UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

                      FOR ANNUAL AND TRANSITIONAL REPORTS
                      PURSUANT TO SECTIONS 13 OR 15(d) OF
                      THE SECURITIES EXCHANGE ACT OF 1934

[X]            ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
               SECURITIES EXCHANGE ACT OF 1934

               For the Fiscal Year Ended December 31, 1998

[ ]            TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
               SECURITIES EXCHANGE ACT OF 1934

                         Commission File Number 0-19635

                               GENTA INCORPORATED
                     (Exact name of Registrant as specified
                      in its certificate of incorporation)

                      Delaware                               33-0326866
           (State or other jurisdiction of                (I.R.S. Employer
           incorporation or organization)              Identification Number)

             99 Hayden Avenue, Suite 200
              Lexington, Massachusetts                         02421
             (Address of principal executive offices)        (Zip Code)

                                 (781) 860-5150
              (Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:  NONE

Securities registered pursuant to
Section 12(g) of the Act:                       Common Stock, $.001 par value
                                              Preferred Stock Purchase Rights,
                                                      $.001  Par Value 
                                                      (Title of Class)

<PAGE>

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 if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-K is not contained  herein,  and will not be contained,  to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

The  approximate  aggregate  market  value of the voting  common  equity held by
non-affiliates  of the  registrant  was  $25,164,644  as of April 12, 1999.  For
purposes of determining  this number,  4,049,249  shares of common stock held by
affiliates are excluded.

        As of April 12, 1999, the  registrant  had  15,080,326  shares of Common
Stock  outstanding.  As of April 12, 1999,  386 persons held common stock of the
registrant.

                       Documents Incorporated by Reference

None.



                                      - 2 -




<PAGE>

        UNLESS OTHERWISE INDICATED,  ALL SHARE AND PER SHARE DATA IN THIS REPORT
HAVE BEEN ADJUSTED  RETROACTIVELY  TO REFLECT A 1-FOR-10  REVERSE STOCK SPLIT OF
THE COMPANY'S COMMON STOCK EFFECTIVE AS OF APRIL 7, 1997.

The  statements  contained  in this  Annual  Report  on Form  10-K  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.  The
Company  intends  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 the Company's 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 the  actual  results of the
Company to differ  materially  from any future  results  expressed or implied by
such  forward-looking  statements.  Examples  of such  risks  and  uncertainties
include,  but are not limited  to: the  obtaining  of  sufficient  financing  to
maintain the Company's planned operations;  the timely  development,  receipt of
necessary  regulatory  approvals and acceptance of new products;  the successful
application of the Company's  technology to produce new products;  the obtaining
of proprietary  protection for any such  technology and products;  the impact of
competitive  products and pricing and  reimbursement  policies;  the changing of
market  conditions  and the other  risks  detailed  in the  Certain  Trends  and
Uncertainties  section of  Management's  Discussion  and  Analysis of  Financial
Condition and Results of Operations  ("MD&A") in this Annual Report on Form 10-K
and   elsewhere   herein.   The  Company  does  not   undertake  to  update  any
forward-looking statements.

        See "MD&A--Certain Trends and Uncertainties" for a discussion of certain
risks  and  uncertainties  applicable  to  the  Company  and  its  stockholders,
including the Company's need for additional funds to sustain its operations.



                                      - 3 -




<PAGE>

PART I

ITEM 1.  BUSINESS

Overview

        Genta  Incorporated  ("Genta" or the "Company"),  incorporated under the
laws  of  the  State  of  Delaware   on   February  4,  1988,   is  an  emerging
biopharmaceutical  company.  The Company's research efforts have been focused on
the development of proprietary oligonucleotide pharmaceuticals intended to block
or regulate the production of disease-related proteins at the genetic level. The
Company's  oligonucleotide programs are focused primarily in the area of cancer.
In late 1995, a phase I/IIa  clinical  trial was initiated in the United Kingdom
using Genta's anti-bcl-2 Anticode(TM)  oligonucleotide,  G3139, in non-Hodgkin's
lymphoma  patients for whom prior  therapies have failed.  This clinical  trial,
which was  conducted in  collaboration  with the Royal Marsden NHS Trust and the
Institute for Cancer Research, is now complete. In late 1996, an Investigational
New Drug  application  ("IND") for the G3139  clinical  program was filed in the
United  States  and  allowed  to  proceed  by the  United  States  Food and Drug
Administration  ("FDA").  In late  1997,  a Phase I trial was  initiated  in the
United States at the Memorial Sloan-Kettering Cancer Center (the "MSKCC") in New
York City using G3139 in patients  diagnosed  with various types of cancer to be
followed by a phase IIa trial in prostate cancer.  In 1998,  several  additional
trials were  initiated  in North  America and Europe.  In each of these  trials,
G3139 is being investigated for safety and preliminary evidence of effectiveness
when administered with standard chemotherapeutic agents in different cancers.

         The Company also has manufactured and marketed  specialty  biochemicals
and  intermediate  products  to  the  in  vitro  diagnostic  and  pharmaceutical
industries through its manufacturing subsidiary, JBL Scientific, Inc. ("JBL"), a
California corporation acquired by the Company in February 1991.

        The Company owns 50% of a drug delivery system joint venture, Genta Jago
Technologies B.V. ("Genta Jago"), with SkyePharma,  PLC ("SkyePharma,"  formerly
with Jagotec AG  ("Jagotec"),  which was acquired by SkyePharma)  established to
develop oral  controlled-release  drugs.  To date,  no products  from this joint
venture have been  commercialized,  although an Abbreviated NDA was submitted in
1998 by the  joint  venture's  marketing  partner  for one  product.  The  joint
venture's original plan was to use Jagotec's patented GEOMATRIX(R) drug delivery
technology  ("GEOMATRIX")  in  a  two-pronged  commercialization  strategy:  the
development  of generic  versions of  successful  brand-name  controlled-release
drugs; and the development of controlled-release formulations of drugs currently
marketed in only  immediate-release  form.  The only products in  development to
date  are  those  intended  to be  comparable  to  the  commercially  available,
brand name, controlled-release drugs.

        Since 1997, the Company has been reducing its human and other  resources
to reduce  expenses while focusing its Research and  Development  efforts on its
Anticode(TM) brand of antisense products intended to treat cancer at its genetic
source.  To this end the  Company's  primary  efforts  are  directed  toward the
clinical development of G3139.

        Consistent with this strategic direction, on March 19, 1999, the Company
entered  into an Asset  Purchase  Agreement  with  Promega  Corporation  whereby
Promega will acquire  substantially all of the assets and certain liabilities of
JBL.  The  transaction  will be  consummated  upon the  satisfaction  of certain
closing  conditions.  JBL has been reported as a  discontinued  operation in the
accompanying consolidated financial statements.

        On March 4,  1999,  Genta and  SkyePharma  (on  behalf of itself and its
affiliates)  entered into an interim agreement  pursuant to which the parties to
the joint  venture  released  each other from all  liability  relating to unpaid
joint venture development costs and funding obligations. SkyePharma agreed to be
responsible  for  substantially  all of the  obligations of the joint venture to
third parties and for the further  development of the joint venture's  products,
with  any  net  income  resulting  therefrom  to  be  allocated  in  agreed-upon
percentages between Genta and SkyePharma as set forth in such interim agreement.


                                     - 4 -

<PAGE>

        In 1998, the Company  completed the closure of its R&D facilities in San
Diego, California,  and in the second quarter of 1999 is moving its headquarters
from San Diego, California, to Lexington, Massachusetts.

Summary of Business and Research and Development Programs

        The Company is currently  focusing its research and product  development
efforts on Genta's lead anti-bcl-2 molecule, G3139, and the related Anticode(TM)
brand of antisense oligonucleotide programs.

Anticode(TM) Brand of Antisense Oligonucleotide Programs

        Oligonucleotides  represent a modern approach to drug development  based
upon genetic  control of disease.  Many human diseases have genetic origins that
involve  either  the  expression  of a  harmful  foreign  gene  or the  aberrant
expression  of a normal  or  mutated  human  gene.  The  Company's  Anticode(TM)
oligonucleotides  are short strands of synthetic  nucleic acids designed to bind
to ("hybridize" with) specific sequences of disease-related  RNA or DNA, thereby
blocking or  controlling  production of  disease-related  proteins.  The Company
believes  that,  because of their  selective  binding  properties,  Anticode(TM)
oligonucleotides  should not interfere  with the function of normal  cells,  and
therefore,  should  elicit  significantly  fewer side effects  than  traditional
drugs.  Oligonucleotide  drugs may  attack a disease at one of two  levels.  One
approach is to prevent the synthesis of essential  disease-related  proteins. In
this approach, certain oligonucleotides are used to interrupt the processing of,
or  selectively  to  bind  to  and  destroy,  individual  messenger  RNA  (mRNA)
sequences,  which leads to the down-regulation  (lowering of levels) of specific
proteins and thereby effectively eliminates the disease or the disease promoter.
This is referred to as the "antisense" mechanism of action. A second therapeutic
opportunity is to prevent  transcription  of  disease-causing  DNA into the mRNA
copy of the gene. This is referred to as the "triple-strand to DNA" mechanism of
activity.

        Genta has focused its  Anticode(TM)  research on  oligonucleotides  with
mixed phosphorothioate and methylphosphonate backbones. The Company has licensed
patents covering phosphorothioate  oligonucleotide constructions and has applied
for patents covering the mixed backbone  constructions.  Genta's scientists have
improved the backbone  technologies by introducing  mixed  chirally-enriched  or
chirally-pure  oligonucleotides.  In preclinical studies, these oligonucleotides
effectively  interfere with the action of targeted mRNA sequences  inside cells.
Intravenous  administration  of  the  improved  technology  oligonucleotides  to
certain animals  demonstrates that these compounds have greater stability in the
circulatory  system  and are  eventually  excreted  intact in the  urine.  These
improved  backbone  technologies  represent  opportunities for second generation
Anticode(TM)  antisense  oligonucleotides,   none  of  which  are  currently  in
development.  Management believes that the Company has the ability to acquire or
produce quantities of  oligonucleotides  sufficient to support its present needs
for research and its projected needs for initial clinical development  programs,
assuming  adequate  funding.   However,  in  order  to  obtain  oligonucleotides
sufficient  to  meet  the  volume  and  cost  requirements  needed  for  certain
commercial applications of Anticode(TM) oligonucleotide products, Genta requires
raw  materials  currently  provided  by a single  supplier,  and there can be no
assurance  that  such  supplier  will  continue  satisfactorily  to  provide the



                                      - 5 -

<PAGE>

requisite raw materials. See "MD&A--Certain Trends and  Uncertainties--Difficult
Manufacturing Process; Access to Certain Raw Materials."

        The  Company's  oligonucleotide  research  and  development  efforts are
currently focused on its cancer program as described below. Extensive additional
development  will be required,  and there can be no  assurance  that any product
will  be  successfully  developed  or  will  receive  the  necessary  regulatory
approvals.   See  "MD&A--Certain  Trends  and  Uncertainties--No   Assurance  of
Regulatory  Approval;   Government   Regulation,"   "MD&A--Certain   Trends  and
Uncertainties--Dependence    on   Others"   and   "MD&A--Certain    Trends   and
Uncertainties--Uncertainty of Clinical Trials and Results."

Bcl-2 Gene Target.
------------------

        The bcl-2 gene is a  proto-oncogene  and a major  inhibitor of apoptosis
(programmed  cell death) of cancerous  cells.  The protein produced by this gene
has two known critical  functions in the progression of cancer:  it makes cancer
cells  immortal,  creating a survival  advantage of malignant over normal cells;
and confers resistance to radiation and chemotherapy, rendering those treatments
ineffective in the late stages of many types of cancer.  Genta's lead anti-bcl-2
molecule,  G3139,  is designed to bind to and destroy the mRNA that produces the
bcl-2 protein product,  thereby  interfering with the cellular production of the
protein.  High levels of bcl-2 are associated with a poor clinical  prognosis in
many solid tumor and  hematological  malignancies  such as  lymphoma,  leukemia,
melanoma,  multiple myeloma,  prostate and breast cancers.  The Company believes
that  its  Anticode(TM)  antisense  strategy  against  the  bcl-2  gene  has the
potential to represent a significant  therapeutic  opportunity  in many of these
cancers.

        In preclinical studies conducted by Dr. Finbarr Cotter, at the Institute
for Child  Health in London,  an  anti-bcl-2  oligonucleotide  was shown to cure
lymphoma-like disease induced by the injection of human B-cell lymphoma cells in
immunodeficient  mice.  Similar  findings in another mouse  lymphoma  model were
reported  to the  Company  by another  collaborator,  Dr.  Richard  Klasa of the
British  Columbia  Cancer  Agency.  In  addition,  in a variety of other  animal
studies, anti-bcl-2 Anticode(TM) oligonucleotides have been found to inhibit the
growth of human lymphoma,  melanoma, colon, prostate and breast cancer tumors in
immunodeficient   mice  when   administered   alone  or  in   combination   with
chemotherapeutic  agents.  In the February  1998 issue of Nature  Medicine,  Dr.
Burkhard  Jansen and colleagues  published a report  entitled  "bcl-2  antisense
therapy  chemosensitizes  human  melanoma in SCID mice." They  describe  studies
showing that G3139 administered with dacarbazine produced  significantly greater
tumor volume  reduction than  dacarbazine  alone or than G3139 alone.  In ten of
thirteen animals there was no tumor after the combination treatment.

        In late 1995, a Phase I/IIa  clinical  trial was initiated in the United
Kingdom using Genta's anti-bcl-2 Anticode(TM)  oligonucleotide,  G3139, in human
non-Hodgkin's  lymphoma  patients  for whom  prior  therapies  had  failed.  The
clinical trial was conducted in  collaboration  with the Royal Marsden NHS Trust
("Royal  Marsden") and the Institute for Cancer  Research under the direction of
Dr. David Cunningham.  The principal aim of this Phase I/IIa study was to define
the maximum tolerated dose of G3139.  Secondary  objectives included measurement
of clinical and biochemical disease parameters.  The trial with Royal Marsden is
complete,  and the Company believes that, other than mild irritation at the site
of the subcutaneous  infusion in most of the patients or a low-grade  reversible
thrombocytopenia   (decrease   in  number  of  blood   platelets),   no  serious
drug-attributable  or dose-limiting  adverse effects were seen until the maximum
tolerated  dose was reached.  Initial  results in the first nine  patients  were
reported in The Lancet ("BCL-2  antisense  therapy in patients with  non-Hodgkin
lymphoma," A. Webb, et al., Vol. 349;  pages  1137-1141,  April 19, 1997).  This
report revealed that four of the nine patients  observed showed  improvements in
their disease and in one patient the tumor had completely disappeared. Of the 21



                                      - 6 -




<PAGE>

patients treated to date, three suffered what were considered to be drug-related
serious adverse events at high levels of drug  presentation  above the predicted
efficacy range.  These events  included a skin reaction due to the  subcutaneous
method of administration in the study; hypotension, and thrombocytopenia.  These
patients  were  removed  from the study and  recovered  from the  reaction.  The
patient who had experienced  hypotension was later  rechallenged at a lower dose
without any untoward event. The investigators at the Royal Marsden Hospital have
recently  initiated  a Phase II trial in  lymphoma  using G3139 in addition to a
chemotherapeutic  regimen which in the specific  patient had failed to produce a
response.

        The Company has an IND, granted by the FDA in December 1996, to initiate
clinical  trials under an IND for the use of G3139.  The Company also  initiated
several  trials in 1998 and the  on-going  trials  are  summarized  in the table
below. Additional trials are also under review.

Status of G3139 Clinical Trials
-------------------------------

<TABLE>
<CAPTION>

---------------------------------------------------------------------------------------------------------
<S>                            <C>                        <C>                 <C>

Trial Location/Investigator      Status                     Indication           Treatment
---------------------------------------------------------------------------------------------------------
Royal Marsden Hospital           Phase I Completed   Non-Hodgkin's Lymphoma      G3139
David Cunningham, MD
---------------------------------------------------------------------------------------------------------
Royal Marsden Hospital           Phase II in         Non-Hodgkin's Lymphoma      G3139 with Standard 
David Cunningham, MD             Progress                                        Chemo Regimens
---------------------------------------------------------------------------------------------------------
MSKCC                            Phase I in          Androgen Insensitive        G3139
Howard Scher, MD                 Progress            Metastatic Prostate Cancer 
                                                     and Other Solid Tumors
---------------------------------------------------------------------------------------------------------
Sidney Kimmel Cancer Center      Phase I/IIA in      Androgen Insensitive        G3139 with Androgen 
John Gutheil, MD                 Progress            Metastatic Prostate Cancer  Blockade
---------------------------------------------------------------------------------------------------------
University of Vienna             Phase I/IIA in      Metastatic Malignant        G3139 with DTK
Burkhard Jansen, MD              Progress            Melanoma
---------------------------------------------------------------------------------------------------------
British Columbia Cancer Agency   Phase I/IIA in      Androgen Insensitive        G3139 with Mitoxantrone
Richard Klasa, MD                Progress            Metastatic Prostate Cancer
---------------------------------------------------------------------------------------------------------
British Columbia Cancer Agency   Phase I/IIA in      Non-Hodgkin's Lymphoma      G3139 with 
Richard Klasa, MD                Progress                                        Cyclophosphamide
---------------------------------------------------------------------------------------------------------

</TABLE>

        In addition,  the Company has had  discussions  with the National Cancer
Institute ("NCI") regarding additional Phase I and II clinical trials.  Assuming
the Company and NCI agree to move forward with such NCI  sponsored  trials,  the
Company will collaborate with NCI on the design of such clinical studies and the
selection of tumor targets. Under the arrangement,  NCI would cover the costs of
running both  pre-clinical and clinical studies while Genta would be responsible
for supplying NCI with necessary quantities of G3139 to carry out this work. See
"MD&A--Certain  Trends and  Uncertainties--No  Assurance of Regulatory Approval;
Government Regulation," "MD&A--Certain Trends and  Uncertainties--Dependence  on
Others" and  "MD&A--Certain  Trends and  Uncertainties--Uncertainty  of Clinical
Trials and Results."

        On March 31, 1998, the United States Patent and Trademark  Office issued
a patent to which the  Company has an  exclusive  license,  for claims  covering
antisense  oligonucleotide  compounds targeted against bcl-2. These claims cover
the Company's  proprietary  Anticode(TM)  oligonucleotide  molecules that target
bcl-2,  including its lead clinical candidate,  G3139. Other related patents and
claims in the United States and  corresponding  foreign patent  applications are
still  pending.   See  "MD&A--Certain   Trends  and   Uncertainties--Uncertainty
Regarding Patents and Proprietary Technology."


                                      - 7 -




<PAGE>

Oligonucleotide Collaborative and Licensing Agreements.
-------------------------------------------------------

        Gen-Probe (Chugai).  In February 1989, Genta entered into a development,
license and supply agreement with Gen-Probe Incorporated  ("Gen-Probe").  Chugai
Pharmaceutical  Company, Ltd. ("Chugai"),  a Japanese corporation,  subsequently
acquired  Gen-Probe.  Gen-Probe had the option to acquire an exclusive worldwide
license  to any  product  consisting  of,  including,  derived  from or based on
oligonucleotides   for  the  treatment  or  prevention  of  Epstein-Barr  virus,
cytomegalovirus,  HIV,  human  T-cell  leukemia  virus-1 and all  leukemias  and
lymphomas.  Genta was  obligated  to pursue  the  development  of a  therapeutic
compound for the treatment of one of these  indications as its first therapeutic
development  program,  which it did. In February 1996,  Gen-Probe elected not to
exercise such option with respect to Genta's  anti-bcl-2  products,  waiving any
rights it may have had to develop or commercialize such products.  The Gen-Probe
agreement provides for perpetual  worldwide  licenses in applicable  proprietary
rights;  royalty  payments  shall not accrue  beyond the later of fifteen  years
after the first  commercial  sale of each  product and the duration of patent in
the country of sale.

        Ts'o/Miller/Hopkins.  In  February  1989,  the  Company  entered  into a
license  agreement  with  Drs.  Paul  Ts'o and  Paul  Miller  (the  "Ts'o/Miller
Agreement")   pursuant  to  which  Drs.   Ts'o  and  Miller  (the   "Ts'o/Miller
Partnership")  granted an  exclusive  license to the  Company to certain  issued
patents, patent applications and related technology regarding the use of nucleic
acids  and  oligonucleotides  including   methylphosphonates  as  pharmaceutical
agents. Dr. Ts'o is a Professor of Biophysics,  Department of Biochemistry,  and
Dr. Miller is a Professor of  Biochemistry,  both at the School of Public Health
and Hygiene,  Johns  Hopkins  University  ("Johns  Hopkins").  In May 1990,  the
Company entered into a license  agreement with Johns Hopkins (the "Johns Hopkins
Agreement," and collectively with the Ts'o/Miller Agreement,  referred to herein
as the "Ts'o/Miller/Hopkins Agreements") pursuant to which Johns Hopkins granted
Genta an  exclusive  license  to its rights in certain  issued  patents,  patent
applications and related technology  developed as a result of research conducted
at Johns Hopkins by Drs. Ts'o and Miller and related to the use of nucleic acids
and  oligonucleotides  as  pharmaceutical  agents.  In addition,  Johns  Hopkins
granted Genta certain  rights of first  negotiation  to inventions  made by Drs.
Ts'o and Miller in their  laboratories  in the area of  oligonucleotides  and to
inventions  made by  investigators  at Johns  Hopkins in the course of  research
funded  by  Genta,   which   inventions  are  not  otherwise   included  in  the
Ts'o/Miller/Hopkins Agreements. Genta had agreed to pay Dr. Ts'o, Dr. Miller and
Johns Hopkins  royalties on net sales of products  covered by the issued patents
and patent applications, but not the related technology, licensed to the Company
under the Ts'o/Miller/Hopkins Agreements. The Company also agreed to pay certain
minimum  royalties prior to  commencement of commercial  sales of such products,
which  royalties may be credited  under  certain  conditions  against  royalties
payable on subsequent sales.

        On February 14, 1997,  the Company  received  notice from Johns  Hopkins
that the Company  was in material  breach of the Johns  Hopkins  Agreement.  The
Johns Hopkins  Agreement  provides  that, if a material  payment  default is not
cured  within 90 days of receipt of notice of such  breach,  Johns  Hopkins  may
terminate the Johns Hopkins Agreement.  In February 1997, the Company paid Johns
Hopkins $100,000  towards the  post-doctoral  support program.  On May 15, 1997,
Johns Hopkins sent Genta a letter  stating that the Johns Hopkins  Agreement was
terminated.  On November  26, 1997,  the  Ts'o/Miller  Partnership  sent Genta a
letter claiming that Genta was in material  breach of the Ts'o/Miller  Agreement
for failing to pay  royalties  from 1995 through 1997. By letter dated April 28,



                                      - 8 -


<PAGE>

1998, the  Ts'o/Miller  Partnership  advised the Company that it was terminating
the license granted pursuant to the Ts'o/Miller Agreement.  On June 4, 1998, the
Company's statutory process agent received a Summons and Complainpt in a lawsuit
brought by Johns  Hopkins  against  the Company in  Maryland  Circuit  Court for
Baltimore City (Case No. 98120110).  Johns Hopkins alleges in the Complaint that
the Company has  breached  the Johns  Hopkins  Agreement  and owes it  licensing
royalty fees and related  expenses in the amount of  $308,832.24.  Johns Hopkins
also alleges the existence of a separate March 1993 letter agreement wherein the
Company  agreed to support a fellowship  program at the Johns Hopkins  School of
Hygiene and Public  Health and the  Company's  breach  thereof,  with damages of
$326,829.00.  On August 10, 1998, the Company's statutory process agent received
a  Summons  and  Complaint  in a  related  lawsuit  brought  by the  Ts'o/Miller
Partnership  and  others  against  the  Company  in the  same  court  (Case  No.
98182113).  The Ts'o/Miller Partnership claims that it is owed licensing royalty
fees in the amount of  $287,671.23.  The  Company  is  currently  in  settlement
negotiations. The Company believes that no further accrual is necessary pursuant
to this settlement.

        Based on a review of the research conducted with the technology provided
by these  licenses,  the Company  concluded that it could not develop  potential
products using this technology.  Management's current strategy, therefore, is to
employ alternative  technologies that are available to it through other licenses
or  its  own  intellectual  property.   Accordingly,  the  Company  believes  no
additional  accrual is  necessary  and the  Company  does not  believe  that the
termination of the  Ts'o/Miller/Hopkins  Agreements will have a material adverse
effect on the Company's antisense research and development activities.

Genta Jago

        As previously  mentioned,  Genta and SkyePharma  entered into an interim
agreement pursuant to which the parties to the joint venture released each other
from all liability relating to unpaid development costs and funding obligations,
and SkyePharma agreed to be responsible for substantially all of the obligations
of the joint  venture to third  parties and for the further  development  of the
joint  venture's  products,  with  any  net  income  resulting  therefrom  to be
allocated in agreed-upon  percentages  between Genta and SkyePharma as set forth
in such  interim  agreement.  Historical  information  relative  to  Genta  Jago
follows.

        In 1992,  Genta and  Jagotec  determined  to enter into a joint  venture
(Genta Jago).  The Company's  purpose in establishing  Genta Jago was to develop
products using a limited-scope  license to Jagotec's GEOMATRIX technology in the
hopes of producing  shorter-term  earnings than were expected from the Company's
Anticode(TM)  antisense programs.  Genta contributed $4 million in cash to Genta
Jago as well as the rights to apply its Anticode(TM)  oligonucleotide technology
to six  products.  Genta  issued  120,000  shares of Common Stock valued at $7.2
million to Jagotec and its affiliates in 1992 as consideration  for its interest
in Genta Jago, to induce  Jagotec to license to Genta Jago, for what the parties
believed was a substantial  discount from the underlying  value of such license,
Jagotec's  GEOMATRIX  technology with respect to  approximately 25 products (the
"Initial  License") and to license to Genta Jagotec's  GEOMATRIX  technology for
use in Genta's Anticode(TM)  oligonucleotide  development  programs.  The Common
Stock issued by Genta was  unregistered and therefore was recorded at a discount
to the then-current trading value of registered shares.  Jagotec's  contribution
to the joint venture  consisted of its issuance of the Initial  License to Genta
Jago for $425,000,  which the parties believed to be a substantial discount from
the underlying value of such license.

        In 1994, separate from the original 1992 joint venture agreement,  Genta
and Jagotec  began  negotiations  to expand Genta Jago to include the  GEOMATRIX
technology as applied to 35 additional products (the "Additional  License").  In
1994,  Jagotec  granted  Genta,  for $1.85  million,  an option (the  "Expansion
Option"),  exercisable  solely at Genta's  discretion through April 30, 1995, to
expand the joint  venture by requiring  Jagotec to  contribute  rights under the
Additional  License at what the parties  believed was a substantial  discount to
its actual fair value.  An additional $2.0 million (the "Deposit") was deposited
with Jagotec in 1994, but would only be retained by Jagotec,  as partial payment
of the exercise price for the Expansion Option, if Genta actually  exercised the
Expansion Option.  If such Expansion Option was not exercised,  the $2.0 million
Deposit would be transferred to Genta Jago in the form of working  capital loans
payable by Genta Jago to Genta.


                                      - 9 -

<PAGE>

        Pursuant to the terms of the Expansion Option, for Genta to exercise the
Expansion  Option,  Genta  would have had to pay Jagotec an  aggregate  of $3.15
million  in cash and  124,000  shares of Common  Stock,  valued at $1.6  million
(based on the trading price at such time).  The parties agreed the $3.15 million
in cash would  consist of (i) the $2.0  million  Deposit  made by Genta in 1994,
which would be applied to the  Expansion  Option's  exercise  price upon Genta's
election,  in 1995, to exercise such  Expansion  Option;  and (ii) an additional
cash  payment of $1.15  million to exercise the  Expansion  Option to be paid by
Genta in 1995. In 1995, Genta exercised the Expansion Option.

        The Company  has  provided  funding to Genta Jago  pursuant to a working
capital loan agreement that expired in October 1998. The Company believes it has
fulfilled all obligations of the working capital agreement to the Joint Venture.
See  "MD&A--Liquidity  and Capital  Resources."  From 1992 through  1997,  Genta
advanced an aggregate of $15.8 million in such working  capital loans.  In 1995,
Genta Jago returned the Anticode(TM) technology to Genta in exchange for Genta's
forgiveness   of  $4.4  million  of  principal  and  $0.3  million  of  interest
outstanding  under existing working capital loans to Genta Jago. This amount was
determined by an arm's-length negotiation between Genta, Jagotec, and Genta Jago
and was based on the amount  actually  expended by Genta Jago for  research  and
development  related  to the  Anticode(TM)  technology  from the time Genta Jago
originally  acquired the relevant  license in 1992 through the date of return in
1995.

        Genta has the option  (the  "Purchase  Option")  to  purchase  Jagotec's
interest in Genta Jago  during the period  beginning  on  December  31, 1998 and
continuing  through December 31, 2000 at a purchase price equal to the remainder
of (a) the sum of (i) the  lesser of (x) 50% of the fair  market  value of Genta
Jago,  excluding  the fair market  value of Genta  Jago's  rights to the Initial
License and the Additional  License,  or (y) $100 million,  plus (ii) 50% of the
fair  market  value  of Genta  Jago's  rights  to the  Initial  License  and the
Additional License,  less (b) 1.714286 times the fair market value of the 70,000
shares of Common  Stock issued to Jagotec  pursuant to a Common  Stock  Transfer
Agreement dated as of December 15, 1992, between Genta and Jagotec.

        Genta Jago has contracted with Genta and Jagotec to conduct research and
development and to provide certain other services.

Oral Controlled-Release Drugs.
------------------------------

        Formulations  of drugs using the  GEOMATRIX  technology  are designed to
swell and gel when exposed to gastrointestinal fluids. This swelling and gelling
is designed to allow the active drug  component  to diffuse from the tablet into
the  gastrointestinal  fluids,  gradually  over a period of up to 24 hours.  The
Company  believes that the GEOMATRIX  technology  may have other  benefits that,
collectively, may distinguish it from competing controlled-release technologies.
More  specifically,  the Company  believes these  formulations  can control drug
release and potentially modulate  pharmacokinetic  profiles to produce a variety
of desired clinical effects.  For example,  the GEOMATRIX technology may be used
to formulate tablets with a rapid or a delayed therapeutic effect by varying the
release  characteristics of the drug from the tablet.  The GEOMATRIX  technology
may also be used to  formulate  tablets  that  release  two drugs at the same or
different  rates,  or  tablets  that  release  a drug in  several  pulses  after
administration.

        Genta Jago may use the  GEOMATRIX  drug  delivery  technology to develop
oral  controlled-release  formulations  for a broad range of presently  marketed
drugs which have lost, or will, in the near to mid-term,  lose patent protection
and/or  marketing  exclusivity.  Certain of these  presently  marketed drugs are
already  available  in  a  controlled-release  format,  while  others  are  only
available in an immediate  release  format that  requires  dosing  several times



                                     - 10 -

<PAGE>

daily. In the case of drugs already  available in a  controlled-release  format,
Genta  Jago  is  seeking  to  develop  bioequivalent  products  which  would  be
therapeutic  substitutes  for the  branded  products.  In the case of  currently
marketed  products that are only  available in immediate  release form requiring
multiple  daily  dosing,  Genta Jago is seeking to develop  once or  twice-daily
controlled-release  formulations.  The  potential  benefits of Genta Jago's oral
controlled-release   formulations  may  include  improved  compliance,   greater
efficacy  and reduced side  effects as a result of a more  constant  drug plasma
concentration  than that  associated with immediate  release drugs  administered
several times daily.

        Brightstone  Pharma,  Inc., a subsidiary of SkyePharma and the marketing
partner of Genta Jago for naproxen sodium, submitted an abbreviated NDA in 1998.
(Recently,  SkyePharma  has  announced  that it no longer  plans to  market  its
generic pharmaceutical candidates exclusively through its Brightstone subsidiary
and is seeking  marketing  partners for these products.)  Nifedipine  (Procardia
XL(R))  and  ketoprofen   (Oruvail(R))  are  currently  undergoing  formulations
development by SkyePharma.  In December 1997, a competitor of the Company,  Elan
Corporation,  received  approval  of their  ANDA for a  generic  formulation  of
Oruvail(R)  (ketoprofen),  and another company,  Mylan  Laboratories,  Inc., has
filed an ANDA for a generic  formulation of Procardia  XL(R)  (nifedipine).  See
"MD&A--Certain   Trends   and   Uncertainties--Potential   Adverse   Effect   of
Technological Change and Competition."


Oral Controlled-Release Collaborative and Licensing Agreements.
---------------------------------------------------------------

        Genta   Jago's    strategy   is   to    commercialize    its   GEOMATRIX
controlled-release  products worldwide by forming alliances with  pharmaceutical
companies. Genta Jago has established three such collaborations.

        Genta Jago/Gensia/Brightstone.  In January 1993, Genta Jago entered into
a collaboration  agreement with Gensia for the development and commercialization
of certain oral  controlled-release  pharmaceutical  products  for  treatment of
cardiovascular  disease.  Under  the  agreement,  Gensia  provides  funding  for
formulation  and  preclinical  development  to be conducted by Genta Jago and is
responsible  for clinical  development,  regulatory  submissions  and marketing.
Terms of the agreement  provide Gensia exclusive rights to market and distribute
the products in North America, Europe and certain other countries. The agreement
has a term of the longer of twelve  years and the patent term in the  respective
countries within the territory.  Genta Jago received $1.0 million,  $1.2 million
and $2.2 million of funding in 1998, 1997, and 1996,  respectively,  pursuant to
the  agreement.  Collaborative  revenues of $2.2 million,  $1.5 million and $2.8
million and were recognized  under the agreement during the years ended December
31, 1998,  1997,  and 1996,  respectively.  Effective  October 1996,  Gensia and
SkyePharma  reached an agreement  whereby a SkyePharma  subsidiary,  Brightstone
Pharma,  Inc.  ("Brightstone"),  was  assigned  Gensia's  rights  (and  those of
Gensia's partner, Boehringer Mannheim) to develop and co-promote the potentially
bioequivalent  nifedipine  product under the collaboration  agreement with Genta
Jago.  The  assignment was accepted by Genta Jago and has no impact on the terms
of the original  agreement.  Genta Jago is still entitled to receive  additional
milestone  payments  from  Brightstone  triggered  upon  regulatory  submissions


                                     - 11 -

<PAGE>

and approvals, as well as royalties or profit sharing ranging from 10% to 21% of
product sales, if any.

        Genta  Jago/Apothecon.   In  March  1996,  Genta  Jago  entered  into  a
collaborative  licensing and  development  agreement (the "Genta  Jago/Apothecon
Agreement") with Apothecon, Inc. ("Apothecon"). In 1998, Apothecon advised Genta
Jago that it was terminating  its license.  Genta Jago is seeking an alternative
partner for future development and marketing of this product.

        Genta  Jago/Krypton.  In  October  1996,  Genta Jago  entered  into five
collaborative  licensing and  development  agreements  (the "Genta  Jago/Krypton
Agreements") with Krypton, Ltd. ("Krypton"), a subsidiary of SkyePharma, whereby
Genta  Jago would  sublicense  to Krypton  rights to develop  and  commercialize
potentially  bioequivalent  GEOMATRIX(R)  versions  of five  currently  marketed
products,  as well as another agreement granting Krypton an option to sublicense
rights to develop and commercialize an improved version of a sixth product.  The
Genta  Jago/Krypton  Agreements  have terms of the shorter of fifteen years from
first   commercial   sale  and  the   expiration   of  the  patent   term  on  a
territory-by-territory  basis.  During 1997, Genta Jago received funding of $1.9
million under the Genta  Jago/Krypton  Agreements and recognized $2.3 million of
collaborative revenue therefrom.  There were no revenues under this agreement in
1998.

Research and Development

        In an effort to focus its research and development efforts on areas that
provide the most significant commercial  opportunities,  the Company continually
evaluates  its ongoing  programs in light of the latest market  information  and
conditions,  availability of third-party funding,  technological  advances,  and
other factors. As a result of such evaluation, the Company's product development
plans have changed from time to time, and the Company anticipates that they will
continue to do so in the future.  The Company recorded  research and development
expenses of $4.6 million,  $3.3 million, and $2.1 million during 1996, 1997, and
1998,   respectively,   of  which  approximately  $50,000,   $50,000  and  zero,
respectively,  were funded  pursuant to  collaborative  research and development
agreements  and of which  approximately  $1.6 million,  $0.3  million,  and $0.1
million, respectively,  were funded pursuant to a related party contract revenue
agreement with Genta Jago. See "MD&A--Results of Operations."

Manufacturing/JBL

        On March 19, 1999, the Company  signed an Asset Purchase  Agreement with
Promega  Corporation  whereby a wholly-owned  subsidiary of Promega will acquire
substantially all of the assets and certain  liabilities of JBL. The transaction
will be consummated  upon the  satisfaction of certain closing  conditions.  The
accompanying  financial  information  therefore  reflects JBL as a  discontinued
operation for all periods presented.

        All of the Company's product sales are attributable to its manufacturing
subsidiary, JBL Scientific, Inc. ("JBL"). The products JBL manufactures include:
enzyme  substrates  that  are  used as  color-generating  reagents  in  clinical
diagnostic  tests,  such as pregnancy tests,  developed by JBL's customers;  and
fine chemical raw materials used in pharmaceutical  research and development and
manufacturing,  such as those used to make biological polymers like peptides and
oligonucleotides. JBL manufactures approximately 110-125 products on a recurring
basis.

        Genta acquired JBL in early 1991. JBL is a manufacturer  of high-quality
specialty  chemicals and  intermediate  products for the  pharmaceutical  and in
vitro diagnostic industries.  A number of Fortune 500 companies use JBL products
as raw material in the production of a final  product.  JBL markets its products
to over 100  purchasers in the  pharmaceutical  and diagnostic  industries.  See
"MD&A--Certain Trends and Uncertainties--Difficult Manufacturing Process; Access
to Certain Raw  Materials."  JBL holds a California  site license to manufacture
drugs for use in clinical research, but the manufacturing facilities at JBL have
not  been  inspected  by the FDA  for  compliance  with  requirements  for  Good
Manufacturing Practices ("GMP"). The Company is currently having G3139 made on a




                                     - 12 -




<PAGE>

contract  manufacturing  basis by a third party  supplier and is evaluating  the
establishment  of affiliate  relationships  with third parties for the long term
manufacture    of    oligonucleotides.    See    "MD&A--Certain    Trends    and
Uncertainties--Difficult   Manufacturing   Process;   Access  to   Certain   Raw
Materials."

        On March 19, 1999, the Company  signed an Asset Purchase  Agreement with
Promega  Corporation  whereby a wholly owned  subsidiary of Promega will acquire
substantially all of the assets and certain  liabilities of JBL. The transaction
will be consummated  upon the  satisfaction of certain closing  conditions.  The
accompanying  financial  information  therefore  reflects JBL as a  discontinued
operation for all periods presented.

