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 June 30, 2010





 ̈           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 x       NO
 ̈





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  ̈      NO
 ̈





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  ̈
            
            Accelerated
      filer  ̈
            
            Non-accelerated
      filer þ
            
            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     ̈   NO
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 August 4, 2010Common
      Stock $0.01 Par Value
                          
                          9,629,768





ENTREMED,
INC.


Table of
Contents





PAGEPART
      I.  FINANCIAL INFORMATIONItem
      1 —
                                    Consolidated
      Financial Statements
                                    3Consolidated
      Balance Sheets as ofJune
      30, 2010 (unaudited) and December 31, 2009
                                    3Consolidated
      Statements of Operations for theSix
      Months Ended June 30, 2010 and 2009 (unaudited)
                                    4Consolidated
      Statements of Cash Flows for theSix
      Months Ended June 30, 2010 and 2009 (unaudited)
                                    5Notes
      to Consolidated Financial Statements (unaudited)
                                    6Item
      2 —
                                    Management’s
      Discussion and Analysis ofFinancial
      Condition and Results of Operations
                                    15Item
      3 —
                                    Quantitative
      and Qualitative DisclosuresAbout
      Market Risk
                                    24Item
      4 —
                                    Controls
      and Procedures
                                    25Part
      II.  OTHER INFORMATIONItem
      1 —
                                    Legal
      Proceedings
                                    25Item 1A –
                                    Risk
      Factors
                                    25Item
      2 —
                                    Unregistered
      Sales of Equity Securities and Use of Proceeds
                                    25Item
      3 —
                                    Defaults
      upon Senior Securities
                                    26Item
      4 —
                                    Reserved
                                    26Item
      5 —
                                    Other
      Information
                                    26Item
      6 —
                                    Exhibits
                                    26SIGNATURES
                                    27





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)





June 30, 2010
                                      
                                      
                                      December 31, 2009(Unaudited)ASSETSCurrent
      assets:Cash
      and cash equivalents
                                      
                                      $
                                      7,992,917
                                      
                                      
                                      $
                                      6,312,182Short-term
      investments
                                      
                                      
                                      50,024
                                      
                                      
                                      
                                      54,071Accounts
      receivable, net of allowance for doubtful accounts of$72,145
      at June 30, 2010 and December 31, 2009
                                      
                                      
                                      -
                                      
                                      
                                      
                                      3,286,858Prepaid
      expenses and other
                                      
                                      
                                      156,813
                                      
                                      
                                      
                                      220,925Total
      current assets
                                      
                                      
                                      8,199,754
                                      
                                      
                                      
                                      9,874,036Property
      and equipment, net
                                      
                                      
                                      134,629
                                      
                                      
                                      
                                      171,498Other
      assets
                                      
                                      
                                      9,215
                                      
                                      
                                      
                                      21,494Total
      assets
                                      
                                      $
                                      8,343,598
                                      
                                      
                                      $
                                      10,067,028LIABILITIES
      AND STOCKHOLDERS' EQUITY (DEFICIT)Current
      liabilities:Accounts
      payable
                                      
                                      $
                                      1,290,029
                                      
                                      
                                      $
                                      1,968,607Accrued
      liabilities
                                      
                                      
                                      299,848
                                      
                                      
                                      
                                      745,183Current
      portion of loan payable
                                      
                                      
                                      5,137,463
                                      
                                      
                                      
                                      8,555,404Total
      current liabilities
                                      
                                      
                                      6,727,340
                                      
                                      
                                      
                                      11,269,194Loan
      payable, less current portion
                                      
                                      
                                      -
                                      
                                      
                                      
                                      723,814Total
      liabilities
                                      
                                      
                                      6,727,340
                                      
                                      
                                      
                                      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 June 30, 2010 and December 31, 2009(liquidation
      value - $33,500,000 at June 30, 2010 and December 31,
2009)
                                      
                                      
                                      3,350,000
                                      
                                      
                                      
                                      3,350,000Common
      stock, $.01 par value:170,000,000
      shares authorized at June 30, 2010 and December 31, 2009:9,630,141
      and 8,061,040 shares issued and outstandingat
      June 30, 2010 and December 31, 2009, respectively
                                      
