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 March 31, 2010
 
 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 May
13, 2010 the registrant had 754,220,449 shares of common stock
outstanding.
 
 
  Genta
Incorporated
 INDEX
TO FORM 10-Q
 
 PagePART
      I.
                                            FINANCIAL
      INFORMATIONItem
      1.
                                            Consolidated
      Financial Statements:Consolidated
      Balance Sheets at March 31, 2010 (unaudited) and December 31,
      2009
                                            3Consolidated
      Statements of Operations for the Three Months Ended March 31, 2010 and
      2009 (unaudited)
                                            4Consolidated
      Statements of Cash Flows for the Three Months Ended March 31, 2010 and
      2009 (unaudited)
                                            5Notes
      to Consolidated Financial Statements
                                            6Item
      2.
                                            Management's
      Discussion and Analysis of Financial Condition and Results of
      Operations
                                            16Item
      3.
                                            Quantitative
      and Qualitative Disclosures about Market Risk
                                            23Item
      4T.
                                            Controls
      and Procedures
                                            23PART II.
                                            OTHER
      INFORMATIONItem
      1.
                                            Legal
      Proceedings
                                            24Item
      1A.
                                            Risk
      Factors
                                            25Item
      2.
                                            Unregistered
      Sales of Equity Securities and Use of Proceeds
                                            39Item
      3.
                                            Defaults
      Upon Senior Securities
                                            39Item
      4.
                                            (Removed
      and Reserved)
                                            39Item
      5.
                                            Other
      Information
                                            39Item
      6.
                                            Exhibits
                                            40SIGNATURES
                                            41CERTIFICATIONS
  2
 
 GENTA INCORPORATED
 CONSOLIDATED
BALANCE SHEETS
 
 (In
thousands, except par value data)
 
 March 31,2010
                              
                              
                              December 31,(unaudited)
                              
                              
                              2009ASSETSCurrent
      assets:Cash
      and cash equivalents
                              
                              $
                              19,573
                              
                              
                              $
                              1,216Accounts
      receivable - net of allowances of $4 at March 31, 2010 and $23 at December
      31, 2009, respectively
                              
                              
                              2
                              
                              
                              
                              2Receivable
      on sale of New Jersey tax losses
                              
                              
                              -
                              
                              
                              
                              2,873Inventory
      (Note 3)
                              
                              
                              66
                              
                              
                              
                              81Prepaid
      expenses and other current assets
                              
                              
                              671
                              
                              
                              
                              971Total
      current assets
                              
                              
                              20,312
                              
                              
                              
                              5,143Property
      and equipment, net
                              
                              
                              170
                              
                              
                              
                              205Deferred
      financing costs on sale of convertible notes, warrants and common stock
      (Note 5)
                              
                              
                              5,410
                              
                              
                              
                              6,881Restricted
      cash account
                              
                              
                              5,000
                              
                              
                              
                              -Total
      assets
                              
                              $
                              30,892
                              
                              
                              $
                              12,229LIABILITIES
      AND STOCKHOLDERS' DEFECITCurrent
      liabilities:Accounts
      payable and accrued expenses
                              
                              $
                              6,269
                              
                              
                              $
                              8,829Convertible
      notes due June 9, 2010, $1,787 outstanding, net of debt discount of ($115)
      at December 31, 2009 (Note 5)
                              
                              
                              -
                              
                              
                              
                              1,672Total
      current liabilities
                              
                              
                              6,269
                              
                              
                              
                              10,501Long-term
      liabilities:Office
      lease settlement obligation (Note 4)
                              
                              
                              1,979
                              
                              
                              
                              1,979Convertible
      notes due June 9, 2011, $1,762 outstanding, net of debt discount
      of  ($1,670) (Note 5)
                              
                              
                              92
                              
                              
                              
                              -Convertible
      notes due April 2, 2012, $3,255 outstanding, net of debt discount
      of  ($3,166) (Note 5)
                              
                              
                              89
                              
                              
                              
                              1,302Convertible
      notes due July 7, 2011, $678 outstanding, net of debt discount
      of  ($646) (Note 5)
                              
                              
                              32
                              
                              
                              
                              181Convertible
      notes due September 4, 2011, $6,308 outstanding, net of debt discount
      of  ($6,059) (Note 5)
                              
                              
                              249
                              
                              
                              
                              1,128Convertible
      notes due March 9, 2013, $25,879 outstanding, net of debt discount
      of  ($25,374) (Note 5)
                              
                              
                              505
                              
                              
                              
                              -Conversion
      feature liability (Note 5)
                              
                              
                              123,177
                              
                              
                              
                              -Warrant
      liability (Note 5)
                              
                              
                              56,526
                              
                              
                              
                              -Total
      long-term liabilities
                              
                              
                              182,649
                              
                              
                              
                              4,590Commitments
      and contingencies (Note 7)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 March 31, 2010
      and December 31, 2009, respectively
                              
                              
                              -
                              
                              
                              
                              -Series
      G participating cumulative preferred stock, $.001 par
    value;0
      shares issued and outstanding at March 31, 2010 and December 31,
      2009, respectively
                              
                              
                              -
                              
                              
                              
                              -Common
      stock, $.001 par value; 6,000,000 and 6,000,000 shares
      authorized, 364,764 and 192,832 shares issued and outstanding at
      March 31, 2010 and December 31, 2009, respectively
                              
                              
                              365
                              
                              
                              
                              193Additional
      paid-in capital
                              
                              
                              1,038,654
                              
                              
                              
                              1,027,372Accumulated
      deficit
                              
                              
                              (1,197,045
                              )
                              
                              
                              (1,030,427
                              )Total
      stockholders' deficit
                              
                              
                              (158,026
                              )
                              
                              
                              (2,862
                              )Total
      liabilities and stockholders' deficit
                              
                              $
                              30,892
                              
                              
                              $
                              12,229
 
 See
accompanying notes to consolidated financial statements.
  3
 
 GENTA INCORPORATED
 CONSOLIDATED
STATEMENTS OF OPERATIONS
 (Unaudited)
 
 Three Months Ended March 31,(In
      thousands, except per share data)
                  
                  2010
                  
                  
                  2009Product
      sales - net
                  
                  $
                  34
                  
                  
                  $
                  62Cost
      of goods sold
                  
                  
                  12
                  
                  
                  
                  -Gross
      margin
                  
                  
                  22
                  
                  
                  
                  62Operating
      expenses:Research
      and development
                  
                  
                  2,443
                  
                  
                  
                  2,298Selling,
      general and administrative
                  
                  
                  3,773
                  
                  
                  
                  2,172Total
      operating expenses
                  
                  
                  6,216
                  
                  
                  
                  4,470Other
      income/(expense):Interest
      and other income
                  
                  
                  8
                  
                  
                  
                  15Interest
      expense
                  
                  
                  (517
                  )
                  
                  
                  (387
                  )Amortization
      of deferred financing costs and debt discount (Note 5)
                  
                  
                  (6,092
                  )
                  
                  
                  (6,287
                  )Fair
      value - conversion feature liability (Note 5)
                  
                  
                  (97,297
                  )
                  
                  
                  -Fair
      value - warrant liability (Note 5)
                  
                  
                  (56,526
                  )
                  
                  
                  -Total
      other income/(expense), net
                  
                  
                  (160,424
                  )
                  
                  
                  (6,659
                  )Net
      loss
                  
                  $
                  (166,618
                  )
                  
                  $
                  (11,067
                  )Net
      loss per basic and diluted share
                  
                  $
                  (0.76
                  )
                  
                  $
                  (0.64
                  )Shares
      used in computing net loss per basic and
      diluted  share
                  
                  
                  218,059
                  
                  
                  
                  17,299
 
 See
accompanying notes to consolidated financial statements.
  4
  GENTA INCORPORATED
 CONSOLIDATED
STATEMENTS OF CASH FLOWS
 (Unaudited)
 
 Three
      Months Ended March 31,(In
      thousands)
                          
                          2010
                          
                          
                          2009Operating
      activities:Net
      loss
                          
                          $
                          (166,618
                          )
                          
                          $
                          (11,067
                          )Adjustments
      to reconcile net loss to net cash used in operating
      activities:Depreciation
      and amortization
                          
                          
                          35
                          
                          
                          
                          38Amortization
      of deferred financing costs and debt discount
                          
                          
                          6,092
                          
                          
                          
                          6,287Share-based
      compensation
                          
                          
                          2,602
                          
                          
                          
                          73Change
      in fair value - conversion feature liability (Note 5)
                          
                          
                          97,297
                          
                          
                          
                          -Change
      in fair value - warrant liability (Note 5)
                          
                          
                          56,526
                          
                          
                          
                          -Changes
      in operating assets and liabilities:Accounts
      receivable
                          
                          
                          -
                          
                          
                          
                          (6
                          )Receivable
      on sale of New Jersey tax losses
                          
                          
                          2,873
                          
                          
                          
                          -Inventory
                          
                          
                          15
                          
                          
                          
                          -Prepaid
      expenses and other current assets
                          
                          
                          300
                          
                          
                          
                          130Accounts
      payable and accrued expenses
                          
                          
                          (1,394
                          )
                          
                          
                          242Net
      cash used in operating activities
                          
                          
                          (2,272
                          )
                          
                          
                          (4,303
                          )Investing
      activities:Purchase
      of property and equipment
                          
                          
                          -
                          
                          
                          
