
2002, we completed the first of the required impairment tests of goodwill as of
January 1, 2002, resulting in no impairment to goodwill.

On January 1, 2001, we adopted Statement of Financial Accounting Standards
No. 133, Accounting for Derivative Instruments and Hedging Activities (SFAS
133), as amended by SFAS 137 and 138. SFAS 133 requires all derivatives to be
recorded at fair value. Unless designated as hedges, changes in these fair
values will be recorded in the income statement. Fair value changes involving
hedges will generally be recorded by offsetting gains and losses on the hedge
and on the hedged item, even if the fair value of the hedged item is not
otherwise recorded. Adoption of this standard had no impact on our financial
statements.

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. We adopted the provisions of
SFAS 144 effective January 1, 2002, which had no material impact on our
financial statements.

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, 2001, we had cash and cash equivalents of
approximately $128.3 million and marketable securities available-for-sale of
$69.5 million. Cash and cash equivalents consisted of money market accounts,
investment-grade commercial paper and government agency notes. Marketable
securities available-for-sale consisted of investment-grade commercial paper
and U.S. Treasury notes and bills. Based on the cash balance at December 31,
2001, a 100 basis point adverse movement in interest rates would result in an
increase in net loss for the year ended December 31, 2001 by approximately $2.0
million. Actual changes in rates may differ from the hypothetical assumptions
used in computing this exposure.

24



---



##### 



ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The Companys Consolidated Financial Statements and notes thereto,
together with the Report of Independent Auditors and Report of Independent
Public Accountants thereon, appear on pages F-1 through F-21 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

Previously reported with respect to fiscal year ended December 31, 2000.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Identification of Directors

The information required by this item is incorporated by reference to the
information set forth in the section captioned Election of Directors,
contained in the Companys definitive Proxy Statement for the 2002 Annual
Meeting of Stockholders to be filed with the Securities and Exchange Commission
within 120 days after the end of the Companys fiscal year ended December 31,
2001 (the Proxy Statement).

Identification of Executive Officers

The information required by this item is incorporated by reference to the
information set forth in the section entitled Executive Officers in Part I,
Item 1 of this Annual Report on Form 10-K.

Compliance with Section 16(a) of the Securities Exchange Act of 1934

The information required by this item is incorporated by reference to the
information set forth in the section entitled Section 16(a) Beneficial
Ownership Reporting Compliance contained in the Proxy Statement.

ITEM 11. EXECUTIVE COMPENSATION

The information required by this item is incorporated by reference to the
information set forth in the section captioned Executive Compensation
contained in the Proxy Statement.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information required by this item is incorporated by reference to the
information set forth in the section captioned Security Ownership of Certain
Beneficial Owners and Management contained in the Proxy Statement.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by this item is incorporated by reference to the
information set forth in the section captioned Certain Transactions contained
in the Proxy Statement.

25



---



##### 



PART IV

ITEM 14. 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 and Report of Independent Public Accountants                           |  | F-2 
|Consolidated Balance Sheets as of December 31, 2001 and 2000.                                         |  | F-3 
|Consolidated Statements of Operations for the Years Ended
December 31, 2001, 2000 and 1999.           |  | F-4 
|Consolidated Statements of Stockholders Equity for the
Years Ended December 31, 1999, 2000 and 2001. |  | F-5 
|Consolidated Statements of Cash Flows for the Years Ended
December 31, 2001, 2000 and 1999.           |  | F-6 
|Notes to Consolidated Financial Statements                                                            |  | F-7 

(a)2. Financial Statement Schedules

Schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission 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.(6)                                                                                                                                
|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.(3)                                                                                         
|*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.                                                                            
|*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.(8)                                                               
|*10.45  |  | Amended and Restated Employment Agreement, dated April 1, 1999, between Registrant and Y. Douglas Dolginow.(4)                                                      
|10.50   |  | Agreement, effective January 1, 2002, between Registrant and Affymetrix, Inc.(C)                                                                                    
|*10.53  |  | Promissory Note, dated April 8, 1999 between the Registrant and Y. Douglas Dolginow.(4)                                                                             
|*10.54  |  | Pledge and Security Agreement, dated April 8, 1999, between the Registrant and Y. Douglas Dolginow.(4)                                                              
|*10.55  |  | Executive Severance Plan, as amended February 2001.(9)                                                                                                              
|*10.58  |  | Employment Agreement, dated October 11, 1999, between Registrant and Philip L. Rohrer, Jr.(5)                                                                       
|*10.59  |  | Employment Agreement, dated January 4, 2000, between Registrant and David S. Murray.(6)                                                                             
|10.62   |  | Series A Preferred Stock Purchase Agreement, dated April 20, 2000, between Registrant and Neuralstem, Inc.
(formerly Neuralstem Biopharmaceutical, Ltd.)(6)(A)      
|*10.63  |  | Employment Agreement, dated September 1, 1997, between Registrant and Victor M. Markowitz.(6)                                                                       
|10.67   |  | Lease Agreement, dated July 21, 2000 between Registrant and ARE-50 West Watkins Mill, LLC.(7)                                                                       
|10.70   |  | Stock Repurchase Agreement, dated April 30, 2001, between Registrant and Neuralstem, Inc.(10)(B)                                                                    
|10.71   |  | Put Option Agreement, dated April 30, 2001, between Registrant and Neuralstem, Inc.(10)(B)                                                                          
|10.72   |  | Promissory Note, dated April 30, 2001, between Registrant and Neuralstem, Inc.(10)                                                                                  
|*10.73  |  | Agreements between certain named executive officers, the Registrant, and MetriGenix, Inc. with respect to the
purchase of restricted stock of MetriGenix, Inc.(11)  
|10.74   |  | Consulting Services Agreement and Termination of Agreement, dated June 18, 2001 and as of December 31, 2001,
respectively, between Registrant and J. Stark Thompson.
|21.1    |  | List of Subsidiaries.                                                                                                                                               

26



---



##### 



|     |  |                                                                
|---- |  | ---------------------------------------------------------------
|23.1 |  | Consent of Ernst & Young LLP, Independent Auditors.            
|23.2 |  | Consent of Arthur Andersen LLP, Independent Public Accountants.



---

|* |  | 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 8, 2000, filed on May 5, 2000,
and incorporated herein by reference.                                                                         
|    
|(3)  |  | Filed as an exhibit to Registrants Proxy Statement with respect to the
Annual Meeting of Stockholders held on June 8, 1999, filed on April 30,
1999, and incorporated herein by reference.                                                                      
|    
|(4)  |  | 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.                                                                                           
|    
|(5)  |  | 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.                                                                                       
|    
|(6)  |  | 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.                                                                                             
|    
|(7)  |  | 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.                                                                                    
|    
|(8)  |  | 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.                                                                                        
|    
|(9)  |  | 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.                                                                                              
|    
|(10) |  | 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.                                                                                           
|    
|(11) |  | 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.                                                                                     
|    
|(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 Securities and Exchange Commission.                                                                             

(b)  Reports on Form 8-K

A report on Form 8-K was filed on October 30, 2001 with respect to the
Companys expected revenue of $65 million for the full year 2002.

27



---



##### 



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 28th day of
March, 2002.

|                                                                                                    
|----------------------------------------------------------------------------------------------------
|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 28, 2002
|                                                        
|/s/ PHILIP L. ROHRER, JR.
(Philip L. Rohrer, Jr.)        |  | Chief Financial Officer(Principal Financial and Accounting Officer)                       |  | March 28, 2002
|                                                        
|/s/ JULES BLAKE
(Jules Blake, Ph.D.)                     |  | Director                                                                                  |  | March 28, 2002
|                                                        
|/s/ MICHAEL J. BRENNAN
(Michael J. Brennan, M.D., Ph.D.) |  | Director                                                                                  |  | March 28, 2002
|                                                        
|/s/ CHARLES L. DIMMLER, III
(Charles L. Dimmler III)     |  | Director                                                                                  |  | March 28, 2002
|                                                        
|/s/ G. ANTHONY GORRY
(G. Anthony Gorry, Ph.D.)           |  | Director                                                                                  |  | March 28, 2002
|                                                        
|/s/ J. STARK THOMPSON
(J. Stark Thompson, Ph.D.)         |  | Director                                                                                  |  | March 28, 2002

28



---



##### 



Gene Logic Inc.



Index to Consolidated Financial Statements


|                                                                                                      |  |      |     | 
|----------------------------------------------------------------------------------------------------- |  | ---- | --- | 
|                                                                                                      |  | Page
|                                                                                                      |  |     
|Report of Independent Auditors and Report of
	Independent Public Accountants                          |  |      | F-2 | 
|                                                                                                     
|                                                                                                     
|                                                                                                     
|                                                                                                     
|Consolidated Balance Sheets as of
	December 31, 2001 and 2000                                         |  |      | F-3 | 
|                                                                                                     
|                                                                                                     
|                                                                                                     
|                                                                                                     
|Consolidated Statements of Operations for the
	Years Ended December 31, 2001, 2000 and 1999           |  |      | F-4 | 
|                                                                                                     
|                                                                                                     
|                                                                                                     
|                                                                                                     
|Consolidated Statements of Stockholders
	Equity for the Years Ended December 31, 1999, 2000 and 2001 |  |      | F-5 | 
|                                                                                                     
|                                                                                                     
|                                                                                                     
|                                                                                                     
|Consolidated Statements of Cash Flows for the
	Years Ended December 31, 2001, 2000 and 1999           |  |      | 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, 2001 and 2000, and the
related consolidated statements of operations,
shareholders equity, and cash flows for the years then
ended. These financial statements are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these financial statements 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, 2001
and 2000, and the consolidated results of its operations and its
cash flows for the years then ended in conformity with
accounting principles generally accepted in the United States.

