UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
DC 20549





FORM
10-Q





x
            QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF
      1934





For the
quarterly period ended March 31, 2010





o
            TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15 (d)  OF THE SECURITIES
      EXCHANGE ACT OF 1934





For the
transition period from ___________ to _____________.





Commission
file number0-20713





ENTREMED,
INC.


(Exact
name of registrant as specified in its charter)




Delaware
              58-1959440(State
      or other jurisdiction of
              (I.R.S.
      Employer Identification No.)incorporation
      or organization)


9640
Medical Center Drive


Rockville,
Maryland


(Address
of principal executive offices)





20850


(Zip
code)





(240)
864-2600


(Registrant’s
telephone number, including area code)





Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.





YES xNO o





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or for such shorter period that the registrant was required to submit
and post such files).





YES oNO o





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check
one):




Large
      accelerated filer o
            Accelerated
      filer o
            Non-accelerated
      filer x
            Smaller
      reporting company o




Indicate
by checkmark whether the registrant is a shell company (as defined in Rule 12b-2
of the Exchange Act).





YES oNO x





Indicate
the number of shares outstanding of each of the issuer’s classes of common
stock, as of the most recent practicable date.




Class
              Outstanding
      at May 12, 2010Common
      Stock $.01 Par Value
              101,492,491





ENTREMED,
INC.


Table of
Contents




PAGEPART I. FINANCIAL INFORMATIONItem
      1 —
              
              Consolidated
      Financial StatementsConsolidated
      Balance Sheets as ofMarch
      31, 2010 (unaudited) and December 31, 2009
              
              
              3Consolidated
      Statements of Operations for theThree
      Months Ended March 31, 2010 and 2009 (unaudited)
              
              
              4Consolidated
      Statements of Cash Flows for theThree
      Months Ended March 31, 2010 and 2009 (unaudited)
              
              
              5Notes
      to Consolidated Financial Statements (unaudited)
              
              
              6Item
      2 —
              
              Management’s
      Discussion and Analysis ofFinancial
      Condition and Results of Operations
              
              
              14Item
      3 —
              
              Quantitative
      and Qualitative DisclosuresAbout
      Market Risk
              
              
              23Item
      4 —
              
              Controls
      and Procedures
              
              
              23Part
      II.  OTHER INFORMATIONItem
      1 —
              
              Legal
      Proceedings
              
              
              24Item
      1A —
              
              Risk
      Factors
              
              
              24Item
      2 —
              
              Unregistered
      Sales of Equity Securities and Use of Proceeds
              
              
              24Item
      3 —
              
              Defaults
      upon Senior Securities
              
              
              24Item
      4 —
              
              Reserved
              
              
              24Item
      5 —
              
              Other
      Information
              
              
              24Item
      6 —
              
              Exhibits
              
              
              24SIGNATURES
              
              
              
              
              25


SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS





This
report contains certain forward-looking statements within the meaning of Section
27A of the Securities Exchange Act of 1933, as amended and Section 21E of the
Securities Exchange Act of 1934, as amended.  Forward-looking
statements also may be included in other statements that we make.  All
statements that are not descriptions of historical facts are forward-looking
statements.  These statements can generally be identified by the use
of forward-looking terminology such as “believes,” “expects,” “intends,” “may,”
“will,” “should,” or “anticipates” or similar terminology.  These
forward-looking statements include, among others, statements regarding the
timing of our clinical trials, our cash position and future expenses, and our
future revenues.





Our
forward-looking statements are based on information available to us today, and
we will not update these statements.





Actual
results could differ materially from those currently anticipated due to a number
of factors, including  the risk that we may be unable to continue as a
going concern as a result of our inability to raise sufficient capital for our
operational needs; the possibility that we may be delisted from trading on the
Nasdaq Capital Market; the volatility of our common stock; risks relating to the
need for additional capital and the uncertainty of securing additional funding
on favorable terms; the failure to consummate a transaction to monetize our
Thalomid® royalty
stream for any reason, including our inability to obtain the required
third-party consents; declines in actual sales of Thalomid®
resulting in reduced royalty payments; risks associated with our product
candidates; the early-stage products under development; results in preclinical
models are not necessarily indicative of clinical results; uncertainties
relating to preclinical and clinical trials, including delays to the
commencement of such trials; success in the clinical development of any
products; dependence on third parties; and risks relating to the
commercialization, if any, of our  proposed products (such as
marketing, safety, regulatory, patent, product liability, supply, competition
and other risks).  Additional information about the factors and risks
that could affect our business, financial condition and results of operations,
are contained in our filings with the U.S. Securities and Exchange Commission
(SEC), which are available at www.sec.gov.




2





PART
I.  FINANCIAL INFORMATION




ITEM
1.  CONSOLIDATED FINANCIAL STATEMENTS





EntreMed,
Inc.


Consolidated
Balance Sheets


(Unaudited)





March 31,2010
            
            
            December 31,2009ASSETS
            
            (Unaudited)Current
      assets:Cash
      and cash equivalents
            
            $
            9,647,764
            
            
            $
            6,312,182Short-term
      investments
            
            
            44,070
            
            
            
            54,071Accounts
      receivable, net of allowance for doubtful accounts of$72,145
      at March 31, 2010 and December 31, 2009
            
            
            2,072
            
            
            
            3,286,858Prepaid
      expenses and other
            
            
            159,863
            
            
            
            220,925Total
      current assets
            
            
            9,853,769
            
            
            
            9,874,036Property
      and equipment, net
            
            
            151,941
            
            
            
            171,498Other
      assets
            
            
            14,424
            
            
            
            21,494Total
      assets
            
            $
            10,020,134
            
            
            $
            10,067,028LIABILITIES
      AND STOCKHOLDERS' EQUITY (DEFICIT)Current
      liabilities:Accounts
      payable
            
            $
            1,628,500
            
            
            $
            1,968,607Accrued
      liabilities
            
            
            337,027
            
            
            
            745,183Current
      portion of loan payable
            
            
            7,237,350
            
            
            
            8,555,404Total
      current liabilities
            
            
            9,202,877
            
            
            
            11,269,194Loan
      payable, less current portion
            
            
            -
            
            
            
            723,814Total
      liabilities
            
            
            9,202,877
            
            
            
            11,993,008Commitments
      and contingencies
            
            
            -
            
            
            
            -Stockholders'
      equity (deficit):Convertible
      preferred stock, $1.00 par  value;5,000,000
      shares authorized and 3,350,000 shares issued andoutstanding
      at March 31, 2010 and December 31, 2009(liquidation
      value - $33,500,000 at March 31, 2010 and December 31,
    2009)
            
            
            3,350,000
            
            
            
            3,350,000Common
      stock, $.01 par value:170,000,000
      shares authorized at March 31, 2010 and December 31, 2009:95,700,986
      and 88,671,445 shares issued and outstandingat
      March 31, 2010 and December 31, 2009, respectively
            
            
            957,011
            
            
            
            886,715Additional
      paid-in capital
            
            
            372,797,047
            
            
            
            367,997,962Treasury
      stock, at cost:  874,999 shares held at March 31, 2010
      andDecember
      31, 2009
            
            
            (8,034,244
            )
            
            
            (8,034,244
            )Accumulated
      deficit
            
            
            (368,252,557
            )
            
            
            (366,126,413
            )Total
      stockholders' equity (deficit)
            
            
            817,257
            
            
            
            (1,925,980
            )Total
      liabilities and stockholders' equity (deficit)
            
            $
            10,020,134
            
            
            $
            10,067,028





See
accompanying notes.




3




EntreMed,
Inc.