                          (7
                          )Net
      cash provided by (used in) investing activities
                          
                          
                          -
                          
                          
                          
                          (7
                          )Financing
      activities:Sale
      of convertible notes net of financing costs
                          
                          
                          25,629
                          
                          
                          
                          -Deposits
      in restricted cash account
                          
                          
                          (5,000
                          )
                          
                          
                          -Net
      cash provided by financing activities
                          
                          
                          20,629
                          
                          
                          
                          -Increase/(decrease)
      in cash and cash equivalents
                          
                          
                          18,357
                          
                          
                          
                          (4,310
                          )Cash
      and cash equivalents at beginning of period
                          
                          
                          1,216
                          
                          
                          
                          4,908Cash
      and cash equivalents at end of period
                          
                          $
                          19,573
                          
                          
                          $
                          598
 
 See
accompanying notes to consolidated financial statements.
  5
  GENTA
INCORPORATED
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 March
31, 2010
 (Unaudited)
 
 1.
              Organization
      and Liquidity
 
 Genta 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 and negative cash flows from
operations since its inception. The Company expects that such losses will
continue at least until one or more of its product candidates are approved by
one or more regulatory authorities for commercial sale in one or more
indications. As of March 31, 2010, the Company had an accumulated deficit of
$1,197.0 million. Cash and cash equivalents as of March 31, 2010 were $19.6
million. The Company has historically financed its activities from the sale of
convertible notes, shares of common stock and warrants.
 
 On March
9, 2010, the Company issued $25 million of units consisting of $20 million of
various senior unsecured convertible notes and $5 million of senior secured
convertible notes. In connection with the sale of the units, the Company also
agreed to issue warrants in an amount equal to 40% of the purchase price paid
for each such unit. The Company had direct access to $20 million of the
proceeds, and the remaining $5 million of the proceeds were placed in a blocked
account as collateral security for the $5 million secured notes. On March 17,
2010 and March 22, 2010, three investors who had participated in the Company’s
April 2009 financing exercised their rights under the April 2009 securities
purchase agreement and the April 2009 consent agreement to acquire convertible
notes of $0.9 million. Net cash used in operating activities for the year ended
December 31, 2009 was $21.5 million, which represents an average monthly outflow
of $1.8 million. The Company expects that its average monthly outflow will be
$1.2 million during 2010. Net cash used in operating activities for the three
months ended March 31, 2010 was $2.3 million.
 
 The
Company’s historical operating results cannot be relied on to be an indicator of
future performance, and management cannot predict whether the Company will
obtain or sustain positive operating cash flow or generate net income in the
future.
 
 2.
              Summary
      of Significant Accounting Policies
 
 Accounting
Standards Updates Not Yet Effective
 
 In
January 2010, the FASB issued ASU 2010-06- Improving Disclosures about Fair
Value Measurements. ASU 2010-06 requires additional disclosures about fair value
measurements including transfers in and out of Levels 1 and 2 and a higher level
of disaggregation for the different types of financial instruments. For the
reconciliation of Level 3 fair value measurements, information about purchases,
sales, issuances and settlements should be presented separately. This ASU is
effective for annual and interim reporting periods beginning after December 15,
2009 for most of the new disclosures and for periods beginning after December
15, 2010 for the new Level 3 disclosures. Comparative disclosures are not
required in the first year the disclosures are required.
  6
  In
October 2009, an update was made to “Revenue Recognition – Multiple
Deliverable RevenueArrangements.”This update
removes the objective-and-reliable-evidence-of-fair-value criterion from
the separation criteria used to determine whether an arrangement involving
multiple deliverables contains more than one unit of accounting, replaces
references to “fair value” with “selling price” to distinguish from the
fair value measurements required under the “Fair Value Measurements and
Disclosures”guidance, provides a hierarchy that entities must use
to estimate the selling price, eliminates the use of the residual method
for allocation and expands the ongoing disclosure requirements. This update
is effective for the Company beginning January 1, 2011 and can be applied
prospectively or retrospectively. Management is currently evaluating the
effect that adoption of this update will have, if any, on the Company’s
consolidated financial position and results of operations when it
becomes effective in 2011.
 
 Other
Accounting Standards Updates not effective until after March 31, 2010, are not
expected to have a significant effect on the Company’s consolidated
financial position or results of operations.
  Basis
of Presentation
 
 The
consolidated financial statements are presented on the basis of accounting
principles generally accepted in the United States of America. Such financial
statements include the accounts of the Company and all majority-owned
subsidiaries.
 
 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 consists 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.
  Restricted
Cash
 
 Restricted
cash represents funds received from the March 2010 Financing that have been
placed in a blocked account as collateral security for the D Notes. The security
interest of the holders of the D Notes will be released, and restrictions on the
Company’s use of the $5 million held in the blocked account will terminate if,
at any time after six months and ten weeks from the closing of the transaction:
(i) the Company files a Form 8-K with the United Stated Securities and Exchange
Commission showing that the daily trading volume of the Company’s Common Stock,
for each of the 10 trading days prior to the date on which such filing is made
equals or exceeds one-tenth of the number of shares underlying the D Notes on
the date such filing is made; and (ii) the daily closing price on each trading
day (each such trading day, a “Test Date”) during the 10 trading day period
prior to the date on which such filing is made is greater than the conversion
price then in effect for the D Notes on such Test Date by an amount equal to or
greater than 200% of the conversion price on such Test Date. The security
interest will also be released (i) dollar for dollar upon conversion of any part
of the D Notes or (ii) in its entirety upon the approval of the holders of
two-thirds of the then outstanding principal amount of D Notes.
  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 12 months after
product expiration.
  7
  Research
and Development
 
 Research
and development costs are expensed as incurred, including raw material costs
required to manufacture products for clinical trials.
  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 three months ended March 31, 2010, 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 have occurred or that could occur in the future, as
required by Section 382 of the Internal Revenue Code of 1986, as amended, or 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 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.
  Restricted
Stock Units and Stock Options
 
 Restricted
stock units (“RSUs”) and stock options are recognized in the Consolidated
Statements 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. During 2009, with the implementation of two Equity Award Exchange
programs, outstanding stock option awards granted under the 1998 Non-Employee
Directors Plan, as amended, and 1998 Stock Incentive Plan, as amended, were
exchanged for grants of new RSUs under the Company’s 2009 Stock Incentive Plan.
The incremental compensation cost for the new RSUs was measured as the excess of
the fair value of the RSUs over the fair value of the exchanged stock option
awards on the date of exchange. The incremental compensation cost of the RSUs is
being recognized over the vesting period of the RSUs. The Company utilizes a
Black-Scholes option-pricing model to measure the fair value of stock options
granted to employees. See Note 6 to the Consolidated Financial Statements for a
further discussion on share-based compensation.
  Deferred
Financing Costs
  In
conjunction with the issuance of the 2008 Notes, the April 2009 Notes, the July
2009 Notes, the September 2009 Notes and March 2010 Notes (as described in Note
5 to the Consolidated Financial Statements), the Company incurred certain
financing costs, including the issuance of warrants to purchase the Company’s
common stock. This additional consideration is being amortized over the term of
the notes through the earliest maturity date using the effective interest
method. If the maturity of the notes is accelerated because of conversions or
defaults, then the amortization is accelerated.  The fair value of the
warrants issued as placement fees in connection with these financings are
calculated utilizing the Black-Scholes option-pricing model.
  8
  Net
Loss Per Common Share
 
 Net loss
per common share for the three months ended March 31, 2010 and 2009,
respectively, are based on the weighted average number of shares of common stock
outstanding during the periods. Basic and diluted loss per share are identical
for both periods presented as potentially dilutive securities have been excluded
from the calculation of the diluted net loss per common share because the
inclusion of such securities would be antidilutive. At March 31, 2010 and 2009,
respectively, the potentially dilutive securities include 6,421 million and 42
million shares, respectively, reserved for the conversion of convertible notes,
convertible preferred stock, issuance and vesting of RSUs, the exercise of
outstanding warrants and the shares issuable upon the exercise of purchase
rights of our noteholders.
 
 3.
                  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):
 
 March 31,
                      
                      
                      December 31,2010
                      
                      
                      2009Raw
      materials
                      
                      $
                      24
                      
                      
                      $
                      24Finished
      goods
                      
                      
                      42
                      
                      
                      
                      57$
                      66
                      
                      
                      $
                      81
 
 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.
 