                                      
                                      96,301
                                      
                                      
                                      
                                      80,610Additional
      paid-in capital
                                      
                                      
                                      379,401,344
                                      
                                      
                                      
                                      368,804,067Treasury
      stock, at cost:  79,545 shares held at June 30, 2010
      andDecember
      31, 2009
                                      
                                      
                                      (8,034,244
                                      )
                                      
                                      
                                      (8,034,244
                                      )Accumulated
      deficit
                                      
                                      
                                      (373,197,143
                                      )
                                      
                                      
                                      (366,126,413
                                      )Total
      stockholders' equity (deficit)
                                      
                                      
                                      1,616,258
                                      
                                      
                                      
                                      (1,925,980
                                      )Total
      liabilities and stockholders' equity (deficit)
                                      
                                      $
                                      8,343,598
                                      
                                      
                                      $
                                      10,067,028





See
accompanying notes.


3


EntreMed,
Inc.


Consolidated
Statements of Operations


(Unaudited)





Three Months Ended
                  
                  
                  Six Months EndedJune 30, 2010
                  
                  
                  June 30, 2009
                  
                  
                  June 30, 2010
                  
                  
                  June 30, 2009Revenues:Royalties
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  -Other
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -$
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  -Costs
      and expenses:Research
      and development
                  
                  
                  1,011,128
                  
                  
                  
                  1,659,474
                  
                  
                  
                  1,855,081
                  
                  
                  
                  3,612,934General
      and administrative
                  
                  
                  770,679
                  
                  
                  
                  1,010,733
                  
                  
                  
                  1,821,904
                  
                  
                  
                  2,170,454Acquired
      In-Process R&D
                  
                  
                  3,000,000
                  
                  
                  
                  -
                  
                  
                  
                  3,000,000
                  
                  
                  
                  -4,781,807
                  
                  
                  
                  2,670,207
                  
                  
                  
                  6,676,985
                  
                  
                  
                  5,783,388Investment
      income
                  
                  
                  -
                  
                  
                  
                  18,744
                  
                  
                  
                  -
                  
                  
                  
                  68,931Interest
      expense
                  
                  
                  (168,733
                  )
                  
                  
                  (399,730
                  )
                  
                  
                  (389,698
                  )
                  
                  
                  (853,491
                  )Other
      income (expense)
                  
                  
                  5,954
                  
                  
                  
                  -
                  
                  
                  
                  (4 047
                  )
                  
                  
                  -Net
      Loss
                  
                  
                  (4,944,586
                  )
                  
                  
                  (3,051,193
                  )
                  
                  
                  (7,070,730
                  )
                  
                  
                  (6,567,948
                  )Dividends
      on Series A convertible preferred stock
                  
                  
                  (251,250
                  )
                  
                  
                  (251,250
                  )
                  
                  
                  (502,500
                  )
                  
                  
                  (502,500
                  )Net
      loss attributable to common shareholders
                  
                  $
                  (5,195,836
                  )
                  
                  $
                  (3,302,443
                  )
                  
                  $
                  (7,573,230
                  )
                  
                  $
                  (7,070,448
                  )Net
      loss per share (basic and diluted)
                  
                  $
                  (0.62
                  )
                  
                  $
                  (0.46
                  )
                  
                  $
                  (0.95
                  )
                  
                  $
                  (0.98
                  )Weighted
      average number of common sharesoutstanding
      (basic and diluted)
                  
                  
                  8,325,539
                  
                  
                  
                  7,180,917
                  
                  
                  
                  7,989,424
                  
                  
                  
                  7,180,400





See
accompanying notes.


4


EntreM,ed,
Inc.