Consolidated
Statements of Operations


(Unaudited)





Three
      Months EndedMarch 31,2010
            
            
            March 31,2009Revenues:Royalties
            
            
            -
            
            
            
            -Other
            
            
            -
            
            
            
            --
            
            
            
            -Costs
      and expenses:Research
      and development
            
            
            843,953
            
            
            
            1,953,460General
      and administrative
            
            
            1,051,225
            
            
            
            1,159,7211,895,178
            
            
            
            3,113,181Investment
      income
            
            
            -
            
            
            
            50,187Interest
      expense
            
            
            (220,965
            )
            
            
            (453,761
            )Other
      expense
            
            
            (10,001
            )
            
            
            -Net
      loss
            
            
            (2,126,144
            )
            
            
            (3,516,755
            )Dividends
      on Series A convertible preferred stock
            
            
            (251,250
            )
            
            
            (251,250
            )Net
      loss attributable to common shareholders
            
            $
            (2,377,394
            )
            
            $
            (3,768,005
            )Net
      loss per share (basic and diluted)
            
            $
            (0.03
            )
            
            $
            (0.04
            )Weighted
      average number of common sharesoutstanding
      (basic and diluted)
            
            
            92,895,302
            
            
            
            87,728,644





See
accompanying notes.


4




EntreM,ed,
Inc.


Consolidated
Statements of Cash Flows


(Unaudited)





THREE
      MONTH PERIODENDEDMARCH
      31,2010
            
            
            2009CASH
      FLOWS FROM OPERATING ACTIVITIESNet
      loss
            
            $
            (2,126,144
            )
            
            $
            (3,516,755
            )Adjustments
      to reconcile net loss to net cash provided by (used in)
      operatingactivities:Depreciation
      and amortization
            
            
            19,557
            
            
            
            35,422Amortization
      of discount on short-term investments
            
            
            -
            
            
            
            (26,777
            )Stock-based
      compensation expense
            
            
            211,890
            
            
            
            155,133Non-cash
      interest
            
            
            20,471
            
            
            
            40,687Investment
      impairment loss
            
            
            10,001
            
            
            
            -Changes
      in operating assets and liabilities:Accounts
      receivable
            
            
            3,284,786
            
            
            
            3,880,108Prepaid
      expenses and other
            
            
            61,062
            
            
            
            134,743Deferred
      rent
            
            
            -
            
            
            
            (20,763
            )Accounts
      payable
            
            
            (340,107
            )
            
            
            (1,300,305
            )Accrued
      liabilities
            
            
            (408,157
            )
            
            
            (996,591
            )Net
      cash provided by (used in) operating activities
            
            
            733,359
            
            
            
            (1,615,098
            )CASH
      FLOWS FROM INVESTING ACTIVITIESPurchases
      of  short term investments
            
            
            -
            
            
            
            (4,967,793
            )Maturities
      of short term investments
            
            
            -
            
            
            
            4,000,000Unrealized
      loss on short term investments
            
            
            -
            
            
            
            (4,660
            )Net
      cash used in investing activities
            
            
            -
            
            
            
            (972,453
            )CASH
      FLOWS FROM FINANCING ACTIVITIESRepayment
      of loan
            
            
            (2,055,268
            )
            
            
            -Net
      proceeds from sale of common stock
            
            
            4,657,491
            
            
            
            (1,852,771
            )Net
      cash provided by (used in) financing activities
            
            
            2,602,223
            
            
            
            (1,852,771
            )Net
      increase (decrease) in cash and cash equivalents
            
            
            3,335,582
            
            
            
            (4,440,322
            )Cash
      and cash equivalents at beginning of period
            
            
            6,312,182
            
            
            
            16,743,129Cash
      and cash equivalents at end of period
            
            $
            9,647,764
            
            
            $
            12,302,807Supplemental
      disclosure of cash flow information:Cash
      paid during the period for interest
            
            $
            200,494
            
            
            $
            413,074





See
accompanying notes.




5





ENTREMED,
INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


March
31, 2010 (unaudited)




1.
            Basis
      of Presentation





The accompanying consolidated financial
statements include the accounts of EntreMed, Inc. (the Company or EntreMed) and
its controlled subsidiary, Miikana Therapeutics, Inc. (Miikana).  All
inter-company balances and transactions have been eliminated in
consolidation.  The Company refers to EntreMed and its consolidated
subsidiary.





The accompanying unaudited consolidated
financial statements have been prepared in accordance with U. S. generally
accepted accounting principles for interim financial information and in
accordance with the instructions to Form 10-Q and Article 10 of Regulation
S-X.  Accordingly, such consolidated financial statements do not
include all of the information and disclosures required by U. S. generally
accepted accounting principles for complete consolidated financial
statements.  In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three-month period ended March 31, 2010
are not necessarily indicative of the results that may be expected for the year
ending December 31, 2010. For further information, refer to our audited
consolidated financial statements and footnotes thereto included in our Form
10-K for the year ended December 31, 2009.





Material subsequent events have been
considered for disclosure and recognition through the filing date of these
consolidated financial statements.





Liquidity Risks and
Management’s Plans





The accompanying unaudited consolidated
financial statements have been prepared on a going-concern basis, which
contemplates the realization of assets and satisfaction of liabilities in the
normal course of business.  Based on current plans, the Company
expects its current available cash and cash equivalents will meet its cash
requirements through fiscal 2010.  At March 31, 2010 the Company has
operating and liquidity concerns and plans to continue to pursue opportunities
to raise additional capital to fund its operating needs.  Since
inception, the Company has incurred significant losses from operations and has
incurred an accumulated deficit of $368 million.  The Company expects
to continue to incur expenses, resulting in operating losses, for the
foreseeable future due to, among other factors, its continuing clinical trials,
planned future clinical trials, and other anticipated research and development
activities.





The Company’s ability to continue as a
going concern is dependent on its success at raising additional capital
sufficient to meet its obligations on a timely basis, and to ultimately attain
profitability.  There is no assurance that the Company will raise
capital sufficient to enable the Company to continue its operations for the next
twelve months.  If additional funds are raised by issuing equity
securities, dilution to existing shareholders may result.  There can
be no assurance that adequate additional financing will be available to the
Company on terms that it deems acceptable, if at all.  In the event
additional financing is not obtained, the Company will likely reduce general and
administrative expenses and scale back or interrupt the clinical development of
ENMD-2076 until it is able to obtain sufficient financing to do so.




6





These factors could significantly limit
the Company’s ability to continue as a going concern.  The
consolidated financial statements do not include any adjustments relating to
recoverability and classification of recorded asset amounts or the amounts and
classification of liabilities that might be necessary should the Company be
unable to continue in existence.





2.
            Revenue
      Recognition




Revenue is recognized when all of the
following criteria are met:  1) persuasive evidence of an arrangement
exists, 2) delivery has occurred or services have been rendered, 3) the price to
the buyer is fixed and determinable and 4) collectibility is reasonably
assured.  Royalty revenue is not recognized until it is
realized.




3.
            Restructuring




In connection with the Company’s
business plan to become a clinically-focused operation, accelerating the
clinical development of ENMD-2076, with the objective to lower operating costs
and preserve capital, the Company experienced workforce reductions in December
2008 and in December 2009 which in the aggregate resulted in the elimination of
approximately seventy percent of the Company’s total positions across all areas
of business. The Company incurred charges for severance and related
benefits totaling $228,754 and $1,783,773 during the fourth quarters of
2009 and 2008, respectively.  At December 31, 2009, $228,754 is
included in accrued liabilities. There were no additional charges during
2010.  The Company has accounted for this restructuring as prescribed
by authoritative guidance.