As discussed in Note 1 to the consolidated financial
statements, in 2000 the Company changed its method of revenue
recognition for certain nonrefundable up-front customer payments.



| |                      
| | ---------------------
| | /s/ ERNST & YOUNG LLP

Baltimore, Maryland 
 February 8, 2002



Report of independent public accountants


To the Board of Directors and Stockholders of 
 Gene Logic Inc. and Subsidiary:

We have audited the accompanying consolidated statements of
operations, stockholders equity and cash flows of Gene
Logic Inc. (a Delaware corporation) and subsidiary for the year
ended December 31, 1999. These financial statements are the
responsibility of the Companys management. Our
responsibility is to express an opinion on these financial
statements based on our audit.

We conducted our audit 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 audit provides a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above
present fairly, in all material respects, the results of
operations and cash flows of Gene Logic Inc. and subsidiary for
the year ended December 31, 1999 in conformity with
accounting principles generally accepted in the United States.



| |                        
| | -----------------------
| | /s/ ARTHUR ANDERSEN LLP

Baltimore, Maryland 
 February 22, 2000

F-2



---



##### 



Gene Logic Inc.



Consolidated Balance Sheets


as of December 31, 2001 and 2000


(in thousands, except share data)


|                                      |                                                                                                                                                                          |                                            |        |          |         |  |        |          |         | 
|------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ------------------------------------------ | ------ | -------- | ------- |  | ------ | -------- | ------- | 
|                                      |                                                                                                                                                                          | 2001                                       |        | 2000    
|                                      |                                                                                                                                                                          |                                            |        |         
|                                     
|                                     
|                                     
|                                     
|ASSETS                               
|                                     
|                                     
|                                     
|                                     
|Current assets:                       |                                                                                                                                                                          |                                            |        |          |         |  |        |         
|                                     
|                                     
|                                     
|                                     
|                                      | Cash and cash equivalents                                                                                                                                                |                                            | $      | 128,273  |         |  | $      | 229,482  |        
|                                     
|                                     
|                                     
|                                     
|                                      | Marketable securities available-for-sale                                                                                                                                 |                                            |        | 69,545   |         |  |        |         |        
|                                     
|                                     
|                                     
|                                     
|                                      | Accounts receivable                                                                                                                                                      |                                            |        | 2,460    |         |  |        | 2,968    |        
|                                     
|                                     
|                                     
|                                     
|                                      | Inventories, net                                                                                                                                                         |                                            |        | 6,097    |         |  |        | 2,396    |        
|                                     
|                                     
|                                     
|                                     
|                                      | Prepaid expenses                                                                                                                                                         |                                            |        | 2,348    |         |  |        | 2,436    |        
|                                     
|                                     
|                                     
|                                     
|                                      | Other current assets                                                                                                                                                     |                                            |        | 3,512    |         |  |        | 6,382    |        
|                                      |                                                                                                                                                                          |                                            |        |          |         |  |        |         
|                                      |                                                                                                                                                                          | Total current assets                       |        |          | 212,235 |  |        |          | 243,664 | 
|                                     
|                                     
|                                     
|                                     
|Property and equipment, net           |                                                                                                                                                                          |                                            | 18,358 |          |         |  | 15,994 |         
|                                     
|                                     
|                                     
|                                     
|Long-term investments                 |                                                                                                                                                                          |                                            | 4,631  |          |         |  | 9,081  |         
|                                     
|                                     
|                                     
|                                     
|Notes receivable from employees       |                                                                                                                                                                          |                                            | 106    |          |         |  | 75     |         
|                                     
|                                     
|                                     
|                                     
|Goodwill, net                         |                                                                                                                                                                          |                                            | 2,677  |          |         |  | 4,201  |         
|                                     
|                                     
|                                     
|                                     
|Intangibles and other assets, net     |                                                                                                                                                                          |                                            | 18,920 |          |         |  | 16,518 |         
|                                      |                                                                                                                                                                          |                                            |        |          |         |  |        |         
|                                      |                                                                                                                                                                          | Total assets                               |        | $        | 256,927 |  |        | $        | 289,533 | 
|                                      |                                                                                                                                                                          |                                            |        |          |         |  |        |         
|                                     
|                                     
|                                     
|                                     
|LIABILITIES AND STOCKHOLDERS
	EQUITY
|                                     
|                                     
|                                     
|                                     
|Current liabilities:                  |                                                                                                                                                                          |                                            |        |          |         |  |        |         
|                                     
|                                     
|                                     
|                                     
|                                      | Accounts payable                                                                                                                                                         |                                            | $      | 8,479    |         |  | $      | 5,908    |        
|                                     
|                                     
|                                     
|                                     
|                                      | Litigation settlement payable                                                                                                                                            |                                            |        |         |         |  |        | 9,000    |        
|                                     
|                                     
|                                     
|                                     
|                                      | Accrued expenses                                                                                                                                                         |                                            |        | 5,022    |         |  |        | 9,028    |        
|                                     
|                                     
|                                     
|                                     
|                                      | Current portion of long-term debt                                                                                                                                        |                                            |        | 38       |         |  |        | 1,335    |        
|                                     
|                                     
|                                     
|                                     
|                                      | Deferred revenue                                                                                                                                                         |                                            |        | 11,512   |         |  |        | 7,093    |        
|                                      |                                                                                                                                                                          |                                            |        |          |         |  |        |         
|                                      |                                                                                                                                                                          | Total current liabilities                  |        |          | 25,051  |  |        |          | 32,364  | 
|                                     
|                                     
|                                     
|                                     
|Deferred revenue                      |                                                                                                                                                                          |                                            | 4,525  |          |         |  | 1,141  |         
|                                     
|                                     
|                                     
|                                     
|Long-term debt                        |                                                                                                                                                                          |                                            | 300    |          |         |  | 1,631  |         
|                                     
|                                     
|                                     
|                                     
|Other noncurrent liabilities          |                                                                                                                                                                          |                                            | 1,024  |          |         |  | 682    |         
|                                      |                                                                                                                                                                          |                                            |        |          |         |  |        |         
|                                      |                                                                                                                                                                          | Total liabilities                          |        |          | 30,900  |  |        |          | 35,818  | 
|                                      |                                                                                                                                                                          |                                            |        |          |         |  |        |         
|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, 2001 and 2000                                   |                                            |        |         |         |  |        |         |        
|                                     
|                                     
|                                     
|                                     
|                                      | Common stock, $.01 par value; 60,000,000 shares
	authorized; and 26,767,837 and 26,111,561 shares issued and
	outstanding as of December 31, 2001 and 2000, respectively |                                            |        | 268      |         |  |        | 261      |        
|                                     
|                                     
|                                     
|                                     
|                                      | Additional paid-in capital                                                                                                                                               |                                            |        | 361,067  |         |  |        | 356,347  |        
|                                     
|                                     
|                                     
|                                     
|                                      | Deferred compensation on stock options, net                                                                                                                              |                                            |        |         |         |  |        | (738     | )      
|                                     
|                                     
|                                     
|                                     
|                                      | Accumulated other comprehensive income                                                                                                                                   |                                            |        | 17       |         |  |        |         |        
|                                     
|                                     
|                                     
|                                     
|                                      | Accumulated deficit                                                                                                                                                      |                                            |        | (135,325 | )       |  |        | (102,155 | )      
|                                      |                                                                                                                                                                          |                                            |        |          |         |  |        |         
|                                      |                                                                                                                                                                          | Total stockholders equity                 |        |          | 226,027 |  |        |          | 253,715 | 
|                                      |                                                                                                                                                                          |                                            |        |          |         |  |        |         
|                                      |                                                                                                                                                                          | Total liabilities and stockholders equity |        | $        | 256,927 |  |        | $        | 289,533 | 
|                                      |                                                                                                                                                                          |                                            |        |          |         |  |        |         