Consolidated
Statements of Cash Flows


(Unaudited)





SIX MONTH PERIOD ENDED
                    JUNE 30,2010
                  
                  
                  2009CASH
      FLOWS FROM OPERATING ACTIVITIESNet
      loss
                  
                  $
                  (7,070,730
                  )
                  
                  $
                  (6,567,948
                  )Adjustments
      to reconcile net loss to net cash provided by (used in)
      operatingactivities:Depreciation
      and amortization
                  
                  
                  38,564
                  
                  
                  
                  65,757Write-off
      of in-process R&D
                  
                  
                  3,000,000
                  
                  
                  
                  -Amortization
      of discount on short-term investments
                  
                  
                  -
                  
                  
                  
                  (31,665
                  )Stock-based
      compensation expense
                  
                  
                  231,330
                  
                  
                  
                  240,450Non-cash
      interest
                  
                  
                  35,532
                  
                  
                  
                  76,516Investment
      impairment loss
                  
                  
                  4,047
                  
                  
                  
                  -Changes
      in operating assets and liabilities:Accounts
      receivable
                  
                  
                  3,286,858
                  
                  
                  
                  3,862,302Prepaid
      expenses and other
                  
                  
                  64,112
                  
                  
                  
                  171,480Deferred
      rent
                  
                  
                  -
                  
                  
                  
                  (20,763
                  )Accounts
      payable
                  
                  
                  (678,578
                  )
                  
                  
                  (1,746,308
                  )Accrued
      liabilities
                  
                  
                  (445,333
                  )
                  
                  
                  (1,453,289
                  )Net
      cash used in operating activities
                  
                  
                  (1,534,198
                  )
                  
                  
                  (5,403,468
                  )CASH
      FLOWS FROM INVESTING ACTIVITIESPurchases
      of  short term investments
                  
                  
                  -
                  
                  
                  
                  (6,993,512
                  )Maturities
      of short term investments
                  
                  
                  -
                  
                  
                  
                  10,000,000Unrealized
      loss on short term investments
                  
                  
                  
                  
                  
                  
                  (4,429
                  )Purchases
      of furniture and equipment
                  
                  
                  (1,695
                  )
                  
                  
                  -Net
      cash (used in) provided by investing activities
                  
                  
                  (1,695
                  )
                  
                  
                  3,002,059CASH
      FLOWS FROM FINANCING ACTIVITIESStock
      issuance costs
                  
                  
                  (80,017
                  )
                  
                  
                  (6,150
                  )Repayment
      of loan
                  
                  
                  (4,165,026
                  )
                  
                  
                  (3,753,920
                  )Net
      proceeds from sale of common stock
                  
                  
                  7,461,671
                  
                  
                  
                  -Net
      cash provided by (used in) financing activities
                  
                  
                  3,216,628
                  
                  
                  
                  (3,760,070
                  )Net
      increase (decrease) in cash and cash equivalents
                  
                  
                  1,680,735
                  
                  
                  
                  (6,161,479
                  )Cash
      and cash equivalents at beginning of period
                  
                  
                  6,312,182
                  
                  
                  
                  16,743,129Cash
      and cash equivalents at end of period
                  
                  $
                  7,992,917
                  
                  
                  $
                  10,581,650Supplemental
      disclosure of cash flow information:Cash
      paid during the period for interest
                  
                  $
                  354,148
                  
                  
                  $
                  776,975Non-cash
      investing activity:Stock
      issued in connection with milestone payment related to acquisition of
      Miikana
                  
                  $
                  3,000,000
                  
                  
                  $
                  -





See
accompanying notes.




5




ENTREMED,
INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


June
30, 2010 (unaudited)





1.
            Basis
      of Presentation





The accompanying consolidated financial
statements include the accounts of EntreMed, Inc. (the Company or EntreMed) and
its wholly-owned 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 and
six-month periods ended June 30, 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.





On July
1, 2010, the Company affected a 1-for-11 reverse split of its common stock,
which was authorized by its Board of Directors on June 9, 2010 (See Note 12,
“Subsequent Events”). All common stock share and per share information in the
unaudited interim condensed consolidated financial statements and notes thereto
included in this report have been restated to reflect retrospective application
of the reverse stock split, except for par value per share and the number of
authorized shares, which were not affected by the reverse stock
split.





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 June 30, 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 $373
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.




6


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.





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 six months ended June 30, 2010, is as
follows:




R&D
                
                
                G&AExpenses
                
                
                ExpensesBalance
      at December 31, 2009
                
                
                
                
                
                
                
                $
                228,754Cash
      payments
                
                $
                (178,286
                )
                
                $
                (44,395
                )
                
                
                (222,681
                )Balance
      at June 30, 2010
                
                
                
                
                
                
                
                
                
                $
                6,073




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 six months ended June 30, 2010 and does not expect
to incur additional costs in connection with these terminations.




