##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 (Mark One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2008
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission File Number 0-19635
 GENTA INCORPORATED
 (Exact name of Registrant as specified in its charter)
 Delaware
    
    33-0326866(State or other jurisdiction of 
incorporation or organization)
    
    (I.R.S. Employer
Identification Number)200 Connell DriveBerkeley Heights, NJ
    
    07922(Address of principal executive offices)
    
    (Zip Code)
 (Registrants telephone number, including area code)
  þ o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer þ
(Do not check if a smaller reporting company)
    
    Smaller Reporting Company o
   o þ




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##### 



Genta Incorporated
INDEX TO FORM 10-Q
 PagePART I. FINANCIAL INFORMATIONItem 1.
    
    Consolidated Financial Statements:Consolidated Balance Sheets at September 30, 2008 (unaudited) and December 31, 2007
    
    3Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2008 and 2007 (unaudited)
    
    4Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2008 and 2007 (unaudited)
    
    5Notes to Consolidated Financial Statements
    
    6Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    21Item 3.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    35Item 4T.
    
    Controls and Procedures
    
    35PART II. OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    36Item 1A.
    
    Risk Factors
    
    37Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    50Item 3.
    
    Defaults Upon Senior Securities
    
    50Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    50Item 5.
    
    Other Information
    
    51Item 6.
    
    Exhibits
    
    52SIGNATURES
    
    53CERTIFICATIONS
    
    55EX-31.1: CERTIFICATIONEX-31.2: CERTIFICATIONEX-32.1: CERTIFICATIONEX-32.2: CERTIFICATION
  2




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##### Table of Contents



GENTA INCORPORATED
 
 CONSOLIDATED BALANCE SHEETS
  September 30,2008
    
    
    December 31,(In thousands, except par value data)
    
    (unaudited)
    
    
    2007ASSETSCurrent assets:Cash and cash equivalents
    
    $
    8,715
    
    
    $
    5,814Marketable securities
    
    
    
    
    
    
    1,999Accounts receivable  net of allowances of $28 at September 30, 2008
and $38 at December 31, 2007
    
    
    69
    
    
    
    31Inventory (Note 3)
    
    
    145
    
    
    
    225Prepaid expenses and other current assets (Note 5)
    
    
    18,521
    
    
    
    19,170Total current assets
    
    
    27,450
    
    
    
    27,239Property and equipment, net
    
    
    215
    
    
    
    323Deferred financing costs on convertible note financing (Note 6)
    
    
    1,020
    
    
    
    Deferred financing costs  warrant (Note 6)
    
    
    6,428
    
    
    
    Other assets
    
    
    
    
    
    
    1,731Total assets
    
    $
    35,113
    
    
    $
    29,293LIABILITIES AND STOCKHOLDERS (DEFICIT)/EQUITYCurrent liabilities:Accounts payable and accrued expenses (Note 5)
    
    $
    30,827
    
    
    $
    25,850Notes payable
    
    
    
    
    
    
    512Total current liabilities
    
    
    30,827
    
    
    
    26,362Long-term liabilities:Conversion feature liability (Note 6)
    
    
    520,000Warrant liability (Note 6)
    
    
    10,400Convertible notes due June 9, 2010, issued for $20,000, net of
debt discount of ($16,917) (Note 6)
    
    
    3,083
    
    
    
    Total long-term liabilities
    
    
    533,483
    
    
    
    Commitments and contingencies (Note 12)Stockholders (deficit)/equity (Note 7):Preferred stock, 5,000 shares authorized:Series A convertible preferred stock, $.001 par value;
8 shares issued and outstanding, liquidation value of $385
at September 30, 2008 and December 31, 2007, respectively
    
    
    
    
    
    
    Series G participating cumulative preferred stock, $.001 par value;
0 shares issued and outstanding at September 30, 2008
and December 31, 2007, respectively
    
    
    
    
    
    
    Common stock, $.001 par value; 250,000 shares authorized
36,761 and 30,621 shares issued and outstanding at September 30, 2008
and December 31, 2007, respectively
    
    
    37
    
    
    
    31Additional paid-in capital
    
    
    444,462
    
    
    
    441,159Accumulated deficit
    
    
    (973,696
    )
    
    
    (438,288
    )Accumulated other comprehensive income
    
    
    
    
    
    
    29Total stockholders (deficit)/equity
    
    
    (529,197
    )
    