Genta Europe

        During 1995, Genta Pharmaceuticals Europe S.A. ("Genta Europe") received
approximately 5.4 million French Francs (or, as of April 8, 1999,  approximately
$885,060)  of funding in the form of a loan from the  French  government  agency
L'Agence  Nationale de Valorisation de la Recherche  ("ANVAR")  towards research
and  development  activities  pursuant to an agreement  (the "ANVAR  Agreement")
between ANVAR, Genta Europe and Genta. In October 1996, as part of the Company's
restructuring program,  Genta Europe terminated all scientific personnel.  ANVAR
asserted,  in a letter dated  February  13,  1998,  that Genta Europe was not in
compliance with the ANVAR Agreement,  and that ANVAR might request the immediate
repayment of such loan. The Company does not believe that under the terms of the
ANVAR  Agreement  ANVAR is entitled to request early  repayment.  ANVAR notified
Genta  Incorporated  that it was  responsible as a guarantor of the note for the
repayment.  Genta's  agent in Europe has again  notified  ANVAR that it does not
agree that the note is payable.  The Company is working  with ANVAR to achieve a
mutually satisfactory resolution. However, there can be no assurance that such a
resolution will be obtained.

        On June 30, 1998, Marseille Amenagement,  a company affiliated with the
city of Marseilles,  France, filed suit in France to evict Genta Europe from its
facilities in Marseilles and to demand payment of alleged back rent due and of a
lease guarantee for nine years' rent.  Following the filing of this claim and in
consideration  of the  request  for  repayment  of the loan  from  ANVAR,  Genta
Europe's  Board of Directors  directed the management to declare a "Cessation of
Payment".  Under  this  procedure,   Genta  Europe  ceased  any  operations  and
terminated  its only  employee.  A liquidator was appointed by the Court to take
control of any  assets of Genta  Europe and to make  payment  to  creditors.  In
December 1998,  the Court in Marseilles  dismissed the case against Genta Europe
and  indicated  that it had no  jurisdiction  against  Genta  Incorporated.  The
Company's  attorney in France  notified  the  plaintiff of the decision and that
they have 30 days from such  notice to  appeal.  The  30-day  appeal  period has
elapsed  and the Company is awaiting  formal  notification  by the court that an
appeal has not been  made.  The  decision  of the Court in  Marseilles  does not
preclude  Marseille  Amenagement  from  pursuing  its claims in other  courts in
France or the United States, and there can be no assurance that they will not do
so.

Sales and Marketing

        Genta Jago has secured collaborative  agreements with three entities for
the   development   and   commercialization   of   selected   controlled-release
pharmaceuticals.  See "Genta  Jago--Oral  Controlled-Release  Collaborative  and
Licensing  Agreements." Genta Jago's collaborative  agreements generally provide
the collaborative partner exclusive rights to market and distribute the products
in exchange for royalty  payments to Genta Jago on product  sales.  Genta Jago's
goal is to form additional collaborations to develop  and market a number of its



                                     - 13 -



<PAGE>

GEOMATRIX  controlled-release  products. There can be no assurance that any such
potential  product  will  be  successfully  developed  or that  any  prospective
collaborations or licensing arrangements will be entered into.

Patents and Proprietary Technology

        The  Company's  policy is to protect  its  technology  by,  among  other
things,  filing  patent  applications  with  respect  to  technology  considered
important to the development of its business. The Company also relies upon trade
secrets,  unpatented  know-how,  continuing  technological  innovation  and  the
pursuit of  licensing  opportunities  to develop and  maintain  its  competitive
position.

        Genta has a  portfolio  of  intellectual  property  rights to aspects of
oligonucleotide technology, which includes novel compositions of matter, methods
of large-scale  synthesis,  methods of controlling  gene expression and cationic
lipid  delivery   systems.   In  addition,   foreign   counterparts  of  certain
applications have been filed or will be filed at the appropriate  time.  Allowed
patents generally would not expire until 17 years after the date of allowance if
filed in the United States before June 8, 1995 or, in other cases, 20 years from
the date of application.  Generally,  it is the Company's  strategy to apply for
patent protection in the United States, Canada, Western Europe, Japan, Australia
and New Zealand.

        Since its incorporation, Genta has separately filed an aggregate of over
400 United States and foreign patent applications  covering new compositions and
improved  methods to use,  synthesize  and purify  oligonucleotides,  linker-arm
technology,  and  compositions  for their  delivery.  Thirty  patents  have been
issued;  seventeen in the United  States  (thirteen in 1998), and thirteen  have
issued overseas.

        Under the agreement with Gen-Probe, Genta gained non-exclusive access to
all technology  developed by Gen-Probe,  as of February 1989, related to the use
of DNA  probes  for  therapeutic  applications.  This  technology  is related to
nucleic acid probes for quantitation of organisms and viruses, methods for their
production,    including   nonnucleotide   linking   reagents,   labeling,   and
purification,  and methods for their use  including  hybridization  and enhanced
hybridization.  This includes  rights to 14 issued  patents and several  pending
United  States  patent   applications  and  corresponding   issued  and  pending
applications   in   foreign   countries.   See   "Genta    Jago--Oligonucleotide
Collaborative and Licensing Agreements--Gen-Probe (Chugai)."

        Genta also gained access to certain rights from the National  Institutes
of Health  ("NIH")  covering  phosphorothioate  oligonucleotides.  This includes
rights to three United States issued  patents,  one issued  European  patent and
other  corresponding  foreign  applications that are still pending. In addition,
under an  agreement  with the  University  of  Pennsylvania,  Genta has acquired
exclusive rights to antisense  oligonucleotides  directed against the bcl-2 gene
as well as methods of their use for the  treatment of cancer.  On March 31, 1998
and November 3, 1998,  two United States  patents were issued  encompassing  the
Company's  licensed  antisense  oligonucleotide  compounds  targeted against the
bcl-2  gene and in vitro  uses of the same.  These  claims  cover the  Company's
proprietary Anticode(TM)  oligonucleotide  molecules which target the bcl-2 gene
including its lead clinical  candidate,  G3139.  Other related United States and
corresponding foreign patent applications are still pending.



                                     - 14 -


<PAGE>

        Jagotec's  GEOMATRIX  technology  is the  subject of issued  patents and
pending applications. Jagotec currently holds four issued United States patents,
five  granted  foreign   patents,   and  other   corresponding   foreign  patent
applications still pending that cover the GEOMATRIX  technology.  Certain rights
to GEOMATRIX technology have been licensed to Genta Jago. See "Genta Jago."

        The patent  positions  of  biopharmaceutical  and  biotechnology  firms,
including  Genta,  can be  uncertain  and  involve  complex  legal  and  factual
questions.  Consequently,  even though Genta is currently prosecuting its patent
applications with the United States and foreign patent offices, the Company does
not know  whether any of its  applications  will  result in the  issuance of any
patents or if any issued patents will provide significant proprietary protection
or will be circumvented or invalidated.  Since patent applications in the United
States are maintained in secrecy until patents issue,  and since  publication of
discoveries  in the  scientific or patent  literature  tend to lag behind actual
discoveries  by several  months,  Genta  cannot be certain  that others have not
filed patent  applications  directed to inventions covered by its pending patent
applications  or that it was the  first  to file  patent  applications  for such
inventions.

        Competitors or potential competitors may have filed applications for, or
have received patents and may obtain additional  patents and proprietary  rights
relating to, compounds or processes  competitive with those of the Company.  See
"Competition." Accordingly,  there can be no assurance that the Company's patent
applications will result in issued patents or that, if issued,  the patents will
afford protection against competitors with similar technology;  nor can there be
any  assurance  that any  patents  issued  to Genta  will  not be  infringed  or
circumvented  by others;  nor can there be any  assurance  that  others will not
obtain  patents that the Company would need to license or design  around.  There
can be no  assurance  that  the  Company  will be able to  obtain a  license  to
technology  that it may require or that, if obtainable,  such a license would be
available on reasonable terms.

        There can be no assurance that the Company's patents,  if issued,  would
be held valid by a court of competent  jurisdiction.  Moreover,  the Company may
become involved in interference proceedings declared by the United States Patent
and Trademark  Office (or  comparable  foreign  office or process) in connection
with one or more of its patents or patent  applications to determine priority of
invention,  which could result in substantial cost to the Company,  as well as a
possible  adverse  decision as to priority of  invention of the patent or patent
application involved.

        The Company also relies upon  unpatented  trade secrets and no assurance
can be given that third  parties will not  independently  develop  substantially
equivalent  proprietary  information  and  techniques  or  gain  access  to  the
Company's trade secrets or disclose such technologies to the public, or that the
Company can meaningfully maintain and protect unpatented trade secrets.

        Genta   requires  its   employees,   consultants,   outside   scientific
collaborators  and  sponsored  researchers  and  other  advisors  to  execute  a
confidentiality  agreement upon the  commencement of an employment or consulting
relationship  with  the  Company.  The  agreement  generally  provides  that all
confidential  information  developed or made known to the individual  during the
course of the individual's  relationship  with Genta shall be kept  confidential
and shall not be disclosed to third parties except in specific circumstances. In
the case of employees,  the  agreement  generally  provides that all  inventions
conceived  by the  individual  shall be  assigned  to,  and  made the  exclusive
property  of,  the  Company.  There can be no  assurance,  however,  that  these
agreements will provide meaningful protection for the Company's trade secrets or
adequate  remedies  in the  event  of  unauthorized  use or  disclosure  of such
information,  or in the event of an employee's  refusal to assign any patents to
the Company in spite of such contractual  obligation.  See "MD&A--Certain Trends
and Uncertainties--Uncertainty Regarding Patents and Proprietary Technology."



                                     - 15 -



<PAGE>

Government Regulation

        Regulation by governmental  authorities in the United States and foreign
countries  is a  significant  factor in the  manufacture  and  marketing  of the
Company's proposed products and in its ongoing research and product  development
activities.  All of the Company's  therapeutic  products will require regulatory
approval by  governmental  agencies prior to  commercialization.  In particular,
human  therapeutic  products  are subject to rigorous  preclinical  and clinical
testing and premarket approval  procedures by the FDA and similar authorities in
foreign  countries.  Various  federal,  and in some cases  state,  statutes  and
regulations  also  govern or  influence  the  manufacturing,  safety,  labeling,
storage,  record keeping and marketing of such products.  The lengthy process of
seeking these approvals,  and the subsequent compliance with applicable federal,
and in some cases state,  statutes and  regulations,  require the expenditure of
substantial  resources.  Any failure by the Company,  its  collaborators  or its
licensees  to obtain,  or any delay in  obtaining,  regulatory  approvals  could
adversely affect the marketing of any products  developed by the Company and its
ability to receive product or royalty revenue.

        The  activities  required  before  a new  pharmaceutical  agent  may  be
marketed in the United States begin with preclinical testing.  Preclinical tests
include laboratory  evaluation of product chemistry and animal studies to assess
the  potential  safety and  efficacy of the product  and its  formulations.  The
results of these  studies must be submitted to the FDA as part of an IND. An IND
becomes effective within 30 days of filing with the FDA unless the FDA imposes a
clinical  hold on the IND.  In  addition,  the FDA may,  at any  time,  impose a
clinical hold on ongoing  clinical  trials.  If the FDA imposes a clinical hold,
clinical trials cannot commence or recommence, as the case may be, without prior
FDA  authorization  and then only under terms authorized by the FDA.  Typically,
clinical testing involves a three-phase process. In Phase I, clinical trials are
conducted  with a small number of subjects to determine the early safety profile
and the  pattern of drug  distribution  and  metabolism.  In Phase II,  clinical
trials are conducted with groups of patients  afflicted with a specific  disease
in order  to  determine  preliminary  efficacy,  optimal  dosages  and  expanded
evidence  of  safety.  In  Phase  III,  large-scale,  multi-center,  comparative
clinical  trials are conducted with patients  afflicted with a target disease in
order to provide  enough data for the  statistical  proof of efficacy and safety
required by the FDA and others.  In the case of  products  for  life-threatening
diseases, the initial human testing is generally done in patients rather than in
healthy  volunteers.  Since these patients are already afflicted with the target
disease,  it is possible  that such  studies may provide  results  traditionally
obtained in Phase II trials.  These trials are frequently  referred to as "Phase
I/IIa" trials.

        The results of the  preclinical  and  clinical  testing,  together  with
chemistry,  manufacturing and control information, are then submitted to the FDA
for a pharmaceutical  product in the form of a New Drug Application ("NDA"), for
a biological product in the form of a Product License Application ("PLA") or for
medical  devices in the form of a  Premarket  Approval  Application  ("PMA") for
approval to commence  commercial sales. In responding to an NDA, PLA or PMA, the
FDA may grant marketing  approval,  request  additional  information or deny the
application  if  it  determines  that  the  application  does  not  satisfy  its
regulatory  approval criteria.  There can be no assurance that approvals will be
granted on a timely basis,  if at all, or if granted will cover all the clinical
indications  for which the  Company  is  seeking  approval  or will not  contain
significant   limitations   in   the   form   of   warnings,    precautions   or
contraindications with respect to conditions of use.

        In  circumstances  where a company  intends to develop  and  introduce a
novel  formulation  of an active drug  ingredient  already  approved by the FDA,
clinical and preclinical testing  requirements may not be as extensive.  Limited
additional data about the safety and/or  effectiveness  of the proposed new drug
formulation,  along with  chemistry  and  manufacturing  information  and public



                                     - 16 -


<PAGE>

information  about  the  active  ingredient,  may be  satisfactory  for  product
approval.  Consequently,  the new  product  formulation  may  receive  marketing
approval more rapidly than a traditional full NDA,  although no assurance can be
given that a product will be granted such treatment by the FDA.

        For clinical  investigation and marketing outside the United States, the
Company is or may be subject to foreign regulatory  requirements governing human
clinical trials and marketing approval for drugs. The requirements governing the
conduct of clinical trials,  product  licensing,  pricing and reimbursement vary
widely from country to country. The Company's approach is to design its European
clinical trials studies to meet FDA,  European  Economic  Community  ("EEC") and
other European countries'  standards.  At present, the marketing  authorizations
are  applied  for at a national  level,  although  certain  EEC  procedures  are
available to  companies  wishing to market a product in more than one EEC member
state. If the competent authority is satisfied that adequate evidence of safety,
quality and efficacy has been presented, a market authorization will be granted.
The  registration  system proposed for medicines in the EEC after 1992 is a dual
one in which products,  such as biotechnology  and high technology  products and
those containing new active substances, will have access to a central regulatory
system that provides registration throughout the entire EEC. Other products will
be  registered by national  authorities  under the local laws of each EEC member
state.  With  regulatory  harmonization  finalized  in the  EEC,  the  Company's
clinical trials will be designed to develop a regulatory  package sufficient for
multi-country approval in the Company's European target markets without the need
to duplicate studies for individual country approvals.  This approach also takes
advantage of regulatory  requirements in some  countries,  such as in the United
Kingdom,  which allow Phase I studies to commence after  appropriate  toxicology
and preclinical pharmacology studies, prior to formal regulatory approval.

        Prior to the  enactment  of the Drug Price  Competition  and Patent Term
Restoration  Act of 1984  (the  "Waxman/Hatch  Act"),  the FDA,  by  regulation,
permitted  certain pre-1962 drugs to be approved under an abbreviated  procedure
which waived  submission of the extensive animal and human studies of safety and
effectiveness  normally required to be in a NDA. Instead,  the manufacturer only
needed to  provide  an  Abbreviated  New Drug  Application  ("ANDA")  containing
labeling,  information  on  chemistry  and  manufacturing  procedures  and  data
establishing  that the original  "pioneer"  product and the  proposed  "generic"
product are bioequivalent when administered to humans.

        Originally,  the FDA's regulations  permitted this abbreviated procedure
only for copies of a drug that was  approved  by the FDA as safe before 1962 and
which was  subsequently  determined  by the FDA to be effective for its intended
use. In 1984, the  Waxman/Hatch  Act extended  permission to use the abbreviated
procedure  established  by the FDA to copies of post-1962  drugs  subject to the
submission of the required data and  information,  including  data  establishing
bioequivalence.  However,  effective  approval of such ANDAs were dependent upon
there being no outstanding patent or non-patent exclusivities.

        Additionally,  the FDA allows,  under section 505(b)(2) of the Food Drug
and Cosmetic Act, for the  submission and approval of a hybrid  application  for
certain  changes in drugs which,  but for the changes,  would be eligible for an
effective  ANDA  approval.  Under these  procedures the applicant is required to
submit the clinical efficacy and/or safety data necessary to support the changes
from the ANDA eligible drug (without  submitting the basic underlying safety and
efficacy data for the chemical entity involved) plus manufacturing and chemistry
data and information. Effective approval of a 505(b)(2) application is dependent
upon the ANDA-eligible drug upon which the applicant relies for the basic safety
and  efficacy  data  being  subject  to  no  outstanding  patent  or  non-patent
exclusivities.  As  compared  to a  NDA,  an  ANDA  or a  505(b)(2)  application



                                     - 17 -


<PAGE>

typically involves reduced research and development costs. However, there can be
no  assurance  that any such  applications  will be approved.  Furthermore,  the
supply of raw materials must also be approved by the FDA.

        The Company is also subject to various foreign, federal, state and local
laws,  regulations  and  recommendations  relating to safe  working  conditions,
laboratory and manufacturing  practices, the experimental use of animals and the
use,  manufacture,  storage,  handling and disposal of hazardous or  potentially
hazardous  substances,  including  radioactive  compounds and infectious disease
agents,  used in connection with the Company's research and development work and
manufacturing processes.  Although the Company believes it is in compliance with
these laws and regulations in all material  respects  (except as disclosed under
"MD&A--Liquidity  and Capital  Resources"),  there can be no assurance  that the
Company  will not be  required  to incur  significant  costs to comply with such
regulations  in the  future.  See  "MD&A--Certain  Trends and  Uncertainties--No
Assurance of Regulatory Approval; Government Regulation."

Competition

        For many of their applications,  the Company's and Genta Jago's 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.  The Company  competes 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 the
Company.  In December  1997, a  competitor  of the  Company,  Elan  Corporation,
received  approval  of  their  ANDA  for a  generic  formulation  of  Oruvail(R)
(ketoprofen), and another company, Mylan Laboratories, Inc., filed an ANDA for a
generic formulation of procardia XL(R) (nifedipine).  See "MD&A--Certain  Trends
and   Uncertainties--Potential   Adverse  Effect  of  Technological  Change  and
Competition."

        The  Company's  competition  will be determined in part by the potential
indications  for which the  Company's  products  are  developed  and  ultimately
approved  by  regulatory  authorities.  For certain of the  Company's  potential
products,  an  important  factor  in  competition  may be the  timing  of market
introduction  of the  Company's or  competitors'  products.  See  "MD&A--Certain
Trends and  Uncertainties--Potential  Adverse Effect of Technological Change and
Competition."  Accordingly,  the relative  speed with which Genta and Genta Jago
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.  The Company  expects  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 the Company's  and Genta Jago's  products  under
development non-competitive or obsolete.

        The  Company's  competitive  position  also  depends upon its 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



                                     - 18 -


<PAGE>

commercial  sales. See  "MD&A--Certain  Trends and  Uncertainties--Need  for and
Dependence    on    Qualified    Personnel,"     "MD&A--Certain    Trends    and
Uncertainties--Uncertainty  Regarding  Patents and  Proprietary  Technology" and
"MD&A--Certain  Trends and  Uncertainties--Need  for Additional  Funds;  Risk of
Insolvency."

        JBL's products address several markets,  including  clinical  chemistry,
diagnostics,  molecular  biology  and  pharmaceutical  development.  While  many
customers  have  specified  JBL  products  in  their  manufacturing   protocols,
competition  from  several  international  competitors,  many of whom  have more
substantial experience,  financial and other resources and superior expertise in
research  and  development,   manufacturing,   testing,   obtaining   regulatory
approvals,  marketing  and  distribution,   could  undermine  JBL's  competitive
position.  Competition has come primarily on price for some key JBL products for
pharmaceutical  development,  and from competing technologies in diagnostics and
molecular biology.

Human Resources

        As of April 1, 1999,  Genta, JBL and Genta Europe had eight, 50 and zero
employees, respectively, 10 of whom held doctoral degrees. Eleven employees were
engaged in research  and  development  activities,  of which 9 were JBL, 27 were
engaged in manufacturing  (all of which were JBL) and 20 were in administration,
sales and marketing positions (of which 14 were JBL). Most of the management and
professional  employees  of the  Company and JBL have had prior  experience  and
positions with  pharmaceutical  and biotechnology  companies.  Genta believes it
maintains satisfactory relations with its employees.

        In 1998,  Genta  Europe  terminated  its sole  employee.  The  Company's
overall staff was  increased by a net of six employees in 1998,  and one more to
date in 1999. In October and November the Company hired two Vice Presidents, one
for  Corporate  Development  and one for Clinical  and  Regulatory  Affairs.  In
February 1999, the Company hired a Vice President and Chief  Financial  Officer.
See  "MD&A--Certain  Trends  and   Uncertainties--Need  for  and  Dependence  on
Qualified Personnel."

ITEM 2.  PROPERTIES

        Genta's  principal  administrative  offices  were  located in San Diego,
California where the Company occupied approximately 8,500 square feet. Effective
March 1, 1998, the Company reduced its leased space in San Diego to 4,732 square
feet and closed its  laboratory  facilities  at this site.  The Company  further
reduced its leased space in December 1, 1998 to 3,944  square feet.  The Company
moved its headquarters to Lexington,  Massachusetts, and entered into a two year
lease effective April 1, 1999 for 2,400 square feet.

        JBL leases and  occupies  approximately  30,000  square  feet of office,
laboratory and manufacturing  space in San Luis Obispo,  California.  This lease
expires in 2000. The lease calls for rent of approximately $414,200 in 1999 with
amounts  generally  increasing  annually  thereafter  to reflect  cost of living
related  increases.   The  Company  currently  uses  substantially  all  of  the
manufacturing  capacity  of this  facility.  The  Company  also has an option to
purchase  property  adjacent to this facility,  for expansion,  if necessary.  A
director and officer and another  officer of the Company,  Drs.  Klem and Brown,
respectively,  are  affiliated  with  the  owners  of the  leased  and  adjacent
properties.  See "Business".

        Genta  Pharmaceuticals  Europe, S.A., the Company's European subsidiary,
leased approximately 10,000 square feet of office,  laboratory and manufacturing
space in  Marseilles,  France.  The lease was  cancelable in 2003 and expired in
2005. In June 1998, Marseille Amenagement, a company affiliated with the city of



                                     - 19 -


<PAGE>

Marseilles,  France,  filed  suit in  France  to  evict  Genta  Europe  from its
facilities in Marseille. Following the filing of this claim and in consideration
of the request for payment of the loan from the ANVAR,  Genta  Europe's Board of
Directors directed  management to declare a "Cessation of Payment".  In December
1998,  the Court in  Marseilles  dismissed  the case  against  Genta  Europe and
indicated that it had no jurisdiction against Genta Incorporated.  The Company's
attorney  notified the plaintiff of the decision and that they have 30 days from
such notice to appeal. The 30-day period has elapsed and the Company is awaiting
formal  notification by the court that an appeal has not been made. The decision
of the Court in Marseilles does not preclude Marseille Amenagement from pursuing
its claims in other courts in France or the United  States,  and there can be no
assurance that they will not do so.

ITEM 3.  LEGAL PROCEEDINGS

        On June 4,  1998,  the  Company's  statutory  process  agent  received a
Summons and Complaint in a lawsuit  brought by Johns Hopkins against the Company
in Maryland Circuit Court for Baltimore City (Case No. 98120110).  Johns Hopkins
alleges  in the  Complaint  that the  Company  has  breached  the Johns  Hopkins
Agreement  (see  "Business--Anticode(TM)   Brand  of  Antisense  Oligonucleotide
Programs  --   Oligonucleotide   Collaborative   and  Licensing   Agreements  --
Ts'o/Miller/Hopkins") and owes it licensing royalty fees and related expenses in
the amount of  $308,832.24.  Johns  Hopkins  also  alleges  the  existence  of a
separate  March 1993 letter  agreement  wherein the Company  agreed to support a
fellowship  program at the Johns Hopkins School of Hygiene and Public Health and
the Company's breach thereof,  with damages of $326,829.00.  On August 10, 1998,
the  Company's  statutory  process  agent  received a Summons and Complaint in a
related lawsuit  brought by the  Ts'o/Miller  Partnership and others against the
Company in the same  court  (Case No.  98182113).  The  Ts'o/Miller  Partnership
claims that it is owed licensing royalty fees in the amount of $287,671.23.  The
Company is currently in settlement  negotiations.  The Company  believes that no
further accrual is necessary pursuant to this settlement.

        On June 30, 1998,  Marseille  Amenagement,  the manager of the Company's
facilities in Marseilles,  served notice of a suit in Marseilles,  France to the
Director General of the Company's  subsidiary,  Genta Europe.  On July 30, 1998,
the  Company's  office in San Diego,  California  was also served  notice of the
suit.  The suit  seeks  the  payment  of  unpaid  past  rents in the  amount  of
473,464.50 FF (as of April 8, 1999,  approximately  $77,601), the removal of the
Company from the facility and an indemnity  payment of 1,852,429 FF (as of April
8, 1999, approximately $303,613),


                                     - 20 -


<PAGE>

which is allegedly  equal to the balance of the first nine years' rent.  On July
1, 1998, the ANVAR notified Genta Europe by letter of its claim that the Company
remains liable for 4,187,423 FF (as of April 8, 1999,  approximately  $686,319),
and is required to pay this amount  immediately.  In view of these  events,  the
Board of  Directors of Genta  Europe  directed  the Director  General to declare
"Cessation of Payment" in the commercial court of France,  which declaration was
made in July 1998. Under this procedure,  Genta Europe ceased any operations and
terminated  its only  employee.  A liquidator was appointed by the Court to take
control of any  assets of Genta  Europe and to make  payment  to  creditors.  In
December 1998,  the Court in Marseilles  dismissed the case against Genta Europe
and  indicated  that it had no  jurisdiction  against  Genta  Incorporated.  The
Company's  attorney in France  notified  the  plaintiff of the decision and that
they have 30 days from such  notice to  appeal.  The  30-day  appeal  period has
elapsed  and the Company is awaiting  formal  notification  by the court that an
appeal has not been  made.  The  decision  of the Court in  Marseilles  does not
preclude  Marseille  Amenagement  from  pursuing  its claims in other  courts in
France or the United States, and there can be no assurance that they will not do
so.

        In October 1996,  JBL retained a chemical  consulting  firm to advise it
with respect to an incident of soil and groundwater contamination (the "Spill").
Sampling  conducted at the JBL facility  revealed the presence of chloroform and
perchloroethylenes  ("PCEs") in the soil and  groundwater  at this site.  JBL is
conducting a quarterly groundwater monitoring program, under the supervision of
the California Regional Water Quality Control Board, for purposes of determining
whether the levels of chloroform and perchloroethylenes  ("PCEs") have decreased
over time.  The results of the latest  sampling  conducted by JBL show that PCEs
and  chloroform  have  decreased  in all but one of the  monitoring  sites.  The
Company  believes  that  any  costs  stemming  from  further   investigating  or
remediating  this  contamination  will not have a material adverse effect on the
business of the Company, although there can be no assurance thereof.

         JBL  received  notice  on  October  16,  1998  from  Region  IX of  the
Environmental  Protection  Agency  ("EPA")  that  it had  been  identified  as a
potentially  responsible  party ("PRP") at the Casmalia  Disposal Site, which is
located in Santa Barbara,  California.  JBL has been  designated as a de minimis
PRP by the EPA.  The EPA  currently  estimates  that the de minimis PRPs will be
required to pay as little as $75,000  and as much as  $750,000  to settle  their
potential liability, depending upon the volume of wastes attributed to them. The
Company received an estimated  volume  calculation from the EPA, and a response,
which is due on June 9, 1999, is currently under review.  While the terms of the
settlement  with the EPA have not been finalized,  they should contain  standard
contribution  protection and release  language.  The Company has accrued $75,000
during  1998.  The  Company  believes  that  any  costs  stemming  from  further
investigating or remediating this contamination will not have a material adverse
effect on the  business  of the  Company,  although  there  can be no  assurance
thereof.


                                     - 21 -



<PAGE>

         LBC   Capital   Resources,    Inc.   ("LBC"),   a    Philadelphia-based
broker/dealer,  asserted  claims  against  the  Company  and  others,  including
Paramount  Capital Inc., of which Dr.  Rosenwald is the sole stockholder and Mr.
Weiss was a Senior Managing Director,  and various related entities and persons.
LBC's  claims  relate to the  alleged  breach by the  Company of certain  letter
agreements,  allegedly entered into by LBC and the Company in 1995 and 1996 with
respect  to  brokerage  and/or  investment  banking  services,  particularly  in
connection  with a $3 million  investment,  for which LBC was seeking a fee. LBC
sought damages in the form of cash (in excess of $4 million),  stock,  warrants,
and other securities.  A complaint was filed in the United States District Court
for the Southern  District of New York (98 Civ. 2491) by LBC against the Company
and the same other parties.

        The Company entered into a Settlement  Agreement and Release dated as of
November 30, 1998 (the "Settlement Agreement") with LBC Capital Resources,  Inc.
("LBC") and others. Pursuant to the Settlement Agreement, the Company agreed: to
issue to LBC 2,900 shares of Series D Convertible  Preferred  Stock; to issue to
LBC or its designee  five-year  warrants (the "LBC Warrants") to acquire 700,000
shares of Common Stock at an exercise price of $0.52 per share;  to make certain
payments to LBC totalling  approximately  $182,000;  and to pay to LBC, upon the
exercise  of certain  warrants,  a  commission  equal to up to  $150,000  in the
aggregate.  The  respective  conversion  and  exercise  prices  of the  Series D
Preferred  Stock  and the LBC  Warrants  are  subject  to  adjustment  upon  the
occurrence of certain events.  The fair value  attributed to the 2,900 shares of
Series D Preferred  Stock and the Class D Warrants  approximated  $965,000.  The
Company  provided for  $600,000 of this  $1,147,000  settlement  in 1997 and the
remaining amount in 1998.


(b)     The LBC claim was the only material legal  proceeding  terminated in the
quarter ending December 31, 1998.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

        No matters were  submitted to a vote of security  holders in the quarter
ended December 31, 1998.



                                     - 22 -



<PAGE>

                                     PART II

                ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND
                           RELATED STOCKHOLDER MATTERS

(a)     Market Information

        Throughout 1996 and in the beginning of 1997, the Company's common stock
was traded on the Nasdaq  National  Market  under the symbol  "GNTA."  Beginning
February 7, 1997,  the  Company's  common stock  traded in the  over-the-counter
market on the Nasdaq SmallCap Market, initially under the symbol "GNTAC." During
the 20 trading days  immediately  following  the  Company's  reverse stock split
effected on April 7, 1997,  the  Company's  common stock traded under the symbol
"GNTCD."  Genta resumed  trading  under the symbol "GNTA" on July 24, 1997.  The
following table sets forth,  for the periods  indicated,  the high and low sales
prices for the common  stock as reported by Nasdaq (as  adjusted for the Reverse
Stock Split).

                               High                           Low
1997
First Quarter                  9 11/16                        2 1/2
Second Quarter                 6 1/2                          1 3/4
Third Quarter                  3 3/4                          1 5/16
Fourth Quarter                 2 3/4                           25/32

1998
First Quarter                  1 5/32                           3/4
Second Quarter                 1 1/2                           23/32
Third Quarter                  1 5/32                           5/8
Fourth Quarter                 1 11/32                          7/8

1999
First Quarter                  3                              1 9/32


(b)     Holders

        There were 386  holders of record of the  Company's  common  stock as of
April 12, 1999.

(c)     Dividends

        The Company has never paid cash  dividends  on its common stock and does
not anticipate paying any such dividends in the foreseeable future. In addition,
the Company is restricted  from paying cash  dividends on its common stock until
such time as all cumulative  dividends  have been paid on outstanding  shares of
its Series A and Series D convertible  preferred  stocks.  The Company currently
intends  to  retain  its  earnings,  if  any,  after  payment  of  dividends  on
outstanding shares of Series A and Series D convertible preferred stock, for the
development of its business. See "MD&A--Liquidity and Capital Resources."

(d)     Recent Sales of Unregistered Securities

        In February  1997,  the Company raised gross proceeds of $3 million in a
private  placement,  to The Aries Fund, a Cayman  Islands  Trust,  and the Aries
Domestic Fund, L.P. (collectively the "Aries Funds"), of  Convertible  Notes and



                                     - 23 -




<PAGE>

warrants to purchase common stock ("Bridge  Warrants").  The Convertible  Notes,
together with accrued interest thereon,  were converted  pursuant to their terms
into an aggregate of 65,415  shares of Series D Preferred  Stock,  which in turn
are convertible,  at $0.94375 per share,  into 6,931,391 shares of common stock.
The Bridge  Warrants  permit the  purchase of up to an  aggregate  of  6,357,616
shares of Common Stock at an exercise  price of $0.471875 per share  (subject to
adjustment  upon the  occurrence  of certain  events).  Pursuant to the Note and
Warrant Purchase  Agreement dated as of January 28, 1997 between the Company and
the Aries Funds (the "Note and  Warrant  Purchase  Agreement"),  the Aries Funds
have the right to appoint a majority of the members of the Board of Directors of
the Company. See "MD&A--Certain Trends and  Uncertainties--Certain  Interlocking
Relationships; Potential Conflicts of Interest."

        On June 6, 1997, the Aries Funds entered into a Line of Credit Agreement
with the Company  pursuant to which the Aries Funds  provided the Company with a
line  of  credit  of  up  to  $500,000,   which   subsequently  was  repaid,  in
consideration  for warrants (the "Line of Credit  Warrants") to purchase  50,000
shares of Common Stock  exercisable  at $2.50 per share,  subject to  adjustment
upon the occurrence of certain events.

        As of August 27,  1997,  the Company  entered into  separate  consulting
agreements  with each of Dr.  Paul O.P.  Ts'o and Dr.  Sharon B.  Webster  (both
former  directors  of the  Company),  pursuant to which,  in addition to certain
other  compensation  for  consulting  services  to be rendered  thereunder,  the
Company  issued  15,400  shares of Common Stock to Dr. Ts'o and 15,500 shares of
Common Stock to Dr. Webster.

        On June  30,  1997,  a  total  of  161.58  Premium  Preferred  Units(TM)
("Units") were sold to accredited investors in a private placement (the "Private
Placement").  Such sale was made in reliance on the exemption from  registration
pursuant to Rule 506 of  Regulation D of the  Securities  Act. Each unit sold in
the Private Placement  consists of 1,000 shares of Premium  Preferred  Stock(TM)
(Series D Preferred Stock), par value $0.001 per share, stated value $100.00 per
share,  and warrants to purchase 5,000 shares of the Company's common stock, par
value $0.001 per share, at any time prior to the fifth  anniversary of the final
closing date. A total of $16,158,000 was raised. The net proceeds to the Company
were $13,957,262.  The respective  conversion and exercise price of the Series D
Preferred  Stock and the Class D Warrants is $0.94375 per share of common stock,
subject to adjustment upon the occurrence of certain events.  In connection with
the Private Placement, the placement agent -- Paramount Capital, Inc.-- received
cash  commissions  equal to 9% of the gross  sales  price and a  non-accountable
expense  allowance equal to 4% of the gross sales price, and the placement agent
received warrants (the "Placement  Warrants") to purchase up to 10% of the Units
sold  in the  Private  Placement  for  110%  of the  offering  price  per  Unit.
Furthermore,  the Company has entered into a financial  advisory  agreement with
the  placement  agent  pursuant  to which the  financial  advisor is entitled to
receive certain cash fees and has received warrants (the "Advisory Warrants") to
purchase  up to 15% of the Units sold in the Private  Placement  for 110% of the
offering price per Unit.

        The  Company  was  contractually  required  to file,  and had  filed,  a
Registration  Statement on Form S-3 with the Securities and Exchange  Commission
(the "SEC") under the  Securities  Act with respect to the common stock issuable
upon  conversion  and upon  exercise  of the  securities  issued in the  private
placement  consummated  in  February  1997  and  the  Private  Placement.   This
registration  statement  has  not  been  declared  effective.  There  can  be no
assurance that such  registration  statement will ever become  effective or that
any delay or failure to have such registration statement declared effective will
not have a material adverse effect on the Company. 

                                     - 24 -


<PAGE>


        On May 29,  1998,  the Company  requested,  and  subsequently  received,
consents (the "Letter  Agreements") from the holders of a majority of the Series
D  Preferred  Stock to waive the  Company's  obligation  to use best  efforts to
obtain the  effectiveness of a registration  statement with the SEC as to Common
Stock issuable upon conversion of Series D Preferred Stock and exercise of Class
D Warrants.  In exchange,  the Company agreed to waive the contractual "lock-up"
provisions to which such  consenting  holders were subject and which  provisions
would have prevented the sale of up to 75% of their  securities for a nine-month
period following the effectiveness of the registration statement;  and to extend
to  January  29,  1999 from  June 29,  1998 the Reset  Date  referred  to in the
Certificate of Designation of the Series D Preferred Stock. In addition, through
the Letter  Agreements,  the Company agreed to issue to such holders warrants to
purchase at $0.94375 per share,  an aggregate of up to 807,900  shares of Common
Stock, subject to certain anti-dilution adjustments,  exercisable until June 29,
2002.  The shares  were  valued at  approximately  $633,000  and  recorded  as a
dividend.  The Company had conditioned the  effectiveness of such consent on its
acceptance  by a majority of the Series D Preferred  Stockholders.  The Series D
Preferred  Stock began  earning  dividends,  payable in shares of the  Company's
Common Stock,  at the rate of 10% per annum  subsequent to the new Reset Date of
January 29, 1999.

        See  "MD&A--Certain  Trends and  Uncertainties--Subordination  of Common
Stock to Series A and Series D Preferred Stock; Risk of Dilution;  Anti-Dilution
Adjustments."