7


4.
            Recently
      Adopted 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.




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 June 30, 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 an
increase in value during the three months ended June 30, 2010, realized gains of
$5,954 were recorded for the three months ended June 30, 2010.  An
overall decline in value during the six months ended June 30, 2010, that is
considered to be other than temporary, resulted in net realized losses of $4,047
for the six months ended June 30, 2010.  There were no realized gains
or losses for the six months ended June 30, 2009.  Net unrealized
losses of $4,328 were recorded for the six months ended June 30,
2009.  Short-term investments are principally uninsured and subject to
normal credit risk.




The
following is a summary of available-for-sale securities at June 30,
2010:




Available-for-Sale SecuritiesAmortized
                    
                    
                    Gross
                      Realized
                    
                    
                    Gross
                      Realized
                    
                    
                    Estimated Fair
                      Value (Net
                      CarryingCost
                    
                    
                    Gains
                    
                    
                    Losses
                    
                    
                    Amount)Equity
      Securities
                    
                    $
                    125,000
                    
                    
                    $
                    5,954
                    
                    
                    $
                    (80,930
                    )
                    
                    $
                    50,024Total
                    
                    $
                    125,000
                    
                    
                    $
                    5,954
                    
                    
                    $
                    (80,930
                    )
                    
                    $
                    50,024




8


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




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





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 $153,650 and $364,000 during the three months ended June 30, 2010
and 2009, respectively.   The Company paid interest of
approximately $354,150 and $777,000 during the six months ended June 30, 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: 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 June 30, 2010.




9


The
Warrants are exercisable by the Lenders until September 12, 2012 at an exercise
price of $22.00 per share (as adjusted to reflect the one-for-eleven reverse
stock split, as further described in Note 12 to these Notes to the Consolidated
Financial Statements).  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
June 30, 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 $15,079 and $35,829 for the three months
ended June 30, 2010 and 2009, respectively.  Non-cash interest expense
related to the amortization of debt issuance costs and debt discount was $35,532
and $76,516 for the six months ended June 30, 2010 and 2009,
respectively.





The
carrying value and estimated fair value of debt, before discount, were
approximately $5,146,000 and $5,196,000 respectively, at June 30,
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).




10


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





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 June 30, 2010:





Fair Value Measurements at June 30, 2010Total Carrying
                                        Value at
                                      
                                      
                                      Quoted prices in
                                        active markets
                                      
                                      
                                      Significant other
                                        observable inputs
                                      
                                      
                                      Significant
                                        unobservable
                                        inputsJune 30, 2010
                                      
                                      
                                      (Level 1)
                                      
                                      
                                      (Level 2)
                                      
                                      
                                      (Level 3)Cash
      equivalents
                                      
                                      $
                                      2,105,868
                                      
                                      
                                      $
                                      2,105,868
                                      
                                      
                                      $
                                      —
                                      
                                      
                                      $
                                      —Available
      for sale securities*
                                      
                                      
                                      50,024
                                      
                                      
                                      
                                      50,024
                                      
                                      
                                      
                                      —
                                      
                                      
                                      
                                      —


*   Realized
losses related to available for sale securities are included in operations, as
disclosed in Note 5.





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


*  Realized
losses related to available for sale securities are included in operations, as
disclosed in Note 5.





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 284,090
shares of its common stock, par value $0.01 per share, to an institutional
investor for an aggregate purchase price of $2,500,000.  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 349,650
shares of its common stock, par value $0.01 per share, to an institutional
investor for an aggregate purchase price of $2,500,000.  The offering
was made pursuant to a stock purchase agreement dated as of February 3, 2010
between the Company and the investor.





On April 16, 2010, the Company
consummated the issuance and sale of 526,500 shares of its common stock, par
value $0.01 per share, to an institutional investor for an aggregate purchase
price of $3,000,000.  The offering was made pursuant to a stock
purchase agreement dated as of April 16, 2010 between the Company and the
investor.