    
    2,931Total liabilities and stockholders (deficit)/equity
    
    $
    35,113
    
    
    $
    29,293
  3




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GENTA INCORPORATED
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 (Unaudited)
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,(In thousands, except per share data)
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007Product sales  net
    
    $
    115
    
    
    $
    115
    
    
    $
    363
    
    
    $
    314Cost of goods sold
    
    
    26
    
    
    
    20
    
    
    
    79
    
    
    
    68Gross margin
    
    
    89
    
    
    
    95
    
    
    
    284
    
    
    
    246Operating expenses:Research and development
    
    
    5,255
    
    
    
    4,763
    
    
    
    16,146
    
    
    
    12,244Selling, general and administrative
    
    
    2,308
    
    
    
    4,083
    
    
    
    8,534
    
    
    
    12,870Settlement of office lease obligation (Note 4)
    
    
    
    
    
    
    
    
    
    
    3,307
    
    
    
    Reduction in liability for settlement of litigation, net (Note 5)
    
    
    
    
    
    
    (800
    )
    
    
    (340
    )
    
    
    (2,600
    )Total operating expenses
    
    
    7,563
    
    
    
    8,046
    
    
    
    27,647
    
    
    
    22,514Other income/(expense):Gain on maturity of marketable securities
    
    
    
    
    
    
    49
    
    
    
    31
    
    
    
    93Interest income and other income, net
    
    
    56
    
    
    
    195
    
    
    
    157
    
    
    
    738Interest expense
    
    
    (769
    )
    
    
    (25
    )
    
    
    (992
    )
    
    
    (134
    )Amortization of deferred financing costs and debt discount (Note 6)
    
    
    (3,600
    )
    
    
    
    
    
    
    (4,441
    )
    
    
    Fair value  conversion feature liability (Note 6)
    
    
    220,000
    
    
    
    
    
    
    
    (500,000
    )
    
    
    Fair value  warrant liability (Note 6)
    
    
    4,400
    
    
    
    
    
    
    
    (2,800
    )
    
    
    Total other income/(expense)
    
    
    220,087
    
    
    
    219
    
    
    
    (508,045
    )
    
    
    697Net income/(loss)
    
    $
    212,613
    
    
    $
    (7,732
    )
    
    $
    (535,408
    )
    
    $
    (21,571
    )Net income/(loss) per basic share (Note 10)
    
    $
    5.78
    
    
    $
    (0.25
    )
    
    $
    (14.97
    )
    
    $
    (0.74
    )Net income/(loss) per diluted share (Note 10)
    
    $
    0.10
    
    
    $
    (0.25
    )
    
    $
    (14.97
    )
    
    $
    (0.74
    )Shares used in computing net income/(loss) per basic share (Note 10)
    
    
    36,756
    
    
    
    30,621
    
    
    
    35,763
    
    
    
    29,284Shares used in computing net income/(loss) per diluted share (Note 10)
    
    
    2,076,191
    
    
    
    30,621
    
    
    
    35,763
    
    
    
    29,284
  4




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GENTA INCORPORATED
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Unaudited)
 Nine Months Ended September 30,(In thousands)
    
    2008
    
    
    2007Operating activities:Net loss
    
    $
    (535,408
    )
    
    $
    (21,571
    )Adjustments to reconcile net loss to net cash used in operating activities:Depreciation and amortization
    
    
    119
    
    
    
    117Amortization of deferred financing costs
    
    
    4,441
    
    
    
    Share-based compensation (Note 8)
    
    
    432
    
    
    
    1,187Gain on maturity of marketable securities
    
    
    (31
    )
    
    
    (94
    )Reduction in liability for settlement of litigation, net (Note 5)
    
    
    (340
    )
    
    
    (2,600
    )Change in fair value  conversion feature liability (Note 6)
    
    
    500,000
    
    
    
    Change in fair value  warrant liability (Note 6)
    
    
    2,800
    
    
    
    Changes in operating assets and liabilities:Accounts receivable
    
    
    (38
    )
    
    
    (6
    )Inventory
    
    
    80
    
    
    
    69Prepaid expenses and other current assets
    
    
    649
    
    
    
    1,235Accounts payable and accrued expenses
    
    
    5,317
    
    
    
    (1,966
    )Other assets
    
    
    
    
    
    
    (31
    )Net cash used in operating activities
    
    
    (21,979
    )
    
