##### 



FORM 10-Q

SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20459

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

For the quarterly period ended June 30, 2003

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 DriveRockville, 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 X    NO

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). YES X     
NO

As of August 7, 2003, 31,648,141 shares of the Companys common stock, $.01 par
value, were outstanding.





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ENTREMED, INC.

Table of Contents

PART I. FINANCIAL INFORMATION
    
    PAGEItem 1  Financial StatementsConsolidated Balance Sheets
as of June 30, 2003 and December 31, 2002
    
    3Consolidated Statements of
Operations for the Three Months Ended
June 30, 2003 and 2002, and the Six Months Ended
June 30, 2003 and June 30, 2002
    
    4Consolidated Statements of Cash
Flows for the Six Months Ended June 30, 2003
and 2002
    
    5Notes to Consolidated Financial
Statements
    
    6Item 2 
    
    Managements Discussion and Analysis
of Financial Condition and Results of
Operations
    
    8Item 3 
    
    Quantitative and Qualitative Disclosures
About Market Risk
    
    14Item 4 
    
    Disclosure Controls and Procedures
    
    14Part II. OTHER INFORMATIONItem 1 
    
    Legal Proceedings
    
    15Item 2 
    
    Changes in Securities
    
    15Item 3 
    
    Defaults upon Senior Securities
    
    15Item 4 
    
    Submission of Matters to Vote of
Security Holders
    
    15Item 5 
    
    Other Information
    
    16Item 6 
    
    Exhibits and Reports on Form 8-K
    
    16SIGNATURES
    
    17


SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This report contains and incorporates by reference certain forward-looking
statements within the meaning of Section 21E of the Securities Exchange Act of
1934, as amended. These statements may be identified by forward-looking words
such as may, will, expect, anticipate or similar words. These
forward-looking statements include, among others, statements regarding the
timing of our clinical trials and the expected increases in our expenses.

Our forward-looking statements are based on information available to us today,
and we will not update these statements. Our actual results may differ
significantly from those discussed in our forward-looking statements due to,
among other factors, our history of operating losses and anticipation of future
losses; the value of our common stock; our ability to satisfy our obligations
under existing collaborations and to enter into new collaborations;
uncertainties relating to our technological approach; uncertainty of our
product candidate development; our need for additional capital and uncertainty
of additional funding; our dependence on collaborators and licensees; intense
competition and rapid technological change in the biopharmaceutical industry;
uncertainties relating to our patent and proprietary rights; uncertainties
relating to clinical trials, government regulation and uncertainties of
obtaining regulatory approval on a timely basis or at all; our dependence on
key personnel, research collaborators and scientific advisors; uncertainties
relating to health care reform measures and third-party reimbursement; risks
associated with product liability; and other factors discussed in our other
filings with the Securities and Exchange Commission.

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EntreMed, Inc.
Consolidated Balance Sheets

June 30, 2003
    
    December 31, 2002(Unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    17,876,179
    
    
    $
    24,067,045Short term investment
    
    
    6,829,009
    
    
    
    Accounts receivable
    
    
    334,693
    
    
    
    309,292Interest receivable
    
    
    144,154
    
    
    
    95Prepaid expenses and other
    
    
    175,470
    
    
    
    272,425Total current assets
    
    
    25,359,505
    
    
    
    24,648,857Furniture and equipment, net
    
    
    2,212,580
    
    
    
    3,152,072Other assets
    
    
    9,283
    
    
    
    9,283Total assets
    
    $
    27,581,368
    
    
    $
    27,810,212LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    2,201,786
    
    
    $
    10,065,163Accrued liabilities
    
    
    463,497
    
    
    
    1,891,931Current portion of deferred revenue
    
    
    95,496
    
    
    
    110,809Current portion of notes payable
    
    
    54,374
    
    
    
    4,864,952Common stock repurchase liability
    
    
    
    
    
    
    Total current liabilities
    
    
    2,815,153
    
    
    
    16,932,855Deferred revenue, less current portion
    
    
    238,740
    
    
    
    286,488Other long term liabilities
    
    
    
    
    
    
    80,000Minority interest
    
    
    17,164
    
    
    
    17,223Stockholders equity:Convertible preferred stock, $1.00 par and $1.50 liquidation
value:5,000,000 shares authorized, 3,350,000 issued and
outstanding at June 30, 2003 and December 31, 2002, respectively
    
    
    3,350,000
    
    
    