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, 2001, 2000 and 1999


(in thousands, except per share data)


|                                                                      |                                     |                                                                                                                          |        |        |         |      |        |        |         |   |        |        |         |  
|--------------------------------------------------------------------- | ----------------------------------- | ------------------------------------------------------------------------------------------------------------------------ | ------ | ------ | ------- | ---- | ------ | ------ | ------- | - | ------ | ------ | ------- | -
|                                                                      |                                     | 2001                                                                                                                     |        | 2000   |         | 1999
|                                                                      |                                     |                                                                                                                          |        |        |         |     
|Revenue                                                               |                                     | $                                                                                                                        | 43,328 |        |         | $    | 26,883 |        |         | $ | 19,202 |       
|                                                                     
|                                                                     
|                                                                     
|                                                                     
|Expenses:                                                             |                                     |                                                                                                                          |        |        |         |      |        |        |         |   |        |       
|                                                                     
|                                                                     
|                                                                     
|                                                                     
|                                                                      | Research and development            |                                                                                                                          |        | 59,029 |         |      |        | 44,014 |         |   |        | 29,570 |        
|                                                                     
|                                                                     
|                                                                     
|                                                                     
|                                                                      | Selling, general and administrative |                                                                                                                          |        | 19,323 |         |      |        | 17,770 |         |   |        | 9,194  |        
|                                                                     
|                                                                     
|                                                                     
|                                                                     
|                                                                      | Amortization of goodwill            |                                                                                                                          |        | 1,524  |         |      |        | 1,524  |         |   |        | 1,524  |        
|                                                                      |                                     |                                                                                                                          |        |        |         |      |        |        |         |   |        |       
|                                                                      |                                     | Total expenses                                                                                                           |        |        | 79,876  |      |        |        | 63,308  |   |        |        | 40,288  |  
|                                                                      |                                     |                                                                                                                          |        |        |         |      |        |        |         |   |        |       
|                                                                      |                                     | Loss from operations                                                                                                     |        |        | (36,548 | )    |        |        | (36,425 | ) |        |        | (21,086 | )
|                                                                     
|                                                                     
|                                                                     
|                                                                     
|Interest income, net                                                  |                                     |                                                                                                                          | 8,645  |        |         |      | 13,706 |        |         |   | 685    |       
|                                                                     
|                                                                     
|                                                                     
|                                                                     
|Other income                                                          |                                     |                                                                                                                          | 83     |        |         |      | 234    |        |         |   | 30     |       
|                                                                     
|                                                                     
|                                                                     
|                                                                     
|Write-down of Neuralstem investment                                   |                                     |                                                                                                                          | 2,495  |        |         |      |       |        |         |   |       |       
|                                                                     
|                                                                     
|                                                                     
|                                                                     
|Income tax expense                                                    |                                     |                                                                                                                          | 533    |        |         |      | 210    |        |         |   | 220    |       
|                                                                      |                                     |                                                                                                                          |        |        |         |      |        |        |         |   |        |       
|                                                                      |                                     | Net loss before equity in net loss of
	unconsolidated investees and cumulative effect of change in
	accounting principle |        |        | (30,848 | )    |        |        | (22,695 | ) |        |        | (20,591 | )
|                                                                     
|                                                                     
|                                                                     
|                                                                     
|Equity in net loss of unconsolidated investees                        |                                     |                                                                                                                          | 2,322  |        |         |      |       |        |         |   |       |       
|                                                                      |                                     |                                                                                                                          |        |        |         |      |        |        |         |   |        |       
|                                                                      |                                     | Loss before cumulative effect of change in
	accounting principle                                                         |        |        | (33,170 | )    |        |        | (22,695 | ) |        |        | (20,591 | )
|                                                                     
|                                                                     
|                                                                     
|                                                                     
|                                                                      |                                     | Cumulative effect of change in accounting
	principle                                                                     |        |        |        |      |        |        | 1,322   |   |        |        |        |  
|                                                                      |                                     |                                                                                                                          |        |        |         |      |        |        |         |   |        |       
|                                                                      |                                     | Net loss                                                                                                                 |        | $      | (33,170 | )    |        | $      | (24,017 | ) |        | $      | (20,591 | )
|                                                                      |                                     |                                                                                                                          |        |        |         |      |        |        |         |   |        |       
|Basic and diluted net loss per common share:                          |                                     |                                                                                                                          |        |        |         |      |        |        |         |   |        |       
|                                                                     
|                                                                     
|                                                                     
|                                                                     
|                                                                      |                                     | Loss before cumulative effect of change in
	accounting principle                                                         |        | $      | (1.25   | )    |        | $      | (0.90   | ) |        | $      | (1.04   | )
|                                                                     
|                                                                     
|                                                                     
|                                                                     
|                                                                      |                                     | Cumulative effect of change in accounting
	principle                                                                     |        |        |        |      |        |        | (0.05   | ) |        |        |        |  
|                                                                      |                                     |                                                                                                                          |        |        |         |      |        |        |         |   |        |       
|                                                                      |                                     | Net loss                                                                                                                 |        | $      | (1.25   | )    |        | $      | (0.95   | ) |        | $      | (1.04   | )
|                                                                      |                                     |                                                                                                                          |        |        |         |      |        |        |         |   |        |       
|Shares used in computing basic and diluted net
	loss per common share |                                     |                                                                                                                          | 26,540 |        |         |      | 25,209 |        |         |   | 19,833 |       
|                                                                      |                                     |                                                                                                                          |        |        |         |      |        |        |         |   |        |       

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, 1999, 2000 and 2001


(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, 1999                                                                    |  |                      | 19,651,756 |            |  | $           | 197 |              |  | $             | 102,670 |             |  | $             | (3,986 | ) |  | $ | (46 | ) |  | $ | (57,547  | ) |  |   |         |  
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|Issuance of common stock in connection with
        exercise of stock options                 |  |                      | 249,860    |            |  |             | 2   |              |  |               | 498     |             |  |               |       |   |  |   |    |   |  |   |         |   |  |   |         |  
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|Issuance of common stock in connection with
        Employee Stock Purchase Plan              |  |                      | 62,766     |            |  |             | 1   |              |  |               | 269     |             |  |               |       |   |  |   |    |   |  |   |         |   |  |   |         |  
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|Issuance of common stock in connection with
        exercise of warrants                      |  |                      | 41,306     |            |  |             |    |              |  |               |        |             |  |               |       |   |  |   |    |   |  |   |         |   |  |   |         |  
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|Issuance of stock options to consultants                                                      |  |                      |           |            |  |             |    |              |  |               | 60      |             |  |               |       |   |  |   |    |   |  |   |         |   |  |   |         |  
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|Net change in unrealized losses from marketable
        securities                            |  |                      |           |            |  |             |    |              |  |               |        |             |  |               |       |   |  |   | 43  |   |  |   |         |   |  | $ | 43      |  
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|Amortization of deferred compensation                                                         |  |                      |           |            |  |             |    |              |  |               |        |             |  |               | 1,498  |   |  |   |    |   |  |   |         |   |  |   |         |  
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|Net loss                                                                                      |  |                      |           |            |  |             |    |              |  |               |        |             |  |               |       |   |  |   |    |   |  |   | (20,591  | ) |  |   | (20,591 | )
|                                                                                              |  |                      |            |            |  |             |     |              |  |               |         |             |  |               |        |   |  |   |     |   |  |   |          |   |  |   |         |  
|Comprehensive loss                                                                            |  |                      |           |            |  |             |    |              |  |               |        |             |  |               |       |   |  |   |    |   |  |   |         |   |  | $ | (20,548 | )
|                                                                                              |  |                      |            |            |  |             |     |              |  |               |         |             |  |               |        |   |  |   |     |   |  |   |          |   |  |   |         |  
|Balance at December 31,1999                                                                   |  |                      | 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 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 | ) |  |   |         |  
|                                                                                              |  |                      |            |            |  |             |     |              |  |               |         |             |  |               |        |   |  |   |     |   |  |   |          |   |  |   |         |  

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, 2001, 2000 and 1999


(in thousands)