                                     - 25 -


<PAGE>

ITEM 6.  SELECTED CONSOLIDATED FINANCIAL DATA


<TABLE>
<CAPTION>
                                                         YEARS ENDED DECEMBER 31,
                                      -------------------------------------------------------------
                                          1994         1995       1996        1997         1998
                                          ----         ----       ----        ----         ----
                                                 (In thousands, except per share amount)

CONSOLIDATED STATEMENTS OF
OPERATIONS DATA:
<S>                                    <C>         <C>         <C>         <C>         <C>     
Gain on sale of technology .........   $     --    $     --    $    373    $     --    $     --
Related party contract revenue .....         --          --       1,559         350          55
Collaborative research and
  development ......................      3,142       1,125          --          50          50
                                       --------    --------    --------    --------    --------
                                          3,142       1,125       1,932         400         105
                                       --------    --------    --------    --------    --------
Costs and expenses:
  Research and development .........     12,104       9,764       4,592       3,309       2,116
  LBC Settlement ...................         --          --          --         600         547
  Charge for acquired in-process    
     research and development.......      1,850       4,762          --          --          --
General and administrative .........      5,483       4,493       5,096       6,132       4,020
                                       --------    --------    --------    --------    --------
                                         19,437      19,019       9,688      10,041       6,683
                                       --------    --------    --------    --------    --------
Loss from operations ...............    (16,295)    (17,894)     (7,757)     (9,641)     (6,578)
Equity in net loss of joint venture      (7,425)     (6,913)     (2,712)     (1,193)       (132)
Net loss of liquidated
 foreign subsidiary ................         --          --          --          --         (98)
Other income (expense), net ........        721           7        (745)     (2,851)        (38)
                                       --------    --------    --------    --------    --------
Net loss from continuing operations    $(22,999)   $(24,800)   $(11,213)   $(13,684)   $ (6,846)
Loss from discontinued operations ..       (449)       (566)       (878)     (1,741)       (739)
                                       ---------   ---------   ---------   ---------   ---------
Net loss ...........................    (23,448)    (25,366)    (12,092)    (15,425)     (7,586)
Dividends on preferred stock .......     (2,550)     (2,551)     (2,525)     (1,695)       (633)
Dividends imputed on preferred stock         --    $ (1,000)     (2,348)    (16,158)         --
                                       --------    --------    --------    --------    --------
Net loss applicable to common shares   $(25,998)   $(28,917)   $(16,965)   $(33,278)   $ (8,219)
                                       --------    --------    --------    --------    --------
Continuing Operations ..............   $ (18.67)   $ (14.53)   $  (5.39)   $  (7.13)   $  (1.06)
Discontinued Operations ............   $  (0.33)   $  (0.29)      (0.30)      (0.39)      (0.11)
Net loss per share (1) .............   $ (19.00)   $ (14.82)   $  (5.69)   $  (7.52)   $  (1.17)
                                       --------    --------    --------    --------    --------
Shares used in computing net        
  loss per share ...................      1,371      1,952       2,983       4,422       7,000
Deficiency of earnings to meet
  combined fixed charges and        
  preferred stock dividends (2).....   $(25,998)   $(28,917)   $(16,965)   $(33,278)   $ (8,219)

<CAPTION>
                                                               DECEMBER 31,
                                      -------------------------------------------------------------
                                          1994        1995        1996         1997     1998
                                          ----        ----        ----         ----     ----
                                                       (In thousands)

CONSOLIDATED BALANCE SHEET
DATA:

Cash, cash equivalents and short-term   $ 11,003   $    262    $    532    $  8,456   $  2,458
investments
Working capital (deficit) ...........      4,285     (2,981)     (3,816)      5,807      3,629
Total assets ........................     19,415     11,351       8,806      15,079      7,551
Notes payable and capital lease
   obligations, less current portion       1,871      2,334         118          --         --
Total stockholders' equity ..........     13,912      4,258       4,074       9,425      2,959
</TABLE>

(1)  Computed on the basis of net loss per common  share  described in Note 1 of
     Notes to Consolidated Financial Statements.
(2)  The Company has incurred  losses and,  thus,  has had a deficiency in fixed
     charges and preferred stock dividend coverage since inception.

THE ABOVE SELECTED FINANCIAL DATA REFLECTS  DISCONTINUED  OPERATIONS AND BALANCE
SHEET DATA OF JBL AS A RESULT OF THE  AGREEMENT  TO SELL JBL IN MARCH 1999.  SEE
NOTE 2 OF THE NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.


                                     - 26 -

<PAGE>

ITEM 7.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
          AND RESULTS OF OPERATIONS

Overview

         Since its inception in February  1988,  Genta has devoted its principal
efforts  toward  drug  discovery,  research  and  development.  Genta  has  been
unprofitable  to  date  and,  even  if it  obtains  financing  to  continue  its
operations,  expects to incur  substantial  operating  losses  due to  continued
requirements  for ongoing research and development  activities,  preclinical and
clinical  testing,   manufacturing   activities,   regulatory  activities,   and
establishment of a sales and marketing  organization.  From the period since its
inception to December 31, 1998,  the Company has incurred a cumulative  net loss
of  $132.1   million.   The  Company  has  experienced   significant   quarterly
fluctuations  in  operating  results and it expects that these  fluctuations  in
revenues,  expenses  and losses  will  continue,  although  mitigated  by recent
developments.


                                     - 27 -


<PAGE>

        The Company has been  reducing  its human and other  resources to reduce
expenses while focusing its research and development  ("R&D")  efforts.  Genta's
strategy  is to  build  a  product  and  technology  portfolio  focusing  on its
Anticode(TM)  (antisense)  products  intended  to treat  cancer  at its  genetic
source.  To this end, the Company has reduced its R&D expenses by about 36% from
last year and has significantly  reduced its involvement with respect to its 50%
investment in an R&D joint  venture,  Genta Jago,  through an interim  agreement
reached in March 1999. The Company also entered into an Asset Purchase Agreement
on March 19,  1999 for the sale of  substantially  all of the assets and certain
liabilities of the Company's  wholly owned  specialty  chemicals  subsidiary JBL
Scientific,  Inc. ("JBL") for cash, a promissory note and certain pharmaceutical
development  services  in support  of Genta's  G3139  development  project.  The
transaction  will be  consummated  upon  the  satisfaction  of  certain  closing
conditions and, while there can be no assurances, is expected to be completed in
the second quarter of 1999.  Following the pending sale of JBL, the Company will
operate as one business  segment.  Accordingly,  the following  information  and
accompanying financial statements reflect JBL as a discontinued  operation.  The
Company  has closed its  operation  in France.  The  Company has also closed its
facilities in San Diego, California and has moved its headquarters to Lexington,
Massachusetts as of the second quarter of 1999.

        The  Company's   independent   auditors  have  included  an  explanatory
paragraph in their report on the Company's  consolidated financial statements at
December 31, 1998, that expresses  substantial doubt as to the Company's ability
to continue as a going concern. The Company has very limited cash resources. Its
ability to continue  operations in 1999 depends upon the consummation of the JBL
transaction  and the  Company's  success in obtaining  funding.  There can be no
assurance  that the JBL  transaction  will be  consummated  or as to the  timing
thereof  or  that  the  Company  will  be able to  obtain  additional  funds  on
satisfactory  terms or at all. There are several factors that must be considered
risks in that regard and those that are known to  management  are  discussed  in
"MD&A--Certain Trends and Uncertainties."

        The statements contained in this Annual Report on Form 10-K 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.  The
Company  intends  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 the Company's 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 the actual results of
the Company to differ materially from any future results expressed or implied by
such  forward-looking  statements.  Examples  of such  risks  and  uncertainties
include,  but are not limited to, obtaining sufficient financing to maintain the
Company's  planned  operations,  the timely  development,  receipt of  necessary
regulatory approvals and acceptance of new products,  the successful application
of  the  Company's  technology  to  produce  new  products,   the  obtaining  of
proprietary  protection  for any such  technology  and  products,  the impact of
competitive  products and pricing and  reimbursement  policies,  changing market
conditions and the other risks detailed in the Certain Trends and  Uncertainties
section of this Management's  Discussion and Analysis of Financial Condition and



                                     - 28 -

<PAGE>

Results of  Operations  and  elsewhere in this Annual  Report on Form 10-K.  The
Company does not undertake to update any forward-looking statements.

Results of Operations

         The  following  discussion  of  results  of  operations  relates to the
Company's continuing business.

        Operating revenues totaled $1.9 million in 1996 compared to $0.4 million
in 1997 and $0.1 million in 1998. The changes in operating  revenue have largely
reflected  the  Company's   lessened   involvement  in  Genta  Jago  development
activities. Related party contract revenues decreased from $1.6 million in 1996,
to $350,000 in 1997 and $55,000 in 1998.  The expenses for which these  revenues
are recognized as Costs and Expenses in the same period such that the net effect
on Genta's consolidated  statements is zero (see below). It is anticipated that,
as the Company has reduced its resources and focused them on its  development of
its lead  Anticode(TM)  oligonucleotide,  G3139,  this trend will  continue.  It
should be noted that at the same time, the Company is reducing its commitment to
provide funds to Genta Jago. On March 4, 1999,  Genta and  SkyePharma (on behalf
of itself and its  affiliates)  entered  into an interim  agreement  pursuant to
which the parties to the joint  venture  released  each other from all liability
relating to unpaid development costs and funding obligations.  SkyePharma agreed
to be responsible for  substantially all the obligations of the joint venture to
third parties and for the further  development of the joint venture's  products,
with  any  net  income  resulting  therefrom  to  be  allocated  in  agreed-upon
percentages between Genta and SkyePharma as set forth in such interim agreement.
It is also  expected  that the  completion of the sale of the assets of JBL will
result in a significant  decrease in ongoing  revenues,  as all of the Company's
product sales have been attributable to JBL.

        Collaborative research and development revenues were $50,000 annually in
1997 and in 1998,  representing  deferred  revenues  recognized  pursuant to the
Company's  collaboration  with  Johnson & Johnson  Consumer  Products,  Inc. See
"Business--Anticode(TM)    Brand   of   Antisense   Oligonucleotide   Programs--
Oligonucleotide   Collaborative   and   Licensing   Agreements--Other   Anticode
Agreements." The above agreement has expired.

        Costs and  expenses  totaled  $9.7  million  in 1996  compared  to $10.0
million  in 1997 and $6.7  million  in 1998.  Primarily,  the  overall  decrease
reflects reduced research and development and general and administrative charges
offset by  nonrecurring  charges related to  restructuring.  The decrease in R&D
expenses is the result of work force  reductions and related closure of research
and development facilities in San Diego.


                                     - 29 -


<PAGE>

        Services and capabilities that have not been retained within the Company
are  out-sourced   through  short-term   contracts  or  from  consultants.   All
preclinical  biology  and  clinical  trial work is now  conducted  through  such
collaborations with external scientists and clinicians.  The Company anticipates
that, if  sufficient  collaborative  revenues and other  funding are  available,
research  and  development   expenses  may  increase  in  future  years  due  to
requirements  for  preclinical  studies,  clinical  trials,  the G3139  Anticode
oligonucleotide  program and  increased  regulatory  costs.  The Company will be
required  to assess the  potential  costs and  benefits  of  developing  its own
Anticode(TM)  oligonucleotide  manufacturing,  marketing and sales activities if
and as such products are successfully  developed and approved for marketing,  as
compared to establishing a corporate partner relationship.

        Research and  development  expenses  totaled $4.6 million in 1996,  $3.3
million  in 1997,  and $2.1  million  in 1998.  The  decrease  in  research  and
development expenses is primarily  attributable to the Company's redeployment of
certain employees, and related workforce reductions implemented in 1996 and 1997
(see below) together with the discontinuation of several programs.  Research and
development and certain other services the Company  provided to Genta Jago under
the terms of the joint venture were  significantly  reduced over the period from
1996 through 1998. These amounts were $1.6 million in 1996, $350,000 in 1997 and
$55,000  in 1998.  There  is,  however,  no net  effect of these  reductions  in
services to Genta Jago as they are offset by related party contract revenues.

        It is anticipated that research and development expenses may increase in
the  future,   assuming  the  Company  obtains  sufficient  financing,   as  the
development  program for G3139 expands and more patients are treated in clinical
trials at  higher  doses,  through  longer or more  treatment  cycles,  or both.
Furthermore,  the  Company  is  pursuing  other  opportunities  for new  product
development  candidates which, if successful,  will require additional  research
and development  expenses.  There can be no assurance,  however, that the trials
will  proceed in this manner or that the Company will  initiate new  development
programs.

        In an effort to focus its research and development on areas that provide
the most significant commercial opportunities, the Company continually evaluates
its ongoing  programs in light of the latest market  information and conditions,
availability of third-party funding,  technological advances, and other factors.
As a result of such evaluation,  the Company's  product  development  plans have
changed from time to time, and the Company  anticipates  that they will continue
to do so in the future.

        General and  administrative  expenses  were $5.1  million in 1996,  $6.1
million in 1997,  and $4.0 million in 1998.  The $2.1  million  decrease in 1998
reflects  reductions  in staff  and in  accounting  and  legal  expenses.  Legal
expenses were higher in 1997 due to several factors:  successfully defending the
litigation   brought  by  certain  of  the  Company's   preferred   stockholders
challenging a $3.0 million  investment made in February 1997,  which  litigation
was resolved in the Company's favor in April 1997; and the Company's  successful
efforts  to avoid a  potential  Nasdaq  delisting  associated  with  the  equity
offerings   consummated  in  1997.  See  "Legal  Proceedings"  and  "Market  for
Registrant's  Common  Equity and Related  Stockholder  Matters--Recent  Sales of
Unregistered Securities."

        As a continuation of its 1995 restructuring  plan, in October 1996 Genta
reassessed its personnel requirements and established a termination plan whereby
the Company  terminated  16 research and  administrative  employees and recorded
General and Administrative  expenses of $850,000 for accrued  severance.  In May
1997, Genta again reassessed its personnel  requirements and established another
termination  plan involving the  termination  of 12 research and  administrative
employees.  The Company recorded General and Administrative expenses of $868,000
in the second  quarter  of 1997 for  accrued  severance  costs.  In 1998,  three
additional staff personnel left the Company,  and two senior managers joined the
Company. Another senior manager joined the Company in 1999. Although the Company
has reduced its work force to a core group of corporate personnel, the remaining
team is  able to  maintain  Genta's  operations  in the  development  of  G3139.
Chemical and  manufacturing  development  and quality  assurance  and control is
managed or conducted  at JBL, in  coordination  with  Genta's core staff.  It is
expected that these  services will continue in 1999  following the completion of





                                     - 30 -



<PAGE>

the sale of substantially all of JBL's assets and certain  liabilities.  The JBL
Asset Purchase  Agreement  contemplates that, after the closing of the sale, the
acquiring  company  will  provide  pharmaceutical  development  services  to the
Company at no additional charge.

        The Company recorded charges to general and  administrative  expenses of
$600,000 and $577,000, in 1997 and 1998 respectively to account for the value of
abandoned  patents no longer related to the research and development  efforts of
the Company. The Company's policy is to evaluate the appropriateness of carrying
values  of the  unamortized  balances  of  intangible  assets  on the  basis  of
estimated future cash flows (undiscounted) and other factors. If such evaluation
were to  identify  a  material  impairment  of  these  intangible  assets,  such
impairment  would be recognized by a write-down of the  applicable  assets.  The
Company  continues  to  evaluate  the  continuing  value of  patents  and patent
applications,  particularly  as expenses to prosecute or maintain  these patents
come due. Through this evaluation, the Company may elect to continue to maintain
these patents, seek to out-license them, or abandon them.

        The  Company's  equity in net loss of its  joint  venture  (Genta  Jago)
totaled $2.7  million in 1996,  compared to $1.2 million in 1997 and $132,000 in
1998.  The  decrease in the  Company's  equity in net loss of its joint  venture
during 1998 relative to 1997 and 1996 is largely  attributable  to the fact that
development efforts are now focused exclusively on GEOMATRIX-based  products and
a greater portion of development activities were funded pursuant to Genta Jago's
collaborative agreements with third parties. The operating results of Genta Jago
are based primarily on three factors.  First, Genta Jago receives  collaborative
research and  development  revenue from third parties.  Secondly,  Genta Jago is
billed by Jagotec and Genta for research and development  costs  associated with
Genta  Jago  projects.  Thirdly,  there are  general  and  administrative  costs
associated with the joint venture.  Through May 1995,  Genta Jago's  development
efforts  were not  strictly  GEOMATRIX-based  products.  Genta Jago also had the
right to develop six Anticode(TM)  oligonucleotide products licensed from Genta.
However,   in  1995  the  parties  elected  to  focus  Genta  Jago's  activities
exclusively on  GEOMATRIX-based  products.  In connection with the return of the
Anticode(TM)  oligonucleotide  technology  license  rights to Genta in May 1995,
Genta Jago's note payable to Genta was credited with  approximately $4.4 million
in principal and $0.3 million in accrued interest.  Genta Jago recorded the loan
credit and related accrued  interest as a gain on waiver of debt in exchange for
return of license rights to related party. Furthermore,  since Genta Jago was no
longer responsible for developing  Anticode(TM)  oligonucleotide  products,  its
future  working  capital  requirements  were reduced.  The equity in net loss of
joint venture is  determined  by reducing the loss per Genta Jago  financials by
Genta's 20% markup on internal  costs for which the joint venture is billed plus
the interest accrued on the working capital loans.

        Since the formation of Genta Jago,  no products  have been  successfully
developed and marketed. Since the initial plans called for earlier introductions
and since there have been significant  changes in the market  environment  since
the Company entered into the joint venture,  there is reason to believe that any
products that may be marketed in the future could represent significantly poorer
financial  opportunities  than those that were anticipated in the earlier plans.
This  reduction  in  opportunity  derives  from  factors such as the presence of
direct  competitors  to Genta Jago's  products being in the  marketplace  before
Genta Jago, and increasing  pricing pressures on  pharmaceuticals,  particularly
multisource or generic  products from payers such as reimbursers  and government
buyers.   See   "MD&A--Certain   Trends   and    Uncertainties--Uncertainty   of
Technological   Change   and   Competition"   and   "MD&A--Certain   Trends  and
Uncertainties--Uncertainty   of  Product  Pricing,   Reimbursement  and  Related
Matters."  Both of these factors may  adversely  affect Genta Jago even if it is
successful in developing products to obtain regulatory approval. As a result and
in consideration of the Company's need to reduce expenses and focus its efforts,
the Company is directing  its  resources  from the joint venture to its Anticode
development,  specifically  G3139, for the immediate  future.  On March 4, 1999,
Genta and  SkyePharma (on behalf of itself and its  affiliates)  entered into an
interim  agreement  pursuant to which the parties to the joint venture  released
each other from all liability  relating to unpaid  development costs and funding
obligations.



                                     - 31 -




<PAGE>

SkyePharma agreed to be responsible for substantially all the obligations of the
joint  venture to third  parties  and for the further  development  of the joint
venture's  products,  with any net income resulting therefrom to be allocated in
agreed-upon  percentages  between  Genta  and  SkyePharma  as set  forth in such
interim agreement.

        Interest   income  has  fluctuated   significantly   each  year  and  is
anticipated  to continue to fluctuate  primarily due to changes in the levels of
cash, investments and interest rates each period.

        Interest expense was $9,000 in 1998, $3,309,000 in 1997, and $886,000 in
1996. In  consideration of EITF D-60 which was issued by the FASB in March 1997,
the  Company  recorded  $666,667  in  imputed  interest  on $2.0  million  in 4%
Convertible  Debentures  due  August 1,  1997,  that were  originally  issued in
September  1996 and were  converted  at a 25%  discount to market.  The discount
represents  an effective  interest  rate of 38%. The charge has been included in
interest  expense in 1996.  The Company also  recorded a $3.0 million  charge to
imputed  interest in 1997 related to value  associated  with 6.4 million  Bridge
Warrants issued in connection with a $3.0 million debt issue in February 1997.

        In  consideration  of EITF D-60,  the Company  recorded  $2,348,000  and
$1,000,000 in imputed dividends in 1996 and 1995,  respectively,  for discounted
conversion terms related to convertible preferred stock issued in 1996 and 1995.
The  preferred  stock was  convertible  into common shares based on a conversion
price equal to 75% of the average  closing  bid prices of the  Company's  common
stock for a specified  period.  In 1997,  the Company  recorded  $16,158,000  in
imputed dividends for discounted conversion terms and liquidation  preference of
the Series D Preferred Stock issued in the Private  Placement.  The charges have
been recorded as dividends imputed on preferred stock.

Recent Accounting Pronouncements

         In June 1997, the Financial Accounting Standards Board issued Statement
of Financial  Accounting  Standard  No. 130,  "Reporting  Comprehensive  Income"
("SFAS No.  130").  SFAS No. 130 requires that all  components of  comprehensive
income,  including net income,  be reported in the  financial  statements in the
period in which they are  recognized.  Other than Net Loss,  the  Company had no
material components of comprehensive income.

         On June 16, 1998 the Financial  Accounting  Standards Board issued SFAS
No. 133,  "Accounting for Derivative  Instruments and Hedging  Activities." This
standard is effective for fiscal years  beginning  after June 15, 1999. SFAS No.
133 establishes  accounting and reporting standards for derivative  instruments,
including certain derivative  instruments  embedded in other contracts,  and for
hedging activities. It requires an entity to recognize all derivatives as either
assets or  liabilities  in the  statement  of  financial  position  and  measure
instruments  at fair value.  The Company is currently  evaluating  the impact of
this  pronouncement  and does not  believe  adoption of SFAS No. 133 will have a
material impact on the Company's consolidated financial statements.

Liquidity and Capital Resources

        Since inception,  the Company has financed its operations primarily from
private and public offerings of its equity securities.  Cash provided from these
offerings  totaled  approximately  $124.5  million  through  December  31, 1998,
including  net proceeds of $17.0  million  raised  during 1997.  At December 31,
1998, the Company had cash, cash equivalents and short-term investments totaling
$2.5 million compared to $8.5 million at December 31, 1997.

        The Company will need substantial  additional funds before it can expect
to realize significant product revenue. The Company projects that at its current
rate of spending and for its current  activities,  assuming  consummation of the
sale of JBL,  its cash funds will  enable the  Company to  maintain  its present
operations  into the first  quarter of 2000.  To the extent  that the Company is
successful  in  accelerating  its  development  of  G3139  or in  expanding  its
development  portfolio or acquiring or adding new  development  candidates,  the
current  cash  resources  would be consumed at a greater  rate.  Similarly,  the
Company had been  seeking to identify  and hire  additional  senior  managers to
direct the business of the Company.  In this regard the Company has hired a Vice
President  of  Regulatory  and  Clinical  Affairs,  Vice  President of Corporate
Development  and a Vice President and Chief Financial  Officer.  Certain parties
with whom the  Company has  agreements  have  claimed  default  and,  should the
Company be  obligated  to pay these  claims or should the Company  engage  legal
services to defend or negotiate its  positions or both,  its ability to continue
operations  could be  significantly  reduced or  shortened.  See  "MD&A--Certain
Trends and  Uncertainties--Claims  of Genta's Default Under Various Agreements."
The  Company  anticipates  that  significant  additional  sources of  financing,
including  equity  financings,  will be  required  in order for the  Company  to
continue its planned operations. The Company also anticipates seeking additional
product development  opportunities from external sources.  Such acquisitions may
consume  cash  reserves  or require  additional  cash or equity.  The  Company's
working capital and additional  funding  requirements  will depend upon numerous
factors,  including:  (i) the progress of the Company's research and development
programs;  (ii) the  timing and  results of  preclinical  testing  and  clinical
trials;  (iii) the level of  resources  that the  Company  devotes  to sales and



                                     - 32 -


<PAGE>

marketing  capabilities;  (iv)  technological  advances;  (v) the  activities of
competitors;  and (vi) the  ability of the  Company to  establish  and  maintain
collaborative  arrangements with others to fund certain research and development
efforts, to conduct clinical trials, to obtain regulatory approvals and, if such
approvals are obtained,  to manufacture and market products.  See "MD&A--Certain
Trends and Uncertainties--Need for Additional Funds; Risk of Insolvency."

        If the Company  successfully  secures sufficient levels of collaborative
revenues and other  sources of  financing,  it expects to use such  financing to
continue to expand its ongoing research and development activities,  preclinical
testing and clinical trials,  costs  associated with the market  introduction of
potential  products,  and  expansion  of  its  administrative   activities.   As
previously  discussed in the MD&A  Overview,  the Company  entered into an Asset
Purchase  Agreement  with  Promega  Corporation  on March  19,  1999.  Under the
agreement,  a wholly owned subsidiary of Promega acquires  substantially  all of
the assets and certain liabilities of JBL for a cash payment, a promissory note,
and pharmaceutical development services to be provided to Genta.

        In connection  with the Genta Jago joint venture formed in late 1992 and
expanded in May 1995, the Company  provided  funding to Genta Jago pursuant to a
working  capital  loan  agreement  that  expired in October  1998.  Such working
capital loans to Genta Jago are recorded by Genta as Loans receivable from joint
venture and are expensed on Genta's  books as funds are spent by Genta Jago,  as
the collectibility of such loans is no longer assured.  In connection with Genta
Jago's return of the Anticode(TM) oligonucleotide license rights to Genta in May
1995, the working  capital loan payable by Genta Jago to Genta was credited with
a principal  reduction of  approximately  $4.4 million and reduction of interest
thereon of approximately $0.3 million.  As of December 31, 1998, the Company had
advanced working capital loans of approximately $15.8 million to Genta Jago, net
of  principal  repayments  and the  aforementioned  credit,  which  amount fully
satisfied what the Company  believes is the loan  commitment  established by the
parties  through  December 31, 1998. Such loans bore interest at rates per annum
ranging from 5.81% to 7.5%, and were payable in full on October 20, 1998.  Genta
Jago repaid  Genta $1 million in  principal  of its working  capital  loans,  in
November 1996, from license fee revenues.

        On March 4,  1999,  Genta and  SkyePharma  (on  behalf of itself and its
affiliates)  entered into an interim agreement  pursuant to which the parties to
the joint  venture  released  each other from all  liability  relating to unpaid
development   costs  and  funding   obligations  and  SkyePharma  agreed  to  be
responsible  for the  obligations  of the joint venture to third parties and for
the further  development of the joint  venture's  products,  with any net income
resulting therefrom to be allocated in agreed-upon percentages between Genta and
SkyePharma as set forth in such interim agreement. See "MD&A--Certain Trends and
Uncertainties--Claims of Genta's Default Under Various Agreements."

        In 1998, the Company  purchased  property and equipment of $304,000,  of
which $272,000  pertains to JBL, and received  proceeds from the  disposition of
property and equipment of $58,000.  Through  December 31, 1998,  the Company had
acquired  $10.4  million in property  and  equipment  of which $5.5  million was
financed through capital leases and other equipment financing arrangements, $3.6
million was funded in cash and the remainder was acquired  through the Company's
acquisition  of JBL.  The Company has  commitments  associated  with its capital
leases and  operating  leases as  discussed  further in Note 7 to the  Company's
consolidated financial statements. In 1997, the Company bought out its equipment
finance loan balance  with the  $251,000 in security  deposits  then held by the
equipment  finance company.  During 1998, fixed assets decreased due to the sale
of furniture  and  equipment  incident to the  reduction of  operations at Genta
Pharmaceuticals   Europe  and  the  closure  of  the  research  and  development
laboratory at Genta's San Diego facility.  Leasehold  improvements  were written
off by approximately $353,000 to general and




                                     - 33 -




<PAGE>

administrative   expense  due  to  the   elimination   of  operations  at  Genta
Pharmaceuticals  Europe. In 1997, the Company discontinued its effort to develop
a capability at JBL to  manufacture  oligonucleotides  and wrote off $530,000 to
research and development expense.

        In October 1996,  JBL retained a chemical  consulting  firm to advise it
with  respect to an incident  of soil and  groundwater  contamination.  Sampling
conducted  at  the  JBL  facility   revealed  the  presence  of  chloroform  and
perchloroethylenes  ("PCEs") in the soil and  groundwater  at this site.  JBL is
conducting a quarterly groundwater  monitoring program, under the supervision of
the California Regional Water Quality Control Board, for purposes of determining
whether the levels of chloroform and perchloroethylenes  ("PCEs") have decreased
over time.  The results of the latest  sampling  conducted by JBL show that PCEs
and  chloroform  have  decreased  in all but one of the  monitoring  sites.  The
Company  believes  that any  costs  associated  with  further  investigation  or
remediation  will not have a  material  adverse  effect on the  business  of the
Company, although there can be no assurance thereof.

        JBL  received  notice  on  October  16,  1998  from  Region  IX  of  the
Environmental  Protection  Agency (the "EPA") that it had been  identified  as a
potentially  responsible  party ("PRP") at the Casmalia  Disposal Site, which is
located in Santa Barbara,  California.  JBL has been  designated as a de minimis
PRP by the  EPA.  The EPA  currently  estimates  that de  minimis  PRPs  will be
required to pay as little as $75,000  and as much as  $750,000  to settle  their
potential liability, depending upon the volume of wastes attributed to them. The
EPA  plans on  sending  by the  beginning  of  January  1999  individual  volume
calculations  to each de minimis PRP that  received  the  aforementioned  notice
letter.  While the terms of a settlement  with the EPA have not been  finalized,
they should contain standard contribution,  protection and release language. The
Company has accrued  $75,000 during 1998. JBL is  investigating  all factual and
legal  defenses  that are available to it and plans on responding to this matter
accordingly.  See  "MD&A--Certain  Trends  and  Uncertainties--No  Assurance  of
Regulatory Approval; Government Regulation." The Company believes that any costs
associated with further investigating or remediating this contamination will not
have a material  adverse  effect on the business of the Company,  although there
can be no assurance thereof.

        In June 1997, the Company raised gross proceeds of  approximately  $16.2
million  (approximately  $14 million net of placement costs) through the private
placement of 161.58 Premium Preferred  Units(TM).  Each unit sold in the private
placement consists of (i) 1,000 shares of Premium Preferred Stock(TM), par value
$.001 per share,  stated value $100 per share (the "Series D Preferred  Stock"),
and (ii) warrants to purchase 5,000 shares of the Company's  common stock at any
time  prior  to the  fifth  anniversary  of the  final  closing  (the  "Class  D
Warrants").  The Series D  Preferred  Stock is  immediately  convertible  at the
option of the holder into shares of common stock at an initial  conversion price
of $0.94375 per share (subject to antidilution adjustment).

        On May 29,  1998,  the Company  requested,  and  subsequently  received,
consents (the "Letter  Agreements") from the holders of a majority of the Series
D  Preferred  Stock to waive the  Company's  obligation  to use best  efforts to
obtain the  effectiveness of a registration  statement with the SEC as to Common
Stock issuable upon conversion of Series D Preferred Stock and exercise of Class
D Warrants.  In exchange,  the Company agreed to waive the contractual "lock-up"
provisions to which such  consenting  holders were subject and which  provisions
would have prevented the sale of up to 75% of their  securities for a nine-month
period following the effectiveness of the registration statement;  and to extend
to  January  29,  1999 from  June 29,  1998 the Reset  Date  referred  to in the
Certificate of Designation of the Series D Preferred Stock. In addition, through
the Letter Agreements, the Company agreed to issue and did issue to such holders
warrants to purchase at $0.94375 per share, an aggregate of up to 807,900 shares
of Common Stock, subject to certain anti-dilution adjustments, exercisable until
June 29, 2002. The shares were valued at approximately  $633,000 and recorded as
a dividend. The Company had conditioned the effectiveness of such consent on its
acceptance  by a majority of the Series D Preferred  Stockholders.  The Series D
Preferred  Stock began  earning  dividends,  payable in shares of the  Company's
Common Stock,  at the rate of 10% per annum  subsequent to the new Reset Date of
January 29, 1999.

        In February  1997,  the Company raised gross proceeds of $3 million in a
private placement of units consisting of (i) Senior Secured  Convertible  Bridge



                                     - 34 -

<PAGE>

Notes (the  "Convertible  Notes") that bore interest at a stated rate of 12% per
annum and  matured on December  31,  1997,  as  extended,  and (ii)  warrants to
purchase an aggregate of  approximately  6.4 million shares of common stock. The
Convertible Notes were convertible into Series D Convertible  Preferred Stock at
the option of the holder,  at an initial  conversion  price of $50.00 per share,
subject to antidilution  adjustments.  In May 1997,  $650,000 of the Convertible
Notes were  converted  into  13,000  shares of Series D  Preferred  Stock and in
December 1997,  the remaining  $2,350,000 of the  Convertible  Notes and accrued
interest were converted into 52,415 shares of common stock.

        In  September  1996,  the Company  raised  gross  proceeds of $2 million
(approximately  $1.9  million  net  of  offering  costs)  through  the  sale  of
Convertible  Debentures to investors in a private  placement  outside the United
States.  The  Convertible  Debentures  were  convertible,  at the  option of the
holders,  at any time on or after October 23, 1996,  into shares of common stock
at a conversion  price equal to 75% of the average  Nasdaq  closing bid price of
Genta's  common stock for a specified  period  prior to the date of  conversion.
Terms of the Convertible Debentures also provided for interest payable in shares
of  the  Company's  common  stock.  In  November  1996,  $1.65  million  of  the
Convertible  Debentures  and the related  accrued  interest was  converted  into
approximately 590,000 shares of common stock and in 1997, the remaining $350,000
and related accrued interest was converted into 204,263 shares of common stock.

        In  March  1996,  the  Company  raised  gross  proceeds  of  $6  million
(approximately $5.5 million net of offering fees) through the issuance of Series
C  Convertible  Preferred  Stock  (the  "Series  C  Preferred  Stock")  sold  to
institutional investors in a private placement. The Series C Preferred Stock was
immediately  convertible,  at the option of the  holder,  into  shares of common
stock at a conversion price equal to 75% of the average Nasdaq closing bid price
of Genta's common stock for a specified  period prior to the date of conversion.
In 1996, 5,620 shares of the Series C Preferred Stock and accrued dividends were
converted  at the option of the holders into  524,749  shares of Genta's  common
stock.  In 1997,  1,424  shares of the  Series C  Preferred  Stock  and  accrued
dividends  was  converted at the option of the holders  into  952,841  shares of
Genta's common stock. In April 1998, in  consideration  of EITF D-60,  which was
issued in March  1997,  the  Company  recorded  imputed  non-cash  dividends  on
preferred  stock  totaling  $2,348,000 in 1996 for discounted  conversion  terms
related to Series C convertible preferred stock.

        In December  1995,  the Company  completed  the sale of 3,000  shares of
Series B Convertible preferred stock (the "Series B Preferred Stock") at a price
of $1,000 per share to  institutional  investors  outside of the United  States.
Proceeds from the offering totaling approximately $2.8 million were reflected as
a receivable from sale of preferred stock at December 31, 1995 and were received
by the Company on January 2, 1996. The Series B Preferred  Stock was immediately
convertible,  at the  option of the  holder,  into  shares of common  stock at a
conversion  price  equal to 75% of the  average  Nasdaq  closing  bid  prices of
Genta's common stock for a specified period prior to the date of conversion. The
Series B Preferred  Stock was  converted  into 226,943  shares of the  Company's
common stock in February 1996  pursuant to terms of the Series B stock  purchase
agreements.  In April 1998, in  consideration  of EITF D-60, which was issued in
March 1997, the Company recorded  imputed non-cash  dividends on preferred stock
totaling $1.0 million in 1995 for discounted  conversion terms related to Series
B convertible preferred stock.

        In October 1993,  the Company  completed  the sale of 600,000  shares of
Series A  convertible  preferred  stock ("the  Series A  Preferred  Stock") in a
private  placement  of units  consisting  of (i) one share of Series A Preferred
Stock and (ii) one  warrant to  acquire  one share of common  stock,  sold at an
aggregate  price of $50 per  unit.  Each  share of Series A  Preferred  Stock is
immediately  convertible,  at any time prior to  redemption,  into shares of the
Company's  common  stock,  at  a  rate  determined  by  dividing  the  aggregate
liquidation  preference of the Series A Preferred Stock by the conversion price.
The conversion price is subject to adjustment for  antidilution.  From January 1
through October 31, 1998, each share of Series A Preferred Stock was convertible
into 7.255 shares of Common Stock.  From  November 1 through  December 31, 1998,
each share of Series A  Preferred  Stock was  convertible  into 7.333  shares of
Common Stock.


                                     - 35 -

<PAGE>

        Terms of the Company's  Series A Preferred  Stock require the payment of
dividends  annually in amounts ranging from $3 per share per annum for the first
year to $5 per share per annum in the third and fourth years.  Dividends were to
be paid in cash or  common  stock or a  combination  thereof,  at the  Company's
option.  Dividends  on the Series A  Preferred  Stock  accrued on a daily  basis
(whether or not declared) and  accumulated  to the extent not paid on the annual
dividend payment date following the dividend period for which they accrued.  The
Company may redeem the Series A Preferred Stock under certain circumstances, and
was  required  to redeem  the  Series A  Preferred  Stock,  subject  to  certain
conditions,  in  September  1996 at a  redemption  price of $50 per share,  plus
accrued and unpaid  dividends (the "Redemption  Price").  The Company elected to
pay the  Redemption  Price in  Common  Stock in order to  conserve  cash and was
required under the terms of the Series A Preferred Stock to use its best efforts
to arrange  for a firm  commitment  underwriting  for the resale of such  Common
Stock  which  would  allow the holders  ultimately  to receive  cash  instead of
securities for their Series A Preferred  Stock.  Despite using its best efforts,
the Company was unable to arrange for a firm commitment underwriting. Therefore,
under the terms of the  Series A  Preferred  Stock,  Genta was not  required  to
redeem such Series A Preferred  Stock in cash, but rather was required to redeem
all shares of Series A Preferred  Stock held by holders who elected to waive the
firm commitment  underwriting  requirement  and receive the redemption  price in
shares  of  Common  Stock.  A waiver  of the firm  commitment  underwriting  was
included as a condition of such redemption.  The terms of the Series A Preferred
Stock do not  impose  adverse  consequences  on the  Company  if it is unable to
arrange for such an underwriting  despite its reasonable efforts in such regard.
In September 1996, holders of 55,900 shares of Series A Preferred Stock redeemed
such shares and related accrued and unpaid dividends for an aggregate of 242,350
shares of the Company's Common Stock. The effect on the financial  statements of
the  redemptions  was a reduction in Accrued  dividends on  preferred  stock,  a
reduction in the Par value of convertible  preferred  stock,  an increase in the
Par value of Common Stock, and an increase in Additional paid-in capital. Should
the remaining  shares of Series A Preferred  stock be redeemed for, or converted
into, the Company's Common Stock, the effect on the financial statements will be
the same as that  previously  described.  The Company is restricted  from paying
cash  dividends on Common Stock until such time as all  cumulative  dividends on
outstanding  shares of Series A and Series D Preferred Stock have been paid. The
Company  currently  intends to retain its  earnings,  if any,  after  payment of
dividends on outstanding  shares of Series A and Series D Preferred  Stock,  for
the   development   of   its   business.    See   "MD&A--Certain    Trends   and
Uncertainties--Subordination  of Common Stock to Series A and Series D Preferred
Stock; Risk of Dilution; Anti-Dilution Adjustments."

        The Company continually  evaluates its intangible assets for impairment.
If  evidence  of  impairment  is noted,  the  Company  determines  the amount of
impairment and charges such  impairment to expense in the period that impairment
is determined.  Through December 31, 1998,  management has considered  projected
future cash flows from  product  sales,  collaborations  and proceeds on sale of
such assets and,  other than the $600,000 and $577,000  charge  recorded in 1997
and  1998  respectively,  related  to  the  disposal  of  certain  patents,  has
determined  that  no  additional   impairment   exists.  See  "MD&A--Results  of
Operations."

Impact of Year 2000

        Some older  computer  programs were written using two digits rather than
four to define the applicable  year. As a result,  those computer  programs have
time sensitive  software that recognizes a date using 00 as the year 1900 rather
than the year 2000 (the "Year 2000 Issue"). This could cause a system failure or
miscalculations   causing  disruption  of  operations,   including  a  temporary
inability  to  process   transactions  or  engage  in  similar  normal  business
activities.

        The Company has completed an assessment of whether it would be necessary
to modify or replace  portions of its software so that its computer systems will
function  properly  with respect to dates in the year 2000 and  thereafter.  The



                                     - 36 -

<PAGE>

Company has implemented a plan to acquire and install new computer  hardware and
upgraded  software in its facilities that will  accommodate  dating beyond 1999.
The total  year 2000  project  cost will not be  material  and  (subject  to the
Company's receipt of adequate  additional funds) is expected to be completed not
later than October 31,  1999,  which is prior to any  anticipated  impact on its
operating  systems.  The Company  believes that with  modifications  to existing
software  and  conversions  to new  software,  the Year 2000 Issue will not pose
significant  operational  problems for its computer  systems.  However,  if such
modifications  and  conversions are not made, or are not completed  timely,  the
Year 2000 Issue could have a material  adverse  effect on the  operations of the
Company.