    3,350,000Common stock, $.01 par value:90,000,000 shares authorized, 32,503,390 and
24,145,700 shares issued and outstanding at June 30, 2003
and December 31 2002, respectively
    
    
    325,034
    
    
    
    241,457Additional paid-in capital
    
    
    251,137,654
    
    
    
    228,316,897Treasury stock, at cost: 874,999 shares held at June 30, 2003 and
December 31, 2002, respectively
    
    
    (8,034,244
    )
    
    
    (8,034,244
    )Deferred stock compensation
    
    
    
    
    
    
    (61,846
    )Accumulated deficit
    
    
    (222,268,133
    )
    
    
    (213,318,618
    )Total stockholders equity
    
    
    24,510,311
    
    
    
    10,493,646Total liabilities and stockholders equity
    
    $
    27,581,368
    
    
    $
    27,810,212


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

3



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EntreMed, Inc.
Consolidated Statements of Operations
(Unaudited)

Three Months Ended
    
    Six Months EndedJune 30, 2003
    
    June 30, 2002
    
    June 30, 2003
    
    June 30, 2002Revenues:Collaborative research and
development
    
    $
    230,000
    
    
    $
    232,450
    
    
    $
    418,000
    
    
    $
    232,450Licensing
    
    
    23,874
    
    
    
    23,874
    
    
    
    47,748
    
    
    
    47,748Grants
    
    
    
    
    
    
    567
    
    
    
    300,000
    
    
    
    34,830Royalties
    
    
    1,958
    
    
    
    
    
    
    
    3,631
    
    
    
    1,793Other
    
    
    30,156
    
    
    
    52,279
    
    
    
    30,156
    
    
    
    52,279285,988
    
    
    
    309,170
    
    
    
    799,535
    
    
    
    369,100Costs and expenses:Research and development
    
    
    3,918,915
    
    
    
    7,311,902
    
    
    
    6,549,521
    
    
    
    18,170,574General and administrative
    
    
    1,674,517
    
    
    
    4,238,340
    
    
    
    3,301,721
    
    
    
    8,029,3525,593,432
    
    
    
    11,550,242
    
    
    
    9,851,242
    
    
    
    26,199,926Interest expense
    
    
    
    
    
    
    (103,118)
    
    
    
    
    
    
    
    (198,494
    )Investment income
    
    
    48,546
    
    
    
    93,061
    
    
    
    102,193
    
    
    
    263,712Net Loss
    
    
    (5,258,898
    )
    
    
    (11,251,129
    )
    
    
    (8,949,514
    )
    
    
    (25,765,608
    )Dividends on Series A convertible
preferred stock
    
    
    (251,250
    )
    
    
    
    
    
    
    (502,500
    )
    
    
    Net loss attributable to common
shareholders
    
    $
    (5,510,148
    )
    
    $
    (11,251,129
    )
    
    $
    (9,452,014
    )
    
    $
    (25,765,608
    )Net loss per share (basic and diluted)
    
    $
    (0.19
    )
    
    $
    (0.51
    )
    
    $
    (0.36
    )
    
    $
    (1.18
    )Weighted average number of shares
outstanding
(basic and diluted)
    
    
    28,583,985
    
    
    
    21,922,860
    
    
    
    26,506,440
    
    
    
    21,850,376


See accompanying notes.

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

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EntreMed, Inc.
Consolidated Statements of Cash Flows
(Unaudited)

SIX MONTH PERIOD ENDEDJUNE 30,2003
    
    2002CASH FLOWS FROM OPERATING ACTIVITIESNet loss
    
    $
    (8,949,515
    )
    
    $
    (25,765,608
    )Adjustments to reconcile net loss to net cash used by operating activities:Depreciation and amortization
    
    
    710,514
    
    
    
    742,490Recognition of non-cash stock compensation
    
    
    33,000
    
    
    
    44,336Non-cash interest expenses
    
    
    
    
    
    
    159,184Common stock repurchase liability
    
    
    
    
    
    
    1,569,163Minority interest
    
    
    (60
    )
    
    
    (235
    )Changes in operating assets and liabilities:Accounts receivable
    
    
    (115,407
    )
    
    
    (184,372
    )Interest receivable
    
    
    (144,059
    )
    
    
    39,015Prepaid expenses and other
    
    
    96,955
    
    
    
    33,238Accounts payable
    
    
    (7,395,097
    )
    
    
    (11,445,336
    )Accrued liabilities
    
    
    (1,362,926
    )
    
    
    (1,736,902
    )Contingent grant
    
    
    
