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


                                    FORM 10-K/A
                                (AMENDMENT No. 1)



                       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, 1997

[ ]            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)

      3550 General Atomics Court
      San Diego, California                                 92121
  (Address of principal executive offices)                (Zip Code)

                                 (619) 455-2700
              (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,
                                                   Par Value $.001
                                                  (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/A or any  amendment to
this Form 10-K/A. [ ]

The  approximate  aggregate  market  value of the voting  common  equity held by
non-affiliates  of the registrant was  approximately  6.0 million as of April 2,
1998.  For purposes of determining  this number,  136,202 shares of common stock
held by affiliates are excluded.

As of April 2,  1998,  the  registrant  had  5,737,756  shares of  Common  Stock
outstanding.

                       Documents Incorporated by Reference

Designated  portions of Registrant's  Definitive Proxy Statement to be furnished
for the Annual Meeting of the Stockholders are incorporated by reference in Part
III of this Form 10-K/A.


                                      - 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/A 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/A 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.


<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   engaged  in  the  development  of  a  pipeline  of
pharmaceutical  products.  Genta's  multi-faceted  approach has  incorporated  a
product  development  portfolio  with  balanced  technical  risk,  a novel  drug
delivery  technology and a United States  business base. 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.  The clinical trial is being  conducted in  collaboration
with the Royal Marsden NHS Trust and the Institute for Cancer Research.  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
addition,  the Company owns 50% of a drug  delivery  system  joint  venture with
Jagotec AG ("Jagotec"),  Genta Jago Technologies B.V. ("Genta Jago") established
to develop oral  controlled-release  drugs. To date, no products from this joint
venture have been  commercialized.  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. The Company also  manufactures and markets  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.

SUMMARY OF BUSINESS AND RESEARCH AND DEVELOPMENT PROGRAMS

         The following  table  describes the major areas to which the Company is
currently  directing  its  research  and  product  development  efforts  and the
development


                                      - 2 -

<PAGE>

status of products or product  candidates  under  development,  as well as other
aspects of the Company's business:


<TABLE>
<CAPTION>
          Program                    Therapeutic Indications                               Development Status
          -------                    -----------------------                               ------------------
<S>                                <C>                                                    <C>
1.    Anticode                

      G3139                        o  Impairs production of key cancer protein,           Phase I/IIa  clinical  trials in 
                                       BCL2 (non-Hodgkin's lymphoma,                      the United  Kingdom with respect 
                                       prostate, melanoma, breast and possibly            to non-Hodgkin's lymphoma and in 
                                       others)                                            the   U.S.   with   respect   to 
                                                                                          prostate  and   possibly   other 
                                                                                          advanced       solid       tumor 
                                                                                          malignancies.                    
                                                                                          
       Anti-FAK Oligonucleotides   o   Impairs production of key cancer protein,          Pre-clinical
                                       Focal Adhesion Kinase (melanoma,
                                       lymphoma and multiple myeloma) 

2.    Oral Controlled-Release
      Drugs

      Bioequivalent Generics       o    Various                                          Abbreviated       New       Drug
                                                                                         Applications  ("ANDAs")  may  be
                                                                                         filed  for up to three  products
                                                                                         in 1998                         

3.    Biochemical Manufacturing

      Specialty Biochemicals;                                                            $4.7 million in 1997 sales
      Intermediate
      Products for biotechnology and
      pharmaceutical industries
</TABLE>


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


                                      - 3 -

<PAGE>

destroy,   individual  messenger  RNA  (mRNA)  sequences,  which  leads  to  the
down-regulation   (lowering   of  levels)  of  specific   proteins  and  thereby
effectively  eliminates  the  disease.  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
phosphorothioate  backbones  and mixed  phosphorothioate  and  methylphosphonate
back-  bones.  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.
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 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


                                      - 4 -

<PAGE>

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.  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  (DTIC) 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
almost  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 17
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 grade III 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.


                                      - 5 -

<PAGE>

         In December  1996, the FDA granted the Company an allowance to initiate
clinical  trials  under  an IND  for  the  use of  G3139  against  non-Hodgkin's
lymphoma.  In 1997,  the  Company  expanded  the IND to include the use of G3139
against prostate cancer. In addition, the Company anticipates that it may expand
this IND to include the use of G3139 against  other types of cancers,  including
melanoma and breast. The Company has had discussions with several cancer centers
regarding  additional  Phase  I/IIa  clinical  trials of G3139.  The  Company is
currently  discussing  protocols with such centers and believes that  additional
clinical  trials could be commenced  in 1998.  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 proposed 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. There can be no assurance
that such IND for G3139 will be further expanded or that any additional clinical
studies  will be  conducted.  See  "MD&A--Certain  Trends and  Uncertainties--No
Assurance of Regulatory Approval;  Government Regulation," "MD&A--Certain Trends
and  Uncertainties--  Dependence  on Others" and "Risk  Factors--Uncertainty  of
Clinical Trials and Results."

         In December  1997,  the Company  initiated a United  States Phase I/IIa
clinical trial at the MSKCC to evaluate G3139. The first part of the Phase I/IIa
study at the MSKCC is designed to define the maximum  tolerated  dose or optimal
biological  dose with  continuous  intravenous  infusion;  the second part is to
determine  the efficacy of the drug in advanced,  androgen-independent  prostate
cancer. Three of the first group of three patients in the dose escalation safety
phase  have  started  treatment  at a low dose of drug.  The first two  patients
completed the study without  difficulty  during the  administration of G3139 and
the third is nearing  completion.  The first  patient  suffered a seizure  after
treatment was completed, but the event was not considered to be drug related.

         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."

Focal Adhesion Kinase (FAK) Gene Target.

         FAK protein is highly active in the  regulation  of adhesion  dependent
growth and motility of cells.  In a variety of cancers such as those  implicated
in melanoma, lymphoma and multiple myeloma, the increase of FAK protein has been
detected.