        The  Company  has  initiated  formal  communications  with  all  of  its
significant  suppliers to determine the extent to which the Company's  interface
systems are  vulnerable to those third parties'  failure to remediate  their own
Year 2000 Issues. If through such communication or otherwise the Company becomes
aware of any such  failures and is not satisfied  that those  failures are being
adequately  addressed,  it will  take  appropriate  steps  to  find  alternative
suppliers.  There is no assurance  that the systems of other  companies on which
the Company's systems rely will be timely converted and will not have a material
adverse effect on the Company's  systems.  The costs of the project and the date
on which the Company believes it will complete the year 2000  modifications  are
based  on  management's  best  estimates,  which  were  derived  using  numerous
assumptions of future events,  including the continued  availability  of certain
resources  and other  factors.  However,  there can be no  assurance  that these
estimates will be achieved and actual results could differ materially from those
anticipated.  Specific  factors  that  might  cause  such  material  differences
include,  but are not limited to, the availability and cost of personnel trained
in this area, the ability to locate and correct all relevant computer codes, and
similar uncertainties.

        It has been  acknowledged  by  government  authorities  that  year  2000
problems have the  potential to disrupt  global  economies,  that no business is
immune from the potentially  far-reaching effects of the year 2000 problems, and
that it is difficult to predict with  certainty  what will happen after December
31,  1999.  Consequently,  it is possible  that year 2000  problems  will have a
material  effect  on the  Company's  business  even  if the  Company  takes  all
appropriate  measures  to  ensure  that it and its key  suppliers  are year 2000
compliant.

Certain Trends and Uncertainties

        In addition to the other information  contained in this Annual Report on
Form 10-K, the following factors should be considered carefully.

Need for Additional Funds; Risk of Insolvency

        Genta's  operations to date have consumed  substantial  amounts of cash.
The Company's  auditors have included an explanatory  paragraph in their opinion
with  respect to the  Company's  ability to  continue  as a going  concern.  See
"Independent  Auditors Reports" and "MD&A--Liquidity and Capital Resources." The
Company  will  need to  raise  substantial  additional  funds  to  continue  its
operations  and conduct  the costly and  time-consuming  research,  pre-clinical
development and clinical trials necessary to bring its products to market and to
establish  production and marketing  capabilities.  The Company  intends to seek
additional  funding  through  public or  private  financings,  including  equity
financings,  and through  collaborative  arrangements or the sale of key assets.
Adequate funds for these purposes, whether obtained through financial markets or
collaborative  or other  arrangements  with  corporate  partners  or from  other
sources, may not be available when needed or on terms acceptable to the Company.
Insufficient  funds may require the Company:  to delay,  scale back or eliminate
some or all of its research and product development  programs;  to license third
parties  to  commercialize  products  or  technologies  that the  Company  would
otherwise  seek to develop  itself;  to sell itself to a third  party;  to cease
operations;  or to declare  bankruptcy.  The Company's future cash  requirements
will be affected by results of research and development, results of pre-clinical



                                     - 37 -

<PAGE>

studies and  bioequivalence  and clinical trials,  relationships  with corporate
collaborators,  changes in the focus and direction of the Company's research and
development programs,  competitive and technological advances, resources devoted
to Genta Jago, the FDA and foreign regulatory processes, potential litigation by
companies  seeking  to  prevent  or delay  marketing  approval  of Genta  Jago's
products and other factors.

Loss History; Uncertainty of Future Profitability.
--------------------------------------------------

        Genta has been  unprofitable to date,  incurring  substantial  operating
losses associated with ongoing research and development activities, pre-clinical
testing,  clinical trials,  manufacturing  activities and development activities
undertaken  by Genta Jago.  From the period since its  inception to December 31,
1998,  the Company has incurred a  cumulative  net loss of $132.1  million.  The
Company has experienced  significant quarterly fluctuations in operating results
and  expects  that these  fluctuations  in  revenues,  expenses  and losses will
continue.  The  Company's  independent  auditors  have  included an  explanatory
paragraph in their report on the Company's  consolidated financial statements at
December  31,  1998,  which  paragraph  expresses  substantial  doubt  as to the
Company's  ability to continue as a going  concern.  See  "Independent  Auditors
Reports" and "MD&A--Certain Trends and Uncertainties--Need for Additional Funds;
Risk of Insolvency."

Subordination of Common Stock to Series A and Series D Preferred Stock;  Risk of
Dilution; Anti-Dilution Adjustments.
--------------------------------------------------------------------------------

        In the  event  of the  liquidation,  dissolution  or  winding  up of the
Company,  the Common Stock is expressly  subordinate to the approximately  $26.9
million preference of the 447,600 outstanding shares of Series A Preferred Stock
and the  approximately  $31.7 million  preference of 226,416  shares of Series D
Preferred  Stock  (including  40,395 shares of Series D Preferred Stock issuable
upon  exercise  of certain  warrants).  Dividends  may not be paid on the Common
Stock  unless full  cumulative  dividends on the Series A and Series D Preferred
Stocks have been paid or funds have been set aside, for such preferred dividends
by the Company.

        The  conversion  rate of the  Series A  Preferred  Stock is  subject  to
adjustment,  among other  things,  upon  certain  issuances  of Common  Stock or
securities  convertible  into  Common  Stock at $67.50 per share or less.  As of
April 12,  1999,  each share of Series A  Preferred  Stock is  convertible  into
aproximately  7.430 shares of Common  Stock at a  conversion  price of $8.08 per
share. On September 24, 1998, all  outstanding  Series A Warrants  expired.  The
conversion  rate of the Series D Preferred  Stock and the exercise  price of the
Series D Warrants are subject to  adjustment,  among other things,  upon certain
issuances of Common Stock or securities  convertible into Common Stock at prices
per share below certain levels. In addition,  the Conversion Price of the Series
D Preferred  Stock in effect on January 29, 1999 (the "Reset  Date")  would have
been  adjusted and reset  effective as of the Reset Date if the average  closing
bid price of the Common Stock for the 20  consecutive  trading days  immediately
preceding the Reset Date (the "12 Month  Trading  Price") were less than 140% of
the then applicable Conversion Price (a "Reset Event"). The Trading Price on the
Reset Date was above the calculated  amount based on the above formula,  thereby
eliminating the Reset Event. Accordingly, each share of Series D Preferred Stock
is  presently  convertible  into  approximately  106 shares of Common Stock at a
conversion  price of $0.94375 per share of Common Stock,  and the exercise price
of the Class D Warrants is  presently  $0.94375 per share.  There are  1,615,800
Class D Warrants  outstanding and another 201,975 Class D Warrants issuable upon
the exercise of certain  warrants.  An additional  807,900 Class D Warrants have
been  authorized  and all were  issued  pursuant  to a May 29,  1998  letter and
subsequent  acceptance  by the  Series  D  holders.  Finally,  the  Company  has
outstanding  Bridge  Warrants to purchase an aggregate  of  6,357,616  shares of
Common  Stock at an  exercise  price of  $0.471875  per  share,  Line of  Credit
Warrants  to  purchase  an  aggregate  of 50,000  shares  of Common  Stock at an
exercise  price of $2.50 per share,  LBC  Warrants to purchase an  aggregate  of
700,000  shares of Common  Stock at an  exercise  price of $0.52 per share,  and
warrants to purchase an  aggregate  of 95,768  shares of Common Stock at various
exercise  prices  between  approximately  $13 and $21 per share and  outstanding
employee stock options.  The Note and Warrant Purchase Agreement provides that a
number of additional Bridge Warrants  ("Penalty  Warrants") equal to 1.5% of the
number of Bridge  Warrants  then held by the Aries  Funds shall be issued to the






                                     - 38 -




<PAGE>

Aries  Funds for each day beyond 30 days after the final  closing of the Private
Placement  that  a  shelf  registration  statement  covering  the  Common  Stock
underlying the securities  purchased  pursuant to the Note and Warrant  Purchase
Agreement  is not filed  with the SEC and for each day beyond 210 days after the
closing date of the  investment  contemplated  by the Note and Warrant  Purchase
Agreement that such shelf  registration  statement is not declared  effective by
the SEC. The Company  filed such shelf  registration  statement  with the SEC on
September 9, 1997, but such shelf  registration  statement has not been declared
effective  by the SEC. As a result,  the  Company  could be  obligated  to issue
Penalty  Warrants  to the Aries  Funds.  The  Aries  Funds  have  not,  to date,
requested  that the Company  issue such  Penalty  Warrants.  The Company and the
Aries Funds are currently  conducting  negotiations to determine whether, and to
what  extent,  Penalty  Warrants  will be issued.  See "Market for  Registrant's
Common  Equity and Related  Stockholder  Matters--Recent  Sales of  Unregistered
Securities."

Claims of Genta's Default Under Various Agreements.
---------------------------------------------------

        On May 15, 1997, Johns Hopkins University ("Johns Hopkins") sent Genta a
letter stating that the license  agreement  entered into between the Company and
Johns Hopkins in May 1990 (the "Johns Hopkins  Agreement")  was  terminated.  On
November  26,  1997,  Drs.  Paul O.P.  Ts'o and Paul  Miller  (the  "Ts'o/Miller
Partnership")  sent Genta a letter claiming that Genta was in material breach of
the February  1989  license  agreement  between the Company and the  Ts'o/Miller
Partnership (the "Ts'o/Miller Agreement") for failing to pay royalties from 1995
through  1997.  By letter  dated April 28,  1998,  the  Ts'o/Miller  Partnership
advised the Company that it was terminating the license granted  pursuant to the
Ts'o/Miller  Agreement.  On June 4, 1998, the Company's  statutory process agent



                                     - 39 -


<PAGE>

received a Summons and Complaint in a lawsuit  brought by Johns Hopkins  against
the Company in Maryland  Circuit Court for Baltimore  City (Case No.  98120110).
Johns Hopkins  alleges in the Complaint  that the Company has breached the Johns
Hopkins Agreement and owes it licensing royalty fees and related expenses in the
amount of  $308,832.24.  Johns  Hopkins also alleges the existence of a separate
March 1993 letter  agreement  wherein the Company agreed to support a fellowship
program  at the Johns  Hopkins  School of  Hygiene  and  Public  Health  and the
Company's breach thereof,  with damages of $326,829.00.  On August 10, 1998, the
Company's  statutory process agent received a Summons and Complaint in a related
lawsuit brought by the Ts'o/Miller Partnership and others against the Company in
the same court (Case No. 98182113).  The Ts'o/Miller  Partnership claims that it
is owed  licensing  royalty  fees in the amount of  $287,671.23.  The Company is
currently  in  settlement  negotiations.  See  "Business--Anticode(TM)  Brand of
Antisense Oligonucleotide  Programs--Oligonucleotide Collaborative and Licensing
Agreements--Ts'o/Miller/Hopkins" and "Legal Proceedings."

         The French government  agency L'Agence  Nationale de Valorisation de la
Recherche  (ANVAR)  asserted,  in a letter dated  February 13, 1998,  that Genta
Europe was not in  compliance  with the ANVAR  Agreement,  and that ANVAR  might
request the immediate  repayment of such loan. On July 1, 1998,  ANVAR  notified
Genta  Europe by  letter  of its  claim  that the  Company  remains  liable  for
4,187,423 FF (as of April 8, 1999,  approximately  $686,319)  and is required to
pay this  amount  immediately.  The  Company is  working with ANVAR to achieve a
mutually satisfactory resolution; however, there can be no assurance that such a
resolution   will  be  obtained.   See   "Business--Genta   Europe"  and  "Legal
Proceedings." There can be no assurance that the Company will not incur material
costs  in  relation  to these  terminations  and/or  assertions  of  default  or
liability. See "MD&A--Liquidity and Capital Resources."

        On June 30, 1998,  the  Director  General of the  Company's  subsidiary,
Genta  Europe was served  notice of a suit in  Marseilles,  France by  Marseille
Amenagement,  the manager of the Company's facilities in Marseilles.  See "Legal
Proceedings".

Early Stage of Development; Technological Uncertainty.
------------------------------------------------------

         Genta  is at an  early  stage  of  development.  All of  the  Company's
potential  therapeutic products are in research or development,  and no revenues
have  been  generated  from  therapeutic  product  sales.  To date,  most of the
Company's  resources  have been  dedicated  to  applying  molecular  biology and
medicinal  chemistry to the research and  development of potential  Anticode(TM)
pharmaceutical products based upon oligonucleotide technology. While the Company
has  demonstrated  the activity of  Anticode(TM)  oligonucleotide  technology in
model  systems in vitro and the activity of antisense  technology in animals and
has  identified  compounds  that the Company  believes are worthy of  additional
testing, only one of these potential Anticode(TM)  oligonucleotide  products has
begun to be tested in humans,  with such testing in its early stages.  There can
be no  assurance  that the novel  approach of  oligonucleotide  technology  will
result in products that will receive necessary regulatory approvals or that will
be successful commercially. Further, results obtained in pre-clinical studies or
early clinical investigations or pilot bioequivalence trials are not necessarily
indicative  of results  that will be  obtained  in  pivotal  human  clinical  or
bioequivalence  trials.  There can be no assurance  that any of the Company's or
Genta Jago's potential products can be successfully developed.  Furthermore, the
Company's  products in research or development may prove to have undesirable and
unintended side effects or other characteristics that may prevent or limit their
commercial use. The Company is pursuing  research and development  through Genta
Jago of a range of oral  controlled-release  formulations of currently available
pharmaceuticals.  Many of the products to be developed  through  Genta Jago have
not yet  been  formulated  using  GEOMATRIX(R)  technology.  On July  27,  1998,
SkyePharma PLC, the parent company to Jago,  announced that an ANDA for naproxen
sodium filed by Brightstone Pharma, its U.S. sales and marketing subsidiary, had
been accepted for filing by the FDA.  Brightstone  has a license from Genta Jago
to market this product.  There can be no assurance  that any of the Company's or
Genta Jago's  products  will obtain FDA or foreign  regulatory  approval for any
indication or that an approved  compound  would be capable of being  produced in
commercial quantities at reasonable costs and successfully  marketed.  Products,
if any, resulting from Genta's or Genta Jago's research and development programs
are not expected to be  commercially  available  for a number of years.  Certain
competitive  products  have already been filed with and/or  approved by the FDA.
See  "MD&A--Certain  Trends  and  Uncertainties--Potential   Adverse  Effect  of
Technological Change and Competition."


                                     - 40 -




<PAGE>

Limited Availability of Net Operating Loss Carry Forwards.
----------------------------------------------------------

        At December  31,  1998,  the Company  has  federal  and  California  net
operating loss  carryforwards of approximately  $82.0 million and $14.7 million,
respectively.  The  difference  between  the  federal  and  California  tax loss
carryforwards is primarily  attributable to the  capitalization  of research and
development   expenses  for  California  tax  purposes  and  the  fifty  percent
limitation on California loss carryforwards  prior to 1997. The federal tax loss
carryforwards   will  begin  expiring  in  2003,  unless  previously   utilized.
Approximately  $2.8  million  and  $0.5  million  of  the  California  tax  loss
carryforward expired during 1997 and 1998, respectively and the related deferred
tax asset and tax loss carryforward amounts have been reduced  accordingly.  The
remaining  California tax loss will continue to expire in 1999, unless utilized.
The Company also has federal and California  research and development tax credit
carryforwards  of $3.2 million and $1.3 million  respectively,  which will begin
expiring in 2003, unless previously utilized.

        Federal and California tax laws limit the  utilization of income tax net
operating loss and credit  carryforwards  that arise prior to certain cumulative
changes  in a  corporation's  ownership  resulting  in change of  control of the
Company.  The future annual use of net operating loss carryforwards and research
and  development  tax credits will be limited due to the ownership  changes that
occurred during 1990, 1991,  1993, 1996, 1997 and 1998.  Because of the decrease
in value of the Company's stock,  the ownership  changes which occurred in 1996,
1997 and 1998 will have a material  adverse  impact on the Company's  ability to
utilize  these  carryforwards.  See "Market for  Registrant's  Common Equity and
Related Stockholder Matters--Recent Sales of Unregistered Securities."

Dividends.
----------

        The Company has never paid cash  dividends  on its Common Stock and does
not anticipate paying any such dividends in the foreseeable future. In addition,
the Company is restricted  from paying cash  dividends on its Common Stock until
such time as all cumulative  dividends  have been paid on outstanding  shares of
its Series A and Series D Preferred  Stocks.  The Company  currently  intends to
retain its earnings, if any, after payment of dividends on outstanding shares of
Series A and Series D Preferred Stocks, for the development of its business. See
"MD&A--Liquidity and Capital Resources."

No Assurance of Regulatory Approval; Government Regulation.
-----------------------------------------------------------

        The FDA and comparable  agencies in foreign countries impose substantial
premarket approval  requirements on the introduction of pharmaceutical  products
through lengthy and detailed  pre-clinical and clinical  testing  procedures and
other costly and time-consuming procedures.  Satisfaction of these requirements,
which  includes  demonstrating  to the  satisfaction  of  the  FDA  and  foreign
regulatory agencies that the product is both safe and effective, typically takes
several years or more  depending  upon the type,  complexity  and novelty of the
product. There can be no assurance that such testing will show any product to be
safe or efficacious or, in the case of certain of Genta Jago's  products,  to be
bioequivalent to a currently marketed pharmaceutical. Government regulation also
affects the manufacture and marketing of pharmaceutical  products. The effect of
government  regulation  may be to  delay  marketing  of any new  products  for a
considerable or indefinite  period of time, to impose costly procedures upon the
Company's or Genta Jago's  activities and to diminish any competitive  advantage
that the  Company or Genta  Jago may have  attained.  It may take  years  before
marketing approvals are obtained for the Company's or Genta Jago's products,  if
at all. There can be no assurance that FDA or other regulatory  approval for any
products  developed  by the  Company  or Genta  Jago will be granted on a timely
basis, if at all, or, if granted, that such approval will cover all the clinical
indications for which the Company or Genta Jago is seeking  approval or will not
sustain  significant  limitations  in  the  form  of  warnings,  precautions  or
contraindications  with respect to conditions of use.  Further,  with respect to
the reformulated versions of currently available pharmaceuticals being developed
through  Genta  Jago,  there is a  substantial  risk that the  manufacturers  or
marketers  of such  currently  available  pharmaceuticals  will seek to delay or
block regulatory approval of any reformulated  versions of such  pharmaceuticals
through  litigation  or other means.  Any  significant  delay in  obtaining,  or




                                     - 41 -




<PAGE>

failure  to  obtain,  such  approvals  could  materially  adversely  affect  the
Company's or Genta Jago's revenue.  Moreover,  additional  government regulation
from future legislation or administrative  action may be established which could
prevent or delay  regulatory  approval of the Company's or Genta Jago's products
or further  regulate the prices at which the Company's or Genta Jago's  proposed
products may be sold.

        The Company is also subject to various foreign, federal, state and local
laws, regulations and recommendations  (collectively "Governmental Regulations")
relating to safe working conditions, laboratory and manufacturing practices, the
experimental  use of animals and the use,  manufacture,  storage,  handling  and
disposal of hazardous or potentially hazardous substances, including radioactive
compounds and infectious  disease agents,  used in connection with the Company's
research and development work and manufacturing  processes. In October 1996, JBL
retained a chemical  consulting firm to advise it with respect to an incident of
soil and groundwater contamination (the "Spill").  Sampling conducted at the JBL
facility revealed the presence of chloroform and perchloroethylenes  ("PCEs") in
the soil and  groundwater  at this  site.  Six soil  borings  were  drilled  and
groundwater  wells were  installed  at several  locations  around the site.  The
Company  believes  that the  costs  associated  with  further  investigation  or
remediation  will not have a  material  adverse  effect on the  business  of the
Company,  although there can be no assurance thereof.  The Company believes that
it is in material compliance with Governmental  Regulations;  however, there can
be no assurance that the Company will not be required to incur significant costs
to comply with Governmental Regulations in the future.

        JBL  received  notice  on  October  16,  1998  from  Region  IX  of  the
Environmental  Protection  Agency  ("EPA")  that  it had  been  identified  as a
potentially  responsible  party ("PRP") at the Casmalia  Disposal Site, which is
located in Santa Barbara,  California.  JBL has been  designated as a de minimis
PRP by the EPA.  The EPA  currently  estimates  that the de minimis PRPs will be
required to pay as little as $75,000  and as much as  $750,000  to settle  their
potential liability,  depending upon the volume of wastes attributed to them. On
this basis the Company  accrued  $75,000 in 1998.  The EPA planned on sending by
the beginning of January 1999 individual income  calculations to each de minimis
PRP that  received  the  aforementioned  notice  letter.  While the terms of the
settlement have not been finalized,  they should contain  standard  contribution
release, and protection language.

Uncertainty Regarding Patents and Proprietary Technology.
---------------------------------------------------------

        The  Company's and Genta Jago's  success will depend,  in part, on their
respective  abilities  to obtain  patents,  maintain  trade  secrets and operate
without  infringing the proprietary  rights of others. No assurance can be given
that  patents  issued to or  licensed  by the  Company or Genta Jago will not be
challenged,  invalidated or circumvented,  or that the rights granted thereunder



                                     - 42 -

<PAGE>

will provide  competitive  advantages to the Company or Genta Jago. There can be
no assurance  that the  Company's or Genta Jago's  patent  applications  will be
approved,  that the Company or Genta Jago will develop additional  products that
are  patentable,  that any issued  patent will provide the Company or Genta Jago
with any competitive advantage or adequate protection for its inventions or will
not be  challenged  by others,  or that the  patents of others  will not have an
adverse  effect on the  ability of the  Company  or Genta  Jago to do  business.
Competitors  may have filed  applications,  may have been issued  patents or may
obtain  additional  patents  and  proprietary  rights  relating  to  products or
processes  competitive  with those of the  Company or Genta  Jago.  Furthermore,
there can be no assurance  that others will not  independently  develop  similar
products,  duplicate  any of the  Company's or Genta  Jago's  products or design
around any patented products developed by the Company or Genta Jago. The Company
and Genta  Jago rely on  secrecy to protect  technology  in  addition  to patent
protection, especially where patent protection is not believed to be appropriate
or  obtainable.  No  assurance  can be given that others will not  independently
develop  substantially  equivalent  proprietary  information  and  techniques or
otherwise  gain access to the Company's or Genta Jago's trade  secrets,  or that
the Company or Genta Jago can  effectively  protect its rights to its unpatented
trade secrets.

        Genta and Genta Jago have  obtained  licenses or other rights to patents
and other  proprietary  rights of third  parties,  and may be required to obtain
licenses to additional patents or other proprietary rights of third parties.  No
assurance  can be given that any existing  licenses and other rights will remain
in effect or that any licenses  required  under any such  additional  patents or
proprietary rights would be made available on terms acceptable to the Company or
Genta Jago, if at all. If Genta's or Genta Jago's  licenses and other rights are
terminated  or if Genta or Genta Jago cannot  obtain such  additional  licenses,
Genta or Genta Jago could encounter delays in product market introductions while
it attempts to design  around such  patents or could find that the  development,
manufacture or sale of products requiring such licenses could be foreclosed.  In
addition,  the Company or Genta Jago could incur  substantial  costs,  including
costs caused by delays in obtaining regulatory approval and bringing products to
market,  in defending  itself in any suits brought  against the Company or Genta
Jago claiming infringement of the patent rights of third parties or in asserting
the Company's or Genta Jago's patent  rights,  including  those granted by third
parties,  in a suit against  another  party.  The Company or Genta Jago may also
become involved in interference proceedings declared by the United States Patent
and Trademark Office (or any foreign counterpart) in connection with one or more
of its patents or patent applications, which could result in substantial cost to
the  Company or Genta  Jago,  as well as an adverse  decision  as to priority of
invention  of  the  patent  or  patent  application  involved.  There  can be no
assurance that the Company or Genta Jago will have  sufficient  funds to obtain,
maintain  or enforce  patents on their  respective  products or  technology,  to
obtain  or  maintain  licenses  that may be  required  in order to  develop  and
commercialize  their respective  products,  to contest patents obtained by third
parties, or to defend against suits brought by third parties.

Dependence on Others.
---------------------

        The  Company's and Genta Jago's  strategy for the research,  development
and commercialization of their products requires negotiating,  entering into and
maintaining  various  arrangements  with  corporate  collaborators,   licensors,
licensees  and others,  and is dependent  upon the  subsequent  success of these
outside parties in performing their responsibilities.  No assurance can be given
that they will obtain such collaborative arrangements on acceptable terms, if at
all, nor can any assurance be given that any current collaborative  arrangements
will be maintained.

Technology Licensed From Third Parties.
---------------------------------------

        The Company has entered  into  certain  agreements  with,  and  licensed
certain technology and compounds from, third parties.  The Company has relied on
scientific,   technical,  clinical,  commercial  and  other  data  supplied  and
disclosed by others in entering into these agreements, including the Genta  Jago



                                     - 43 -




<PAGE>

agreements,  and will rely on such data in  support  of  development  of certain
products.  Although the Company has no reason to believe  that this  information
contains errors of omission or fact, there can be no assurance that there are no
errors of omission or fact that would materially affect the future approvability
or commercial viability of these products.

Potential Adverse Effect of Technological Change and Competition.
-----------------------------------------------------------------

        The biotechnology  industry is subject to intense  competition and rapid
and significant  technological  change. The Company and Genta Jago have numerous
competitors  in the  United  States  and other  countries  for their  respective
technologies  and products  under  development,  including  among others,  major
pharmaceutical  and  chemical  companies,   specialized   biotechnology   firms,
universities and other research institutions. There can be no assurance that the
Company's or Genta Jago's competitors will not succeed in developing products or
other novel technologies that are more effective than any which have been or are
being developed by the Company or Genta Jago or which would render the Company's
or Genta Jago's technology and products  non-competitive.  Many of the Company's
and Genta Jago's  competitors have substantially  greater financial,  technical,
marketing and human resources than the Company or Genta Jago. In addition,  many
of those competitors have  significantly  greater experience than the Company or
Genta Jago in undertaking  pre-clinical testing and human clinical trials of new
pharmaceutical  products and  obtaining  FDA and other  regulatory  approvals of
products  for use in  healthcare.  Accordingly,  the  Company's  or Genta Jago's
competitors  may succeed in obtaining  regulatory  approval  for  products  more
rapidly  than the  Company or Genta  Jago and such  competitors  may  succeed in
delaying or blocking  regulatory  approvals  of the  Company's  or Genta  Jago's
products.  As competitors  of the Company or of Genta Jago receive  approval for
products that share the same  potential  market as the Company's or Genta Jago's
potential products, the market share available to the Company or Genta Jago will
likely  be  reduced,  thereby  reducing  the  potential  revenues  and  earnings
available  to  the  Company  or  Genta  Jago.  In  addition,  increased  pricing
competition would also likely result, further reducing the earnings potential of
the  Company's  or Genta  Jago's  products.  The  Company is aware that  certain
competitors  of Genta Jago have filed,  and received  approval of, an ANDA for a
generic  formulation of drugs of which Genta Jago was working to develop generic
formulations. Furthermore, if the Company or Genta Jago is permitted to commence
commercial  sales  of  products,  it will  also be  competing  with  respect  to
marketing  capabilities,  an area in which it has limited or no experience,  and
manufacturing  efficiency.  There are many public and private companies that are
conducting  research  and  development  activities  based  on drug  delivery  or
antisense technologies.  The Company believes that the industry-wide interest in
such  technologies  will  accelerate  and  competition  will  intensify  as  the
techniques which permit drug design and development  based on such  technologies
are more widely understood.

Uncertainty of Clinical Trials and Results.
-------------------------------------------

        The results of clinical trials and  pre-clinical  testing are subject to
varying  interpretations.  Even if the  development  of the  Company's  or Genta
Jago's  respective  products  advances to the  clinical  stage,  there can be no
assurance that such products will prove to be safe and  effective.  The products
that are successfully developed, if any, will be subject to requisite regulatory
approval prior to their  commercial sale, and the approval,  if obtainable,  may
take several years. Generally, only a very small percentage of the number of new
pharmaceutical  products  initially  developed  is  approved  for sale.  Even if
products  are approved  for sale,  there can be no  assurance  that they will be
commercially  successful.  The Company or Genta Jago may encounter unanticipated
problems  relating to development,  manufacturing,  distribution  and marketing,
some of which may be beyond the Company's or Genta Jago's  respective  financial
and technical capacity to solve. The failure to address such problems adequately
could have a material adverse effect on the Company's or Genta Jago's respective
businesses,  financial  conditions,  prospects  and  results of  operations.  No
assurance  can be given  that the  Company  or Genta  Jago will  succeed  in the
development  and  marketing of any new drug  products,  or that they will not be




                                     - 44 -




<PAGE>

rendered  obsolete by products of competitors.  "See  "MD&A--Certain  Trends and
Uncertainties--Potential    Adverse   Effect   of   Technological   Change   and
Competition."

Difficult Manufacturing Process; Access to Certain Raw Materials.
-----------------------------------------------------------------

        The manufacture of Anticode(TM) oligonucleotides is a time-consuming and
complex process. Management believes that the Company has the ability to acquire
or produce  quantities  of  oligonucleotides  sufficient  to support its present
needs for research and its projected needs for its initial clinical  development
programs.  However, in order to obtain  oligonucleotides  sufficient to meet the
volume and cost  requirements  needed for  certain  commercial  applications  of
Anticode(TM)  oligonucleotide  products,  Genta requires raw materials currently
provided by a single supplier which is itself a development stage  biotechnology
company  (and a  competitor  of the  Company)  and is subject  to  uncertainties
including  the  potential  for  a  decision  by  such  supplier  to  discontinue
production  of such raw  materials,  the  insolvency  of such  supplier,  or the
failure of such supplier to follow applicable  regulatory  guidelines.  Products
based on chemically modified  oligonucleotides have never been manufactured on a
commercial  scale.  The  manufacture  of all of the  Company's  and Genta Jago's
products  will be subject to current GMP  requirements  prescribed by the FDA or
other standards  prescribed by the appropriate  regulatory agency in the country
of use. There can be no assurance that the Company or Genta Jago will be able to
manufacture  products, or have products manufactured for it, in a timely fashion
at acceptable  quality and prices,  that they or third party  manufacturers  can
comply  with  GMP or that  they or  third  party  manufacturers  will be able to
manufacture an adequate supply of product.  Failure to establish compliance with
GMP to the satisfaction of the FDA can result in delays in, or prohibition from,
initiating clinical trials or commercial marketing of a product.

Limited Sales, Marketing and Distribution Experience.
-----------------------------------------------------

        The   Company   and  Genta  Jago  have  very   limited   experience   in
pharmaceutical  sales,  marketing and distribution.  In order to market and sell
certain  products  directly,  the Company or Genta Jago would have to develop or
subcontract a sales force and a marketing group with technical expertise.  There
can be no  assurance  that  any  direct  sales  or  marketing  efforts  would be
successful.

Uncertainty of Product Pricing, Reimbursement and Related Matters.
------------------------------------------------------------------

        The  Company's  and Genta Jago's  business may be  materially  adversely
affected by the  continuing  efforts of  governmental  and third party payers to
contain or reduce the costs of healthcare through various means. For example, in
certain foreign markets the pricing or profitability  of healthcare  products is
subject to government  control.  In the United States,  there have been, and the
Company  expects  that there will  continue to be, a number of federal and state
proposals to implement similar  governmental  control.  While the Company cannot
predict whether any such legislative or regulatory  proposals or reforms will be
adopted,  the adoption of any such proposal or reform could adversely affect the
commercial  viability of the Company's and Genta Jago's potential  products.  In
addition, in both the United States and elsewhere,  sales of healthcare products
are dependent in part on the  availability of reimbursement to the consumer from
third party payers,  such as government and private insurance plans. Third party
payers are increasingly  challenging the prices charged for medical products and
services,  and therefore significant  uncertainty exists as to the reimbursement
of existing and newly-approved healthcare products. If the Company or Genta Jago
succeeds in bringing one or more  products to market,  there can be no assurance
that these products will be considered cost effective and that  reimbursement to
the consumer  will be available  or will be  sufficient  to allow the Company or
Genta Jago to sell its products on a competitive basis. Finally, given the above





                                     - 45 -




<PAGE>

potential  market  constraints  on  pricing,  the  availability  of  competitive
products in these  markets  may further  limit the  Company's  and Genta  Jago's
flexibility in pricing and in obtaining adequate reimbursement for its potential
products. See "MD&A--Certain Trends and Uncertainties--Potential  Adverse Effect
of Technological Change and Competition."

Need for and Dependence on Qualified Personnel.
-----------------------------------------------

        The Company's success is highly dependent on the hiring and retention of
key personnel and scientific  staff. The loss of key personnel or the failure to
recruit necessary  additional  personnel or both is likely further to impede the
achievement  of  development  objectives.   There  is  intense  competition  for
qualified personnel in the areas of the Company's  activities,  and there can be
no  assurance  that  Genta will be able to  attract  and  retain  the  qualified
personnel necessary for the development of its business. The Company has hired a
Vice  President  and Chief  Financial  Officer,  a Vice  President  of Corporate
Development and a Vice President of Clinical and Regulatory Affairs.

Product Liability Exposure; Limited Insurance Coverage.
-------------------------------------------------------

        The  Company's,  JBL's  and  Genta  Jago's  businesses  expose  them  to
potential   product   liability   risks  that  are   inherent  in  the  testing,
manufacturing, marketing and sale of human therapeutic products. The Company has
also obtained a level of liability  insurance coverage that it deems appropriate
for its current stage of  development.  However,  there can be no assurance that
the Company's present insurance coverage is adequate. Such existing coverage may
not be adequate as the Company further develops  products,  and no assurance can
be given that, in the future,  adequate  insurance coverage will be available in
sufficient  amounts or at a reasonable  cost, or that a product  liability claim
would not have a material adverse effect on the business or financial  condition
of the Company.

Fundamental Change.
-------------------

        In 1999,  the Board of Directors  of the Company and certain  holders of
Common Stock and Series A and Series D Preferred Stock  approved,  in accordance
with Delaware law, an amendment to the Restated  Certificate of Incorporation to
remove  the  "Fundamental   Change"   redemption  right.  The  Company  recently
distributed to its stockholder's an Information Statement on Form 14C describing
this stockholder  action and expects formally to amend the Restated  Certificate
of Incorporation  after the expiration of the 20 day period provided for in Rule
14c-5 promulgated under the Exchange Act. The Company's Restated  Certificate of
Incorporation  currently  provides that upon the  occurrence  of a  "Fundamental
Change,"  the holders of Series A Preferred  Stock have the option of  requiring
the Company to repurchase all of each such holder's shares of Series A Preferred
Stock at the Redemption  Price,  an event that could result in the Company being
required to pay to the holders of Series A Preferred  Stock stock or (in certain
circumstances)  cash in the aggregate  amount of  approximately  $26.9  million.
Furthermore,  if the Company is required to redeem the Series A Preferred Stock,
it would also be required (subject to certain conditions) to offer to redeem the
Series D  Preferred  Stock,  on a pari passu  basis with the Series A  Preferred
Stock and with the same type of consideration paid in redemption of the Series A
Preferred Stock.  Upon a Fundamental  Change,  the Company could,  under certain
circumstances,  be required to pay the holders of Series D Preferred  Stock cash
in the  aggregate  amount of  approximately  $26.0  million  (not  including  an
additional  $5.7 million that could be payable upon  redemption of 40,395 shares
of Series D  Preferred  Stock  issuable  upon  exercise  of  certain  warrants).
"Fundamental  Change" is defined  as: (i) a "person"  or "Group"  (as  defined),
together with any affiliates thereof, becoming the beneficial owner (as defined)




                                     - 46 -




<PAGE>

of Voting Shares (as defined) of the Company  entitled to exercise more than 60%
of the total  voting  power of all  outstanding  Voting  Shares  of the  Company
(including any Voting Shares that are not then  outstanding of which such person
or Group is deemed the beneficial owner) (subject to certain  exceptions);  (ii)
any  consolidation of the Company with, or merger of the Company into, any other
person,  any merger of another  person into the Company,  or any sale,  lease or
transfer  of all or  substantially  all of the assets of the  Company to another
person  (subject  to  certain  exceptions);  (iii) the sale,  transfer  or other
disposition  (or the entry into a  commitment  to sell,  transfer  or  otherwise
dispose)  of all or any  portion of the shares of Genta Jago held at any time by
the Company (or the imposition of any material lien on such shares which lien is
not removed within 30 days of imposition) and the sale (or functional equivalent
of a sale) of all or substantially  all of the assets of Genta Jago; or (iv) the
substantial  reduction or elimination of a public market for the Common Stock as
the result of repurchases,  delisting or  deregistration  of the Common Stock or
corporate reorganization or recapitalization undertaken by the Company.

Hazardous Materials; Environmental Matters.
-------------------------------------------

        The  Company's  research and  development  and  manufacturing  processes
involve  the  controlled  storage,  use and  disposal  of  hazardous  materials,
biological hazardous materials and radioactive compounds. The Company is subject
to federal, state and local laws and regulations governing the use, manufacture,
storage,  handling and disposal of such  materials and certain  waste  products.
Although  the Company  believes  that its safety  procedures  for  handling  and
disposing of such  materials  comply with the standards  prescribed by such laws
and  regulations,  the risk of  accidental  contamination  or injury  from these
materials cannot be completely eliminated. In the event of such an accident, the
Company may be held liable for any damages that result,  and any such  liability
could exceed the  resources of the Company.  There can be no assurance  that the
Company  will  not be  required  to  incur  significant  costs  to  comply  with
environmental  laws and  regulations  in the  future,  nor that the  operations,
business or assets of the Company will not be materially  adversely  affected by
current or future environmental laws or regulations.  See "MD&A--Certain  Trends
and Uncertainties--No  Assurance of Regulatory Approval;  Government Regulation"
for a discussion of the Spill.

Volatility  of  Stock  Price;  Market  Overhang  from  Outstanding   Convertible
Securities and Warrants.
--------------------------------------------------------------------------------

        The market price of the Company's Common Stock,  like that of the common
stock of many other  biopharmaceutical  companies,  has been highly volatile and
may be so in the future.  Factors  such as, among other  things,  the results of
pre-clinical  studies  and  clinical  trials  by  Genta,  Genta  Jago  or  their
competitors,  other  evidence  of the safety or  efficacy  of products of Genta,
Genta Jago or their competitors,  announcements of technological  innovations or
new  therapeutic  products  by the  Company,  Genta  Jago or their  competitors,
governmental  regulation,  developments in patent or other proprietary rights of
the Company, Genta Jago or their respective  competitors,  including litigation,
fluctuations  in the Company's  operating  results,  and market  conditions  for
biopharmaceutical  stocks in  general  could  have a  significant  impact on the
future  price of the  Common  Stock.  As of April  12,  1999,  the  Company  had
15,080,326 shares of Common Stock outstanding.  Future sales of shares of Common
Stock by existing  stockholders,  holders of preferred  stock who might  convert
such  preferred  stock into Common  Stock,  and option and warrant  holders also
could adversely affect the market price of the Common Stock.