    
    
    
    80,000Deferred revenue
    
    
    (47,748
    )
    
    
    478,621Net cash used in operating activities
    
    
    (17,174,343
    )
    
    
    (35,986,406
    )CASH FLOWS FROM INVESTING ACTIVITIESPurchases of short term financial instruments
    
    
    (6,829,009
    )
    
    
    Reduction in ownership of MaxCytes Cash
    
    
    (418,108
    )
    
    
    Purchases of furniture and equipment
    
    
    (23,842
    )
    
    
    (369,239
    )Net cash provided by (used in) investing activities
    
    
    (7,270,959
    )
    
    
    (369,239
    )CASH FLOWS FROM FINANCING ACTIVITIESNet proceeds from sale of common stock
    
    
    18,291,905
    
    
    
    4,878,269Proceeds from sale of warrants
    
    
    
    
    
    
    322,520Payment of principle on note payable
    
    
    (37,469
    )
    
    
    (537,151
    )Proceeds from issuance of long-term debt
    
    
    
    
    
    
    1,678,738Net cash provided by financing activities
    
    
    18,254,436
    
    
    
    6,342,376Net increase (decrease) in cash and cash equivalents
    
    
    (6,190,866
    )
    
    
    (30,013,269
    )Cash and cash equivalents at beginning of year
    
    
    24,067,045
    
    
    
    41,386,300Cash and cash equivalents at end of year
    
    $
    17,876,179
    
    
    $
    11,373,031SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATIONInterest paid
    
    $
    
    
    
    $
    39,310


The accompanying notes are an integral part of the unconsolidated financial
statements.

5



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ENTREMED, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2003 (unaudited)



|1. |  | BASIS OF PRESENTATION
|-- |  | ---------------------

Our accompanying 2003 unaudited consolidated financial information
includes the accounts of our 85% owned subsidiary, Cytokine Sciences, Inc.
versus the 2002 information which reflects both Cytokine and our previously
consolidated subsidiary MaxCyte, Inc. MaxCyte was formed in July 1998 as a
wholly owned subsidiary and on April 1, 2000 was capitalized with $40,000 in
cash including $1,000 from a MaxCyte officer. All intercompany balances and
transactions have been eliminated in consolidation.

The accompanying unaudited consolidated financial statements have been
prepared in accordance with 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 generally accepted accounting principles for complete financial
statements. In the opinion of our management, all adjustments (consisting of
normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the six-month period ended June 30, 2003
are not necessarily indicative of the results that may be expected for the year
ending December 31, 2003. 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, 2002.



|2. |  | Recent Accounting Pronouncement
|-- |  | -------------------------------

In January 2003, the Financial Accounting Standards Board issued
Interpretation No. 46, Consolidation of Variable Interest Entities(FIN 46).
FIN 46 clarifies the application of Accounting Research Bulletin No. 51,
Consolidated Financial Statements, to certain entities in which equity
investors do not have the characteristics of a controlling financial interest
or do not have sufficient equity at risk for the entity to finance its
activities without additional subordinated financial support from other
parties. FIN 46 applies immediately to variable interest entities created after
January 31, 2003. The Company is currently in the process of evaluating what
impact, if any, FIN 46 will have on its financial condition, results of
operations or liquidity.



|3. |  | Change in Basis of MaxCyte
|-- |  | --------------------------

The Board of Directors of both EntreMed and MaxCyte adopted a plan to
recapitalize MaxCyte. As a result of the recapitalization, the Company no
longer controls and no longer consolidates MaxCyte effective the first quarter
of 2003; EntreMed now owns 45% of MaxCyte. The investment in MaxCyte is
accounted for using the equity method. The reduction of EntreMeds ownership
in MaxCyte resulted in a change in EntreMeds basis in MaxCyte. The change
from fully consolidating MaxCyte to reflecting the investment in MaxCyte on the
equity method resulted in a $4.6 million credit to additional paid-in capital.