A summary of changes in the accrued
liabilities during the three months ended March 31, 2010, is as
follows:




R&D
            
            
            G&AExpenses
            
            
            ExpensesBalance
      at December 31, 2009
            
            
            
            
            
            
            
            $
            228,754Cash
      payments
            
            $
            (164,814
            )
            
            $
            (34,601
            )
            
            
            (199,415
            )Balance
      at March 31, 2010
            
            
            
            
            
            
            
            
            
            $
            29,339




Cumulative costs incurred with respect
to the restructuring are $2,013,000, of which, approximately $1,067,000 have
been expensed as general and administrative costs and $946,000 have been
expensed as research and development costs.  The Company did not incur
additional costs during the three months ended March 31, 2010, and does not
expect to incur additional costs in connection with these
terminations.




4.
            New
      Accounting Pronouncements




In
January 2010, the Financial Accounting Standards Board (FASB) issued new
authoritative guidance related to fair value disclosures.  The
provisions of the guidance require an entity to: (i) disclose separately the
amounts of significant transfers in and out of Level 1 and Level 2 fair value
measurements and describe the reasons for the transfers and (ii) present
separate information for Level 3 activity pertaining to gross purchases, sales,
issuances, and settlements. The new guidance is effective for interim and annual
reporting periods beginning after December 15, 2009, except for the gross
basis reconciliation for the Level 3 fair value measurements, which is effective
for fiscal years beginning after December 15, 2010.  The adoption did
not have a material impact on the Company’s financial position and results of
operations, as it does not have any transfers between Level 1 and Level 2 fair
value measurements.




7




In February 2010, the FASB issued an
amendment to existing authoritative guidance which requires an entity that is an
SEC filer to evaluate subsequent events through the date that the financial
statements are issued and removes the requirement for an SEC filer to disclose a
date, in both issued and revised financial statements, through which the filer
had evaluated subsequent events. The adoption did not have an impact on the
Company’s financial position and results of operations.





5.
            Short-Term
      Investments





Short-term
investments at March 31, 2010 consist of equity securities.  The
Company has classified these investments as available for sale.  Such
securities are carried at fair market value. The cost of securities sold is
calculated using the specific identification method.  Realized gains
and losses and declines in value judged to be other than temporary on securities
available for sale, if any, are included in operations. As a result of a decline
in value during the three months ended March 31, 2010 that was considered to be
other than temporary, realized losses of $10,001 were recorded for the three
months ended March 31, 2010.  There were no realized gains or losses
for the three months ended March 31, 2009.  Net unrealized losses of
$23,171 were recorded for the three months ended March 31,
2009.  Short-term investments are principally uninsured and subject to
normal credit risk.




The
following is a summary of available-for-sale securities at March 31,
2010:




Available-for-Sale
      SecuritiesAmortized
            
            
            Gross
              Unrealized
            
            
            Gross
              Realized
            
            
            Estimated
      Fair Value (Net CarryingCost
            
            
            Gains
            
            
            Losses
            
            
            Amount)Equity
      Securities
            
            $
            125,000
            
            
            $
            -
            
            
            $
            (80,930
            )
            
            $
            44,070Total
            
            $
            125,000
            
            
            $
            -
            
            
            $
            (80,930
            )
            
            $
            44,070





The
following is a summary of available-for-sale securities at December 31,
2009:




Available-for-Sale
      SecuritiesAmortized
            
            
            Gross
              Unrealized
            
            
            Gross
              Realized
            
            
            Estimated
      Fair Value (Net CarryingCost
            
            
            Gains
            
            
            Losses
            
            
            Amount)Equity
      Securities
            
            $
            125,000
            
            
            $
            -
            
            
            $
            (70,929
            )
            
            $
            54,071Total
            
            $
            125,000
            
            
            $
            -
            
            
            $
            (70,929
            )
            
            $
            54,071




8




6.
              Loan
      Payable




On
September 12, 2007, EntreMed, Inc. and Miikana Therapeutics, Inc., its wholly
owned subsidiary, entered into a Loan and Security Agreement (“Loan Agreement”)
with General Electric Capital Corporation (“GECC”), as agent, Merrill Lynch
Capital and Oxford Finance Corporation (collectively, “the
Lenders”).  The Loan Agreement provides for (i) a term loan (“Term
Loan”) issued by the Lenders to the Company in the aggregate amount of
$20,000,000 and (ii) the issuance and sale to the Lenders of stock purchase
warrants evidencing the Lenders’ right to acquire their respective pro rata share of 250,000
shares of common stock of the Company (“Warrants”).





The Term
Loan will accrue interest in arrears at a fixed annual interest rate of 10.47%
until the Term Loan is fully repaid.  The Company paid interest of
approximately $200,500 and $413,000 during the three months ended March 31, 2010
and 2009, respectively.





The
Company has the right to voluntarily prepay the Term Loan, in full or in part,
upon five business days’ written notice to GECC.  Under certain
circumstances, the prepayment of the aggregate amount outstanding under the Term
Loan triggers a prepayment penalty equal to: (i) 2% on such prepayment amount,
if such prepayment is made after the one year anniversary of the closing date
but on or before the two year anniversary of the closing date, and (ii) 1% on
such prepayment amount, if such prepayment is made after the two year
anniversary of the closing date but on or before the Term Loan maturity
date.  The Loan Agreement contains customary events of default that
permits GECC to accelerate the Company’s outstanding obligations if an event of
default occurs and it is not cured within the applicable grace
periods.  The Loan Agreement also provides for automatic acceleration
upon bankruptcy and other insolvency events.





The Term
Loan was used for general corporate purposes and is secured by the personal
property owned by the Company, except for any intellectual property owned by the
Company.  Notwithstanding the foregoing, the collateral for the Term
Loan includes (i) all cash, royalty fees and other proceeds that consist of
rights of payment or proceeds from the sale, licensing or other disposition of
all or any part of, or rights in, the intellectual property and the Thalidomide
Royalty Agreement and (ii) the Company’s rights under the Thalidomide Royalty
Agreement.





The Loan
Agreement contains customary affirmative and negative covenants.  The
Company was in compliance with such covenants as of March 31, 2010.





The
Warrants are exercisable by the Lenders until September 12, 2012 at an exercise
price of $2.00 per share.  The fair value of the Warrants issued was
$190,000, calculated using a Black-Scholes value of $.76 with an expected and
contractual life of 5 years, an assumed volatility of 98%, and a risk-free
interest rate of 4.11%.  The value of the Warrants, and an upfront
underwriting fee of $100,000 paid to one of the Lenders, are recorded as a
discount on the loan and are amortized as interest expense over the life of the
loan.  The Company also incurred certain debt issuance costs that were
deferred and are included in other assets in the Company’s balance sheet as of
March 31, 2010 and December 31, 2009.  Amortization of these fees and
the discount results in an effective interest rate of
11.40%.  Non-cash interest expense related to the amortization of debt
issuance costs and debt discount was $20,471 and $40,687 for the three months
ended March 31, 2010 and 2009, respectively.




9





The
carrying value and estimated fair value of debt, before discount, were
approximately $7,256,000 and $7,335,000, respectively, at March 31,
2010.  The fair value was estimated based on the quoted market
price.





7.
            Fair
      Value Measurement




Fair value is defined as the price that
would be received to sell an asset or paid to transfer a liability (“the exit
price”) in an orderly transaction between market participants at the measurement
date.  The authoritative guidance outlines a valuation framework and
creates a fair value hierarchy in order to increase the consistency and
comparability of fair value measurements and the related
disclosures.  In determining fair value, EntreMed primarily uses
prices and other relevant information generated by market transactions involving
identical or comparable assets (“market approach”).  The Company has
determined that the fair value measurements are in accordance with the
guidance.





The guidance established a three-level
hierarchy for fair value measurements that distinguishes between market
participant assumptions developed based on market data obtained from sources
independent of the reporting entity (“observable inputs”) and the reporting
entity’s own assumptions about market participant assumptions developed based on
the best information available in the circumstances (“unobservable
inputs”).  EntreMed currently does not have non-financial assets and
non-financial liabilities that are required to be measured at fair value on a
recurring basis.