                                      - 6 -

<PAGE>

Moreover,   increased   synthesis  of  FAK  protein  correlates  with  increased
invasiveness and ability of cancer to spread through the body (metastasize).  In
collaborative   preclinical  experiments  with  Dr.  William  G.  Cance  at  the
University of North Carolina, Genta's Anticode(TM)  oligonucleotides against FAK
were  shown to  inhibit  the  growth of a primary  tumor  (the site at which the
cancer is believed to have begun) and virtually to eliminate metastases in human
melanoma,   immunocompromised   mice,   xenograft  models.   Combined  with  the
observation  that anti-FAK  oligonucleotides  appear to show few adverse effects
against normal tissues,  such results indicate that the FAK target may represent
a promising  therapeutic  opportunity  for both the treatment of primary disease
and the  prevention  of  metastatic  disease.  At the current time the Company's
development  work  related  to  FAK-antisense  has been  placed on hold  pending
discussions with Dr. Cance and the University of North Carolina.

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").
Gen-Probe  was  subsequently  acquired by Chugai  Pharmaceutical  Company,  Ltd.
("Chugai"),  a  Japanese  corporation.  Gen-Probe  has 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 is  obligated to pursue the  development  of a
therapeutic  compound for the treatment of one of these indications as its first
therapeutic development program. Under the agreement, if Gen-Probe exercises its
option to acquire rights to a product in any such  indication,  the Company will
grant  Gen-Probe  certain  rights to sell such product and  Gen-Probe  must fund
Genta's  development  of any such product,  subject to certain  limitations  and
early  termination  rights. If Gen-Probe fully funds the development of any such
product, profits on sales of such product will be shared between the parties. 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.  Gen-Probe  is a
stockholder in the Company.

         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


                                      - 7 -

<PAGE>

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.  Subject  to  certain  rights of early
termination, the Ts'o/Miller/Hopkins Agreements remain in effect for the life of
the  last-to-expire  patent  licensed under the  respective  agreements or until
abandonment of the last-pending patent application licensed under the respective
agreements.

         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 a letter to the  Company  stating  that the  Johns  Hopkins
Agreement was terminated.  According to Johns Hopkins,  as of December 31, 1997,
the Company owed Johns Hopkins and the Ts'o/Miller Partnership  $602,657.52,  of
which $287,500 consisted of royalty payments to the Partnership for 1995 through
1997 and the balance consisted of the Company's  obligations to provide funds to
support a post-doctoral  research program of Johns Hopkins and to support patent
prosecutions. The Company is in negotiations with Johns Hopkins as to payment of
the remaining  balance although there can be no certainty that such negotiations
will be  successful.  The Company  also  received  notice  from the  Ts'o/Miller
Partnership that it was in material breach of the license  agreement for failure
to pay  royalties  for 1995  through  1997,  which the  Ts'o/Miller  Partnership
claimed was in the aggregate  amount of  $275,068.49.  This notice also provided
that if such  breach  was not  cured  within  90  days,  the  license  would  be
terminated.  The negotiations  that have been undertaken with Johns Hopkins have
included the Ts'o/Miller  Partnership as well. 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


                                      - 8 -

<PAGE>

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 no longer  believes  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 although a
requirement  of the  Company to pay the  claimed  amounts  could have a material
adverse effect on its financial condition.

         Other  Anticode(TM)  Antisense  Agreements.  The Company  entered  into
agreements  with Johnson & Johnson  Consumer  Products,  Inc. in late 1995 which
provided  limited  funding for  preliminary  feasibility  studies  using Genta's
Anticode(TM)  oligonucleotide compounds.  Another agreement entered into in 1991
with  Procter  and  Gamble  Company  ended in  1995.  Under  the  terms of these
agreements,  if the  collaborative  partner  elected  to pursue  the  commercial
development of an Anticode(TM)  oligonucleotide  compound upon completion of the
feasibility  studies,  the parties would have entered into  mutually  acceptable
development,  license  and supply  agreements.  Neither  of these  collaborative
partners has indicated any interest in entering into such an agreement.

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 obtain 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 and also  contributed  the Initial  License  referred to below.
Genta issued 120,000 shares of Common Stock valued at $7.2 million to Jagotec in
1992 as  consideration  for a license (the  "Initial  License") for Genta to use
Jagotec's GEOMATRIX technology with respect to approximately 25 products,  under
the condition that Genta then contribute  such  technology to Genta Jago,  which
Genta did. The value of the Common Stock Genta issued to Jagotec was  considered
by the parties to be  substantially  below the actual  fair market  value of the
Initial License.  Jagotec's  contribution to the joint venture consisted of such
discount (coupled with the requirement that Genta contribute the Initial License
to the joint  venture) as well as certain  know-how  applicable to the GEOMATRIX
technology.

         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 purchasing  from Jagotec the  Additional  License at
what the parties believed was a substantial


                                      - 9 -

<PAGE>

discount  to its  actual  fair  market  value on the  condition  that Genta then
contribute it to the joint venture.  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.

         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  provides  funding  to Genta  Jago  pursuant  to a working
capital loan agreement that expires in October 1998.  See  "MD&A--Liquidity  and
Capital  Resources."  In 1995,  Genta Jago  returned the Anticode  technology to
Genta in exchange  for Genta's  forgiveness  of $4.7  million of  principal  and
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  also  has  an  exclusive  worldwide  license  to  use  Jagotec's
GEOMATRIX technology in Genta's Anticode antisense development  programs.  Genta
Jago has contracted  with Genta and Jagotec to conduct  research and development
and to provide certain other services.


                                     - 10 -

<PAGE>

         The  Company  is  currently  in  negotiations   with  Jagotec  and  its
affiliates  to reach an  agreement  under  which the terms of the joint  venture
would be  restructured.  There can be no assurance that such  negotiations  will
result in a mutually satisfactory agreement.

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 is using 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
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.