6



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|4. |  | Short-term investments
|-- |  | ----------------------

Short-term investments consist of corporate debt securities, all of which
mature within one year. We classify these investments as available for sale.
Such securities are stated at market value. The unrealized gains and losses are
nominal as of June 30, 2003. 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. The cost of securities sold is calculated using the
specific identification method. As of June 30, 2003, the cost of the
investment was $6,829,009. Realized gains have been insignificant.



|5. |  | Stock-Based Compensation
|-- |  | ------------------------

In accordance with Statement of Financial Accounting Standards (SFAS)
No. 148, Accounting for Stock-Based Compensation  Transition and Disclosure
(SFAS 148), the effect on net loss and net loss per share if the Company had
applied the fair value recognition provisions of SFAS No. 123, Accounting for
Stock-Based Compensation(SFAS No. 123) to stock-based employee compensation
is as follows:

Three months ended June 30,
    
    Six months ended June 30,2003
    
    2002
    
    2003
    
    2002Net income (loss), as reported
    
    $
    (5,258,898
    )
    
    $
    (11,251,129
    )
    
    $
    (8,949,514
    )
    
    $
    (25,765,608
    )Deduct: Total stock-based
employee compensation expense
determined under fair value
based method for all awards,
net of related tax effects
    
    
    (2,475,105
    )
    
    
    (3,522,215
    )
    
    
    (4,784,235
    )
    
    
    (7,044,430
    )Pro forma net (loss)
    
    
    (7,734,003
    )
    
    
    (14,773,344
    )
    
    
    (13,733,749
    )
    
    
    (32,810,038
    )Dividend on Series A
convertible preferred stock
    
    
    (251,250
    )
    
    
    
    
    
    
    (502,500
    )
    
    
    Pro forma net (loss)
attributable to common
shareholders
    
    $
    (7,985,253
    )
    
    $
    (14,773,344
    )
    
    $
    (14,236,249
    )
    
    $
    (32,810,038
    )Net income (loss) per share:Basic and diluted  as reported
    
    $
    (0.19
    )
    
    $
    (0.51
    )
    
    $
    (0.36
    )
    
    $
    (1.18
    )Basic and diluted  pro forma
    
    $
    (0.28
    )
    
    $
    (0.67
    )
    
    $
    (0.54
    )
    
    $
    (1.50
    )


The effect of applying SFAS No. 123 on the three and six month periods
ended June 30, 2003 and 2002 pro forma net loss and net loss per share as
stated above is not necessarily representative of the effects on reported net
loss for future years, due to, among other things, (1) the vesting period of
the stock options and (2) the fair value of additional stock options in future
years.

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|6. |  | Contingencies
|-- |  | -------------

With respect to a previously-reported outstanding liability for
manufacturing costs, Chiron Corporation filed a complaint against the Company
on April 11, 2003 in Alameda County (California) Superior Court, seeking to
recover $2,862,388 for manufacturing services related to our product candidates
pursuant to the Additional Manufacturing Services Agreement between Chiron and
the Company dated June 5, 2002. The Company has settled dispute with Chiron
and the complaint was dismissed on May 15, 2003.



|7. |  | Shareholders Equity Changes
|-- |  | ---------------------------

On April 28, 2003, we completed the sale of 4.1 million shares of common
stock to institutional investors for $10.25 million in gross proceeds. In
connection with the sale, we issued warrants to purchase an additional 1.025
million shares at an exercise price of $3.375 per share. The shares and
warrants were offered through a prospectus supplement to our effective shelf
registration statement.

On May 20, 2003, we completed the sale of 3.0 million shares of common
stock to institutional investors for $9.0 million in gross proceeds. The shares
were offered through a prospectus supplement to our effective
shelf registration statement

The Company incurred offering costs of approximately $2.2 million and
issued warrants to purchase 71,000 shares of common stock to the placement
agent.

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

OVERVIEW

Since our inception in September 1991, we have devoted substantially all
of our efforts and resources to sponsoring and conducting research and
development on our own behalf and through collaborations. Through June 30,
2003, all of our revenues have been generated from license fees, research and
development funding, royalty payments, the sale of royalty rights, the sale of
our interest in a licensing agreement and certain research grants. We have not
generated any revenue from direct product sales. We anticipate our primary
revenue sources for the next few years to include research grants and
collaboration payments under current or future arrangements. The timing and
amounts of such revenues, if any, will likely fluctuate and depend upon the
achievement of specified research and development milestones. Results of
operations for any period may be unrelated to the results of operations for any
other period.