 4.
                Office
      Lease Settlement Obligation
 
 On April
5, 2010, the Company, entered into an Amendment of its Lease Agreement with The
Connell Company, a corporation based in New Jersey, whereby the Company extended
its lease of office space in Berkeley Heights, New Jersey for an additional five
years until August 31, 2015. In addition, the Amendment extends the payment of
approximately $2.0 million owed by the Company to Connell that had been due on
January 1, 2011, to the earlier of 1) August 31, 2015, 2) the date that the
company receives an up-front cash payment totaling at least $15.0 million from a
business development deal or 3) the date which is 6 months after the date that
the Company receives approval from the U.S. Food and Drug Administration (“FDA”)
for either Genasense®or
tesetaxel.
  5.
                Convertible
      Notes and Warrants
 
 On March
9, 2010, the Company issued $25 million of units (the “2010 Units”), each 2010
Unit consisting of (i) 40% of a senior unsecured convertible note (the “B
Notes”), (ii) 40% of a senior unsecured convertible note (the “C Notes”) and
(iii) 20% of a senior secured convertible note (the “D Notes”).  In
connection with the sale of the 2010 Units, the Company also issued warrants
(the “Debt Warrants”) to purchase senior unsecured convertible notes (the “E
Notes”) in an amount equal to 40% of the purchase price paid for each such 2010
Unit. The Company had direct access to $20 million of the proceeds, and the
remaining $5 million of the proceeds were placed in a blocked account as
collateral security for the $5 million in principal amount of the D
Notes. On March 17, 2010 and March 22, 2010, three investors who had
participated in the Company’s April 2009 financing, exercised their rights under
the April 2009 securities purchase agreement and the April 2009 consent
agreement to acquire convertible notes (the “F Notes”) of $0.9 million. The
notes in these transactions, or the March 2010 Notes, bear interest at an annual
rate of 12% payable semiannually in cash or in other convertible notes to the
holder, and are convertible into shares of Genta common stock at a conversion
rate of 100,000 shares of common stock for every $1,000.00 of
principal.
  9
  The
Company also extended the maturity date of the outstanding 2008 Notes from June
9, 2010 to June 9, 2011 in exchange for three-year warrants to purchase the same
number of shares of the Company’s Common Stock issuable upon conversion of such
2008 Notes.
 
 There are
currently not enough shares of Common Stock authorized under the Company’s
certificate of incorporation to cover the shares underlying all of the March
2010 Notes. The Company accounted for the conversion options embedded in the
March 2010 Notes in accordance with “Accounting for Derivative
Instruments and Hedging Activities”, FASB ASC 815-10, and “Accounting for Derivative Financial
Instruments Indexed to, and Potentially Settled in, a Company’s Own
Stock” (FASB ASC 815-40). FASB ASC 815-10 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 FASB ASC 815-40. FASB ASC 815-40 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, the holder of each March 2010 Note has the right to require the Company to
repay 100% of the outstanding principal and accrued interest on each note in
cash on the second anniversary of the closing date of the March 2010
financing.
 
 In
accordance with FASB ASC 815-40, when there are insufficient authorized shares
to permit exercise of all of the issued convertible notes, the debt warrants and
warrants, the conversion obligation for the notes and the warrant obligations
will be classified as liabilities and measured at fair value on the balance
sheet. The conversion feature liabilities and the warrant liabilities will be
accounted for using mark-to-market accounting at each reporting date until all
the criteria for permanent equity have been met.
 
 On March
9, 2010, in connection with the $25 million financing, the convertible features
of the Notes were recorded as derivative liabilities of $263.5 million,
resulting in an expense of $238.5 million. The Company recorded an initial
discount of $25.0 million, equal to the face value of the Notes, which will be
amortized over the life of the Notes. Similarly, on March 17, 2010, and March
22, 2010, in connection with the $0.9 million transactions, the convertible
features of the F Notes were recorded as a derivative liability of $5.4 million,
resulting in an expense of $4.5 million. The Company recorded an initial
discount of $0.9 million equal to the face value of the F Notes, which will be
amortized over the life of the note. The Company will amortize the resultant
debt discount over the term of the notes through their maturity
dates.
 
 On March
31, 2010, based on the revised fair-market valuation of the conversion feature
liability related to the $25 million transaction, the liability was valued at
$119.0 million, resulting in a net expense on the Consolidated Statements of
Operations for the first quarter of 2010 of $94.0 million. Similarly, based on
the revised fair-market valuation of the conversion feature liability related to
the $0.9 million F note transactions, the conversion feature liability was
valued at $4.2 million, resulting in a net expense on the Consolidated
Statements of Operations for the first quarter of 2010 of $3.3
million.
 
 The
conversion feature liability for the $25 million transaction was valued at March
9, 2010 and March 31, 2010 using the Black-Scholes valuation model with the
following assumptions:
 
 March 31, 2010
                    
                    
                    March 9, 2010Price
      of share of Genta common stock
                    
                    $
                    0.048
                    
                    
                    $
                    0.106Volatility
                    
                    
                    268
                    %
                    
                    
                    266
                    %Risk-free
      interest rate
                    
                    
                    1.60
                    %
                    
                    
                    1.43
                    %Remaining
      contractual lives
                    
                    
                    2.9
                    
                    
                    
                    3.0
  10
  The
conversion feature liability for the $0.9 million transactions was valued at
March 17 and March 22, 2010 and March 31, 2010 using the Black-Scholes valuation
model with the following assumptions:
 
 March 31, 2010
                    
                    
                    March 17/22, 2010Price
      of share of Genta common stock
                    
                    $
                    0.048
                    
                    
                    $
                    0.062Volatility
                    
                    
                    268
                    %
                    
                    
                    267
                    %Risk-free
      interest rate
                    
                    
                    1.47
                    %
                    
                    
                    1.47
                    %Remaining
      contractual lives
                    
                    
                    2.9
                    
                    
                    
                    3.0
 
 The
Company recorded the debt warrant liability at a fair value of $105.6 million on
March 9, 2010, based upon a Black-Scholes calculation. The debt warrant
liability will be marked-to-market and charged/credited to expense in a manner
similar to the conversion feature at each reporting date until all the criteria
for permanent equity have been met. At March 31, 2010, based on the revised
fair-market valuation of the warrant liability of $47.7 million, the liability
was reduced by $57.9 million, resulting in a net expense on the Consolidated
Statements of Operations for the first quarter of 2010 of $47.7
million.
 
 The debt
warrant liability was valued at March 9, 2010 and March 31, 2010 using the
Black-Scholes valuation model with the following assumptions:
 
 March 31, 2010
                    
                    
                    March 9, 2010Price
      of share of Genta common stock
                    
                    $
                    0.048
                    
                    
                    $
                    0.106Volatility
                    
                    
                    228
                    %
                    
                    
                    225
                    %Risk-free
      interest rate
                    
                    
                    2.35
                    %
                    
                    
                    2.15
                    %Remaining
      contractual lives
                    
                    
                    4.5
                    
                    
                    
                    4.6
 
 The
Company recorded the fair value of the three-year warrants issued to extend the
maturity of the 2008 Notes as $19.5 million on March 9, 2010, based upon a
Black-Scholes calculation. The warrant liability will be marked-to-market and
charged/credited to expense in a manner similar to the conversion feature
liability at each reporting date until all criteria for permanent equity have
been met. At March 31, 2010, based on the revised fair-market valuation of the
warrant liability of $8.8 million, the liability was reduced by $10.7 million,
resulting in a net expense on the Consolidated Statement of Operations for the
first quarter of 2010 of $8.8 million. The warrant liability was valued at March
9, 2010 and March 31, 2010 using the Black-Scholes valuation model with the same
assumptions used for the valuation of the conversion feature liability of the
March 2010 Notes.
 
 On June
9, 2008, the Company placed $20 million of 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 effected on
June 26, 2009). As a consequence of the April 2009 Note financing, the
conversion rate was reset to 10,000 shares of common stock for every $1,000.00
of principal. As a result of the March 2010 financing, (see above), the
conversion rate for the 2008 Notes that were convertible into shares of common
stock at a conversion rate of 10,000 shares of common stock for every $1,000.00
of principal were adjusted to be convertible into shares of common stock at a
conversion rate of 100,000 shares of common stock for every $1,000.00 of
principal. The Company valued this change in the conversion rate on March 9,
2010; the aggregate intrinsic value of the difference in conversion rates was in
excess of the $1.9 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 on
March 9, 2010, and the Company is amortizing the resultant debt discount over
the remaining term of the 2008 Notes.
 
 From
January 1, 2010 through March 31, 2010, holders of the 2008 Notes voluntarily
converted approximately $92 thousand, resulting in an issuance of 9.2 million
shares of common stock. At March 31, 2010, approximately $1.8 million of the
2008 Notes were outstanding.
  11
  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.
 
 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 and the initial value of the warrant are being amortized over
the term of the convertible notes. At March 31, 2010 and December 31, 2009, the
unamortized balances of the financing fee were $0.1 million and $0.1 million,
respectively, and the warrants were $0.3 million and $0.7 million,
respectively.
 
 On April
2, 2009, the Company issued approximately $6 million of April 2009 Notes and
corresponding warrants to purchase common stock. 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 were 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 terms of the April 2009
Notes enable those noteholders, at their option, to purchase up to approximately
$13.3 million of additional notes with similar terms. As a result of the March
2010 financing, the conversion rate for the April 2009 Notes that were
convertible into shares of common stock at a conversion rate of 10,000 shares of
common stock for every $1,000.00 of principal were adjusted to be convertible
into shares of common stock at a conversion rate of 100,000 shares of common
stock for every $1,000.00 of principal. The Company valued this change in the
conversion rate on March 9, 2010; the aggregate intrinsic value of the
difference in conversion rates was in excess of the $4.3 million face value of
the April 2009 Notes. Thus, a full debt discount was recorded in an amount equal
to the face value of the April 2009 Notes on March 9, 2010, and the Company is
amortizing the resultant debt discount over the remaining term of the April 2009
Notes.
 
 From
January 1, 2010 through March 31, 2010, holders of the April 2009 Notes
voluntarily converted approximately $1.4 million, resulting in an issuance of
105.8 million shares of common stock.  At March 31, 2010,
approximately $3.3 million of the April 2009 Notes were
outstanding.
 
