UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10-Q





(Mark
One)





x   QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15 (d)


OF
THE SECURITIES EXCHANGE ACT OF 1934





For the
quarterly period ended June 30, 2009





OR


 ̈     TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15 (d)


OF
THE SECURITIES EXCHANGE ACT OF 1934





For the
transition period from _______ to _______





Commission
File Number 0-19635





GENTA
INCORPORATED


(Exact
name of Registrant as specified in its charter)





Delaware
              
              33-0326866(State
      or other jurisdiction
      of
              
              (I.R.S.
      Employerincorporation
      or
      organization)
              
              Identification
      Number)200
      Connell DriveBerkeley
      Heights, NJ
              
              07922(Address
      of principal executive offices)
              
              (Zip
      Code)





(908)
286-9800


(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
definition 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 (Do not check if a smaller reporting company)  ̈
              Smaller
      reporting company x





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


Yes
               ̈
              
              No
              x





As of
August 7, 2009, the registrant had 133,745,061 shares of common stock
outstanding.










Genta
Incorporated


INDEX
TO FORM 10-Q





PagePART
      I.
                        FINANCIAL
      INFORMATIONItem
      1.
                        Consolidated
      Financial Statements:Consolidated
      Balance Sheets at June 30, 2009 (unaudited) and December 31,
      2008
                        3Consolidated
      Statements of Operations for the Three and Six Months Ended June 30, 2009
      and 2008 (unaudited)
                        4Consolidated
      Statements of Cash Flows for the Six Months Ended June 30, 2009 and 2008
      (unaudited)
                        5Notes
      to Consolidated Financial Statements
                        6Item
      2.
                        Management's
      Discussion and Analysis of Financial Condition and Results of
      Operations
                        18Item
      3.
                        Quantitative
      and Qualitative Disclosures about Market Risk
                        30Item
      4T.
                        Controls
      and Procedures
                        30PART
      II.
                        OTHER
      INFORMATIONItem
      1.
                        Legal
      Proceedings
                        31Item
      1A.
                        Risk
      Factors
                        31Item
      2.
                        Unregistered
      Sales of Equity Securities and Use of Proceeds
                        45Item
      3.
                        Defaults
      Upon Senior Securities
                        45Item
      4.
                        Submission
      of Matters to a Vote of Security Holders
                        45Item
      5.
                        Other
      Information
                        45Item
      6.
                        Exhibits
                        46SIGNATURES
                        47CERTIFICATIONS


2





GENTA INCORPORATED


CONSOLIDATED
BALANCE SHEETS





(In
thousands, except par value data)





June 30,2009
                              
                              
                              December 31,(unaudited)
                              
                              
                              2008ASSETSCurrent
      assets:Cash
      and cash equivalents
                              
                              $
                              696
                              
                              
                              $
                              4,908Accounts
      receivable - net of allowances of $5 at June 30, 2009 and $12 at December
      31, 2008, respectively
                              
                              
                              34
                              
                              
                              
                              2Inventory
      (Note 4)
                              
                              
                              119
                              
                              
                              
                              121Prepaid
      expenses and other current assets
                              
                              
                              584
                              
                              
                              
                              973Total
      current assets
                              
                              
                              1,433
                              
                              
                              
                              6,004Property
      and equipment, net
                              
                              
                              271
                              
                              
                              
                              300Deferred
      financing costs and debt discount (Note 6)
                              
                              
                              8,546
                              
                              
                              
                              6,389Total
      assets
                              
                              $
                              10,250
                              
                              
                              $
                              12,693LIABILITIES
      AND STOCKHOLDERS' DEFICITCurrent
      liabilities:Accounts
      payable and accrued expenses
                              
                              $
                              11,259
                              
                              
                              $
                              11,224Convertible
      notes due June 9, 2010, $2,829 outstanding, net of debt discount of
      ($1,969) (Note 6)
                              
                              
                              860
                              
                              
                              
                              -Total
      current liabilities
                              
                              
                              12,119
                              
                              
                              
                              11,224Long-term
      liabilitiesOffice
      lease settlement obligation (Note 5)
                              
                              
                              1,979
                              
                              
                              
                              1,979Convertible
      notes due June 9, 2010, $15,540 outstanding, net of debt discount
      of  ($11,186) (Note 6)
                              
                              
                              -
                              
                              
                              
                              4,354Convertible
      notes due April 2, 2012, $5,950 outstanding, net of debt discount
      of  ($5,466) (Note 6)
                              
                              
                              484
                              
                              
                              
                              -Total
      long-term liabilities
                              
                              
                              2,463
                              
                              
                              
                              6,333Commitments
      and contingencies (Note 9)Stockholders'
      deficit:Preferred
      stock, 5,000 shares authorized:Series
      A convertible preferred stock, $.001 par value; 8 shares issued and
      outstanding, liquidation value of $385 at June 30, 2009 and December 31,
      2008, respectively
                              
                              
                              -
                              
                              
                              
                              -Series
      G participating cumulative preferred stock, $.001 par value; 0 shares
      issued and outstanding at June 30, 2009 and December 31, 2008,
      respectively
                              
                              
                              -
                              
                              
                              
                              -Common
      stock, $.001 par value; 6,000,000 and 6,000,000 shares authorized, 99,771
      and 9,734 shares issued and outstanding at June 30, 2009 and December 31,
      2008, respectively
                              
                              
                              100
                              
                              
                              
                              10Additional
      paid-in capital
                              
                              
                              993,843
                              
                              
                              
                              939,252Accumulated
      deficit
                              
                              
                              (998,275
                              )
                              
                              
                              (944,126
                              )Total
      stockholders' deficit
                              
                              
                              (4,332
                              )
                              
                              
                              (4,864
                              )Total
      liabilities and stockholders' deficit
                              
                              $
                              10,250
                              
                              
                              $
                              12,693





See
accompanying notes to consolidated financial statements.


3





GENTA
INCORPORATED


CONSOLIDATED
STATEMENTS OF OPERATIONS


(Unaudited)





Three Months Ended June 30,
                    
                    
                    Six Months Ended June 30,(In
      thousands, except per share data)
                    
                    2009
                    
                    
                    2008
                    
                    
                    2009
                    
                    
                    2008Product
      sales - net
                    
                    $
                    69
                    
                    
                    $
                    131
                    
                    
                    $
                    131
                    
                    
                    $
                    248Cost
      of goods sold
                    
                    
                    1
                    
                    
                    
                    29
                    
                    
                    
                    1
                    
                    
                    
                    54Gross
      margin
                    
                    
                    68
                    
                    
                    
                    102
                    
                    
                    
                    130
                    
                    
                    
                    194Operating
      expenses:Research
      and development
                    
                    
                    3,674
                    
                    
                    
                    4,454
                    
                    
                    
                    5,972
                    
                    
                    
                    10,891Selling,
      general and administrative
                    
                    
                    1,968
                    
                    
                    
                    2,587
                    
                    
                    
                    4,140
                    
                    
                    
                    6,225Settlement
      of office lease obligation (Note 5)
                    
                    
                    -
                    
                    
                    
                    3,307
                    
                    
                    
                    -
                    
                    
                    
                    3,307Reduction
      in liability for settlement of litigation, net
                    
                    
                    -
                    
                    
                    
                    (80
                    )
                    
                    
                    -
                    
                    
                    
                    (340
                    )Total
      operating expenses
                    
                    
                    5,642
                    
                    
                    
                    10,268
                    
                    
                    
                    10,112
                    
                    
                    
                    20,083Other
      income/(expense):Gain
      on maturity of marketable securities
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    31Interest
      income and other income, net
                    
                    
                    1
                    
                    
                    
                    40
                    
                    
                    
                    16
                    
                    
                    
                    100Interest
      expense
                    
                    
                    (189
                    )
                    
                    
                    (198
                    )
                    
                    
                    (576
                    )
                    
                    
                    (223
                    )Amortization
      of deferred financing costs and debt discount (Note 7)
                    
                    
                    (10,625
                    )
                    
                    
                    (840
                    )
                    
                    
                    (16,912
                    )
                    
                    
                    (840
                    )Fair
      value - conversion feature liability (Note 6)
                    
                    
                    (19,040
                    )
                    
                    
                    (720,000
                    )
                    
                    
                    (19,040
                    )
                    
                    
                    (720,000
                    )Fair
      value - warrant liability (Note 6)
                    
                    
                    (7,655
                    )
                    
                    
                    (7,200
                    )
                    
                    
                    (7,655
                    )
                    
                    
                    (7,200
                    )Total
      other income/(expense)
                    
                    
                    (37,508
                    )
                    
                    
                    (728,198
                    )
                    
                    
                    (44,167
                    )
                    
                    
                    (728,132
                    )Net
      loss
                    
                    $
                    (43,082
                    )
                    
                    $
                    (738,364
                    )
                    
                    $
                    (54,149
                    )
                    
                    $
                    (748,021
                    )Net
      loss per basic and diluted share
                    
                    $
                    (0.63
                    )
                    
                    $
                    (1,004.84
                    )
                    
                    $
                    (1.24
                    )
                    
                    $
                    (1,060.69
                    )Shares
      used in computing net loss perbasic
      and diluted  share
                    
                    
                    68,870
                    
                    
                    
                    735
                    
                    
                    
                    43,575
                    
                    
                    
                    705





See
accompanying notes to consolidated financial statements.


4





GENTA INCORPORATED


CONSOLIDATED
STATEMENTS OF CASH FLOWS


(Unaudited)





Six Months Ended June 30,(In thousands)
                    
                    2009
                    
                    
                    2008Operating
      activities:Net
      loss
                    
                    $
                    (54,149
                    )
                    
                    $
                    (748,021
                    )Adjustments
      to reconcile net loss to net cash used in operating
      activities:Depreciation
      and amortization
                    
                    
                    80
                    
                    
                    
                    83Amortization
      of deferred financing costs and debt discount (Note 6)
                    
                    
                    16,912
                    
                    
                    
                    840Share-based
      compensation (Note 8)
                    
                    
                    107
                    
                    
                    
                    305Gain
      on maturity of marketable securities
                    
                    
                    -
                    
                    
                    
                    (31
                    )Reduction
      in liability for settlement of litigation, net (Note 5)
                    
                    
                    -
                    
                    
                    
                    (340
                    )Change
      in fair value - conversion feature liability (Note 6)
                    
                    
                    19,040
                    
                    
                    
                    720,000Change
      in fair value - warrant liability (Note 6)
                    
                    
                    7,655
                    
                    
                    
                    7,200Changes
      in operating assets and liabilities:Accounts
      receivable
                    
                    
                    (32
                    )
                    
                    
                    (24
                    )Inventory
                    
                    
                    2
                    
                    
                    
                    54Prepaid
      expenses and other current assets
                    
                    
                    389
                    
                    
                    
                    444Accounts
      payable and accrued expenses
                    
                    
                    545
                    
                    
                    
                    5,094Net
      cash used in operating activities
                    
                    
                    (9,451
                    )
                    
                    
                    (14,396
                    )Investing
      activities:Maturities
      of marketable securities
                    
                    
                    -
                    
                    
                    
                    2,000Elimination
      of restricted cash deposits
                    
                    
                    -
                    
                    
                    
                    1,731Purchase
      of property and equipment
                    
                    
                    (51
                    )
                    
                    
                    (11
                    )Net
      cash provided by (used in) investing activities
                    
                    
                    (51
                    )
                    
                    
                    3,720Financing
      activities:Repayments
      of note payable
                    
                    
                    -
                    
                    
                    
                    (512
                    )Issuance
      of convertible notes net of financing cost of $660 (Note
6)
                    
                    
                    5,290
                    
                    
                    
                    18,795Issuance
      of common stock, net
                    
                    
                    -
                    
                    
                    
                    2,857Net
      cash provided by financing activities
                    
                    
                    5,290
                    
                    
                    
                    21,140Increase/(decrease)
      in cash and cash equivalents
                    
                    
                    (4,212
                    )
                    
                    
                    10,464Cash
      and cash equivalents at beginning of period
                    
                    
                    4,908
                    
                    
                    
                    5,814Cash
      and cash equivalents at end of period
                    
                    $
                    696
                    
                    
                    $
                    16,278





See
accompanying notes to consolidated financial statements.


5


GENTA
INCORPORATED


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


June
30, 2009


(Unaudited)





1.
            Reverse
      Stock Split





At a
Special Meeting of Stockholders of Genta Incorporated (“Genta” or the “Company”)
held on June 26, 2009, the Company’s stockholders authorized its Board of
Directors to effect a reverse stock split of all outstanding shares of common
stock, and the Board of Directors subsequently approved the implementation of a
reverse stock split on June 26, 2009 at a ratio of one for fifty shares. All
share and per share data in these consolidated financial statements and related
notes hereto have been retroactively adjusted to account for the effect of the
reverse stock split for all periods presented prior to June 26,
2009.





2.
            Organization,
      Business and Liquidity





Genta
Incorporated is a biopharmaceutical company engaged in pharmaceutical (drug)
research and development, its sole reportable segment. The Company is dedicated
to the identification, development and commercialization of novel drugs for the
treatment of cancer and related diseases.





The
Company has had recurring annual operating losses since its inception.
Management expects that such losses will continue at least until its lead
product, Genasense®
(oblimersen sodium) Injection, receives approval for commercial sale in one or
more indications. Achievement of profitability for the Company is currently
dependent on the timing of Genasense®
regulatory approval. Any adverse outcomes with respect to approval by the U.S.
Food and Drug Administration (‘‘FDA’’) and/or European Medicines Agency
(‘‘EMEA’’) could negatively impact the Company’s ability to obtain additional
funding or identify potential partners.





The
Company has prepared its financial statements under the assumption that it is a
going concern. The Company’s recurring losses and negative cash flows from
operation raise substantial doubt about its ability to continue as a going
concern. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.





On June
9, 2008, the Company placed $20 million of senior secured convertible notes, or
the 2008 Notes, with certain institutional and accredited investors. The notes
bear interest at an annual rate of 15% payable at quarterly intervals in other
senior secured convertible promissory notes to the holder, and originally were
convertible into shares of Genta common stock at a conversion rate of 2,000
shares of common stock for every $1,000.00 of principal, (adjusted for the
reverse stock split). As a result of issuing convertible notes on April 2, 2009,
(see below), these notes are presently convertible into shares of Genta common
stock at a conversion rate of 10,000 shares of common stock for every $1,000.00
of principal. The 2008 Notes are secured by a first lien on all assets of
Genta.





On April
2, 2009, the Company entered into a securities purchase agreement with certain
accredited institutional investors to place up to $12 million of senior secured
convertible notes, or the April 2009 Notes, and corresponding warrants to
purchase common stock. The Company closed on approximately $6 million of such
notes and warrants on April 2, 2009. The April 2009 Notes bear interest at an
annual rate of 8% payable semi-annually in other senior secured convertible
promissory notes to the holder, and are convertible into shares of the Company’s
common stock at a conversion rate of 10,000 shares of common stock for every
$1,000.00 of principal amount outstanding. The April 2009 Notes are also secured
by a first lien on all assets of Genta, which security interest is pari passu
with the security interest held by the holders of the 2008
Notes.


6


On July
7, 2009, the Company entered into a securities purchase agreement with certain
accredited institutional investors to place up to $10 million in aggregate
principal amount of units consisting of (i) 70% unsecured subordinated
convertible notes, or the July 2009 Notes, and (ii) 30% common
stock.  In connection with the sale of the units, the Company also
issued to the investors two-year warrants to purchase common stock in an amount
equal to 25% of the number of shares of common stock issuable upon conversion of
the July 2009 Notes purchased by each investor. The Company closed on $3 million
of such July 2009 Notes, common stock and warrants on July 7, 2009.





On August
6, 2009, the Company entered into an amendment whereby, among other things, the
certain accredited institutional investors who were parties to the July 2009
securities purchase agreement agreed to purchase $10 million of additional notes
and warrants having the same terms of the July 2009 Notes as well as shares of
common stock, increasing their aggregate investment to $13 million.