         Genta  Jago   currently  has  eight   products  in  various  stages  of
development  that  are  intended  to  be   bioequivalent   generic  versions  of
brand-name, controlled-release drugs currently marketed by others. Four of these
products,     nifedipine    (Procardia    XL(R)),    ketoprofen    (Oruvail(R)),
carbidopa/levodopa  (Sinemet(R)CR),  and naproxen  (Naprelan(R))  are  currently
undergoing  manufacturing scale-up after completion of formulations  development
and pilot human pharmacokinetic studies. During the manufacturing scale-up phase
of development, Genta Jago and its collaborators are seeking to proceed from the


                                     - 11 -


<PAGE>

production of small-scale  research quantities to the production of larger-scale
quantities  necessary for commercial scale  manufacturing.  The scale-up has not
yet  been  successfully  completed  for  these  products.   Assuming  successful
completion  of  manufacturing  scale-up,   pivotal  bioequivalency  studies  are
scheduled to begin for these products in 1998.  Genta Jago believes that if such
bioequivalency  studies  are  successfully   completed,   Abbreviated  New  Drug
Applications  (each an "ANDA") may be filed with the FDA for two of its products
in  1998.  In  addition,   potentially   bioequivalent  versions  of  two  other
products--Voltaren-XR(R)   (diclofenac)   and   Covera-HS(R)   (verapamil)--have
completed formulations development and pilot pharmacokinetic studies. Genta Jago
intends to proceed  with  manufacturing  scale-up on these two  products  during
1998. 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."

         Genta Jago has also  completed  initial  formulations  development  and
pilot   human   pharmacokinetic   studies   for   GEOMATRIX   controlled-release
formulations of cefaclor (Ceclor CD(R)) and metoprolol tartrate and formulations
development is ongoing for additional products including acyclovir (Zovirax(R)).
Genta Jago  continues to seek  collaborative  agreements  for these  products in
order to finance the  manufacturing  scale-up  and  required  bioequivalency  or
clinical studies. In addition to these products currently in development,  Genta
Jago maintains the rights to apply the GEOMATRIX  technology to the  development
of up to approximately 50 additional  drugs.  There can be no assurance that any
product  will be  successfully  developed  or receive the  necessary  regulatory
approvals.

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 $1.2 million,  $2.2 million
and $1.9 million of funding in 1997, 1996 and 1995, respectively, pursuant to


                                     - 12 -

<PAGE>

the  agreement.  Collaborative  revenues of $1.5  million,  $2.8  million and $3
million were recognized  under the agreement during the years ended December 31,
1997, 1996 and 1995, 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 $2.3 million of
collaborative revenue therefrom.

RESEARCH AND DEVELOPMENT

         In an effort to focus its  research  and  development  efforts on areas
which  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


                                     - 13 -

<PAGE>

recorded  research and  development  expenses of $5.4 million,  $6.8 million and
$13.1 million during 1997, 1996, and 1995, respectively,  of which approximately
$50,000,  zero dollars and $1.1 million,  respectively,  were funded pursuant to
collaborative  research and  development  agreements and of which  approximately
$0.3 million, $1.6 million and $2.7 million, respectively,  were funded pursuant
to  a  related  party   contract   revenue   agreement   with  Genta  Jago.  See
"MD&A--Results of Operations."

MANUFACTURING/JBL

         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 obtained its manufacturing capabilities in early 1991 through the
acquisition of JBL. 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.  JBL might,  with
additional  capital  investment,   be  able  to  manufacture   commercial  grade
oligonucleotides,    including    G3139.   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 continuing to review and develop  procedures,
documentation  and facilities for the  production of  oligonucleotides  which it
believes will adequately comply with the necessary GMP requirements. The Company
is  currently  having  G3139 made on a contract  manufacturing  basis by a third
party  supplier.   See   "MD&A--Certain   Trends  and   Uncertainties--Difficult
Manufacturing Process;  Access to Certain Raw Materials." To the extent Genta is
able to establish its own manufacturing capability for G3139, the Company should
be able to reduce the cost of producing such oligonucleotides.

         The  manufacture of all of the Company's and Genta Jago's products will
be  subject  to 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 either of them 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


                                     - 14 -

<PAGE>

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.

GENTA EUROPE

         During  1995,  Genta  Pharmaceuticals   Europe  S.A.  ("Genta  Europe")
received  approximately  5.4  million  French  Francs  (or, as of April 1, 1998,
approximately  $869,000)  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 does not believe that
under  the terms of the ANVAR  Agreement  ANVAR is  entitled  to  request  early
repayment  and  is  working  with  ANVAR  to  achieve  a  mutually  satisfactory
resolution.

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
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.

         JBL  manufactures and markets  specialty  biochemicals and intermediate
products to over 100 purchasers in the pharmaceutical and diagnostic industries,
with the top 10 customers representing more than 70% of JBL's total sales. JBL's
products are also sold to the academic,  commercial  and  governmental  research
markets  primarily  through  distributors.  In addition,  JBL conducts  contract
synthesis for pharmaceutical, diagnostic and industrial companies.

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


                                     - 15 -

<PAGE>

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 compositions for delivery of  oligonucleotides  into cells. This portfolio
includes issued United States and Canadian patents and patent applications filed
by the Company. 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. Of these, over 280 are active.

         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,
the United States Patent and  Trademark  Office issued a patent  included in the
Company's  license  agreement  for  claims  covering  antisense  oligonucleotide
compounds  targeted  against the bcl-2 gene.  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.


                                     - 16 -

<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.


                                     - 17 -

<PAGE>


         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."

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


                                     - 18 -

<PAGE>

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
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


                                     - 19 -

<PAGE>

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)


                                     - 20 -

<PAGE>

application  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 and
triple-strand  technology and controlled-release  formulation technology and the
development of pharmaceuticals utilizing such technologies. The Company competes
with fully  integrated  pharmaceutical  companies  which  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., 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."

         The Company's  products  under  development  are expected to address an
array of markets.  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


                                     - 21 -

<PAGE>

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
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 December 31, 1997,  Genta,  JBL and Genta Europe had nine, 40 and
one  employees,  respectively,  nine of whom held  doctoral  degrees.  Seventeen
employees were engaged in research and development  activities,  19 were engaged
in manufacturing and 13 were in administration,  sales and marketing  positions.
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  1997,  the  Company   terminated  11  employees  and  Genta  Europe
terminated  one  employee.  The  Company's  overall  staff  was  reduced  by  an
additional  net  reduction of three  employees in 1997,  and two more to date in
1998, due to attrition. See


                                     - 22 -

<PAGE>

"MD&A--Certain  Trends and  Uncertainties--Need  for and Dependence on Qualified
Personnel."