There have been no transfers of assets
or liabilities between the fair value measurement classifications.





The Company’s financial assets and
liabilities are measured using inputs from the three levels of the fair value
hierarchy, defined as follows:





·
            Level
      1 – Inputs are unadjusted quoted prices in active markets for identical
      assets or liabilities that we have the ability to access at the
      measurement date.





·
            Level
      2 – Inputs are quoted prices for similar assets and liabilities in active
      markets, quoted prices for identical or similar assets or liabilities in
      markets that are not active, inputs other than quoted pries that are
      observable for the asset or liability (i.e., interest rates, yield curves,
      etc.), and inputs that are derived principally from or corroborated by
      observable market data by correlation or other means (market corroborated
      inputs).





·
            Level
      3 – Unobservable inputs that reflect our own assumptions, based on the
      best information available, including our own
  data.




10




In
accordance with the fair value hierarchy described above, the following table
shows the fair value of the Company’s financial assets and liabilities that are
required to be measured at fair value as of March 31, 2010:





Fair
      Value Measurements at March 31, 2010Total
            
            
            Quoted
            
            
            SignificantCarrying
            
            
            prices
            
            
            other
            
            
            SignificantValue
      at
            
            
            in
      active
            
            
            observable
            
            
            unobservableMarch 31,
            
            
            markets
            
            
            inputs
            
            
            inputs2010
            
            
            (Level
      1)
            
            
            (Level
      2)
            
            
            (Level
      3)Cash
      equivalents
            
            $
            2,105,868
            
            
            $
            2,105,868
            
            
            $
            —
            
            
            $
            —Available
      for sale securities*
            
            
            44,070
            
            
            
            44,070
            
            
            
            —
            
            
            
            —










Fair
      Value Measurements at December 31, 2009Total
            
            
            Quoted
            
            
            SignificantCarrying
            
            
            prices
            
            
            other
            
            
            SignificantValue
      at
            
            
            in
      active
            
            
            observable
            
            
            unobservableDecember
      31,
            
            
            markets
            
            
            inputs
            
            
            inputs2009
            
            
            (Level
      1)
            
            
            (Level
      2)
            
            
            (Level
      3)Cash
      equivalents
            
            $
            4,105,868
            
            
            $
            4,105,868
            
            
            $
            —
            
            
            $
            —Available
      for sale securities*
            
            
            54,051
            
            
            
            54,051
            
            
            
            —
            
            
            
            —










The Company’s Level 1 assets include
money market instruments and equity securities with quoted prices in active
markets.





8.
            Stockholders’
      Equity




On
January 11, 2010, the Company consummated the issuance and sale of 3,125,000
shares of its common stock, par value $0.01 per share, to an institutional
investor for an aggregate purchase price of $2,500,000 or $0.80 per
share.  The offering was made pursuant to a stock purchase agreement
dated as of January 8, 2010 between the Company and the investor.




On
February 3, 2010, the Company consummated the issuance and sale of 3,846,154
shares of its common stock, par value $0.01 per share, to an institutional
investor for an aggregate purchase price of $2,500,000, or $0.65 per
share.  The offering was made pursuant to a stock purchase agreement
dated as of February 3, 2010 between the Company and the investor.





9.
            Share-Based
      Compensation




The
Company has adopted incentive and nonqualified stock option plans for executive,
scientific and administrative personnel of the Company as well as outside
directors and consultants, of which 2,944,478 shares remain available for grant
under the Company’s 2001 Long-Term Incentive Plan as of March 31,
2010.  There are 6,946,822 shares issuable under options previously
granted under the plans and currently outstanding, with exercise prices ranging
from $0.16 to $58.38.  Options granted under the plans vest over
periods varying from immediately to three years, are not transferable and
generally expire ten years from the date of grant.




11




The Company records compensation
expense associated with stock options and other equity-based compensation in
accordance with provisions of authoritative guidance.  Compensation
costs are recognized based on a straight-line method over the requisite service
period, which is generally the option vesting term of three years.




The Company’s net loss for the three
months ended March 31, 2010 and March 31, 2009 includes compensation expense of
$211,890 and $155,133, respectively, related to the Company’s share-based
compensation awards.  The compensation expense related to the
Company’s share-based compensation arrangements is recorded as components of
general and administrative expense and research and development expense, as
follows:




THREE MONTHS ENDED MARCH
      31,2010
            
            
            2009Research
      and development
            
            $
            9,766
            
            
            $
            57,179General
      and administrative
            
            
            202,124
            
            
            
            97,954Share-based
      compensation expense
            
            $
            211,890
            
            
            $
            155,133Net
      share-based compensation expense, per common share:Basic
      and diluted
            
            $
            0.002
            
            
            $
            0.002




The Company uses the
Black-Scholes-Merton valuation model to estimate the fair value of stock options
granted to employees. Option valuation models, including Black-Scholes-Merton,
require the input of highly subjective assumptions, and changes in the
assumptions used can materially affect the grant date fair value of an
award.






Following are the weighted-average
assumptions used in valuing the stock options granted to employees during the
three-month periods ended March 31, 2010 and 2009:




THREE MONTH PERIODENDED MARCH
      31,2010
            
            
            2009Expected
      volatility
            
            
            97.50
            %
            
            
            78.02
            %Risk-free
      interest rate
            
            
            2.38
            %
            
            
            2.08
            %Expected
      term of option
            
            5
      years
            
            5
      yearsForfeiture
      rate*
            
            
            5.00
            %
            
            
            5.00
            %Expected
      dividend yield
            
            
            0.00
            %
            
            
            0.00
            %











12






The weighted average fair value of
stock options granted during the three-month periods ended March 31, 2010 and
2009 was $0.50 and $0.10, respectively.




A summary of the Company’s stock option
plans and of changes in options outstanding under the plans for the three months
ended March 31, 2010, is as follows:




WeightedAverageNumber of
              
              
              ExerciseOptions
              
              
              PriceOutstanding
      at January 1, 2010
              
              
              6,984,606
              
              
              $
              5.50Granted
              
              
              405,000
              
              
              $
              0.67Exercised
              
              
              (54,625
              )
              
              $
              0.16Expired
              
              
              (359,774
              )
              
              $
              13.43Forfeited
              
              
              (28,385
              )
              
              $
              0.40Outstanding
      at March 31, 2010
              
              
              6,946,822
              
              
              $
              4.87Vested
      and expected to vest at March 31, 2010
              
              
              6,922,199
              
              
              $
              4.88Exercisable
      at March 31, 2010
              
              
              6,454,365
              
              
              $
              5.22




Cash received from option exercises
under all share-based payment arrangements for the three months ended march 31,
2010 was $10,340.  There were no options exercised in the three months
ended March 31, 2009.




10.
            Income
      Taxes




At
December 31, 2009, the Company has $2.96 million unrecognized tax benefit which
has no net balance sheet impact.





During the three months ended March 31,
2010, there were no material changes to the measurement of unrecognized tax
benefits in various taxing jurisdictions.  The Company recognizes
interest and penalties related to uncertain tax positions as a component of
income tax expense.





The tax returns for all years in the
Company’s major tax jurisdictions are not settled as of January 1, 2010; no
changes in settled tax years have occurred through March 31,
2010.  Due to the existence of tax attribute carryforwards (which are
currently offset by a full valuation allowance), the Company treats all years’
tax positions as unsettled due to the taxing authorities’ ability to modify
these attributes.





11.
            Subsequent
      Events





In April 2010, ENMD-2076 advanced into
a Phase 2 study in ovarian cancer.  Pursuant to the terms of the
merger agreement executed in connection with the Company’s acquisition of
Miikana Therapeutics, Inc., dosing of the first patient in a Phase 2 trial
triggered a milestone payment of $3 million to the former Miikana stockholders,
which the Company will pay in cash or stock, at its sole
discretion.