    
    (23,660
    )Investing activities:Purchase of marketable securities
    
    
    
    
    
    
    (13,900
    )Maturities of marketable securities
    
    
    2,000
    
    
    
    23,000Release of restricted cash deposits (Note 4)
    
    
    1,731
    
    
    
    Purchase of property and equipment
    
    
    (11
    )
    
    
    (10
    )Net cash provided by investing activities
    
    
    3,720
    
    
    
    9,090Financing activities:Repayments of note payable
    
    
    (512
    )
    
    
    (739
    )Issuance of note payable
    
    
    
    
    
    
    236Issuance of convertible notes net of financing cost of $1,205 (Note 6)
    
    
    18,795
    
    
    
    Issuance of common stock, net (Note 7)
    
    
    2,877
    
    
    
    10,090Net cash provided by financing activities
    
    
    21,160
    
    
    
    9,587Increase/(decrease) in cash and cash equivalents
    
    
    2,901
    
    
    
    (4,983
    )Cash and cash equivalents at beginning of period
    
    
    5,814
    
    
    
    9,554Cash and cash equivalents at end of period
    
    $
    8,715
    
    
    $
    4,571
  5




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GENTA INCORPORATED
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 September 30, 2008
 (Unaudited)
 1. Organization and Business
  ® ®
      6




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®
   
    
    delay, scale back or eliminate some or all of the Companys research and product
development programs and sales and marketing activity;
    
    license or sell to third parties products or technologies that the Company would
otherwise seek to develop and commercialize themselves;
    
    attempt to sell the Company;
    
    cease operations; or
    
    declare bankruptcy.
 2. Summary of Significant Accounting Policies
 Basis of Presentation
  7




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Revenue Recognition
  Research and Development
  Income Taxes
    Stock Options
 Share-Based Payment
 8




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##### Table of Contents



Deferred Financing Costs
  Net Income/(Loss) Per Common Share
  Recent Accounting Pronouncements
 The
Hierarchy of Generally Accepted Accounting Principles" The Meaning of Present Fairly in Conformity with GAAP
 Disclosures about Derivative Instruments and Hedging
Activities an amendment of FASB SFAS 133
 Business Combinations
 9




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##### Table of Contents



Noncontrolling Interests in Consolidated
Financial Statements  an amendment of ARB No. 51
  Accounting for Collaborative
Arrangements
 Accounting for Nonrefundable Advance
Payments for Goods or Services Received for Use in Future Research and Development Activities
 The Fair Value Option for Financial Assets and
Financial Liabilities Fair Value Measurements
 10




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##### Table of Contents



Fair Value Measurements
 3. Inventory
  September 30,
    
    
    December 31,2008
    
    
    2007Raw materials
    
    $
    24
    
    
    $
    24Finished goods
    
    
    121
    
    
    
    201$
    145
    
    
    $
    225
 ® ®
 4. Settlement of Office Lease Obligation
  11




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5. Reduction in Liability for Legal Settlement
 Accounting for Contingencies Reasonable Estimation of the
Amount of a Loss, an interpretation of FASB Statement No. 5,
 6. Convertible Notes and Warrant
   12




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13




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September 30, 2008
    
    June 30, 2008
    
    June 9, 2008Price of Genta common stock
    
    $
    0.27
    
    
    $
    0.38
    
    
    $
    0.20Volatility
    
    
    137.4
    %
    
    
    127.7
    %
    
    
    125.6
    %Risk-free interest rate
    
    
    1.93
    %
    
    
    2.63
    %
    
    
    2.73
    %Remaining contractual lives
    
    
    1.69
    
    
    
    1.94
    
    
    
    2.00
    September 30, 2008
    
    June 30, 2008
    
    June 9, 2008Price of Genta common stock
    
    $
    0.27
    
    
    $
    0.38
    
    
    $
    0.20Volatility
    
    
    128.4
    %
    
    
    115.5
    %
    
    
    115.0
    %Risk-free interest rate
    
    
    2.87
    %
    
    
    3.34
    %
    
    
    3.41
    %Remaining contractual life
    
    
    4.69
    
    
    
    4.94
    
    
    
    5.00
 7. Stockholders Equity
 Common Stock
   14




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Series A Preferred Stock
  Warrant
  8. Share-Based Compensation
  Nine Months EndedSeptember 30, 2007Expected volatility
    