CRITICAL ACCOUNTING POLICIES AND THE USE OF ESTIMATES

The preparation of our 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 financial statements
and accompanying notes. Actual results could differ materially from those
estimates. The items in our financial statements requiring significant
estimates and judgments are as follows:

8



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| |  | Grant Revenue  The Company has received government grants for the
development of potential malaria vaccines. We have also received a
government grant to support financially our Phase II Endostatin clinical
trial in patients with neuroendocrine tumors. Grants are funded in
specific amounts based on funding requests submitted to the grantor.
Grant revenues are recognized and realized at the time that research and
development activities are performed.
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Research and development expenses consist primarily of compensation
and other expenses related to research and development personnel,
research collaborations, costs associated with pre-clinical testing and
clinical trials of our product candidates, including the costs of
manufacturing the product candidates, and facilities expenses. Research
and development costs are expensed as incurred.
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | We have stock option plans under which options to purchase shares of
our common stock may be granted to employees, consultants and directors
at a price no less than the fair market value on the date of grant. We
account for our stock-based compensation in accordance with the
provisions of APB No. 25, Accounting for Stock Issued to Employees(APB
No. 25). Under APB No. 25, compensation expense is based on the
difference, if any, on the date of the grant between the fair value of
the Companys stock and the exercise price of the option and is
recognized ratably over the vesting period of the option. But, because
our options must be granted at fair market value, we recognize no
compensation expense in accordance with APB No. 25. If we were to adopt
SFAS No. 123, Accounting for Stock-Based Compensation(SFAS No. 123),
we would recognize compensation expense based upon the fair value at the
grant date for awards under the plans using the fair value method. We
account for equity instruments issued to nonemployees in accordance with
SFAS No. 123 and EITF 96-18, Accounting for Equity Instruments that are
issued to other than employees for acquiring, or in conjunction with
selling goods or services.
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

RESULTS OF OPERATIONS

For the Three and Six Months Ended June 30, 2002 and June 30, 2003.

Revenues. Revenues decreased slightly in the three month period ending
June 30, 2003 to approximately $286,000 from $309,000 in the comparable 2002
period. For the six month period ending June 30, 2003, revenues increased 117%
to approximately $800,000 from $370,000 for the 2002 six month period. The
increase results primarily from a grant received to support our Endostatin
Phase II clinical trial in patients with neuroendocrine tumors and contract
revenues resulting from performance as a subcontractor under an NIH sponsored
Malaria Vaccine program.

Research and Development Expenses. From inception through June 30, 2003 we
have incurred research and development expenses of approximately $214,551,000.
Included in this amount are the expenses related to our three clinical product
candidates, Panzem®, Endostatin and Angiostatin. At June 30, 2003 the
accumulated expenses for each of these development projects are $20,524,000,
$70,732,000 and $35,080,000 respectively. Project expenses for Panzem® of
$2,709,000, Endostatin of $539,000 and Angiostatin of $404,000 are reflected in
our 2003 R&D expenses for the six month period ending June 30, 2003 of
$6,550,000. Research and Development expenses for the comparable 2002 period
were $18,171,000. The decrease reflects the refocus and elimination of some
research and development programs and the associated shift in emphasis from the
protein product candidates

9



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towards our small molecule programs including Panzem®. Project costs for
Panzem®, Endostatin and Angiostatin were $1,992,000, $4,286,000 and $3,684,000
respectively for the six month period ending June 30, 2002. In addition to the
accumulated expenses attributable to our three clinical product candidates, we
had sponsored several research programs at Childrens Hospital, Boston in an
aggregate of $18,050,000 and we had recorded approximately $5,931,000 in
research and development costs incurred by our previously consolidated
subsidiary MaxCyte. Reflected in our research and development expenses are
sponsored research payments to Childrens Hospital of $1,000,000 in the period
ended June 30, 2002. We have not made any sponsored research payments to
Childrens Hospital in the six month period ending June 30, 2003 and have no
obligation to make future sponsored research payments to Childrens Hospital.
MaxCytes research and development costs for the six month period ending June
30, 2002 were $1,124,000. The balance of our accumulated research and
development expenses are attributable to discovery research and preclinical
development of additional product candidates and costs associated with the
management of research and development operations and facilities.

The amounts of expenditures that will be necessary to execute our business
plan are subject to numerous uncertainties, which may adversely affect our
liquidity and capital resources. As of June 30, 2003, three of our proprietary
product candidates, Panzem®, Endostatin and Angiostatin, were in the Phase II
stage of clinical trials. Completion of clinical trials 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:

CLINICAL PHASE
    
    ESTIMATED
COMPLETION
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 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 pre-clinical 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.

10



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An important element of our business strategy is to pursue the research
and development of a range of product candidates for a variety of oncology and
non-oncology indications. This allows us to diversify the risks associated with
our research and development expenditures. As a result, we believe our future
capital requirements and our future financial success are not substantially
dependent on any one product candidate. To the extent we are unable to maintain
a broad range of product candidates, our dependence on the success of one or a
few product candidates would increase.