ITEM 2. PROPERTIES

         Genta's  principal  administrative  offices  are  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's  revised
lease for these  remaining  administrative  office  facilities  extends  through
August 1998, with the option for additional  three-month  extensions at the same
rate of $6,073 per month.  The Company  believes this space will be adequate for
its activities through 1998.

         JBL,  the  Company's  manufacturing  subsidiary,  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  $321,500  in 1998,  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 believes that such space will be adequate for its planned operations
through 1998.  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.

         Genta Pharmaceuticals  Europe, S.A., the Company's European subsidiary,
leases approximately 10,000 square feet of office,  laboratory and manufacturing
space in  Marseilles,  France.  The lease is  cancelable  in 2003 and expires in
2005.  The  annual  lease  cost  is F.F.  575,319  (or,  as of  April  1,  1998,
approximately  $93,000).  With the reduction of its operations,  Genta Europe is
currently seeking to sublet all or a portion of this space.

ITEM 3. LEGAL PROCEEDINGS

         (a)  On   February  5,  1997,   Equity-Linked   Investors,   L.P.   and
Equity-Linked Investors-II (collectively, the "Plaintiffs") who, as a group, may
be deemed  beneficially to own more than five percent of the outstanding  shares
of the Common Stock of the Company as holders of Series A Preferred Stock, filed
suit (the "Suit") in the Delaware  Court of Chancery (the  "Court")  against the
Company,  each of the Company's  directors  and the Aries Funds (as  hereinafter
defined  in Item 5).  Through  the Suit,  the  Plaintiffs  sought to enjoin  the
transactions  contemplated  by The  Note  and  Warrant  Purchase  Agreement  (as
hereinafter  defined  in  Item  5)  (the  "Transactions"),   rescission  of  the
Transactions,  damages,  attorney fees, and such other and further relief as the
Court may deem just and proper.  The Suit alleged that the Board of Directors of
the Company


                                     - 23 -

<PAGE>

breached fiduciary duties by failing to consider  financing  alternatives to the
Transactions  and further  alleged  that the  Transactions  were not in the best
interests  of the  stockholders.  Additionally,  the Suit alleged that the Aries
Funds  aided  and  abetted   such  breach  of  fiduciary   duty  through   their
participation  in the  Transactions.  On March 4 and 5,  1997,  a trial was held
before  the  Court.  On April 25,  1997,  the  Court  rejected  the  plaintiffs'
challenge to the Transactions and ruled in favor of Genta, Genta's directors and
the Aries Funds, who were the defendants.  The Court entered a judgment in favor
of Genta and its directors in the Suit.

         LBC Capital Resources, Inc. ("LBC"), a Philadelphia-based broker/dealer
has asserted  claims against the Company and others.  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 is  seeking a fee.  On March  30,  1998,  the  Company
received a Statement of Claim under NASD  arbitration  rules, and a request that
the  Company  voluntarily  submit to NASD  arbitration.  The Company has not yet
responded to that request. LBC's Statement of Claim seeks damages in the form of
cash (in excess of $4 million),  stock, warrants and other securities.  On April
9, 1998, the Company's  counsel learned that, in addition,  a Complaint has been
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.  However,
such Complaint has not yet been served upon the Company. The Company believes it
has valid legal and equitable defenses to LBC's claim.  Whether LBC's claims are
ultimately  adjudicated in arbitration  or  litigation,  the Company  intends to
defend vigorously and possibly to assert counterclaims against LBC.

         (b) No material legal proceedings were terminated in the quarter ending
December 31, 1997.

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, 1997.

Executive Officers of the Registrant

The executive officers of the Company are as follows:

      Name                        Age                 Position

Kenneth G. Kasses, Ph.D            53       President,         Chief
                                            Executive   Officer  and
                                            Director of the Company 
                                            


                                     - 24 -

<PAGE>

Robert E. Klem, Ph.D.              53       Vice    President    and 
                                            Director  of the Company 
                                            and   Chairman   of  the 
                                            Board of JBL             

Lauren R. Brown, Ph.D.             55       Vice  President  of  the
                                            Company and President of
                                            JBL                     

         Kenneth G. Kasses, Ph.D., is Genta's President, Chief Executive Officer
and a  member  of the  Board  of  Directors.  From  1991-1997,  Dr.  Kasses  was
affiliated   with  the   Radiopharmaceutical   Division  of  The  DuPont   Merck
Pharmaceutical  Company,  serving as Senior Vice  President and General  Manager
until 1994 when he was appointed President. From 1988 through 1990, he served as
Director, Business Development and Planning, for the Medical Products Department
of E. I. duPont de Nemours & Company, Inc. In that capacity he played a key role
in the  formation of The DuPont Merck  Pharmaceutical  Company,  a joint venture
between DuPont and Merck and Co., Inc. Prior to that he served as Director, U.S.
Pharmaceuticals,  for DuPont from 1987-1988 and as President of DuPont  Critical
Care from  1986-1987.  Prior to this,  Dr.  Kasses  held a variety of  executive
positions from 1973-86 at American  Critical Care,  CIBA-GEIGY  Pharmaceuticals,
Ayerst  Laboratories  and Block Drug  Company.  Dr.  Kasses  received a B.S.  in
biology from Dickinson College in 1966 and a Ph.D. in pharmacology from New York
Medical  College  in 1974.  Dr.  Kasses  also  currently  serves on the Board of
Directors of the United Way of Merrimack Valley (Mass.).

         Robert  E.  Klem,  Ph.D.,  has been a  director  of the  Company  since
February  1991,  a Vice  President  of the  Company  since  October  1991 and is
currently the Company's Principal  Accounting  Officer.  Dr. Klem co-founded JBL
Scientific, Inc. ("JBL"), a wholly owned subsidiary of the Company, in 1973 and,
since then,  has been Chairman of the Board and Chief  Technical  Officer of JBL
with overall  managerial  responsibility for JBL.  Previously,  Dr. Klem was the
Plant Manager for The DuPont  Company in Victoria,  Texas from 1970 to 1974. Dr.
Klem received his Ph.D. in Organic  Chemistry  from the University of California
at Riverside.