 In
connection with the placement of the April 2009 Notes, the Company issued a
warrant to its private placement agent to purchase 3.6 million shares of common
stock at an exercise price of $0.50 per share and incurred financing fees of
$0.6 million. The financing fees and the initial value of the warrant are being
amortized over the term of the convertible notes. At March 31, 2010 and December
31, 2009, the unamortized balances of the financing fee were $0.4 million and
$0.5 million, respectively, and the warrants were $2.2 million and $3.0 million,
respectively.
 
 On July
7, 2009, the Company issued $3 million of July 2009 Notes, common stock and July
2009 warrants. The July 2009 Notes bear interest at an annual rate of 8% payable
semi-annually in other senior secured convertible promissory notes to the
holder, and were 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. As a result of the March 2010 financing, the
conversion rate for the July 2009 Notes that were convertible into shares of
common stock at a conversion rate of 10,000 shares of common stock for every
$1,000.00 of principal were adjusted to be convertible into shares of common
stock at a conversion rate of 100,000 shares of common stock for every $1,000.00
of principal. The Company valued this change in the conversion rate on March 9,
2010; the aggregate intrinsic value of the difference in conversion rates was in
excess of the $0.7 million face value of the July 2009 Notes. Thus, a full debt
discount was recorded in an amount equal to the face value of the July 2009
Notes on March 9, 2010, and the Company is amortizing the resultant debt
discount over the remaining term of the July 2009 Notes.
 
 From
January 1, 2010 through March 31, 2010, holders of the July 2009 Notes
voluntarily converted approximately $0.1 million, resulting in an issuance of
3.0 million shares of common stock.  At March 31, 2010, approximately
$0.7 million of the July 2009 Notes were outstanding.
  12
  In
connection with the placement of the July 2009 Notes, the Company issued a
warrant to its private placement agent to purchase 1.8 million shares of common
stock at an exercise price of $1.00 per share and incurred financing fees of
$0.1 million. The financing fees and the initial value of the warrant are being
amortized over the term of the convertible notes. At March 31, 2010 and December
31, 2009, the unamortized balances of the warrants were $0.1 million and $0.2
million, respectively.
 
 On
September 4, 2009, the Company issued $7 million of additional July 2009 Notes,
common stock and July 2009 Warrants. Also on September 4, 2009, the Company
issued $3 million of September 2009 Notes, common stock and September 2009
Warrants to certain accredited institutional investors. The September 2009 Notes
bear interest at an annual rate of 8% payable semi-annually in other senior
secured convertible promissory notes to the holder, and were 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. As a result of
the March 2010 financing, the conversion rate for the September 2009 Notes and
the July 2009 Notes that were issued in September, that were convertible into
shares of common stock at a conversion rate of 10,000 shares of common stock for
every $1,000.00 of principal were adjusted to be convertible into shares of
common stock at a conversion rate of 100,000 shares of common stock for every
$1,000.00 of principal. The Company valued this change in the conversion rate on
March 9, 2010; the aggregate intrinsic value of the difference in conversion
rates was in excess of the $6.8 million face value of the September 2009 and
July 2009 Notes. Thus, a full debt discount was recorded in an amount equal to
the face value of the September 2009 and July 2009 Notes on March 9, 2010, and
the Company is amortizing the resultant debt discount over the remaining term of
the September 2009 and July 2009 Notes.
 
 From
January 1, 2010 through March 31, 2010, holders of the September 2009 Notes and
July 2009 Notes issued September 4, 2009, voluntarily converted approximately
$0.9 million, resulting in an issuance of 53.8 million shares of common
stock.  At March 31, 2010, approximately $6.3 million of the September
2009 Notes and July 2009 Notes issued on September 4, 2009 were
outstanding.
 
 In
connection with the placement of the September 2009 Notes and July 2009 Notes on
September 4, 2009, the Company issued warrants to its private placement agent to
purchase 6.0 million shares of common stock at an exercise price of $1.00 per
share and incurred financing fees of $0.6 million. The financing fees and the
value of the warrants of $2.2 million are being amortized over the term of the
convertible notes. At March 31, 2010 and December 31, 2009, the unamortized
balances of the financing fee were $0.4 million and $0.5 million, respectively,
and the warrants were $1.6 million and $1.9 million, respectively.
 
 The
Company is in compliance with all debt-related covenants at March 31,
2010.
 
 6.
                Stock
      Incentive Plans and Share-Based
Compensation
  During
2009, the Company established the 2009 Stock Incentive Plan (“2009 Plan”) and
implemented an Equity Award Exchange Offer Program for non-employee Directors,
whereby each eligible non-employee Director exchanged their outstanding stock
options that had been granted under the Company’s 1998 Non-Employee Directors’
Plan, as amended, and were granted restricted stock units (“RSUs”) under the
2009 Plan. The Company also implemented an Equity Award Exchange Offer Program
for all U.S. employees, whereby each employee exchanged their outstanding stock
options that had been granted under the Company’s 1998 Stock Incentive Plan, as
amended (“1998 Plan”), for new replacement RSUs under the 2009 Plan. The RSU’s
vest in accordance with the terms set forth in the 2009 Stock Incentive Plan,
Approximately 75% of the total awards granted as new replacement RSUs vest over
time between the date of issuance and August 31, 2012 and the remaining 25% vest
based on certain performance conditions.  The surrender of the options
was accounted for as a modification of an award. The Company determined the
compensation cost of the modification as the difference in the fair value of the
options immediately before the modification and the fair value of the RSUs
immediately after the modification. The incremental cost for awards that were
not vested as of the modification date are being expensed over the remaining
vesting period of the RSUs.
   13
  The
following table summarizes the RSU activity under the 2009 Plan for the three
months ended March 31, 2010:
 Restricted Stock Units
                        
                        Number of Shares
                          (in thousands)
                        
                        
                        Weighted Average
                          Grant Date Fair
                          Value per ShareOutstanding  nonvested
      RSUs at January 1, 2010
                        
                        
                        44,403
                        
                        
                        $
                        0.395Granted
                        
                        
                        -
                        
                        
                        
                        -Vested
                        
                        
                        -
                        
                        
                        
                        -Forfeited
      or expired
                        
                        
                        -
                        
                        
                        
                        -Outstanding  nonvested
      RSUs at March 31, 2010
                        
                        
                        44,403
                        
                        
                        $
                        0.395
 
 Based on
the closing price of Genta common stock of $0.048 per share on March 31, 2010,
the fair value of the nonvested RSUs at March 31, 2010 is $2.1 million. As of
March 31, 2010, there was approximately $1.7 million of total unrecognized
compensation cost related to non-vested share-based compensation granted under
the 2009 Plan, which is expected to be recognized over a weighted-average period
of 0.9 years.
 
 Share-based
compensation expense recognized for the three months ended March 31, 2010 and
2009, respectively, was comprised as follows:
 Three months ended
                      March 31($
      thousands, except per share data)
                    
                    2010
                    
                    
                    2009Research
      and development expenses
                    
                    $
                    653
                    
                    
                    $
                    20Selling,
      general and administrative
                    
                    
                    1,949
                    
                    
                    
                    52Total
      share-based compensation expense
                    
                    $
                    2,602
                    
                    
                    $
                    72Share-based
      compensation expense, per basic and diluted common share
                    
                    $
                    0.01
                    
                    
                    $
                    0.00
 
 7.
                Commitments
      and Contingencies
 
 Litigation
and Potential Claims
 
 In
September 2008, several stockholders, 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 in June 2008, 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 Company’s motion 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 and the
Appellate Division granted the motion for temporary remand. Following the
briefing and a hearing, the Superior Court denied the motion for relief from
judgment on August 28, 2009. Thus, this matter proceeded in the Appellate
Division. Plaintiffs' brief before the Appellate Division was filed on October
28, 2009, and our responsive brief was filed on January 27, 2010. The
plaintiffs’ reply brief was filed on March 15, 2010. We are currently awaiting a
decision from the Appellate Division on this matter.  At this time,
the Company cannot estimate when the Appellate Division will rule on the appeal.
The Company, Board of Directors and Officers deny these allegations and intend
to vigorously defend this lawsuit.
  14
  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.
On July 20, 2009, the stockholder moved for summary judgment. The summary
judgment motion was fully briefed, and oral argument was heard on December 3,
2009. The Court has not yet ruled on the motion. The Company denies the
allegations of this complaint and intends to vigorously defend this
lawsuit.
 
 8.
                Supplemental
      Disclosure of Cash Flows Information and Non-Cash Investing and Financing
      Activities
 
 No
interest or income taxes were paid with cash during the three months ended March
31, 2010 and 2009, respectively. On January 4, 2010, the Company issued $187
thousand of September 2009 Notes in lieu of interest due on its September 2009
Notes. On January 7, 2010, the Company issued $30 thousand in July 2009 Notes in
lieu of interest due on its July 2009 Notes. On March 2, 2010, the Company
issued $163 thousand in April 2009 Notes in lieu of interest due on its April
2009 Notes. On March 9, 2010 the Company issued $67 thousand in 2008 Notes in
lieu of interest due on its 2008 Notes. On March 9, 2010, the Company issued
approximately $386 thousand of 2008 Notes in lieu of interest due on its 2008
Notes.
  From
January 1, 2010 through March 31, 2010, holders of the Company’s convertible
notes voluntarily converted approximately $2.5 million, resulting in an issuance
of 171.9 million shares of common stock.
 