Our proprietary product candidates also have 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 pre-clinical
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.

Furthermore, our business strategy includes the option of entering into
collaborative arrangements with third parties to complete the development and
commercialization of our products. In the event that third parties take over
the clinical trial 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.

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. 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, research
collaborations, costs associated with pre-clinical testing and clinical trials
of our product candidates, including the costs of manufacturing the product
candidates, patent costs and facilities expenses. Research and development
expenses for the three month periods ending June 30 decreased to $3,919,000 in
2003 from $7,312,000 for the comparable period in 2002. Research and
development expenses for the six month periods ending June 30 decreased to
$6,550,000 in 2003 from the 2002 amount of $18,171,000. The decrease in overall
research and development costs reflects the shift in emphasis from the protein
product candidates towards our small molecule programs including Panzem®.
Components of the decrease are broad based including the elimination of some
programs and are associated with the following:



| |  | Personnel Costs Personnel costs decreased to $725,000 for the three
month period ended June 30, 2003 from $1,811,000 in 2002. For the six
month period ended June 30, 2003 personnel costs decreased to $1,545,000
from $4,040,000 for the 2002 six month period. These decreases reflect
the approximately 60% reduction in staffing levels in 2003 from 2002.
The decrease results from the refocus and elimination of some research
and development programs and the associated staff reductions.
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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| |  | Collaborative Research Agreements We made payments to our
collaborators of $123,000 during the first six months of 2003. This
amount represents a significant decrease from the 2002 amount of
$2,972,000 and reflects the shift in focus to in-house efforts while
reassessing our collaborative strategy. Sponsored research payments to
academic collaborators include payments to Childrens Hospital, Boston
of $1,000,000 in 2002. We have not made any payments to Childrens
Hospital in 2003.
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Clinical Trial CostsClinical costs decreased to $250,000 in the
three months ending June 30, 2003 from $732,000 in the period ending
June 30, 2002. Clinical costs for the six month period ending June 30,
2003 decreased to $739,000 from $1,506,000 for the comparable 2002
period. The decreases reflect less clinical activity as result of our
decision to focus on small molecule candidates led by Panzem®, while we
maintain the open trials for Endostatin and Angiostatin. Costs of such
trials include the clinical investigator site fees, monitoring costs and
data management costs. Contracted regulatory support costs decreased in
2003 to $53,000 from $563,000 in 2002. In addition, we contribute
clinical trial product material under our CRADA with the NCI who is
conducting trials collaboratively with EntreMed on Panzem®.
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | 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,
storage, encapsulation and fill finish services and product release
costs. Contract manufacturing costs for the three months ending June 30
decreased to $1,100,000 in 2003 from $1,639,000 in 2002. For the six
month period ending June 30, 2003 manufacturing costs have decreased to
$1,266,000 from $4,797,000 for the comparable 2002 period. The decrease
reflects the Companys decision to stockpile clinical material in 2001
and 2002. The increase in 2003 costs recorded in the three month period
ending June 30 reflect the purchase of bulk Panzem® under existing
commitments to support ongoing clinical trials and reformulation
efforts. Other 2003 costs result primarily from Panzem® encapsulation
and bulk protein storage costs. The nature and timing of our
manufacturing efforts will likely result in fluctuations in
manufacturing costs in future reporting periods.
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

General and administrative expenses for the three month period ending June
30, decreased from $4,238,000 in 2002 to $1,674,000 in 2003. For the six month
period 2003 expenses decreased to $3,302,000 from $8,029,000 in the comparable
2002 period. The 2003 period decrease reflects our reduced head count and
significantly lower legal expenses as a result of the settlement of the Abbott
and BMT litigations in 2002. In the 2002 six month period we also recorded
costs of $1,569,000 associated with our Bristol Myers-Squibb stock repurchase
obligation.

Interest expense. In December 2002 we made the final payment on a
promissory note secured by the majority of our equipment and therefore we did
not record any interest expense during the three and six month periods ending
June 30, 2003. For the three and six month periods ending June 30, 2002
interest expense totaled approximately $103,000 and $198,000, respectively. The
majority of these amounts reflect the accrual of interest relating to MaxCytes
issuance of convertible promissory notes in 2001 and 2002.

Investment income. Investment income decreased by 61% in 2003 to $102,000
from $264,000 as a result of continued low investment yields and lower balances
in interest bearing cash accounts during the six month period ending June 30,
2003 versus the comparable period in 2002.