         Lauren R. Brown,  Ph.D., has been a Vice President of the Company since
October  1991.  He  co-founded  JBL  Scientific  in 1973 and since then has been
President of JBL, which Genta acquired in February 1991. He has had  significant
experience in the scale-up of a wide variety of processes, including many custom
syntheses under GMP standards for outside  companies.  Present  responsibilities
include   oversight  of  sales  and  marketing,   quality  control  and  process
development  programs as well as participating in the overall management of JBL.
Dr.  Brown  received  his Ph.D.  in Organic  Chemistry  from the  University  of
California  at Riverside.  He is active in community  affairs in San Luis Obispo
and presently serves on the Boards for the YMCA and the Chamber of Commerce.


                                     - 25 -

<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,  after having met the terms for continued  listing as set forth in the
April 11, 1997 revised exception of the Nasdaq Listing Qualifications Panel. 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
                                 ----                 ---
1996
First Quarter                    29 3/8               18 3/4
Second Quarter                   28 3/4               14 3/8
Third Quarter                    20                   4 3/8
Fourth Quarter                   15                   2 13/16

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


(b) Holders

         There were 337 holders of record of the  Company's  common  stock as of
April 10, 1998.

(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


                                     - 26 -

<PAGE>

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
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 UnitsTM ("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 StockTM, 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


                                     - 27 -

<PAGE>

$14,036,772.  The  respective  conversion  and  exercise  prices 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 agreed to enter into a financial advisory
agreement with the placement agent pursuant to which the financial advisor shall
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 has 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.  The SEC has
not  yet  declared  this  registration  statement  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. 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."


                                     - 28 -

<PAGE>

ITEM 6.    SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>

                                                                           YEARS ENDED DECEMBER 31,
                                                         --------------------------------------------------------
                                                           1997        1996        1995        1994        1993
                                                         --------    --------    --------    --------    --------
                                                                  (In thousands, except per share amounts)
CONSOLIDATED STATEMENTS
OF OPERATIONS DATA:

<S>                                                      <C>         <C>         <C>         <C>         <C>     
Product sales                                            $  4,702    $  4,925    $  3,782    $  3,574    $  3,263
Gain on sale of technology                                     --         373          --          --          --
Related party contract revenue                                350       1,559       2,748       2,957          --
Collaborative research and
  development                                                  50          --       1,125       3,142       4,733
                                                         --------    --------    --------    --------    --------
                                                            5,102       6,857       7,655       9,673       7,996
                                                         --------    --------    --------    --------    --------
Costs and expenses:
  Cost of products sold                                     3,099       2,479       1,899       1,710       1,593
  Research and development                                  5,387       6,777      13,103      15,835      12,117
  Charge for acquired in-process
      research and development                                 --          --       4,762       1,850          --
  Selling, general and administrative                       8,075       6,255       6,361       7,032       5,140
                                                         --------    --------    --------    --------    --------
                                                           16,561      15,511      26,125      26,427      18,850
                                                         --------    --------    --------    --------    --------
Loss from operations                                      (11,459)     (8,654)    (18,470)    (16,754)    (10,854)
Equity in net loss of joint venture                        (1,193)     (2,712)     (6,913)     (7,425)     (5,310)
Other income, net                                          (2,773)       (726)         17         731         646
                                                         --------    --------    --------    --------    --------
Net loss                                                 $(15,425)   $(12,092)   $(25,366)   $(23,448)   $(15,518)
Dividends on Preferred Stock                               (1,695)     (2,525)     (2,551)     (2,550)       (671)
Dividends imputed on preferred stock                      (16,158)     (2,348)   $ (1,000)         --          --
                                                         --------    --------    --------    --------    --------
Net loss applicable to common shares                     $(33,278)   $(16,965)   $(28,917)   $(25,998)   $(16,189)
                                                         --------    --------    --------    --------    --------
Net loss per common Share (1)                            $  (7.52)   $  (5.69)   $ (14.82)   $ (19.00)   $ (11.90)
                                                         --------    --------    --------    --------    --------
Shares used in the calculation of net
  loss per common share                                     4,422       2,983       1,952       1,371       1,362
                                                         --------    --------    --------    --------    --------
Deficiency of earnings to meet
  combined fixed charges and
  preferred stock dividends (2)                          $(33,278)   $(16,965)   $(28,917)   $(25,998)   $(16,189)
<CAPTION>

                                                                                  DECEMBER 31,
                                                   --------------------------------------------------------------------------------
                                                            1997        1996      1995        1994        1993
                                                            ----        ----      ----        ----        ----
                                                                                (In thousands)
CONSOLIDATED BALANCE
SHEET DATA:
<S>                                                       <C>           <C>          <C>      <C>         <C>    
Cash, cash equivalents and short-term
       investments                                        $8,456        $832         $272     $11,103     $34,594
Working capital (deficit)                                  5,807     (2,995)      (1,580)       5,597      30,524
Total assets                                              15,754      11,169       15,631      23,808      45,486
Notes payable and capital lease
      obligations, less current portion                       --         120        2,334       1,871       1,651
Total Stockholders' equity                                 6,425       4,074        6,972      15,496      38,064
</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.



                                     - 29 -

<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 for the next several
years  due to  continued  requirements  for  ongoing  research  and  development
activities,   preclinical  and  clinical  testing,   manufacturing   activities,
regulatory activities,  establishment of a sales and marketing organization, and
development  activities  undertaken by Genta Jago,  the Company's  joint venture
with  Jagotec.  From the period since its  inception  to December 31, 1997,  the
Company has incurred a cumulative  net loss of $124.5  million.  The Company has
experienced  significant  quarterly  fluctuations  in  operating  results and it
expects that these fluctuations in revenues, expenses and losses will continue.

         The  Company's   independent  auditors  have  included  an  explanatory
statement in their report to the Company's financial  statements at December 31,
1997, that expresses  substantial  doubt as to the Company's ability to continue
as a going concern.  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/A 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
Results of Operations  and  elsewhere in this Annual Report on Form 10-K/A.  The
Company does not undertake to update any forward-looking statements.