 9.
                Subsequent
      Events
 
 On April
9, 2010, an investor who had participated in the Company’s April 2009 financing,
exercised his rights to acquire F Notes of $0.1 million.
 
 From
April 1, 2010 through May 13, 2010, holders of convertible notes have
voluntarily converted approximately $3.9 million of their notes, resulting in an
issuance of 389.5 million shares of common stock.
 
 On May 5,
2010, a holder of a Debt Warrant of $1.0 million exercised his warrant using a
cashless exercise procedure and received an E Note for $0.9 million. On May 10,
2010, a holder of a Debt Warrant of $0.3 million exercised his warrant using a
cashless exercise procedure and received an E Note for $0.2
million.
 
 Similar
to the accounting treatment of the March 2010 Notes, the Company recorded a debt
discount (beneficial conversion) relating to the conversion feature of the E
Notes in the amount of $1.1 million. The aggregate intrinsic value of the
difference between the market price of a share of the Company’s stock on May 5,
2010 and May 10, 2010 and the conversion price of the notes was in excess of the
face value of the E Notes of $1.1 million, and thus, a full debt discount was
recorded in an amount equal to the face value of the notes. The Company will
amortize the resultant debt discount over the term of the notes through their
maturity date.
  15
  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”.
 
 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 amended, 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.
  16
  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
tesetaxel and oral gallium-containing compounds). 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. Additionally, we expect that such losses will continue
at least until one or more of our product candidates are approved by one or more
regulatory authorities for commercial sale in one or more indications. From our
inception to March 31, 2010, we have incurred a cumulative net deficit of
$1,197.0 million. We have experienced significant quarterly fluctuations in
operating results, and we expect that these fluctuations in revenues, expenses
and losses will continue.
 
 Most
recently, 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.
 
 Our major
current initiative with Genasense® relates
to its potential use in patients with advanced melanoma. In 2009, we completed
accrual to a Phase 3 trial of Genasense® plus
chemotherapy in advanced melanoma. This trial, known as AGENDA, was a
randomized, double-blind, placebo-controlled study in which patients were
randomly assigned to receive Genasense® plus
dacarbazine or dacarbazine alone. The study used LDH as a biomarker to identify
patients who were most likely to respond to Genasense®, based
on data obtained from our preceding trial in melanoma. The co-primary endpoints
of AGENDA were progression-free survival (PFS) and overall
survival.
  The
design of AGENDA was based on data obtained from a similarly designed Phase 3
trial that was published in 2006. Results from this antecedent study showed that
treatment with Genasense®plus
dacarbazine compared with dacarbazine alone was associated with a statistically
significant increase in overall response, complete response, durable response
and PFS. However, the primary endpoint of overall survival approached but did
not quite reach statistical significance (P=0.077) in the entire
“intent-to-treat” population. Our further 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. Thus, the AGENDA trial
sought to confirm the observations that were previously observed in the
antecedent trial in a biomarker-defined patient population.
 
 A total
of 315 patients were enrolled into AGENDA. In October 2009, we announced that
AGENDA did not show a statistically significant benefit for its co-primary
endpoint of PFS. Secondary endpoints of overall response rate and disease
control rate (which includes complete and partial responses, plus stable disease
greater than 3 months duration) also did not show a statistically significant
benefit. According to the prespecified analysis plan, the statistical
significance of durable response, (a secondary endpoint that measures the
proportion of patients who achieved a complete or partial response that lasts
greater than 6 months), is too early to evaluate. However, the observed
differences in PFS, overall response, disease control and durable response all
numerically favored the group that received Genasense®.
  17
  Overall
survival, the other co-primary endpoint in AGENDA, is too early to evaluate, as
prospectively specified.  An analysis for futility, which was defined
as greater than 50% conditional power to observe a statistically significant
benefit of Genasense® under
the prospectively assumed hazard ratio of 0.69, was conducted for the co-primary
endpoint of overall survival.  AGENDA passed this futility analysis,
and an Independent Data Monitoring Committee has recommended that the trial
continue to completion for the determination of the overall survival endpoint.
The safety profile of Genasense® in
AGENDA was consistent with prior studies. We have indicated our intention to
continue patient follow-up in the AGENDA trial to determine whether
Genasense® will
yield a statistically significant improvement in its co-primary endpoint of
overall survival. We currently project that this information may be available in
the first quarter of 2011. If the final analysis for overall survival is
statistically significant, we plan to resubmit our New Drug Application (NDA) to
the FDA and seek approval for treatment of patients with advanced melanoma with
Genasense®. We
anticipate that such a filing would take place in 2011.
 
 We have
been 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 whether different dosing regimens would improve efficacy
and dosing convenience of Genasense®.
 
 We have
also conducted extensive trials in patients with advanced CLL. We completed 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
received a “non-approvable” notice from the FDA in December 2006 for our NDA
that proposed the use of Genasense® in
combination with Flu/Cy for the treatment of patients with relapsed or
refractory CLL who had previously received fludarabine. We appealed this
decision with FDA’s Center for Drug Evaluation and Research (CDER) using the
agency’s Formal Dispute Resolution process. 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. However, 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. In the absence of
a co-development partner to share expenses, we have determined that we will not
conduct the recommended study in the CLL indication until the survival results
of the AGENDA trial are known. We have made no decision whether to conduct this
study or whether to pursue the current application for regulatory approval in
other territories.
 
 As with
melanoma, we have believed the clinical activity in CLL, as well as in NHL and
other types of cancer, should be explored with additional clinical research. We
are currently assessing whether to proceed with such studies in advance of the
final survival results in AGENDA.
  18
  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 initiated 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. That trial has now been
completed and its results have been accepted for presentation at the June 2010
annual meeting of the American Society of Clinical Oncology (ASCO).
 
 We plan
to initiate several new clinical trials with tesetaxel during 2010. In February,
we initiated treatment of the first subject in a new Phase 2 trial of tesetaxel
in advanced melanoma. The study will examine the effects of tesetaxel in
patients with advanced melanoma who have developed progressive disease after
treatment with a single first-line regimen. Endpoints of the study include
response rate, durable response, disease control, PFS and safety. The study was
initiated at M.D. Anderson Cancer Center in Houston, TX, which has been the lead
center for Genta’s last two clinical trials in melanoma that together have
enrolled approximately 1,100 patients.
 
 In March
2010, we initiated a confirmatory Phase 2b trial of tesetaxel in patients with
advanced gastric cancer. The trial is currently open to enrollment at
Northwestern University, Chicago, IL, which will be joined by M.D. Anderson
Cancer Center in Houston, TX and several additional sites. The new trial is
designed to confirm the efficacy results observed in a preliminary Phase 2a
study of tesetaxel as second-line treatment of patients with advanced gastric
cancer and will enroll patients who have progressed on a single first-line
chemotherapy regimen. Endpoints of the new Phase 2b study include response rate,
durable response, disease control, PFS and safety.
 
 The FDA
has granted the Company’s request for “Fast Track” designation of tesetaxel for
treatment of patients with advanced gastric cancer. Fast Track designation is
designed to facilitate the development and expedite the review of new drugs that
are intended to treat serious or life-threatening conditions and that
demonstrate the potential to address unmet medical needs. The designation
typically enables a company to submit a NDA on a “rolling” basis with ongoing
FDA review during the submission process. NDAs with Fast Track designation are
also usually granted priority review by FDA at the time of
submission.
 
 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
current priorities for clinical testing of tesetaxel include the evaluation of
safety and efficacy in patients with advanced gastric cancer, advanced melanoma
and prostate cancer. Other disease priorities for clinical research include
cancers of the bladder and breast, among other disorders.
 
 Our third
pipeline project consists of several formulations of an oral gallium-containing
compound. One of these formulations is known as G4544, which was 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 whether a modified formulation, known as “G4544(b)”, will prove
more clinically acceptable.
 
 If we are
able to identify a clinically and commercially acceptable formulation of an oral
gallium-containing compound, we currently intend to evaluate whether an
expedited regulatory approval may be possible. We believe a drug of this class
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 for patients with
cystic fibrosis.
  19
  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. Sales of
Ganite® have
been low relative to original expectations in part due to our under-investment
in its marketing for a small indication. Since Ganite® has now
lost patent protection, we do not plan to substantially increase our investment
in the drug, but we believe the product has strategic importance for our
franchise of gallium-containing compounds and we currently intend for
Ganite® to
remain on the market.
 
 In April
2010, we announced the presentation of initial results from the first human use
of a gallium-containing compound to treat serious infection.  In a
patient with cystic fibrosis and a highly resistant lung infection, who has been
treated over a 2-year period, high concentrations of gallium were achieved in
sputum. Moreover, sputum concentrations were higher than simultaneous
concentrations in blood and continued to rise even after treatment had been
stopped. Measured concentrations in sputum equaled or exceeded concentrations
that have been reported lethal to bacteria in laboratory tests. The data were
presented at the annual meeting of the American Association of Cancer Research
in Washington, D.C. in April 2010.
 