Net cash
used in operating activities during the six months ended June 30, 2009 was $9.5
million. Presently, with no further financing, management projects that the
Company will run out of funds in September 2009. The terms of the July 2009
financing, as amended, commit those investors to purchase $10.0 million of
additional notes and warrants having the same terms of the July 2009 Notes as
well as shares of common stock. The terms of the April 2009 Notes enable those
noteholders, at their option, to purchase additional notes with similar terms.
The Company does not have any additional financing in place. There can be no
assurance that the Company can obtain financing, if at all, on terms acceptable
to it.





The
Company will require additional cash in order to maximize its commercial
opportunities and continue its clinical development opportunities. The Company
has had discussions with other companies regarding partnerships for the further
development and global commercialization of Genasense®.
Additional alternatives available to the Company to subsequently sustain its
operations include development and commercialization partnerships on other
products in our pipeline, financing arrangements with potential corporate
partners, debt financing, asset sales, asset-based loans, royalty-based
financings, equity financing and other sources. However, there can be no
assurance that any such collaborative agreements or other sources of funding
will be available on favorable terms, if at all.





If the
Company is unable to raise additional funds, it will need to do one or more of
the following:




·
              delay,
      scale back or eliminate some or all of the Company’s research and product
      development programs and sales and marketing
  activity;




·
              license
      one or more of our products or technologies that the Company would
      otherwise seek to commercialize
itself;




·
              attempt
      to sell the Company;




·
              cease
      operations; or




·
              declare
      bankruptcy.


7


3.
            Summary
      of Significant Accounting Policies




Basis
of Presentation





The
consolidated financial statements are presented on the basis of accounting
principles generally accepted in the United States of America. The accompanying
consolidated financial statements included herein have been prepared pursuant to
the rules and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial statements
have been condensed or omitted from this report, as is permitted by such rules
and regulations; however, the Company believes that the disclosures are adequate
to make the information presented not misleading. The unaudited consolidated
financial statements and related disclosures have been prepared with the
presumption that users of the interim financial information have read or have
access to the audited financial statements for the preceding fiscal year.
Accordingly, these financial statements should be read in conjunction with the
audited consolidated financial statements and the related notes thereto included
in the Company's Annual Report on Form 10-K for the fiscal year ended December
31, 2008. Results for interim periods are not necessarily indicative of results
for the full year. The Company has experienced significant quarterly
fluctuations in operating results and it expects those fluctuations will
continue.





Use
of Estimates





The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make certain estimates and
assumptions that affect reported earnings, financial position and various
disclosures. Actual results could differ from those estimates.





Cash
and Cash Equivalents





Cash and
cash equivalents consist of highly liquid instruments with maturities of three
months or less from the date acquired and are stated at cost that approximates
their fair market value. At June 30, 2009, the amounts on deposit that exceeded
the $250,000 federally insured limit was $0.2 million.




Revenue
Recognition





Genta
recognizes revenue from product sales when title to product and associated risk
of loss has passed to the customer and the Company is 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. The Company allows return of its product for up to twelve months
after product expiration.




Research
and Development





Research
and development costs are expensed as incurred, including raw material costs
required to manufacture products for clinical trials.


8




Income
Taxes





The
Company uses the liability method of accounting for income taxes. Deferred
income taxes are determined based on the estimated future tax effects of
differences between the financial statement and tax bases of assets and
liabilities given the provisions of the enacted tax laws. Management records
valuation allowances against net deferred tax assets, if based upon the
available evidence, it is more likely than not that some or all of the deferred
tax assets will not be realized. The Company generated additional net operating
losses during the six months ended June 30, 2009 and continues to maintain a
full valuation allowance against its net deferred tax assets. Utilization of the
Company’s net operating loss (NOL) and research and development (R&D) credit
carryforwards may be subject to a substantial annual limitation due to ownership
change limitations that may have occurred or that could occur in the future, as
required by Section 382 of the Internal Revenue Code of 1986, as amended (the
Code), as well as similar state provisions. These ownership changes may limit
the amount of NOL and R&D credit carryforwards that can be utilized annually
to offset future taxable income and tax, respectively. In general, an “ownership
change” as defined by Section 382 of the Code results from a transaction or
series of transactions over a three-year period resulting in an ownership change
of more than 50 percentage points of the outstanding stock of a company by
certain stockholders or public groups.





The
Company’s Federal tax returns have never been audited. In January 2006, the
State of New Jersey concluded its fieldwork with respect to a tax audit for the
years 2000 through 2004. The State of New Jersey took the position that amounts
reimbursed to Genta by Aventis Pharmaceutical Inc. for co-development
expenditures during the audit period were subject to Alternative Minimum
Assessment (AMA), resulting in a liability at that time of approximately $533
thousand. Although the Company and its outside tax advisors believe the State’s
position on the AMA liability is unjustified, there is little case law on the
matter and it is probable that the Company will be required to ultimately pay
the liability. As of June 30, 2009, the Company had accrued a tax liability of
$533 thousand, penalties of $27 thousand and interest of $308 thousand related
to this assessment. The Company appealed this decision to the State and on
February 13, 2008, the State notified the Company that its appeal had not been
granted. On April 25, 2008, the Company filed a complaint with the Tax Court of
the State of New Jersey to appeal the assessment. A hearing has been scheduled
in September 2009.




The
Company's policy for recording interest and penalties associated with audits is
that penalties and interest expense are recorded in interest expense in the
Company’s Consolidated Statements of Operations. The Company recorded $27
thousand and $34 thousand in interest expense related to the State of New Jersey
assessment during the six months ended June 30, 2009 and 2008,
respectively.




Stock
Options





Stock
Options are accounted for using the fair value recognition provisions of
Statement of Financial Accounting Standards No. 123 (revised 2004), Share-Based Payment, (‘‘SFAS
123R’’), using the modified prospective transition method. Under the standard,
all share-based payments, including grants of employee stock options, are
recognized in the Consolidated Statement of Operations based on their fair
values. The amount of compensation cost is measured based on the grant-date fair
value of the equity instrument issued. The Company utilizes a Black-Scholes
option-pricing model to measure the fair value of stock options granted to
employees. See Note 8 and Note 9 to the Consolidated Financial Statements for a
further discussion on share-based compensation.


9




Deferred
Financing Costs




Deferred
financing costs are amortized over the term of its associated debt instrument.
The Company evaluates the terms of debt instruments to determine if any embedded
derivatives or beneficial conversion features exist. The Company allocates the
aggregate proceeds of debt instruments between warrants and notes based on their
relative fair values in accordance with Accounting Principle Board No. 14 (APB
14), “Accounting for
Convertible Debt and Debt Issued with Stock Purchase Warrants.” The fair
value of the warrants issued as a result of the issuance of the 2008 notes and
the warrants issued as a result of the issuance of the April 2009 notes are
calculated utilizing the Black-Scholes option-pricing model. The Company is
amortizing the resultant discount or other features over the term of the notes
through its earliest maturity date using the effective interest method. Under
this method, interest expense recognized each period will increase significantly
as the instrument approaches its maturity date. If the maturity of the debt is
accelerated because of conversions or defaults, then the amortization is
accelerated.




Net
Loss Per Common Share





Net loss
per common share for the three and six months ended June 30, 2009 and 2008,
respectively, are based on the weighted average number of shares of common stock
outstanding during the periods. Basic and diluted net loss per share are
identical for all periods presented,  as potentially dilutive
securities have been excluded from the calculation of the diluted net loss per
common share, as the inclusion of such securities would be antidilutive. At June
30, 2009 and 2008, respectively, the potentially dilutive securities include
approximately 107.2 million shares and approximately 0.8 million shares,
respectively, reserved for the conversion of convertible notes, convertible
preferred stock and the exercise of outstanding options and
warrants.





Recent
Accounting Pronouncements





In June
2009, the Financial Accounting Standards Board (FASB) issued SFAS No. 168, The FASB Accounting Standards
Codification and the Hierarchy of Generally Accepted Accounting. SFAS 168
represents the last numbered standard to be issued by FASB under the old
(pre-Codification) numbering system, and amends the GAAP hierarchy. On July 1,
2009, FASB will launch new FASB’s Codification (full name: the FASB Accounting
Standards Codification TM.) The Codification will supersede existing GAAP for
nongovernmental entities; governmental entities will continue to follow
standards issued by FASB's sister organization, the Governmental Accounting
Standards Board (GASB). This pronouncement has no effect on Company’s financial
statements.





In May
2009, the FASB issued SFAS 165, Subsequent Events.SFAS 165
incorporates into authoritative accounting literature certain guidance that
already existed within generally accepted auditing standards, but the rules
concerning recognition and disclosure of subsequent events will remain
essentially unchanged. Subsequent events guidance addresses events which occur
after the balance sheet date but before the issuance of financial statements.
Under Statement No. 165 as under current practice, an entity must record the
effects of subsequent events that provide evidence about conditions that existed
at the balance sheet date and must disclose but not record the effects of
subsequent events which provide evidence about conditions that did not exist at
the balance sheet date. The Company adopted SFAS 165 and it did not have an
impact on the Company’s consolidated financial statements. There were no
recognized or nonrecognized subsequent events occurring after June 30, 2009 that
required accounting or disclosure in accordance with SFAS 165. Subsequent events
were evaluated to August 14, 2009, the date the financial statements of the
Company were issued.


10


In April
2009, the FASB issued FASB Staff Position SFAS 141(R)-1, Accounting for Assets Acquired and
Liabilities Assumed in a Business Combination That Arise from
Contingencies, to amend and clarify the initial recognition and
measurement, subsequent measurement and accounting, and related disclosures
arising from contingencies in a business combination under SFAS 141(R). Under
the new guidance, assets acquired and liabilities assumed in a business
combination that arise from contingencies should be recognized at fair value on
the acquisition date if fair value can be determined during the measurement
period. If fair value can not be determined, companies should typically account
for the acquired contingencies using existing guidance. The implementation of
this standard did not have a material effect on the Company’s consolidated
financial statements.





4.
              Inventory





Inventories
are stated at the lower of cost or market with cost being determined using the
first-in, first-out (FIFO) method. Inventories consisted of the following ($
thousands):





June 30,
                    
                    
                    December 31,2009
                    
                    
                    2008Raw
      materials
                    
                    $
                    24
                    
                    
                    $
                    24Finished
      goods
                    
                    
                    95
                    
                    
                    
                    97$
                    119
                    
                    
                    $
                    121





During
the three and six months ended June 30, 2009, sales of Ganite® were
mostly from product that had been previously accounted for as excess
inventory.





The
Company has substantial quantities of Genasense®drug
supply which are recorded at zero cost. Such inventory would be available for
the commercial launch of this product, should Genasense® be
approved.





5.
              Office
      Lease Settlement Obligation





In
January 2009, the Company entered into an amendment of its lease agreement with
The Connell Company, whereby the Company’s future payment of $2.0 million,
related to an earlier amendment of its lease for office space, is payable on
January 1, 2011. The Company will pay 6.0% interest in arrears to Connell from
July 1, 2009 through the new payment date.





6.
              Convertible
      Notes and Warrants





On June
9, 2008, the Company placed $20 million of senior secured convertible notes, or
the 2008 Notes, with certain institutional and accredited investors. The notes
bear interest at an annual rate of 15% payable at quarterly intervals in other
senior secured convertible promissory notes to the holder, and originally were
convertible into shares of Genta common stock at a conversion rate of 2,000
shares of common stock for every $1,000.00 of principal, (adjusted for the
reverse stock split). As a result of issuing convertible notes on April 2, 2009,
(see below), these notes are presently convertible into shares of Genta common
stock at a conversion rate of 10,000 shares of common stock for every $1,000.00
of principal. The 2008 Notes are secured by a first lien on all assets of Genta,
which security interest is pari passu with the security interest held by the
holders of the April 2009 Notes.





At the
time the 2008 Notes were issued, the Company recorded a debt discount
(beneficial conversion) relating to the conversion feature in the amount of
$20.0 million. The aggregate intrinsic value of the difference between the
market price of the Company’s share of stock on June 9, 2008 and the conversion
price of the notes was in excess of the face value of the $20.0 million notes,
and thus, a full debt discount was recorded in an amount equal to the face value
of the debt. The Company is amortizing the resultant debt discount over the term
of the notes through their maturity date.


11


From
January 1, 2009 through June 30, 2009, holders of the 2008 Notes voluntarily
converted approximately $13.2 million, resulting in an issuance of 90.0 million
shares of common stock.  At June 30, 2009, approximately $2.8 million
of the 2008 Notes were outstanding.





Upon the
occurrence of an event of default, holders of the 2008 notes have the right to
require the Company to prepay all or a portion of their 2008 notes as calculated
as the greater of (a) 150% of the aggregate principal amount of the note plus
accrued interest or (b) the aggregate principal amount of the note plus accrued
interest divided by the conversion price; multiplied by a weighted average price
of the Company’s common stock. Pursuant to a general security agreement, entered
into concurrently with the notes (the “Security Agreement”), the notes are
secured by a first lien on all assets of the Company, subject to certain
exceptions set forth in the Security Agreement, which security interest is pari
passu with the security interest held by the holders of the April 2009
Notes.





In
addition, in connection with the placement of the 2008 Notes, the Company issued
a warrant to its private placement agent to purchase 800,000 shares of common
stock at an exercise price of $1.00 per share and incurred a financing fee of
$1.2 million. The financing fees are being amortized over the life of the
convertible notes and the initial value of the warrant is being amortized over
the two-year term of the convertible notes. At June 30, 2009 and December 31,
2008, the unamortized balances of the financing fee were $0.6 million and $0.9
million and the warrant were $3.6 million and $5.4 million,
respectively.





On April
2, 2009, the Company entered into a securities purchase agreement with certain
accredited institutional investors to place up to $12 million of senior secured
convertible notes, or the April 2009 Notes, and corresponding warrants to
purchase common stock. The Company closed on approximately $6 million of such
notes and warrants on April 2, 2009. The April 2009 Notes bear interest at an
annual rate of 8% payable semi-annually in other senior secured convertible
promissory notes to the holder, and are convertible into shares of the Company’s
common stock at a conversion rate of 10,000 shares of common stock for every
$1,000.00 of principal amount outstanding. In addition, the April 2009 Notes
included certain events of default, including a requirement that the Company
effect a reverse stock split of its Common Stock within 105 days of April 2,
2009. At June 30, 2009, $6.0 million of the  April 2009 Notes were
outstanding.





The
Company concluded that it should initially account for conversion options
embedded in the 2008 Notes and April 2009 Notes in accordance with SFAS No. 133
“Accounting for Derivative Instruments and Hedging Activities” (“SFAS 133”) and
EITF 00-19 “Accounting for Derivative Financial Instruments Indexed to, and
Potentially Settled in, a Company’s Own Stock” (“EITF 00-19”).  SFAS
133 generally requires companies to bifurcate conversion options embedded in
convertible notes from their host instruments and to account for them as free
standing derivative financial instruments in accordance with EITF 00-19. EITF
00-19 states that if the conversion option requires net cash settlement in the
event of circumstances that are not solely within the Company’s control, that
the notes should be classified as a liability measured at fair value on the
balance sheet. In this case, if the Company was not successful in obtaining
approval of its stockholders to increase the number of authorized shares to
accommodate the potential number of shares that the notes convert into, the
Company would have been required to cash settle the conversion
option.





At the
time the April 2009 Notes were issued, the Company recorded a debt discount
(beneficial conversion) relating to the conversion feature in the amount of $6.0
million. The aggregate intrinsic value of the difference between the market
price of the Company’s share of stock on April 2, 2009 and the conversion price
of the notes was in excess of the face value of the $6.0 million notes, and
thus, a full debt discount was recorded in an amount equal to the face value of
the debt. The Company is amortizing the resultant debt discount over the three-
year term of the notes through their maturity date. At April 2, 2009, there were
an insufficient number of authorized shares of common stock in order to permit
exercise of all of the issued convertible notes. In accordance with EITF 00-19,
when there are insufficient authorized shares, the conversion obligation for the
notes should be classified as a liability measured at fair value on the balance
sheet. At April 2, 2009, in connection with the $6.0 million closing, the fair
value of the conversion feature, $67.8 million, exceeded the proceeds of $6.0
million. The difference of $61.8 million was charged to expense as the change in
the fair market value of conversion liability.