    
    102
    %Expected dividends
    
    
    Expected term (in years)
    
    
    6.25Risk-free rate
    
    
    4.6
    %
  Three months ended
    
    
    Nine months endedSeptember 30
    
    
    September 30($ thousands, except per share data)
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007Research and development expenses
    
    $
    35
    
    
    $
    95
    
    
    $
    131
    
    
    $
    446Selling, general and administrative
    
    
    92
    
    
    
    163
    
    
    
    301
    
    
    
    740Total share-based compensation expense
    
    $
    127
    
    
    $
    258
    
    
    $
    432
    
    
    $
    1,186Share-based compensation expense, per
basic and diluted common share
    
    $
    0.00
    
    
    $
    0.01
    
    
    $
    0.01
    
    
    $
    0.04
 15




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9. Stock Option Plans
  2007 Stock Incentive Plan
  Acquisition Bonus Program
   1998 Stock Incentive Plan
  16




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WeightedAverageNumber of
    
    Weighted
    
    RemainingShares
    
    Average
    
    Contractual
    
    Aggregate(in
    
    Exercise
    
    Term
    
    Intrinsic Valuethousands)
    
    Price
    
    (in years)
    
    (in thousands)Stock OptionsOutstanding at January 1, 2008
    
    
    2,155
    
    
    $
    23.05Granted
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    Forfeited or expired
    
    
    (250
    )
    
    
    15.84Outstanding at September 30, 2008
    
    
    1,905
    
    
    $
    23.99
    
    
    
    4.0
    
    
    $
    Vested and exercisable at September 30, 2008
    
    
    1,280
    
    
    $
    23.17
    
    
    
    1.7
    
    
    $
    
    Weighted AverageNumber of Shares
    
    Grant Date Fair Value(in thousands)
    
    per ShareRestricted Stock UnitsOutstanding nonvested RSUs at January 1, 2008
    
    
    20
    
    
    $
    1.42Granted
    
    
    488
    
    
    $
    0.41Vested
    
    
    (20
    )
    
    $
    1.42Forfeited or expired
    
    
    (235
    )
    
    $
    0.41Outstanding nonvested RSUs at September 30,
2008
    
    
    253
    
    
    $
    0.41
  1998 Non-Employee Directors Plan
   17




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WeightedAverageNumber of
    
    Weighted
    
    RemainingShares
    
    Average
    
    Contractual
    
    Aggregate(in
    
    Exercise
    
    Term
    
    Intrinsic Valuethousands)
    
    Price
    
    (in years)
    
    (in thousands)Stock OptionsOutstanding at January 1, 2008
    
    
    113
    
    
    $
    30.61Granted
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    Forfeited or expired
    
    
    (1
    )
    
    $
    39.00Outstanding at September 30, 2008
    
    
    112
    
    
    $
    30.49
    
    
    
    5.7
    
    
    $
    Vested and exercisable at September 30, 2008
    
    
    112
    
    
    $
    30.49
    
    
    
    5.7
    
    
    $
    
  10. Net Income/(Loss) per Share
  Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,($ in thousands, except per share amounts)
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007Numerator:Net income/(loss)
    
    $
    212,613
    
    
    $
    (7,732
    )
    
    $
    (535,408
    )
    
    $
    (21,571
    )Plus: income impact of assumed
conversion
Interest on convertible debt
    
    
    750
    
    
    
    
    
    
    
    
    
    
    
    Net income/(loss) plus assumed
conversion
    
    $
    213,363
    
    
    $
    (7,732
    )
    
    $
    (535,408
    )
    
    $
    (21,571
    )Denominator:Weighted average shares outstanding:Basic
    
    
    36,756
    
    
    
    30,621
    
    
    
    35,763
    
    
    
    29,284Effect of dilutive convertible notes
    
    
    2,000,000
    
    
    
    
    
    
    
    
    
    
    
    Effect of dilutive warrant
    
    
    38,000
    
    
    
    
    
    
    
    
    
    
    
    Effect of dilutive restricted stock
units and convertible
preferred stock
    
    
    1,435
    
    
    
    
    
    
    
    
    
    
    
    Diluted
    
    
    2,076,191
    
    
    
    30,621
    
    
    
    35,763
    
    
    
    29,284Net income/(loss) per share:Basic
    
    $
    5.78
    
    
    $
    (0.25
    )
    
    $
    (14.97
    )
    