|                                                      |                                                                                 |                                                       |                                          |         |        |         |         |         |        |         |         |         |        |         |  
|----------------------------------------------------- | ------------------------------------------------------------------------------- | ----------------------------------------------------- | ---------------------------------------- | ------- | ------ | ------- | ------- | ------- | ------ | ------- | ------- | ------- | ------ | ------- | -
|                                                      |                                                                                 | 2001                                                  |                                          | 2000    |        | 1999   
|                                                      |                                                                                 |                                                       |                                          |         |        |        
|Cash Flows From Operating Activities:                 |                                                                                 |                                                       |                                          |         |        |         |         |         |        |         |         |        
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Net loss                                                                        |                                                       | $                                        | (33,170 | )      |         | $       | (24,017 | )      |         | $       | (20,591 | )     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Adjustments to reconcile net loss to net cash
	flows from operating activities: |                                                       |                                          |         |        |         |         |         |        |         |         |         |       
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      |                                                                                 | Depreciation and amortization                         |                                          |         | 11,034 |         |         |         | 6,812  |         |         |         | 3,391  |        
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      |                                                                                 | Amortization of goodwill                              |                                          |         | 1,524  |         |         |         | 1,524  |         |         |         | 1,524  |        
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      |                                                                                 | Amortization of deferred compensation                 |                                          |         | 738    |         |         |         | 1,179  |         |         |         | 1,498  |        
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      |                                                                                 | Net loss from investment in unconsolidated
	investees |                                          |         | 2,322  |         |         |         |       |         |         |         |       |        
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      |                                                                                 | Write-down of Neuralstem investment                   |                                          |         | 2,495  |         |         |         |       |         |         |         |       |        
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      |                                                                                 | Other non-cash expense                                |                                          |         | 127    |         |         |         | 732    |         |         |         | 60     |        
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      |                                                                                 | Loss on disposal of property and equipment            |                                          |         | 45     |         |         |         | 52     |         |         |         |       |        
|                                                     
|                                                     
|                                                     
|                                                     
|Changes in Operating Assets and Liabilities:          |                                                                                 |                                                       |                                          |         |        |         |         |         |        |         |         |        
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      |                                                                                 | Accounts receivable                                   |                                          |         | 745    |         |         |         | 581    |         |         |         | 230    |        
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      |                                                                                 | Inventories                                           |                                          |         | (3,802 | )       |         |         | (560   | )       |         |         | (1,634 | )      
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      |                                                                                 | Prepaid expenses                                      |                                          |         | 189    |         |         |         | (1,715 | )       |         |         | (81    | )      
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      |                                                                                 | Other current assets                                  |                                          |         | 2,209  |         |         |         | (5,889 | )       |         |         | (417   | )      
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      |                                                                                 | Other assets                                          |                                          |         | (53    | )       |         |         | (61    | )       |         |         | (14    | )      
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      |                                                                                 | Accounts payable                                      |                                          |         | 2,572  |         |         |         | 1,402  |         |         |         | 2,383  |        
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      |                                                                                 | Litigation settlement payable                         |                                          |         | (9,000 | )       |         |         | 9,000  |         |         |         |       |        
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      |                                                                                 | Accrued expenses                                      |                                          |         | (3,712 | )       |         |         | 6,269  |         |         |         | (204   | )      
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      |                                                                                 | Accrued restructuring                                 |                                          |         |       |         |         |         |       |         |         |         | (184   | )      
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      |                                                                                 | Deferred revenue                                      |                                          |         | 8,235  |         |         |         | 2,562  |         |         |         | 1,453  |        
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      |                                                                                 | Other noncurrent liabilities                          |                                          |         | 342    |         |         |         | 111    |         |         |         | 87     |        
|                                                      |                                                                                 |                                                       |                                          |         |        |         |         |         |        |         |         |        
|                                                      |                                                                                 |                                                       | Net Cash Flows From Operating Activities |         |        | (17,160 | )       |         |        | (2,018  | )       |         |        | (12,499 | )
|                                                      |                                                                                 |                                                       |                                          |         |        |         |         |         |        |         |         |        
|Cash Flows From Investing Activities:                 |                                                                                 |                                                       |                                          |         |        |         |         |         |        |         |         |        
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Purchases of property and equipment                                             |                                                       |                                          | (8,349  | )      |         |         | (9,685  | )      |         |         | (3,229  | )     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Purchase of equity investments                                                  |                                                       |                                          | (753    | )      |         |         | (8,081  | )      |         |         |        |       
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Purchases of licenses and patent costs                                          |                                                       |                                          | (995    | )      |         |         | (7,194  | )      |         |         | (670    | )     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Software and database development costs                                         |                                                       |                                          | (6,367  | )      |         |         | (8,066  | )      |         |         | (1,158  | )     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | (Increase in) repayments of notes receivable from
	employees                    |                                                       |                                          | (30     | )      |         |         | 663     |        |         |         | (778    | )     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Purchase of marketable securities
	available-for-sale                           |                                                       |                                          | (69,528 | )      |         |         |        |        |         |         |        |       
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Proceeds from sale and maturity of marketable
	securities available-for-sale    |                                                       |                                          |        |        |         |         | 7,155   |        |         |         | 7,682   |       
|                                                      |                                                                                 |                                                       |                                          |         |        |         |         |         |        |         |         |        
|                                                      |                                                                                 |                                                       | Net Cash Flows From Investing Activities |         |        | (86,022 | )       |         |        | (25,208 | )       |         |        | 1,847   |  
|                                                      |                                                                                 |                                                       |                                          |         |        |         |         |         |        |         |         |        
|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                                    |                                                       |                                          | 4,067   |        |         |         | 5,293   |        |         |         | 770     |       
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Proceeds from exercise of warrant                                               |                                                       |                                          | 534     |        |         |         |        |        |         |         |        |       
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Proceeds from note payable                                                      |                                                       |                                          |        |        |         |         |        |        |         |         | 425     |       
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Repayments of financing agreement                                               |                                                       |                                          |        |        |         |         |        |        |         |         | (98     | )     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Repayments of capital lease obligations and
	equipment loans                    |                                                       |                                          | (2,628  | )      |         |         | (1,336  | )      |         |         | (1,342  | )     
|                                                      |                                                                                 |                                                       |                                          |         |        |         |         |         |        |         |         |        
|                                                      |                                                                                 |                                                       | Net Cash Flows From Financing Activities |         |        | 1,973   |         |         |        | 251,414 |         |         |        | (245    | )
|                                                      |                                                                                 |                                                       |                                          |         |        |         |         |         |        |         |         |        
|Net (Decrease) Increase in Cash and Cash
	Equivalents |                                                                                 |                                                       | (101,209                                 | )       |        |         | 224,188 |         |        |         | (10,897 | )      
|                                                     
|                                                     
|                                                     
|                                                     
|Cash and Cash Equivalents, beginning of period        |                                                                                 |                                                       | 229,482                                  |         |        |         | 5,294   |         |        |         | 16,191  |        
|                                                      |                                                                                 |                                                       |                                          |         |        |         |         |         |        |         |         |        
|Cash and Cash Equivalents, end of period              |                                                                                 | $                                                     | 128,273                                  |         |        | $       | 229,482 |         |        | $       | 5,294   |        
|                                                      |                                                                                 |                                                       |                                          |         |        |         |         |         |        |         |         |        
|Supplemental Disclosure:                              |                                                                                 |                                                       |                                          |         |        |         |         |         |        |         |         |        
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Taxes paid                                                                      |                                                       | $                                        | 463     |        |         | $       | 210     |        |         | $       | 220     |       
|                                                      |                                                                                 |                                                       |                                          |         |        |         |         |         |        |         |         |        
|                                                      | Interest paid                                                                   |                                                       | $                                        | 153     |        |         | $       | 408     |        |         | $       | 415     |       
|                                                      |                                                                                 |                                                       |                                          |         |        |         |         |         |        |         |         |        
|Non-Cash Transactions:                                |                                                                                 |                                                       |                                          |         |        |         |         |         |        |         |         |        
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Promissory note received from sale of investment                                |                                                       | $                                        | 2,654   |        |         | $       |        |        |         | $       |        |       
|                                                      |                                                                                 |                                                       |                                          |         |        |         |         |         |        |         |         |        
|                                                      | Equity investments                                                              |                                                       | $                                        | 871     |        |         | $       |        |        |         | $       | 1,000   |       
|                                                      |                                                                                 |                                                       |                                          |         |        |         |         |         |        |         |         |        
|                                                      | Equipment acquired under capital lease                                          |                                                       | $                                        |        |        |         | $       |        |        |         | $       | 300     |       
|                                                      |                                                                                 |                                                       |                                          |         |        |         |         |         |        |         |         |        
|                                                      | Capital lease termination                                                       |                                                       | $                                        |        |        |         | $       | 288     |        |         | $       |        |       
|                                                      |                                                                                 |                                                       |                                          |         |        |         |         |         |        |         |         |        



F-6



---



##### 



Gene Logic Inc.



Notes to Consolidated Financial Statements


December 31, 2001, 2000 and 1999


(in thousands, except 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 provider
of integrated genomics-based information products, services and
bioinformatics related to gene activity in human disease and
toxicity that enable global pharmaceutical and biotechnology
companies to optimize the time, risk and cost of drug discovery
and development. Through its expertise in biosamples,
high-throughput genomics technologies and data management and
software development, the Company has developed a broad line of
genomic information products and services based on its core
database product, GeneExpress.

Principles of Consolidation

The consolidated financial statements for the years ended
December 31, 2001, 2000 and 1999 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 $33.2 million, $24.0 million
and $20.5 million for the years ended December 31,
2001, 2000 and 1999, 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
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.

F-7



---



##### 



Gene Logic Inc.




Notes to Consolidated Financial Statements 
(Continued)


December 31, 2001, 2000 and 1999


(in thousands, except per share data)


Note 1  Organization and Summary of Significant
Accounting Policies  (Continued)

Cash and Cash Equivalents

Cash and cash equivalents are defined as liquid investments with
maturities of 90 days or less when purchased that are
readily convertible into cash. All other investments are
reported as marketable securities available-for-sale. Cash and
cash equivalents as of December 31, 2001 and 2000, are
comprised of:

|                             |       |      |         |         |  |   |         |         | 
|---------------------------- | ----- | ---- | ------- | ------- |  | - | ------- | ------- | 
|                             |       | 2001 |         | 2000   
|                             |       |      |         |        
|Cash                         |       | $    | 3,677   |         |  | $ | 2,468   |        
|                            
|                            
|                            
|                            
|Corporate commercial paper   |       |      | 116,607 |         |  |   | 227,014 |        
|                            
|                            
|                            
|                            
|Government agency securities |       |      | 7,989   |         |  |   |        |        
|                             |       |      |         |         |  |   |         |        
|                             | Total |      | $       | 128,273 |  |   | $       | 229,482 | 
|                             |       |      |         |         |  |   |         |        

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 a separate component of
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, 2001, the Companys investment
portfolio consisted of corporate commercial paper and U.S.
government notes and bills. All marketable securities had
maturities greater than 90 days, but less than one year. As
of December 31, 2001, 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.