12


On June
26, 2009, at a Special Meeting of Stockholders, the Company’s stockholders
authorized its Board of Directors to effect a reverse stock split in any ratio
up to 1-for-100, while not reducing the number of authorized shares and not
changing the par value of the common stock. The Board of Directors implemented a
reverse stock split in a ratio of 1-for-50 and in so doing, the Company had
enough shares to accommodate the potential number of shares that the April 2009
Notes convert into. The fair value of the conversion feature was re-measured at
June 26, 2009 at $25.0 million and credited to permanent equity, resulting in
total expense for the three months ended June 30, 2009 of $19.0 million. The
conversion option was valued at April 2, 2009 and June 26, 2009 using the
Black-Scholes valuation model using the following assumptions:


June 26, 2009
                  
                  
                  April 2, 2009Price
      of share of Genta common stock
                  
                  $
                  0.425
                  
                  
                  $
                  1.15Volatility
                  
                  
                  258
                  %
                  
                  
                  240
                  %Risk-free
      interest rate
                  
                  
                  1.50
                  %
                  
                  
                  1.25
                  %Remaining
      contractual lives
                  
                  
                  2.8
                  
                  
                  
                  3.0





As a
result of issuing the April 2009 Notes, the conversion rate for the 2008 Notes
was adjusted to be the same conversion rate as the April 2009 Notes.
Accordingly, the 2008 Notes that originally were convertible into shares of
Genta common stock at a conversion rate of 2,000 shares of common stock for
every $1,000.00 of principal were adjusted to be convertible into shares of
Genta common stock at a conversion rate of 10,000 shares of common stock for
every $1,000.00 of principal. In accordance with EITF 00-27, the Company valued
this change in the conversion rate on April 2, 2009; the aggregate intrinsic
value of the difference in conversion rates was in excess of the $10.7 million
face value of the 2008 Notes. Thus, a full debt discount was recorded in an
amount equal to the face value of the 2008 Notes, and the Company is amortizing
the resultant debt discount over the remaining term of the 2008
Notes.





As there
were an insufficient number of authorized shares of common stock in order to
fulfill all existing obligations, as required by EITF 00-19, the Company
classified the warrant obligations as liabilities to be measured at fair value
on the balance sheet. Accordingly, at April 2, 2009, the Company recorded the
warrant liabilities at a fair value of $1.125 per warrant, or $20.8 million,
based upon the Black-Scholes valuation model. The warrant liability was
re-measured at June 26, 2009 at a fair value of $0.415 per warrant, or $7.7
million, and credited to permanent equity, resulting in an expense of $7.7
million for the three months ended June 30, 2009. The warrant liability was
valued at April 2, 2009 and June 26, 2009 using the Black-Scholes valuation
model using the following assumptions:


June 26, 2009
                  
                  
                  April 2, 2009Price
      of share of Genta common stock
                  
                  $
                  0.425
                  
                  
                  $
                  1.15Volatility
                  
                  
                  244
                  %
                  
                  
                  224
                  %Risk-free
      interest rate
                  
                  
                  1.75
                  %
                  
                  
                  1.89
                  %Remaining
      contractual lives
                  
                  
                  3.3
                  
                  
                  
                  3.5





The
Company is in compliance with all debt-related covenants at June 30,
2009.





7.
              Share-Based
      Compensation





The
Company estimates the fair value of each option award on the date of the grant
using the Black-Scholes option valuation model. Expected volatilities are based
on the historical volatility of the Company’s common stock over a period
commensurate with the options’ expected term. The expected term represents the
period of time that options granted are expected to be outstanding and is
calculated in accordance with the SEC guidance provided in the SEC’s Staff
Accounting Bulletin 107, (“SAB 107”) and Staff Accounting Bulletin 110 (“SAB
110”), using a “simplified” method. The Company will continue to use the
simplified method as it does not have sufficient historical exercise data to
provide a reasonable basis upon which to estimate an expected term. The
risk-free interest rate assumption is based upon observed interest rates
appropriate for the expected term of the Company’s stock options. There were no
grants of stock options during the six months ended June 30, 2009 and 2008,
respectively.


13


Share-based
compensation expense recognized for the three and six months ended June 30, 2009
and 2008, respectively, was comprised as follows:


Three months ended
                    June 30
                  
                  
                  Six months ended
                    June 30($
      thousands, except per share data)
                  
                  2009
                  
                  
                  2008
                  
                  
                  2009
                  
                  
                  2008Research
      and development expenses
                  
                  $
                  11
                  
                  
                  $
                  52
                  
                  
                  $
                  32
                  
                  
                  $
                  96Selling,
      general and administrative
                  
                  
                  23
                  
                  
                  
                  108
                  
                  
                  
                  75
                  
                  
                  
                  209Total
      share-based compensation expense
                  
                  $
                  34
                  
                  
                  $
                  160
                  
                  
                  $
                  107
                  
                  
                  $
                  305Share-based
      compensation expense, per basic and diluted common share
                  
                  $
                  0.00
                  
                  
                  $
                  0.22
                  
                  
                  $
                  0.00
                  
                  
                  $
                  0.43





8.
              Stock
      Option Plans




As of
June 30, 2009, the Company has two outstanding share-based compensation plans,
which are described below:





1998
Stock Incentive Plan





Pursuant
to the Company’s 1998 Stock Incentive Plan, as amended (the “1998 Plan”), 68
thousand shares had been provided for the grant of stock options to employees,
directors, consultants and advisors of the Company. Option awards were granted
with an exercise price at not less than the fair market price of the Company’s
common stock on the date of the grant; those option awards generally vested over
a four-year period in equal increments of 25%, beginning on the first
anniversary of the date of the grant. All options granted had contractual terms
of ten years from the date of the grant. As of May 27, 2008, the authorization
to provide grants under the 1998 Plan expired.





The
following table summarizes the option activity under the 1998 Plan as of June
30, 2009 and changes during the six months then ended:


Stock Options
                  
                  Number of
                    Shares
                    (in
                    thousands)
                  
                  
                  Weighted
                    Average
                    Exercise
                    Price
                  
                  
                  Weighted
                    Average
                    Remaining
                    Contractual
                    Term
                    (in years)
                  
                  
                  Aggregate
                    Intrinsic
                    Value
                    (in
                    thousands)Outstanding
      at December 31, 2008
                  
                  
                  37
                  
                  
                  $
                  1,191.50Granted
                  
                  
                  -
                  
                  
                  
                  -Exercised
                  
                  
                  -
                  
                  
                  
                  -Forfeited
      or expired
                  
                  
                  (3
                  )
                  
                  
                  134.16Outstanding
      at June 30, 2009
                  
                  
                  34
                  
                  
                  $
                  1,293.00
                  
                  
                  
                  2.8
                  
                  
                  $
                  -Vested
      and exercisable at June 30, 2009
                  
                  
                  26
                  
                  
                  $
                  1,725.00
                  
                  
                  
                  2.0
                  
                  
                  $
                  -





There is
no intrinsic value to outstanding stock options as the exercise prices of all
outstanding options are above the market price of the Company’s stock at June
30, 2009. The amount of aggregate intrinsic value may change based on the market
value of the Company’s stock.





As of
June 30, 2009, there was approximately $68 thousand of total unrecognized
compensation cost related to non-vested share-based compensation resulting from
stock options granted under the 1998 Plan, which is expected to be recognized
over a weighted-average period of 0.8 years.


14


The
following table summarizes the restricted stock unit (RSU) activity under the
1998 Plan as of June 30, 2009 and changes during the six months then
ended:


Restricted Stock Units
                  
                  Number of Shares
                    (in thousands)
                  
                  
                  Weighted Average
                    Grant Date Fair
                    Value per ShareOutstanding  nonvested
      RSUs at January 1, 2009
                  
                  
                  5
                  
                  
                  $
                  20.50Granted
                  
                  
                  -
                  
                  
                  
                  -Vested
                  
                  
                  (3
                  )
                  
                  $
                  20.50Forfeited
      or expired
                  
                  
                  -
                  
                  
                  
                  -Outstanding  nonvested
      RSUs at June 30, 2009
                  
                  
                  2
                  
                  
                  $
                  20.50





As of
June 30, 2009, there was no unrecognized compensation cost related to non-vested
share-based compensation resulting from RSUs granted under the 1998
Plan.





1998
Non-Employee Directors’ Plan





Pursuant
to the Company’s 1998 Non-Employee Directors’ Plan as amended (the “Directors’
Plan”), 12 thousand shares have been provided for the grant of non-qualified
stock options to the Company’s non-employee members of the Board of Directors.
Option awards must be granted with an exercise price at not less than the fair
market price of the Company’s common stock on the date of the grant. Initial
option grants vest over a three-year period in equal increments, beginning on
the first anniversary of the date of the grant. Subsequent grants generally vest
on the date of the grant. All options granted have contractual terms of ten
years from the date of the grant.





The fair
value of each option award is estimated on the date using the same valuation
model used for options granted under the 1998 Plan.





The
following table summarizes the option activity under the Directors’ Plan as of
June 30, 2009 and changes during the six months then ended:




Stock Options
                
                Number of
                  Shares
                  (in
                  thousands)
                
                
                Weighted
                  Average
                  Exercise
                  Price
                
                
                Weighted
                  Average
                  Remaining
                  Contractual
                  Term
                  (in years)
                
                
                Aggregate
                  Intrinsic
                  Value
                  (in
                  thousands)Outstanding
      at January 1, 2009
                
                
                2
                
                
                $
                1,130.47Granted
                
                
                -
                
                
                
                -Exercised
                
                
                -
                
                
                
                -Forfeited
      or expired
                
                
                -
                
                
                
                -Outstanding
      at June 30, 2009
                
                
                2
                
                
                $
                1,130.47
                
                
                
                6.0
                
                
                $
                -Vested
      and exercisable at June 30, 2009
                
                
                2
                
                
                $
                1,130.47
                
                
                
                6.0
                
                
                $
                -





There is
no intrinsic value to outstanding stock options as the exercise prices of all
outstanding options are above the market price of the Company’s stock at June
30, 2009. The amount of aggregate intrinsic value may change based on the market
value of the Company’s stock.


15


9.
              Commitments
      and Contingencies





Litigation
and Potential Claims





In
September 2008, several shareholders of the Company, on behalf of themselves and
all others similarly situated, filed a class action complaint against the
Company, the Board of Directors, and certain of its executive officers in
Superior Court of New Jersey, captioned Collins v. Warrell, Docket No.
L-3046-08. The complaint alleged that in issuing convertible notes, the Board of
Directors, and certain officers breached their fiduciary duties, and the Company
aided and abetted the breach of fiduciary duty.  On March 20, 2009,
the Superior Court of New Jersey granted the motion of the Company to dismiss
the class action complaint and dismissed the complaint with prejudice. On April
30, 2009, the plaintiffs filed a notice of appeal with the Appellate
Division. On May 13, 2009, the plaintiffs filed a motion for relief from
judgment based on a claim of new evidence, which was denied on June 12,
2009. The plaintiffs also asked the Appellate Division for a temporary
remand to permit the Superior Court judge to resolve the issues of the new
evidence plaintiffs sought to raise. By order dated June 25, 2009, and
filed on July 6, 2009, the Appellate Division granted the motion for temporary
remand, and directed the issues on remand to be resolved in 30 days. A
hearing on the plaintiffs' motion was held on July 31, 2009, at which time the
Court permitted letter briefing on the issues raised during that
hearing.  The plaintiffs submitted a letter brief on August 3, 2009,
and the Company submitted a letter brief on August 5, 2009.  No ruling
has yet issued.  The Company strongly denies the allegations of this
complaint and intends to vigorously defend this lawsuit.





In
November 2008, a complaint against the Company and its transfer agent, BNY
Mellon Shareholder Services, was filed in the Supreme Court of the State of New
York by an individual stockholder. The complaint alleges that the Company and
its transfer agent caused or contributed to losses suffered by the stockholder.
The Company denies the allegations of this complaint and intends to vigorously
defend this lawsuit.





10.
              Supplemental
      Disclosure of Cash Flows Information and Non-cash Investing and Financing
      Activities





No
interest or income taxes were paid with cash during the six months ended June
30, 2009 and 2008, respectively.  On March 9, 2009, the Company issued
approximately $386 thousand of convertible notes in lieu of interest due on its
2008 Notes. On June 9, 2009, the Company issued approximately $125 thousand of
convertible notes in lieu of interest due on its 2008 Notes.




From
January 1, 2009 through June 30, 2009, holders of the Company’s convertible
notes voluntarily converted approximately $13.2 million, resulting in an
issuance of 90.0 million shares of common stock.





11.
              Subsequent
      Events





From July
1, 2009 through July 31, 2009, holders of 2008 Notes have voluntarily converted
approximately $0.7 million of their notes, resulting in an issuance of
approximately 7.0 million shares of common stock. At July 31, 2009,
approximately $2.2 million of the 2008 notes were outstanding.





From July
1, 2009 through July 31, 2009 holders of April 2009 Notes have voluntarily
converted approximately $0.7 million of their notes resulting in an issuance of
approximately 7.0 million shares of common stock. At July 31, 2009,
approximately $5.3 million of the April 2009 Notes were
outstanding.


16


On July
7, 2009, the Company entered into a securities purchase agreement with certain
accredited institutional investors to place up to $10 million in aggregate
principal amount of units consisting of (i) 70% unsecured subordinated
convertible notes, or the July 2009 Notes, and (ii) 30% common
stock.  The notes bear interest at an annual rate of 8% payable at
quarterly intervals in other convertible notes to the holder, and are
convertible into shares of Genta common stock at a conversion rate of 10,000
shares of common stock for every $1,000.00 of principal. In connection with the
sale of the units, the Company also issued to the investors two-year warrants to
purchase common stock in an amount equal to 25% of the number of shares of
common stock issuable upon conversion of the July 2009 Notes purchased by each
investor. The Company closed on $3.0 million of such July 2009 Notes, common
stock and warrants on July 7, 2009.  In accordance with EITF 00-27,
the Company will measure the fair value of the July 2009 Notes and the warrants.
As the fair value of the beneficial conversion feature of the July 2009 Notes
exceeds the face value of the $2.1 million, the Company will record a full debt
discount in an amount equal to the face value of the debt and amortize this
discount over the life of the July 2009 Notes.





On August
6, 2009, the Company entered into an amendment whereby, among other things, the
certain accredited institutional investors who were parties to the July 2009
securities purchase agreement agreed to purchase $10 million of additional notes
and warrants having the same terms of the July 2009 Notes as well as shares of
common stock, increasing their aggregate investment to $13 million.





From July
7, 2009 through July 31, 2009, holders of July 2009 Notes have voluntarily
converted approximately $1.4 million of their notes, resulting in an issuance of
approximately 13.5 million shares of common stock. At July 31, 2009,
approximately $0.8 million of the July 2009 Notes were
outstanding.


17


Item
2. Management’s Discussion and
Analysis of Financial Condition and Results of Operations





Certain
Factors Affecting Forward-Looking Statements – Safe Harbor
Statement





The
statements contained in this Quarterly Report on Form 10-Q that are not
historical are forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended, including statements regarding the
expectations, beliefs, intentions or strategies regarding the future. Such
forward-looking statements include those which express plan, anticipation,
intent, contingency, goals, targets or future development and/or otherwise are
not statements of historical fact. The words “potentially”, “anticipate”,
“expect”, “could”, “calls for” and similar expressions also identify
forward-looking statements. We intend that all forward-looking statements be
subject to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. These forward-looking statements reflect our views as of the
date they are made with respect to future events and financial performance, but
are subject to many risks and uncertainties, which could cause actual results to
differ materially from any future results expressed or implied by such
forward-looking statements. Factors that could affect actual results include
risks associated with:





·
            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, 2008 and in this Form
      10-Q.