    $
    (0.74
    )Diluted
    
    $
    0.10
    
    
    $
    (0.25
    )
    
    $
    (14.97
    )
    
    $
    (0.74
    )
 18




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11. Comprehensive Loss
  Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,($ in thousands)
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007Net income/(loss)
    
    $
    212,613
    
    
    $
    (7,732
    )
    
    $
    (535,408
    )
    
    $
    (21,571
    )Change in market value
of available-for-sale
marketable securities
    
    
    
    
    
    
    47
    
    
    
    
    
    
    
    122Total comprehensive loss
    
    $
    212,613
    
    
    $
    (7,685
    )
    
    $
    (535,408
    )
    
    $
    (21,449
    )
 12. Commitments and Contingencies
 Litigation and Potential Claims
 ®
  19




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13.
    
    Supplemental Disclosure of Cash Flows Information and Non-cash Investing and Financing
Activities
  14. Subsequent Event
  20




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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 Certain Factors Affecting Forward-Looking Statements  Safe Harbor Statement
  
    
    the Companys financial projections;
    
    the Companys projected cash flow requirements and estimated timing of sufficient cash
flow;
    
    the Companys current and future license agreements, collaboration agreements, and
other strategic alliances;
    
    the Companys ability to obtain necessary regulatory approval for Genasense®(oblimersen sodium) Injection from the U.S. Food and Drug Administration (FDA) or
European Medicines Agency (EMEA);
    
    the safety and efficacy of the Companys products;
    
    the commencement and completion of clinical trials;
    
    the Companys ability to develop, manufacture, license and sell its products or product
candidates;
    
    the Companys ability to enter into and successfully execute license and collaborative
agreements, if any;
    
    the adequacy of the Companys capital resources and cash flow projections, and the
Companys ability to obtain sufficient financing to maintain the Companys planned
operations;
    
    the adequacy of the Companys patents and proprietary rights;
    
    the impact of litigation that has been brought against the Company and its officers and
directors and any proposed settlement of such litigation; and
    
    the other risks described under Risk Factors in the Companys Annual Report on Form
10-K for the fiscal year ended December 31, 2007 and in this Form 10-Q.
  http://www.genta.com
 21




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Overview
 ® ®
 ® ®
  ®
  ®
 ® ® ®
 22




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® ® ®
 ® ® ®
 ® ® ®
 ® ® ® ®
 ® ® ® ® ®
 23




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® ®  ® ®
 ® ® ®
 ® ®
  ®
 ® ® ® ®
 24




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®
  ® ® ®
   ®
 25




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®
 ® ®
 Results of Operations for the Three Months Ended September 30, 2008 and September 30, 2007
 ($ thousands)
    
    2008
    
    
    2007Product sales  net
    
    $
    115
    
    
    $
    115Cost of goods sold
    
    
    26
    
    
    
    20Gross margin
    
    
    89
    
    
    
    95Operating expenses:Research and development
    
    
    5,255
    
    
    
    4,763Selling, general and administrative
    
    
    2,308
    
    
    
    4,083Reduction in liability for settlement of litigation, net
    
    
    
    
    
    
    (800
    )Total operating expenses
    
    
    7,563
    
    
    
    8,046Other income/(expense):Amortization of deferred financing costs
    
    
    (3,600
    )
    
    
    Fair market value  conversion feature liability
    
    
    220,000
    
    
    
    Fair market value  warrant liability
    
    
    4,400
    
    
    
    All other (expense)/ income, net
    
    
    (713
    )
    
    
    219Total other income/(expense), net
    
    
    220,087
    
    
    
    219Net income/(loss)
    
    $
    212,613
    
    
    $
    (7,732
    )
 Product sales-net
 ® ® ®
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Cost of goods sold
 ®
 Research and development expenses
  ®
  Selling, general and administrative expenses
  Provision for settlement of litigation, net
  Amortization of deferred financing costs
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Fair value  conversion feature liability
    Fair value  warrant liability
   All other (expense)/ income, net
  Net income/(loss)
   28




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Results of Operations for the Nine Months Ended September 30, 2008 and September 30, 2007
 ($ thousands)
    
    2008
    
    
    2007Product sales  net
    
    $
    363
    
    
    $
    314Cost of goods sold
    
    
    79
    
    
    
    68Gross margin
    
    
    284
    
    
    
    246Operating expenses:Research and development
    
    
    16,146
    
    
    