11


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 314,120 shares remain available for grant
under the Company’s 2001 Long-Term Incentive Plan as of June 30,
2010.  There are 607,979 shares issuable under options previously
granted under the plans and currently outstanding, with exercise prices ranging
from $1.76 to $522.50.  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.





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 six
months ended June 30, 2010 and June 30, 2009 includes compensation expense of
$231,330 and $240,450, 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:




SIX MONTHS ENDED
                    JUNE 30,2010
                  
                  
                  2009Research
      and development
                  
                  $
                  19,495
                  
                  
                  $
                  80,793General
      and administrative
                  
                  
                  211,835
                  
                  
                  
                  159,657Share-based
      compensation expense
                  
                  $
                  231,330
                  
                  
                  $
                  240,450Net
      share-based compensation expense, per common share:Basic
      and diluted
                  
                  $
                  0.03
                  
                  
                  $
                  0.03




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
six-month periods ended June 30, 2010 and 2009:




SIX MONTH PERIOD ENDED
                    JUNE 30,2010
                  
                  
                  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


* -
Authoritative guidance requires forfeitures to be estimated at the time of grant
and revised, if necessary, in subsequent periods if actual forfeitures differ
from those estimates.  During the six-month periods ended June 30,
2010 and 2009, forfeitures were estimated at 5%.




The weighted average fair value of
stock options granted during the six-month periods ended June 30, 2010 and 2009
was $5.50 and $01.10, respectively.




A summary of the Company’s stock option
plans and of changes in options outstanding under the plans for the six months
ended June 30, 2010, is as follows:




Number of
                    Options
                  
                  
                  Weighted
                    Average
                    Exercise
                    PriceOutstanding
      at January 1, 2010
                  
                  
                  634,797
                  
                  
                  $
                  60.49Granted
                  
                  
                  36,816
                  
                  
                  $
                  7.37Exercised
                  
                  
                  (5,874
                  )
                  
                  $
                  1.76Expired
                  
                  
                  (55,180
                  )
                  
                  $
                  222.04Forfeited
                  
                  
                  (2,580
                  )
                  
                  $
                  4.38Outstanding
      at June 30, 2010
                  
                  
                  607,979
                  
                  
                  $
                  43.41Vested
      and expected to vest at June 30, 2010
                  
                  
                  605,742
                  
                  
                  $
                  43.54Exercisable
      at June 30, 2010
                  
                  
                  563,243
                  
                  
                  $
                  46.61




Cash received from option exercises
under all share-based payment arrangements for the three and six months ended
June 30, 2010 was $0 and $10,340, respectively.  Cash received from
option exercises for the three and six months ended June 30, 2009 was
$10,000.




10.
            Acquired
      In-Process R&D




In January 2006, the Company acquired
Miikana Therapeutics, a private biotechnology company.  Pursuant to
the merger agreement, based on the success of the acquired preclinical programs,
the Company may pay up to an additional $18 million upon the achievement of
certain clinical and regulatory milestones.  Such additional payments
will be made in cash or shares of stock at our option. The lead molecule in
the Aurora Kinase Program, ENMD-2076, advanced into clinical development in
2008.  ENMD-2076 is a selective kinase inhibitor with activity against
Aurora A and angiogenic kinases linked to promoting cancer and inflammatory
diseases. Dosing of the first patient in 2008 triggered a purchase price
adjustment milestone of $2 million.  Dosing of the first patient in a
Phase 2 trial in April 2010 triggered an additional purchase price adjustment
milestone of $3 million, resulting in $13 million of potential payments
remaining that could be earned, as of June 30, 2010.  In June 2008,
233,100 shares of common stock were issued and in June 2010, 403,550 shares of
common stock were issued as consideration for the satisfaction of the two
milestone payments.  The additional payments of $2 million in 2008 and
$3 million in 2010 were recorded to expense as in-process research and
development since the research and development project related to the Aurora
Kinase Program had not reached technical feasibility and has no future
alternative use.




13


11.
            Income
      Taxes




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





During the six months ended June 30,
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 June 30, 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.