We do not
undertake to update any forward-looking statements.





We make
available free of charge on our Internet website (http://www.genta.com) our
Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, current reports on
Form 8-K and amendments to these reports filed or furnished pursuant to Section
13(a) or 15(d) of the Securities Exchange Act of 1934 as soon as reasonably
practicable after we electronically file such material with, or furnish it to,
the Securities and Exchange Commission. The content on the Company’s website is
available for informational purposes only. It should not be relied upon for
investment purposes, nor is it incorporated by reference into this Form
10-Q.


18


Overview





Genta
Incorporated is a biopharmaceutical company engaged in pharmaceutical research
and development. We are dedicated to the identification, development and
commercialization of novel drugs for the treatment of cancer and related
diseases. Our research portfolio consists of two major programs: DNA/RNA
Medicines (which includes our lead oncology drug, Genasense®); and
Small Molecules (which includes our marketed product, Ganite®, and the
investigational compounds tesetaxel and G4544). We have had recurring annual
operating losses since inception and we expect to incur substantial operating
losses due to continued requirements for ongoing and planned research and
development activities, pre-clinical and clinical testing, manufacturing
activities, regulatory activities and the eventual establishment of a sales and
marketing organization.





From our
inception to June 30, 2009, we have incurred a cumulative net deficit of $998.3
million. Our recurring losses from operations and our negative cash flow from
operations raise substantial doubt about our ability to continue as a going
concern. Our consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty. We expect that such
losses will continue at least until our lead product, Genasense®, is
approved by one or more regulatory authorities for commercial sale in one or
more indications. Achievement of profitability is currently dependent on the
timing of Genasense®
regulatory approvals. We have experienced significant quarterly fluctuations in
operating results and we expect that these fluctuations in revenues, expenses
and losses will continue.





Irrespective
of whether regulatory applications, such as a New Drug Application (NDA) or
Marketing Authorization Application (MAA), for Genasense®are
approved, we anticipate that we will require additional cash in order to
maximize the commercial opportunity and continue its clinical development
opportunities. Alternatives available to us to sustain our operations include
collaborative agreements, equity financing, debt and other financing
arrangements with potential corporate partners and other sources. However, there
can be no assurance that any such collaborative agreements or other sources of
funds will be available on favorable terms, if at all. We will need substantial
additional funds before we can expect to realize significant product
revenue.





We had
$0.7 million of cash and cash equivalents on hand at June 30,
2009.  Cash used in operating activities during the first six months
of 2009 was $9.5 million.





On June
9, 2008, we placed $20 million of senior secured convertible notes with certain
institutional and accredited investors. On April 2, 2009, we entered into a
securities purchase agreement with certain accredited institutional investors to
place up to $12 million of senior secured convertible notes, or the April 2009
Notes, and corresponding warrants to purchase common stock. We closed on
approximately $6 million of such notes and warrants on April 2, 2009. On July 7,
2009, we entered into a securities purchase agreement with certain accredited
institutional investors to place up to $10 million in aggregate principal amount
of units consisting of (i) 70% unsecured subordinated convertible notes, or the
July 2009 Notes, and (ii) 30% common stock.  The notes bear interest
at an annual rate of 8% payable at quarterly intervals in other convertible
notes to the holder, and are convertible into shares of our common stock at a
conversion rate of 10,000 shares of common stock for every $1,000.00 of
principal. In connection with the sale of the units, we also issued to the
investors two-year warrants to purchase common stock in an amount equal to 25%
of the number of shares of common stock issuable upon conversion of the July
2009 Notes purchased by each investor. We closed on $3.0 million of such July
2009 Notes, common stock and warrants on July 7, 2009.





On August
6, 2009, we entered into an amendment whereby, among other things, the certain
accredited institutional investors who were parties to the July 2009 securities
purchase agreement agreed to purchase $10 million of additional notes and
warrants having the same terms of the July 2009 Notes as well as shares of
common stock, increasing their aggregate investment to $13
million.


19


Presently,
with no further financing, we project that we will run out of funds in
September, 2009. The terms of the July 2009 financing, as amended, commit those
investors to purchase $10 million of additional notes and warrants having the
same terms of the July 2009 Notes, as well as shares of common stock. If that
additional financing is consummated, we project that we will run out of funds in
January 2010. The terms of the April 2009 Notes enable those noteholders, at
their option, to purchase additional notes with similar terms. We currently do
not have any additional financing in place. If we are unable to raise additional
funds, we could be required to reduce our spending plans, reduce our workforce,
license one or more of our products or technologies that we would otherwise seek
to commercialize ourselves, or sell certain assets. There can be no assurance
that we can obtain financing, if at all, on terms acceptable to us.





Our
principal goal has been to secure regulatory approval for the marketing of
Genasense®.
Genasense® has been
studied in combination with a wide variety of anticancer drugs in a number of
different cancer indications. We have reported results from randomized trials of
Genasense® in a
number of diseases. Under our own sponsorship or in collaboration with others,
we are currently conducting additional clinical trials. We are especially
interested in the development, regulatory approval, and commercialization of
Genasense® in at least three diseases: melanoma; chronic lymphocytic leukemia,
referred to herein as CLL; and non-Hodgkin’s lymphoma, referred to herein as
NHL.





Genasense® has been
submitted for regulatory approval in the U.S. on two occasions and to the
European Union (EU) once. These applications proposed the use of Genasense® plus
chemotherapy for patients with advanced melanoma (U.S. and EU) and relapsed or
refractory chronic lymphocytic leukemia (CLL) (U.S.-only). None of these
applications resulted in regulatory approval for marketing. Nonetheless, we
believe that Genasense® can
ultimately be approved and commercialized and we have undertaken a number of
initiatives in this regard that are described below.




Our major
current initiative is a randomized controlled trial that tests whether the
addition of Genasense® to
standard chemotherapy can improve outcomes for patients with advanced
melanoma.  In 2004, we withdrew our New Drug Application (NDA) for
Genasense® in
melanoma after an advisory committee to the Food and Drug Administration (FDA)
failed to recommend approval. A negative decision was also received for a
similar application in melanoma from the European Medicines Agency (EMEA) in
2007. Data from the Phase 3 trial that comprised the basis for these
applications were published in 2006. These results showed that treatment with
Genasense®\plus dacarbazine compared with dacarbazine alone in patients with
advanced melanoma was associated with a statistically significant increase in
overall response, complete response, durable response, and progression-free
survival (PFS). However, the primary endpoint of overall survival approached but
did not quite reach statistical significance (P=0.077). Subsequently, our
analysis of this trial showed that there was a significant treatment interaction
effect related to levels of a blood enzyme known as LDH. When this effect was
analyzed by treatment arm, survival was shown to be significantly superior for
patients with a non-elevated LDH who received Genasense®
(P=0.018; n=508). Moreover, this benefit was particularly noteworthy for
patients whose baseline LDH did not exceed 80% of the upper limit of normal for
this lab value. LDH had also been previously described by others as the single
most important prognostic factor in advanced melanoma.




Based on
these data, in August 2007 we initiated a new Phase 3 trial of Genasense® plus
chemotherapy in advanced melanoma. This trial, known as AGENDA, is a randomized,
double-blind, placebo-controlled study in which patients are randomly assigned
to receive Genasense® plus
dacarbazine or dacarbazine alone. The study uses LDH as a biomarker to identify
patients who are most likely to respond to Genasense®, based
on data obtained from our preceding trial in melanoma. The co-primary endpoints
of AGENDA are progression-free survival (PFS) and overall
survival.


20


AGENDA is
designed to expand evidence for the safety and efficacy of Genasense® when
combined with dacarbazine for patients who have not previously been treated with
chemotherapy. The study prospectively targets patients who have low-normal
levels of LDH. In March 2009, we completed accrual of 315 patients into AGENDA.
In May 2009, an analysis by an independent Data Monitoring Committee for both
safety and futility indicated that the study passed an evaluation for futility
and safety. Accordingly, the Committee recommended that the study should
continue to completion. We expect results on the primary assessment of PFS in
the fourth quarter of 2009. If those data are positive, we currently expect to
submit regulatory applications based upon confirmation that the addition of
Genasense® to
chemotherapy results in a statistically significant improvement in PFS. Approval
by FDA and EMEA will allow Genasense® to be
commercialized by us, alone or with a partner, in the U.S. and EU.
Genasense® in
melanoma has been designated an Orphan Drug in Australia and the U.S., and the
drug has received Fast Track designation in the U.S.





We are
conducting other trials of Genasense® in
melanoma, including a Phase 2 trial of Genasense® plus
chemotherapy consisting of Abraxane®
(paclitaxel protein-bound particles for injectable suspension) (albumin bound)
plus temozolomide (Temodar®). We
also expect to examine different dosing regimens that will improve the dosing
convenience and commercial acceptance of Genasense®,
including its administration by brief (1-2 hour) IV infusions.





Our NDA
for the use of Genasense® plus
chemotherapy in patients with relapsed or refractory CLL was not approved. We
conducted a randomized Phase 3 trial in 241 patients with relapsed or refractory
CLL who were treated with fludarabine and cyclophosphamide (Flu/Cy) with or
without Genasense®.The
trial achieved its primary endpoint: a statistically significant increase (17%
vs. 7%; P=0.025) in the proportion of patients who achieved a complete response
(CR), defined as a complete or nodular partial response. Patients who achieved
this level of response also experienced disappearance of predefined disease
symptoms. A key secondary endpoint, duration of CR, was also significantly
longer for patients treated with Genasense® (median
exceeding 36+ months in the Genasense® group,
versus 22 months in the chemotherapy-only group).





Several
secondary endpoints were not improved by the addition of Genasense®. The
percentage of patients who experienced serious adverse events was increased in
the Genasense® arm;
however, the percentages of patients who discontinued treatment due to adverse
events were equal in the treatment arms. The incidence of certain serious
adverse reactions, including but not limited to nausea, fever and
catheter-related complications, was increased in patients treated with
Genasense®.





We
submitted our NDA to the FDA in December 2005 in which we sought accelerated
approval for the use of Genasense® in
combination with Flu/Cy for the treatment of patients with relapsed or
refractory CLL who had previously received fludarabine. In December 2006, we
received a “non-approvable” notice for that application from FDA. In April 2007,
we filed an appeal of the non-approvable notice using FDA’s Formal Dispute
Resolution process. In March 2008, we received a formal notice from FDA that
indicated additional confirmatory evidence would be required to support approval
of Genasense® in CLL,
either from a new clinical trial or from collection of additional information
regarding the progression of disease in patients from the completed
trial.





In June
2008, we announced results from 5 years of follow-up on patients who had been
accrued to our completed Phase 3 trial.  These data showed that
patients treated with Genasense® plus
chemotherapy who achieved either a complete response (CR) or a partial response
(PR) also achieved a statistically significant increase in survival compared
with patients treated with chemotherapy alone (median = 56 months vs. 38 months,
respectively).  After 5 years of follow-up, 22 of 49 (45%) responders
in the Genasense® group
were alive compared with 13 of 54 (24%) responders in the chemotherapy-only
group (hazard ratio = 0.6; P = 0.038). Moreover, with 5 years of follow-up, 12
of 20 patients (60%) in the Genasense® group
who achieved CR were alive, 5 of these patients remained in continuous CR
without relapse, and 2 additional patients had relapsed but had not required
additional therapy. By contrast, only 3 of 8 CR patients in the
chemotherapy-only group were alive, all 3 had relapsed, and all 3 had required
additional anti-leukemic treatment.


21





These
data were again submitted to FDA in the second quarter of 2008, and the
application was again denied in December 2008. Genta re-appealed the denial, and
in March 2009, CDER decided that available data were still insufficient to
support approval of Genasense® in CLL,
and the Agency recommended conducting another clinical trial. We have made no
decision whether to conduct this study.





As with
melanoma, we believe the clinical activity in CLL should be explored with
additional clinical research. We plan to explore combinations of Genasense® with
other drugs that are used for the treatment of CLL, and to examine more
convenient dosing regimens.





Several
trials have shown definite evidence of clinical activity for Genasense® in
patients with NHL. We would like to conduct additional clinical studies in
patients with NHL to test whether Genasense® can be
approved in this indication. Previously, we reported that randomized trials of
Genasense® in
patients with myeloma, AML, hormone-refractory prostate cancer, small cell lung
cancer and non small cell lung cancer were not sufficiently positive to warrant
further investigation on the dose-schedules that were examined or with the
chemotherapy that was employed in these trials. Data from these trials have been
presented at various scientific meetings. However, we believe that alternate
dosing schedules, in particular the use of brief high-dose IV infusions, provide
an opportunity to re-examine the drug’s activity in some of these
indications.





In March
2008, we obtained an exclusive worldwide license for tesetaxel from Daiichi
Sankyo Company Ltd. Tesetaxel is a novel taxane compound that is taken by mouth.
Tesetaxel has completed Phase 2 trials in a number of cancer types, and the drug
has shown definite evidence of antitumor activity in gastric cancer and breast
cancer. Tesetaxel also appears to be associated with a lower incidence of
peripheral nerve damage, a common side effect of taxanes that limits the maximum
amount of these drugs that can be given to patients. At the time we obtained the
license, tesetaxel was on “clinical hold” by FDA due to the occurrence of
several fatalities in the setting of severe neutropenia. In the second quarter
of 2008, we filed a response to the FDA requesting a lift of the clinical hold,
which was granted in June 2008. In January 2009, we announced initiation of a
new clinical trial with tesetaxel to examine the clinical pharmacology of the
drug over a narrow dosing range around the established Phase 2
dose.





We have
also submitted applications to FDA for designation of tesetaxel as an Orphan
Drug for treatment of patients with advanced gastric cancer and for patients
with advanced melanoma.  Both of these designations were granted. Our
initial priority for clinical testing of tesetaxel includes the evaluation of
safety and efficacy in patients with advanced gastric cancer. Other disease
priorities for clinical research include advanced melanoma and bladder cancer,
among other disorders. Maintenance of the license from Daiichi Sankyo requires
certain payments that include amortization of licensing fees and milestones. If
such payments are not made, Daiichi Sankyo may elect to terminate the license;
however, a portion of the licensing fees are due even in the event of
termination.





Our third
pipeline product is G4544, which is a novel oral formulation of a
gallium-containing compound that we developed in collaboration with Emisphere
Technologies, Inc. We completed a single-dose Phase 1 study of an initial
formulation of this new drug known as “G4544(a)”, the results of which were
presented in the second quarter of 2008. We are currently contemplating a second
study using a modified formulation, known as “G4544(b)”, in order to test
whether this formulation will prove more clinically acceptable.





If we are
able to identify a clinically and commercially acceptable formulation of G4544
or another oral gallium-containing compound, we currently intend to pursue a
505(b)(2) strategy to establish bioequivalence to our marketed product,
Ganite®, for its
initial regulatory approval. We believe a drug of this type may also be broadly
useful for treatment of other diseases associated with accelerated bone loss,
such as bone metastases, Paget’s disease and osteoporosis. In addition, new uses
of gallium-containing compounds have been identified for treatment of certain
infectious diseases. While we have no current plans to begin clinical
development in the area of infectious disease, we intend to support research
conducted by certain academic institutions by providing clinical supplies of our
gallium-containing drugs.





We are
currently marketing Ganite® in the
U.S., which is an intravenous formulation of gallium, for treatment of
cancer-related hypercalcemia that is resistant to hydration. We have announced
our intention to seek a buyer for Ganite®, but we
have not yet found an acceptable transaction.