|                           |  |           |        |            |  |            |    |  |  |   |        | 
|-------------------------- |  | --------- | ------ | ---------- |  | ---------- | -- |  |  | - | ------ | 
|                           |  |           |        | Gross      |  |           
|                           |  | Amortized |        | Unrealized |  |           
|                           |  | Cost      |        | Gains      |  | Fair Value
|                           |  |           |        |            |  |           
|Corporate commercial paper |  | $         | 35,036 |            |  | $          | 8  |  |  | $ | 35,044 | 
|                          
|                          
|                          
|                          
|Government securities      |  |           | 34,492 |            |  |            | 9  |  |  |   | 34,501 | 
|                           |  |           |        |            |  |            |    |  |  |   |        | 
|Total                      |  | $         | 69,528 |            |  | $          | 17 |  |  | $ | 69,545 | 
|                           |  |           |        |            |  |            |    |  |  |   |        | 

Inventories

Inventories are 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 inventories are reviewed for impairment and
appropriate reserves are recorded. At December 31, 2001 and
2000, all inventory is classified as raw materials:

|                                 |  |      |       |      |  |   |       | 
|-------------------------------- |  | ---- | ----- | ---- |  | - | ----- | 
|                                 |  | 2001 |       | 2000
|                                 |  |      |       |     
|Affymetrix GeneChip® microarrays |  | $    | 2,370 |      |  | $ | 795   | 
|                                
|                                
|                                
|                                
|Laboratory reagents              |  |      | 990   |      |  |   | 101   | 
|                                
|                                
|                                
|                                
|Tissue samples                   |  |      | 2,971 |      |  |   | 1,500 | 
|                                 |  |      |       |      |  |   |       | 
|                                 |  |      | 6,331 |      |  |   | 2,396 | 
|                                
|                                
|                                
|                                
|Less  tissue sample reserve     |  |      | (234  | )    |  |   |      | 
|                                 |  |      |       |      |  |   |       | 
|Inventories, net                 |  | $    | 6,097 |      |  | $ | 2,396 | 
|                                 |  |      |       |      |  |   |       | 

F-8



---



##### 



Gene Logic Inc.




Notes to Consolidated Financial Statements 
(Continued)


December 31, 2001, 2000 and 1999


(in thousands, except per share data)




Note 1  Organization and Summary of Significant
Accounting Policies  (Continued)


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
Notes 3 and 4 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.

Under an agreement with Avalon Pharmaceuticals, Inc.
(Avalon), the Company received convertible preferred
stock in 1999. 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.

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 is being amortized
over five years at a rate of approximately $1.5 million per
year. Amortization expense was $1.5 million for each of the
years ended December 31, 2001, 2000 and 1999. Accumulated
amortization of goodwill was $5.0 million and
$3.4 million as of December 31, 2001 and 2000,
respectively.

The Company adopted the provisions of Financial Accounting
Standards Board Statement No. 142, Goodwill and Other
Intangible Assets (SFAS 142) effective
January 1, 2002. Based on the initial impairment test
performed as of January 1, 2002, adoption of this standard
resulted in no impairment to the value of goodwill in the
Companys financial statements.

Intangibles and Other Assets

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

F-9



---



##### 



Gene Logic Inc.




Notes to Consolidated Financial Statements 
(Continued)


December 31, 2001, 2000 and 1999


(in thousands, except per share data)


Note 1  Organization and Summary of Significant
Accounting Policies  (Continued)

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.

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 development costs are being amortized over their
expected useful lives ranging from two to three years 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, goodwill and software and
database development 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.

Revenue Recognition

Subscription fees to GeneExpress products are recognized
systematically over the term of the subscription agreement.
Revenue for software arrangements is recognized in accordance
with AICPA Statement of Position 97-2, Software
Revenue Recognition. Technology and database access fees
are recognized systematically over the term of the
Companys customer agreements. Revenue from research and
development support is recognized when it is earned, which is
ordinarily when the work is performed or costs are incurred.
Milestone payments are recognized as revenue in accordance with
the applicable performance requirements and contractual terms.
Nonrefundable up-front payments are recognized as revenue
systematically over the term of the agreement. Under agreements
in which the Company creates databases in exchange for fixed
fees, revenue from such agreements is recognized on the
percentage-of-completion method.

Revenue recognized for multiple element contracts are 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 historical sales of the individual
element to 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 systematically over the longest
performance period of the remaining elements.

F-10



---



##### 



Gene Logic Inc.




Notes to Consolidated Financial Statements 
(Continued)


December 31, 2001, 2000 and 1999


(in thousands, except per share data)


Note 1  Organization and Summary of Significant
Accounting Policies  (Continued)

Segment Information

The Company currently operates in one business
segment  the development of products related to
genomic information. The Company is managed and operated as one
business. 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 |    | D
|                    |  |                 |    |   |  |   |    |  
|For the year ended: |  |                 |    |   |  |   |    |   |  |  |    |   |  |  |    |  
|                   
|                   
|                   
|                   
|December 31, 2001   |  |                 |   |   |  |   | 11 | % |  |  | 16 | % |  |  |   |  
|                   
|                   
|                   
|                   
|December 31, 2000   |  |                 | 32 | % |  |   | 18 | % |  |  |   |   |  |  |   |  
|                   
|                   
|                   
|                   
|December 31, 1999   |  |                 | 43 | % |  |   | 25 | % |  |  |   |   |  |  | 12 | %

Change in Accounting Method

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 systematically over the life of the related
collaboration agreements. The cumulative effect of the change on
prior years resulted in a charge of $1.3 million, which is
included in the net loss for the year ended December 31,
2000. The effect of the change on the year ended
December 31, 2001 and 2000, was to increase revenue and
decrease net loss before the cumulative effect of the accounting
change by $0.5 million ($0.02 per share) and
$0.8 million ($0.03 per share), respectively.

Assuming the accounting change was made retroactively to prior
periods, for the year ended December 31, 1999, the pro
forma amounts for revenue and net loss were $20.0 million
and $19.8 million, respectively. The pro forma basic and
diluted net loss per common share would have been $1.00 for the
same period.

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.

F-11



---



##### 



Gene Logic Inc.




Notes to Consolidated Financial Statements 
(Continued)


December 31, 2001, 2000 and 1999


(in thousands, except per share data)




Note 1  Organization and Summary of Significant
Accounting Policies  (Continued)


Basic and Diluted Net Loss Per Common Share

Net loss per common 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.

Stock Option Plans

Prior to January 1, 1996, the Companys policy was to
account for its stock option plans in accordance with the
provisions of Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees
(APB 25), and related interpretations. As such,
compensation expense is recorded on the date of grant only if
the current fair value of the underlying stock exceeds the
exercise price. On January 1, 1996, the Company adopted
Statement of Financial Accounting Standards No. 123,
Accounting for Stock-Based Compensation
(SFAS 123), which permits entities to recognize
as expense over the vesting period the fair value of all
stock-based awards on the date of grant. Alternatively,
SFAS 123 also allows entities to continue to apply the
provisions of APB 25 and provide pro forma net earnings and
pro forma earnings per share disclosures for employee stock
option grants made in 1995 and future years as if the fair-value
based method defined in SFAS 123 had been applied. The
Company elected to continue to apply the provisions of APB 25
and provide the pro forma disclosure provisions of
SFAS 123. The Company uses the Black-Scholes option pricing
model to estimate the fair value of options and warrants granted.

Reclassifications

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

New Accounting Pronouncements

In June 2001, the Financial Accounting Standards Board issued
SFAS 142, which is effective for fiscal years beginning
after December 15, 2001. Under the new standard, goodwill
will no longer be amortized, but will be subject to annual
impairment tests in accordance with the Statement. Application
of the nonamortization provisions of the Statement will result
in a decrease in amortization expenses and net loss of
$1.5 million per year. Other intangible assets will
continue to be amortized over their expected useful lives and
reviewed for impairment.

On January 1, 2001, the Company adopted Statement of
Financial Accounting Standards No. 133, Accounting
for Derivative Instruments and Hedging Activities
(SFAS 133), as amended by SFAS 137 and
138. SFAS 133 requires all derivatives to be recorded at
fair value. Unless designated as hedges, changes in these fair
values will be recorded in the income statement. Fair value
changes involving hedges will generally be recorded by
offsetting gains and losses on the hedge and on the hedged item,
even if the fair value of the hedged item is not otherwise
recorded. Adoption of this standard had no impact on the
Companys financial statements.

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

F-12



---



##### 



Gene Logic Inc.




Notes to Consolidated Financial Statements 
(Continued)


December 31, 2001, 2000 and 1999


(in thousands, except per share data)


Note 1  Organization and Summary of Significant
Accounting Policies  (Continued)

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.

Note 2  Property and Equipment

Property and equipment includes the following as of
December 31, 2001 and 2000:

|                                                  |  |      |         |      |  |   |        |  
|------------------------------------------------- |  | ---- | ------- | ---- |  | - | ------ | -
|                                                  |  | 2001 |         | 2000
|                                                  |  |      |         |     
|Furniture                                         |  | $    | 1,495   |      |  | $ | 1,024  |  
|                                                 
|                                                 
|                                                 
|                                                 
|Computer and office equipment                     |  |      | 12,675  |      |  |   | 9,535  |  
|                                                 
|                                                 
|                                                 
|                                                 
|Laboratory equipment                              |  |      | 9,085   |      |  |   | 8,802  |  
|                                                 
|                                                 
|                                                 
|                                                 
|Leasehold improvements                            |  |      | 8,137   |      |  |   | 5,349  |  
|                                                  |  |      |         |      |  |   |        |  
|                                                  |  |      | 31,392  |      |  |   | 24,710 |  
|                                                 
|                                                 
|                                                 
|                                                 
|Less  accumulated depreciation and
	amortization |  |      | (13,034 | )    |  |   | (8,716 | )
|                                                  |  |      |         |      |  |   |        |  
|Property and equipment, net                       |  | $    | 18,358  |      |  | $ | 15,994 |  
|                                                  |  |      |         |      |  |   |        |  

Depreciation expense was $5.4 million, $3.9 million
and $3.2 million for the years ended December 31,
2001, 2000 and 1999, respectively. Capitalized interest in
relation to leasehold improvements was $0.1 million for the
year ended December 31, 2001.