12.
            Subsequent
      Events





Reverse Stock
Split





At the Annual Meeting of Stockholders
held on June 3, 2010, the Company’s stockholders approved a proposal to
authorize the Board of Directors, in its discretion, to affect a reverse split
of the Company’s outstanding common stock without further action by the
stockholders. The primary objective in affecting the reverse split was to better
enable the Company to maintain the listing of its common stock on the NASDAQ
Capital Market.  On June 9, 2010, the Board of Directors approved a
1-for-11 reverse split of the Company’s common stock and on July 1, 2010 at 8:00
am. Eastern time (the Effective Time), the reverse stock split became effective.
As a result of the reverse stock split, each eleven shares of the common stock
that were issued and outstanding or held in treasury at the Effective Time were
automatically combined into one share.   The reverse stock split
reduced the number of issued and outstanding shares of common stock as of July
1, 2010 from approximately 105.9 million shares to approximately
9.6 million shares. No fractional shares were issued in connection with the
reverse stock split. Stockholders who were entitled to fractional shares instead
became entitled to receive a cash payment in lieu of receiving fractional shares
equal to the fractional share interest multiplied by $0.40 (the per share
closing price of the Company’s common stock as last reported on the NASDAQ Stock
Market on June 30, 2010).  The reverse stock split affected all of the
holders of common stock uniformly. Shares of common stock underlying outstanding
options and warrants were proportionately reduced and the exercise price of
outstanding options and warrants was proportionately increased in accordance
with the terms of the agreements governing such securities.  All
common stock share and per share information in the unaudited interim condensed
consolidated financial statements and notes thereto included in this report have
been restated to reflect retrospective application of the reverse stock split,
except for par value per share and the number of authorized shares, which were
not affected by the reverse stock split.





As of July 15, 2010, the Company
maintained a minimum closing bid price of $1.00 or more for at least 10
consecutive trading days and subsequently received a letter from the NASDAQ
Stock Market stating that the Company has regained compliance with NASDAQ’s
$1.00 minimum closing bid price requirement.  References to numbers of
shares, and share prices, in this Quarterly Report on Form 10-Q reflect the
1-for-11 reverse stock split.




14


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 June 30, 2010, we
had an accumulated deficit of $373 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 through fiscal 2010.  At June 30, 2010, we have
operating and liquidity concerns and plan to continue to pursue opportunities to
raise additional capital to fund our operating needs.  We have
successfully completed three financings since December 31, 2009, increasing our
net cash by approximately $7,400,000.  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 June 30, 2010 by pursuing other
opportunities to raise capital, 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.




15


On
January 11, 2010, we sold 284,090 shares of our common stock, par value $0.01
per share, to an institutional investor for an aggregate purchase price of
$2,500,000.  On February 3, 2010, we sold 349,650 shares of our common
stock to the same institutional investor for an aggregate purchase price of
$2,500,000.  On April 16, 2010, we sold 526,500 shares of our common
stock to the same institutional investor for an aggregate purchase price of
$3,000,000.  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.





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.





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 under the symbol
“ENMD”.





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 NASDAQ rules on August 3, 2009, 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.





On July
1, 2010 at 8:00 a.m. Eastern time, we affected a 1-for-11 reverse split of our
common stock, which was authorized by our stockholders at the Annual Meeting of
Stockholders held in June 2010.  The primary objective in affecting
the reverse split was to better enable us to maintain the listing of our common
stock on the NASDAQ Capital Market.  The reverse stock split reduced
the number of our issued and outstanding shares of common stock as of July 1,
2010 from approximately 105.9 million shares to approximately
9.6 million shares. The par value per share and the number of authorized
shares of our common stock were not affected by the reverse stock split. All
share and per-share information for our common stock included in this report,
other than par value and number of authorized shares, have been restated to
reflect retrospective application of the reverse stock split.




16


As of
July 15, 2010, our stock had maintained a minimum closing bid price of $1.00 or
more for at least 10 consecutive trading days and, subsequently, we received a
letter from the NASDAQ Stock Market stating that we had regained compliance with
NASDAQ’s $1.00 minimum closing bid price requirement.