22


Results
of Operations for the Three Months Ended June 30, 2009 and June 30,
2008





($
      thousands)
                  
                  2009
                  
                  
                  2008Product
      sales – net
                  
                  $
                  69
                  
                  
                  $
                  131Cost
      of goods sold
                  
                  
                  1
                  
                  
                  
                  29Gross
      margin
                  
                  
                  68
                  
                  
                  
                  102Operating
      expenses:Research
      and development
                  
                  
                  3,674
                  
                  
                  
                  4,454Selling,
      general and administrative
                  
                  
                  1,968
                  
                  
                  
                  2,587Settlement
      of office lease obligation
                  
                  
                  -
                  
                  
                  
                  3,307Reduction
      in liability for settlement of litigation
                  
                  
                  -
                  
                  
                  
                  (80
                  )Total
      operating expenses
                  
                  
                  5,642
                  
                  
                  
                  10,268Other
      (expense)/income:Interest
      income and other income, net
                  
                  
                  1
                  
                  
                  
                  40Interest
      expense
                  
                  
                  (189
                  )
                  
                  
                  (198
                  )Amortization
      of deferred financing costs and debt discount
                  
                  
                  (10,625
                  )
                  
                  
                  (840
                  )Fair
      value – conversion feature liability
                  
                  
                  (19,040
                  )
                  
                  
                  (720,000
                  )Fair
      value – warrant liability
                  
                  
                  (7,655
                  )
                  
                  
                  (7,200
                  )Total
      other income/(expense), net
                  
                  
                  (37,508
                  )
                  
                  
                  (728,198
                  )Net
      loss
                  
                  $
                  (43,082
                  )
                  
                  $
                  (738,364
                  )




Product
sales-net





Product
sales-net were $69,000 for the three months ended June 30, 2009, compared with
$131,000 for the three months ended June 30, 2008. Unit sales of Ganite® declined
76% due to the continued absence of promotional support. Product sales-net
include sales through the “named-patient” program managed for us by IDIS Limited
(a privately owned company based in the United Kingdom), whereby IDIS
distributes Ganite® and
Genasense® on a
‘‘named patient’’ basis. ‘‘Named patient’’ distribution refers to the
distribution or sale of a product to a specific healthcare professional for the
treatment of an individual patient. Product sales-net in 2009 include
named-patient program sales of $35,000, while 2008 results include named-patient
program sales of $5,000.





Cost of goods
sold





During
the three months ended June 30, 2009, virtually all sales of Ganite® were
from product that had been previously accounted for as excess
inventory.





Research and development
expenses




Research
and development expenses were $3.7 million for the three months ended June 30,
2009, compared with $4.5 million for the three months ended June 30, 2008.
Expenses in 2009 declined primarily due to lower expenses on the AGENDA clinical
trial and lower payroll costs, resulting from lower headcount as we reduced our
workforce in April 2008 and May 2008 to conserve cash.





Research
and development expenses incurred on the Genasense® project
during the three months ended June 30, 2009 were approximately $3.4 million,
representing 91% of research and development expenses.





Due to
the significant risks and uncertainties inherent in the clinical development and
regulatory approval processes, the nature, timing and costs of the efforts
necessary to complete projects in development are subject to wide variability.
Results from clinical trials may not be favorable. Data from clinical trials are
subject to varying interpretation and may be deemed insufficient by the
regulatory bodies that review applications for marketing approvals. As such,
clinical development and regulatory programs are subject to risks and changes
that may significantly impact cost projections and timelines.


23





Selling, general and
administrative expenses





Selling,
general and administrative expenses were $2.0 million for the three months ended
June 30, 2009, compared with $2.6 million for the three months ended June 30,
2008. This decrease was primarily due to lower office rent of $0.3 million,
resulting from our termination of a lease for one floor of office space in May
2008 and lower payroll costs of $0.2 million, resulting from the two reductions
in workforce.





Settlement of office lease
obligation





In May
2008, we entered into an amendment of our lease for office space with The
Connell Company, (Connell) whereby the lease for one floor of our office space
in Berkeley Heights, New Jersey was terminated. Connell received a termination
payment of $1.3 million, comprised solely of our security deposits and we agreed
to pay Connell $2.0 million upon the earlier of July 1, 2009 or our receipt of
at least $5.0 million in upfront cash from a business development deal. In
January 2009, we entered into another amendment of our agreement with Connell
whereby our future payment of $2.0 million is now payable on January 1, 2011. We
accrued for the $2.0 million and it is included on our Consolidated Balance
Sheets. We will pay 6.0% interest in arrears to Connell from July 1, 2009
through the new payment date. The initial interest payment of approximately $30
thousand will be payable as of October 1, 2009.





Interest and other income,
net


Interest
expense





The total
of interest and other income,  net and interest expense resulted in
expense, net of $(0.2) million for the first three months of 2009, virtually
unchanged from the prior-year period. A lower balance of our 2008 Notes,
resulting in lower interest expense, was offset by interest expense on our April
2009 Notes.





Amortization of deferred
financing costs and debt discount





On April
2, 2009, we issued approximately $6 million of April 2009 Notes, and
corresponding warrants to purchase common stock, issued our private placement
agent a warrant and incurred financing fees of $0.7 million. The deferred
financing costs, including the financing fee and the issuance of the warrants,
are being amortized over the three-year term of the convertible notes. On April
2, 2009, we recorded a debt discount (beneficial conversion) relating to the
conversion feature in the amount of approximately $6.0 million. We are
amortizing the resultant debt discount over the term of the notes through their
maturity date.





On June
9, 2008, we issued $20 million of 2008 Notes, issued our private placement agent
a warrant and incurred financing fees of $1.2 million. The deferred financing
costs, including the financing fee and the issuance of the warrant, are being
amortized over the two-year term of the convertible notes. At the time the notes
were issued, we recorded a debt discount (beneficial conversion) relating to the
conversion feature in the amount of $20.0 million. We are amortizing the
resultant debt discount over the term of the notes through their maturity
date.





As a
result of issuing the April 2009 Notes, the conversion rate for the 2008 Notes
was adjusted to be the same conversion rate as the April 2009 Notes.
Accordingly, the 2008 Notes that originally were convertible into shares of
Genta common stock at a conversion rate of 2,000 shares of common stock for
every $1,000.00 of principal were adjusted to be convertible into shares of
Genta common stock at a conversion rate of 10,000 shares of common stock for
every $1,000.00 of principal. In accordance with EITF 00-27, we valued this
change in the conversion rate on April 2, 2009; the aggregate intrinsic value of
the difference in conversion rates was in excess of the $10.7 million face value
of the 2008 Notes. Thus, a full debt discount was recorded in an amount equal to
the face value of the 2008 Notes and we are amortizing the resultant debt
discount over the remaining term of the 2008 Notes.


24


For the
three months ended June 30, 2009, the amortization of deferred financing costs
and debt discount for the 2008 Notes was $9.8 million and for the April 2009
Notes was $0.8 million. In the prior-year quarter, the $0.8 million amortization
of deferred financing costs and debt discount resulted from the 2008
Notes.





Fair value – conversion
feature liability





On the
dates that we issued the 2008 Notes and the April 2009 Notes, there were an
insufficient number of authorized shares of common stock in order to permit
conversion of all of the notes. In accordance with EITF 00-19, “Accounting for
Derivative Financial Instruments Indexed to, and Potentially Settled in, a
Company’s Own Stock” (EITF 00-19), when there are insufficient authorized shares
to allow for settlement of convertible financial instruments, the conversion
obligation for the notes should be classified as a liability and measured at
fair value on the balance sheet.





On April
2, 2009, using a Black-Scholes valuation model, we calculated a fair value of
the conversion feature of the April 2009 Notes of $67.8 million and expensed
$61.8 million, the amount that exceeded the proceeds of the $6.0 million from
the closing. On June 26, 2009, our stockholders, at a Special Meeting of
Stockholders, authorized our Board of Directors to effect a reverse stock split
and our Board of Directors effected a 1-for-50 reverse stock split, resulting in
us having enough shares of common stock in order to permit conversion of all the
April 2009 Notes. We re-measured the conversion feature liability at $25.0
million, resulting in net expense for the three months ended June 30, 2009 of
$19.0 million and credited it to permanent equity.





On June
9, 2008, based upon a Black-Scholes valuation model, we calculated a fair value
of the conversion feature of the 2008 Notes of $380.0 million and expensed
$360.0 million, the amount that exceeded the proceeds of the $20.0 million from
the closing. On June 30, 2008, , we expensed an additional $380.0 million to
mark the conversion feature liability of the 2008 Note to market, resulting in a
total expense in June 2008 of $720.0 million.





Fair value – warrant
liability





The
warrants that were issued with the 2008 Notes and the April 2009 Notes were also
treated as liabilities, due to the insufficient number of authorized shares of
common stock at the time that they were issued.





On April
2, 2009, using a Black-Scholes valuation model, we calculated a fair value of
$1.125 per warrant for the warrants issued with the April 2009 Notes, or a total
of $20.8 million. On June 26, 2009, the date of the reverse stock split, we
re-measured the warrants at a fair value per warrant of $0.415 per warrant, or
$7.7 million, resulting in expense of $7.7 million, and credited them to
permanent equity.





The
warrants issued with the 2008 Notes were initially recorded at a fair value of
$7.6 million based upon a Black-Scholes valuation model and re-measured at June
30, 2008, resulting in expense of $7.2 million in June 2008.





Net loss





Genta
recorded a net loss of $43.1 million, or net loss per basic and diluted share of
$0.63, for the three months ended June 30, 2009 and incurred a net loss of
$738.4 million, or net loss per basic and diluted share of $1,004.84, for the
three months ended June 30, 2008.





The lower
net loss for the three months ended June 30, 2009 was primarily due to lower
expenses from marking to market the conversion feature liabilities of our notes.
In addition, the results reflect our lower operational expenses, primarily
attributable to reduced headcount and payroll expenses, and higher amortization
of financing costs and debt discount.


25


Results
of Operations for the Six Months Ended June 30, 2009 and June 30,
2008





($
      thousands)
                  
                  2009
                  
                  
                  2008Product
      sales – net
                  
                  $
                  131
                  
                  
                  $
                  248Cost
      of goods sold
                  
                  
                  1
                  
                  
                  
                  54Gross
      margin
                  
                  
                  130
                  
                  
                  
                  194Operating
      expenses:Research
      and development
                  
                  
                  5,972
                  
                  
                  
                  10,891Selling,
      general and administrative
                  
                  
                  4,140
                  
                  
                  
                  6,225Setttlement
      of office lease obligation
                  
                  
                  -
                  
                  
                  
                  3,307Reduction
      in liability for settlement of litigation
                  
                  
                  -
                  
                  
                  
                  (340
                  )Total
      operating expenses
                  
                  
                  10,112
                  
                  
                  
                  20,083Other
      (expense)/income:Gain
      on maturity of marketable securities
                  
                  
                  -
                  
                  
                  
                  31Interest
      income and other income, net
                  
                  
                  16
                  
                  
                  
                  100Interest
      expense
                  
                  
                  (576
                  )
                  
                  
                  (223
                  )Amortization
      of deferred financing costs and debt discount
                  
                  
                  (16,912
                  )
                  
                  
                  (840
                  )Fair
      value – conversion feature liability
                  
                  
                  (19,040
                  )
                  
                  
                  (720,000
                  )Fair
      value – warrant liability
                  
                  
                  (7,655
                  )
                  
                  
                  (7,200
                  )Total
      other income/(expense), net
                  
                  
                  (44,167
                  )
                  
                  
                  (728,132
                  )Net
      loss
                  
                  $
                  (54,149
                  )
                  
                  $
                  (748,021
                  )





Product
sales-net





Product
sales-net were $131,000 for the six months ended June 30, 2009, compared with
$248,000 for the six months ended June 30, 2008. Unit sales of Ganite® declined
48%. Product sales-net in 2009 include named-patient program sales of $48,000,
while 2008 results include named-patient program sales of $15,000.





Cost of goods
sold





During
the six months ended June 30, 2009, virtually all sales of Ganite® were
from product that had been previously accounted for as excess
inventory.





Research and development
expenses




Research
and development expenses were $6.0 million for the six months ended June 30,
2009, compared with $10.9 million for the six months ended June 30, 2008. In
March 2008, we entered into a worldwide license agreement for tesetaxel.
Pursuant to this agreement, we recognized $2.5 million for license payments in
March 2008. Expenses in 2009 also declined primarily due to lower payroll costs,
resulting from lower headcount as we reduced our workforce in April 2008 and May
2008 to conserve cash as well as lower expenses on the AGENDA clinical
trial.





Research
and development expenses incurred on the Genasense® project
during the six months ended June 30, 2009 were approximately $5.4 million,
representing 91% of research and development expenses.





Selling, general and
administrative expenses





Selling,
general and administrative expenses were $4.1 million for the six months ended
June 30, 2009, compared with $6.2 million for the six months ended June 30,
2008. This decrease was primarily due to lower payroll costs of $0.9 million,
resulting from the two reductions in workforce and lower office rent of $0.8
million, resulting from our termination of a lease for one floor of office space
in May 2008.


26


Gain on maturity of
marketable securities


Interest and other income,
net


Interest
expense





The total
of the above referenced accounts resulted in expense, net of $(0.6) million for
the six months ended June 30, 2009, compared with expense, net of $(0.1) million
for the prior-year period. This increase was primarily due to interest incurred
on the 2008 Notes and the April 2009 Notes, as well as lower interest income,
resulting from lower investment balances.





Amortization of deferred
financing costs and debt discount





For the
six months ended June 30, 2009, the amortization of deferred financing costs and
debt discount for the 2008 Notes was $16.1 million and for the April 2009 Notes
was $0.8 million. In the prior-year period, the $0.8 million amortization of
deferred financing costs and debt discount resulted from the 2008
Notes.





Net loss





Genta
recorded a net loss of $54.1 million, or net loss per basic and diluted share of
$1.24, for the six months ended June 30, 2009 and incurred a net loss of $748.0
million, or net loss per basic and diluted share of $1,060.69, for the six
months ended June 30, 2008.





The lower
net loss for the six months ended June 30,2009 was primarily due to lower
expenses from marking to market the conversion feature liabilities of our notes.
In addition, the results reflect, our lower operational expenses, primarily
attributable to last year’s settlement of office lease obligation, reduced
headcount and payroll expenses, and higher amortization of financing costs and
debt discount.





Liquidity
and Capital Resources





At June
30, 2009, we had cash and cash equivalents totaling $0.7 million, compared with
$4.9 million at December 31, 2008, reflecting the funds used in operating our
company.





On June
9, 2008, we placed $20 million of 2008 Notes with certain institutional and
accredited investors. The 2008 Notes bear interest at an annual rate of 15%
payable at quarterly intervals in other senior secured convertible promissory
notes to the holder, and are presently convertible into shares of Genta common
stock at a conversion rate of 10,000 shares of common stock for every $1,000.00
of principal.





On April
2, 2009, we closed on approximately $6 million of April 2009 notes and warrants.
The April 2009 Notes bear interest at an annual rate of 8% payable semi-annually
in other senior secured convertible promissory notes to the holder, and are
convertible into shares of our common stock at a conversion rate of 10,000
shares of common stock for every $1,000.00 of principal amount
outstanding.





On July
7, 2009, we entered into a securities purchase agreement with certain accredited
institutional investors to place up to $10 million in aggregate principal amount
of units consisting of (i) 70% unsecured subordinated convertible notes, or the
July 2009 Notes, and (ii) 30% common stock.  In connection with the
sale of the units, we also issued to the investors two-year warrants to purchase
common stock in an amount equal to 25% of the number of shares of common stock
issuable upon conversion of the Notes purchased by each investor.  We
closed on $3 million of such July 2009 Notes, common stock and warrants on July
7, 2009.





On August
6, 2009, we entered into an amendment whereby, among other things, the certain
accredited institutional investors who were parties to the July 2009 securities
purchase agreement agreed to purchase $10 million of additional notes and
warrants having the same terms of the July 2009 Notes as well as shares of
common stock, increasing their aggregate investment to $13
million.