        No predictions can be made of the effect that future market sales of the
shares of Common  Stock  underlying  the  convertible  securities  and  warrants




                                     - 47 -




<PAGE>

referred     to    under    the     caption     "MD&A--Certain     Trends    and
Uncertainties--Subordination  of Common Stock to Series A and Series D Preferred
Stock; Risk of Dilution; Anti-dilution Adjustments," or the availability of such
securities  for  sale,  will  have  on the  market  price  of the  Common  Stock
prevailing from time to time.  Sales of substantial  amounts of Common Stock, or
the perception that such sales might occur,  could adversely  affect  prevailing
market prices.

Certain Interlocking Relationships; Potential Conflicts of Interest.
--------------------------------------------------------------------

        The Aries Funds have the contractual  right to appoint a majority of the
members  of the  Board  of  Directors  of the  Company.  The  Aries  Funds  have
designated Michael S. Weiss, Glenn L. Cooper, M.D., Donald G. Drapkin,  Bobby W.
Sandage,  Jr., Ph.D., and Andrew J. Stein as nominees to the Board of Directors.
Such persons were elected as Directors of the Company.  Paramount  Capital Asset
Management,  Inc. ("PCAM") is the investment  manager and general partner of The
Aries Trust and the Aries Domestic  Fund,  L.P.,  respectively.  The Aries Funds
currently do not hold a controlling  block of voting  stock,  although the Aries
Funds have the present  right to appoint a majority  of the Board of  Directors,
and to convert and exercise their  securities into a significant  portion of the
outstanding     Common     Stock.     See     "MD&A--Certain      Trends     and
Uncertainties--Concentration  of Ownership and Control"  below.  Dr.  Lindsay A.
Rosenwald,  the President and sole stockholder of PCAM, is also the President of
Paramount Capital,  Inc. and of Paramount Capital Investments LLC ("PCI"), a New
York-based   merchant   banking  and  venture   capital  firm   specializing  in
biotechnology  companies. In the regular course of its business, PCI identifies,
evaluates and pursues investment  opportunities in biomedical and pharmaceutical
products, technologies and companies. Generally, Delaware corporate law requires
that any transactions  between the Company and any of its affiliates be on terms
that, when taken as a whole,  are  substantially  as favorable to the Company as
those then  reasonably  obtainable  from a person who is not an  affiliate in an
arms-length  transaction.  Nevertheless,  neither  such  affiliates  nor  PCI is
obligated  pursuant to any agreement or  understanding  with the Company to make
any additional products or technologies  available to the Company, nor can there
be any  assurance,  and the Company does not expect and investors in the Company
should not expect,  that any biomedical or pharmaceutical  product or technology
identified by such affiliates or PCI in the future will be made available to the
Company.  In  addition,  certain of the current  officers  and  directors of the
Company  or  certain of any  officers  or  directors  of the  Company  hereafter
appointed  may  from  time to time  serve  as  officers  or  directors  of other
biopharmaceutical  or  biotechnology  companies.  There can be no assurance that
such other  companies  will not have  interests  in  conflict  with those of the
Company.



                                     - 48 -




<PAGE>

Concentration of Ownership and Control.
---------------------------------------

        The Company's directors,  executive officers and principal  stockholders
and certain of their  affiliates  have the ability to influence  the election of
the Company's directors and most other stockholder  actions.  See "MD&A--Certain
Trends  and   Uncertainties--Certain   Interlocking   Relationships;   Potential
Conflicts of Interest."  Accordingly,  the Aries Funds have the ability to exert
significant  influence over the election of the Company's Board of Directors and
other  matters  submitted to the  Company's  stockholders  for  approval.  These
arrangements  may  discourage  or prevent any proposed  takeover of the Company,
including  transactions in which  stockholders might otherwise receive a premium
for their shares over the then current  market  prices.  Such  stockholders  may
influence corporate actions,  including  influencing  elections of directors and
significant    corporate   events.   See   also   "MD&A--Certain    Trends   and
Uncertainties--Effect of Certain Anti-Takeover Provisions" below.

Effect of Certain Anti-Takeover Provisions.
-------------------------------------------

         The Company's Restated Certificate of Incorporation and By-laws include
provisions that could discourage  potential  takeover attempts and make attempts
by stockholders to change management more difficult.  The approval of 66-2/3% of
the Company's  voting stock is required to approve certain  transactions  and to
take certain stockholder actions, including the amendment of the By-laws and the
amendment,  if any, of the anti-takeover  provisions  contained in the Company's
Restated Certificate of Incorporation.


Risks of Low-Priced  Stock;  Possible Effect of "Penny Stock" Rules on Liquidity
for the Company's Securities.
--------------------------------------------------------------------------------

        If the  Company's  securities  were not listed on a national  securities
exchange nor listed on a qualified  automated  quotation system, they may become
subject to Rule 15g-9 under the Exchange  Act,  which imposes  additional  sales
practice  requirements  on  broker-dealers  that sell such securities to persons
other  than  established  customers  and  "accredited   investors"   (generally,
individuals with a net worth in excess of $1,000,000 or annual incomes exceeding
$200,000 or $300,000  together with their  spouses).  Rule 15g-9 defines  "penny
stock" to be any equity security that has a market price (as therein defined) of



                                     - 49 -




<PAGE>

less than  $5.00 per share or an  exercise  price of less than  $5.00 per share,
subject to certain  exceptions  including (i) the securities being quoted on the
Nasdaq National Market or SmallCap Market and (ii) the securities' issuer having
net  tangible  assets in excess of  $2,000,000  and  having  been in  continuous
operation  for at least  three  years  (both  exceptions  enumerated  above  are
currently  met by the  Company).  For  transactions  covered  by Rule  15g-9,  a
broker-dealer  must make a special  suitability  determination for the purchaser
and have received the purchaser's  written  consent to the transaction  prior to
sale. For any  transaction  involving a penny stock,  unless  exempt,  the rules
require  delivery,  prior to any  transaction in a penny stock,  of a disclosure
schedule  prepared by the SEC relating to the penny stock market.  Disclosure is
also  required  to  be  made  about  sales  commissions   payable  to  both  the
broker-dealer and the registered  representative  and current quotations for the
securities.  Finally,  monthly  statements  are  required to be sent  disclosing
recent price information for the penny stock held in the account and information
on the limited  market in penny  stock.  Consequently,  such Rule may affect the
ability of  broker-dealers  to sell the Company's  securities and may affect the
ability of purchasers  to sell any of the Company's  securities in the secondary
market.

        There can be no assurance that the Company's securities will continue to
qualify for exemption from the penny stock  restrictions.  In any event, even if
the Company's  securities are exempt from such  restrictions,  the Company would
remain subject to Section  15(b)(6) of the Exchange Act, which gives the SEC the
authority to restrict any person from  participating  in a distribution of penny
stock, if the SEC finds that such a restriction would be in the public interest.

        If the Company's  securities  were subject to the rules on penny stocks,
the market liquidity for the Company's  securities could be materially adversely
affected.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

        Since the  Company  has  liquidated  its Genta  Europe  subsidiary,  the
Company has no material  currency  exchange or interest rate risk exposure as of
December 31, 1998. With the  liquidation,  there will be no ongoing  exposure to
material  adverse  effect on the Company's  business,  financial  condition,  or
results of operation for  sensitivity to changes in interest rates or to changes
in currency exchange rates.


                                     - 50 -




<PAGE>

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA

                                      Genta Incorporated
                             Index to Financial Statements Covered
                              by Reports of Independent Auditors


<TABLE>
<CAPTION>
<S>                                                                                        <C>    

Genta Incorporated

Reports of Independent Auditors ............................................................52

Consolidated Balance Sheets at December 31, 1997 and 1998...................................54

Consolidated Statements of Operations for the years ended
December 31, 1996, 1997 and 1998............................................................55

Consolidated Statements of Stockholders' Equity
for the years ended December 31, 1996, 1997 and 1998........................................56

Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1997 and 1998............................................................59

Notes to Consolidated Financial Statements..................................................60

Genta Jago Technologies B.V. (a development stage company)

Reports of Independent Auditors.............................................................83

Balance Sheets at December 31, 1997 and 1998................................................85

Statements of Operations for the years ended December 31, 1996, 1997 and 1998
and for the period December 15, 1992 (inception) through December 31, 1998..................86

Statement of Stockholders' Equity (Net Capital Deficiency) for the Period
December 15, 1992 (inception) through December 31, 1998.....................................87

Statements of Cash Flows for the years ended December 31, 1996, 1997 and
1998 and for the period December 15, 1992 (inception) through December 31, 1998.............88

Notes to Financial Statements...............................................................89




</TABLE>

                                     - 51 -



<PAGE>

                          INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders of
Genta Incorporated

We  have  audited  the   accompanying   consolidated   balance  sheet  of  Genta
Incorporated  and its  subsidiaries  as of  December  31,  1998 and the  related
statement of operations,  stockholders' equity, and cash flows for the year then
ended.  These  financial  statements  are the  responsibility  of the  Company's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements based on our audit.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards  require that we plan and perform the audit to obtain reasonable
assurance   about  whether  the  financial   statements  are  free  of  material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our opinion,  such 1998 consolidated  financial statements present fairly, in
all material  respects,  the financial  position of the companies as of December
31, 1998, and the results of their  operations and their cash flows for the year
then ended in conformity with generally accepted accounting principles.

The accompanying  consolidated  financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to the
financial statements,  the recurring losses from operations, and expectations of
continued losses in the foreseeable  future,  raise  substantial doubt about the
Company's ability to continue as a going concern.  Management's plans concerning
these  matters  are  also  described  in  Note  1.  The  consolidated  financial
statements do not include any adjustments  that might result from the outcome of
this uncertainty.


DELOITTE & TOUCHE LLP
Boston, Massachusetts
April 15, 1999




                                     - 52 -

<PAGE>

                         Report of Independent Auditors

The Board of Directors and Stockholders
Genta Incorporated

We  have  audited  the   accompanying   consolidated   balance  sheet  of  Genta
Incorporated as of December 31, 1997, and the related consolidated statements of
operations,  stockholders'  equity,  and cash flows for each of the two years in
the  period  ended  December  31,  1997.  These  financial  statements  are  the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these financial statements based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects, the consolidated financial position of Genta Incorporated
at December 31, 1997,  and the  consolidated  results of its  operations and its
cash flows for each of the two years in the period ended  December 31, 1997,  in
conformity with generally accepted accounting principles.

As discussed in Note 1 to the consolidated financial statements, the Company has
incurred  substantial  and  continuing  operating  losses  since  inception  and
management  expects that these losses will continue for the foreseeable  future.
These conditions raise substantial doubt about the Company's ability to continue
as a going concern.  Management's  plans as to this matter are also described in
Note 1. The 1997 financial  statements do not include any adjustments that might
result from the outcome of this uncertainty.

As discussed in Note 8 to the  financial  statements,  the Company  restated its
operating  results for 1996 to include the effects of recording imputed non-cash
interest costs  totaling  $666,667 and imputed  non-cash  dividends on preferred
stock totaling $2,348,000 not previously recorded in operating results for 1996.
This had the effect of increasing net loss applicable to common  stockholders by
$3,014,667  in 1996,  and  increasing  net loss per share (basic and diluted) by
$(1.01) in 1996.


                                             ERNST & YOUNG LLP

San Diego, California
June 18, 1998


                                     - 53 -
<PAGE>

                                      Genta Incorporated
                                  Consolidated Balance Sheets
<TABLE>
<CAPTION>
                                                                         December 31,                  December 31,
                                                                               1997                          1998       
                                                                    ------------------            -----------------
<S>                                                                        <C>                          <C>        
Assets                                                                     
Current assets:
  Cash and cash equivalents                                                $2,194,424                   $1,566,288
  Short-term investments, available-for-sale                                6,262,000                      892,372
  Prepaid expenses                                                                 --                      405,700
  Property held for sale                                                           --                      290,000
  Other current assets                                                        218,513                      176,700
  Net current assets of discontinued operations                               582,100                    2,606,304
                                                                   ------------------            -----------------
  Total current assets                                                      9,257,037                    5,937,364

Property and equipment, net                                                   892,608                      148,245
Intangibles, net                                                            2,435,172                    1,460,383
Deposits and other assets                                                     627,230                        5,301
Net non-current assets of discontinued operations                           1,866,902                           --
                                                                    ------------------           -----------------
Total assets                                                              $15,078,949                   $7,551,293
                                                                    ==================           =================
                                                                   
Liabilities and stockholders' equity                                                                               
Current liabilities:                                                                                               
  Accounts payable                                                         $  556,823                   $  432,116 
  Payable to research institution                                             635,661                      635,661 
  Accrued compensation                                                        427,536                       84,888 
  LBC Settlement                                                              568,420                           -- 
  Other accrued expenses                                                      162,330                      580,779 
  Deferred revenue                                                            198,570                           -- 
  Current portion of long term debt                                           900,558                           -- 
  Net liabilities of liquidated foreign subsidiary                                 --                      574,812 
                                                                   ------------------             ---------------- 
Total current liabilities                                                   3,449,898                    2,308,256


Deficit in joint venture                                                    2,204,053                    2,284,018  
                                                                                                                   
Commitments and contingencies (Notes 7, 8 and 14)                                                                  
Stockholders equity:                                                                                              
Preferred stock; 5,000,000 shares authorized, convertible                                                          
preferred shares outstanding:                                                                                      
 Series A convertible preferred stock, $.001 par value;                    
 456,600 and 447,600 shares issued and outstanding at                                                              
 December 31, 1997 and 1998, respectively; liquidation value is                                                    
 $26,856,000 at December 31, 1998                                                 457                          448
 Series D convertible preferred stock, $.001 par value; $100 stated
 value, 226,995 and 186,021 shares issued and                               
 outstanding at December 31, 1997 and 1998,                                                                        
 respectively; liquidation value is $26,042,940 at                                                                 
 December 31, 1998                                                       
Common stock, $.001 par value; 70,000,000 shares                                  227                          186          
 authorized; 5,712,363 and 10,426,215 shares issued and outstanding at                
 December 31, 1997 and 1998, respectively                                       5,712                       10,426

Additional paid-in capital                                                129,320,493                  130,627,251
Accumulated deficit                                                      (124,467,891)                (132,053,657)
Accrued dividends payable                                                   4,566,000                    5,108,790
Deferred compensation                                                              --                     (734,425)
                                                                      ---------------                -------------
Total stockholders' equity                                                  9,424,998                    2,959,019
                                                                      ---------------                -------------
Total liabilities and stockholders' equity                                $15,078,949                  $ 7,551,293
                                                                      ===============                =============
</TABLE>


                              See accompanying notes.


                                     - 54 -
<PAGE>

                                      Genta Incorporated
                            Consolidated Statements of Operations



<TABLE>
<CAPTION>
                                                           Years ended December 31,
                                              ------------------------------------------------
                                                    1996               1997             1998
                                               --------------    --------------    ------------
<S>                                                <C>                 <C>              <C>    
Revenues:                                        (restated)
     Related party contract revenue                $1,558,962          $350,097         $55,087
     Collaborative research and
        development                                        --            50,000          50,000
     Gains on sale of technology                      373,261                --              --
                                               --------------    --------------    ------------
                                                    1,932,223           400,097         105,087
Costs and expenses:
     Research and development                       4,592,537         3,309,216       2,115,954
     LBC settlement                                        --           600,000         547,000
     General and administrative                     5,096,304         6,131,355       4,020,169
                                                   ----------    --------------       ---------
                                                    9,688,841        10,040,571       6,683,123
                                                   ----------    --------------      ----------

Loss from operations                               (7,756,618)       (9,640,474)     (6,578,036)
Equity in net loss of joint venture                (2,712,183)       (1,193,321)       (131,719)
Net loss of liquidated foreign subsidiary                  --                --         (98,134)

Other income (expense):
     Interest income                                  140,932           458,437         272,336
     Interest expense                                (885,602)       (3,309,120)         (8,661)
     Other income (expense)                                --                --        (301,587)
                                                --------------    --------------    ------------
Net loss from continuing operations               (11,213,471)      (13,684,478)     (6,845,801)

Discontinued operations:
     loss from discontinued operations               (878,978)       (1,741,339)       (739,965)
Net loss                                          (12,092,449)      (15,425,817)     (7,585,766)
Dividends accrued on preferred stock               (2,524,701)       (1,694,677)       (632,790)
Dividends imputed on preferred stock               (2,348,000)      (16,158,000)             --
                                                --------------     -------------   -------------
                                                                                             --
Net loss applicable to common shares             $(16,965,150)     $(33,278,494)   $ (8,218,556)
                                               =================================================
Net loss per share (basic and diluted):
Continuing operations                                  $(5.39)           $(7.13)         $(1.06)
                                               =================================================
Discontinued operations                                 (0.30)            (0.39)          (0.11)
                                               =================================================
Net loss applicable to common shares                   $(5.69)           $(7.52)         $(1.17)
                                               =================================================
Shares used in computing net loss per share         2,983,449         4,422,409       7,000,191
                                               =================================================
</TABLE>

                            See accompanying notes.


                                     - 55 -
<PAGE>

                               Genta Incorporated
                 Consolidated Statements of Stockholders' Equity
<TABLE>
<CAPTION>

                                       Convertible                                        Additional                      Accrued   
                                       Preferred     Stock     Common Stock                paid-in      Accumulated      Dividends  
                                       Shares       Amount     Shares         Amount       Capital        Deficit         Payable   
                                       --------------------    ----------------------     -----------------------------------------
                                                                                        
                                                                                        
<S>                                    <C>           <C>        <C>           <C>         <C>             <C>             <C>      
Balance at December 31, 1995           603,000         603      2,396,557     2,396       102,395,673     (96,949,625)    1,572,588
Issuance of Series C                                                                    
   convertible preferred                 6,000           6             --        --         5,492,633              --          --   
   stock                                                                                
Issuance of Series C                                                                    
   convertible preferred                 1,044           1             --        --         1,044,000              --          --   
   stock upon conversion of                                                             
   promissory notes                                                                     
Issuance of common stock upon                                                           
   conversion of                                                                        
   Series A convertible                (71,900)        (72)       255,446       255           326,838              --      (327,021)
   preferred stock and                                                                  
   related accrued dividends                                                            
Issuance of common stock                                                                
   upon conversion                                                                      
   of Series B convertible              (3,000)         (3)       226,943       227            33,783              --       (34,007)
   preferred stock and                                                                  
   related accrued dividends                                                            
                                                                                        
Issuance of common stock upon                       
   conversion of Series C Convertible   (5,620)         (6)       524,749       525            64,210              --       (64,729)
   preferred stock and                                                                  
   related accrued                                                                      
   dividends                                                                            
Issuance of common stock upon                                                           
   conversion of                            --          --        587,790       588         1,598,011              --            -- 
   convertible debentures                                                             
Issuance of warrants to                                                               
   purchase common                          --          --             --        --           221,543              --            -- 
   stock for patent legal                                                             
   services                                                                           
Issuance of common stock on                 --          --          7,882         8           171,565              --            -- 
   exercise of                                                                        
   options                                                                            
Dividends accrued on preferred              --          --             --        --        (2,524,701)             --     2,524,701
   stock                                                                              
Interest imputed on convertible             --          --             --        --           666,667              --            -- 
   debentures                                                                         
Net loss                                    --          --             --        --                --     (12,092,449)           -- 
                                       -------         ---      ---------     -----       -----------    -------------    ----------
Balance at December 31, 1996           529,524         529      3,999,367     3,999       109,490,222    (109,042,074)    3,671,532
</TABLE>                                                                      
                                                  


<TABLE>
<CAPTION>

                                         Notes                                         
                                      Receivable                          Total       
                                         from           Deferred      Stockholders'   
                                     Stockholders     Compensation       Equity       
                                     ------------     ------------    --------------- 
                                                                                      
<S>                                    <C>                              <C>           
Balance at December 31, 1995           (49,976)             --           6,971,659     
Issuance of Series C                                                                  
   convertible preferred                    --              --           5,492,639     
   stock                                                                              
Issuance of Series C                                                                  
   convertible preferred                    --              --           1,044,001     
   stock upon conversion of                                                           
   promissory notes                                                                   
Issuance of common stock upon                                                         
   conversion of                                                                      
   Series A convertible                     --              --                  --         
   preferred stock and                                                                
   related accrued dividends                                                          

Issuance of common stock                                                              
   upon conversion                                                                    
   of Series B convertible                  --              --                  --         
   preferred stock and                                                                
   related accrued dividends                                                          
                                                                                      
Issuance of common stock upon                                                         
   conversion                                                                         
   of Series Convertible                    --              --                  --         
   preferred stock and                                                                
   related accrued                                                                    
   dividends                                                                          
Issuance of common stock upon                                                         
   conversion of                            --              --          1, 598,599     
   convertible debentures                                                            
Issuance of warrants to                                                               
   purchase common                          --              --             221,543     
   stock for patent legal                                                             
   services                                                                           
Issuance of common stock on                 --              --             171,573     
   exercise of                                                                       
   options                                                                            
Dividends accrued on preferred              --              --                  --         
   stock                                                                              
Interest imputed on convertible             --              --             666,667     
   debentures                                                                         

Net loss                                    --              --         (12,092,449)    
                                   -------------------------------------------------------------------------------------------------
Balance at December 31, 1996           (49,976)             --           4,074,232     
</TABLE>


                                     - 56 -
<PAGE>

                               Genta Incorporated
                 Consolidated Statements of Stockholders' Equity



<TABLE>
<CAPTION>
                                                                                                                            
                                               Convertible                                       Additional                 
                                             Preferred Stock             Common Stock             paid-in        Accumulated   
                                             Shares    Amount      Shares          Amount         Capital        Deficit       
                                           ---------------------  -----------------------      ------------     ----------------

<S>                                          <C>           <C>      <C>             <C>         <C>              <C>            
Balance at December 31, 1996                 529,524       529      3,999,367       3,999       109,490,222      (109,042,074)  
Issuance of common stock for                      --        --         38,400          38            42,000                --    
   services rendered and severance 
Return of common stock in exchange for
   forgiveness of note receivable                 --        --         (1,250)         (1)               --                --    
Issuance of common stock upon conversion
   of Series A convertible preferred stock
   and related accrued dividends             (71,500)      (71)       518,742         519           714,552                --    

Issuance of common stock upon conversion
   of Series C convertible preferred stock
   and related accrued dividends              (1,424)       (1)       952,841         953            84,257                --    

Issuance of common stock upon conversion
   of convertible debentures                      --        --        204,263         204           358,355                --    
Issuance of Series D convertible stock
   preferred stock                           161,580       162             --          --        13,957,100                --    

Issuance of Series D convertible
   preferred
   stock upon conversion of senior            65,415        65             --          --         3,270,684                --    
   secured
   convertible bridge notes and accrued
   interest
Dividends accrued on preferred stock              --        --             --          --        (1,694,677)               --    
Issuance of warrants to purchase common
   stock in connection with line of               --        --             --          --            98,000                 
   credit
Interest imputed on convertible                   --        --             --          --         3,000,000                 
   debentures
Net loss                                          --        --             --          --                --       (15,425,817)
                                              =========  ======   ===========    ========    ==============    ==============
Balance at December 31, 1997                 683,595     $ 684      5,712,363     $ 5,712     $ 129,320,493     $(124,467,891)
</TABLE>




<TABLE>
<CAPTION>
                                                                         Notes                                   
                                                  Accrued             Receivable                          Total      
                                                  Dividend               from          Deferred        Stockholders' 
                                                  Payable           Stockholders    Compensation         Equity    
                                               -------------       --------------   -------------    -------------  
                                                                                                            

<S>                                              <C>                  <C>                             <C>      
Balance at December 31, 1996                     3,671,532            (49,976)               --         4,074,232
Issuance of common stock for                            --                 --                --            42,038
   services rendered and severance                                                                               
Return of common stock in exchange for                                                                           
   forgiveness of note receivable                       --             49,976                              49,975
Issuance of common stock upon conversion                                                                         
   of Series A convertible preferred stock                                                                       
   and related accrued dividends                  (715,000)                --                --                --
                                                                                                                 
Issuance of common stock upon conversion                                                                         
   of Series C convertible preferred stock                                                                       
   and related accrued dividends                   (85,209)                --                --                --
                                                                                                                 
Issuance of common stock upon conversion                                                                         
   of convertible debentures                            --                 --                --           358,559
Issuance of Series D convertible stock                                                                           
   preferred stock                                      --                 --                          13,957,262
                                                                                                                 
Issuance of Series D convertible                                                                                 
   preferred                                                                                                     
   stock upon conversion of senior                      --                 --                --         3,270,749
   secured                                                                                                       
   convertible bridge notes and accrued                                                                          
   interest                                                                                                      
Dividends accrued on preferred stock             1,694,677                 --                --                  
Issuance of warrants to purchase common                                                                          
   stock in connection with line of                     --                 --                --            98,000
   credit                                                                                                        
Interest imputed on convertible                         --                 --                --         3,000,000
   debentures                                                                                                    
Net loss                                                --                 --                         (15,425,817)
                                               ===========        ===========          ========      ============
Balance at December 31, 1997                   $ 4,566,000         $       --           $    --        $9,424,998     
                                                                                                  
</TABLE>


                                     - 57 -
<PAGE>

<TABLE>
<CAPTION>
                                                                                                                                   
                                               Convertible                                Additional                       Accrued
                                             Preferred Stock        Common Stock          paid-in         Accumulated     Dividends
                                             Shares    Amount     Shares     Amount       Capital             Deficit       Payable
                                             --------------------------------------------------------------------------------------
                                                               
<S>                                          <C>        <C>       <C>         <C>       <C>            <C>               <C>        
 Balance at December 31, 1997                683,595    $684      5,712,363   $5,712    $129,320,493   $(124,467,891)    $4,566,000
 Issuance of common stock upon conversion                      
    of Series A convertible preferred stock  (9,000)     (9)         65,295       65          89,944               --       (90,000)
    and related accrued dividends                              
 Issuance of common stock upon conversion
    of Series D convertible preferred
    stock                                   (43,874)    (44)      4,648,557    4,649          (4,605)              --            -- 

 Shares and warrants issued in connection                      
    with LBC settlement                        2,900       3             --       --         965,417               --            -- 

 Deferred compensation                            --      --             --       --         888,792               --            -- 

 Amortization of deferred compensation            --      --             --       --              --               --            --
 Dividends accrued on preferred stock             --      --             --       --        (632,790)              --       632,790
 Net loss                                         --      --             --       --              --       (7,585,766)           --
                                             ---------------------------------------------------------------------------------------

 Balance at December 31, 1998                633,621    $634     10,426,215  $10,426    $130,627,251    $(132,053,657)   $5,108,790
                                             =======================================================================================


</TABLE>

<TABLE>
<CAPTION>

                                                      Notes                                          
                                                    Receivable                         Total         
                                                       From         Deferred       Stockholders'     
                                                   Stockholders   Compensation        Equity         
                                                  --------------------------------------------- 
                                                                                                
<S>                                               <C>         <C>  <C>             <C>         
 Balance at December 31, 1997                     $     --    $        --          $9,424,998  
 Issuance of common stock upon conversion                                                       
    of Series A convertible preferred stock             --             --                  -- 
    and related accrued dividends                                                               
 Issuance of common stock upon conversion of                                                    
    Series D convertible preferred stock                                                        
                                                        --             --                  --      
                                                                                                
 Shares and warrants issued in connection                                                       
    with LBC settlement                                 --             --             965,420  
 Deferred Compensation                                  --       (888,792)                 --      
 Amortization of deferred compensation                  --        154,367             154,367  

 Dividends accrued on preferred stock
 Net loss                                               --             --          (7,585,766) 
                                                  --------------------------------------------- 
                                                                                               
 Balance at December 31, 1998                           --      $(734,425)         $2,959,019  
                                                  =============================================  
</TABLE>
                                                  



                                           See accompanying notes.


                                     - 58 -
<PAGE>

                                             Genta Incorporated
                                   Consolidated Statements of Cash Flows


<TABLE>
<CAPTION>

                                                                                         Years ended December 31,
                                                                         ------------------------------------------------------
                                                                              1996                 1997              1998
                                                                         ------------------------------------------------------
                                                                           (restated)
<S>                                                                            <C>             <C>                 <C>         
Operating activities                                                                    
Net loss                                                                       $(12,092,449)   $(15,425,817)       $(7,585,766)
Items reflected in net loss not requiring cash:                                               
        Depreciation and amortization                                             1,518,142        1,022,432           957,583
        Equity in net loss of joint venture                                       2,712,183        1,193,321           131,719
        Loss on disposal of fixed assets                                                 --        1,130,809           340,808
        Loss on abandonment of patents                                                   --          600,000           576,544
        Interest accrued on convertible notes and debentures                             --          279,308                --
        Fair value of warrants issued in connection with line of credit                  --           98,000                --
      LBC settlement                                                                     --          568,420           547,000
      Forgiveness of shareholder note                                                    --           49,976                --
        Fair value of common stock issued for severance and services                     --           42,038                --
        Compensation expense related to stock options                                    --               --           154,367
        Interest imputed on convertible debentures                                  666,667        3,000,000                --
       Changes in operating assets and liabilities:                                           
      Accounts and notes receivable                                                 168,600          233,650          (400,972)
      Inventories                                                                  (289,599)         166,235          (137,603)
      Prepaids and other assets                                                     (33,241)         (33,349)         (382,166)
      Accounts payable, accrued expenses and other                                 (803,347)      (1,036,342)          268,278
      Deferred revenue                                                               44,589            5,449          (198,570)
                                                                                -----------       ----------        ----------
Net cash used in operating activities                                            (8,108,455)      (8,105,870)       (5,728,768)
                                                                                              
Investing activities                                                                          
   Purchase of short-term investments                                            (1,497,775)      (8,771,737)       (1,882,290)
   Maturities of short-term investments                                           1,497,775        2,509,737         7,251,918
   Purchase of property and equipment                                              (115,922)         (34,246)         (303,556)
   Proceeds from sale of property and equipment                                          --           70,691            57,686
   Loans receivable from joint venture                                             (846,784)        (595,771)          (51,754)
   Deposits and other                                                               642,654          (67,331)           37,575
                                                                                -----------       ----------        ----------
Net cash provided (used in) by investing activities                              (320,052)      (6,888,657)        5,109,579
                                                                                              
Financing activities                                                                          
Proceeds from notes payable                                                       2,176,500        3,000,000                --
   Repayment of notes payable and capital leases                                 (1,948,438)        (300,324)               --
   Proceeds from issuance of preferred stock, net                                 8,267,539       13,957,262                --
   Proceeds from issuance of common stock, net                                      171,573               --                --
   Other                                                                             21,591               --                --
                                                                                -----------       ----------        ----------
Net cash provided by financing activities                                         8,688,765       16,656,938                --
Increase in cash and cash equivalents                                               260,258        1,662,411          (619,189)
Less cash at liquidated foreign subsidiary                                               --               --            (8,947)
Cash and cash equivalents at beginning of year                                      271,755          532,013         2,194,424
                                                                                -----------       ----------        ----------
Cash and cash equivalents at end of year                                        $   532,013       $2,194,424        $1,566,288
                                                                                ===========       ==========        ==========
Supplemental disclosure of cash flow information:                                             
Interest paid                                                                   $   225,186       $  33,914         $    8,661
                                                                                ===========       =========        ===========
                                                                                            
Supplemental disclosure of noncash investing and financing activities:
Warrant dividend                                                                         --             --             632,790
Preferred stock dividend accrued                                                  2,524,701      1,694,677                  --
Dividends imputed on preferred stock                                              2,348,000     16,158,000                  --
Common stock issued in payment of dividends on preferred stock                      425,757        800,209              90,000

 Preferred stock issued upon conversion of notes payable and accrued interest     1,044,001             --                  --
                                                                                                                            --
Common stock issued upon conversion of notes and convertible debentures and       1,598,599        358,559                  --
  accrued  interest
Exchange of deposits for purchase of equipment                                    1,200,000        251,000                  --
Preferred stock issued upon conversion of short-term notes payable and accrued           --      3,270,749                  --
  interest                                                                               --             --                  --
Conversion of accrued expenses into paid in capital related to LBC settlement                                          418,417

</TABLE>


                            See accompanying notes.


                                      - 59 -
<PAGE>

                   Notes to Consolidated Financial Statements

                                December 31, 1998


1.  Organization and Significant Accounting Policies

        Organization and Business

        Genta   Incorporated   ("Genta"  or  the   "Company")   is  an  emerging
biopharmaceutical   company   engaged  in  the  development  of  a  pipeline  of
pharmaceutical  products.  The  Company  has a 50%  equity  interest  in a  drug
delivery system joint venture with SkyePharma, PLC ("SkyePharma",  formerly with
Jagotec AG ("Jagotec"), Genta Jago Technologies B.V. ("Genta Jago"), established
to develop oral  controlled-release  drugs. The Company's  research efforts have
been focused on the development of proprietary  oligonucleotide  pharmaceuticals
intended to block or regulate the production of disease-related  proteins at the
genetic  level.  The  Company  had  also  manufactured  and  marketed  specialty
biochemicals  and   intermediate   products  to  the  in  vitro  diagnostic  and
pharmaceutical industries through its manufacturing subsidiary,  JBL Scientific,
Inc.  ("JBL"),  until the Company entered into an Asset Purchase  Agreement with
Promega  Corporation  on  March  19,  1999.  JBL is  presented  as  discontinued
operations. See Note 2.

        Basis of Presentation

        The accompanying  financial  statements have been prepared assuming that
the Company  will  continue  as a going  concern.  However,  the Company has had
recurring operating losses since inception and management expects that they will
continue  for the next  several  years.  Management's  plans for funding  future
losses includes amending its agreement with Genta Jago on March 4, 1999, and the
Company has entered into an Asset Purchase  Agreement  with Promega  Corporation
for the sale of certain  assets and  liabilities  of JBL on March 19, 1999 (Note
2).

        The Company is also actively seeking  collaborative  agreements,  equity
financing and other financing arrangements with potential corporate partners and
other sources.  However,  there can be no assurance that any such  collaborative
agreements or other sources of funding will be available on favorable  terms, if
at all. These conditions raise  substantial doubt about the Company's ability to
continue as a going concern.  The 1998  financial  statements do not include any
adjustments that might result from the outcome of this uncertainty.

        Principles of Consolidation

         The  consolidated  financial  statements  include  the  accounts of the
Company and its wholly owned subsidiaries, JBL and Genta Pharmaceuticals Europe,
S.A. ("Genta Europe"),  the Company's  European  subsidiary based in Marseilles,
France.  During  1998,  pursuant  to a filing  for  "Cessation  of  Payment"  in
Marseilles, France, the Company has deconsolidated the accounts for Genta Europe
and has recorded all remaining net  liabilities at their  estimated  liquidation
value.  All  significant   intercompany  accounts  and  transactions  have  been
eliminated in consolidation.


                                     - 60 -
<PAGE>

        Investment in Joint Venture

        The Company has a 50% ownership interest in a joint venture, Genta Jago,
a  Netherlands  corporation.  The  investment  in joint venture is accounted for
under the equity method (Note 5).

        Use of Estimates

        The  preparation  of financial  statements in conformity  with generally
accepted  accounting  principles  requires  management  to  make  estimates  and
assumptions  that affect the amounts  reported in the financial  statements  and
disclosures made in the accompanying notes to the financial statements.
Actual results could differ from those estimates.

        Revenue Recognition and Major Customers

         Revenue from product sales is recognized upon shipment.  As a result of
the Company's decision to sell JBL in March 1999, all product sales are reported
in discontinued operations.

        Collaborative  research and development revenues are recorded as earned,
generally  ratably,  as research and development  activities are performed under
the terms of the  contracts.  Royalty  revenues  from license  arrangements  are
recognized  when  earned.  Payments  received  in excess of  amounts  earned are
deferred.

        Cash, Cash Equivalents and Short-Term Investments

        Cash and cash equivalents  consist of money market type funds and highly
liquid debt instruments  with remaining  maturities of three months or less when
purchased.  Short-term  investments  consist of  corporate  notes,  all of which
mature within 90 days from December 31, 1998.  The estimated  fair value of each
investment  security   approximates  the  amortized  cost  and,  therefore,   no
unrealized gains or losses existed as of December 31, 1998.

        Fair Value of Financial Instruments

        The carrying amount of cash, accounts  receivable,  and accounts payable
approximates fair value due to the short-term nature of these  instruments.  The
fair value of investments available for sale is based on current market value.

        Concentration of Credit Risk

        The Company markets its specialty  biochemical and intermediate products
to the pharmaceutical and diagnostic  industries.  Generally,  collateral is not
required  on  the  Company's  sales.   Credit  losses  have   historically  been
insignificant and within management's expectations.

        The Company  invests its excess cash  primarily in debt  instruments  of
domestic corporations with "AA" or greater credit ratings as defined by Standard
and Poors, although the Company's investment guidelines permit investment in "A"
rated domestic corporate obligations and other eligible investments. The Company
has  established  guidelines  relative to  diversification  and maturities  that
attempt to maintain  safety and liquidity.  These  guidelines  are  periodically
reviewed and modified to take advantage of trends in yields and interest  rates.
The Company has not experienced any significant  losses on its cash  equivalents
or short-term investments.


                                     - 61 -
<PAGE>

        Inventories

        Inventories  are stated at the lower of cost  (first-in,  first-out)  or
market.  As a result of the  Company's  decision to sell JBL in March 1999,  all
inventories are included in net current assets of discontinued  operations.  See
Note 2.

         Property Held for Sale

        The  Company  acquired a pill  machine on July 1, 1996 for  $757,465  on
which it has recorded depreciation of $243,471 for a net book value of $513,994.
The Company has entered  into an  agreement to sell the machine for $290,000 and
has,  therefore,  recorded this asset held for sale at that net realizable value
and has recorded a $223,994 loss on the impairment of this asset.

        Property and Equipment

         Property  and  equipment  is  stated at cost and  depreciated  over the
estimated  useful  lives,  ranging  from 2 to 7 years,  of the assets  using the
straight-line  method.  Leasehold  improvements are stated at cost and amortized
over the shorter of the estimated  useful lives of the assets or the lease term.
Amortization of equipment under capital leases is reported with  depreciation of
property and equipment.  The Company's policy is to evaluate the appropriateness
of the carrying value of the undepreciated value of the long-lived assets on the
basis of estimated future cash flows (undiscounted) and other factors.

        Intangible Assets

        Intangible  assets,  consisting  primarily of  capitalized  patent costs
(as well as purchased  proprietary  technology at JBL), are amortized  using the
straight  line  basis over a term of 5 years for  issued  patents,  14 years for
purchased  proprietary  technology  and 5-7 years for  organizational  and other
amortizable  costs. The Company's policy is to evaluate the  appropriateness  of
the carrying  values of the  unamortized  balances of  intangible  assets on the
basis of estimated future cash flows  (undiscounted) and other factors.  If such
evaluation  were to indicate an  impairment  of these  intangible  assets,  such
impairment  would be recognized by a write-down of the  applicable  assets.  The
Company  evaluates,  each financial  reporting  period,  the continuing value of
patents and patent applications.  Through this evaluation, the Company may elect
to continue to maintain  these  patents;  seek to  out-license  them; or abandon
them. As a result of such evaluation, the Company recorded charges in the fourth
quarter to general and administrative  expenses of $600,000 and $577,000 in 1997
and 1998,  respectively,  for specific  capitalized patents no longer related to
the research and development efforts of the Company.