In addition to the $1.00 minimum
closing bid price, 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 June
30, 2010, our consolidated stockholders’ equity was approximately $1,616,000 and
the market value of our listed securities was $42.4 million.  There
can be no assurance that we will be able to meet either of these listing
standards in the future.





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 through
      fiscal 2010.  At June 30, 2010, we had operating and liquidity
      concerns and plan to continue to pursue opportunities to raise additional
      capital to fund our 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.





-
            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.




17


-
            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.





-
            We
      are 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.





-
            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 and six months
      ended June 30, 2010 totaled $19,440 and $231,330,
      respectively.  Share-based compensation expense recognized in
      the comparable periods in 2009 totaled $85,317 and $240,450,
      respectively.




18


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 and Six Months Ended June 30, 2010 and June 30, 2009.





Revenues.There
were no revenues recorded in the three and six-month periods ended June 30, 2010
and June 30, 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.  Thalomid® is
distributed and sold by Celgene Corporation and/or its affiliates, and thus, we
have no control over sales of Thalomid® or the
amount, if any, of royalty payments we will receive.





Research and Development
Expenses.  Our research and development expenses for the three
and six months ended June 30, 2010 totaled $1,011,000 and $1,855,000,
respectively.  Research and development expenses for the corresponding
2009 periods were $1,659,000 and $3,613,000, respectively.





Reflected in our R&D expenses
totaling $1,011,000 for the three-month period ended June 30, 2010 are direct
project costs of $722,000 for ENMD-2076, $22,000 for Panzem®
oncology,$22,000
for ENMD-1198 and $7,000 for MKC-1.   The 2009 research and
development expenses for the comparable period included $1,134,000 for
ENMD-2076, $17,000 for Panzem® oncology
and $76,000 for MKC-1.Research and development expenses totaling $1,855,000 for
the six-month period ended June 30, 2010 include direct project costs of
$1,525,000 related to ENMD-2076, $50,000 related to Panzem® oncology
and $34,000 related to ENMD-1198. Additionally, during the six-month period
ended June 30, 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 $1,906,000 for
ENMD-2076, $124,000 for Panzem®,$338,000
for MKC-1, and $94,000 for ENMD-1198.The decrease in research
and development costs in the three and six-month periods ended June 30, 2010, as
compared to same periods 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 June 30, 2010, accumulated direct
project expenses for Panzem® oncology
were $54,295,000; direct ENMD-1198 project expenses totaled $13,177,000; and,
since acquired, accumulated direct project expenses for ENMD-2076 totaled
$15,683,000 and for MKC-1, accumulated project expenses totaled
$10,145,000.  Our research and development expenses also include
non-cash stock-based compensation totaling $9,000 and $19,000, respectively, for
the three and six months ended June 30, 2010 and $24,000 and $81,000 for the
respective corresponding 2009 periods.  The decrease in stock-based
compensation expense is related to fewer stock options granted in the six months
ending June 30, 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.




19


We expect our research and development
expenses to increase in 2010 as a result of the initiation of the multi-center
Phase 2 study with ENMD-2076 in patients with ovarian cancer.  Six sites
are participating in the study and are currently enrolling
patients.  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:





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 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.




20


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.





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.  Expenditures during the three and six
months ended June 30, 2010 were specifically impacted by the
following:





-
            Outside Services – In the
      three-month period ended June 30, 2010, we expended $6,000 on outside
      service activities versus $136,000 in the same 2009 period.  For
      the six-month period ended June 30, 2010 outside services are $11,000
      compared to $321,000 for 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 $445,000 in the
      three months ended June 30, 2010 from $565,000 in the three-month period
      ended June 30, 2009.  Clinical trial costs for the six-month
      period ended June 30, 2010 decreased to $466,000 from $1,008,000 for the
      comparable 2009 period.  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 June 30, 2010 decreased by
      $85,000 to ($19,000) from $66,000 during the same period in
      2009.  For the six-month period ended June 30, 2010,
      manufacturing costs decreased to $150,000 from $223,000 for the comparable
      2009 period.  The decrease reflects the absence of encapsulation
      costs for ENMD-2076 that were incurred in 2009, plus a credit received in
      2010 reflecting a reduction in the scope of previously contracted
      compatibility, formulation development and GMP manufacture of
      ENMD-2076.