27





During
the first six months of 2009, cash used in operating activities was $9.5 million
compared with $14.4 million for the same period in 2008, reflecting the reduced
size of our company.





Presently,
with no further financing, we project that we will run out of funds in September
2009. The terms of the July 2009 financing, as amended, commit those investors
to purchase $10 million of additional notes and warrants having the same terms
of the July 2009 Notes as well as shares of common stock. If that additional
financing is consummated, we project that we will run out of funds in January
2010. The terms of the April 2009 Notes enable those noteholders, at their
option, to purchase additional notes with similar terms. We currently do not
have any additional financing in place. If we are unable to raise additional
funds, we could be required to reduce our spending plans, reduce our workforce,
license one or more of our products or technologies that we would otherwise seek
to commercialize ourselves, or sell certain assets. There can be no assurance
that we can obtain financing, if at all, on terms acceptable to us.





Irrespective
of whether an NDA or MAA for Genasense® is
approved, we will require additional cash in order to maximize this commercial
opportunity and to continue its clinical development opportunities. We have had
discussions with other companies regarding partnerships for the further
development and global commercialization of Genasense®.
Additional alternatives available to us to sustain our operations include
financing arrangements with potential corporate partners, debt financing,
asset-based loans, royalty-based financing, equity financing, profits from
named-patient sales, and other potential sources of financing. However, there
can be no assurance that any such collaborative agreements or other sources of
funding will be available to us on favorable terms, if at all.





We
anticipate seeking additional product development opportunities through
potential acquisitions or investments. Such acquisitions or investments may
consume cash reserves or require additional cash or equity. Our working capital
and additional funding requirements will depend upon numerous factors,
including: (i) the progress of our research and development programs; (ii) the
timing and results of pre-clinical testing and clinical trials; (iii) the level
of resources that we devote to sales and marketing capabilities; (iv)
technological advances; (v) the activities of competitors; and (vi) our ability
to establish and maintain collaborative arrangements with others to fund certain
research and development efforts, to conduct clinical trials, to obtain
regulatory approvals and, if such approvals are obtained, to manufacture and
market products.





Recent
Accounting Pronouncements





In June
2009, the Financial Accounting Standards Board (FASB) issued SFAS No. 168, The FASB Accounting Standards
Codification and the Hierarchy of GenerallyAccepted Accounting. SFAS 168
represents the last numbered standard to be issued by FASB under the old
(pre-Codification) numbering system, and amends the GAAP hierarchy. On July 1,
2009, FASB will launch new FASB’s Codification (full name: the FASB Accounting
Standards Codification TM.) The Codification will supersede existing GAAP for
nongovernmental entities; governmental entities will continue to follow
standards issued by FASB's sister organization, the Governmental Accounting
Standards Board (GASB). This pronouncement has no effect on Company’s financial
statements.





In May
2009, the FASB issued SFAS 165, Subsequent Events.SFAS 165
incorporates into authoritative accounting literature certain guidance that
already existed within generally accepted auditing standards, but the rules
concerning recognition and disclosure of subsequent events will remain
essentially unchanged. Subsequent events guidance addresses events which occur
after the balance sheet date but before the issuance of financial statements.
Under Statement No. 165 as under current practice, an entity must record the
effects of subsequent events that provide evidence about conditions that existed
at the balance sheet date and must disclose but not record the effects of
subsequent events which provide evidence about conditions that did not exist at
the balance sheet date. We adopted SFAS 165 and it did not have an impact on our
consolidated financial statements. There were no recognized or nonrecognized
subsequent events occurring after June 30, 2009 that required accounting or
disclosure in accordance with SFAS 165. Subsequent events were evaluated to
August 14, 2009, the date the financial statements of the Company were
issued.


28





In April
2009, the FASB issued FASB Staff Position SFAS 141(R)-1, Accounting for Assets Acquired and
Liabilities Assumed in a Business Combination That Arise from
Contingencies, to amend and clarify the initial recognition and
measurement, subsequent measurement and accounting, and related disclosures
arising from contingencies in a business combination under SFAS 141(R). Under
the new guidance, assets acquired and liabilities assumed in a business
combination that arise from contingencies should be recognized at fair value on
the acquisition date if fair value can be determined during the measurement
period. If fair value can not be determined, companies should typically account
for the acquired contingencies using existing guidance. The implementation of
this standard did not have a material effect on our consolidated financial
statements.





Critical
Accounting Policies and Estimates





Our
significant accounting policies are more fully described in Note 2 to our
consolidated financial statements. In preparing our financial statements in
accordance with accounting principles generally accepted in the United States of
America, management is required to make estimates and assumptions that, among
other things, affect the reported amounts of assets and liabilities and reported
amounts of revenues and expenses. These estimates are most significant in
connection with our critical accounting policies, namely those of our accounting
policies that are most important to the portrayal of our financial condition and
results and require management’s most difficult, subjective or complex
judgments. These judgments often result from the need to make estimates about
the effects of matters that are inherently uncertain. Actual results may differ
from those estimates under different assumptions or conditions. We believe that
the following represents our critical accounting policies:





·
            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, 2008 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.




29


Item
3. Quantitative and
Qualitative Disclosures about Market Risk





Our
carrying values of cash, marketable securities, accounts payable, accrued
expenses and debt are a reasonable approximation of their fair value. The
estimated fair values of financial instruments have been determined by us using
available market information and appropriate valuation methodologies. We have
not entered into and do not expect to enter into, financial instruments for
trading or hedging purposes. We do not currently anticipate entering into
interest rate swaps and/or similar instruments.




Our
primary market risk exposure with regard to financial instruments is to changes
in interest rates, which would impact interest income earned on such
instruments. We have no material currency exchange or interest rate risk
exposure as of June 30, 2009. Therefore, there will be no ongoing exposure to a
potential material adverse effect on our business, financial condition or
results of operation for sensitivity to changes in interest rates or to changes
in currency exchange rates.





Item
4T. Controls and
Procedures





Conclusion
Regarding the Effectiveness of Disclosure Controls and Procedures





As
required by Rule 13a-15(b), Genta’s Chief Executive Officer and Principal
Accounting and Financial Officer conducted an evaluation as of the end of the
period covered by this report of the effectiveness of the Company’s ‘‘disclosure
controls and procedures’’ (as defined in Exchange Act Rule 13a-15(e)). Based on
that evaluation, the Chief Executive Officer and Principal Accounting and
Financial Officer concluded that the Company’s disclosure controls and
procedures were effective as of the end of the period covered by this
report.





Changes
in Internal Control Over Financial Reporting





There
were no changes in our internal control over financial reporting identified in
connection with the evaluation required by paragraph (d) of Exchange Act Rule
13a-15 that occurred during the period covered by this report that have
materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.


30


PART
II





Item
1. Legal
Proceedings





In
September 2008, several shareholders of our Company, on behalf of themselves and
all others similarly situated, filed a class action complaint against our
Company, our Board of Directors, and certain of our executive officers in
Superior Court of New Jersey, captioned Collins v. Warrell, Docket No.
L-3046-08. The complaint alleged that in issuing convertible notes, our Board of
Directors, and certain officers breached their fiduciary duties, and our Company
aided and abetted the breach of fiduciary duty. On March 20, 2009, the Superior
Court of New Jersey granted the motion of our Company to dismiss the class
action complaint and dismissed the complaint with prejudice.  On April
30, 2009, the plaintiffs filed a notice of appeal with the Appellate
Division. On May 13, 2009, the plaintiffs filed a motion for relief from
judgment based on a claim of new evidence, which was denied on June 12,
2009. The plaintiffs also asked the Appellate Division for a temporary
remand to permit the Superior Court judge to resolve the issues of the new
evidence plaintiffs sought to raise. By order dated June 25, 2009, and
filed on July 6, 2009, the Appellate Division granted the motion for temporary
remand, and directed the issues on remand to be resolved in 30 days. A
hearing on the plaintiffs' motion was held on July 31, 2009, at which time the
Court permitted letter briefing on the issues raised during that
hearing.  The plaintiffs submitted a letter brief on August 3, 2009,
and the Company submitted a letter brief on August 5, 2009.  No ruling
has yet issued.   The Company strongly denies the allegations of
this complaint and intends to vigorously defend this lawsuit.





In
November 2008, a complaint against our Company and its transfer agent, BNY
Mellon Shareholder Services, was filed in the Supreme Court of the State of New
York by an individual stockholder. The complaint alleges that our Company and
our transfer agent caused or contributed to losses suffered by the stockholder.
Our Company denies the allegations of this complaint and intends to vigorously
defend this lawsuit.





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,
2008 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 occur, 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




Our
business will suffer if we fail to obtain timely funding.




Our
operations to date have required significant cash expenditures. Our future
capital requirements will depend on the results of our research and development
activities, preclinical studies and clinical trials, competitive and
technological advances, and regulatory activities of the FDA and other
regulatory authorities. In order to commercialize our products, seek new product
candidates and continue our research and development programs, we will need to
raise additional funds.





On June
9, 2008, we placed $20 million of senior secured convertible notes, or the 2008
Notes, with certain institutional and accredited investors. The 2008 Notes bear
interest at an annual rate of 15% payable at quarterly intervals in other senior
secured convertible promissory notes to the holder, and are presently
convertible into shares of Genta common stock at a conversion rate of 10,000
shares of common stock for every $1,000.00 of principal.


31





On April
2, 2009, we entered into a securities purchase agreement with certain accredited
institutional investors to place up to $12 million of senior secured convertible
notes, or the April 2009 Notes, and corresponding warrants to purchase common
stock. We closed on approximately $6 million of such notes and warrants on April
2, 2009. The April 2009 Notes bear interest at an annual rate of 8% payable
semi-annually in other senior secured convertible promissory notes to the
holder, and are convertible into shares of our common stock at a conversion rate
of 10,000 shares of common stock for every $1,000.00 of principal amount
outstanding.





On July
7, 2009, we entered into a securities purchase agreement with certain accredited
institutional investors to place up to $10 million in aggregate principal amount
of units consisting of (i) 70% unsecured subordinated convertible notes, or the
July 2009 Notes, and (ii) 30% common stock.  In connection with the
sale of the units, we also issued to the investors two-year warrants to purchase
common stock in an amount equal to 25% of the number of shares of common stock
issuable upon conversion of the Notes purchased by each investor.  We
closed on $3.0 million of such July 2009 Notes, common stock and warrants on
July 7, 2009.





On August
6, 2009, we entered into an amendment whereby, among other things, the certain
accredited institutional investors who were parties to the July 2009 securities
purchase agreement agreed to purchase $10 million of additional notes and
warrants having the same terms of the July 2009 Notes as well as shares of
common stock, increasing their aggregate investment to $13 million.





We will
need to obtain more funding in the future through collaborations or other
arrangements with research institutions and corporate partners or public and
private offerings of our securities, including debt or equity financing. We may
not be able to obtain adequate funds for our operations from these sources when
needed or on acceptable terms. Future collaborations or similar arrangements may
require us to license valuable intellectual property to, or to share substantial
economic benefits with, our collaborators. If we raise additional capital by
issuing additional equity or securities convertible into equity, our
stockholders may experience dilution and our share price may decline. Any debt
financing may result in restrictions on our spending.





If we are
unable to raise additional funds, we will need to do one or more of the
following:




·
              delay,
      scale back or eliminate some or all of our research and product
      development programs;


·
              license
      one or more of our products or technologies that we would otherwise seek
      to commercialize ourselves;


·
              attempt
      to sell our company or sell certain
assets;


·
              cease
      operations; or


·
              declare
      bankruptcy.


Presently,
with no further financing, we will run out of funds in September 2009. The terms
of the July 2009 financing, as amended, commit those investors to purchase $10
million of additional notes and warrants having the same terms of the July 2009
Notes, as well as shares of common stock. If that additional financing is
consummated, we project that we will run out of funds in January 2010. The terms
of the April 2009 Notes enable those noteholders, at their option, to purchase
additional notes with similar terms. We currently do not have any additional
financing in place. There can be no assurance that we can obtain financing, if
at all, on terms acceptable to us.


32


We
may be unsuccessful in our efforts to obtain approval from the FDA or EMEA and
commercialize Genasense® or our
other pharmaceutical products.




The
commercialization of our pharmaceutical products involves a number of
significant challenges. In particular, our ability to commercialize products,
such as Ganite® and
Genasense®,
depends, in large part, on the success of our clinical development programs, our
efforts to obtain regulatory approvals and our sales and marketing efforts
directed at physicians, patients and third-party payors. A number of factors
could affect these efforts, including:


·
              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.




We cannot
assure you that Genasense® will
receive FDA or EMEA approval. For example, the NDA for Genasense® in
melanoma was withdrawn in 2004 after an advisory committee to the FDA failed to
recommend approval. A negative decision was also received for a similar
application in melanoma from the EMEA in 2007. Our NDA for Genasense® plus
chemotherapy in patients with relapsed or refractory CLL was also
unsuccessful.





Our
financial condition and results of operations have been and will continue to be
significantly affected by FDA and EMEA action with respect to Genasense®. Any
adverse outcomes with respect to FDA and/or EMEA approvals could negatively
impact our ability to obtain additional funding or identify potential
partners.




Ultimately,
our efforts may not prove to be as effective as those of our competitors. In the
U.S. and elsewhere, our products will face significant competition. The
principal conditions on which our product development efforts are focused and
some of the other disorders for which we are conducting additional studies, are
currently treated with several drugs, many of which have been available for a
number of years or are available in inexpensive generic forms. Thus, even if we
obtain regulatory approvals, we will need to demonstrate to physicians, patients
and third-party payors that the cost of our products is reasonable and
appropriate in light of their safety and efficacy, the price of competing
products and the relative health care benefits to the patient. If we are unable
to demonstrate that the costs of our products are reasonable and appropriate in
light of these factors, we will likely be unsuccessful in commercializing our
products.




Recurring
losses and negative cash flows from operations raise substantial doubt about our
ability to continue as a going concernand we may
not be able to continue as a 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, 2008 with respect to this uncertainty. Substantial
doubt about our ability to continue as a going concern may create negative
reactions to the price of the common shares of our stock and we may have a more
difficult time obtaining financing.


33


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.




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.




We have
entered into collaborative relationships relating to the conduct of clinical
research and other research activities in order to augment our internal research
capabilities and to obtain access to specialized knowledge and expertise. Our
business strategy depends in part on our continued ability to develop and
maintain relationships with leading academic and research institutions and with
independent researchers. The competition for these relationships is intense, and
we can give no assurances that we will be able to develop and maintain these
relationships on acceptable terms.





We also
seek strategic alliances with corporate partners, primarily pharmaceutical and
biotechnology companies, to help us develop and commercialize drugs. Various
problems can arise in strategic alliances. A partner responsible for conducting
clinical trials and obtaining regulatory approval may fail to develop a
marketable drug. A partner may decide to pursue an alternative strategy or focus
its efforts on alliances or other arrangements with third parties. A partner
that has been granted marketing rights for a certain drug within a geographic
area may fail to market the drug successfully. Consequently, strategic alliances
that we may enter into may not be scientifically or commercially
successful.





We cannot
control the resources that any collaborator may devote to our products. Any of
our present or future collaborators may not perform their obligations as
expected. These collaborators may breach or terminate their agreements with us,
for instance upon changes in control or management of the collaborator, or they
may otherwise fail to conduct their collaborative activities successfully and in
a timely manner.





In
addition, our collaborators may elect not to develop products arising out of our
collaborative arrangements or to devote sufficient resources to the development,
regulatory approval, manufacture, marketing or sale of these products. If any of
these events occur, we may not be able to develop or commercialize our
products.