12



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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 for 2003 and the foreseeable future before we commercialize
any products. In addition, under the terms of certain licensing agreements, we
must be diligent in bringing potential products to market and may be required
to make future milestone payments of up to $2,685,000. If we fail to comply
with the milestones or fail to make any required milestone payment, we could
face the termination of the relevant license agreement.

To accomplish our business plans, we will be required to continue to
conduct substantial development activities for all of our proposed products.
Based on our assessment of our current capital resources and the actions
discussed below, and in the absence of additional financing, we believe that we
will have adequate resources to fund operations into 2005. Our estimate may
change, however, based on our decisions with respect to future clinical trials
related to Panzem®, developments in our business and our success in executing
our current business plan.

At June 30, 2003, we had cash and short-term investments of approximately
$24,705,000 with working capital of approximately $22,306,000. Based on our
current plans, expenditures on development activities are expected to
approximate $16,000,000, net of operating revenues, in 2003. In addition, our
results of operations will also reflect additional restructuring charges of
approximately $1,000,000 relating to other organizational changes as we
complete our transition to small molecule programs We may consider other uses
of our capital including acquisition of additional intellectual property and
other investments in technology, including additional investments in our
minority owned subsidiary.

We intend to continue to pursue strategic relationships to provide
resources for the further development of our product candidates. There can be
no assurance, however, that these discussions will result in relationships or
additional funding. In addition, we may continue to seek capital through the
public or private sale of securities, if market conditions are favorable for
doing so.If we are successful in raising additional funds through the
issuance of equity securities, stockholders likely will experience substantial
dilution, or the equity securities may have rights, preferences or privileges
senior to those of the holders of our common stock. If we raise funds through
the issuance of debt securities, those securities would have rights,
preferences and privileges senior to those of our common stock.

The table below sets forth our contractual obligations at June 30, 2003.

CONTRACTUAL OBLIGATIONS
      
      
      
      
      
      PAYMENTS DUE BY PERIODTotal
      
      Next twelve
        months
      
      1-3
        years
      
      4 - 5
        years
      
      After 5
        yearsDebt
      
      $
      54,000
      
      
      
      54,000Operating
          Leases
      
      
      5,528,000
      
      
      
      972,000
      
      
      
      1,891,000
      
      
      
      1,963,000
      
      
      
      702,000Clinical
          Trial Contracts
      
      
      762,000
      
      
      
      762,000Collaborative
          Research Contracts
      
      
      50,000
      
      
      
      50,000Outside
          Service Contracts
      
      
      300,000
      
      
      
      300,000Contract
          Manufacturing
      
      
      1,490,000
      
      
      
      1,490,000Total
          Contractual Obligations
      
      $
      8,184,000
      
      
      
      3,628,000
      
      
      
      1,891,000
      
      
      
      1,963,000
      
      
      
      702,000


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The $1.49 million Contract Manufacturing obligation set forth above
reflects a manufacturing agreement entered into in 2002. We expect delivery of
the materials for which the obligation is owed during the 4th quarter. We have
no other outstanding purchase obligations.

On October 31, 2002 we were notified by the Nasdaq Listing Qualifications
Department that EntreMeds common stock was subject to delisting from the
Nasdaq National Market because it was not in compliance with Marketplace Rule
4450(b)(1)(A), which requires that our common stock have a market value of
listed securities of $50 million. We subsequently requested an appeal hearing
before a Nasdaq Listing Qualifications Panel. At the hearing, held in December
2002, we presented a plan for EntreMed to return to compliance and remain in
compliance with the continued listing standards for the Nasdaq National Market.

In February 2003 we received a determination from the Nasdaq Listing
Qualifications Panel to continue the listing of EntreMeds securities on the
Nasdaq National Market. As part of the determination, EntreMed was required to
file its Form 10-K for the fiscal year ended December 31, 2002 and Form 10-Q
for the quarter ended March 31, 2003 with the SEC and Nasdaq evidencing
shareholders equity of at least $10,000,000 on or before March 31, 2003 and
May 15, 2003, respectively.

In May 2003 we received notification from the Nasdaq Listing
Qualifications Panel that EntreMed had fully satisfied all of the conditions
required for continued listing on the Nasdaq National Market.

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 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 June 30, 2003.