Note 3  Investment in Neuralstem

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, following a
repurchase of shares by Neuralstem which reduced the
Companys voting stock interest to 14.8%, the Company began
accounting for its investment in Neuralstem under the cost
method of accounting and the financial statements do not reflect
any additional share of Neuralstems losses or elimination
of intercompany sales and expenses after such date. Neuralstem
repurchased the shares for approximately $2.7 million,
payable pursuant to a promissory note. No gain or loss was
recognized for this transaction. The Companys equity share
of losses of Neuralstem was $1.5 million through April 30,
2001. During the fourth quarter of 2001, the Company recorded a
$2.5 million write-down of its investment to reflect
Neuralstems estimated market value. At December 31,
2001, following the write-down, the value of the Companys
investment, including the promissory note, was $4.3 million.

Note 4  Spin-Off of Assets to MetriGenix

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

F-13



---



##### 



Gene Logic Inc.




Notes to Consolidated Financial Statements 
(Continued)


December 31, 2001, 2000 and 1999


(in thousands, except per share data)


Note 4  Spin-Off of Assets to
MetriGenix  (Continued)

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 ($0.9 million). As the Companys
investment in MetriGenix has been reduced to zero at
December 31, 2001 and there is no 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 was
recorded related to the subscription in 2001. For the year ended
December 31, 2001, the Company received fees of
$0.3 million for 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 and are expected to approximate
$0.5 million in 2002.

Note 5  Intangibles and Other Assets

Intangibles and other assets consist of the following as of
December 31, 2001 and 2000:

|                                  |  |      |        |      |  |   |        |  
|--------------------------------- |  | ---- | ------ | ---- |  | - | ------ | -
|                                  |  | 2001 |        | 2000
|                                  |  |      |        |     
|Licenses                          |  | $    | 8,140  |      |  | $ | 7,573  |  
|                                 
|                                 
|                                 
|                                 
|Patent costs                      |  |      | 2,541  |      |  |   | 1,988  |  
|                                 
|                                 
|                                 
|                                 
|Software development costs        |  |      | 11,578 |      |  |   | 5,378  |  
|                                 
|                                 
|                                 
|                                 
|Database development costs        |  |      | 4,013  |      |  |   | 3,846  |  
|                                 
|                                 
|                                 
|                                 
|Promissory note receivable        |  |      | 1,389  |      |  |   |       |  
|                                 
|                                 
|                                 
|                                 
|Other                             |  |      | 51     |      |  |   | 113    |  
|                                  |  |      |        |      |  |   |        |  
|                                  |  |      | 27,712 |      |  |   | 18,898 |  
|                                 
|                                 
|                                 
|                                 
|Less  accumulated amortization   |  |      | (8,792 | )    |  |   | (2,380 | )
|                                  |  |      |        |      |  |   |        |  
|Intangibles and other assets, net |  | $    | 18,920 |      |  | $ | 16,518 |  
|                                  |  |      |        |      |  |   |        |  

Amortization expense was $5.6 million, $2.9 million
and $0.2 million for the years ended December 31,
2001, 2000 and 1999, respectively. Capitalized interest in
relation to software development costs was $0.2 million for
the year ended December 31, 2001.

F-14



---



##### 



Gene Logic Inc.




Notes to Consolidated Financial Statements 
(Continued)


December 31, 2001, 2000 and 1999


(in thousands, except per share data)


Note 6  Accrued Expenses

Accrued expenses consist of the following as of
December 31, 2001 and 2000:

|                            |  |      |       |      |  |   |       | 
|--------------------------- |  | ---- | ----- | ---- |  | - | ----- | 
|                            |  | 2001 |       | 2000
|                            |  |      |       |     
|Property additions          |  | $    | 378   |      |  | $ | 2,857 | 
|                           
|                           
|                           
|                           
|Professional fees           |  |      | 841   |      |  |   | 1,105 | 
|                           
|                           
|                           
|                           
|Payroll, taxes and benefits |  |      | 3,604 |      |  |   | 4,910 | 
|                           
|                           
|                           
|                           
|Consulting fees             |  |      | 199   |      |  |   | 156   | 
|                            |  |      |       |      |  |   |       | 
|Accrued expenses            |  | $    | 5,022 |      |  | $ | 9,028 | 
|                            |  |      |       |      |  |   |       | 

Note 7  Long-Term Debt

Long-term debt at December 31, 2001 and 2000, consists of
the following:

|                       |                              |      |     |      |  |   |        |       | 
|---------------------- | ---------------------------- | ---- | --- | ---- |  | - | ------ | ----- | 
|                       |                              | 2001 |     | 2000
|                       |                              |      |     |     
|Equipment loans:       |                              |      |     |      |  |   |        |      
|                      
|                      
|                      
|                      
|                       | Variable rate equipment loan |      | $   |     |  |   | $      | 2,382 | 
|                      
|                      
|                      
|                      
|                       | 9.0% equipment loan          |      |     |     |  |   |        | 210   | 
|                      
|                      
|                      
|                      
|                       | Other                        |      |     | 338  |  |   |        | 374   | 
|                       |                              |      |     |      |  |   |        |      
|                       |                              |      | 338 |      |  |   | 2,966  |      
|                      
|                      
|                      
|                      
|Less  current portion |                              |      | (38 | )    |  |   | (1,335 | )    
|                       |                              |      |     |      |  |   |        |      
|Long-term debt         |                              | $    | 300 |      |  | $ | 1,631  |      
|                       |                              |      |     |      |  |   |        |      

As of December 31, 2001, principal payments on long-term
debt are as follows:

|                         |                     |   |     |     | 
|------------------------ | ------------------- | - | --- | --- | 
|Year ending December 31, |                     |   |     |    
|                        
|                        
|                        
|                        
|                         | 2002                |   | $   | 38  | 
|                        
|                        
|                        
|                        
|                         | 2003                |   |     | 40  | 
|                        
|                        
|                        
|                        
|                         | 2004                |   |     | 42  | 
|                        
|                        
|                        
|                        
|                         | 2005                |   |     | 44  | 
|                        
|                        
|                        
|                        
|                         | 2006                |   |     | 47  | 
|                        
|                        
|                        
|                        
|                         | 2007 and thereafter |   |     | 127 | 
|                         |                     |   |     |    
|                         |                     | $ | 338 |    
|                         |                     |   |     |    

During 2001, the Company paid in full two outstanding equipment
loans, including a prepayment of $1.9 million. As of
December 31, 2001, the remaining loan is being repaid in
equal quarterly installments through June 2009.

Interest expense was $0.2 million, $0.4 million and
$0.4 million for the years ended December 31, 2001,
2000 and 1999, respectively.

Note 8  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

F-15



---



##### 



Gene Logic Inc.




Notes to Consolidated Financial Statements 
(Continued)


December 31, 2001, 2000 and 1999


(in thousands, except per share data)


Note 8  Stockholders Equity 
(Continued)

proceeds to the Company, after deducting the underwriting
discounts and commissions and offering expenses, were
approximately $247.5 million.

Note 9  Business Agreements

As of December 31, 2001, the Companys business
portfolio consisted of agreements with pharmaceutical and
biotechnology companies utilizing the Companys genomic
information products and services, which include 18 subscription
agreements for access to the Companys GeneExpress
products, as well as an aggregate of 11 agreements to license
the Companys Genesis software and related professional
services, to obtain reports on single-gene analysis from
GeneExpress, to supply a proprietary gene expression database
and to build customized information products based on
proprietary services. Some of these agreements are with the same
pharmaceutical and/or biotechnology company. Under GeneExpress
product subscription agreements, each subscriber has agreed to
pay, during the term of the agreement, annual subscription fees
to receive non-exclusive access to selected GeneExpress database
products. Genesis software agreements provide the Company with
license and ongoing maintenance fees, in addition to fees for
professional services. Agreements to purchase reports on
single-gene analysis provide the Company with fees on a
pay-per-view basis. The customized information product
agreements provide the Company with research support. The
Companys GeneExpress product agreements often require the
Company to provide specific content updates. In addition, the
Companys business agreements may provide the right for
early termination without penalty to the customer.

During December 2000, N.V. Organon terminated its Collaboration
and License Agreement with the Company. Under the agreement, the
Company received the $2.0 million which was outstanding and
simultaneously purchased, for $2.0 million, an exclusive
perpetual license to data that was developed under this
agreement. In addition, N.V. Organon entered into a multi-year
GeneExpress database subscription in October 2000.