 Results
of Operations for the Three Months Ended March 31, 2010 and March 31,
2009
 
 ($ thousands)
                    
                    2010
                    
                    
                    2009Product
      sales – net
                    
                    $
                    34
                    
                    
                    $
                    62Cost
      of goods sold
                    
                    
                    12
                    
                    
                    
                    -Gross
      margin
                    
                    
                    22
                    
                    
                    
                    62Operating
      expenses:Research
      and development
                    
                    
                    2,443
                    
                    
                    
                    2,298Selling,
      general and administrative
                    
                    
                    3,773
                    
                    
                    
                    2,172Total
      operating expenses
                    
                    
                    6,216
                    
                    
                    
                    4,470Other
      (expense)/income:Interest
      and other income
                    
                    
                    8
                    
                    
                    
                    15Interest
      expense
                    
                    
                    (517
                    )
                    
                    
                    (387
                    )Amortization
      of deferred financing costs and debt discount
                    
                    
                    (6,092
                    )
                    
                    
                    (6,287
                    )Fair
      value – conversion feature liability
                    
                    
                    (97,297
                    )
                    
                    
                    -Fair
      value – warrant liability
                    
                    
                    (56,526
                    )
                    
                    
                    -Total
      other income/(expense), net
                    
                    
                    (160,424
                    )
                    
                    
                    (6,659
                    )Net
      loss
                    
                    $
                    (166,618
                    )
                    
                    $
                    (11,067
                    )
 
 Product
sales-net
 
 Product
sales-net were $34 thousand for the three months ended March 31, 2010, compared
with $62 thousand for the three months ended March 31, 2009. The unit price of
Ganite® was 28%
higher in the first quarter of 2010 than in the comparison period for 2009 due
to a price increase.Unit
sales of Ganite® declined
28% from the first quarter of 2009 to the first quarter of 2010 due to the
continued absence of promotional support. Net sales declined in the first
quarter of 2010 due to sales returns.
 
 Cost of goods
sold
 
 During
the first quarter of 2009, sales of Ganite® were
from product that had been previously accounted for as excess
inventory.
 
 Research and development
expenses
  Research
and development expenses were $2.4 million for the three months ended March 31,
2010, compared with $2.3 million for the three months ended March 31,
2009.
  20
  Research
and development expenses were impacted by increased share-based compensation
expense, as the amount recognized for the three months ended March 31, 2010 and
2009 was $0.7 million and $20 thousand, respectively for those employees
categorized as research and development. In addition, in March 2010, we
purchased drug supply for tesetaxel from Daiichi Sankyo for $0.7 million.
Partially offsetting these increases were lower expenses resulting from the
completion of the AGENDA clinical trial and lower payroll costs, resulting from
lower headcount.
 
 Research
and development expenses incurred on the Genasense® project
and tesetaxel project (including the purchased drug supply for tesetaxel) during
the three months ended March 31, 2010 were approximately $0.8 million and $1.4
million, representing 31% and 58% of research and development expenses,
respectively.
 
 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.
 
 Selling, general and
administrative expenses
 
 Selling,
general and administrative expenses were $3.8 million for the three months ended
March 31, 2010, compared with $2.2 million for the three months ended March 31,
2009 as share-based compensation expense recognized for the three months ended
March 31, 2010 and 2009 was $1.9 million and $52 thousand, respectively. This
increase was slightly offset by lower administrative expenses.
 
 Interest and other
income
 Interest
expense
 
 The total
of interest and other income and interest expense resulted in expense, net of
$(0.5) million for the three months ended March 31, 2010, compared to $(0.4)
million for the prior-year period. Interest expense on our April 2009 Notes,
July 2009 Notes, September 2009 Notes and March 2010 Notes, not reflected in the
prior-year period, was almost offset by reduced interest expense on our 2008
Notes as a result of a lower balance.
 
 Amortization of deferred
financing costs and debt discount
 
 For the
three months ended March 31, 2010, the amortization of deferred financing costs
and debt discount for the 2008 Notes was $0.7 million, for the April 2009 Notes
$2.6 million, for the July 2009 Notes $0.2 million, for the September 2009 Notes
and July 2009 Notes issued in September $2.1 million, and for the March 2010
Notes $0.5 million. In the prior-year period, the $6.3 million amortization of
deferred financing costs and debt discount resulted from the 2008
Notes.
 
 Fair value – conversion
feature liability
 
 On the
date that we issued the March 2010 Notes, there were an insufficient number of
authorized shares of common stock in order to permit conversion of all of the
March 2010 Notes. When there are insufficient authorized shares to allow for
settlement of convertible financial instruments, the conversion obligation for
notes should be classified as a liability and measured at fair value on the
balance sheet.
 
 On March
9, 2010, based upon a Black-Scholes valuation model, we calculated a fair value
of the conversion feature of the March 2010 Notes of $263.5 million and expensed
$238.5 million, the amount that exceeded the proceeds of the $25.0 million from
the closing. Similarly, on March 17, 2010, and March 22, 2010, in connection
with the issuance of $0.9 million in March 2010 F Notes the convertible features
of the F Notes were recorded as a derivative liability of $5.4 million,
resulting in an expense of $4.5 million.
  21
  At March
31, 2010, based on the revised fair-market valuation of the conversion feature
liabilities related to the March 2010 transactions, the liabilities were valued
at $123.2 million, resulting in a net expense on the Consolidated Statements of
Operations for the first quarter of 2010 of $97.3 million.
 
 Fair value – warrant
liability
 
 The debt
warrants that were issued with the March 2010 Notes and the warrants that were
issued to extend the maturity of the 2008 Notes were also treated as
liabilities, due to the insufficient number of authorized shares of common stock
at the time that they were issued. The debt warrants and the warrants issued
were initially recorded at a fair value of $125.1 million based upon a
Black-Scholes valuation model and re-measured at March 31, 2010, resulting in a
net expense of $56.5 million at March 31, 2010.
 
 Net loss
 
 Genta
recorded a net loss of $166.6 million, or net loss per basic and diluted share
of $(0.76) per share, for the three months ended March 31, 2010 and reported a
net loss of $11.1 million, or net loss per basic and diluted share of $(0.64)
per share, for the three months ended March 31, 2009. The higher net loss was
virtually all due to the recognition of the conversion feature liability and
warrant liabilities.
 
 Liquidity
and Capital Resources
 
 At March
31, 2010, we had cash and cash equivalents totaling $19.6 million, compared with
$1.2 million at December 31, 2009, reflecting our March 2010 financing offset by
funds used in operating our company.
 
 During
the three months ended March 31, 2010, cash used in operating activities was
$2.3 million compared with $4.3 million for the same period in 2009, reflecting
lower expenses resulting from the completion of the AGENDA clinical trial and
lower payroll expense resulting from the reduced size of our
company.
 
 On March
9, 2010, we issued $25 million of units, or 2010 Units, each 2010 Unit
consisting of (i) 40% of a senior unsecured convertible note, or B Notes, (ii)
40% of a senior unsecured convertible note, or C Notes and (iii) 20% of a senior
secured convertible note, or D Notes.  In connection with the sale of
the 2010 Units, we also issued warrants, or Debt Warrants, to purchase senior
unsecured convertible notes, or E Notes, in an amount equal to 40% of the
purchase price paid for each such 2010 Unit. We had direct access to $20 million
of the proceeds, and the remaining $5 million of the proceeds were placed in a
blocked account as collateral security for the $5 million in principal amount of
the D Notes. On March 17, 2010 and March 22, 2010, three investors who had
participated in our April 2009 financing, exercised their rights under the April
2009 securities purchase agreement and the April 2009 consent agreement to
acquire convertible notes, or F Notes, of $0.9 million. Net cash used in
operating activities for the year ended December 31, 2009 was $21.5 million,
which represents an average monthly outflow of $1.8 million. We expect that our
average monthly outflow will be $1.2 million during 2010. Given our current cash
and cash equivalent balances and our current forecast of expenses, we believe we
have sufficient working capital to fund our current planned operations for at
least the next 12 months from the end of the period covered by this
report.
 
 In order
to commercialize our products, seek new product candidates and continue our
research and development programs, we will need to raise additional funds in the
future until we are able to commercialize our products and maintain profits. 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 and 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.
  22
  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:
 
 ·
              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 warrants. We use a Black-Scholes model to
      estimate the fair value of our convertible notes and
    warrants.
 
 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 March 31, 2010. 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.
  23
  PART
II
 
 Item
1. Legal
Proceedings
 
 In
September 2008, several of our stockholders, on behalf of themselves and all
others similarly situated, filed a class action complaint against us, 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 in June 2008, our Board of
Directors, and certain officers breached their fiduciary duties, and we aided
and abetted the breach of fiduciary duty.  On March 20, 2009, the
Superior Court of New Jersey granted our motion 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 and the Appellate Division granted the motion for temporary
remand. Following the briefing and a hearing, the Superior Court denied the
motion for relief from judgment on August 28, 2009. Thus, this matter proceeded
in the Appellate Division. Plaintiffs' brief before the Appellate Division was
filed on October 28, 2009, and our responsive brief was filed on January 27,
2010. We are currently awaiting a decision from the Appellate Division on this
matter.  At this time, we cannot estimate when the Appellate Division
will rule on the appeal. The plaintiffs’ reply brief was filed on March 15,
2010. We intend to continue our vigorous defense of this matter.
 