                                     - 30 -

<PAGE>

RESULTS OF OPERATIONS

         Operating  revenues  totaled  $5.1  million  in 1997  compared  to $6.9
million in 1996 and $7.7 million in 1995.  The  decreases in revenues  over this
period is primarily  attributable  to decreases in revenues  from Genta Jago for
services  provided to Genta Jago by the Company.  These  "Related party contract
revenues" were $350,000 in 1997, $1.6 million in 1996, and $2.7 million in 1997.
The  expenses  for which these  revenues  are received are recorded 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
oligonucleotide,  G3139,  this  trend will  continue  in that the  Company  will
continue to minimize the services it provides to Genta Jago.  It should be noted
that at the same time,  the Company is also  reducing its  commitment to provide
funds to Genta Jago. The Company is currently in  negotiations  with Jagotec and
its affiliates to reach an agreement  under which the terms of the joint venture
would be  restructured.  There can be no assurance that such  negotiations  will
result in a mutually satisfactory agreement.

         Collaborative  research and development  revenues were $50,000 in 1997,
representing   deferred   revenues   recognized   pursuant   to  the   Company's
collaboration with Johnson & Johnson Consumer  Products,  Inc., and $1.1 million
in 1995, earned through the collaboration with The Procter & Gamble Company. See
"Business--Anticode(TM)       Brand      of      Antisense       Oligonucleotide
Programs--Oligonucleotide Collaborative and Licensing Agreements--Other Anticode
Agreements."  Both of  these  agreements  have  ended  and  there  have  been no
indications that either will produce additional revenues in the future.

         All of the Company's  product sales are  attributable  to JBL. Sales of
specialty chemical and pharmaceutical intermediate products used in the clinical
diagnostics,   pharmaceutical   research  and  development  and   pharmaceutical
manufacturing  decreased  to $4.7  million in 1997 from $4.9 million in 1996 and
were $3.8 million in 1995. While the annual demand for many of JBL's products is
relatively  stable,  there  has  been  a  slight  downward  trend  for  clinical
diagnostic  raw materials and an upward trend for research and  development  and
pharmaceutical  manufacturing raw materials.  Overall,  demand for the Company's
products has been increasing,  while  competition has caused prices to decrease.
In 1995 and 1996,  sales of products used in  pharmaceutical  manufacturing  and
pharmaceutical  research  and  development  increased  due to  increased  market
penetration  while  sales  of  products  used in  clinical  diagnostics  trended
slightly  downward.  In 1997,  demand for the  Company's  products  continued to
increase,   particularly  intermediates  used  in  pharmaceutical  research  and
development and pharmaceutical manufacturing;  however, competition caused sales
prices to decrease.


                                     - 31 -

<PAGE>

         Europa Bioproducts  ("Europa"),  JBL's European distributor,  accounted
for  approximately  25%, of product sales in 1997, 27% in 1996, and 21% in 1995.
No other  customer  accounted  for more than 10% of product  sales in 1997.  One
other  customer  who  accounted  for  less  than  10% of  product  sales in 1997
accounted for  approximately 16% of product sales during the year ended December
31, 1995.  Individual  customers' demands for JBL products generally  fluctuates
with the outcomes of clinical trials or the availability of funding. The Company
believes that the loss of any material customer, if not replaced,  could have an
adverse effect on the Company.

         Costs and  expenses  totaled  $16.6  million in 1997  compared to $15.5
million  in 1996 and  $26.1  million  in 1995.  Over  this  period  the costs of
products sold by JBL have increased as market penetration and volumes increased.
The  increase in costs of  products  sold in 1997 as compared to 1996 was due to
increased labor costs necessary to meet increased  production volumes and to the
redeployment  of certain  employees  in  connection  with a reduction in Genta's
research and development staff. As a result of these increased costs and reduced
selling prices in response to competition,  gross margins  decreased from 50% in
1995 and 1996 to 34% in 1997.

         Research and Development  expenses as a whole were reduced in 1996 from
the prior year by $6.3 million  (48%) and an  additional  $1.4 million  (21%) in
1997.   The  decrease  in  research  and   development   expenses  is  primarily
attributable  to the Company's  restructuring  and the  redeployment  of certain
employees mentioned above, and related workforce reductions implemented in 1995,
1996 and 1997 (see below) together with the discontinuation or non-initiation 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 1995 through 1997. These amounts were
$2.7 million in 1995,  $1.6  million in 1996,  and $350,000 in 1997 (see above).
Also  included  in  Research  and  Development  expenses  during  1995 were non-
recurring charges for acquired in-process research and development totaling $4.8
million  associated with the expansion of Genta Jago to obtain rights to develop
additional  GEOMATRIX-based  products.  The  technological  feasibility  of  the
acquired  in-process  research and development had not yet been  established and
the  technology  had no  future  alternative  uses at the  date of  acquisition.
Furthermore, due to uncertainties regarding the Company's ability to demonstrate
bioequivalence  of potential  products,  management is unable to make  estimates
regarding the efforts necessary to develop the acquired,  in-process  technology
into a  commercially  viable  product.  However,  it is  expected  that any such
development would require significant cash resources.

         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


                                     - 32 -

<PAGE>

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.

         In total,  the Company's costs and expenses  increased by approximately
$1.0 million in 1997 relative to 1996. The decreases in research and development
expenses  described  above were  partially  offset by a  $600,000  non-recurring
charge in General and  Administrative  Expenses recorded in the third quarter of
1997 related to management's decision to abandon certain patents that management
determined  were no longer  germane to the  Company's  mainstream  business (see
below).  In addition,  General &  Administrative  Expenses  also  increased as a
result of increased legal expenses  associated with  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;  increased  accounting  and
legal  expenses  due to the  Company's  successful  efforts to avoid a potential
Nasdaq delisting and associated with the equity  offerings  consummated in 1997;
and  increased  recruiting  expenses.  See "Legal  Proceedings"  and "Market for
Registrant's  Common Equity and Related  Stockholder  Matters -- Recent Sales of
Unregistered Securities."

         As noted  above,  in an  effort to reduce  costs and  conserve  working
capital,  Genta initiated a termination plan in March 1995,  whereby the Company
terminated  26 employees  involved in the  Company's  research  and  development
activities.  The Company recorded General and  Administrative  expenses totaling
$250,000  for  accrued   severance  costs  associated  with  the  26  terminated
employees.  In October 1996, Genta again  reassessed its personnel  requirements
and  established  a second  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 a third  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. The Company has reduced its work force to a
core  group  of  corporate  personnel  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.