21


-
            Personnel
      Costs – Personnel costs decreased to $315,000 in the three-month period
      ended June 30, 2010 from $507,000 in the corresponding 2009 period. For
      the six-month period, personnel costs decreased in 2010 to $660,000 from
      $1,132,000 for the corresponding 2009 period.  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 June
      30, 2010 are patent costs of $94,000 and facility and related expenses of
      $51,000.  In the corresponding 2009 period, these expenses
      totaled $87,000 and $143,000, respectively.  For the six-month
      period ended June 30, 2010, patent costs were $197,000 and facility and
      related expenses were $108,000.  In the corresponding 2009
      period, these expenses totaled $256,000 and $375,000,
      respectively.




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 to $771,000 in the three-month period
ended June 30, 2010 from $1,011,000 in the corresponding 2009
period.  For the six-month period, general and administrative expenses
decreased in 2010 to $1,822,000 from $2,170,000 for 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 $169,000 (including $15,079 of non-cash interest) in
the three-month period ended June 30, 2010 from approximately $400,000
(including $35,829 of non-cash interest) in the corresponding 2009
period.  For the six-month period, interest expense decreased in 2010
to approximately $390,000 (including $35,550 of non-cash interest) from
approximately $854,000 (including $76,515 of non-cash interest) for the
corresponding 2009 period.





Investment
Income.  Due to the absence of invested cash during the three
and six-month periods ended June 30, 2010, we earned no investment
income.  Investment income in the three and six-month periods ended
June 30, 2009 were $19,000 and $69,000, respectively.





Dividends on Series A Convertible
Preferred Stock.  The Consolidated Statement of Operations for
the three and six-month periods ended June 30, 2010 and 2009 reflect a dividend
of $251,250 and $502,500, respectively, 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.  We have no plans to pay any dividends in the foreseeable
future.




22


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 through fiscal 2010.





As of
June 30, 2010, we have operating and liquidity concerns and plans to continue to
pursue opportunities to raise additional capital to fund our 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 June 30, 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.





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
approximately 905,500 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, 233,100 shares of common stock were issued
to the former Miikana stockholders as consideration for the satisfaction of the
milestone payment.  In April 2010, dosing of the first patient in a
Phase 2 trial for ENMD-2076 triggered an additional milestone payment of $3
million, payable in stock or cash, at the Company’s sole
discretion.  In June 2010, 403,550 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, 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.




23


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 June
30, 2010, we had cash and short-term investments of $8,042,941 with working
capital of $1,472,414.





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 enrollment of patients in our ovarian
cancer Phase 2 trial at six sites in the United States and Canada.  We
expect our 2010 results of operations to reflect a net loss of approximately
$8,200,000, including non-cash charges of approximately $4,400,000.





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,
or the impact that generic drugs or alternative products will have on the sales
of Thalomid®.  We
expect to record royalty-sharing revenues in the fourth quarter of 2010;
however, there can be no assurance of the amount of revenues that will be
recorded, if any.  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.





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 June 30, 2010.




24


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 1934, as
amended (the “Exchange Act”) were effective as of June 30, 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
June 30, 2010 that have materially affected or are reasonably likely to
materially affect the Company’s internal control over financial
reporting.





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





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 Item 1A 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.




25


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
Chairman


31.2
            Rule
      13a-14(a) Certification of Principal Accounting
  Officer


32.1
            Section
      1350 Certification of Executive
Chairman


32.2
            Section
      1350 Certification of Principal Accounting
  Officer




26





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 16, 2010
              /s/ Michael M. TarnowMichael
      M. TarnowExecutive
      ChairmanDate:
      August 16, 2010
              /s/ Kathy R. Wehmeir-DavisKathy
      R. Wehmeir-DavisPrincipal Accounting Officer




27


EXHIBIT
INDEX





31.1
            Rule
      13a-14(a) Certification of Executive
Chairman


31.2
            Rule
      13a-14(a) Certification of Principal Accounting
  Officer


32.1
            Section
      1350 Certification of Executive
Chairman


32.2
            Section
      1350 Certification of Principal Accounting
  Officer




28