 In
November 2008, a complaint against our Company 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 our Company and
our transfer agent caused or contributed to losses suffered by the stockholder.
On July 20, 2009, the stockholder moved for summary judgment. The summary
judgment motion was fully briefed, and oral argument was heard on December 3,
2009. The Court has not yet ruled on the motion. Our Company denies the
allegations of this complaint and intends to vigorously defend this
lawsuit.
  24
  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,
2009 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
  We
may be unsuccessful in our efforts to obtain approval from the FDA or EMEA and
to commercialize our pharmaceutical product candidates.
  The
commercialization of our pharmaceutical products involves a number of
significant challenges. In particular, our ability to commercialize products,
such as tesetaxel, an oral gallium compound 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 our product candidates will receive FDA or EMEA approval. For
example, the recent results in the Phase 3 AGENDA trial of Genasense® in
advanced melanoma were not sufficient to apply for a NDA in the U.S. If extended
followup of the AGENDA trial shows a statistically significant benefit for
patients, we may be able to submit a NDA after that result is known. However,
our prior regulatory applications for Genasense® in
melanoma were unsuccessful. 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 events with respect to FDA and/or EMEA approvals could negatively impact
our ability to obtain additional funding or identify potential
partners.
  25
  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.
  Our
business may suffer if we fail to obtain timely funding in the
future.
 
 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.
 
 On March
9, 2010, we closed on a financing transaction whereby we issued $25 million of
units, or  2010 Units, each 2010 Unit consisting of (i) 40% of a
senior unsecured convertible note, or B Notes, (ii) 40% of a senior unsecured
convertible note, or C Notes and (iii) 20% of a senior secured convertible
note, or D Notes. In connection with the sale of the 2010 Units, we also
issued warrants, or Debt Warrants to purchase senior unsecured convertible
notes, or E Notes in an amount equal to 40% of the purchase price paid for each
such 2010 Unit. In order to commercialize our products, seek new product
candidates and continue our research and development programs, we will need to
raise additional funds in the future until we are able to commercialize our
products and maintain profits. 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 and 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.
  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;
  ·
              the
      results from early clinical trials may not be statistically significant or
      predictive of results that will be obtained from expanded, advanced
      clinical trials;
   26
  ·
              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.
  In
October 2009, we announced that AGENDA did not show a statistically significant
benefit for its co-primary endpoint of progression-free
survival.  Secondary endpoints of overall response rate and disease
control rate (which includes complete and partial responses, plus stable disease
greater than 3 months duration) also did not show a statistically significant
benefit. According to the prespecified analysis plan, the statistical
significance of durable response, (a secondary endpoint that measures the
proportion of patients who achieved a complete or partial response that lasts
greater than 6 months), is too early to evaluate. However, the observed
differences in progression-free survival, overall response, disease control and
durable response all numerically favored the group that received Genasense®.
 
 Overall
survival, the other co-primary endpoint in AGENDA, is too early to evaluate, as
prospectively specified.  An analysis for futility, which was defined
as greater than 50% conditional power to observe a statistically significant
benefit of Genasense® (P <
0.05) under the prospectively specified hazard ratio of 0.69, was conducted for
the co-primary endpoint of overall survival.  AGENDA passed this
futility analysis, and an Independent Data Monitoring Committee has recommended
that the trial continue to completion for the determination of the overall
survival endpoint. The safety profile of Genasense® in
AGENDA was consistent with prior studies. We currently intend to continue the
AGENDA trial in order to determine whether the addition of Genasense® to
dacarbazine is associated with a statistically significant increase in overall
survival.  If that association is demonstrated, we currently expect
that Genta would submit regulatory applications for the marketing approval of
Genasense® on a
worldwide basis.
 
 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.
 
 We have a significant amount of debt.
Our substantial indebtedness could adversely affect our business,
financial condition and results of operations and our ability to meet our payment
obligations under the notes and our other debt.
 
 We have a
significant amount of debt.  As of March 31, 2010, we had a face
amount of debt outstanding of $37.9 million, consisting of the face value of
2008 Notes of $1.8 million, the face value of April 2009 Notes of $3.2 million,
the face value of July 2009 Notes issued in July 2009 of $0.7 million, the face
value of the September 2009 Notes and July 2009 Notes issued in September 2009
of $6.3 million and March 2010 Notes of $25.9 million.
 
 Our
aggregate level of debt could have significant consequences on our future
operations, including:
 
 •
                making it more difficult for us
      to meet our payment and other obligations under our outstanding
      debt;
 
 •
                resulting in an event of default
      if we fail to comply with the restrictive covenants contained in our debt
      agreements, which could result in all of our debt becoming due and payable
      and, in the case of an event of default under our secured debt, could
      permit the lenders to foreclose on our assets securing such
      debt;
  27
 
 •
                limiting our flexibility in
      planning for, or reacting to, and increasing our vulnerability to, changes
      in our business, the industry in which we operate and the general economy;
      and
 
 •
                placing us at a competitive
      disadvantage compared to our competitors that have less debt or are less
      leveraged.
 
 Future
adjustments to the conversion prices of our convertible notes may result in
further dilution of our stockholders' ownership upon conversion of such
notes.
 
 Our
convertible notes contain various provisions regarding the adjustment of their
applicable conversion prices.  If on the later of (A) the date that is
seven months after the March 2010 Financing and (B) the eleventh trading day
following the effective date of the reverse stock split required under the March
2010 Purchase Agreement, or the October Adjustment Date,) the volume weighted
closing price of our common stock for the 10 consecutive trading day period
ending on the last trading day prior to the October Adjustment Date, or the
10-Day October VWCP, is less than $0.10 (as adjusted for any stock splits,
combinations, recapitalizations or the like), the conversion price for the B
Notes, E Notes and F Notes, as applicable, shall be reduced to a price equal to
10% of the 10-Day October VWCP. The adjustment of the conversion price of the B
Notes, E Notes and F Notes in October would also result in the adjustment of the
Company’s other convertible notes pursuant to the anti-dilution provisions of
such notes.  Also, if on the last trading day prior to December 31,
2010, or the December Adjustment Date, the volume weighted closing price of our
common stock for the 10 consecutive trading day period ending on the last
trading day prior to the December Adjustment Date, or the 10-Day December VWCP,
is less than $0.10 (as adjusted for any stock splits, combinations,
recapitalizations or the like), the conversion price for the  D Notes
shall be reduced to a price equal to 10% of the 10-Day December VWCP. The
adjustment of the conversion price of the D Notes in December would also result
in the adjustment of the Company’s other convertible notes pursuant to the
anti-dilution provisions of such notes.
 
 Additionally,
the conversion rate of all of our convertible notes will be reduced if we issue
additional shares of common stock or common stock equivalents for consideration
that is less than the then applicable conversion price or if the conversion or
exercise price of any common stock equivalent (including our convertible notes)
is adjusted or modified to a price less than the then applicable conversion
price.
 
 If any of
the foregoing adjustments occur, our convertible notes will be convertible into
a greater number of shares and our current stockholders' ownership holdings will
be further diluted upon exercise of such notes.
 
 Our substantial amount of secured
debt may prevent us from obtaining additional financing in the future or make the
terms of securing such additional financing more onerous to
us.
 
 While the
terms or availability of additional capital is always uncertain, should we need
to obtain additional financing in the future, because of our outstanding debt,
it may be even more difficult for us to do so. If we are able to raise
additional financing in the future, the terms of any such financing may be
onerous to us. This potential inability to obtain borrowings or our obtaining
borrowings on unfavorable terms could negatively impact our operations and
impair our ability to maintain sufficient working capital.
 
 Any
future financings at a price per share below the conversion price of our
outstanding convertible notes would reset the conversion price of the notes and
result in greater dilution of current stockholders.
 
 We may not have the ability to repay
the principal on our convertible notes when due.
 
 Our
convertible notes mature on various dates in 2011, 2012 and 2013, and bear
interest payable quarterly or semi-annually at rates of 8.0%, 12.0% or 15.0% per
annum. Absent additional financing, we will likely not have sufficient funds to
pay the principal upon maturity or upon any acceleration thereof. If we fail to
pay principal on our convertible notes when due, we will be in default under our
debt agreements which could have an adverse effect on our business, financial
condition and results of operations.
  28
  If
our stockholders do not approve the proposal set forth in our definitive proxy
statement for our 2010 Annual Meeting of Stockholders to authorize our Board of
Directors to effect a reverse split in any ratio up to 1- for-100, we will be
required to pay damages to holders of the 2010 Notes.
 
 The March
2010 Purchase Agreement requires that we effect a reverse stock split of our
Common Stock prior to September 17, 2010. There are currently not enough shares
of our Common Stock authorized under our certificate of incorporation to cover
the shares underlying the 2010 Notes and debt warrants.
 
 Our 2010
Annual Meeting of Stockholders will be held on June 15, 2010. We have
recommended to our stockholders that they approve the proposal to authorize our
Board of Directors to effect a reverse split in any ratio up to
1-for-100.
 
 If such
reverse stock split is not effected on or prior to September 17, 2010, we will
be obligated to pay each investor who is a signatory to the March 2010 Purchase
Agreement a cash payment equal to 0.75% of the principal amount of all B Notes
and C Notes purchased by such investor for each day from September 18, 2010
until the reverse stock split is effected; provided, however, that we are not
obligated to make any such payments in excess of 100% of the principal amount of
the B Notes and C Notes purchased by the investors in the March 2010
Financing.
 
 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.
  29
  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 March 31, 2010, we have incurred a
cumulative net deficit of $1,197.0 million. Achieving profitability is unlikely
unless one or more of our product candidates is approved by the FDA or EMEA for
commercial sale in one or more indications.
 
 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.
  30
  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, 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.
 
 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.
 