        Dividends

        The number of shares of common  stock  issued in payment of dividends on
Series A Preferred  Stock,  is based on the fair market  value of such shares of
common stock on the date the dividends become due.

        Income Taxes

        The Company uses the liability  method of  accounting  for income taxes.
Deferred  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.

        In accordance with Statement of Financial  Accounting Standards ("SFAS")
No. 109 the  Company  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.  In assessing  the
realizability of deferred assets, management considers whether it is more likely
than not that some or all of the deferred  tax assets will not be realized.  The
ultimate  realization of deferred tax assets is dependent upon the generation of
future taxable  income and when temporary  differences  become  deductible.  The
Company considers, among other available information,  uncertainties surrounding
the recoverability of deferred tax assets,  scheduled  reversals of deferred tax
liabilities,  projected future taxable income,  and other matters in making this
assessment.

        Stock Options

        The Company has elected to follow  Accounting  Principles  Board Opinion
No.  25,  "Accounting  for  Stock  Issued  to  Employees"  (APB 25) and  related
Interpretations  in  accounting  for its  employee  stock  options  because  the
alternative fair value accounting  provided for under SFAS No. 123,  "Accounting
for Stock-Based  Compensation"  (SFAS No. 123), requires use of option valuation
models that were not developed for use in valuing  employee stock  options.  The
Company provides pro forma disclosure  pursuant to SFAS No. 123 in Note 9 to the
financial statements.

        Under APB 25,  deferred  compensation  is recorded for the excess of the
fair value of the stock on the measurement date (which is the latter of the date
of the option grant or the date of stockholder approval of options available for
grant),  over the exercise price of the option  (intrinsic  value  method).  The
deferred compensation is amortized over the vesting period of the option.

        The  Company  accounts  for  stock  option  grants  and  similar  equity
instruments granted to non-employees under the fair value method provided for in
SFAS No. 123.


                                     - 62 -
<PAGE>

        Net Loss Per Common Share

         Under SFAS No.  128,  the  Company  is  required  to present  basic and
diluted earnings per share if applicable. Basic earnings per share is based upon
the weighted  average number of shares  outstanding  during the period.  Diluted
earnings per share includes the weighted  average  number of shares  outstanding
and gives effect to potentially dilutive common shares such as options, warrants
and convertible debt and preferred stock outstanding.

        Net loss per common share for the years ended  December  31, 1996,  1997
and 1998 is based on the  weighted  average  number of  shares  of common  stock
outstanding  during the  periods.  Basic and diluted loss per share are the same
for all periods presented as potentially  dilutive securities including options,
warrants  and  convertible  preferred  stock,  have  not  been  included  in the
calculation  of the net loss per common share as their  effect is  antidilutive.
All share data and per share amounts have been retroactively restated to reflect
a ten for one reverse stock split  authorized by the Board of Directors on April
4, 1997.

        Recently Issued Accounting Standards

        In June 1997, the Financial  Accounting Standards Board issued Statement
of Financial  Accounting  Standard  No. 130,  "Reporting  Comprehensive  Income"
("SFAS No. 130") and SFAS No. 131, "Segment  Information"  ("SFAS No. 131"), and
which were both adopted by the Company in 1998.  SFAS No. 130 requires  that all
components of  comprehensive  income,  including net income,  be reported in the
financial statements in the period in which they are recognized.  Other than Net
Loss, the Company had no other material components of comprehensive income.

        SFAS No. 131 amends the  requirements  for public  enterprises to report
financial and  descriptive  information  about its enterprise for which separate
financial  information is available and is evaluated regularly by the Company in
deciding how to allocate resources and in assessing  performance.  The financial
information  is required to be  reported,  as disclosed in Note 17, on the basis
that is used internally for evaluating the segment performance.

         On June 16, 1998 the Financial  Accounting  Standards Board issued SFAS
No. 133,  "Accounting for Derivative  Instruments and Hedging  Activities." This
standard is effective for fiscal years  beginning  after June 15, 1999. SFAS No.
133 establishes  accounting and reporting standards for derivative  instruments,
including certain derivative  instruments  embedded in other contracts,  and for
hedging activities. It requires an entity to recognize all derivatives as either
assets or  liabilities  in the  statement  of  financial  position  and  measure
instruments  at fair value.  The Company is currently  evaluating  the impact of
this  pronouncement  and does not  believe  adoption of SFAS No. 133 will have a
material impact on the Company's financial statements.


          Reclassification

         Certain prior year amounts have been  reclassified  to conform with the
current year presentation.

2.  Discontinued Operation

         On March 19, 1999, the Company entered into an Asset Purchase Agreement
with  Promega  Corporation  whereby a  wholly-owned  subsidiary  of Promega will
acquire substantially all of the assets and certain liabilities of JBL for cash,
a promissory note, and certain pharmaceutical development services in support of
Genta's development project.

        As a result of the pending  sale,  the Company's  specialty  biochemical
manufacturing segment (JBL) has been presented as discontinued  operations.  The
assets and liabilities  relating to the discontinued  operations are included in
net assets of  discontinued  operations in the  consolidated  balance  sheets at
December  31, 1997 and 1998.  The  results of  operations  for the  discontinued
segment are included in discontinued  operations in the consolidated  statements
of operations for the years ended December 31, 1996, 1997 and 1998.


                                     - 63 -
<PAGE>

Net assets of discontinued operations consisted of the following:

<TABLE>
<CAPTION>

                                                     December 31, 1997       December 31, 1998
                                                     -----------------       -----------------
                                                                         
<S>                                                  <C>                        <C>    
                                                                        
Accounts receivable, net....................         $    431,046            $     832,018
Inventories, net............................              826,008                  963,611
Property and equipment, net.................              825,542                  763,082
Other assets................................            1,041,360                  897,399
Liabilities.................................             (674,954)                (849,806)
                                                         --------                 ---------
     Total..................................         $  2,449,002            $   2,606,304
                                                     ============            ==============   
Less current portion........................             (582,100)              (2,606,304)
                                                     -------------           --------------
                                                     $  1,866,902            $          --
                                                                      
Operating results of the discontinued segment consisted of the following:

                                                                             Year Ended
                                                                             December 31,
                                                      -------------------------------------------------
                                                          1996               1997            1998
                                                          ----               ----            ----

Product sales.....................................  $ 4,924,694       $ 4,701,649          $ 5,346,795
Operating expenses................................   (5,821,905)       (6,520,831)          (6,087,565)
Other income......................................       18,233            77,843                  805
                                                    -----------       ------------         ------------
Loss..............................................  $  (878,978)      $(1,741,339)         $  (739,965)
                                                    ===========       ============         ============ 
</TABLE>

        One customer, a European  distributor,  accounted for approximately 27%,
25% and 14% of product sales during the years ended December 31, 1996,  1997 and
1998,  respectively.  One other  customer,  who  accounted  for less than 10% of
product sales in 1997,  accounted for  approximately 19% of product sales during
the year ended December 31, 1998.


3.  Property and Equipment

        Property and equipment is comprised of the following:

                                                      December 31,

                                                     1997             1998
                                            -----------------------------------
Equipment ..................................      $1,661,612        $ 148,997
Leasehold improvements......................          75,331               --
Furniture and fixtures......................          14,338            9,768
                                            -----------------------------------
                                                   1,751,281          158,765
Less accumulated depreciation and
   amortization ............................        (858,673)         (10,520)
                                            -----------------------------------
                                                 $   892,608         $148,245
                                            ===================================



4.  Notes Receivable from Officers and Employees

        At  December  31,  1996,  notes  receivable  consisted  of loans made to
officers and employees to facilitate their relocation. Generally, such loans are
secured by each individual's residence,  bear interest at approximately 7.0% per
annum,  and  mature  on  the  earlier  of:  (i)  such  officer's  or  employee's
termination,  (ii) five years from the date of issuance, or (iii) on the date of
sale of the property.  The notes were repaid in fiscal 1997 in  connection  with
the termination of the related employees' employment.

5.  Genta Jago Joint Venture

        Beginning in 1996 and through the first quarter of 1999, the Company has
significantly  reduced its involvement in Genta Jago. The following represents a
history of the formation, activities and accounting of Genta Jago.

        In 1992,  Genta and  Jagotec  determined  to enter into a joint  venture
(Genta Jago).  The Company's  purpose in establishing  Genta Jago was to develop
products using a limited-scope  license to Jagotec's  GEOMATRIX  technology with
the  objective of producing  shorter-term  earnings  than were expected from the
Company's  Anticode(TM)  antisense  programs.  Genta  originally  contributed $4
million in cash to Genta  Jago as well as the  rights to apply its  Anticode(TM)
oligonucleotide  technology  to six  products.  Genta issued  120,000  shares of
Common  Stock valued at $7.2  million to Jagotec and its  affiliates  in 1992 as
consideration  for its interest in Genta Jago,  to induce  Jagotec to license to
Genta Jago,  for what the parties  believed was a substantial  discount from the
underlying value of such license, Jagotec's GEOMATRIX technology with respect to
approximately  25  products  (the  "Initial  License")  and to  license to Genta
Jagotec's GEOMATRIX technology for use in Genta's  Anticode(TM)  oligonucleotide
development  programs.  The $7.2  million  fair value  assigned  to the  120,000
unregistered  common shares issued to Jagotec by Genta for the GEOMATRIX license
represented a 33% discount from the trading market price of registered shares on
the date of formation of the joint venture  (December 15, 1992) and was expensed
by Genta as acquired  in-process  research and development in 1992 as there were
no  alternative  future uses for the acquired  technology,  and  realization  of
ultimate profits from the acquired  technology was not assured.  Since Genta had
no carrying value assigned to the  technology  Genta  contributed to Genta Jago,
there was no accounting for such capital  contribution.  The Common Stock issued
by Genta was  unregistered  and  therefore  was  recorded  at a discount  to the



                                     - 64 -
<PAGE>

then-current  trading value of registered  shares. The $4.0 million in cash paid
to Genta Jago was recorded by Genta as investment in joint venture.

        In 1994, separate from the original 1992 joint venture agreement,  Genta
and Jagotec  began  negotiations  to expand Genta Jago to include the  GEOMATRIX
technology as applied to 35 additional products (the "Additional  License").  In
1994,  Jagotec  granted  Genta,  for $1.85  million,  an option (the  "Expansion
Option"),  exercisable  solely at Genta's  discretion through April 30, 1995, to
expand the joint  venture by requiring  Jagotec to  contribute  rights under the
Additional  License at what the parties  believed was a substantial  discount to
its actual fair value. The $1.85 million was considered by Genta to be a partial
cost of acquiring the Additional License, and, since it was not refundable under
any  circumstances  and there was no assurance of future  recoverability  of the
$1.85  million (i.e.  recoverability  was  dependent  upon Genta Jago  achieving
profitability),  Genta  expensed  such  payment in 1994 as  acquired  in-process
research  and  development.  An  additional  $2.0 million  (the  "Deposit")  was
deposited  with  Jagotec in 1994,  but would only be  retained  by  Jagotec,  as
partial  payment  of the  exercise  price  for the  Expansion  Option,  if Genta
actually  exercised  the  Expansion  Option.  If such  Expansion  Option was not
exercised,  the $2.0 million  Deposit would be  transferred to Genta Jago in the
form of working  capital loans payable by Genta Jago to Genta.  Accordingly,  at
December 31, 1994, the Deposit was recorded by Genta as a loan  receivable  from
joint venture, and would remain so until its ultimate use was identified.

        Pursuant to the terms of the Expansion Option, for Genta to exercise the
Expansion  Option   Genta  would have had to pay Jagotec an  aggregate  of $3.15
million  in cash and  124,000  shares of Common  Stock,  valued at $1.6  million
(based on the trading price at such time).  The parties agreed the $3.15 million
in cash would  consist of (i) the Deposit made by Genta in 1994,  which would be
applied to the Expansion Option's exercise price upon Genta's election, in 1995,
to exercise such Expansion Option;  and (ii) an additional cash payment of $1.15
million to exercise the  Expansion  Option to be paid by Genta in 1995. In 1995,
Genta exercised the Expansion  Option.  Consideration  for the Expansion  Option
exercise paid in 1995  represented  an aggregate  amount of $4.8  million.  This
amount was expensed as acquired  in-process research and development in 1995, as
there were no identified  alternative future uses for the Additional License and
recoverability of the $4.8 million was not assured.

        In each instance,  the technological  feasibility of the  aforementioned
acquired  in-process  research and development had not yet been  established and
the technology had no future  alternative uses at the dates of the acquisitions.
Furthermore,  due to continuing uncertainties regarding the Company's ability to
demonstrate  bioequivalence of potential  products at that time,  management was
unable to make estimates  regarding the remaining  efforts  necessary to develop
the acquired, in-process technology into a commercially viable product. However,
it was  expected  that any  such  development  would  require  significant  cash
resources.

        From 1992 through December 31, 1998, the Company has provided funding to
Genta Jago pursuant to a working capital loan agreement which expired in October
1998. These advances were structured as working capital loans, to give Genta the
protections  of a debt  holder  with  respect to such  amounts  and to  maintain
Genta's  and  Jagotec's  respective  equity  ownership  in Genta Jago at a 50/50
ratio.  The Company has recorded all of the net losses incurred by Genta Jago as
a reduction of the Company's  investment  in joint  venture or loans  receivable
from joint venture.  Genta initially  carried the advances as "loans  receivable
from joint  venture"  until  Genta Jago  actually  spent the funds,  since Genta
believed  it  had  the  legal  right  to  recover  any  unexpended  funds  as  a
debtholder. However, as the funds were spent by Genta Jago,  Genta was no longer
assured of the  collectibility  of such loans, so the carrying value was reduced
accordingly  as the offset to Genta's  recognition of its equity in the net loss
of Genta Jago. Therefore,  at all times Genta's recorded asset "loans receivable
from joint venture" never exceeded the amount of Genta Jago's  unexpended  cash.
Genta did not believe it was  appropriate  to carry its  investment  in or loans
receivable  from  Genta Jago at any amount in excess of Genta  Jago's  cash,  as
there  was  no  assurance  of   recoverability   of  such  additional   amounts.
Accordingly, Genta recognized 100% of the losses of Genta Jago.

        In 1995, Genta Jago returned certain Anticode(TM) technology to Genta in
exchange for Genta's  forgiveness  of $4.4 million of principal and $0.3 million
of interest outstanding under existing working capital loans to Genta Jago. This
amount was determined by an arm's length  negotiation  between Genta and Jagotec
and was based on the amount  actually  expended by Genta Jago for  research  and
development  related to such  Anticode(TM)  oligonucleotide  technology from the
time Genta Jago originally  acquired the relevant technology in 1992 through the
date of return in 1995.  This  forgiveness  had no impact on  Genta's  financial
statements,  as Genta had already  expensed  Genta Jago's  expenditures  of such


                                     - 65 -
<PAGE>

cash,  and had no carrying  value for the loans at the time of the  forgiveness.
Genta Jago treated the  forgiveness as a gain on the waiver of debt because this
reflected  the legal form of the  transaction.  As of  December  31,  1998,  the
Company had advanced  working  capital loans of  approximately  $15.8 million to
Genta Jago, net of principal  repayments and $4.4 million in forgiven  principal
and $0.3 million in forgiven interest accrued thereon.  Such loans bore interest
at rates per annum  ranging  from  5.81% to 7.5%,  and were  payable  in full on
October 20, 1998. However, Genta Jago did not repay such loans to Genta as Genta
and Jagotec were in the process of renegotiating  the terms of the joint venture
agreement.

        On March 4,  1999,  Genta and  SkyePharma  (on  behalf of itself and its
affiliates)  entered into an interim agreement  pursuant to which the parties to
the joint  venture  released  each other from all  liability  relating to unpaid
development   costs  and  funding   obligations  and  SkyePharma  agreed  to  be
responsible  for  substantially  all of the  obligations of the joint venture to
third parties and for the further  development of the joint venture's  products,
with  any  net  income  resulting  therefrom  to  be  allocated  in  agreed-upon
percentages between Genta and SkyePharma as set forth in such interim agreement.

        Under terms of the joint venture, Genta Jago contracted with the Company
to conduct research and development and provide certain other services. Revenues
associated  with providing  such services  totaled $1.6 million,  $350,000,  and
$55,000 for the years ended  December 31,  1996,  1997,  and 1998  respectively.
Terms of the arrangement also grant the Company an option to purchase  Jagotec's
interest in Genta Jago  exercisable  from December 31, 1998 through December 31,
2000. 

        Genta  Jago  entered  into  collaborative  development  agreements  with
Gensia,  Inc.,  Apothecon,  Inc., a subsidiary of Bristol-Myers  Squibb Co., and
Krypton,  Ltd., a subsidiary of SkyePharma,  during January 1993, March 1996 and
October 1996,  respectively.  Such agreements  provide funding to Genta Jago for
the   development   and   clinical   testing  of   selected   controlled-release
pharmaceuticals  in addition to potential  milestone  payments and  royalties on
future product sales.  Effective October 1996, Gensia and SkyePharma  reached an
agreement   whereby  a   SkyePharma   subsidiary,   Brightstone   Pharma,   Inc.
("Brightstone"),  was assigned  Gensia's rights (and those of Gensia's  partner,
Boehringer  Mannheim) to develop and  co-promote the  potentially  bioequivalent
nifedipine  product  under the  collaboration  agreement  with Genta  Jago.  The
assignment  was  accepted  by Genta  Jago and has no  impact on the terms of the
original agreement.

Condensed  financial  information for Genta Jago  Technologies B.V. is set forth
below.


                                     - 66 -
<PAGE>

<TABLE>
<CAPTION>
 
                                                                     December 31,

                                                                1997              1998
                                                         --------------------------------------
                                                         --------------------------------------
<S>                                                      <C>                       <C>    

Balance Sheet Data:

   Receivables under collaboration
     agreements..........................                      $ 1,400,000        $ 3,348,000
   Other current assets..................                           31,000             24,000
                                                         --------------------------------------
   Total current assets..................                        1,431,000          3,372,000
   Other assets..........................                            4,000             12,000
                                                         --------------------------------------
Total Assets                                                   $ 1,435,000        $ 3,384,000
                                                         ======================================

   Current liabilities...................                      $ 5,213,000        $ 8,426,000
   Notes payable to Genta ...............                       15,837,000         15,837,000
   Net capital deficiency................                      (19,615,000)       (20,879,000)
                                                               -----------        ----------- 
Total liabilities and capital deficiency                       $ 1,435,000        $ 3,384,000
                                                         ======================================


                                                           Year ended December 31,

                                                     1996             1997             1998
                                               --------------------------------------------------

Statements of Operations Data:
Collaborative research and development
    revenues                                     $   5,477,000     $  3,634,000    $   2,162,000
Costs and expenses.......................            8,453,000        4,791,000        2,112,000
                                               --------------------------------------------------
Income (loss) from operations............           (2,976,000)      (1,157,000)          50,000
Interest expense to Genta, net of 
     interest income.....................             (956,000)      (1,175,000)      (1,314,000)
                                                    ----------       ----------       ---------- 

Net loss.................................        $  (3,932,000)    $ (2,332,000)   $  (1,264,000)
                                               ==================================================

</TABLE>


                                     - 67 -
<PAGE>

6.  Intangibles

Intangibles consist of the following:

<TABLE>
<CAPTION>

                                                          December 31,

                                                    1997                 1998
                                            ------------------------------------------
<S>                                          <C>                    <C>    

  Patent and patent applications............    $  2,529,510           $   1,952,956
  Organizational and other amortizable         
     costs..................................         134,521                 134,521
                                            ------------------------------------------
                                                   2,664,031               2,087,477
  Less accumulated amortization.............        (228,859)               (627,094)
                                                   ----------              ----------
                                                $  2,435,172           $   1,460,383
                                            ==========================================

</TABLE>



7.  Debt

        In February  1997,  the Company raised gross proceeds of $3 million in a
private placement of units consisting of (i) Senior Secured  Convertible  Bridge
Notes (the  "Convertible  Notes") that bore interest at a stated rate of 12% per
annum and  matured on December  31,  1997,  as  extended,  and (ii)  warrants to
purchase an aggregate of  approximately  6.4 million shares of common stock. The
Convertible Notes were convertible into Series D Convertible  Preferred Stock at
the option of the holder,  at an initial  conversion  price of $50.00 per share,
subject to antidilution  adjustments.  In May 1997,  $650,000 of the Convertible
Notes were  converted  into  13,000  shares of Series D  Preferred  Stock and in
December 1997,  the remaining  $2,350,000 of the  Convertible  Notes and accrued
interest were converted into 52,415 shares of Series D Preferred Stock. Since it
is unclear that the bridge notes had any value as indebtedness,  all of the $3.0
million proceeds were allocated to the warrants.  Accordingly,  the $3.0 million
attributed  to the value of the  warrants as well as interest at the stated rate
of 12% on the  Convertible  Notes were recorded during the period the notes were
outstanding as interest expense.

        In  September  1996,  the Company  raised  gross  proceeds of $2 million
(approximately  $1.9  million  net  of  offering  costs)  through  the  sale  of
Convertible  Debentures to investors in a private  placement  outside the United
States.  The  Convertible  Debentures  were  convertible,  at the  option of the
holders,  at any time on or after October 23, 1996,  into shares of common stock
at a conversion  price equal to 75% of the average  Nasdaq  closing bid price of
Genta's  common stock for a specified  period  prior to the date of  conversion.
Terms of the Convertible Debentures also provided for interest payable in shares
of  the  Company's  common  stock.  In  November  1996,  $1.65  million  of  the
Convertible  Debentures  and the related  accrued  interest was  converted  into
approximately 590,000 shares of common stock and in 1997, the remaining $350,000
and related accrued  interest was converted into 204,263 shares of common stock.
In accordance with the Emerging Issues Task Force Bulletin D-60, "Accounting for
the  Issuance  of  Convertible  Preferred  Stock  and  Debt  Securities  with  a
Nondetachable  Conversion  Feature" ("EITF D-60"), the Company recorded non-cash
imputed  interest  costs  totaling  $666,667 in 1996  related to the  discounted
conversion  terms.  The  Convertible  Debentures  bore  interest at an effective
interest rate of 38% per annum.


                                     - 68 -
<PAGE>

Notes payable at Genta Europe consist of the following:

<TABLE>
<CAPTION>

                                                          December 31,

                                                     1997                1998
                                            ------------------------------------------
<S>                                          <C>                         <C>    


Research  financing  obligation payable to a   
French  governmental  agency,   non-interest
bearing, maturing through 2002..............        $    897,627         $        --

Other.......................................               2,931                  --
                                            ------------------------------------------
                                                         900,558                  --

Less current portion........................            (900,558)                 --
                                            ------------------------------------------

                                                     $        --         $        --
                                            ==========================================

</TABLE>

        As previously  described,  Genta Europe is in the process of liquidation
and the fair value of its debt  obligations  is not  readily  determinable.  The
carrying  value at December 31, 1998,  approximately  $964,000,  represents  the
value of the original issuance of such debt instruments, which may be liquidated
against Genta Europe's $590,000 deposit with such French governmental agency. As
previously  mentioned,  pursuant to a filing for  "Cessation  of  Payment",  the
Company has  deconsolidated  the accounts for Genta Europe and  accordingly  the
aforementioned  note  payable  and deposit are  recorded in net  liabilities  of
liquidated foreign  subsidiary at December 31, 1998. The following  represents a
history of the funding obligations of Genta Europe.

        During 1995, Genta Pharmaceuticals Europe S.A. ("Genta Europe") received
approximately  $1,100,000  of  funding  in the form of a loan  from  the  French
government agency L'Agence  Nationale de Valorisation de la Recherche  ("ANVAR")
towards research and development activities pursuant to an agreement (the "ANVAR
Agreement")  between ANVAR,  Genta Europe and Genta. In October 1996, as part of
the Company's  restructuring  program,  Genta Europe  terminated  all scientific
personnel.  ANVAR  asserted,  in a letter dated  February  13, 1998,  that Genta
Europe was not in  compliance  with the ANVAR  Agreement,  and that ANVAR  might
request the immediate  repayment of such loan. The Company is working with ANVAR
to  achieve  a  mutually  satisfactory  resolution.  However,  there  can  be no
assurance that such a resolution will be obtained.

        In June 1998, Marseille Amenagement,  a company affiliated with the city
of  Marseilles,  France,  filed suit in France to evict  Genta  Europe  from its
facilities  in  Marseilles;  payment of alleged  back rent due; and payment of a
lease guarantee for nine years' rent (see Note 14). Following the filing of this
claim and in  consideration of the request for repayment of the loan from ANVAR,
Genta  Europe's  Board  of  Directors  directed  the  management  to  declare  a
"Cessation of Payment". Under this procedure, Genta Europe ceased any operations
and  terminated  its only  employee.  A liquidator was appointed by the Court to
take control of any assets of Genta Europe and to make payment to creditors.  In
December 1998,  the Court in Marseilles  dismissed the case against Genta Europe
and  indicated  that it had no  jurisdiction  against  Genta  Incorporated.  The
Company's  attorney in France  notified  the  plaintiff of the decision and that
they have 30 days from such  notice to  appeal.  The 30-day  appeal  period  has
elapsed,  and the Company is awaiting  formal  notification by the court that an
appeal has not been made. Such decision does not preclude Marseille  Amenagement
from pursuing its claims in other courts in France or in the United States,  and
there can be no assurance that they will not do so.  However,  in the opinion of
French  counsel,  it is highly remote that Marseille  Amenagement  will bring an
action against Genta before U.S. courts.


                                     - 69 -
<PAGE>

8. Operating Leases

        The Company leases its facilities  under operating leases that generally
provide for annual cost of living  related  increases.  The JBL  facilities  are
leased from its prior owners,  who include a director,  an executive officer and
other  stockholders of the Company.  Minimum future  obligations under operating
leases at December 31, 1998 are as follows:

                                               Operating Leases
                                        -------------------------------
                                             Related
                                             parties (JBL)       Others
                                        --------------------------------
1999....................................       $414,231        $ 46,127
2000....................................        207,641          43,454
2001....................................             --          10,864
                                        --------------------------------
Total future minimum lease payments            $621,872        $100,445
                                        ================================



        Total rent expense under  operating  leases for the years ended December
31, 1996, 1997 and 1998 was $1,043,000, $774,000, and $465,000, respectively, of
which  approximately  $428,000 annually was for discontinued  operations and the
balance for continuing operations.

9.  Stockholders' Equity

        Common Stock

        In August  1997,  7,500  shares of common  stock were issued to a former
Officer  of the  Company  pursuant  to the terms of a  severance  agreement.  In
December  1997,  30,900  shares of common  stock were issued to two former Board
Members of the  Company  pursuant to the terms of their  consulting  agreements.
Also in December  1997,  1,250 shares of common  stock that had been  previously
issued to a former Board Member were returned to the Company in exchange for the
forgiveness of a note receivable from such former Board Member.

        On  April  4,  1997,  the  Board  of  Directors   authorized,   and  the
Shareholders  approved,  a ten for one reverse  stock  split.  All share and per
share  amounts  and stock  option  data have been  restated to reflect the stock
split retroactively.

        In  September  1996,  the Company  raised  gross  proceeds of $2 million
(approximately  $1.9  million  net  of  offering  costs)  through  the  sale  of
Convertible  Debentures to investors in a private  placement  outside the United
States.  The  Convertible  Debentures  were  convertible,  at the  option of the
holders,  at any time on or after October 23, 1996,  into shares of common stock
at a conversion  price equal to 75% of the average  Nasdaq  closing bid price of
Genta's  common stock for a specified  period  prior to the date of  conversion.
Terms of the Convertible Debentures also provided for interest payable in shares
of  the  Company's  common  stock.  In  November  1996,  $1.65  million  of  the
Convertible  Debentures  and the related  accrued  interest was  converted  into
approximately 590,000 shares of common stock and in 1997, the remaining $350,000
and  related accrued interest was converted into 204,263 shares of common stock.
The Company recorded non-cash inputed interest costs totalling  $666,667 in 1996
related to the discounted conversion terms.


                                     - 70 -
<PAGE>

         Preferred Stock

        The Company entered into a Settlement  Agreement and Release dated as of
November 30, 1998 (the "Settlement Agreement") with LBC Capital Resources,  Inc.
("LBC") and others. Pursuant to the Settlement Agreement,  the Company agreed to
issue to LBC 2,900 shares of Series D Convertible  Preferred  Stock; to issue to
LBC or its designee  five year  warrants (the "LBC Warrants") to acquire 700,000
shares of Common Stock at an exercise price of $0.52 per share;  to make certain
payments to LBC totaling  approximately  $182,000;  and to pay to LBC,  upon the
exercise  of certain  warrants,  a  commission  equal to up to  $150,000  in the
aggregate.  The  respective  conversion  and  exercise  prices  of the  Series D
Preferred  Stock  and the LBC  Warrants  are  subject  to  adjustment  upon  the
occurrence  of certain  events.  Such Series D Preferred  Stock and LBC Warrants
were valued at $965,000  aggregating  a total  settlement of $1,147,000 of which
$600,000 in 1997 and $547,000 in 1998 were charged to  operations.  The $150,000
in  commissions  was not accrued as such  commissions  are  contingent  upon the
occurrence of future events.

        In June 1997, the Company raised gross proceeds of  approximately  $16.2
million  (approximately  $14 million net of placement costs) through the private
placement of 161.58 Premium Preferred  Units(TM).  Each unit sold in the private
placement consists of (i) 1,000 shares of Premium Preferred Stock(TM), par value
$.001 per share,  stated value $100 per share (the "Series D Preferred  Stock"),
and (ii) warrants to purchase 5,000 shares of the Company's  common stock,  (the
"Class D  Warrants")  at any time  prior to the fifth  anniversary  of the final
closing (the "Class D Warrants").  The Series D Preferred  Stock is  immediately
convertible  at the  option of the  holder  into  shares  of common  stock at an
initial  conversion  price  of  $0.94375  per  share  (subject  to  antidilution
adjustment).  In addition,  the holders of the Series D Preferred  Stock sold in
the Private  Placement  are  entitled to a  liquidation  preference  aggregating
$26,043,000.  Due to the  increase  in  value  associated  with  the  discounted
conversion terms and liquidation preference of the Series D Preferred Stock, the
Company has  accounted for such  increase by charging  $16,158,000  to dividends
imputed on preferred stock.

         On May 29, 1998,  the Company  requested,  and  subsequently  received,
consents (the "Letter  Agreements") from the holders of a majority of the Series
D  Preferred  Stock to waive the  Company's  obligation  to use best  efforts to
obtain the  effectiveness of a registration  statement with the SEC as to Common
Stock issuable upon conversion of Series D Preferred Stock and exercise of Class
D Warrants.  In exchange,  the Company agreed to waive the contractual "lock-up"
provisions to which such  consenting  holders were subject and which  provisions
would have prevented the sale of up to 75% of their  securities for a nine-month
period following the effectiveness of the registration statement;  and to extend
to  January  29,  1999 from  June 29,  1998 the Reset  Date  referred  to in the
Certificate of Designation of the Series D Preferred Stock. In addition, through
the Letter  Agreements,  the Company agreed to issue to such holders warrants to
purchase at $0.94375 per share,  an aggregate of up to 807,900  shares of Common
Stock, subject to certain anti-dilution adjustments,  exercisable until June 29,
2002.  The shares  were  valued at  approximately  $633,000  and  recorded  as a
dividend.  The Company had conditioned the  effectiveness of such consent on its
acceptance  by a majority of the Series D Preferred  Stockholders.  The Series D
Preferred  Stock began  earning  dividends,  payable in shares of the  Company's
Common Stock,  at the rate of 10% per annum  subsequent to the new Reset Date of
January 29, 1999.

        In February  1997,  the Company raised gross proceeds of $3 million in a
private placement of units consisting of (i) Senior Secured  Convertible  Bridge
Notes (the "Convertible  Notes") that bore interest at a stated rate of 12% (see
Warrants)  per annum and matured on December  31, 1997,  as  extended,  and (ii)
warrants to purchase an aggregate of approximately  6.4 million shares of common
stock.  The  Convertible  Notes  were  convertible  into  Series  D  Convertible
Preferred Stock at the option of the holder,  at an initial  conversion price of
$50.00 per share, subject to antidilution adjustments.  In May 1997, $650,000 of
the  Convertible  Notes were  converted into 13,000 shares of Series D Preferred
Stock and in December 1997, the remaining  $2,350,000 of the  Convertible  Notes
and accrued  interest  were  converted  into 52,415 shares of Series D Preferred
Stock.  Since it is unclear that the bridge notes had any value as indebtedness,
all of the $3.0 million  proceeds were  allocated to the warrants.  Accordingly,
the $3.0 million attributed to the value of the warrants, as well as interest at
the stated rate of 12% on the Convertible  Notes, was recorded during the period
the notes were outstanding.

        In  March  1996,  the  Company  raised  gross  proceeds  of  $6  million
(approximately $5.5 million net of offering fees) through the issuance of Series
C  Convertible  Preferred  Stock  (the  "Series  C  Preferred  Stock")  sold  to
institutional investors in a private placement. The Series C Preferred Stock was
immediately  convertible,  at the option of the  holder,  into  shares of common
stock at a conversion price equal to 75% of the average Nasdaq closing bid price
of Genta's common stock for a specified  period prior to the date of conversion.
In 1996, 5,620 shares of the Series C Preferred Stock and accrued dividends were
converted  at the option of the holders into  524,749  shares of Genta's  common



                                     - 71 -
<PAGE>

stock.  In 1997,  1,424  shares of the  Series C  Preferred  Stock  and  accrued
dividends  were  converted at the option of the holders  into 952,841  shares of
Genta's  common stock.  In connection  with a restatement  of the Company's 1996
financial  statements  included  in  its  Annual  Report  on  Form  10-K  and in
consideration of EITF D-60, which was issued in March 1997, the Company recorded
imputed  non-cash  dividends on preferred stock totaling  $2,348,000 in 1996 for
discounted conversion terms related to Series C convertible preferred stock.

        In December  1995,  the Company  completed  the sale of 3,000  shares of
Series B Convertible preferred stock (the "Series B Preferred Stock") at a price
of $1,000 per share to institutional investors outside of the United States. The
Series B  Preferred  Stock was  immediately  convertible,  at the  option of the
holder,  into shares of common stock at a  conversion  price equal to 75% of the
average Nasdaq closing bid prices of Genta's common stock for a specified period
prior to the date of conversion. The Series B Preferred Stock was converted into
226,943 shares of the Company's  common stock in February 1996 pursuant to terms
of the Series B stock purchase  agreements.  In connection with a restatement of
the Company's  1996 financial  statements  included in its Annual Report on Form
10K and in  consideration  of EITF D-60, the Company  recorded  imputed non-cash
dividends  on  preferred  stock  totaling  $1.0  million in 1995 for  discounted
conversion terms related to Series B convertible preferred stock.

        In  December  1993,  the Board of  Directors  of the  Company  adopted a
Stockholder Rights Plan which provides for the distribution of a preferred stock
purchase  right  ("Right") as a dividend for each share of the Company's  common
stock held of record at the close of business on January 21, 1994. Under certain
circumstances  involving an acquisition  of 15% or more of the Company's  common
stock or a specified business  combination (a "Trigger Event"), the Rights would
permit  the  holder  (other  than the 15%  holder)  to  purchase  shares  of the
Company's  common stock or, if applicable,  common stock of an acquirer at a 50%
discount upon payment of an exercise  price of $50 per Right.  The Rights expire
in December  2003 and may be redeemed by the Company prior to a Trigger Event at
a price of $.01 per Right.

        In October 1993,  the Company  completed  the sale of 600,000  shares of
Series A  convertible  preferred  stock ("the  Series A  Preferred  Stock") in a
private  placement  of units  consisting  of (i) one share of Series A Preferred
Stock and (ii) one  warrant to  acquire  one share of common  stock,  sold at an
aggregate  price of $50 per  unit.  Each  share of Series A  Preferred  Stock is
immediately  convertible,  at any time prior to  redemption,  into shares of the
Company's  common  stock,  at  a  rate  determined  by  dividing  the  aggregate
liquidation  preference of the Series A Preferred Stock by the conversion price.
The conversion price is subject to adjustment for  antidilution.  From January 1
through October 31, 1998, each share of Series A Preferred Stock was convertible
into 7.255 shares of Common Stock.  From  November 1, 1998 through  December 31,
1998, each share of Series A Preferred  Stock was convertible  into 7.333 shares
of Common Stock.

        Terms of the Company's  Series A Preferred Stock required the payment of
dividends  annually in amounts ranging from $3 per share per annum for the first
year to $4 per share in the  second  year to $5 per share per annum in the third
and fourth years. Dividends were paid in Common Stock in September 1996, for the
first and second year as  described  below,  at the  Company's  option.  As 1998
represents the fifth year of the Series A Preferred Stock, no further  dividends
were accrued.

        The  Company  may redeem  the Series A  Preferred  Stock  under  certain
circumstances,  and was required to redeem the Series A Preferred Stock, subject
to certain conditions, in September 1996 at a redemption price of $50 per share,
plus accrued and unpaid dividends (the "Redemption  Price"). The Company elected
to pay the  Redemption  Price in Common Stock in order to conserve  cash and was
required under the terms of the Series A Preferred Stock to use its best efforts
to arrange  for a firm  commitment  underwriting  for the resale of such  Common



                                     - 72 -
<PAGE>

Stock  which  would  allow the holders  ultimately  to receive  cash  instead of
securities for their Series A Preferred  Stock.  Despite using its best efforts,
the Company was unable to arrange for a firm commitment underwriting. Therefore,
under the terms of the  Series A  Preferred  Stock,  Genta was not  required  to
redeem such Series A Preferred  Stock in cash, but rather was required to redeem
all shares of Series A Preferred  Stock held by holders who elected to waive the
firm commitment  underwriting  requirement  and receive the redemption  price in
shares  of  Common  Stock.  A waiver  of the firm  commitment  underwriting  was
included as a condition of such redemption.  Through December 31, 1998,  holders
of 152,400  shares of Series A Preferred  Stock redeemed such shares and related
accrued and unpaid dividends for an aggregate of 839,483 shares of the Company's
Common Stock. The effect on the financial  statements was a reduction in accrued
dividends  on  preferred  stock,  a  reduction  in the Par value of  convertible
preferred  stock, an increase in the Par value of Common Stock,  and an increase
in additional paid-in capital. Should the remaining shares of Series A Preferred
stock be redeemed through conversion into the Company's Common Stock, the effect
on the financial statements would be the same as that previously described.  The
terms of the Series A Preferred Stock do not impose adverse  consequences on the
Company  if it is  unable  to  arrange  for  such an  underwriting  despite  its
reasonable efforts in such regard.

        The Company is  restricted  from paying cash  dividends  on Common Stock
until such time as all cumulative  dividends on  outstanding  shares of Series A
and Series D Preferred  Stock have been paid. The Company  currently  intends to
retain its earnings, if any, after payment of dividends on outstanding shares of
Series A and Series D Preferred Stock, for the development of its business.