ITEM 4. DISCLOSURE CONTROLS AND PROCEDURES

Under the supervision and with the participation of the Companys
President and Chief Operating Officer, and Chief Financial Officer, and
Corporate Secretary (its principal executive officer and principal financial
officer), management has evaluated the effectiveness of the design and
operation of the Companys disclosure controls and procedures. Based on that
evaluation, the President and Chief Operating Officer, and Chief Financial
Officer, and Corporate Secretary have concluded that these disclosure controls
and procedures are effective as of June 30, 2003. There were no significant
changes in our internal control over financial reporting during the quarter
ended June 30, 2003 that have materially affected, or are reasonably likely to
materially affect, the internal control over financial reporting.

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| |  | PART II.      OTHER INFORMATION
| |  | -------------------------------



| |  | Item 1.LEGAL PROCEEDINGS
| |  | ------------------------

This information as set forth in Note 6 of Notes to Consolidated
Financial Statements appearing in Item 1 of Part I of this report is
incorporated herein by reference.

In addition, EntreMed is 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 2.CHANGES IN SECURITIES AND USE OF PROCEEDS
| |  | ------------------------------------------------

Recent Sales of Unregistered Securities

In April 2003 and May 2003, we issued warrants to purchase 71,000 shares
of common stock to the placement agents in conjunction with our previously
reported sales of common stock and warrants to certain institutional investors.
The warrants were issued pursuant to Section 4(2) of the Securities Exchange
Act of 1934 as a transaction not involving a public offering.



| |  | Item 3.DEFAULTS UPON SENIOR SECURITIES
| |  | --------------------------------------

Not applicable.



| |  | Item 4.SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
| |  | --------------------------------------------------------

(a) The Companys annual meeting of stockholders was held on June 18, 2003
(Annual Meeting).

(b) Not applicable.

(c) At the Annual Meeting, the stockholders considered and approved the
following proposals:

(i)Election of Directors. The following sets forth the nominees who were
elected Directors of the Company for the term expiring in the year indicated as
well as the number of votes case for, against, or withheld:

Year Term
Expires
    
    Name
    
    
    Votes For
    
    
    Votes Withheld2006
    
    Michael M. Tarnow
    
    
    38,996,086
    
    
    80,2162006
    
    Ronald Cape
    
    
    38,996,346
    
    
    79,956


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(ii) Approve an amendment to the Companys 2001 Long-Term Incentive Plan
increasing from 3,250,000 to 4,250,000 the number shares of Common Stock
reserved for issuance thereunder. This proposal received 38,336,731 votes in
favor, 571,657 votes against and 137,914 abstentions.

(iii) Ratification of Appointment of Ernst & Young LLP. At the Annual
Meeting, stockholders approved and ratified the selection of Ernst & Young LLP
as the independent auditors. The proposal received 38,947,389 votes in favor,
69,833 votes against and 59,080 abstentions.

(iv) As we have previously disclosed, Celgene Corporation has the right to
one vote for each share of Common Stock into which its 3,350,000 shares of
Convertible Preferred Stock are convertible, currently 16,750,000 shares. In
other words, Celgene was allowed to vote at the Annual Meeting as if it owned
16,750,000 shares of our Common Stock. The votes for numbers above include
Celgenes votes.



| |  | Item 5.OTHER INFORMATION
| |  | ------------------------

Not applicable.



| |  | Item 6.EXHIBITS AND REPORTS ON FORM 8-K
| |  | ---------------------------------------

(a) Exhibits

31.1
    
    Rule 13a-14(a) Certification of President and Chief Operating Officer31.2
    
    Rule 13a-14(a) Certification of Chief Financial Officer32.1
    
    Section 1350 Certification of Equivalent of Chief Executive Officer32.2
    
    Section 1350 Certification of Chief Financial Officer


(b) Reports on Form 8-K

On May 21, 2003 and April 24, 2003, the Company filed a Form 8-K to
announce the sale of common stock and/or warrants to certain
institutional investors.

Through its website at www.entremed.com, the Company makes available, free of
charge, its annual reports on Form 10-K, quarterly reports on Form 10-Q and
current reports on Form 8-K, and all amendments thereto, as soon as reasonably
practicable after such reports are filed with or furnished to the Securities
and Exchange Commission.

16



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##### 



SIGNATURES

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

ENTREMED, INC.(Registrant)Date: August 12, 2003
    
    /s/ Neil J. CampbellNeil J. CampbellPresident and Chief Operating OfficerDate: August 12, 2003
    
    /s/ Dane R. SaglioDane R. SaglioChief Financial Officer


17