    12,244Selling, general and administrative
    
    
    8,534
    
    
    
    12,870Settlement of office lease obligation
    
    
    3,307
    
    
    
    Reduction in liability for settlement of litigation, net
    
    
    (340
    )
    
    
    (2,600
    )Total operating expenses
    
    
    27,647
    
    
    
    22,514Other (expense)/income:Amortization of deferred financing costs
    
    
    (4,441
    )
    
    
    Fair market value  conversion feature liability
    
    
    (500,000
    )
    
    
    Fair market value  warrant liability
    
    
    (2,800
    )
    
    
    All other (expense)/ income, net
    
    
    (804
    )
    
    
    697Total other (expense)/income, net
    
    
    (508,045
    )
    
    
    697Net loss
    
    $
    (535,408
    )
    
    $
    (21,571
    )
 Product sales-net
 ®
 Cost of goods sold
 ®
 Research and development expenses
  ® ®
 Selling, general and administrative expenses
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Settlement of office lease obligation
  Provision for settlement of litigation, net
  Amortization of deferred financing costs
  Fair value  conversion feature liability
   Fair value  warrant liability
   All other (expense)/ income, net
  Net loss
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Liquidity and Capital Resources
        31




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##### Table of Contents



® ®
   Recent Accounting Pronouncements
 The
Hierarchy of Generally Accepted Accounting Principles" The Meaning of Present Fairly in Conformity with GAAP
 Disclosures about Derivative Instruments and Hedging
Activities an amendment of FASB SFAS 133
 Business Combinations
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Noncontrolling Interests in Consolidated
Financial Statements  an amendment of ARB No. 51
  Accounting for Collaborative
Arrangements
 Accounting for Nonrefundable Advance
Payments for Goods or Services Received for Use in Future Research and Development Activities
 The Fair Value Option for Financial Assets and
Financial Liabilities Fair Value Measurements
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Fair Value Measurements
 Critical Accounting Policies and Estimates
  
    
    Going concern.Our recurring losses from operations and negative cash flows from
operations raise substantial doubt about our ability to continue as a going concern and as
a result, our independent registered public accounting firm included an explanatory
paragraph in its report on our consolidated financial statement for the year ended
December 31, 2007 with respect to this uncertainty. We have prepared our financial
statements on a going concern basis, which contemplates the realization of assets and the
satisfaction of liabilities and commitments in the normal course of business. The
financial statements do not include any adjustments relating to the recoverability and
classification of recorded asset amounts or amounts of liabilities that might be necessary
should we be unable to continue in existence.
    
    Revenue recognition. We recognize revenue from product sales when title to product and
associated risk of loss has passed to the customer and we are reasonably assured of
collecting payment for the sale. All revenue from product sales are recorded net of
applicable allowances for returns, rebates and other applicable discounts and allowances.
We allow return of our product for up to twelve months after product expiration.
    
    Research and development costs. All such costs are expensed as incurred, including raw
material costs required to manufacture drugs for clinical trials.
    
    Estimate of fair value of convertible notes and warrant.We use a Black-Scholes model
to estimate the fair value of our convertible notes and warrant.
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Item 3. Quantitative and Qualitative Disclosures about Market Risk
   
 Item 4T. Controls and Procedures
 Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
  Changes in Internal Control Over Financial Reporting
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PART II
 
 Item 1. Legal Proceedings
 ®
    36




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Item 1A. Risk Factors
 You should carefully consider the following risks and all of the other information set forth
in this Form 10-Q and the Form 10-K for the year ended December 31, 2007 before deciding to invest
in shares of our common stock. The risks described below are not the only ones facing our Company.
Additional risks not presently known to us or that we currently deem immaterial may also impair our
business operations.
 If any of the following risks actually occurs, our business, financial condition or results of
operations would likely suffer. In such case, the market price of our common stock would likely
decline due to the occurrence of any of these risks, and you may lose all or part of your
investment.
 Risks Related to Our Business
 We may be unsuccessful in our efforts to obtain approval from the FDA or EMEA and commercialize
Genasense ® or our other pharmaceutical products.
 ® ®
 
    
    our ability to demonstrate clinically that our products are useful and safe in
particular indications;
    
    delays or refusals by regulatory authorities in granting marketing approvals;
    
    our limited financial resources and sales and marketing experience relative to our
competitors;
    