Note 10  Income Taxes

The actual income tax expense for the years ended
December 31, 2001, 2000 and 1999, 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:

|                                                      |  |      |         |      |  |      |         |   |  |   |        |  
|----------------------------------------------------- |  | ---- | ------- | ---- |  | ---- | ------- | - |  | - | ------ | -
|                                                      |  | 2001 |         | 2000 |  | 1999
|                                                      |  |      |         |      |  |     
|Tax benefit at federal statutory rate                 |  | $    | (11,279 | )    |  | $    | (8,166  | ) |  | $ | (7,001 | )
|                                                     
|                                                     
|                                                     
|                                                     
|State income taxes, net of federal income tax
	effect |  |      | (1,527  | )    |  |      | (1,105  | ) |  |   | (949   | )
|                                                     
|                                                     
|                                                     
|                                                     
|Benefit from stock option compensation                |  |      | (1,723  | )    |  |      | (12,846 | ) |  |   | (391   | )
|                                                     
|                                                     
|                                                     
|                                                     
|Other                                                 |  |      | 1,554   |      |  |      | (145    | ) |  |   | 1,082  |  
|                                                     
|                                                     
|                                                     
|                                                     
|Net operating loss valuation adjustment               |  |      |        |      |  |      |        |   |  |   | (2,058 | )
|                                                     
|                                                     
|                                                     
|                                                     
|Increase in valuation allowance                       |  |      | 13,508  |      |  |      | 22,472  |   |  |   | 9,537  |  
|                                                      |  |      |         |      |  |      |         |   |  |   |        |  
|Income tax expense                                    |  | $    | 533     |      |  | $    | 210     |   |  | $ | 220    |  
|                                                      |  |      |         |      |  |      |         |   |  |   |        |  

F-16



---



##### 



Gene Logic Inc.




Notes to Consolidated Financial Statements 
(Continued)


December 31, 2001, 2000 and 1999


(in thousands, except per share data)


Note 10  Income Taxes  (Continued)

The tax effect of cumulative temporary differences at
December 31, 2001 and 2000, follows:

|                          |                                     |      |        |         |   |  |        |         |  
|------------------------- | ----------------------------------- | ---- | ------ | ------- | - |  | ------ | ------- | -
|                          |                                     | 2001 |        | 2000   
|                          |                                     |      |        |        
|Deferred Tax Assets:      |                                     |      |        |         |   |  |        |        
|                         
|                         
|                         
|                         
|                          | Tax carryforwards                   |      | $      | 63,946  |   |  | $      | 49,698  |  
|                         
|                         
|                         
|                         
|                          | Contract revenue                    |      |        | 1,748   |   |  |        | 1,511   |  
|                         
|                         
|                         
|                         
|                          | Net loss in unconsolidated investee |      |        | 1,809   |   |  |        |        |  
|                         
|                         
|                         
|                         
|                          | Amortization                        |      |        |        |   |  |        | 423     |  
|                         
|                         
|                         
|                         
|                          | Accrued vacation                    |      |        | 410     |   |  |        | 297     |  
|                         
|                         
|                         
|                         
|                          | Other                               |      |        | 760     |   |  |        | 550     |  
|                          |                                     |      |        |         |   |  |        |        
|                          |                                     |      | 68,673 |         |   |  | 52,479 |        
|                         
|                         
|                         
|                         
|                          | Less  valuation allowance          |      |        | (65,128 | ) |  |        | (51,620 | )
|                          |                                     |      |        |         |   |  |        |        
|                          | Net deferred tax assets             |      | $      | 3,545   |   |  | $      | 859     |  
|                          |                                     |      |        |         |   |  |        |        
|Deferred Tax Liabilities: |                                     |      |        |         |   |  |        |        
|                         
|                         
|                         
|                         
|                          | Capitalized software costs          |      | $      | 3,257   |   |  | $      | 490     |  
|                         
|                         
|                         
|                         
|                          | Depreciation                        |      |        | 136     |   |  |        | 86      |  
|                         
|                         
|                         
|                         
|                          | Other                               |      |        | 152     |   |  |        | 283     |  
|                          |                                     |      |        |         |   |  |        |        
|                          | Net deferred tax liabilities        |      | $      | 3,545   |   |  | $      | 859     |  
|                          |                                     |      |        |         |   |  |        |        

At December 31, 2001, Net Operating Loss carryforwards
(NOLs) for income tax purposes were approximately
$157.7 million, including approximately $30.0 million
related to Oncormed prior to the Merger. The Company also has
research and development tax credit carryforwards of
approximately $3.0 million as of December 31, 2001.
The carryforwards, if not utilized, will expire in increments
from 2008 through 2021. 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 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.

Note 11  Commitments and Contingencies

Operating Leases

The Company conducts all of its operations from leased
facilities in Gaithersburg, Maryland and Berkeley, California
under operating leases with varying terms expiring through 2010.
These leases obligate the Company to pay building operating
costs and also contain renewal provisions.

F-17



---



##### 



Gene Logic Inc.




Notes to Consolidated Financial Statements 
(Continued)


December 31, 2001, 2000 and 1999


(in thousands, except per share data)


Note 11  Commitments and Contingencies 
(Continued)

Future minimum lease payments on these operating leases as of
December 31, 2001, are as follows:

|                         |                     |   |        |       | 
|------------------------ | ------------------- | - | ------ | ----- | 
|Year ending December 31, |                     |   |        |      
|                        
|                        
|                        
|                        
|                         | 2002                |   | $      | 2,875 | 
|                        
|                        
|                        
|                        
|                         | 2003                |   |        | 2,940 | 
|                        
|                        
|                        
|                        
|                         | 2004                |   |        | 2,812 | 
|                        
|                        
|                        
|                        
|                         | 2005                |   |        | 2,735 | 
|                        
|                        
|                        
|                        
|                         | 2006                |   |        | 2,806 | 
|                        
|                        
|                        
|                        
|                         | 2007 and thereafter |   |        | 6,753 | 
|                         |                     |   |        |      
|                         |                     | $ | 20,921 |      
|                         |                     |   |        |      

Rent expense for the years ended December 31, 2001, 2000
and 1999, was $2.8 million, $2.1 million and
$1.8 million, respectively.

Purchase Commitments

The Company currently contracts with a third-party supplier,
Affymetrix, to supply its GeneChip® microarrays. Under this
agreement, the Company is required to purchase at least
$15.1 million in products and services in 2002.

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 12  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, 2001.

Note 13  Stock Based Compensation

During 1996, the Company instituted a stock plan (the
Stock Plan), which was amended and restated in 1997,
whereby the Companys Compensation Committee of the Board
of Directors (the Committee), at its discretion, can
grant options, award stock or provide opportunities to make
direct purchases of stock to employees, officers, directors and
consultants of the Company and related corporations. The Stock
Plan authorizes the grant of options for up to 8,600,000 shares
of common stock. At December 31, 2001, there were 646,077
shares reserved for issuance under the Stock Plan. During 1997,
the Company adopted a Directors

F-18



---



##### 



Gene Logic Inc.




Notes to Consolidated Financial Statements 
(Continued)


December 31, 2001, 2000 and 1999


(in thousands, except per share data)


Note 13  Stock Based Compensation 
(Continued)

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 325,000 shares of common
stock. At December 31, 2001, there were 122,500 shares
reserved 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 500,000 shares of common stock. The Purchase Plan
allows employees to purchase common stock of the Company 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. At December 31,
2001, there were 138,856 shares reserved for issuance under the
Purchase Plan.

The following is a rollforward of option activity for the years
ended December 31, 2001, 2000 and 1999:

|                             |                          |           |           |                     |   |                |           |            |   |   |       |       | 
|---------------------------- | ------------------------ | --------- | --------- | ------------------- | - | -------------- | --------- | ---------- | - | - | ----- | ----- | 
|                             |                          |           |           |                    
|                             |                          |           |           | Shares Subject to  
|                             |                          |           |           | Outstanding Options
|                             |                          |           |           |                    
|                             |                          | Shares    |           |                     |   | Weighted      
|                             |                          | Available |           |                     |   | Average       
|                             |                          | For Grant |           | Shares              |   | Exercise Price
|                             |                          |           |           |                     |   |               
|Balance at January 1, 1999   |                          |           | 2,111,285 |                     |   |                | 2,885,136 |            |   | $ | 3.57  |      
|                            
|                            
|                            
|                            
|                             | Additional authorization |           |           | 1,200,000           |   |                |           |           |   |   |       |      | 
|                            
|                            
|                            
|                            
|                             | Options granted          |           |           | (1,622,463          | ) |                |           | 1,622,463  |   |   | $     | 5.57  | 
|                            
|                            
|                            
|                            
|                             | Options exercised        |           |           |                    |   |                |           | (249,860   | ) |   | $     | 2.01  | 
|                            
|                            
|                            
|                            
|                             | Options cancelled        |           |           | 328,725             |   |                |           | (328,725   | ) |   | $     | 5.02  | 
|                             |                          |           |           |                     |   |                |           |            |   |   |       |      
|Balance at December 31, 1999 |                          |           | 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 |      
|                             |                          |           |           |                     |   |                |           |            |   |   |       |      

Options to purchase a total of 2,961,240, 2,003,371 and
1,442,735 at December 31, 2001, 2000 and 1999,
respectively, were exercisable. The weighted-average grant-date
fair value of options granted during the years ended
December 31, 2001, 2000 and 1999 was $8.43, $37.66 and
$3.50, respectively.