        Warrants

        Series A Warrants were originally issued in connection with the Series A
Preferred  Stock in 1993. The Series A Warrants  expired in September  1998. The
Company  also issued a five year  warrant to  purchase  23,525  shares of common
stock at an  exercise  price of $17.00  per share in  connection  with a private
placement  of common  stock in May 1995.  In  addition,  five year  warrants  to
purchase  an  aggregate  of 24,731  shares of common  stock at  exercise  prices
ranging from $19.40 to $21.30 per share were issued to two  equipment  financing
companies  during 1995. In October 1996,  the Company issued a five year warrant
to purchase  37,512  shares of common  stock at an exercise  price of $13.20 per
share to a patent law firm, in exchange for legal services. In October 1996, the
Company  also  issued a five year  warrant to purchase  10,000  shares of common
stock  at an  exercise  price  of  $15.00  per  share  in  connection  with  the
Convertible Debentures issued in September 1996.

        In connection  with the  Convertible  Notes issued in February 1997, the
Company  issued  warrants to  purchase  6.4  million  shares of common  stock at
$0.471875 per share  (subject to  antidilution  adjustments).  In the absence of
objective  evidence  of the  separate  values of the  Convertible  Notes and the
related   warrants,   the  Company   allocated  the  entire  $3.0  million  cash



                                     - 73 -
<PAGE>

consideration  to the  warrants.  The  Convertible  Notes were accreted from the
original  recorded  value of zero to the face  amount of $3.0  million  over the
original  maturity  of the  Convertible  Notes,  resulting  in $3.0  million  of
interest expense in 1997.

        In 1997,  the Company  issued  warrants to purchase  50,000  warrants at
$2.50 per share  exercisable for five years in connection with a short-term line
of credit which  expired  prior to December 31, 1997.  The Company  valued these
warrants using the  Black-Scholes  valuation model and recorded interest expense
of $98,000 for the year ended December 31, 1997. In connection with the issuance
of the Premium  Preferred  Units(TM) in June 1997, the placement  agent received
warrants (the  "Placement  Warrants") to purchase up to 10% of the Units sold in
the Private Placement for 110% of the offering price per Unit. Furthermore,  the
Company has entered into a financial advisory agreement with the placement agent
pursuant to which the financial advisor is entitled to receive certain cash fees
and has received warrants (the "Advisory Warrants") to purchase up to 15% of the
Units sold in the Private Placement for 110% of the offering price per Unit. The
Placement Warrants and the Advisory Warrants expire on June 29, 2007.

        The  Note and  Warrant  Purchase  Agreement  provides  that a number  of
additional Bridge Warrants  ("Penalty  Warrants") equal to 1.5% of the number of
Bridge  Warrants then held by the Aries Funds shall be issued to the Aries Funds
for each day beyond 30 days after the final  closing  of the  Private  Placement
that a shelf  registration  statement  covering the Common Stock  underlying the
securities  purchased pursuant to the Note and Warrant Purchase Agreement is not
filed with the SEC and for each day beyond  210 days after the  closing  date of
the investment contemplated by the Note and Warrant Purchase Agreement that such
shelf  registration  statement is not declared effective by the SEC. The Company
filed such  shelf  registration  statement  with the SEC on  September  9, 1997;
however  the  Company  has to date been  unable to have such shelf  registration
statement  declared  effective  by the SEC. As a result,  the  Company  could be
obligated to issue  Penalty  Warrants to the Aries  Funds.  The Aries Funds have
not,  to date,  requested  that the Company  issue such  Penalty  Warrants.  The
Company and the Aries Funds are currently  conducting  negotiations to determine
whether, and to what extent, Penalty Warrants will be issued.

        Stock Benefit Plans

        1991 Plan

        The  Company's  1991 Stock Plan (the  "Plan")  provides  for the sale of
stock and the grant of stock options to employees,  directors,  consultants  and
advisors of the Company. Options may be designated as incentive stock options or
non-statutory  stock options;  however,  incentive  stock options may be granted
only to employees of the  Company.  Options  under the Plan have a term of up to
ten years and must be  granted  at not less than the fair  market  value (85% of
fair market value for non-statutory  options) on the date of grant. Common stock
sold and options  granted  pursuant to the Plan  generally vest over a period of
four to five years. Information with respect to the Company's 1991 Stock Plan is
as follows:


                                     - 74 -
<PAGE>

<TABLE>
<CAPTION>

                                                                                   Weighted
                                                                  Shares            Average
                                                                  Under          Exercise Price
                                                                  Option           Per Share
                                                                  ------           ---------
<S>                                                              <C>            <C>    

 Balance at December 31, 1995                                     188,884          $  23.96
  Granted..........................................                13,677             17.71
  Exercised........................................                (7,882)            21.77
  Cancelled........................................               (29,749)            22.32
                                                                 --------                  
Balance at December 31, 1996                                      164,930             23.77
  Granted..........................................                 6,670              3.71
  Exercised........................................                    --                --
  Cancelled........................................               (48,688)            23.21
                                                                 --------                  
                                                                                    
 Balance at December 31, 1997                                     122,912             22.90
   Granted.........................................               100,000              3.00
   Exercised.......................................                    --                --
   Cancelled.......................................               (88,674)            24.75
                                                                 --------                  
 Balance at December 31, 1998                                     134,238          $   6.85
                                                                 ========            ======
                                                                                 
</TABLE>

        In April  1995,  the Stock  Plan  Committee  of the  Board of  Directors
approved a program  whereby  employees  (including  executive  officers)  of the
Company and certain  other  option  holders  could  exchange  their  unexercised
options ("Old  Options") on a one-for-one  basis for new options ("New Options")
priced at the market  value on April 20,  1995.  The New  Options  have the same
vesting  schedule and  contractual  terms as the Old Options.  However,  the New
Options held by  employees  (excluding  executive  officers)  and certain  other
holders  were not  exercisable  until April 20, 1996 and the New Options held by
executive  officers of the  Company  were not  exercisable  until April 20, 1997
unless the holder is involuntarily  terminated without cause prior to such date.
An aggregate of 158,133 options with an average  exercise price of approximately
$78.40 per share were exchanged for New Options with an exercise price of $22.50
per share on April 20,  1995.  All of the  replacement  options are  included in
options granted and canceled in the above summary of stock option activity.

        At December 31, 1998, options to purchase approximately 97,000 shares of
common  stock  were   exercisable  at  a  weighted  average  exercise  price  of
approximately  $7.06 per share and approximately  144,276 shares of common stock
were available for grant or sale under the Plan.

        1998 Plan

        Pursuant to the Company's 1998 Stock Plan (the "Plan"), 6,750,000 shares
have been  provided  for the grant of stock  options  to  employees,  directors,
consultants and advisors of the Company.  Options may be designated as incentive
stock options or non-statutory stock options;  however,  incentive stock options
may be granted only to employees of the Company.  Options  under the Plan have a
term of up to ten years  and must be  granted  at not less than the fair  market
value,  85% of fair market value for  nonstatutory  options,  on the date of the
grant. Common stock sold and options granted pursuant to the Plan generally vest
over a period of four to five  years.  The  Company  granted  stock  options  to
purchase  3,961,263  shares of common stock in May 1998  subject to  shareholder
approval  which was  received  in July 1998.  As a result of an  increase in the
stock  price  between  May  and  July  1998,  the  Company   recorded   deferred
compensation  of  approximately  $841,000  of which  approximately $123,000  was
expensed  in the  fourth  quarter  of  1998.  Information  with  respect  to the
Company's 1998 Stock Plan is as follows:


                                     - 75 -
<PAGE>

                                                                   Weighted
                                                                    Average
                                        Shares Under            Exercise Price
        1998 Plan                         Option                   Per Share
        ---------                       --------------          --------------

Balance at December 31, 1997
Granted                                             --                      --
Exercised                                    2,836,263                   $0.94
Cancelled                                           --                      --
                                        --------------          --------------
Balance at December 31, 1998                 2,836,263                   $0.94
                                        ==============          ============== 


        At December 31, 1998, options to purchase  approximately  495,000 shares
of common  stock  were  exercisable  at a  weighted  average  exercise  price of
approximately $0.94 per share and approximately 2,188,737 shares of common stock
were available for grant or sale under the Plan.

        Pursuant to the Company's  Non-Employee  Directors' 1998 Stock Plan (the
"Directors' Plan"),  3,000,000  shares have been provided for the grant of stock
options to directors of the Company who are not Company employees. Options under
the Plan have a term of up to ten years and must be granted at not less than the
fair  market  value on the date of  grant.  Each  option  granted  shall  become
exercisable in full on the date of the Annual Meeting next following the date of
grant  provided tha the optionee  continues to serve as a member of the Board of
Directors immediately following such Annual Meeting.


                                                                     Weighted   
                                                                      Average   
                                           Shares under           Exercise Price
          1998 Directors' Plan                Option                per share
          --------------------            -------------           --------------
Balance at December 31, 1997                      --                     --     
Granted                                    1,725,000                  $0.94     
Exercised                                         --                     --     
Cancelled                                         --                     --     
                                           ---------                  -----     
Balance at December 31, 1998               1,725,000                  $0.94     
                                           =========                  =====     

        Pro forma  information  regarding  net loss is required by SFAS 123, and
has been  determined  as if the Company had  accounted  for its  employee  stock
options under the fair value method of that Statement.  The fair value for these
options was  estimated at the date of grant using the  Black-Scholes  method for
option pricing with the following  weighted-average  assumptions for 1996, 1997,
and 1998:  volatility  factors of the  expected  market  value of the  Company's
common stock of 80%, 102%, and 72% respectively; risk-free interest rates of 6%;
dividend  yields of 0%; and a  weighted-average  expected life of the options of
four to five years.

        For purposes of pro forma  disclosures,  the estimated fair value of the
options is amortized to expense over the options' vesting period.  The Company's
pro forma information follows:

                                                 Years ended December 31,

                                       1996           1997          1998
                                    -------------------------------------------

Pro forma net loss per
   common shareholder              $(17,294,920)  $(33,493,186)  $(8,699,775)
Pro forma loss per share           $      (5.80)  $      (7.57)  $    (1.24)
                             
        The results above are not likely to be  representative of the effects of
applying SFAS 123 on reported net income or loss for future years.

        The weighted-average grant-date fair value of the options granted during
the years ended  December 31, 1996,  1997 and 1998 was $11.59,  $2.75 and $0.50,
respectively.  Following is a further breakdown of the options outstanding as of
December 31, 1998:


                                     - 76 -
<PAGE>

<TABLE>
<CAPTION>
                                                                                        Weighted
                                       Weighted         Weighted                        average
                                        average         average                    exercise price of
      Range            Options         remaining        exercise        Options         options
    of prices        outstanding     life in years       price        exercisable     exercisable
------------------------------------------------------------------------------------------------------

<S>  <C>     <C>          <C>            <C>                <C>            <C>           <C>   
     $0.88 - $0.97     4,561,263          9.46           $ 0.94         495,158        $ 0.94
     $2.50 - $5.00       106,750          8.28           $ 3.04          81,570        $ 3.03
     $5.31 -$20.00         3,316          7.55           $14.62           1,227        $15.77
    $20.63 -$26.25        24,172          6.44           $22.65          13,952        $22.68
                  ------------------------------------------------------------------------------------
                       4,695,501          9.42           $ 1.11         591,907        $ 1.77
                  ====================================================================================
</TABLE>

        Common Stock Reserved

        An aggregate  of  approximately  51,381,265  shares of common stock were
reserved for the  conversion of preferred  stock and the exercise of outstanding
options and warrants at December 31, 1998.



                                     - 77 -
<PAGE>

10.  Research, Development and Licensing Arrangements

        The Company has entered  into  various  license,  royalty and  sponsored
research  agreements which provide the Company with rights to develop and market
products  covered  under the  agreements.  In  connection  with certain  license
agreements   entered  into  with  a  director  of  the  Company  and  two  other
stockholders,  JBL recorded royalty expense of $100,000, $87,500 and $0 in 1996,
1997, and 1998,  respectively,  which are recorded in the Company's discontinued
operations.

        The Company was not  obligated to repay any funding  received  under the
collaborative research and development agreements under any circumstances.

11.  Income Taxes

        Significant  components  of the  Company's  deferred  tax  assets  as of
December 31, 1997 and 1998 are shown below. A 100% valuation  allowance has been
recognized at December 31, 1997 and 1998 to offset the deferred tax assets as it
is more likely than not that the net  deferred  tax assets will not be realized.
The valuation allowance at December 31, 1996 approximated $32,508,000.

<TABLE>
<CAPTION>

                                                        December 31,
                                                   1997              1998
                                            -------------------------------------
<S>                                         <C>                     <C>    

Deferred tax assets:                                            
  Capitalized research expense..............      $  2,778,000      $  2,922,000
  Net operating loss carryforwards..........        25,969,000        29,559,000
  Research and development credits..........         3,703,000         4,028,000
  Purchased technology and license fees.....         4,491,000         4,491,000
  Other, net................................           497,000         1,130,000
                                            -------------------------------------
  Total deferred tax assets.................        37,438,000        42,130,000
  Valuation allowance for deferred tax 
     assets.................................       (36,456,000)      (41,214,000)
                                            -------------------------------------
                                                       982,000           916,000
Deferred tax liabilities:
  Patent expenses...........................          (729,000)         (585,000)
  Net depreciation..........................          (253,000)         (331,000)
                                            -------------------------------------
                                                      (982,000)         (916,000)
                                            -------------------------------------
Net deferred tax assets.....................  $             --  $             --
                                            =====================================

</TABLE>

        At December  31,  1998,  the Company  has  federal  and  California  net
operating  loss  carryforwards  of  approximately  $82,037,000  and  $14,721,000
respectively.  The  difference  between  the  federal  and  California  tax loss
carryforwards is primarily  attributable to the  capitalization  of research and
development   expenses  for  California  tax  purposes  and  the  fifty  percent
limitation on California loss carryforwards.  The federal tax loss carryforwards
will  begin  expiring  in  2003,  unless  previously   utilized.   Approximately
$2,767,000 and $532,000 of the California tax loss  carryforward  expired during
1997 and 1998,  respectively,  and the related  deferred  tax asset and tax loss
carryforward amounts have been reduced accordingly. The remaining California tax
loss will  continue to expire in 1999,  unless  utilized.  The Company  also has
federal and California  research and  development  tax credit  carryforwards  of
$3,160,000  and  $1,335,000  respectively,  which will begin  expiring  in 2003,
unless previously utilized.

        Federal and California tax laws limit the  utilization of income tax net
operating loss and credit  carryforwards  that arise prior to certain cumulative
changes  in a  corporation's  ownership  resulting  in change of  control of the
Company.  The future annual use of net operating loss carryforwards and research
and  development  tax credits will be limited due to the ownership  changes that
occurred during 1990, 1991, 1993, 1996, 1997 and 1998.


                                     - 78 -
<PAGE>

12.  Employee Savings Plan

        The Company began a 401(k) program in 1994, which allowed  participating
employees to contribute up to 15% of their salary,  subject to annual limits. In
January  1998,  the Board of  Directors  approved an increase to 20%,  effective
April 1, 1998, and subject to annual limits as established by the IRS. The Board
of Directors may, at its sole discretion, approve Company contributions. No such
contributions have been approved or made.

13.  Employee Terminations

        In  October  1996,  Genta  reassessed  its  personnel  requirements  and
established  a termination  plan whereby the Company  terminated 16 research and
administrative  employees and recorded  general and  administrative  expenses of
$850,000 for the related accrued severance costs.

        In May 1997,  Genta again  reassessed  its  personnel  requirements  and
established  another  termination plan involving the termination of an aggregate
of 12 research  and  administrative  employees  at Genta and Genta  Europe.  The
Company recorded general and  administrative  expenses of $868,000 in the second
quarter of 1997 for related accrued  severance  costs.  There have  subsequently
been no  adjustments  to the  liabilities  originally  recorded  and the  actual
termination benefits paid were equal to the liabilities recorded.

14.  Contingencies

        Pursuant to the Settlement  Agreement (note 9), the Company  agreed:  to
issue to LBC 2,900 shares of Series D Convertible  Preferred  Stock: to issue to
LBC or its designee  five-year  warrants (the "LBC Warrants") to acquire 700,000
shares of Common Stock at an exercise price of $0.52 per share;  to make certain
payments to LBC totaling  approximately  $182,000;  and to pay to LBC,  upon the
exercise  of certain  warrants,  a  commission  equal to up to  $150,000  in the
aggregate.  The  respective  conversion  and  exercise  prices  of the  Series D
Preferred  Stock  and the LBC  Warrants  are  subject  to  adjustment  upon  the
occurrence of certain events.  The fair value  attributed to the 2,900 shares of
Series D Preferred  Stock and the Class D Warrants  approximated  $965,000.  The
Company  provided for  $600,000 of this  $1,147,000  settlement  in 1997 and the
remaining amount in 1998.

        On June 4,  1998,  the  Company's  statutory  process  agent  received a
Summons and Complaint in a lawsuit  brought by Johns Hopkins against the Company
in Maryland Circuit Court for Baltimore City (Case No. 98120110).  Johns Hopkins
alleges  in the  Complaint  that the  Company  has  breached  the Johns  Hopkins
Agreement  and owes them  licensing  royalty  fees and  related  expenses in the
amount of $308,832. Johns Hopkins also alleges the existence of a separate March
1993 letter agreement wherein the Company agreed to support a fellowship program
at the Johns  Hopkins  School of  Hygiene  and Public  Health and the  Company's
breach  thereof,  with  damages of  $326,829.  On August 10, 1998 the  Company's
statutory  process agent  received a Summons and Complaint in a related  lawsuit
brought by the Ts'o/Miller Partnership and others



                                     - 79 -
<PAGE>


against  the  Company in the same court  (Case No.  98182113).  The  Ts'o/Miller
Partnership  claims  that it is owed  licensing  royalty  fees in the  amount of
$287,671.  The Company is  currently  in  settlement  negotiations.  The Company
believes that no further accrual is necessary pursuant to this settlement.

        In October 1996,  JBL retained a chemical  consulting  firm to advise it
with respect to an incident of soil and groundwater contamination (the "Spill").
Sampling  conducted at the JBL facility  revealed the presence of chloroform and
perchloroethylenes  ("PCEs") in the soil and  groundwater  at this site.  JBL is
conducting a quarterly groundwater monitoring program, under the supervision of
the California Regional Water Quality Control Board, for purposes of determining
whether the levels of chloroform and perchloroethylenes  ("PCEs") have decreased
over time.  The results of the latest  sampling  conducted by JBL show that PCEs
and  chloroform  have  decreased  in all but one of the  monitoring  sites.  The
Company  believes  that  any  costs  stemming  from  further   investigating  or
remediating  this  contamination  will not have a material adverse effect on the
business of the Company, although there can be no assurance thereof.

         JBL  received  notice  on  October  16,  1998  from  Region  IX of  the
Environmental  Protection  Agency  ("EPA")  that  it had  been  identified  as a
potentially  responsible  party ("PRP") at the Casmalia  Disposal Site, which is
located in Santa Barbara,  California.  JBL has been  designated as a de minimis
PRP by the EPA.  The EPA  currently  estimates  that the de minimis PRPs will be
required to pay as little as $75,000  and as much as  $750,000  to settle  their
potential liability, depending upon the volume of wastes attributed to them. The
Company received an estimated  volume  calculation from the EPA, and a response,
which is due on June 9, 1999, is currently under review.  While the terms of the
settlement  with the EPA have not been finalized,  they should contain  standard
contribution  protection and release  language.  The Company has accrued $75,000
during  1998.  The  Company  believes  that  any  costs  stemming  from  further
investigating or remediating this contamination will not have a material adverse
effect on the  business  of the  Company,  although  there  can be no  assurance
thereof.

         On June 30, 1998,  the Director  General of the  Company's  subsidiary,
Genta Pharmaceuticals  Europe, SA ("Genta Europe"),  was served notice of a suit
in Marseilles,  France by Marseille  Amenagement,  the manager of the Company's
facilities in Marseilles.  On July 30, 1998, the Company's  office in San Diego,
California  was also  served  notice of the suit.  The suit seeks the payment of
unpaid  past  rents  in  the  amount  of  473,465  FF  (as  of  April  8,  1999,
approximately  $77,601),  the removal of the Company  from the  facility  and an
indemnity payment of 1,852,429 FF (as of April 8, 1999, approximately $303,613),
which is allegedly equal to the balance of the first nine years' rent.

        On July 1, 1998, ANVAR notified Genta Europe by letter of its claim that
the Company remains liable for 4,187,423 FF (as of April 8, 1999,  approximately
$686,319)  and is  required  to pay this  amount  immediately.  In view of these
events,  The Board of Directors of Genta Europe directed the Director General to
declare  "Cessation  of  Payment"  in the  commercial  court  of  France,  which
declaration was made in July 1998. Under this procedure, Genta Europe ceased any
operations and  terminated its only employee.  A liquidator was appointed by the
Court to take  control  of any  assets of Genta  Europe  and to make  payment to
creditors.  In December 1998, the Court in Marseilles dismissed the case against
Genta  Europe  and  indicated  that  it  had  no   jurisdiction   against  Genta
Incorporated.  The  Company's  attorney in France  notified the plaintiff of the
decision  and that  they have 30 days from such  notice to  appeal.  The  30-day
appeal period has elapsed and the Company is awaiting formal notification by the
court  that an  appeal  had not been  made.  Such  decision  does  not  preclude
Marseille  Amenagement from pursuing its claims in other courts in France or the
United States,  and there can be no assurance  that it will not do so.  However,
the Company's legal counsel has represented  that the probability of such action
is remote.


                                     - 80 -
<PAGE>

15.  Genta Europe

        The  Company's  loss on its  European  operations  for the  years  ended
December  31,  1996,  1997 and  1998  were  $1,247,713,  $806,687,  and  $98,134
respectively.

16.  Gain on Sale of Technology

        In December 1996,  the Company sold the rights to two  development-stage
dermatological products for cash of $373,261

17.   Business Segments

        The  Company  has had two  reportable  segments:  pharmaceutical  (drug)
research and development at Genta and chemical manufacturing at JBL. Genta is an
emerging  biopharmaceutical  company.  The Company's  research efforts have been
focused  on  the  development  of  proprietary  oligonucleotide  pharmaceuticals
intended to block or regulate the production of disease related  proteins at the
genetic level. The Company's  oligonucleotide  programs are focused primarily in
the area of cancer.  JBL is a manufacturer of high-quality  specialty  chemicals
and  intermediate  products  for  the  pharmaceutical  and in  vitro  diagnostic
industries.  A Number of Fortune 500  companies use JBL products as raw material
in the  production  of a final  product.  JBL markets  its  products to over 100
purchasers in the pharmaceutical and diagnostic industries.

        Business segment accounting  policies are the same as those described in
the summary of significant  accounting policies. As further described in Note 2,
as a  result  of its  pending  sale,  JBL has  been  presented  as  discontinued
operations.  The  Company  evaluates  performance  based on  profit or loss from
operations  before income taxes,  interest expense,  and interest  revenue.  The
Company  also  accounts  for  intersegment  sales as if the sales  were to third
parties.

        The  Company's  reportable  segments are strategic  business  units that
offer different products and services.  They are managed separately because each
business unit requires different technology and marketing strategies.

        The following table presents certain segment  financial  information and
the reconciliation of segment financial information to consolidated totals as of
and for the years ended December 31, 1996, 1997 and 1998.

<TABLE>
<CAPTION>
                                                            FISCAL YEARS ENDED DECEMBER 31,
                                                        1996              1997              1998
<S>                                                <C>               <C>               <C>          
Revenues:
   Drug Development - external customers           $        --       $    50,000       $    50,000
   Drug Development - related party                  1,558,962           350,097            55,087
   Drug development gain on sale of               
     technology                                        373,261
   Total revenues from continuing                 
      operation                                    $ 1,932,223       $   400,097       $   105,087
                                                  
   Chemical Mfg. - discontinued operations           4,924,694         4,701,649         5,346,795
                                                  
Cost and Expenses:                                
   Drug Development - continuing operations        $ 9,688,841       $10,040,571       $ 6,683,123
   Chemical Mfg. - discontinuing operations          5,821,905         6,520,831         6,087,565

Net Loss from operations
   Drug Development                                $(7,756,618)      $(9,640,474)      $(6,578,036)
   Loss from discontinued operations                  (878,978)       (1,741,339)         (739,965)
   Net loss of liquidated foreign subsidiary                                               (98,134)
   Other income and (expenses)                        (744,670)       (2,850,683)          (37,912)
   Equity in net loss of joint venture              (2,712,183)       (1,193,321)         (131,719)
                                                   ------------      ------------      ------------
   Total Net Loss                                 $(12,092,449)     $(15,425,817)      $(7,585,766)

Segment Assets
   Drug Development - continuing operations       $  8,805,726      $ 15,078,949       $ 7,551,293
   Chemical Mfg. - discontinuing operations          3,843,733         2,449,002         2,606,304
                                            

</TABLE>


        Assuming the closing of the sale of JBL,  Genta's  revenues from product
sales will be  discontinued.  Accordingly,  historical  revenue  trends  follow.
Europa  Bioproducts  ("Europa"),  JBL's  European  distributor,   accounted  for
approximately  27% of product sales in 1996,  25% in 1997,  and 14% in 1998. The
decrease  primarily  reflects a changing  product and  customer  mix.  One other
customer,  who accounted  for less than 10% of product sales in 1997,  accounted
for more than 19% of products sales in 1998.  Individual  customers' demands for
JBL products  generally  fluctuate  with the outcomes of clinical  trials or the
availability of funding.


                                     - 81 -


<PAGE>

                          INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Shareholders of
Genta Jago Technologies B.V.

We have audited the accompanying  balance sheet of Genta Jago  Technologies B.V.
(a development  stage company) (the  "Company") as of December 31, 1998, and the
related statements of operations,  stockholders'  equity, and cash flows for the
year then ended,  and for the period from  December 15, 1992 (date of inception)
to December 31, 1998. These financial  statements are the  responsibility of the
Company's  management.  Our  responsibility  is to  express  an opinion on these
financial  statements based on our audit. The Company's financial statements for
the period December 15, 1992 (date of inception)  through December 31, 1997 were
audited by other  auditors  whose  report,  dated June 18,  1998,  expresses  an
unqualified  opinion and includes an explanatory  paragraph which indicates that
there are matters that raise  substantial  doubt about the Company's  ability to
continue as a going concern.  The financial  statements for the period  December
15, 1992 (date of inception)  through  December 31, 1997 reflect total  revenues
and net  loss of  $19,040,894  and  $23,868,479,  respectively,  of the  related
totals.  The other  auditors'  report has been furnished to us, and our opinion,
insofar as it relates to the amounts  included for such prior  period,  is based
solely on the report of such other auditors.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards  require that we plan and perform the audit to obtain reasonable
assurance   about  whether  the  financial   statements  are  free  of  material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audit and the report of other auditors  provide a reasonable
basis for our opinion.

In our  opinion,  based on our audit  and the  report  of other  auditors,  such
financial  statements  present fairly, in all material  respects,  the financial
position  of the  Company  as of  December  31,  1998,  and the  results  of its
operations  and its cash flows for the year then ended,  and for the period from
December 15, 1992 (date of inception)  to December 31, 1998, in conformity  with
generally accepted accounting principles.

The  accompanying  financial  statements  have been  prepared  assuming that the
Company will continue as a going  concern.  The Company is a  development  stage
enterprise  engaged  in  developing  and  commercializing  pharmaceuticals.   As
discussed  in Note 1 to the  financial  statements,  the  deficiency  in working
capital  and net capital  deficiency  at  December  31,  1998 and the  Company's
operating losses since inception,  raise  substantial doubt about its ability to
continue as a going concern.  Management's  plans  concerning  these matters are
also  described  in  Note  1.  The  financial  statements  do  not  include  any
adjustments that might result from the outcome of these uncertainties.

DELOITTE & TOUCHE EXPERTA LTD.
Basel, Switzerland
April 15, 1999



                                     - 82 -
<PAGE>


                         Report of Independent Auditors

The Board of Directors and Stockholders
Genta Jago Technologies, B.V.

We have audited the accompanying balance sheet of Genta Jago Technologies,  B.V.
(a  development  stage  company)  as of  December  31,  1997,  and  the  related
statements of operations, stockholders' equity (net capital deficiency) and cash
flows for each of the two years in the period  ended  December  31, 1997 and for
the period  December 15, 1992  (inception)  through  December  31,  1997.  These
financial  statements are the  responsibility of the Company's  management.  Our
responsibility  is to express an opinion on these financial  statements based on
our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects,  the financial position of Genta Jago Technologies,  B.V.
(a  development  stage  company) at December  31,  1997,  and the results of its
operations  and its cash  flows  for each of the two years in the  period  ended
December  31,  1997 and for the period  December  15, 1992  (inception)  through
December 31, 1997, in conformity with generally accepted accounting principles.

As discussed  in Note 1 to the  financial  statements,  the Company has incurred
operating losses since inception and requires substantial  additional sources of
financing to fund its continuing operations.  These conditions raise substantial
doubt  about the  Company's  ability to continue  as a going  concern.  The 1997
financial  statements do not include any adjustments  that might result from the
outcome of this uncertainty.


                                             ERNST & YOUNG LLP

San Diego, California
June 18, 1998



                                      - 83 -


<PAGE>

                               Genta Jago Technologies B.V.
                               (a development stage company)

                                      Balance Sheets

<TABLE>
<CAPTION>
                                                                     December 31,
Assets                                                           1997           1998
                                                           -------------------------------
<S>                                                              <C>            <C>      
Current assets:
  Cash and cash equivalents................................   $      9,247    $        --
  Receivables under collaboration agreements...............      1,399,854      3,348,178
  Other current assets.....................................         22,246         24,349
                                                           -------------------------------
Total current assets.......................................      1,431,347      3,372,527

Property and equipment, net................................          2,300          1,000
Other assets...............................................          1,672         10,927
                                                           -------------------------------
                                                                $1,435,319      3,384,454
                                                           ===============================

Liabilities and net capital deficiency Current liabilities:
  Accounts payable and accrued expenses....................     $1,792,293        440,458
  Payable to related parties...............................      3,420,456      7,985,810
                                                           -------------------------------
Total current liabilities..................................      5,212,749      8,426,268

Notes payable to Genta Incorporated........................     15,837,099     15,837,099
Stockholders' equity (net capital deficiency):               
  Common Stock, 14,700 shares authorized, 10,000
  shares issued and outstanding at stated value............        512,000        512,000
  Additional paid-in capital...............................      3,741,950      3,741,950
  Deficit accumulated during the development stage.........    (23,868,479)   (25,132,863)
                                                           -------------------------------
Net capital deficiency.....................................    (19,614,529)   (20,878,913)
                                                           -------------------------------
                                                               $ 1,435,319    $ 3,384,454
                                                           ===============================
</TABLE>



                                 See accompanying notes.



                                     - 84 -



<PAGE>

                               Genta Jago Technologies B.V.
                                (a development stage company)

Statements of Operations

<TABLE>
<CAPTION>
                                                                                               Cumulative from
                                                                                              December 15, 1992
                                                                                              inception) through
                                                   Years ended December 31,                      December 31,
Revenues:                                                1996           1997         1998            1998
                                                    -------------------------------------------------------------
<S>                                                 <C>           <C>            <C>             <C>          
  Collaborative research and development            $  5,477,059  $ 3,634,516     $2,161,954    $  21,202,848


  Cost and expenses:
   Research   and   development,    including
   contractual  amounts to related parties of
     $7,040,438,and $4,540,067,  $1,876,444 and
     $40,169,225  in 1996,  1997,  1998 and the
     period from December 15, 1992  (inception)
     to December 31, 1998, respectively                8,091,465    4,740,299      1,963,326        44,967,209
 
  General and administrative                             361,920       50,869        148,241         1,584,493
                                                  -------------------------------------------------------------
                                                       8,453,385    4,791,168      2,111,567        46,551,702
                                                  -------------------------------------------------------------
Loss from operations                                 (2,976,326)   (1,156,652)        50,387       (25,348,854)
                                                                 
Other income (expense):                                           
  Gain on waiver of debt in exchange for return                   
  of license rights to related party                         --            --            --          4,703,352
Interest income                                           5,814           209             92            19,847
Interest expense                                       (961,075)   (1,175,411)    (1,314,863)       (4,507,208)
                                                  -------------------------------------------------------------
                                                       (955,261)   (1,175,202)    (1,314,771)          215,991
                                                  -------------------------------------------------------------
Net loss                                           $ (3,931,587)  $(2,331,854)   $(1,264,384)     $(25,132,863)
                                                  =============================================================

                                   See accompanying notes.



                                      - 85 -



<PAGE>

                             Genta Jago Technologies B.V.
                              (a development stage company)

                Statement of Stockholders' Equity (Net Capital Deficiency)

                    December 15, 1992 (inception) to December 31, 1998
                                                                                                       Deficit
                                                                                                     accumulated       Stockholders'
                                                                                                      during the          equity
                                                          Common stock             Additional        development       (net capital
                                                    shares            amount     paid-in capital        stage          deficiency)
                                                 ----------------------------------------------------------------------------------
Issuance of common stock at $51.20 per share                                                                       
   for cash......................................       2,940          $150,528    $        --      $          --     $  150,528
Capital contributions in excess of stated value            --                --         12,882                 --         12,882
                                                 ----------------------------------------------------------------------------------
Balance at December 31, 1992.....................       2,940           150,528         12,882                 --        163,410
Issuance of common stock at $51.20 per share                                                                       
for cash.........................................       7,060           361,472             --                 --        361,472
Capital contributions in excess of stated value..          --                --      3,729,068                 --      3,729,068
Net Loss ........................................          --                --             --         (5,842,165)    (5,842,165)
                                                 ----------------------------------------------------------------------------------
Balance at December 31, 1993.....................      10,000           512,000      3,741,950         (5,842,165)    (1,588,215)
Net Loss.........................................          --                --             --         (8,351,381)    (8,351,381)
                                                 ----------------------------------------------------------------------------------
Balance at December 31, 1994.....................      10,000           512,000      3,741,950        (14,193,546)    (9,939,596)
Net Loss.........................................          --                --             --         (3,411,492)    (3,411,492)
                                                 ----------------------------------------------------------------------------------
Balance at December 31, 1995.....................      10,000           512,000      3,741,950        (17,605,038)   (13,351,088)
Net Loss.........................................          --                --             --         (3,931,587)    (3,931,587)
                                                 ----------------------------------------------------------------------------------
Balance at December 31, 1996.....................      10,000           512,000      3,741,950        (21,536,625)   (17,282,675)
Net Loss.........................................          --                --             --         (2,331,854)    (2,331,854)
                                                 ----------------------------------------------------------------------------------
Balance at December 31, 1997.....................      10,000          $512,000    $ 3,741,950       $(23,868,479)$  (19,614,529)
                                                 ----------------------------------------------------------------------------------
Net Loss.........................................          --                --             --         (1,264,384)    (1,264,384)
                                                 ----------------------------------------------------------------------------------
Balance at December 31, 1998                           10,000          $512,000    $ 3,741,950        (25,132,863)   (20,878,913)
                                                 ----------------------------------------------------------------------------------

                                  See accompanying note.



                                      - 86 -


<PAGE>

                                        Genta Jago Technologies B.V.
                                       (a development stage company)

                                          Statements of Cash Flows
                                                                                           Cumulative from
                                                                                          December 15, 1992
                                                                                           (inception) to
                                                       Years ended December 31,             December 31,
                                                    1996          1997         1998             1998
                                              ------------------------------------------ -------------------
Operating Activities
Net loss                                          $(3,931,587) $(2,331,854) $(1,264,384)       $(25,132,863)
        Items reflected in net loss not requiring
         cash:
  Depreciation and amortization                          2,600        2,600        1,300             17,068
  Technology license fee                                    --           --           --            192,580
  Gain on waiver of debt in exchange for
         return of license rights to related party          --           --           --         (4,703,352)
  Changes in operating assets and liabilities:
     Advance contract payments to related
         parties                                     1,538,594           --           --                 --
     Receivables under collaboration
         agreements                                  (903,838)    (496,016)  (1,948,324)         (3,348,178)
     Other current assets                            (105,934)       83,688     (11,358)            (33,604)
     Accounts payable and accrued
         expenses                                      324,185    1,220,754  (1,351,835)            440,458
     Payable to related parties                      1,686,614      939,004    4,565,354          7,985,810
     Deferred contract revenue                       (317,555)           --           --                 --
                                              ------------------------------------------ -------------------
Net cash used in operating activities              (1,706,921)    (581,824)      (9,247)        (24,582,081)

Investing Activities
Purchase of property and equipment and                 (2,159)        4,979           --            (19,740)
     other
                                              ------------------------------------------ -------------------
Net cash provided by (used in) investing
     activities                                        (2,159)        4,979           --            (19,740)

Financing Activities
Proceeds from issuance of common stock
     and capital contributions                              --           --           --          4,061,370
Proceeds from notes payable to related party         1,500,000      550,000           --         21,140,643
Repayment of notes payable to related party                 --           --           --           (600,192)
                                              ------------------------------------------ -------------------
Net cash provided by financing activities            1,500,000      550,000           --         24,601,821
                                              ------------------------------------------ -------------------
Increase (decrease) in cash and cash                                        
     equivalents                                      (209,080)     (26,845)      (9,247)                --
Cash and cash equivalents at beginning of
     period                                            245,172       36,092        9,247                 --
                                              ------------------------------------------ -------------------
Cash and cash equivalents at end of period        $     36,092     $  9,247      $    --        $        --
                                              ========================================== ===================
Supplemental disclosure of cash flow 
      information:
                                              ==============================================================
Interest paid                                     $         --     $             $    --        $   299,808
                                              ==============================================================
</TABLE>

                             See accompanying notes.



                                      - 87 -



<PAGE>

                          Genta Jago Technologies B.V.
                          (a development stage company)

                          Notes to Financial Statements

                                December 31, 1998

1.  Organization and Significant Accounting Policies

Organization and Business

        Genta Jago Technologies B.V. ("Genta Jago") was incorporated in December
1992 under the laws of the Netherlands.  Genta Jago is a joint venture owned and
controlled  50%  by  Genta   Incorporated   ("Genta")  and  50%  by  Jagotec  AG
("Jagotec"), a subsidiary of Jago Holding AG which was acquired by SkyePharma in
May 1996. Genta Jago was formed to develop and commercialize  pharmaceuticals in
six major therapeutic areas, and commenced  research and development  activities
in  January  1993.  Genta  Jago is  managed  under the  direction  of a Board of
Managing  Directors  consisting of two members  appointed from each of Genta and
Jagotec and one outside member.

        In connection  with the  formation of the joint  venture in 1992,  Genta
Jago   obtained   from   Jagotec  an  exclusive   license  to   GEOMATRIX   oral
controlled-release  technology  for the  development  and  commercialization  of
approximately 25 specified products. In May 1995, Genta and Jagotec entered into
an  agreement  to  expand  Genta  Jago by  adding  the  rights  to  develop  and
commercialize an additional 35 products (see note 2, "Expansion of Genta Jago").
Genta   Jago   maintains   the   rights   to   develop   and  to   commercialize
controlled-release  formulations  of  approximately  60 products using Jagotec's
GEOMATRIX technology.

        Genta  Jago is  dependent  on  future  funding  from  Genta  (see Note 2
"Capital  Contributions and Working Capital  Agreement") and corporate  partners
and is considered a development  stage company.  Genta has incurred  significant
operating  losses since  inception  and expects that they will  continue for the
next several years. These conditions raise substantial doubt about the Company's
ability to continue as a going concern.