On April 16, 2010, the Company
consummated the issuance and sale of 5,791,505 shares of its common stock, par
value $0.01 per share, to an institutional investor for an aggregate purchase
price of $3,000,000, or $0.518 per share.  The offering was made
pursuant to a stock purchase agreement dated as of April 16, 2010 between the
Company and the investor.




13





ITEM 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.





OVERVIEW





We are a
clinical-stage pharmaceutical company focused on developing ENMD-2076, an Aurora
A and angiogenic kinase inhibitor for the treatment of
cancer.  ENMD-2076 is currently in a Phase 2 study in ovarian cancer
and Phase 1 studies in advanced cancers, multiple myeloma and
leukemia.  ENMD-2076 is a novel orally-active, Aurora A/angiogenic
kinase inhibitor with potent activity against Aurora A and multiple tyrosine
kinases linked to cancer and inflammatory diseases.  ENMD-2076 is
relatively selective for the Aurora A isoform in comparison to Aurora
B.  Aurora kinases are key regulators of the process of mitosis, or
cell division, and are often over-expressed in human cancers. ENMD-2076 exerts
its effects through multiple mechanisms of action, including antiproliferative
activity and the inhibition of angiogenesis. ENMD-2076 has demonstrated
significant, dose-dependent preclinical activity as a single agent, including
tumor regression, in multiple xenograft models (e.g. breast, colon, leukemia),
as well as activity towards ex vivo-treated human leukemia patient
cells.





ENMD-2076
has received orphan drug designation for the treatment of ovarian cancer,
multiple myeloma and acute myeloid leukemia (“AML”).





ENMD-2076
is our only program currently under active clinical evaluation.  This
prioritization allows us to direct the majority of our resources to the clinical
development of ENMD-2076.  However, we also own intellectual property
for our other therapeutic candidates.  So that we can continue to
accelerate the development of ENMD-2076, we do not intend to initiate additional
new studies for these programs unless additional significant financing becomes
available to us.  Our other therapeutic candidates include MKC-1, an
oral cell-cycle inhibitor with activity against the mTOR pathway that has
completed multiple Phase 2 clinical trials for cancer, and ENMD-1198, a novel
antimitotic agent that has completed a Phase 1 study in advanced
cancers.  We also have an approved Investigational New Drug
Application (IND) for the use of Panzem® in
rheumatoid arthritis (RA) treatment.  All of our candidates are
multi-mechanism drugs that target disease cells and the blood vessels that
nourish them, which we believe can be developed to be safe and convenient, and
provide the potential for improved patient outcomes.





We have
incurred substantial operating losses since our inception due in large part to
expenditures for our research and development activities. At March 31, 2010, we
had an accumulated deficit of $368 million. We expect to continue to incur
expenses, resulting in operating losses, for the foreseeable future due to,
among other factors, our continuing clinical trials, planned future clinical
trials, and other anticipated research and development activities. Based on
current plans, we expect our current available cash and cash equivalents to meet
our cash requirements into the first quarter of fiscal 2011.  At March
31, 2010 the Company has operating and liquidity concerns and plans to continue
to pursue opportunities to raise additional capital to fund its operating
needs.  We have successfully completed three financings since December
31, 2009, increasing our net cash by approximately $7,400,000; however, we will
require additional funding during the first quarter of fiscal 2011 to fund
operations until such time, if ever, we become profitable. We will continue
efforts to augment our cash and cash equivalent balances as of March 31,
2010 by pursuing other forms of capital infusion, including strategic alliances
or collaborative development opportunities with organizations that have
capabilities and/or products that are complementary to our capabilities and
products in order to continue the development of our potential product candidate
that we intend to pursue to commercialization. However, there can be no
assurance that adequate additional financing under such arrangements will be
available to us on terms that we deem acceptable, if at all.




14





On
January 11, 2010, we sold 3,125,000 shares of our common stock, par value $0.01
per share, to an institutional investor for an aggregate purchase price of
$2,500,000 or $0.80 per share.  On February 3, 2010, we sold 3,846,154
shares of our common stock to the same institutional investor for an aggregate
purchase price of $2,500,000, or $0.65 per share.  On April 16, 2010,
we sold 5,791,505 shares of our common stock to the same institutional investor
for an aggregate purchase price of $3,000,000, or $0.518 per
share.  Our net proceeds from these three offerings were approximately
$7.4 million.  Additional funds raised by issuing equity securities
may result in dilution to existing shareholders.  If we fail to obtain
additional capital when needed, we may be required to delay, scale back, or
eliminate our clinical program.





Our
common stock began trading publicly on the NASDAQ National Market under the
symbol "ENMD" on June 12, 1996. On April 4, 2008, we received a letter from The
NASDAQ Stock Market LLC ("NASDAQ") advising that for the previous 30
consecutive business days, the bid price of our common stock had closed below
the minimum $1.00 per share requirement for continued inclusion on The NASDAQ
Global Market.  Failure to comply with this minimum bid price
requirement, or any other listing standard applicable to issuers listed on The
NASDAQ Global Market, by October 1, 2008, would result in our common stock being
ineligible for quotation on The NASDAQ Global Market.  Our stock price
has not closed above $1.00 for ten consecutive trading days since the date of
the receipt of the letter from NASDAQ.





On
September 22, 2008, we submitted an application to transfer the trading of our
common stock to the NASDAQ Capital Market and our common stock commenced trading
on The NASDAQ Capital Market on October 3, 2008.  Our trading symbol
remained as “ENMD” and the trading of our stock was unaffected by the
transfer.





NASDAQ
suspended the enforcement of the minimum bid price rule, due to the current
extraordinary market conditions, until July 20, 2009.  Upon
reinstatement of the rule on August 3, 2009, under NASDAQ rules, we had until
January 15, 2010, to regain compliance with the minimum bid price
standard.  We did not regain compliance with the minimum bid price
standard of the NASDAQ rules by January 15, 2010.





On
January 19, 2010, we received a Staff Determination letter from NASDAQ stating
that we were not in compliance with the continued listing rules and that our
Common Stock would be delisted unless we requested an appeal of such
determination.   On January 20, 2010, we filed an appeal of the
Staff's determination to a NASDAQ Hearings Panel (the “Panel”), pursuant to the
procedures set forth in the NASDAQ Marketplace Rules.  The hearing request
stayed the delisting of the Company’s securities pending the Panel's
decision.  On February 25, 2010, we met with the Panel providing them
a plan of action, with the intention of returning to compliance with NASDAQ’s
requirements.  On March 23, 2010, we received a decision letter from
the Panel granting our request to extend the compliance date for an additional
180 days or until July 16, 2010.  As a result of this decision by the
Panel, our stock will continue to trade on The NASDAQ Capital Market until such
date, by which time our minimum bid price must have exceeded $1.00 for ten
consecutive trading days.




15




In the
event that our common stock continues to trade under $1.00, we will consider all
alternatives in order to maintain the public trading status of our stock,
including electing to implement a reverse stock split with the approval of our
stockholders. We
have not made a final determination as to whether to affect a reverse split, as
we continue to have an opportunity to meet the $1.00 minimum closing bid price
during the 180-day extension period.





Additionally,
we must continually maintain (1) stockholders’ equity of at least $2.5 million
or (2) a minimum of $35 million in market value of our listed securities for ten
consecutive trading days to be in compliance with the continued listing
standards for The NASDAQ Capital Market.  At March 31, 2010, our
consolidated stockholders’ equity was approximately $817,000 and the market
value of our listed securities was $65.1 million.  There can be no
assurance that we will be able to meet either of these listing standards in the
future.