    actual and perceived differences between our products and those of our competitors;
    
    the availability and level of reimbursement for our products by third-party payors;
    
    incidents of adverse reactions to our products;
    
    side effects or misuse of our products and the unfavorable publicity that could result;
and
    
    the occurrence of manufacturing, supply or distribution disruptions.
 ® ® ®
 ®
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Recurring losses and negative cash flows from operations raise substantial doubt about our
ability to continue as a going concern and we may not be able to continue as a going concern.
   Our business will suffer if we fail to obtain additional funding.
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
    
    delay, scale back or eliminate some or all of our research and product development
programs;
    
    license or sell to third parties products or technologies that we would otherwise seek
to develop and commercialize ourselves;
    
    attempt to sell our company;
    
    cease operations; or
    
    declare bankruptcy.
  We have relied on and continue to rely on our contractual collaborative arrangements with
research institutions and corporate partners for development and commercialization of our
products. Our business could suffer if we are not able to enter into suitable arrangements,
maintain existing relationships, or if our collaborative arrangements are not successful in
developing and commercializing products.
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We anticipate that we will incur additional losses and we may never be profitable.
 ®
 Our business depends heavily on a small number of products.
 ® ®
  We may be unable to obtain or enforce patents, other proprietary rights and licenses to protect
our business; we could become involved in litigation relating to our patents or licenses that
could cause us to incur additional costs and delay or prevent our introduction of new drugs to
market.
  
    
    obtain U.S. and foreign patent or other proprietary protection for our technologies,
products and processes;
    
    preserve trade secrets; and
    
    operate without infringing the patent and other proprietary rights of third parties.
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®
  ® ®
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Most of our products are in an early stage of development, and we may never receive regulatory
approval for these products.
 ® ®
 We will not be able to commercialize our product candidates if our preclinical studies do not
produce successful results or if our clinical trials do not demonstrate safety and efficacy in
humans.
   
    
    we may discover that a product candidate does not exhibit the expected therapeutic results
in humans, may cause harmful side effects or have other unexpected characteristics that may
delay or preclude regulatory approval or limit commercial use if approved;
 
    
    the results from early clinical trials may not be statistically significant or predictive
of results that will be obtained from expanded, advanced clinical trials;
 
    
    institutional review boards or regulators, including the FDA, may hold, suspend or
terminate our clinical research or the clinical trials of our product candidates for various
reasons, including noncompliance with regulatory requirements or if, in their opinion, the
participating subjects are being exposed to unacceptable health risks;
 
    
    subjects may drop out of our clinical trials;
 
    
    our preclinical studies or clinical trials may produce negative, inconsistent or
inconclusive results, and we may decide, or regulators may require us, to conduct additional
preclinical studies or clinical trials; and
 
    
    the cost of our clinical trials may be greater than we currently anticipate.
 ®
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® ®
 Clinical trials are costly and time consuming and are subject to delays; our business would
suffer if the development process relating to our products were subject to meaningful delays.
   
    
    inability to obtain sufficient quantities of materials for use in clinical trials;
    
    inability to adequately monitor patient progress after treatment;
    
    unforeseen safety issues;
    
    the failure of the products to perform well during clinical trials; and
    
    government or regulatory delays.
 If we fail to obtain the necessary regulatory approvals, we cannot market and sell our products
in the United States.
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If the third party manufacturers upon which we rely fail to produce our products in the volumes
that we require on a timely basis, or to comply with stringent regulations applicable to
pharmaceutical drug manufacturers, we may face delays in the commercialization of, or be unable
to meet demand for, our products and may lose potential revenues.
 ® ®
 ® ® ®
   Even if we obtain regulatory approval, we will be subject to ongoing regulation, and any failure
by us or our manufacturers to comply with such regulation could suspend or eliminate our ability
to sell our products.
 ® ®
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The raw materials for our products are produced by a limited number of suppliers, and our
business could suffer if we cannot obtain needed quantities at acceptable prices and qualities.
  If third-party payors do not provide coverage and reimbursement for use of our products, we may
not be able to successfully commercialize our products.
  Our business exposes us to potential product liability that may have a negative effect on our
financial performance and our business generally.
  We may incur a variety of costs to engage in future acquisitions of companies, products or
technologies, and the anticipated benefits of those acquisitions may never be realized.
  