        On March 4,  1999,  Genta and  SkyePharma  (on  behalf of itself and its
affiliates)  entered into an interim agreement  pursuant to which the parties to
the joint  venture  released  each other from all  liability  relating to unpaid
development   costs  and  funding   obligations  and  SkyePharma  agreed  to  be
responsible for  substantially all the obligations of the joint venture to third
parties and for the further  development of the joint venture's  products,  with
any net income  resulting  therefrom to be allocated in agreed-upon  percentages
between Genta and SkyePharma as set forth in such interim agreement.

Revenue Recognition

        Collaborative  research and development  revenues are recorded as earned
as research and  development  activities  are  performed  under the terms of the
contracts,  with such revenues  generally  approximating  costs  incurred on the
programs. Payments received in excess of amounts earned are deferred.



                                      - 88 -



<PAGE>

Research and Development Expenses

        Research and development costs are expensed as incurred.

Depreciation

        The costs of furniture and equipment are depreciated  over the estimated
useful lives of the assets using the straight-line method.

Use of Estimates

        The  preparation  of financial  statements in conformity  with generally
accepted  accounting  principles  requires  management  to  make  estimates  and
assumptions  that affect the reported  amounts of assets and  liabilities at the
date of the  financial  statements  and the  reported  amounts of  revenues  and
expenses  during the reporting  period.  Actual results could differ  materially
from those estimates.

        Income Taxes

        The Company uses the liability  method of  accounting  for income taxes.
Deferred  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.

        In accordance with Statement of Financial  Accounting Standards ("SFAS")
No. 109 the  Company  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.  In assessing  the
realizability of deferred assets, management considers whether it is more likely
than not that some or all of the deferred  tax assets will not be realized.  The
ultimate  realization of deferred tax assets is dependent upon the generation of
future taxable  income and when temporary  differences  become  deductible.  The
Company considers, among other available information,  uncertainties surrounding
the recoverability of deferred tax assets,  scheduled  reversals of deferred tax
liabilities,  projected future taxable income,  and other matters in making this
assessment.

Recently Issued Accounting Standards

        In June 1997, the Financial  Accounting Standards Board issued Statement
of Financial Accounting Standard No. 130, Reporting  Comprehensive Income ("SFAS
No. 130") and SFAS No. 131,  Segment  Information.  Both of these  standards are
effective  for fiscal  years  beginning  after  December  15, 1997 and have been
adopted by the Company in 1998.  SFAS No. 130 requires  that all  components  of
comprehensive  income,  including  net  income,  be  reported  in the  financial
statements  in the  period  in which  they  are  recognized.  Genta  Jago had no
material  component of  comprehensive  income other than net loss.  SFAS No. 131
amends  the  requirements  for  public   enterprises  to  report  financial  and
descriptive  information  about their  enterprises for which separate  financial
information  is available and is evaluated  regularly by the Company in deciding
how  to  allocate  resources  and  in  assessing   performance.   The  financial
information  is required to be  reported,  as disclosed in Note 17, on the basis
that is used  internally  for  evaluating  the segment  performance.  Genta Jago
operates in only one business segment.

        In June 16, 1998 the Financial  Accounting  Standards  Board issued SFAS
No. 133, "Accounting for Derivative Instruments  and Hedging  Activities".  This
standard is effective for fiscal years  beginning  after June 15, 1999. SFAS No.
133 establishes  accounting and reporting standards for derivative  instruments,
including certain derivative  instruments  embedded in other contracts,  and for
hedging activities. It requires an entity to recognize all derivatives as either
assets or  liabilities  in the  statement  of  financial  position  and  measure
instruments  at fair value.  The Company is currently  evaluating  the impact of
this  pronouncement  and does not  believe  adoption of SFAS No. 133 will have a
material impact on the Company's financial statements.

2.  Related Party Transactions

License Agreements

        Genta Jago entered into license agreements with Genta in connection with
the planned development and  commercialization  of Anticode(TM)  oligonucleotide
products  and with  Jagotec  in  connection  with the  planned  development  and
commercialization of GEOMATRIX oral  controlled-release  products.  Genta Jago's
license with Genta in relation to the Anticode(TM)  oligonucleotide products was
terminated  in 1995;  however,  the license in relation  to the  GEOMATRIX  oral
controlled-release  products with Jagotec was not  terminated.  Pursuant to such
agreements,  Genta Jago recorded license fee expense of $620,000,  $85,000,  and
zero during the years ended December 31, 1996, 1997, and 1998, respectively.

Research and Development and Service Agreements

        Genta Jago has contracted with Genta and Jagotec to conduct research and
development and provide certain other services.  Under terms of such agreements,
Genta Jago  generally is required to reimburse the parties for their  respective
costs incurred plus a specified  mark-up.  Payments for research and development
services are  generally  made in advance and are  refundable if the services are
not performed. For the years ended December 31, 1996, 1997, and 1998, Genta Jago
incurred  expenditures  of $7 million,  $4.5  million,  and $1.9,  respectively,



                                      - 89 -



<PAGE>

pursuant to such research and development and service agreements.

Capital Contributions and Working Capital Agreement

        On March 4,  1999,  Genta and  SkyePharma  (on  behalf of itself and its
affiliates)  entered into an interim agreement  pursuant to which the parties to
the joint  venture  released  each other from all  liability  relating to unpaid
development   costs  and  funding   obligations  and  SkyePharma  agreed  to  be
responsible for  substantially all the obligations of the joint venture to third
parties and for the further development of the joint veture's products, with any
net income  resulting  therefrom  to be  allocated  in  agreed-upon  percentages
between Genta and  SkyePharma as set forth in such interim  agreement.  However,
historically  and in connection  with the formation of the joint venture,  Genta
contributed  $4 million in cash to Genta Jago as well as the rights to apply its
Anticode(TM)  oligonucleotide  technology to six products.  Genta issued 120,000
shares of Common Stock valued at $7.2 million to Jagotec and its  affiliates  in
1992,  for its  interest  in Genta Jago,  to induce  Jagotec to license to Genta
Jago,  for  what  the  parties  believed  was a  substantial  discount  from the
underlying value of such license, Jagotec's GEOMATRIX technology with respect to
approximately  25  products  (the  "Initial  License")  and to  license to Genta
Jagotec's GEOMATRIX technology for use in Genta's  Anticode(TM)  oligonucleotide
development  programs.  In addition,  Genta Jago entered into a working  capital
agreement with Genta which expired in October 1998.  Pursuant to this agreement,
Genta was required to make working  capital loans to Genta Jago up to a mutually
agreed upon maximum principal  amount,  which amount is established by Genta and
Genta Jago not less than once each calendar  quarter,  if necessary,  based upon
the review and  consideration  by the  parties of  mutually-acceptable  budgets,
expense  reports,  forecasts and workplans for research and  development  of the
products by Genta Jago.  Genta was not required to fund amounts in excess of the
agreed-upon commitment amount. Working capital loans consist of cash advances to
Genta Jago from Genta and research expenses incurred by Genta on behalf of Genta
Jago.  As of December 31,  1998,  Genta had advanced  working  capital  loans of
approximately  $15.8 million to Genta Jago, net of principal  repayments and the
loan credit discussed below. Such loans bore interest at rates per annum ranging
from 5.81% to 7.5%,  and were payable in full on October 20,  1998,  but payment
has not been  received.  As a result of the March 4, 1999  agreement,  it is not
expected that the working capital loans will be paid.

Expansion of Genta Jago

        In 1995,  Genta Jago  obtained  from  Jagotec  the rights to develop and
commercialize  an  additional  35 products  (the  "Additional  Products")  using
Jagotec's GEOMATRIX technology.  With these Additional Products,  Genta Jago now
maintains the rights to develop controlled-release formulations of approximately
60 products using Jagotec's GEOMATRIX technology.  Genta Jago is required to pay
certain  additional  fees to Jagotec upon Genta Jago's  receipt of revenues from
third parties, and pay manufacturing royalties to Jagotec.

Return of Anticode(TM) Antisense License

        Also in 1995,  the  parties  elected to focus  Genta  Jago's  activities
exclusively on GEOMATRIX  oral-controlled  release products.  As a result, Genta
Jago  returned to Genta the rights to develop six  Anticode(TM)  Oligonucleotide
products  originally  licensed  from Genta in  connection  with the formation of
Genta  Jago  in  1992.  In  connection  with  the  return  of  the  Anticode(TM)
Oligonucleotide  license rights to Genta in May 1995,  Genta Jago's note payable
to Genta was credited with a principal  reduction of approximately  $4.4 million
and accrued  interest  payable to Genta was reduced by  approximately  $300,000.
Genta Jago  recorded the loan credit and related  accrued  interest as a gain on
waiver of debt in exchange for return of license  rights to Genta,  based on the
legal structure of the transaction.



                                      - 90 -



<PAGE>

3.  Collaborative Research and Development Agreements

        Genta Jago/Gensia/Brightstone.  In January 1993, Genta Jago entered into
a collaboration  agreement with Gensia for the development and commercialization
of certain oral  controlled-release  pharmaceutical  products  for  treatment of
cardiovascular  disease.  Under  the  agreement,  Gensia  provides  funding  for
formulation  and  preclinical  development  to be conducted by Genta Jago and is
responsible  for clinical  development,  regulatory  submissions  and marketing.
Terms of the agreement  provide Gensia exclusive rights to market and distribute
the products in North America, Europe and certain other countries. The agreement
has a term of the longer of twelve  years and the patent term in the  respective
countries within the territory.  Genta Jago received $2.2 million,  $1.2 million
and $1.0 million of funding in 1996,  1997 and 1998,  respectively,  pursuant to
the  agreement.  Collaborative  revenues of $2.8 million,  $1.5 million and $2.2
million were recognized  under the agreement during the years ended December 31,
1996, 1997 and 1998, respectively. Effective October 1996, Gensia and SkyePharma
reached an agreement whereby a SkyePharma  subsidiary,  Brightstone Pharma, Inc.
("Brightstone"),  was assigned  Gensia's rights (and those of Gensia's  partner,
Boehringer  Mannheim) to develop and  co-promote the  potentially  bioequivalent
nifedipine  product  under the  collaboration  agreement  with Genta  Jago.  The
assignment  was  accepted  by Genta  Jago and has no  impact on the terms of the
original agreement. Genta Jago is still entitled to receive additional milestone
payments from Brightstone  triggered upon regulatory  submissions and approvals,
as well as royalties or profit sharing ranging from 10% to 21% of product sales,
if any.

         Genta  Jago/Apothecon.  In  March  1996,  Genta  Jago  entered  into  a
collaborative  licensing and  development  agreement (the "Genta  Jago/Apothecon
Agreement")  with Apothecon,  Inc.  ("Apothecon").  Under the terms of the Genta
Jago/Apothecon  Agreement,  Apothecon will provide funding to Genta Jago up to a
specified  maximum amount for the formulation of Q-CR  ketoprofen  (Oruvail(R)).
The Genta  Jago/Apothecon  Agreement expires upon the expiration of the relevant
patents in each covered country subject to certain early termination rights. The
agreement also provides for Genta Jago to receive potential  milestone  payments
and  royalties  on  product  sales.  Terms of the  agreement  provide  Apothecon
exclusive rights to market and distribute the products on a worldwide basis.

        Genta  Jago/Krypton.  In  October  1996,  Genta Jago  entered  into five
collaborative  licensing and  development  agreements  (the "Genta  Jago/Krypton
Agreements") with Krypton, Ltd. ("Krypton"), a subsidiary of SkyePharma, whereby
Genta  Jago would  sublicense  to Krypton  rights to develop  and  commercialize
potentially  bioequivalent  GEOMATRIX(R)  versions  of five  currently  marketed
products,  as well as another agreement granting Krypton an option to sublicense
rights to develop and commercialize an improved version of a sixth product.  The
Genta  Jago/Krypton  Agreements  have terms of the shorter of fifteen years from
first   commercial   sale  and  the   expiration   of  the  patent   term  on  a
territory-by-territory  basis.  During 1997, Genta Jago received funding of $1.9
million under the Genta  Jago/Krypton  Agreements and recognized $2.1 million of
collaborative revenue therefrom.

4.  Income Taxes

         Significant  components  of Genta  Jago's  deferred  tax  assets  as of
December  31,  1997 and 1998 are shown  below.  A valuation  allowance  has been
recognized  to offset the deferred tax assets as it is more likely than not that
the net deferred tax assets will not be realized.



                                      - 91 -



<PAGE>

                                                            December 31,

                                                      1997            1998
                                                 -------------------------------
Deferred tax assets:
Net operating loss carryforwards                 $ 2,387,000      $ 2,513,000
Valuation allowance for deferred tax assets       (2,387,000)      (2,513,000)
                                                 -------------------------------
Net deferred tax assets                          $        --         $     --  
                                                 ===============================

         At  December  31,  1998,  Genta Jago has  foreign  net  operating  loss
carryforwards of approximately  $25,133,000.  The foreign tax loss carryforwards
will begin expiring in 2000, unless previously utilized.



                                      - 92 -
<PAGE>



                                    PART III

ITEM 9. CHANGES  IN  AND  DISAGREEMENTS   WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
        FINANCIAL DISCLOSURE

        Changes in Accountants

        On November 3, 1998, the Company filed a Form 8-K announcing  that Ernst
& Young LLP had resigned as the Company's  principal  independent  accountant on
October 28, 1998.

        On February 10, 1999, the Company  engaged  Deloitte & Touche LLP as the
principal   independent   accountant  to  audit  the  Company's  1998  financial
statements.

        Disagreements With Accountants

        None.


ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

        (a) The sections  entitled  "Election of Directors"  and "Section  16(a)
Beneficial  Ownership  Reporting  Compliance"  appearing in the Company's  Proxy
Statement are incorporated herein by reference.

        (b) The section entitled "Executive Officers" appearing in the Company's
Proxy Statement is incorporated herein by reference.


ITEM 11. EXECUTIVE COMPENSATION

        The section entitled "Executive Compensation" appearing in the Company's
Proxy Statement is incorporated herein by reference.


ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

        The  section   entitled  "Stock  Ownership  of  Management  and  Certain
Beneficial  Owners"  appearing in the Company's  Proxy Statement is incorporated
herein by reference.


ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

        The section entitled "Certain  Relationships  and Related  Transactions"
appearing in the Company's Proxy Statement is incorporated herein by reference.



                                      - 93 -
<PAGE>

                                     PART IV

ITEM 14.       EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

               (a)       (1)      Financial statements

Reference  is made to the Index to  Financial  Statements  under  Item 8 of this
report on Form 10-K.

                         (2)      All schedules are omitted because they are not
                                  required, are not applicable,  or the required
                                  information  is included  in the  consolidated
                                  financial statements or notes thereto.

                         (3)      Reference is made to  Paragraph  (c) below for
                                  Exhibits  required  by Item 601 of  Regulation
                                  S-K,   including   management   contracts  and
                                  compensatory plans and arrangements.

               (b)         Reports on Form 8-K. The Company  filed the following
                           reports on Forms 8-K:

                           (i)    On February  10,  1999,  the  Company  engaged
                                  Deloitte & Touche LLP ("D&T") as the principal
                                  accountant  to audit the  Company's  financial
                                  statements.

                           (ii)   On November 3, 1998,  the Company filed a Form
                                  8-K  announcing  that  Ernst &  Young  LLP had
                                  resigned    as   the    Company's    principal
                                  independent accountant on October 28, 1998.

               (c)         Exhibits  required by Item 601 of Regulation S-K with
                           each  management   contract,   compensatory  plan  or
                           arrangement required to be filed identified.


                                      - 94 -
<PAGE>


Exhibit
Number         Description of Document

3(i).1(1)      Restated   Certificate  of   Incorporation   as  amended  by  the
               Certificate of the Powers,  Designations,  Preferences and Rights
               of the  Series B  Convertible  Preferred  Stock as amended by the
               Certificate of the Powers,  Designations,  Preferences and Rights
               of the Series C Convertible Preferred Stock.

3(i).2(18)     Certificate  of  Designations  of Series D Convertible  Preferred
               Stock of the Company.

3(i).3(25)     Certificate    of   Amendment   of   Restated    Certificate   of
               Incorporation.

3(i).4(25)     Certificate    of   Amendment   of   Restated    Certificate   of
               Incorporation.

3(ii).1(25)    Amended and Restated Bylaws of the Company.

4.1(5)         Specimen Common Stock Certificate.

4.2(4)         Specimen Series A Convertible Preferred Stock Certificate.

4.3(4)         Specimen Warrant.

4.4(4)         Form of Unit Purchase Agreement dated as of September 23, 1993 by
               and  between  the  Company  and the  Purchasers  of the  Series A
               Convertible Preferred Stock and Warrants.

4.5(11)        Form of Rights  Agreement  dated as of December  16, 1993 between
               Genta Incorporated and First Interstate Bank of California, which
               includes as Exhibit A the form of  Certificate  of  Designations,
               Rights and Preferences of Series F Participating Preferred Stock.

4.6(8)         Form of Regulation S Subscription  Agreement entered into between
               the Company and certain  purchasers  of the Series B  Convertible
               Preferred Stock.

4.7(1)         Form of Securities  Subscription  Agreement  entered into between
               the Company and certain  purchasers  of the Series C  Convertible
               Preferred Stock.

4.8(1)         Common Stock Purchase Warrant dated December 14, 1995 between the
               Company and Lease Management Services, Inc.

4.9(17)        Warrant for the Purchase of 213,415 Shares of Common Stock issued
               to Lyon & Lyon in October 1996.

4.10(17)       Warrant for the Purchase of 100,000 Shares of Common Stock issued
               to Michael Arnouse in October 1996.

10.1(3)(6)     Amended and Restated 1991 Stock Plan of Genta Incorporated.

10(iii)(A).1
(25)           Non-Employee Directors' 1998 Stock Option Plan

10(iii)(A).2
(25)           Stock Incentive Plan

10.2(5)        Master Lease  Agreement No. 10300 dated as of May 4, 1989 between
               the Company and Lease Management Services,  Inc. and Master Lease
               Agreement  No.  10428  dated as of August 15,  1991  between  the
               Company and Lease Management Services, Inc.

10.2(5)        Sublease  Agreement  dated April 1, 1999  between the Company and
               Interneuron Pharmaceutical. Inc.


                                      - 95 -

<PAGE>


10.3(5)        Standard  Industrial  Lease dated  October 24, 1988,  as amended,
               between the Company and General Atomics.

10.4(5)        Revised and Restated  Lease dated as of March 1, 1990 between JBL
               Scientific, Inc. and Granada Associates.

10.5(5)(6)     Employment  Agreement dated February 20, 1991 between the Company
               and Dr. Robert E. Klem.

10.6(5)(6)     Employment  Agreement dated February 20, 1991 between the Company
               and Dr. Lauren R. Brown.

10.7(5)(6)     Form  of  Indemnification  Agreement  entered  into  between  the
               Company and its directors and officers.

10.8(5)        Preferred  Stock Purchase  Agreement dated September 30, 1991 and
               Amendment Agreement dated October 2, 1991.

10.9(5)(6)     Consulting  Agreement  dated February 2, 1989 between the Company
               and Dr. Paul O.P. Ts'o.

10.10(5)(7)    Development,  License and Supply Agreement dated February 2, 1989
               between the Company and Gen-Probe Incorporated.

10.12(5)(7)    License  Agreement dated February 2, 1989 among the Company,  Dr.
               Ts'o, Dr. Miller and Mr. Finch.

10.13(5)(7)    License  Agreement dated May 15, 1990 between the Company and The
               Johns Hopkins University.

10.19(6)(1)    Promissory  Note dated March 7, 1996  between the Company and Dr.
               Donald Picker.

10.21(7)(9)    Common Stock  Transfer  Agreement  dated as of December 15, 1992,
               between the Company and Dr. Jacques Gonella.

10.32(9)       Consulting  Agreement dated as of December 15, 1992,  between the
               Company and Dr. Jacques Gonella.

10.36(7)(9)    Common Stock  Transfer  Agreement  dated as of December 15, 1992,
               between the Company and Jagotec AG.

10.37(7)(9)    Collaboration  Agreement  dated as of January 22,  1993,  between
               Jobewol  Investments  B.V. (now known as Genta Jago  Technologies
               B.V.) and Gensia, Inc.

10.46(10)      Form of  Purchase  Agreement  between  the  Company  and  certain
               purchasers of Common Stock.

10.47(10)      Common  Stock  Purchase  Warrant  dated May 8, 1995  between  the
               Company and Index Securities S.A.


                                      - 96 -
<PAGE>


10.48(7)(12)   Restated Joint Venture and Shareholders Agreement dated as of May
               12, 1995 between the  Company,  Jagotec AG, Jago Holding AG, Jago
               Pharma AG and Genta Jago Technologies B.V.

10.50(7)(12)   Limited  Liability  Company  Agreement of Genta Jago Delaware LLC
               dated as of May 12,  1995  between  GPM  Generic  Pharmaceuticals
               Manufacturing Inc. and the Company.

10.51(7)(12)   Restated Transfer Restriction  Agreement dated as of May 12, 1995
               between the Company and Jagotec AG.

10.52(7)(12)   Transfer  Restriction  Agreement dated as of May 12, 1995 between
               the Company, GPM Generic  Pharmaceuticals  Manufacturing Inc. and
               Jago Holding AG.

10.53(7)(12)   Common Stock Transfer  Agreement dated as of May 30, 1995 between
               the Company and Jago Finance Limited.

10.54(7)(12)   Stockholders'  Agreement  dated as of May 30,  1995  between  the
               Company,  Jagotec  AG,  Dr.  Jacques  Gonella  and  Jago  Finance
               Limited.

10.55(7)(12)   Restated GEOMATRIX Research and Development Agreement dated as of
               May 12,  1995  between  Jago Pharma AG, the  Company,  Genta Jago
               Delaware, L.L.C. and Genta Jago Technologies B.V.

10.56(7)(12)   Restated Services Agreement dated as of May 12, 1995 between Jago
               Pharma AG, the Company,  Genta Jago  Delaware,  L.L.C.  and Genta
               Jago Technologies B.V.

10.57(7)(12)   Restated  Working Capital  Agreement dated as of May 12, 1995 and
               Amendment No. 1 to Restated Working Capital Agreement dated as of
               July 11, 1995  between  the  Company and Genta Jago  Technologies
               B.V.

10.58(7)(12)   Restated  Promissory  Note dated as of  January  1, 1994  between
               Genta Jago Technologies B.V. and the Company.

10.59(7)(12)   Restated  License  Agreement  dated  as of May 12,  1995  between
               Jagotec AG and the Company.

10.61(7)(12)   Restated  GEOMATRIX  License  Agreement  dated as of May 12, 1995
               between Jagotec AG and Genta Jago Technologies B.V.

10.62(7)(12)   GEOMATRIX  Manufacturing  License  Agreement  dated as of May 12,
               1995 between Jagotec AG and Genta Jago Technologies B.V.

10.63(7)(12)   Restated  GEOMATRIX  Supply  Agreement  dated as of May 12,  1995
               between Jago Pharma AG and Genta Jago Technologies B.V.

10.65(13)      Form of Regulation S Subscription  Agreement entered into between
               the Company and certain  purchasers  of the Series B  Convertible
               Preferred Stock.

10.66(1)       Promissory  Note dated  November 8, 1995  between the Company and
               Domain Partners, L.P.


                                      - 97 -



<PAGE>

10.67(1)       Promissory  Note dated  November 8, 1995  between the Company and
               Domain Partners II, L.P.

10.68(1)       Promissory  Note dated  November 8, 1995  between the Company and
               Institutional Venture Partners, IV.

10.69(14)      Amendment to Promissory Note effective March 22, 1996 between the
               Company and Institutional Venture Partners, IV.

10.70(14)      Amendment to Promissory Note effective March 22, 1996 between the
               Company and Domain Partners, L.P.

10.71(14)      Amendment to Promissory Note effective March 22, 1996 between the
               Company and Domain Partners II, L.P.

10.72(15)      Amendments  to the  Series C  Securities  Subscription  Agreement
               dated April 23, 1996.

10.73(16)      Form of Regulation S Securities  Subscription  Agreement  entered
               into  between  the  Company  and  certain  purchasers  of  the 4%
               Convertible Debentures, Due August 1, 1997.

10.74(16)      Form of 4% Convertible Debenture Due August 1, 1997.

10.75(19)      Note and Warrant Purchase Agreement dated as of January 28, 1997,
               by and among the Company,  The Aries Fund, A Cayman  Island Trust
               (the   "Trust")  and  The  Aries   Domestic   Fund,   L.P.   (the
               "Partnership").

10.76(19)      Letter dated January 28, 1997 from Genta Incorporated.

10.77(19)      Senior  Secured  Convertible  Bridge  Note of the  Company  dated
               January 28, 1997 for $1,050,000.

10.78(19)      Senior  Secured  Convertible  Bridge  Note of the  Company  dated
               January 28, 1997 for $1,950,000.

10.79(19)      Class  A  Bridge  Warrant  of the  Company  for the  purchase  of
               2,730,000 shares of Common Stock.

10.80(19)      Class  A  Bridge  Warrant  of the  Company  for the  purchase  of
               5,070,000 shares of Common Stock.

10.81(19)      Class  B  Bridge  Warrant  of the  Company  for the  purchase  of
               4,270,000 shares of Common Stock.

10.82(19)      Class  B  Bridge  Warrant  of the  Company  for the  purchase  of
               7,930,000 shares of Common Stock.

10.83(19)      Security  Agreement  dated as of January  28,  1997  between  the
               Company and Paramount Capital, Inc.

10.84(19)      Letter  Agreement  dated  January  28,  1997  among the  Company,
               Paramount Capital, Inc., the Partnership and the Trust.


                                      - 98 -

<PAGE>


10.85(19)      Amendment No. 1 dated as of January 28, 1997 to Rights Agreement,
               dated  as  of  December  16,   1997,   between  the  Company  and
               ChaseMellon Shareholder Services L.L.C.

10.86(20)(6)   Executive  Compensation  Agreement  dated as of  January  1, 1996
               between the Company and Howard Sampson.

10.87(20)      Collaboration  Agreement  dated  December  26,  1995  between the
               Company and Johnson & Johnson Consumer Products, Inc.

10.88(20)      Assignment   Agreement   (of   Gensia   Inc.'s   rights   in  the
               Collaboration  Agreement  between  Genta Jago and  Gensia,  Inc.,
               dated  January  23,  1993) to  Brightstone  Pharma,  Inc.,  dated
               October 1, 1996 among Gensia, Inc., Genta Jago Technologies B.V.,
               Brightstone Pharma, Inc., and SkyePharma PLC.

10.89(20)(7)   Development and Marketing  Agreement  effective February 28, 1996
               between  Genta  Jago  Technologies  B.V.,  a Dutch  company,  and
               Apothecon, Inc., a Delaware corporation.

10.90(20)(7)   License Agreement  effective February 28, 1996 between Genta Jago
               Technologies  B.V.,  a Dutch  company,  and  Apothecon,  Inc.,  a
               Delaware corporation.

10.91(20)(7)   Option,  Development  &  Sub-License  Agreement  (The Company has
               requested  confidential  treatment  for the name of this element)
               dated as of October  31,  1996  between  Genta Jago  Technologies
               B.V., a Dutch  company,  and Krypton  Ltd.,  a Gibraltar  limited
               company.

10.92(20)(7)   Development and Sub-License  Agreement (The Company has requested
               confidential  treatment for the name of this element) dated as of
               October 31, 1996 between  Genta Jago  Technologies  B.V., a Dutch
               company, and Krypton Ltd., a Gibraltar limited company.

10.93(20)(7)   Development and Sub-License  Agreement (The Company has requested
               confidential  treatment for the name of this element) dated as of
               October 31, 1996 between  Genta Jago  Technologies  B.V., a Dutch
               company, and Krypton Ltd., a Gibraltar limited company.

10.94(20)(7)   Development  and  Sub-License  Agreement/Diclofenac  dated  as of
               October 31, 1996 between  Genta Jago  Technologies  B.V., a Dutch
               company, and Krypton Ltd., a Gibraltar limited company.

10.95(20)(7)   Development  and  Sub-License   Agreement/Naproxen  dated  as  of
               October 31, 1996 between  Genta Jago  Technologies  B.V., a Dutch
               company, and Krypton Ltd., a Gibraltar limited company.

10.96(20)(7)   Development  and  Sub-License  Agreement/Verapamil  dated  as  of
               October 31, 1996 between  Genta Jago  Technologies  B.V., a Dutch
               company, and Krypton Ltd., a Gibraltar limited company.

10.97(20)(7)   License Termination  Agreement dated December 2, 1996 between the
               Company and Wilton Licensing AG.


                                      - 99 -
<PAGE>


10.98(20)      Contract for Regional Aid for Innovation, effective July 1, 1993,
               between L'Agence Nationale de Valorisation de la Recherche, Genta
               Pharmaceuticals Europe SA and the Company.

10.99(22)      Warrant for the purchase of 32,500  shares of Common Stock of the
               Issuer,  issued to the Aries Fund  pursuant  to a Senior  Secured
               Line of Credit Agreement between the Company and the Aries Funds.

10.100(22)     Warrant for the purchase of 17,500  shares of Common Stock of the
               Issuer,  issued to the Aries Domestic Fund, L.P.  pursuant to the
               Senior Secured Line of Credit  Agreement  between the Company and
               the Aries Funds.

10.101(22)     Amended and Restated Amendment  Agreement between the Company and
               the Aries Funds.

10.102(22)     Amended and Restated Senior Secured  Convertible  Bridge Note for
               $1,050,000 issued to the Aries Domestic Fund, L.P.

10.103(22)     Amended and Restated Senior Secured  Convertible  Bridge Note for
               $1,950,000 issued to The Aries Fund.

10.104(22)     New Class A Bridge  Warrant for the Purchase of 350,000 shares of
               Common Stock issued to The Aries Fund.

10.105(22)     New Class A Bridge  Warrant for the Purchase of 650,000 shares of
               Common Stock issued to The Aries Fund.

10.106(22)     New Class B Bridge  Warrant for the Purchase of 350,000 shares of
               Common Stock issued to The Aries Fund.

10.107(22)     New Class B Bridge  Warrant for the Purchase of 650,000 shares of
               Common Stock issued to The Aries Fund.

10.108(22)     Consulting  Agreement  dated as of August 27, 1997 by and between
               the Company and Paul O.P. Ts'o, Ph.D.

10.109(22)     Consulting  Agreement  dated as of August 27, 1997 by and between
               the Company and Sharon B. Webster, Ph.D.

10.110(24)     Severance  Agreement,  Release  and  Covenant  Not to Sue between
               Thomas H. Adams, Ph.D. and the Company dated May 5, 1998.

10.111(24)     Consulting  Agreement  between  the  Company and Thomas H. Adams,
               Ph.D., dated May 5, 1998.

10.112         Severance  Agreement No. 1, Release and Covenant Not to Sue dated
               July 30, 1997, between the Company and Zofia Dziewanowska.

10.113         Severance  Agreement No. 2, Release and Covenant Not to Sue dated
               August 1, 1997, between the Company and Zofia Dziewanowska.


                                     - 100 -

<PAGE>


10.114         Consulting  Agreement  dated  as of July  31,  1997  between  the
               Company and Zofia Dziewanowska.

22.1(20)       Subsidiaries of the Registrant.

23.1(25)       Consent of Deloitte & Touche LLP, Independent Auditors.

23.2(25)       Consent of Deloitte & Touche Experta Ltd., Independent Auditors.

23.3(25)       Consent of Ernest & Young LLP, Independent Auditors.

24.1           Power  of  Attorney  (included  on  the  signature  page  of  the
               Company's Annual Report on Form 10-K, filed on April 15, 1998).

27.1(25)       Financial Data Schedule

*              Before  giving  effect  to the one for ten  reverse  stock  split
               effected by the Company on April 7, 1997.

(1)            Incorporated  herein by  reference  to the  exhibits  of the same
               number to the  Company's  Annual Report on Form 10-K for the year
               ended December 31, 1995, Commission File No. 0-19635.

(2)            Exhibit  3(ii).1  is  incorporated  herein  by  reference  to the
               Exhibit of the same number contained in Post-Effective  Amendment
               No.  1 to the  Company's  Registration  Statement  on  Form  S-3,
               Registration No. 33-72130.

(3)            Exhibit 10.1 is incorporated  herein by reference to Exhibit 10.1
               to the Company's Registration Statement on Form S-8, Registration
               No. 33-85887.

(4)            Exhibits  4.2,  4.3,  and 4.4 are  incorporated  by  reference to
               Exhibits of the same number to the  Company's  Report on Form 8-K
               dated as of September 24, 1993, Commission File No. 0-19635.

(5)            Incorporated  herein  by  reference  to the  exhibit  of the same
               number  to the  Company's  Registration  Statement  on Form  S-1,
               Registration No. 33-43642.

(6)            Indicates management contract, compensatory plan or arrangement.

(7)            The Company has been  granted  confidential  treatment of certain
               portions of this exhibit.

(8)            Exhibit 4.6 is  incorporated by reference to Exhibit 10.65 to the
               Company's  Report  on Form 8-K  dated as of  December  29,  1995,
               Commission File No. 0-19635.

(9)            Incorporated  by  reference to the exhibits of the same number to
               the Company's  Registration  Statement on Form S-3,  Registration
               No. 33-58362.

(10)           Incorporated  by  reference to the exhibits of the same number to
               the Company's Quarterly Report on Form 10-Q for the quarter ended
               March 31, 1995, Commission File No. 0- 19635.

(11)           Incorporated by reference to Exhibit 5.1 to the Company's  Report
               on Form 8-K dated as of December  16, 1993,  Commission  File No.
               0-19635.


                                      - 101 -

<PAGE>

(12)           Incorporated  by  reference to the exhibits of the same number to
               the  Company's  Quarterly  Report on Form  10-Q/A for the quarter
               ended June 30, 1995, Commission File No. 0- 19635.

(13)           Incorporated  herein  by  reference  to the  exhibit  of the same
               number to the  Company's  Report on Form 8-K dated as of December
               29, 1995.

(14)           Incorporated herein by reference to exhibits 10.1, 10.2 and 10.3,
               respectively, to the Company's Registration Statement on Form S-3
               (Registration No. 333-3846).

(15)           Incorporated herein by reference to Exhibit 10.1 to the Company's
               Quarterly  Report on Form  10-Q for the  quarter  ended  June 30,
               1996, Commission File No. 0-19635.

(16)           Exhibits 10.73 and 10.74 are incorporated  herein by reference to
               Exhibits 10.1 and 10.2 to the Company's  Report on Form 8-K dated
               as of September 17, 1996, Commission File No. 0-19635.

(17)           Exhibits  4.9 and 4.10 are  incorporated  herein by  reference to
               Exhibits  4.1 and 4.2  respectively  to the  Company's  Quarterly
               Report on Form 10-Q for the quarter  ended  September  30,  1996,
               Commission File No. 0-19635.

(18)           Exhibit  3(i).2 is  incorporated  by reference to Exhibit 3(i) to
               the  Company's  Report on Form 8-K dated as of January 28,  1997,
               Commission File No. 0-19635.

(19)           Exhibits 10.75,  10.76, 10.77, 10.78, 10.79, 10.80, 10.81, 10.82,
               10.83,  10.84 and 10.85 are  incorporated  herein by reference to
               Exhibits 10.1,  10.2,  10.3,  10.4, 10.5, 10.6, 10.7, 10.8, 10.9,
               10.10 and 10.11  respectively to the Company's Report on Form 8-K
               dated as of January 28, 1997, Commission File No. 0-19635.

(20)           Incorporated  herein by  reference  to the  exhibits  of the same
               numbers to the Company's  Annual Report on Form 10-K for the year
               ended December 31, 1996, as amended, Commission File No. 0-19635.

(21)           Exhibit  3(ii).2 is  incorporated  herein by reference to Exhibit
               3(ii) to the  Company's  Quarterly  Report on Form 10-Q/A for the
               quarter ended September 30, 1997, Commission File No. 0-19635.

(22)           Incorporated  herein by  reference  to the  exhibits  of the same
               numbers to the Company's  Annual Report on Form 10-K for the year
               ended December 31, 1997, Commission File No. 0-19635.

(23)           Incorporated  herein by  reference  to the  exhibits  of the same
               numbers to the Company's  Annual  Report on Form 10-K  (Amendment
               No. 1) for the year ended December 31, 1997,  Commission File No.
               0-19635.

(24)           Exhibits 10.110 and 10.111 are  incorporated  herein by reference
               to  Exhibits  10.1  and  10.2,  respectively,  to  the  Company's
               Quarterly  Report on Form 10-Q for the  quarter  ended  March 31,
               1998, Commission File No. 0-19635.

(25)           Filed herewith.


               (d) See (a)(2) above.


                                     - 102 -

<PAGE>

                                   SIGNATURES

     Pursuant  to the  requirements  of  Section  13 or 15(d) of the  Securities
Exchange Act of 1934, as amended,  the Registrant has duly caused this report to
be signed on its behalf by the undersigned,  thereunto duly authorized,  on this
15th day of April, 1999.


                                       Genta Incorporated

                                      /s/ Kenneth G. Kasses, Ph.D.
                                      ------------------------------------------
                                      Kenneth G. Kasses, Ph.D.
                                      President, Principal Executive Officer and
                                      Chairman of the Board of Directors

     Pursuant to the  requirements  of the  Securities  Exchange Act of 1934, as
amended,  this report has been  signed  below by Kenneth G. Kasses and Robert E.
Klem,  in their  respective  individual  capacities  and by Kenneth G. Kasses on
behalf of the following persons,  pursuant to the Power of Attorney constituting
Exhibit 24.1 hereto, in the capacities and on the dates indicated.


Signature                      Capacity                Date
---------                      --------                ----

/s/ Kenneth G. Kasses, Ph.D.   President, Principal    April 15, 1999
----------------------------   Executive Officer
Kenneth G. Kasses, Ph.D.       and Chairman of the
                               Board of Directors
                               
/s/ Gerald M. Schimmoeller     Principal Accounting    April 15, 1999
----------------------------   Officer, Principal
Gerald M. Schimmoeller         Financial Officer,
                               Vice President

/s/ Glenn L. Cooper, M.D.      Director                April 15, 1999         
----------------------------
Glenn L. Cooper, M.D.                                  

                                                       
/s/ Donald G. Drapkin          Director                April 15, 1999
----------------------------
Donald G. Drapkin                                              

                                                       
                               Director                April 15, 1999
----------------------------
Lawrence J. Kessel, M.D.                                       

                                                       
/s/ Robert E. Klem             Director                April 15, 1999
----------------------------
Robert E. Klem, Ph.D.                                          

                                                       
/s/ Peter Salomon              Director                April 15, 1999
----------------------------
Peter Salomon, M.D.                                            

                                                       
/s/ Bobby W. Sandage, Jr.      Director                April 15, 1999
----------------------------
Bobby W. Sandage, Jr., Ph.D.                           

                                                       
                               Director                April 15, 1999
----------------------------
Andrew J. Stein                                      


/s/ Harlan J. Wakoff           Director                April 15, 1999
----------------------------
Harlan J. Wakoff               
                               

/s/ Michael S. Wiess           Director                April 15, 1999
----------------------------
Michael S. Wiess


                                    - 103 -