         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


                                     - 33 -

<PAGE>

developed and approved for  marketing,  as compared to  establishing a corporate
partner relationship .

         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  indentify  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. In 1997, as a result
of such  evaluation,  the Company  recorded  charges to General & Administrative
Expenses of $600,000 to account for the value of the abandoned patents no longer
related to the research and development efforts of the Company.

         The Company's  equity in net loss of joint venture (Genta Jago) totaled
$1.2 million in 1997  compared to $2.7 million in 1996 and $6.9 million in 1995.
The decrease in the Company's  equity in net loss of joint  venture  during 1997
relative to 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  $4.7  million in principal  and 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


                                     - 34 -

<PAGE>

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 seeking to direct its  resources
from the joint venture to its Anticode development,  specifically G3139, for the
immediate future.

         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 $3,323,000 in 1997, $886,000 in 1996, and $323,000
in 1995.  In  consideration  of EITF D-60  which was  issued by the SEC 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 April 1998,  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.

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  $112.4  million  through  December  31, 1997,
including  net proceeds of $17.0  million  raised  during 1997.  At December 31,
1997, the Company had cash, cash


                                     - 35 -

<PAGE>

equivalents  and  short-term  investments  totaling  $8.5  million  compared  to
$532,000 at December  31,  1996.  The  increase in cash,  cash  equivalents  and
short-term  investments during 1997 is largely attributable to proceeds from the
Company's  private  placements,   as  described  in  Note  8  to  the  Company's
consolidated financial statements.

         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,  its existing  cash funds will
enable the Company to maintain its present  operations into the first quarter of
1999.  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 has been seeking to identify and hire
additional senior managers to direct the business of the Company.  To the extent
it is successful in these  endeavors,  the rate of cash  utilization  would also
increase.  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  principal  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 devoted to Genta Jago;
(iv) the level of  resources  that the  Company  devotes to sales and  marketing
capabilities;  (v) technological  advances;  (vi) the activities of competitors;
and (vii) the ability of the Company to  establish  and  maintain  collaborative
arrangements with others to fund certain research and development  efforts,  Jto
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 and expand its ongoing research and development activities, preclinical
testing and clinical trials, manufacturing activities, costs associated with the
market  introduction  of potential  products,  expansion  of its  administrative
activities.

         In connection with the Genta Jago joint venture formed in late 1992 and
expanded in May 1995, the Company  provides  funding to Genta Jago pursuant to a
working capital


                                     - 36 -

<PAGE>

loan  agreement  that  expires in October  1998.  The loans are advanced up to a
mutually agreed upon maximum commitment  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 is 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.  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  and  interest
reduction of  approximately  $4.7 million.  As of December 31, 1997, 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, 1997. Such loans bear interest at rates per annum
ranging  from 5.81% to 7.5%,  and are  payable in full on October 20,  1998,  or
earlier in the event  certain  revenues are received by Genta Jago and specified
cash balances are maintained by Genta Jago. There can be no assurance,  however,
that Genta Jago will obtain sufficient  financial  resources to repay such loans
to Genta. Genta Jago repaid Genta $1 million in principal of its working capital
loans, in November 1996,  from license fee revenues.  The amount of future loans
by Genta to Genta Jago will depend upon several factors, including the amount of
funding  obtained  by Genta Jago  through  collaborative  arrangements,  Genta's
ability  and  willingness  to  provide  loans,  and the timing and cost of Genta
Jago's  preclinical  studies,  clinical  trials and regulatory  activities.  The
Company is currently in negotiations with Jagotec and its affiliates to reach an
agreement  under  which the terms of the joint  venture  would be  restructured.
There can be no  assurance  that such  negotiations  will  result in a  mutually
satisfactory agreement. See "MD&A-- Certain Trends and  Uncertainties--Claims of
Genta's Default Under Various Agreements."

         In 1997, the Company did not acquire additional  property or equipment.
Through  December 31, 1997,  the Company  acquired $10.1 million in property and
equipment of which $5.5 million was financed  through  capital  leases and other
equipment  financing  arrangements,  $3.3  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 1997, 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


                                     - 37 -

<PAGE>

Administrative   expense  due  to  the   reduction   of   operations   at  Genta
Pharmaceuticals  Europe.  The  Company  discontinued  its  effort  to  develop a
capability  at JBL to  manufacture  oligonucluotides  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.  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.

         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 may be
paid in cash or common stock or a combination  thereof, at the Company's option.
Dividends on the Series A Preferred  Stock  accrue on a daily basis  (whether or
not declared) and shall accumulate to the extent not paid on the annual dividend
payment date  following the dividend  period for which they accrue.  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


                                     - 38 -

<PAGE>

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, 1997  management has considered  projected
future cash flows from  product  sales,  collaborations  and proceeds on sale of
such assets and, other than the $600,000  charge recorded in 1997 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 is  completing  an  assessment  of whether it will have 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
total year 2000  project  cost is not  expected  to be  material.  The year 2000
project is expected to be completed not later than  December 31, 1998,  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.  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


                                     - 39 -

<PAGE>

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.

CERTAIN TRENDS AND UNCERTAINTIES

         In addition to the other information contained in this Annual Report on
Form 10-K/A, 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
"Report of Ernst & Young, LLP,  Independent  Auditors" and  "MD&A--Liquidity and
Capital Resources." The Company will need to raise substantial  additional funds
to 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.  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  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.