    
    difficulties in assimilating the operations and personnel of acquired companies;
    
    diversion of our managements attention from ongoing business concerns;
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
    
    our potential inability to maximize our financial and strategic position through the
successful incorporation of acquired technology and rights into our products and services;
    
    additional expense associated with amortization of acquired assets;
    
    maintenance of uniform standards, controls, procedures and policies; and
    
    impairment of existing relationships with employees, suppliers and customers as a
result of the integration of new management personnel.
  We face substantial competition from other companies and research institutions that are
developing similar products, and we may not be able to compete successfully.
    We are dependent on our key executives and scientists, and the loss of key personnel or the
failure to attract additional qualified personnel could harm our business.
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Risks Related to Outstanding Litigation
 The outcome of and costs relating to the pending stockholder class action and stockholder
derivative actions are uncertain.
 ®
   Risks Related to Our Common Stock
 Provisions in our restated certificate of incorporation and bylaws and Delaware law may
discourage a takeover and prevent our stockholders from receiving a premium for their shares.
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We have not paid, and do not expect to pay in the future, cash dividends on our common stock.
  Our stock price is volatile.
  
    
    the results of preclinical studies and clinical trials by us or our competitors;
    
    announcements of technological innovations or new therapeutic products by us or our
competitors;
    
    government regulation;
    
    developments in patent or other proprietary rights by us or our respective competitors,
including litigation;
    
    fluctuations in our operating results; and
    
    market conditions for biopharmaceutical stocks in general.
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If our convertible noteholders convert their notes into shares of our common stock, our
stockholders may be diluted.
    49




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##### Table of Contents



Our common stock is considered a penny stock and does not qualify for exemption from the penny
stock restrictions, which may make it more difficult for you to sell your shares.
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  
 Item 3. Defaults Upon Senior Securities
  
 Item 4. Submission of Matters to a Vote of Security Holders
 (a)
    
    We held our Annual Meeting of Stockholders, herein referred to as the Annual
Meeting, on October 6, 2008. There were present at the Annual Meeting in person or by
proxy, stockholders holding an aggregate of 25,446,310 out of a total number of
36,760,558 shares of common stock issued and outstanding and entitled to vote at the
meeting.(b)
    
    Proxies for the meeting were solicited pursuant to Regulation 14A of the
Exchange Act. There was no solicitation in opposition to the Board of Directors
nominees for directors listed in our definitive proxy statement dated as of August 28,
2008. All of the nominees for the Board of Directors were elected.(c)
    
    At the Annual Meeting, stockholders voted to approve all resolutions that
were proposed in the proxy statement. Briefly described below is each resolution voted
upon at the Annual Meeting and the corresponding results.
  Directors
    
    Votes For
    
    WithheldRaymond P. Warrell, Jr., M.D.
    
    
    23,768,345
    
    
    
    1,677,965Martin J. Driscoll
    
    
    23,814,486
    
    
    
    1,631,824Christopher P. Parios
    
    
    23,819,431
    
    
    
    1,626,879Daniel D. Von Hoff, M.D.
    
    
    23,800,102
    
    
    
    1,646,208Douglas G. Watson
    
    
    23,826,234
    
    
    
    1,620,076
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For:
    
    20,900,129 votesAgainst:
    
    4,341,140 votesAbstain:
    
    205,041 votes
 
 Item 5. Other Information
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Item 6. Exhibits.
  ExhibitNumber
    
    Description of Document31.1
    
    Certification by Chief Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002 (filed
herewith).31.2
    
    Certification by Vice President, Finance pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002 (filed
herewith).32.1
    
    Certification by Chief Executive Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002 (furnished herewith).32.2
    
    Certification by Vice President, Finance pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002 (furnished herewith).
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SIGNATURES
  Genta IncorporatedDate: November 6, 2008/s/ RAYMOND P. WARRELL, JR., M.D.

Raymond P. Warrell, Jr., M.D.Chairman and Chief Executive Officer(principal executive officer)Date: November 6, 2008/s/ GARY SIEGEL

Gary SiegelVice President, Finance(principal financial and accounting officer)
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Exhibit Index
 ExhibitNumber
    
    Description of Document31.1
    
    Certification by Chief Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002 (filed
herewith).31.2
    
    Certification by Vice President, Finance pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002 (filed
herewith).32.1
    
    Certification by Chief Executive Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002 (furnished herewith).32.2
    
    Certification by Vice President, Finance pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002 (furnished herewith).
 54