An
alternative to not having to meet both the NASDAQ $1.00 minimum closing bid
price and the $2.5 million stockholders’ equity is to apply to have our common
stock traded on the Over-The-Counter Bulletin Board (the “OTCBB”), an electronic
quotation system that displays stock quotes by market makers.  If such
course of action is taken, there can be no assurance that our common stock would
be timely admitted for trading on that market.  This alternative may
result in a less liquid market available for existing and potential shareholders
to buy and sell shares of our common stock and could further depress the price
of our stock.





CRITICAL
ACCOUNTING POLICIES AND THE USE OF ESTIMATES





The
preparation of our consolidated financial statements in conformity with
accounting principles generally accepted in the U.S. requires management to make
estimates and assumptions that affect the amounts reported in our consolidated
financial statements and accompanying notes. Actual results could differ
materially from those estimates.  Our critical accounting policies,
including the items in our consolidated financial statements requiring
significant estimates and judgments, are as follows:





-
              Going
      Concern  -  A fundamental principle of the preparation
      of financial statements in accordance with GAAP is the assumption that an
      entity will continue in existence as a going concern, which contemplates
      continuity of operations and the realization of assets and settlement of
      liabilities occurring in the ordinary course of business.  This
      principle is applicable to all entities except for entities in liquidation
      or entities for which liquidation appears imminent.  In
      accordance with this requirement, our policy is to prepare our
      consolidated financial statements on a going concern basis unless we
      intend to liquidate or have no other alternative but to
      liquidate.  Based on current plans, we expect our current
      available cash and cash equivalents to meet our cash requirements into the
      first quarter of fiscal 2011.  At March 31, 2010 the Company has
      operating and liquidity concerns and plans to continue to pursue
      opportunities to raise additional capital to fund its operating needs.
      While we have prepared our consolidated financial statements on a going
      concern basis, if we do not receive additional funding, our ability to
      continue as a going concern may be impacted.  Our consolidated
      financial statements included in this Quarterly Report on Form 10-Q do not
      reflect any adjustments that might specifically result from the outcome of
      this uncertainty.




16




-
              Revenue
      Recognition - We recognize revenue in accordance with the provisions of
      authoritative guidance issued, whereby revenue is not recognized until it
      is realized.  Revenue is recognized when all of the following
      criteria are met:  1) persuasive evidence of an arrangement
      exists, 2) delivery has occurred or services have been rendered, 3) the
      price to the buyer is fixed and determinable and 4) collectibility is
      reasonably assured.





-
              Royalty
      Revenue – Royalties from licenses are based on third-party sales and
      recorded as earned in accordance with contract terms, when third-party
      results are reliably measured and collectibility is reasonably assured. We
      expect that the majority of our 2010 revenues will be from royalties on
      the sale of Thalomid®,
      which we will recognize when we receive the royalty payment.  In
      2004, certain provisions of a purchase agreement dated June 14, 2001 by
      and between Bioventure Investments kft (“Bioventure”) and the Company were
      satisfied and, as a result, beginning in 2005 we became entitled to share
      in the royalty payments received by Royalty Pharma Finance Trust,
      successor to Bioventure, on annual Thalomid®
      sales above a certain threshold.  Based on the licensing
      agreement royalty formula, annual royalty sharing commences with
      Thalomid®
      annual sales of approximately $225
million.





-
              The
      Company is also eligible to receive royalties from Oxford Biomedica, PLC
      based on a portion of the net sales of products developed for the
      treatment of ophthalmic (eye) diseases based in part on
      Endostatin.  Under our original Endostatin license agreement
      with Children’s Medical Center Corporation, a portion of the royalties we
      receive from Oxford Biomedica are payable to
  CMCC.





-
              In
      the future, royalty payments, if any, will be recorded as revenue when
      received and/or when collectibility is reasonably
  assured.





-
              Research
      and Development - Research and development expenses consist primarily of
      compensation and other expenses related to research and development
      personnel, research collaborations, costs associated with preclinical
      testing and clinical trials of our product candidates, including the costs
      of manufacturing drug substance and drug product, regulatory maintenance
      costs, and facilities expenses.  Research and development costs
      are expensed as incurred.





-
            Expenses
      for Clinical Trials – Expenses for clinical trials are incurred from
      planning through patient enrollment to reporting of the
      data.  We estimate expenses incurred for clinical trials that
      are in process based on patient enrollment and based on clinical data
      collection and management.  Costs that are associated with
      patient enrollment are recognized as each patient in the clinical trial
      completes the enrollment process.  Estimated clinical trial
      costs related to enrollment can vary based on numerous factors, including
      expected number of patients in trials, the number of patients that do not
      complete participation in a trial, and when a patient drops out of a
      trial.  Costs that are based on clinical data collection and
      management are recognized in the reporting period in which services are
      provided.  In the event of early termination of a clinical
      trial, we would accrue an amount based on estimates of the remaining
      non-cancelable obligations associated with winding down the clinical
      trial.




17





-
            Stock-Based
      Compensation – All share-based payment transactions are recognized in the
      consolidated financial statements at their fair values.  Using
      the straight-line expense attribution method over the requisite service
      period, which is generally the option vesting term of three years,
      share-based compensation expense recognized in the three months ended
      March 31, 2010 and March 31, 2009 totaled $212,000 and $155,000,
      respectively.





The
determination of fair value of stock-based payment awards on the date of grant
using the Black-Scholes model is affected by our stock price, as well as the
input of other subjective assumptions.  These assumptions include, but
are not limited to, the expected forfeiture rate and expected term of stock
options and our expected stock price volatility over the term of the
awards.  Changes in the assumptions can materially affect the fair
value estimates.





Any
future changes to our share-based compensation strategy or programs would likely
affect the amount of compensation expense recognized.





RESULTS
OF OPERATIONS





For
the Three Months Ended March 31, 2010 and March 31, 2009.





Revenues.There
were no revenues recorded during the quarters ended March 31, 2010 or March 31,
2009.  We do not expect to record revenue in 2010 until the fourth
quarter.  Our 2010 revenues, if any, will result from Celgene’s sale
of Thalomid®.  We
earn royalties once sales of Thalomid exceed approximately $225 million
annually, pursuant to a 2001 agreement with Royalty Pharma, as noted
above.





Research and Development
Expenses.  Our research and development expenses totaled
$844,000 for the three months ended March 31, 2010 and $1,953,000 for the
corresponding 2009 period.  Reflected in our R&D expenses for the
three-month period ended March 31, 2010 are direct project costs of $803,000 for
ENMD-2076, $29,000 for Panzem® and
$12,000 for ENMD-1198.   Additionally, during the period ended
March 31, 2010, we wrote off approximately $268,000 of costs previously accrued
for patients enrolled in MKC-1 clinical trials that wound down before all cycles
of treatment were completed.  The 2009 research and development
expenses for the comparable period included $772,000 for ENMD-2076, $262,000 for
MKC-1, $107,000 direct project costs for Panzem® and
$97,000 for ENMD-1198.The overall decrease in
research and development costs in the three-month period ended March 31, 2010,
as compared to same period in 2009, reflects our continued focus on the clinical
development of ENMD-2076 as we ceased clinical and manufacturing activities in
our discontinued programs.





At March 31, 2010, accumulated direct
project expenses for Panzem® oncology
were $54,273,000; direct ENMD-1198 project expenses totaled $13,155,000; and,
since acquired, accumulated direct project expenses for ENMD-2076 totaled
$14,961,000 and for MKC-1, accumulated project expenses totaled
$10,138,000.  Our research and development expenses also include
non-cash stock-based compensation totaling $10,000 for the three months ended
March 31, 2010 and $57,000 for the corresponding 2009 period.  The
decrease in stock-based compensation expense is related to fewer stock options
granted in the three months ending March 31, 2010.  The balance of our
research and development expenditures includes facility costs and other
departmental overhead, and expenditures related to the non-clinical support of
our programs.