An
important part of our strategy involves conducting multiple product development
programs. We may pursue opportunities in fields that conflict with those of our
collaborators. In addition, disagreements with our collaborators could develop
over rights to our intellectual property. The resolution of such conflicts and
disagreements may require us to relinquish rights to our intellectual property
that we believe we are entitled to. In addition, any disagreement or conflict
with our collaborators could reduce our ability to obtain future collaboration
agreements and negatively impact our relationship with existing collaborators.
Such a conflict or disagreement could also lead to delays in collaborative
research, development, regulatory approval or commercialization of various
products or could require or result in litigation or arbitration, which would be
time consuming and expensive, divert the attention of our management and could
have a significant negative impact on our business, financial condition and
results of operations.





We
anticipate that we will incur additional losses and we may never be
profitable.




We have
never been profitable. We have incurred substantial annual operating losses
associated with ongoing research and development activities, preclinical
testing, clinical trials, regulatory submissions and manufacturing activities.
From the period since our inception to June 30, 2009, we have incurred a
cumulative net deficit of $998.3 million. We may never achieve revenue
sufficient for us to attain profitability. Achieving profitability is unlikely
unless Genasense® receives
approval from the FDA or EMEA for commercial sale in one or more
indications.


34




Our
business depends heavily on a small number of products.




We
currently market and sell one product, Ganite® and the
principal patent covering its use for the approved indication expired in April
2005. If Genasense® is not
approved, if approval is significantly delayed, or if in the event of approval
the product is commercially unsuccessful, then we do not expect significant
sales of other products to offset this loss of potential revenue.





To
diversify our product line in the long term, it will be important for us to
identify suitable technologies and products for acquisition or licensing and
development. If we are unable to identify suitable technologies and products, or
if we are unable to acquire or license products we identify, we may be unable to
diversify our product line and to generate long-term growth.





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.




Our
success will depend to a large extent on our ability to:




·
              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.


Legal
standards relating to the validity of patents covering pharmaceutical and
biotechnological inventions and the scope of claims made under these types of
patents are still developing, and they involve complex legal and factual
questions. As a result, our ability to obtain and enforce patents that protect
our drugs is highly uncertain. If we are unable to obtain and enforce patents
and licenses to protect our drugs, our business, results of operations and
financial condition could be adversely affected.





We hold
numerous U.S., foreign and international patents covering various aspects of our
technology, which include novel compositions of matter, methods of large-scale
synthesis and methods of controlling gene expression and methods of treating
disease. In the future, however, we may not be successful in obtaining
additional patents despite pending or future applications. Moreover, our current
and future patents may not be sufficient to protect us against competitors who
use similar technology. Additionally, our patents, the patents of our business
partners and the patents for which we have obtained licensing rights may be
challenged, narrowed, invalidated or circumvented. Furthermore, rights granted
under our patents may not be broad enough to cover commercially valuable drugs
or processes, and therefore, may not provide us with sufficient competitive
advantage with respect thereto.





The
pharmaceutical and biotechnology industries have been greatly affected by
time-consuming and expensive litigation regarding patents and other intellectual
property rights. We may be required to commence, or may be made a party to,
litigation relating to the scope and validity of our intellectual property
rights or the intellectual property rights of others. Such litigation could
result in adverse decisions regarding the patentability of our inventions and
products, the enforceability, validity or scope of protection offered by our
patents or our infringement of patents held by others. Such decisions could make
us liable for substantial money damages, or could bar us from the manufacture,
sale or use of certain products. Moreover, an adverse decision may also compel
us to seek a license from a third party. The costs of any license may be
prohibitive and we may not be able to enter into any required licensing
arrangement on terms acceptable to us.


35




The cost
to us of any litigation or proceeding relating to patent or license rights, even
if resolved in our favor, could be substantial. Some of our competitors may be
able to sustain the costs of complex patent or licensing litigation more
effectively than we can because of their substantially greater resources.
Uncertainties resulting from the initiation and continuation of any patent or
related litigation could have a material adverse effect on our ability to
compete in the marketplace.





We also
may be required to participate in interference proceedings declared by the U.S.
Patent and Trademark Office in opposition or similar proceedings before foreign
patent offices and in International Trade Commission proceedings aimed at
preventing the importation of drugs that would compete unfairly with our drugs.
These types of proceedings could cause us to incur considerable
costs.





The
principal patent covering the use of Ganite® for its
approved indication, including Hatch-Waxman extensions, expired in April
2005.





Genta’s
patent portfolio includes approximately 65 granted patents and 66 pending
applications in the U.S. and foreign countries. We endeavor to seek appropriate
U.S. and foreign patent protection on our oligonucleotide
technology.





We have
licensed ten U.S. patents relating to Genasense® and its
backbone chemistry that expire between 2008 and 2015. Corresponding patent
applications have been filed in three foreign countries. We also own five U.S.
patent applications relating to methods of using Genasense® expected
to expire in 2020 and 2026, with approximately 50 corresponding foreign patent
applications and granted patents.





Most
of our products are in an early stage of development, and we may never receive
regulatory approval for these products.





Most of
our resources have been dedicated to the research and development of potential
antisense pharmaceutical products such as Genasense®, based
upon oligonucleotide technology. While we have demonstrated the activity of
antisense oligonucleotide technology in model systems in vitro and in animals,
Genasense® is our
only antisense product to have been tested in humans. Several of our other
technologies that serve as a possible basis for pharmaceutical products are only
in preclinical testing. Results obtained in preclinical studies or early
clinical investigations are not necessarily indicative of results that will be
obtained in extended human clinical trials. Our products may prove to have
undesirable and unintended side effects or other characteristics that may
prevent our obtaining FDA or foreign regulatory approval for any indication. In
addition, it is possible that research and discoveries by others will render our
oligonucleotide technology obsolete or noncompetitive.





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.




Our
success will depend on the success of our currently ongoing clinical trials and
subsequent clinical trials that have not yet begun. It may take several years to
complete the clinical trials of a product, and a failure of one or more of our
clinical trials can occur at any stage of testing. We believe that the
development of each of our product candidates involves significant risks at each
stage of testing. If clinical trial difficulties and failures arise, our product
candidates may never be approved for sale or become commercially viable. We do
not believe that any of our product candidates have alternative uses if our
current development activities are unsuccessful.




There are
a number of difficulties and risks associated with clinical trials. These
difficulties and risks may result in the failure to receive regulatory approval
to sell our product candidates or the inability to commercialize any of our
product candidates. The possibility exists that:




·
            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;




36




·
            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.




Between
2004 and 2007, we reported that randomized trials of Genasense® in patients with
myeloma, acute myeloid leukemia, (AML), hormone-refractory prostate cancer,
small cell lung cancer and non small cell lung cancer were not sufficiently
positive to warrant further investigation on the dose-schedules that were
examined or with the chemotherapy that was employed in these trials. Data from
these trials have been presented at various scientific meetings.




We cannot
assure you that our ongoing preclinical studies and clinical trials will produce
successful results in order to support regulatory approval of Genasense® in any
territory or for any indication. Failure to obtain approval, or a substantial
delay in approval of Genasense® for
these or any other indications would have a material adverse effect on our
results of operations and financial condition.




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.




Clinical
trials are very costly and time-consuming. The length of time required to
complete a clinical study depends upon many factors, including but not limited
to the size of the patient population, the ability of patients to get to the
site of the clinical study, the criteria for determining which patients are
eligible to join the study and other issues. Delays in patient enrollment and
other unforeseen developments could delay completion of a clinical study and
increase its costs, which could also delay any eventual commercial sale of the
drug that is the subject of the clinical trial.




Our
commencement and rate of completion of clinical trials also may be delayed by
many other factors, including the following:




·
            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.




37




If
we fail to obtain the necessary regulatory approvals, we cannot market and sell
our products in the United States.




The FDA
imposes substantial pre-market approval requirements on the introduction of
pharmaceutical products. These requirements involve lengthy and detailed
preclinical and clinical testing and other costly and time-consuming procedures.
Satisfaction of these requirements typically takes several years or more
depending upon the type, complexity and novelty of the product. We cannot apply
for FDA approval to market any of our products under development until
preclinical and clinical trials on the product are successfully completed.
Several factors could prevent successful completion or cause significant delays
of these trials, including an inability to enroll the required number of
patients or failure to demonstrate adequately that the product is safe and
effective for use in humans. If safety concerns develop, the FDA could stop our
trials before completion. We may not market or sell any product for which we
have not obtained regulatory approval.




We cannot
assure you that the FDA will ever approve the use of our products that are under
development. If the patient populations for which our products are approved are
not sufficiently broad, or if approval is accompanied by unanticipated labeling
restrictions, the commercial success of our products could be limited and our
business, results of operations and financial condition could consequently be
materially adversely affected.




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.




We do not
manufacture any of our products or product candidates and we do not plan to
develop any capacity to do so. We have contracted with third-party manufacturers
to manufacture Ganite® and
Genasense®. The
manufacture of pharmaceutical products requires significant expertise and
capital investment, including the development of advanced manufacturing
techniques and process controls. Manufacturers of pharmaceutical products often
encounter difficulties in production, especially in scaling up initial
production. These problems include difficulties with production costs and
yields, quality control and assurance and shortages of qualified personnel, as
well as compliance with strictly enforced federal, state and foreign
regulations. Our third-party manufacturers may not perform as agreed or may
terminate their agreements with us.




In
addition to product approval, any facility in which Genasense® is
manufactured or tested for its ability to meet required specifications must be
approved by the FDA and/or the EMEA before it can manufacture Genasense®. Failure
of the facility to be approved could delay the approval of Genasense®.




We do not
currently have alternate manufacturing plans in place. The number of third-party
manufacturers with the expertise, required regulatory approvals and facilities
to manufacture bulk drug substance on a commercial scale is limited, and it
would take a significant amount of time to arrange for alternative
manufacturers. If we need to change to other commercial manufacturers, the FDA
and comparable foreign regulators must approve these manufacturers’ facilities
and processes prior to our use, which would require new testing and compliance
inspections, and the new manufacturers would have to be educated in or
independently develop the processes necessary for the production of our
products.




Any of
these factors could cause us to delay or suspend clinical trials, regulatory
submissions, required approvals or commercialization of our products or product
candidates, entail higher costs and result in our being unable to effectively
commercialize our products. Furthermore, if our third-party manufacturers fail
to deliver the required commercial quantities of bulk drug substance or finished
product on a timely basis and at commercially reasonable prices, and we were
unable to promptly find one or more replacement manufacturers capable of
production at a substantially equivalent cost, in substantially equivalent
volume and on a timely basis, we would likely be unable to meet demand for our
products and we would lose potential revenues.




38




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.




Ganite®,
Genasense®(if it obtains regulatory approval), and any other product we may develop
will be subject to ongoing regulatory oversight, primarily by the FDA. Failure
to comply with post-marketing requirements, such as maintenance by us or by the
manufacturers of our products of current Good Manufacturing Practices as
required by the FDA, or safety surveillance of such products or lack of
compliance with other regulations could result in suspension or limitation of
approvals or other enforcement actions. Current Good Manufacturing Practices are
FDA regulations that define the minimum standards that must be met by companies
that manufacture pharmaceuticals and apply to all drugs for human use, including
those to be used in clinical trials, as well as those produced for general sale
after approval of an application by the FDA. These regulations define
requirements for personnel, buildings and facilities, equipment, control of raw
materials and packaging components, production and process controls, packaging
and label controls, handling and distribution, laboratory controls and
recordkeeping. Furthermore, the terms of any product candidate approval,
including the labeling content and advertising restrictions, may be so
restrictive that they could adversely affect the marketability of our product
candidates. Any such failure to comply or the application of such restrictions
could limit our ability to market our product candidates and may have a material
adverse effect on our business, results of operations and financial condition.
Such failures or restrictions may also prompt regulatory recalls of one or more
of our products, which could have material and adverse effects on our
business.




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.




The raw
materials that we require to manufacture our drugs, particularly
oligonucleotides and taxanes, are available from only a few suppliers. If these
suppliers cease to provide us with the necessary raw materials or fail to
provide us with an adequate supply of materials at an acceptable price and
quality, we could be materially adversely affected.





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
ability to commercialize drugs successfully will depend in part on the extent to
which various third-party payors are willing to reimburse patients for the costs
of our drugs and related treatments. These third-party payors include government
authorities, private health insurers and other organizations, such as health
maintenance organizations. Third-party payors often challenge the prices charged
for medical products and services. Accordingly, if less costly drugs are
available, third-party payors may not authorize or may limit reimbursement for
our drugs, even if they are safer or more effective than the alternatives. In
addition, the federal government and private insurers have changed and continue
to consider ways to change the manner in which health care products and services
are provided and paid for in the United States. In particular, these third-party
payors are increasingly attempting to contain health care costs by limiting both
coverage and the level of reimbursement for new therapeutic products. In the
future, it is possible that the government may institute price controls and
further limits on Medicare and Medicaid spending. These controls and limits
could affect the payments we collect from sales of our products.
Internationally, medical reimbursement systems vary significantly, with some
countries requiring application for, and approval of, government or third-party
reimbursement. In addition, some medical centers in foreign countries have fixed
budgets, regardless of levels of patient care. Even if we succeed in bringing
therapeutic products to market, uncertainties regarding future health care
policy, legislation and regulation, as well as private market practices, could
affect our ability to sell our products in quantities, or at prices, that will
enable us to achieve profitability.




39




Our
business exposes us to potential product liability that may have a negative
effect on our financial performance and our business generally.




The
administration of drugs to humans, whether in clinical trials or commercially,
exposes us to potential product and professional liability risks, which are
inherent in the testing, production, marketing and sale of human therapeutic
products. Product liability claims can be expensive to defend and may result in
large judgments or settlements against us, which could have a negative effect on
our financial performance and materially and adversely affect our business. We
maintain product liability insurance (subject to various deductibles), but our
insurance coverage may not be sufficient to cover claims. Furthermore, we cannot
be certain that we will always be able to maintain or increase our insurance
coverage at an affordable price. Even if a product liability claim is not
successful, the adverse publicity and time and expense of defending such a claim
may interfere with or adversely affect our business and financial
performance.





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.




As a part
of our business strategy, we may make acquisitions of, or significant
investments in, complementary companies, products or technologies, although no
significant acquisition or investments are currently pending. Any future
acquisitions would be accompanied by risks such as:




·
            difficulties
      in assimilating the operations and personnel of acquired
      companies;




·
            diversion
      of our management’s attention from ongoing business
    concerns;




·
            our
      potential inability to maximize our financial and strategic position
      through the successful incorporation of acquired technology and rights to
      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 cannot
guarantee that we will be able to successfully integrate any business, products,
technologies or personnel that we might acquire in the future, and our failure
to do so could harm our business.




We
face substantial competition from other companies and research institutions that
are developing similar products, and we may not be able to compete
successfully.




In many
cases, our products under development will be competing with existing therapies
for market share. In addition, a number of companies are pursuing the
development of antisense technology and controlled-release formulation
technology and the development of pharmaceuticals utilizing such technologies.
We compete with fully integrated pharmaceutical companies that have more
substantial experience, financial and other resources and superior expertise in
research and development, manufacturing, testing, obtaining regulatory
approvals, marketing and distribution. Smaller companies may also prove to be
significant competitors, particularly through their collaborative arrangements
with large pharmaceutical companies or academic institutions. Furthermore,
academic institutions, governmental agencies and other public and private
research organizations have conducted and will continue to conduct research,
seek patent protection and establish arrangements for commercializing products.
Such products may compete directly with any products that may be offered by
us.




40




Our
competition will be determined in part by the potential indications for which
our products are developed and ultimately approved by regulatory authorities.
For certain of our potential products, an important factor in competition may be
the timing of market introduction of our or our competitors’ products.
Accordingly, the relative speed with which we can develop products, complete the
clinical trials and approval processes and supply commercial quantities of the
products to the market are expected to be important competitive factors. We
expect that competition among products approved for sale will be based, among
other things, on product efficacy, safety, reliability, availability, price,
patent position and sales, marketing and distribution capabilities. The
development by others of new treatment methods could render our products under
development non-competitive or obsolete.