During the year ended December 31, 1997, the Company
granted options with exercise prices below fair value. The
Company recorded deferred compensation of $6.9 million at
December 31, 1997, and compensation expense of
$0.7 million, $1.2 million and $1.5 million for
the years ended December 31, 2001, 2000 and 1999,
respectively, related to these option grants.

F-19



---



##### 



Gene Logic Inc.




Notes to Consolidated Financial Statements 
(Continued)


December 31, 2001, 2000 and 1999


(in thousands, except per share data)


Note 13  Stock Based Compensation 
(Continued)

The following table summarizes information about stock options
outstanding at December 31, 2001:

|                 |  |                     |           |                     |  |          |           |                |  |          |       |  |  |  |           |  |  |   |       | 
|---------------- |  | ------------------- | --------- | ------------------- |  | -------- | --------- | -------------- |  | -------- | ----- |  |  |  | --------- |  |  | - | ----- | 
|                 |  |                     |           |                    
|                 |  | 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   |  | 2001                |           | Life                |  | Price    |           | 2001           |  | Price   
|                 |  |                     |           |                     |  |          |           |                |  |         
|$0.15  $4.13    |  |                     | 766,284   |                     |  |          | 6.3 Years |                |  | $        | 3.00  |  |  |  | 632,141   |  |  | $ | 2.80  | 
|                
|                
|                
|                
|$4.14  $8.50    |  |                     | 883,259   |                     |  |          | 7.1 Years |                |  | $        | 5.35  |  |  |  | 605,042   |  |  | $ | 5.37  | 
|                
|                
|                
|                
|$8.51  $14.00   |  |                     | 890,704   |                     |  |          | 9.4 Years |                |  | $        | 12.41 |  |  |  | 326,274   |  |  | $ | 12.30 | 
|                
|                
|                
|                
|$14.01  $25.00  |  |                     | 1,013,586 |                     |  |          | 8.6 Years |                |  | $        | 19.97 |  |  |  | 488,538   |  |  | $ | 20.04 | 
|                
|                
|                
|                
|$25.01  $50.00  |  |                     | 665,161   |                     |  |          | 8.3 Years |                |  | $        | 32.08 |  |  |  | 341,192   |  |  | $ | 32.75 | 
|                
|                
|                
|                
|$50.01  $123.00 |  |                     | 779,412   |                     |  |          | 7.8 Years |                |  | $        | 66.05 |  |  |  | 568,053   |  |  | $ | 64.90 | 
|                 |  |                     |           |                     |  |          |           |                |  |          |       |  |  |  |           |  |  |   |       | 
|$0.15  $123.00  |  |                     | 4,998,406 |                     |  |          | 8.0 Years |                |  | $        | 22.23 |  |  |  | 2,961,240 |  |  | $ | 22.58 | 
|                 |  |                     |           |                     |  |          |           |                |  |          |       |  |  |  |           |  |  |   |       | 

Had compensation cost for the Companys stock-based
compensation plans been determined based on the fair value at
the grant dates, consistent with the method of SFAS 123, the
Companys net loss and loss per common share would have
been changed to the pro forma amounts for the years ended
December 31, 2001, 2000 and 1999 as indicated below:

|                                                                     |                                                                      |      |         |       |   |      |         |       |   |   |         |       |  
|-------------------------------------------------------------------- | -------------------------------------------------------------------- | ---- | ------- | ----- | - | ---- | ------- | ----- | - | - | ------- | ----- | -
|                                                                     |                                                                      | 2001 |         | 2000  |   | 1999
|                                                                     |                                                                      |      |         |       |   |     
|Net loss before cumulative effect of change in
	accounting principle |                                                                      | $    | (58,253 | )     |   | $    | (59,298 | )     |   | $ | (22,852 | )    
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|Cumulative effect of change in accounting
	principle                 |                                                                      |      |        |       |   |      | (1,322  | )     |   |   |        |      
|                                                                     |                                                                      |      |         |       |   |      |         |       |   |   |         |      
|Net loss                                                             |                                                                      | $    | (58,253 | )     |   | $    | (60,620 | )     |   | $ | (22,852 | )    
|                                                                     |                                                                      |      |         |       |   |      |         |       |   |   |         |      
|Basic and diluted net loss per common share:                         |                                                                      |      |         |       |   |      |         |       |   |   |         |      
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|                                                                     | Net loss before cumulative effect of change in
	accounting principle |      | $       | (2.19 | ) |      | $       | (2.35 | ) |   | $       | (1.15 | )
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|                                                                     | Cumulative effect of change in accounting
	principle                 |      |         |      |   |      |         | (0.05 | ) |   |         |      |  
|                                                                     |                                                                      |      |         |       |   |      |         |       |   |   |         |      
|                                                                     | Net loss                                                             |      | $       | (2.19 | ) |      | $       | (2.40 | ) |   | $       | (1.15 | )
|                                                                     |                                                                      |      |         |       |   |      |         |       |   |   |         |      

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, 2001, 2000 and 1999, with the following
assumptions:

|                        |  |      |                |      |  |      |                |  |  |  |                | 
|----------------------- |  | ---- | -------------- | ---- |  | ---- | -------------- |  |  |  | -------------- | 
|                        |  | 2001 |                | 2000 |  | 1999
|                        |  |      |                |      |  |     
|Expected volatility     |  |      | 76%            |      |  |      | 143%           |  |  |  | 98%            | 
|                       
|                       
|                       
|                       
|Risk-free interest rate |  |      | 2.99% to 4.69% |      |  |      | 5.04% to 6.70% |  |  |  | 4.57% to 6.97% | 
|                       
|                       
|                       
|                       
|Expected lives          |  |      | 3 years        |      |  |      | 3 years        |  |  |  | 1  3 years    | 
|                       
|                       
|                       
|                       
|Dividend rate           |  |      | 0%             |      |  |      | 0%             |  |  |  | 0%             | 

F-20



---



##### 



Gene Logic Inc.




Notes to Consolidated Financial Statements 
(Continued)


December 31, 2001, 2000 and 1999


(in thousands, except per share data)


Note 14  Related Party Transactions

During 1999, the Company issued promissory notes to three
officers of the Company totaling $0.8 million to offset tax
liabilities for unrealized capital gains resulting from stock
option exercises. In February 2000, two of the notes aggregating
$0.6 million plus accrued interest were paid in full.

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 GeneExpress from which the Company
derived no revenue for the year ended December 31, 2001 and
to provide certain administrative services and subleased space
(see Note 4). Fees charged to MetriGenix for administrative
services and subleased space totaled $0.3 million of the
year ended December 31, 2001. 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.

Note 15  Quarterly Results of Operations
(Unaudited)

The following is a summary of the quarterly results of
operations for the years ended December 31, 2001 and 2000
as restated for the cumulative effect of change in accounting
principle as more fully described in Note 1.

|                                                                     |  |          |         |         |  |              |        |             |  |   |        |   |  |   |        |  
|-------------------------------------------------------------------- |  | -------- | ------- | ------- |  | ------------ | ------ | ----------- |  | - | ------ | - |  | - | ------ | -
|                                                                     |  | March 31 |         | June 30 |  | September 30 |        | December 31
|                                                                     |  |          |         |         |  |              |        |            
|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 common 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  | )
|                                                                     |  |          |         |         |  |              |        |             |  |   |        |   |  |   |        |  
|2000                                                                 |  |          |         |         |  |              |        |             |  |   |        |   |  |   |        |  
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|Revenue                                                              |  | $        | 5,328   |         |  | $            | 6,789  |             |  | $ | 5,394  |   |  | $ | 9,373  |  
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|Net loss before cumulative effect of change in
	accounting principle |  |          | (4,654  | )       |  |              | (4,812 | )           |  |   | (7,845 | ) |  |   | (5,385 | )
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|Cumulative effect of change in accounting
	principle                 |  |          | (1,322  | )       |  |              |       |             |  |   |       |   |  |   |       |  
|                                                                     |  |          |         |         |  |              |        |             |  |   |        |   |  |   |        |  
|Net loss                                                             |  | $        | (5,976  | )       |  | $            | (4,812 | )           |  | $ | (7,845 | ) |  | $ | (5,385 | )
|                                                                     |  |          |         |         |  |              |        |             |  |   |        |   |  |   |        |  
|Basic and diluted net loss per common share:                         |  |          |         |         |  |              |        |             |  |   |        |   |  |   |        |  
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|Net loss before cumulative effect of change in
	accounting principle |  | $        | (0.20   | )       |  | $            | (0.19  | )           |  | $ | (0.30  | ) |  | $ | (0.21  | )
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|Cumulative effect of change in accounting
	principle                 |  |          | (0.06   | )       |  |              |       |             |  |   |       |   |  |   |       |  
|                                                                     |  |          |         |         |  |              |        |             |  |   |        |   |  |   |        |  
|Net loss                                                             |  | $        | (0.25   | )       |  | $            | (0.19  | )           |  | $ | (0.30  | ) |  | $ | (0.21  | )
|                                                                     |  |          |         |         |  |              |        |             |  |   |        |   |  |   |        |  

F-21