18





We expect our research and development
expenses to increase in 2010 as we expand ENMD-2076 into Phase 2 and continue to
focus on the clinical development of ENMD-2076 and correlative research. 
We will continue to conduct research on ENMD-2076 in order to comply with
stipulations made by the FDA, as well as to increase understanding of the
mechanism of action and toxicity parameters of ENMD-2076 and its
metabolites.  Completion of clinical development may take several years or
more, but the length of time generally varies substantially according to the
type, complexity, novelty and intended use of a product candidate.





We estimate that clinical trials of the
type we generally conduct are typically completed over the following
timelines:





ESTIMATEDCOMPLETIONCLINICAL
      PHASE
            
            PERIODPhase
      I
            
            1
      YearPhase
      II
            
            1-2
      YearsPhase
      III
            
            2-4
      Years





The
duration and the cost of clinical trials may vary significantly over the life of
a project as a result of differences arising during the clinical trial protocol,
including, among others, the following:





-       the
number of patients that ultimately participate in the trial;





-       the
duration of patient participation in the study and follow-up that seems
appropriate in view of the results;





-       the
number of clinical sites included in the trials; and





-       the
length of time required to enroll suitable patient subjects.





We test our potential product
candidates in numerous preclinical studies to identify indications for which
they may be product candidates.  We may conduct multiple clinical
trials to cover a variety of indications for each product
candidate.  As we obtain results from trials, we may elect to
discontinue clinical trials for certain product candidates or for certain
indications in order to focus our resources on more promising product candidates
or indications.





Our proprietary drug candidates have
also not yet achieved FDA regulatory approval, which is required before we can
market them as therapeutic products. In order to proceed to subsequent clinical
trial stages and to ultimately achieve regulatory approval, the FDA must
conclude that our clinical data establish safety and
efficacy.  Historically, the results from preclinical testing and
early clinical trials have often not been predictive of results obtained in
later clinical trials. A number of new drugs and biologics have shown promising
results in clinical trials, but subsequently failed to establish sufficient
safety and efficacy data to obtain necessary regulatory approvals.





We will be opportunistic about
collaborative arrangements with third parties to complete the development and
commercialization of our products.  In the event that third parties
take over the development process for one of our product candidates, the
estimated completion date would largely be under the control of that third party
rather than us.  We cannot forecast with any degree of certainty which
proprietary products or indications, if any, will be subject to future
collaborative arrangements, in whole or in part, and how such arrangements would
affect our capital requirements.




19





As a result of the uncertainties
discussed above, among others, we are unable to estimate the duration and
completion costs of our research and development projects.  Our
inability to complete our research and development projects in a timely manner
or our failure to enter into collaborative agreements, when appropriate, could
significantly increase our capital requirements and could adversely impact our
liquidity.  These uncertainties could force us to seek additional,
external sources of financing from time to time in order to continue with our
business strategy. There can be no assurance that we will be able to
successfully access external sources of financing in the future.  Our
inability to raise additional capital, or to do so on terms reasonably
acceptable to us, would jeopardize the future success of our
business.





Research and development expenses
consist primarily of compensation and other expenses related to research and
development personnel and costs associated with internal and contract
preclinical testing and clinical trials of our product candidates, including the
costs of manufacturing drug substance and drug product, regulatory maintenance
costs, and facilities expenses.  Research and development expenses
decreased to $844,000 during the quarter ended March 31, 2010 from $1,953,000
for the corresponding period in 2009.





The decrease in research and
development expenses during the quarter ended March 31, 2010 was specifically
impacted by the following:





-
            Outside
      Services – In the three-month period ended March 31, 2010, we expended
      $5,000 on outside service activities versus $185,000 in the same 2009
      period.  The decrease in 2010 as compared to 2009 continues to
      reflect the absence of utilizing outsourced services to conduct
      development of products from discontinued
  programs.





-
            Clinical
      Trial Costs – Clinical trial costs, which include clinical site fees,
      monitoring costs and data management costs, decreased to $21,000 in the
      three months ended March 31, 2010 from $443,000 in the three-month period
      ended March 31, 2009.  The decrease relates primarily to our
      focus on the clinical development of ENMD-2076, reducing patient costs for
      cycles of treatment that were not completed in trials that have wound down
      in discontinued programs.





-
            Contract
      Manufacturing Costs – The costs of manufacturing the material used in
      clinical trials for our product candidates is reflected in contract
      manufacturing. These costs include bulk manufacturing, encapsulation and
      fill and finish services, product release costs and storage fees. Contract
      manufacturing costs for the three months ended March 31, 2010 increased to
      $169,000 from $157,000 during the same period in
  2009.





-
            Personnel
      Costs -- Personnel costs decreased to $345,000 in the three months ended
      March 31, 2010 from $625,000 in the three-month period ended March 31,
      2009.  The decrease is attributed to the elimination of three
      management positions in December 2009.


-
            Also reflected in our 2010
      research and development expenses for the three-month period ended March
      31, 2010 are patent costs of $103,000 and facility and related expenses of
      $57,000.  In the corresponding 2009 period, these expenses
      totaled $169,000 and $232,000,
  respectively.




20




General and Administrative
Expenses.  General and administrative expenses include
compensation and other expenses related to finance, business development and
administrative personnel, professional services and facilities.




General
and administrative expenses decreased slightly to $1,061,000 in the three-month
period ended March 31, 2010 from $1,160,000 in the corresponding 2009
period.





Interest
Expense.  Interest expense, which relates to a financing
transaction with General Electric Capital Corporation (GECC) in September 2007,
decreased to approximately $221,000 (including $20,471 of non-cash interest) in
the three-month period ended March 31, 2010 from $454,000 (including $40,687 of
non-cash interest) in the corresponding 2009 period.





Investment
Income.  Due to the absence of invested cash during the
three-month period ended March 31, 2010, we earned no investment
income.  Investment income in the three-month period ended March 31,
2009 was $50,000.





Dividends on Series A Convertible
Preferred Stock.  The Consolidated Statement of Operations for
the periods ended March 31, 2010 and 2009 reflect a dividend of $251,250
relating to Series A Convertible Preferred Stock held by Celgene pursuant
to a Securities Purchase Agreement dated December 31, 2002. The holders of
Series A Preferred Stock accumulate dividends at an annual rate of 6% and
will participate in dividends declared and paid on our common stock, if any. All
accumulated dividends must be paid before any dividends may be declared or paid
on the common stock.  The Company has no plans to pay any dividends in
the foreseeable future.





LIQUIDITY
AND CAPITAL RESOURCES





To date,
we have been engaged primarily in research and development activities. As a
result, we have incurred and expect to continue to incur operating losses in
2010 and the foreseeable future before we commercialize any
products.  Based on our current plans, we expect our current available
cash and cash equivalents to meet our cash requirements into the first quarter
of 2011.





As of
March 31, 2010, the Company has operating and liquidity concerns and plans to
continue to pursue opportunities to raise additional capital to fund its
operating needs.  We did not include any adjustments to the
consolidated financial statements included in this Quarterly Report on Form 10-Q
to reflect the possible future effects that may result from the uncertainty of
our ability to continue as a going concern because we believe that we will
continue to be a financially sound and viable business, continuing to conduct
clinical trials for, and further development of, ENMD-2076 and provide value to
our shareholders.





We will
require significant additional funding during the first quarter of fiscal 2011
to fund operations until such time, if ever, we become profitable.  We
intend to augment our cash and cash equivalent balances as of March 31, 2010 by
selling additional equity securities when market conditions
permit.  We will also explore alternatives to raising capital by being
opportunistic about other potential forms of capital infusion, including
strategic alliances or collaborative development opportunities, engaging in one
or more strategic transactions, monetizing non-core assets and/or other
transactions that provide capital to further the development of
ENMD-2076.