Our
competitive position also depends upon our ability to attract and retain
qualified personnel, obtain patent protection or otherwise develop proprietary
products or processes and secure sufficient capital resources for the
often-substantial period between technological conception and commercial sales.
We cannot assure you that we will be successful in this regard.





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.




Our
business is highly dependent on our key executives and scientific staff. The
loss of key personnel or the failure to recruit necessary additional or
replacement personnel will likely impede the achievement of our development
objectives. There is intense competition for qualified personnel in the
pharmaceutical and biotechnology industries, and there can be no assurances that
we will be able to attract and retain the qualified personnel necessary for the
development of our business.





Risks
Related to Outstanding Litigation





The
outcome of and costs relating to pending litigation are uncertain.




In
November 2008, a complaint against us and our transfer agent, BNY Mellon
Shareholder Services, was filed in the Supreme Court of the State of New York by
an individual stockholder. The complaint alleges that we and our transfer agent
caused or contributed to losses suffered by the stockholder. We deny the
allegations of the complaint and intend to vigorously defend this
lawsuit.





In
September 2008, several shareholders of the Company, on behalf of themselves and
all others similarly situated, filed a class action complaint against the
Company, the Board of Directors, and certain of its executive officers in
Superior Court of New Jersey, captioned Collins v. Warrell, Docket No.
L-3046-08. The complaint alleged that in issuing convertible notes, the Board of
Directors, and certain officers breached their fiduciary duties, and the Company
aided and abetted the breach of fiduciary duty.  On March 20, 2009,
the Superior Court of New Jersey granted the motion of the Company to dismiss
the class action complaint and dismissed the complaint with prejudice. On April
30, 2009, the plaintiffs filed a notice of appeal with the Appellate
Division. On May 13, 2009, the plaintiffs filed a motion for relief from
judgment based on a claim of new evidence, which was denied on June 12,
2009. The plaintiffs also asked the Appellate Division for a temporary
remand to permit the Superior Court judge to resolve the issues of the new
evidence plaintiffs sought to raise. By order dated June 25, 2009, and
filed on July 6, 2009, the Appellate Division granted the motion for temporary
remand, and directed the issues on remand to be resolved in 30 days. A
hearing on the plaintiffs' motion was held on July 31, 2009, at which time the
Court permitted letter briefing on the issues raised during that
hearing.  The plaintiffs submitted a letter brief on August 3, 2009,
and the Company submitted a letter brief on August 5, 2009.  No ruling
has yet issued.   We strongly deny the allegations of this
complaint and intend to vigorously defend this lawsuit.




41




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.




Provisions
in our restated certificate of incorporation and bylaws may discourage third
parties from seeking to obtain control of us and, therefore, could prevent our
stockholders from receiving a premium for their shares. Our restated certificate
of incorporation gives our Board of Directors the power to issue shares of
preferred stock without approval of the holders of common stock. Any preferred
stock that is issued in the future could have voting rights, including voting
rights that could be superior to that of our common stock. The affirmative vote
of 66 2/3% of our voting stock is required to approve certain transactions and
to take certain stockholder actions, including the amendment of certain
provisions of our certificate of incorporation. Our bylaws contain provisions
that regulate how stockholders may present proposals or nominate directors for
election at annual meetings of stockholders.





In
addition, we are subject to Section 203 of the Delaware General Corporation Law,
which contains restrictions on stockholder action to acquire control of
us.





In
September 2005, our Board of Directors approved a Stockholder Rights Plan and
declared a dividend of one preferred stock purchase right, which we refer to as
a Right, for each share of our common stock held of record as of the close of
business on September 27, 2005. In addition, Rights shall be issued in respect
of all shares of common stock issued after such date. The Rights contain
provisions to protect stockholders in the event of an unsolicited attempt to
acquire us, including an accumulation of shares in the open market, a partial or
two-tier tender offer that does not treat all stockholders equally and other
activities that the Board believes are not in the best interests of
stockholders. The Rights may discourage a takeover and prevent our stockholders
from receiving a premium for their shares.





We
have not paid, and do not expect to pay in the future, cash dividends on our
common stock.




We have
never paid cash dividends on our common stock and do not anticipate paying any
such dividends in the foreseeable future. We currently intend to retain our
earnings, if any, for the development of our business.





Our
stock price is volatile.




The
market price of our common stock, like that of the common stock of many other
biopharmaceutical companies, has been and likely will continue to be highly
volatile. Factors that could have a significant impact on the future price of
our common stock include but are not limited to:




·
            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 competitors, including
      litigation;




·
            fluctuations
      in our operating results; and




·
            market
      conditions for biopharmaceutical stocks in
  general.




42




At June
30, 2009, our outstanding convertible notes were convertible into 88 million
shares of common stock. On July 7, 2009, we sold $3.0 million of notes, common
stock and warrants.  Future sales of shares of our common stock by
existing stockholders, holders of convertible notes who might convert such
convertible notes into common stock and warrant holders who may exercise their
warrants to purchase common stock also could adversely affect the market price
of our common stock. Moreover, the perception that sales of substantial amounts
of our common stock might occur could adversely affect the market price of our
common stock.




As
our convertible noteholders convert their notes into shares of our common stock,
our stockholders will be diluted.





On June
9, 2008, we placed $20 million of the 2008 Notes, with certain institutional and
accredited investors. The 2008 Notes are presently convertible, after adjusting
for the April 2009 note offering and the 1:50 reverse stock split, into shares
of our common stock at a conversion rate of 10,000 shares of common stock for
every $1,000.00 of principal. At June 30, 2009, our outstanding 2008 Notes were
convertible into approximately 28.3 million shares of our common
stock.





On April
2, 2009, we closed on approximately $6 million of the April 2009 Notes. The
April 2009 Notes are convertible into shares of our common stock at a conversion
rate of 10,000 shares of common stock for every $1,000.00 of principal amount
outstanding, adjusting for the 1:50 reverse stock split.  At June 30,
2009, our outstanding April 2009 Notes were convertible into approximately 59.5
million shares of our common stock.





On July
7, 2009, we entered into a securities purchase agreement with certain accredited
institutional investors to place up to $10 million in aggregate principal amount
of units consisting of (i) 70% unsecured subordinated convertible notes, or the
Notes, and (ii) 30% common stock.  In connection with the sale of the
units, we also issued to the investors two-year warrants to purchase common
stock in an amount equal to 25% of the number of shares of common stock issuable
upon conversion of the Notes purchased by each investor.  We closed on
$3.0 million of such Notes, common stock and warrants on July 7,
2009.





On August
6, 2009, we entered into an amendment whereby, among other things, the certain
accredited institutional investors who were parties to the July 2009 securities
purchase agreement agreed to purchase $10 million of additional notes and
warrants having the same terms of the July 2009 Notes as well as shares of
common stock, increasing their aggregate investment to $13 million.





The
conversion of some or all of our notes dilute the ownership interests of
existing stockholders. Any sales in the public market of the common stock
issuable upon conversion of the notes could adversely affect prevailing market
prices of our common stock. In addition, the existence of the notes may
encourage short selling by market participants because the conversion of the
notes could depress the price of our common stock.




If
holders of our notes elect to convert their notes and sell material amounts of
our common stock in the market, such sales could cause the price of our common
stock to decline, and such downward pressure on the price of our common stock
may encourage short selling of our common stock by holders of our notes or
others.




43




If there
is significant downward pressure on the price of our common stock, it may
encourage holders of notes or others to sell shares by means of short sales to
the extent permitted under the U.S. securities laws.  Short sales
involve the sale by a holder of notes, usually with a future delivery date, of
common stock the seller does not own.  Covered short sales are sales
made in an amount not greater than the number of shares subject to the short
seller’s right to acquire common stock, such as upon conversion of
notes.  A holder of notes may close out any covered short position by
converting its notes or purchasing shares in the open market.  In
determining the source of shares to close out the covered short position, a
holder of notes will likely consider, among other things, the price of common
stock available for purchase in the open market as compared to the conversion
price of the notes.  The existence of a significant number of short
sales generally causes the price of common stock to decline, in part because it
indicates that a number of market participants are taking a position that will
be profitable only if the price of the common stock declines.




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.




Our
common stock is classified as a “penny stock” by the SEC and is subject to rules
adopted by the SEC regulating broker-dealer practices in connection with
transactions in “penny stocks.” The SEC has adopted regulations which define a
“penny stock” to be any equity security that has a market price of less than
$5.00 per share, or with an exercise price of less than $5.00 per share, subject
to certain exceptions. For any transaction involving a penny stock, unless
exempt, these rules require delivery, prior to any transaction in a penny stock,
of a disclosure schedule relating to the penny stock market. Disclosure is also
required to be made about current quotations for the securities and commissions
payable to both the broker-dealer and the registered representative. Finally,
broker-dealers must send monthly statements to purchasers of penny stocks
disclosing recent price information for the penny stock held in the account and
information on the limited market in penny stocks. As a result of our shares of
common stock being subject to the rules on penny stocks, the liquidity of our
common stock may be adversely affected.




44




Item
2.   Unregistered
Sales of Equity Securities and Use of Proceeds





As
previously disclosed on Current Reports on Forms 8-K filed by the Company on
April 6, 2009 and July 8, 2009, the Company has issued unregistered equity
securities.





Item
3.  Defaults Upon Senior
Securities





None.





Item
4.  Submission of Matters
to a Vote of Security Holders





a)
            The  Company
      held a Special Meeting of Stockholders, herein after referred to as the
      Special Meeting, on June 26, 2009.





b)
            Proxies
      for the meeting were solicited pursuant to Regulation 14A of the Exchange
      Act. There was no solicitation in opposition to the definitive proxy
      statement dated as of May 28, 2009.





c)
            At
      the Special Meeting, stockholders voted to approve the resolution that was
      proposed in the proxy statement. Briefly described below is the resolution
      voted upon at the Special Meeting and the corresponding
      results.





1)
            To
      authorize the Board of Directors to effect a reverse stock split of the
      outstanding Common Stock at any exchange ratio up to 1-for-100. The result
      of the voting, on a pre-split basis was as
  follows:





For:
                      
                      
                      2,725,320,481Against:
                      
                      
                      648,253,338Abstained:
                      
                      
                      6,386,610





Item
5.  Other
Information





On August
29, 2008, the Company filed a Form S-1 Registration Statement with the
Securities and Exchange Commission for the offer and sale of the Company’s
common stock. On March 9, 2009, the Company amended its filing to be for the
offer and sale of the Company’s convertible debt securities and warrants. On
July 30, 2009, the Company amended its filing to be for the offer and sale of
the Company’s common stock, convertible debt securities and warrants. The Form
S-1/A is not effective and does not relate to any pending or specific future
financing.




45





Item
6. Exhibits.





(a)
Exhibits





Exhibit
                      Number
                  
                  Description of Document4.1
                  
                  Form
      of Senior Secured Convertible Promissory Note (Incorporated by reference
      to Exhibit 4.1 of the Company’s Current Report on Form 8-K, as filed with
      the SEC on April 6, 2009).4.2
                  
                  Form
      of Warrant (Incorporated by reference to Exhibit 4.2 of the Company’s
      Current Report on Form 8-K, as filed with the SEC on April 6,
      2009)4.3
                  
                  Form
      of Unsecured Subordinated Convertible Promissory Note (Incorporated by
      reference to Exhibit 4.1 of the Company’s Current Report on Form 8-K, as
      filed with the SEC on July 8, 2009).4.4
                  
                  Form
      of Common Stock Purchase Warrant (Incorporated by reference to Exhibit 4.2
      of the Company’s Current Report on Form 8-K, as filed with the SEC on July
      8, 2009).10.1
                  
                  Form
      of Securities Purchase Agreement, dated April 2, 2009, by and among the
      Company and certain accredited investors set forth therein (Incorporated
      by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K,
      as filed with the SEC on April 6, 2009)10.2
                  
                  Form
      of Amended and Restated General Security Agreement, dated April 2, 2009,
      by and among the Company and certain accredited investors set forth
      therein (Incorporated by reference to Exhibit 10.2 to the Company’s
      Current Report on Form 8-K, as filed with the SEC on April 6,
      2009).10.3
                  
                  Form
      of Securities Purchase Agreement, dated July 7, 2009, by and among the
      Company and certain accredited investors set forth therein (Incorporated
      by reference to Exhibit 10.1 of the company’s Current Report on Form 8-K,
      as filed with the SEC on July 8, 2009).10.4
                  
                  Form
      of Consent Agreement, dated April 2, 2009, by and among the Company and
      certain accredited investors set forth therein (Incorporated by reference
      to Exhibit 10.3 to the Company’s Current Report on Form 8-K, as filed with
      the SEC on April 6, 2009).10.5
                  
                  Form
      of Registration Rights Agreement, dated July 7, 2009, by and among the
      Company and certain accredited investors set forth therein (Incorporated
      by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K,
      as filed with the SEC on July 8, 2009).10.6
                  
                  Form
      of Consent Agreement, dated July 7, 2009, by and among the Company and
      certain accredited investors set forth therein (Incorporated by reference
      to Exhibit 10.3 to the Company’s Current Report on Form 8-K, as filed with
      the SEC on July 8, 2009).31.1
                  
                  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).




46




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





Genta
      IncorporatedDate:
      August 14,
      2009/s/ RAYMOND P. WARRELL, JR.,
      M.D.Raymond
      P. Warrell, Jr., M.D.Chairman
      and Chief Executive Officer(principal
      executive officer)Date:
      August 14,
      2009/s/ GARY SIEGELGary
      SiegelVice
      President, Finance(principal
      financial and accounting
officer)




47


Exhibit
Index


Exhibit
                    Number
                
                Description of Document4.1
                
                Form
      of Senior Secured Convertible Promissory Note (Incorporated by reference
      to Exhibit 4.1 of the Company’s Current Report on Form 8-K, as filed with
      the SEC on April 6, 2009).4.2
                
                Form
      of Warrant (Incorporated by reference to Exhibit 4.2 of the Company’s
      Current Report on Form 8-K, as filed with the SEC on April 6,
      2009)4.3
                
                Form
      of Unsecured Subordinated Convertible Promissory Note (Incorporated by
      reference to Exhibit 4.1 of the Company’s Current Report on Form 8-K, as
      filed with the SEC on July 8, 2009).4.4
                
                Form
      of Common Stock Purchase Warrant (Incorporated by reference to Exhibit 4.2
      of the Company’s Current Report on Form 8-K, as filed with the SEC on July
      8, 2009).10.1
                
                Form
      of Securities Purchase Agreement, dated April 2, 2009, by and among the
      Company and certain accredited investors set forth therein (Incorporated
      by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K,
      as filed with the SEC on April 6, 2009)10.2
                
                Form
      of Amended and Restated General Security Agreement, dated April 2, 2009,
      by and among the Company and certain accredited investors set forth
      therein (Incorporated by reference to Exhibit 10.2 to the Company’s
      Current Report on Form 8-K, as filed with the SEC on April 6,
      2009).10.3
                
                Form
      of Securities Purchase Agreement, dated July 7, 2009, by and among the
      Company and certain accredited investors set forth therein (Incorporated
      by reference to Exhibit 10.1 of the company’s Current Report on Form 8-K,
      as filed with the SEC on July 8, 2009).10.4
                
                Form
      of Consent Agreement, dated April 2, 2009, by and among the Company and
      certain accredited investors set forth therein (Incorporated by reference
      to Exhibit 10.3 to the Company’s Current Report on Form 8-K, as filed with
      the SEC on April 6, 2009).10.5
                
                Form
      of Registration Rights Agreement, dated July 7, 2009, by and among the
      Company and certain accredited investors set forth therein (Incorporated
      by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K,
      as filed with the SEC on July 8, 2009).10.6
                
                Form
      of Consent Agreement, dated July 7, 2009, by and among the Company and
      certain accredited investors set forth therein (Incorporated by reference
      to Exhibit 10.3 to the Company’s Current Report on Form 8-K, as filed with
      the SEC on July 8, 2009).31.1
                
                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).




48