 Tesetaxel,
its potential uses, composition and methods of manufacturing are covered under a
variety of patents licensed exclusively from Daiichi Sankyo, Inc.  We
believe that composition-of-matter claims on tesetaxel extend to at least 2020
in the U.S. and Europe and to 2022 in Japan. A number of other patents have been
filed worldwide for this compound.
 
 The
principal patent covering the use of Ganite® for its
approved indication 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 10 U.S. patents relating to the composition of Genasense®. We
acquired exclusive rights from the University of Pennsylvania to antisense
oligonucleotides directed against the Bcl-2 mRNA, as well as methods of their
use for the treatment of cancer. The claims of the University of Pennsylvania
patents cover our proprietary antisense oligonucleotide molecules, which target
the Bcl-2 mRNA, including Genasense®, and
methods of using them. Related U.S. and corresponding foreign patent
applications have been issued or are pending. The most important of these
“composition of matter” patents in the U.S. expires in 2015. We believe this
patent may be eligible for up to 5 years of extension under Waxman-Hatch
provisions, (i.e., to 2020). We also own 5 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.
  31
  We have
also licensed certain rights from the U.S. NIH that cover phosphorothioate
antisense oligonucleotides. This patent will expire in 2010, and the Company
does not expect to owe royalty payments related to this patent.
 
 Most
of our products are in early stages of development, and we may never receive
regulatory approval for these products.
 
 We have
devoted considerable resources to the development of potential antisense
pharmaceutical products such as Genasense®, based
upon oligonucleotide technology. Genasense® is our
only antisense product to have been tested in humans. Tesetaxel has completed
several clinical Phase 2a studies, and we plan to conduct additional clinical
studies with the drug. 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 products obsolete or
noncompetitive. Similar types of limitations apply to all our product
candidates.
 
 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.
  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.
  32
  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®. We are
currently seeking a third-party manufacturer for tesetaxel. 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 our product candidates are
manufactured or tested for its ability to meet required specifications must be
approved by the FDA and/or the EMEA before a commercial product can be
manufactured. Failure of such a facility to be approved could delay the approval
of our product candidates.
  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.
  33
  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®andtesetaxel
(if they obtain 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.
  34
  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.
  35
  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. On July 20, 2009,
the stockholder moved for summary judgment. The summary judgment motion was
fully briefed, and oral argument was heard on December 3, 2009. The Court has
not yet ruled on the motion. We deny the allegations of the complaint and intend
to vigorously defend this lawsuit.
 
 In
September 2008, several of our stockholders, on behalf of themselves and all
others similarly situated, filed a class action complaint against us, 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 in June 2008, our Board of
Directors, and certain officers breached their fiduciary duties, and we aided
and abetted the breach of fiduciary duty.  On March 20, 2009, the
Superior Court of New Jersey granted our motion 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 and the Appellate Division granted the motion for temporary
remand. Following the briefing and a hearing, the Superior Court denied the
motion for relief from judgment on August 28, 2009. Thus, this matter proceeded
in the Appellate Division. Plaintiffs' brief before the Appellate Division was
filed on October 28, 2009, and our responsive brief was filed on January 27,
2010. The plaintiffs’ reply brief was filed on March 15, 2010. We are currently
awaiting a decision from the Appellate Division on this matter. At this time, we
cannot estimate when the Appellate Division will rule on the appeal. We intend
to continue our vigorous defense of this matter.
  36
  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.
  37
  At March
31, 2010, we had 364.8 million shares of common stock outstanding
and 6,421.1 million shares reserved for the conversion of our outstanding
convertible preferred stock, convertible notes, warrants, the issuance and
vesting of outstanding restricted stock units and shares issuable upon the
exercise of purchase rights of our noteholders. Future sales of shares of our
common stock by existing stockholders, holders of preferred stock who might
convert such preferred stock into common stock, holders of convertible notes who
might convert such convertible notes into common stock and option and warrant
holders who may exercise their options and 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 and warrants into shares of our
common stock, our stockholders will be diluted.
 
 The
conversion of some or all of our notes and warrants dilutes 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 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.
  38
  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
March 10, 2010 and March 23, 2010, the Company has issued unregistered equity
securities.
 
 Item
3.    Defaults Upon Senior
Securities
 
 None.
 
 Item
4. (Removed and
Reserved)
 
 Item
5.    Other
Information
 
 None.
  39
 
 Item
6. Exhibits.
 
 (a)
Exhibits
 
 Exhibit
                    Number
                
                Description of Document4.1
                
                Form
      of Senior Unsecured Convertible Note (“B Note”), (Incorporated by
      reference to Exhibit 4.1 of the Company’s Current Report on Form 8-K, as
      filed with the SEC on March 10, 2010).4.2
                
                Form
      of Senior Unsecured Convertible Note (“C Note”), (Incorporated by
      reference to Exhibit 4.2 of the Company’s Current Report on Form 8-K, as
      filed with the SEC on March 10, 2010).4.3
                
                Form
      of Senior Secured Convertible Note (“D Note”), (Incorporated by reference
      to Exhibit 4.3 of the Company’s Current Report on Form 8-K, as filed with
      the SEC on March 10, 2010).4.4
                
                Form
      of Senior Unsecured Convertible Note (“E Note”), (Incorporated by
      reference to Exhibit 4.4 of the Company’s Current Report on Form 8-K, as
      filed with the SEC on March 10, 2010).4.5
                
                Form
      of Senior Unsecured Convertible Note (“F Note”), (Incorporated by
      reference to Exhibit 4.5 of the Company’s Current Report on Form 8-K, as
      filed with the SEC on March 10, 2010).4.6
                
                Form
      of Common Stock Purchase Warrant, (Incorporated by reference to Exhibit
      4.6 of the Company’s Current Report on Form 8-K, as filed with the SEC on
      March 10, 2010).4.7
                
                Form
      of Senior Unsecured Convertible Promissory Note Purchase Warrant,
      (Incorporated by reference to Exhibit 4.7 of the Company’s Current Report
      on Form 8-K, as filed with the SEC on March 10, 2010).10.1
                
                Form
      of Securities Purchase Agreement, 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 March 10, 2010).10.2
                
                Form
      of Note Conversion and Amendment Agreement, by and among the Company and
      certain accredited investors set forth therein (Incorporated by reference
      to Exhibit 10.2 of the company’s Current Report on Form 8-K, as filed with
      the SEC on March 10, 2010).10.3
                
                Form
      of Security Agreement, 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 March
      10, 2010).10.4
                
                Amendment
      of Lease, dated March 16, 2010 by and between the Connell Company and the
      Company (filed herewith).10.5
                
                Form
      of Amended and Restated Note Conversion and Amendment Agreement, dated
      April 19, 2010, 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 20,
      2010).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).
 
  40
  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:
      May 13,
      2010/s/ RAYMOND P. WARRELL, JR.,
      M.D.Raymond
      P. Warrell, Jr., M.D.Chairman
      and Chief Executive Officer(principal
      executive officer)Date:
      May 13,
      2010/s/ GARY SIEGELGary
      SiegelVice
      President, Finance(principal
      financial and accounting
officer)
  41
  Exhibit
Index
 
 Exhibit
                    Number
                
                Description of Document4.1
                
                Form
      of Senior Unsecured Convertible Note (“B Note”), (Incorporated by
      reference to Exhibit 4.1 of the Company’s Current Report on Form 8-K, as
      filed with the SEC on March 10, 2010).4.2
                
                Form
      of Senior Unsecured Convertible Note (“C Note”), (Incorporated by
      reference to Exhibit 4.2 of the Company’s Current Report on Form 8-K, as
      filed with the SEC on March 10, 2010).4.3
                
                Form
      of Senior Secured Convertible Note (“D Note”), (Incorporated by reference
      to Exhibit 4.3 of the Company’s Current Report on Form 8-K, as filed with
      the SEC on March 10, 2010).4.4
                
                Form
      of Senior Unsecured Convertible Note (“E Note”), (Incorporated by
      reference to Exhibit 4.4 of the Company’s Current Report on Form 8-K, as
      filed with the SEC on March 10, 2010).4.5
                
                Form
      of Senior Unsecured Convertible Note (“F Note”), (Incorporated by
      reference to Exhibit 4.5 of the Company’s Current Report on Form 8-K, as
      filed with the SEC on March 10, 2010).4.6
                
                Form
      of Common Stock Purchase Warrant, (Incorporated by reference to Exhibit
      4.6 of the Company’s Current Report on Form 8-K, as filed with the SEC on
      March 10, 2010).4.7
                
                Form
      of Senior Unsecured Convertible Promissory Note Purchase Warrant,
      (Incorporated by reference to Exhibit 4.7 of the Company’s Current Report
      on Form 8-K, as filed with the SEC on March 10, 2010).10.1
                
                Form
      of Securities Purchase Agreement, 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 March 10, 2010).10.2
                
                Form
      of Note Conversion and Amendment Agreement, by and among the Company and
      certain accredited investors set forth therein (Incorporated by reference
      to Exhibit 10.2 of the company’s Current Report on Form 8-K, as filed with
      the SEC on March 10, 2010).10.3
                
                Form
      of Security Agreement, 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 March
      10, 2010).10.4
                
                Amendment
      of Lease, dated March 16, 2010 by and between the Connell Company and the
      Company (filed herewith).10.5
                
                Form
      of Amended and Restated Note Conversion and Amendment Agreement, dated
      April 19, 2010, 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 20,
      2010).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).
  42