21





There can
be no assurance that adequate additional financing under such arrangements will
be available to us on terms that we deem acceptable, if at all.  If
additional funds are raised by issuing equity securities, dilution to existing
shareholders may result.  If we fail to obtain additional capital when
needed, we may be required to scale back our Phase 2 plans for
ENMD-2076.  We also will consider additional actions to reduce our
expenses.





In January 2006, we acquired Miikana
Therapeutics, Inc., a private biotechnology company, in exchange for 9.96
million shares of our common stock and the assumption of certain obligations of
Miikana.  We acquired certain drug candidates in connection with the
acquisition, including the lead molecule in the Aurora Kinase Program,
ENMD-2076, which advanced into clinical development in
2008.  ENMD-2076 is a kinase inhibitor with activity towards Aurora A
and multiple other kinases linked to promoting cancer.  Dosing of the
first patient in ENMD-2076 trials triggered a milestone payment of $2 million to
the former Miikana stockholders payable in stock or cash, at the Company’s
discretion.  In June 2008, 2,564,105 shares of common stock were
issued to the former Miikana stockholders as consideration for the satisfaction
of the milestone payment.  Under the terms of the merger agreement,
dosing of the first patient in a Phase 2 trial for ENMD-2076 will trigger an
additional milestone payment of $3 million, payable in stock or cash, at the
Company’s sole discretion.  This milestone occurred during April
2010.  Beyond the Phase 2 milestone payment, the former Miikana
stockholders may earn up to an additional $13 million of potential payments upon
the satisfaction of additional clinical and regulatory milestones.  We
do not expect such additional milestones to be satisfied during
2010.  Through the Miikana acquisition, we also acquired rights to
MKC-1, a Phase 2 clinical candidate licensed from Roche by Miikana in April
2005.  Under the terms of the agreement, Roche may be entitled to
receive future payments upon successful attainment of certain clinical,
regulatory and commercialization milestones; however, since ENMD-2076 is the
only program currently under active clinical evaluation by the Company, we do
not expect to trigger any of these milestone payments during fiscal
2010.





In September 2007, we entered into a
$20 million term loan agreement with General Electric Capital Corporation (the
“Term Loan”).   The Term Loan accrues interest in arrears at a
fixed annual rate of 10.47%.   For additional information on the
Term Loan, please see note 6 of the Notes to the Consolidated Financial
Statements, included in this Quarterly Report on Form 10-Q.





At March
31, 2010, we had cash and short-term investments of $9,691,834 with working
capital of $650,892.





To
accomplish our business plans, we will be required to continue to conduct
substantial development activities for ENMD-2076, our leading
program.  Under our operating plans for 2010 we expect to continue to
pursue ENMD-2076 in oncology and complete initiation of remaining sites and
enrollment of patients in our ovarian cancer Phase 2 trial.  We expect
our 2010 results of operations to reflect a net loss of approximately
$8,800,000, including non-cash charges of approximately $1,400,000.





We expect
that the majority of our 2010 revenues will continue to be from royalties on the
sales of Thalomid®.  Thalomid® is sold
by a third-party, and we have no control over such party’s sales efforts or the
resources devoted to Thalomid®
sales.  We expect to record royalty-sharing revenues in the fourth
quarter of 2010; however, there can be no assurance in this
regard.  In addition, under our licensing agreement with Oxford
Biomedica, PLC and Oxford Biomedica (UK) Limited Oxford, we are entitled to
receive payments upon the achievement of certain milestones with respect to the
development of gene therapies for ophthalmic (eye) diseases.  However,
we do not control the drug development efforts of Oxford and have no control
over when or whether such milestones will be reached.  We do not
believe that we will receive any developmental milestone payments under this
agreement in 2010.




22





INFLATION
AND INTEREST RATE CHANGES





Management
does not believe that our working capital needs are sensitive to inflation and
changes in interest rates.





ITEM
3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK





The
primary objective of our investment activities is to preserve our capital until
it is required to fund operations while at the same time maximizing the income
we receive from our investments without incurring investment market volatility
risk.  Our investment income is sensitive to the general level of U.S.
interest rates.  In this regard, changes in the U.S. interest rates
affect the interest earned on our cash and cash equivalents.  Due to
the short-term nature of our cash and cash equivalent holdings, a 10% movement
in market interest rates would not materially impact on the total fair market
value of our portfolio as of March 31, 2010.





ITEM
4.   CONTROLS AND PROCEDURES





Evaluation
of Disclosure Controls and Procedures





Based on
an evaluation under the supervision and with the participation of the Company’s
management, the Company’s Executive Chairman and Principal Accounting Officer
have concluded that the Company’s disclosure controls and procedures as defined
in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 19334, as
amended (the “Exchange Act”) were effective as of March 31, 2010 to ensure that
information required to be disclosed by the Company in reports that it files or
submits under the Exchange Act is (i) recorded, processed, summarized and
reported within the time periods specified in the Securities and Exchange
Commission rules and forms and (ii) accumulated and communicated to the
Company’s management, including its Executive Chairman and Principal Accounting
Officer, as appropriate to allow timely decisions regarding required
disclosure.





Management’s
assessment of the effectiveness of internal control over financial reporting is
expressed at the level of reasonable assurance because a control system, no
matter how well designed and operated, can provide only reasonable, but not
absolute, assurance that the control system’s objectives will be
met.





Changes
in Internal Control Over Financial Reporting





There
were no changes in the Company’s internal control over financial reporting that
occurred during the quarter ended March 31, 2010 that have materially affected
or are reasonably likely to materially affect the Company’s internal control
over financial reporting.




23








PART
II. OTHER INFORMATION





ITEM
1. LEGAL PROCEEDINGS




We are
subject in the normal course of business to various legal proceedings in which
claims for monetary or other damages may be asserted.  Management does
not believe such legal proceedings, except as otherwise disclosed herein, are
material.





ITEM
1A.  RISK FACTORS




For information regarding factors that
could affect the Company’s results of operations, financial condition and
liquidity, see the risk factors discussion set forth in Item 1A of EntreMed’s
Annual Report on Form 10-K for the fiscal year ended December 31, 2009 and the
information under “Special Note Regarding Forward-Looking Statements” included
in this report.  There have been no material changes to our risk
factors from those disclosed in our Annual Report on Form 10-K for the fiscal
year ended December 31, 2009.





ITEM 2.
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS





Not
applicable.





ITEM
3. DEFAULTS UPON SENIOR SECURITIES





Not
applicable.





ITEM
4. RESERVED





ITEM
5. OTHER INFORMATION





Not
applicable.





ITEM
6. EXHIBITS





31.1
            
            Rule
      13a-14(a) Certification of Executive Chairman31.2
            
            Rule
      13a-14(a) Certification of Principal Accounting Officer32.1
            
            Section
      1350 Certification of Executive Chairman32.2
            
            Section
      1350 Certification of Principal Accounting
  Officer





24







SIGNATURES





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




ENTREMED,
      INC.(Registrant)Date:
      May 17, 2010
              
              /s/
      Michael M. TarnowMichael
      M. TarnowExecutive
      ChairmanDate:
      May 17, 2010
              
              /s/
      Kathy R. Wehmeir-DavisKathy
      R. Wehmeir-DavisPrincipal
      Accounting Officer
  25





EXHIBIT
INDEX




31.1
            
            Rule
      13a-14(a) Certification of Executive Chairman31.2
            
            Rule
      13a-14(a) Certification of Principal Accounting Officer32.1
            
            Section
      1350 Certification of Executive Chairman32.2
            
            Section
      1350 Certification of Principal Accounting
  Officer




26