                                     - 40 -

<PAGE>

From the period  since its  inception  to  December  31,  1997,  the Company has
incurred a cumulative net loss of $124.5  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 to
the  Company's  financial  statements  at December  31,  1997,  which  paragraph
expresses  substantial  doubt as to the Company's ability to continue as a going
concern.  See  "Report  of  Ernst  &  Young  LLP,   Independent   Auditors"  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  $27.2
million preference of the 453,100 outstanding shares of Series A Preferred Stock
and the  approximately  $37.4 million  preference of 267,390  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 and the exercise
price of warrants  issued in connection  with the Series A Preferred  Stock (the
"Series A Warrants") are 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 March 1, 1998,  each share of Series A Preferred  Stock
is convertible  into  approximately  7.25 shares of Common Stock at a conversion
price of $8.27 per share and the  exercise  price of the  Series A  Warrants  is
presently $9.32 per share.  There are outstanding  Series A Warrants to purchase
an aggregate of 675,966  shares of Common  Stock,  which expire on September 24,
1998.  The  conversion  rate of the Series D  Preferred  Stock and the  exercise
prices of the Class 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 June 29,  1998 (the  "Reset
Date") will be 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") is less than
140% of the  then  applicable  Conversion  Price  (a  "Reset  Event").  Upon the
occurrence  of a Reset  Event,  the then  applicable  Conversion  Price  will be
reduced to be equal to the greater of (i) the 12 Month  Trading Price divided by
1.40 and (ii) 25% of the then applicable  Conversion Price. 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


                                     - 41 -

<PAGE>

of Common  Stock,  and the  exercise  price of the Class D Warrants is presently
$0.94375 per share.  There are 807,900 Class D Warrants  outstanding and another
201,975  Class D  Warrants  issuable  upon the  exercise  of  certain  warrants.
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, 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 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.  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 7, 1997 Jago and Jagotec  gave Genta Jago formal  notices of its
assertion  that Genta Jago is in breach of the  Restated  GEOMATRIX(R)  Services
Agreement,  the Restated GEOMATRIX(R) Research and Development Agreement and the
Restated  GEOMATRIX(R) License Agreement,  stating that should the breach not be
cured within the applicable  cure period,  Genta Jago would reserve the right to
terminate  the  agreements  in  accordance  with  their  terms.  Each  of  these
Agreements  provides for a cure period of 30 days, except that if the default is
not  capable of being  cured  within  this  period and the  defaulting  party is
diligently  undertaking  to cure such default as soon as  commercially  feasible
thereafter under the circumstances,  then the non-breaching  party shall have no
right to terminate the agreement.  In addition each of these agreements contains
a  provision  providing  for the final  resolution  of any  disputes,  claims or
controversies,  whether  before  or  after  termination  of  the  agreement,  by
arbitration in Paris, France. After the 30-day cure period expired, Jago did not
take action  purporting to terminate  these  agreements  but did not rescind the
notices of default. Jago, Jagotec and Jago Holding AG also gave formal notice of
default under the Restated Joint Venture and Shareholders Agreement,  contending
that due to Genta's failure to meet its funding


                                     - 42 -

<PAGE>

obligations to Genta Jago,  Genta Jago was unable to fulfill its  obligations to
Jago. The amount claimed by Jago to be in default is approximately $1.2 million,
of which $200,000 relates to 1997 and $1.0 million relates to development  costs
and license  fees for 1996.  There is no specific  cure period  contained in the
Restated  Joint  Venture  and  Shareholders  Agreement  but  rather a  provision
providing for resolution of disputes,  claims or controversies by arbitration in
Paris,  France.  The Company recently met with Jago and is attempting to resolve
the  situation  without  resort to  arbitration.  While a  termination  of these
agreements  may have a  material  adverse  effect on the  Company,  the  Company
intends  to oppose  vigorously  Jago's  position.  Stating  that it was  without
prejudice to Genta's position,  Genta provided  approximately  $129,000 to Genta
Jago for the  payment  by Genta  Jago of all  amounts  claimed by Jago under the
Restated  GEOMATRIX(R) License Agreement and certain other amounts owed by Genta
Jago to third  parties (both  included in Jago's notice of default).  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. This notice further advised
that if the  alleged  breach  were not cured  within 90 days of the  notice  the
license  would be  terminated.  See  "Business--Anticode(TM)  Brand of Antisense
Oligonucleotide    Programs--Oligonucleotide    Collaborative    and   Licensing
Agreements--Ts'o/Miller/Hopkins."   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.
The Company does not believe that under the terms of the ANVAR Agreement,  ANVAR
is entitled to request  early  repayment  and is working with ANVAR to achieve a
mutually  satisfactory  resolution.  See  "Business--Genta  Europe." LBC Capital
Resources, Inc. ("LBC"), a Philadelphia-based broker/dealer, has asserted claims
against  the  Company  and  others.  See  "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."

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


                                     - 43 -

<PAGE>

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. There can be no assurance that the Company will be permitted to
undertake  human  clinical  testing  of  the  Company's  products  currently  in
pre-clinical  development,   or,  if  permitted,  that  such  products  will  be
demonstrated to be safe and  efficacious.  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
technology. In addition, none of the products being developed through Genta Jago
has  had  its  manufacturing  process  successfully   scaled-up  for  commercial
production or has started pivotal bioequivalence trials. In addition,  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."

Limited Availability of Net Operating Loss Carry Forwards.

         At December  31,  1997,  the Company  has  federal and  California  net
operating loss  carryforwards  of  approximately  $71,697,000  and  $15,236,000,
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  prior to 1997. The federal tax loss
carryforwards   will  begin  expiring  in  2003,  unless  previously   utilized.
Approximately  $2,767,000 of the California tax loss carryforward expired during
1997 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 1998,  unless  utilized.  The Company also has federal and  California
research and development tax credit  carryforwards of $2,921,000 and $1,203,000,
respectively, which will begin expiring in 2003 unless previously utilized.


                                     - 44 -

<PAGE>

         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 and 1997.  Because of the decrease in
value of the Company's stock,  the ownership  changes which occurred in 1996 and
1997,  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


                                     - 45 -

<PAGE>

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
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.  Chloroform  was  detected  at  levels  of up to 190  ug/liter
on-site, exceeding the California Drinking Water Maximum Contamination Level for
trihalomethanes  of 100 ug/liter.  PCEs were also detected at levels of up to 22
ug/liter on-site,  exceeding the California Drinking Water Maximum Contamination
Level of 5 ug/liter.  In  addition,  Toluene  was  detected at levels of up to 2
ug/liter at several points on-site,  which is significantly below the California
Toxicity Action Level of 100 ug/liter. These toxicity levels are not binding, as
the final regulatory maximum levels may be higher or lower. JBL has notified the
appropriate  regulatory  agency,  the California  Regional Water Quality Control
Board,  of  conditions  at the  site,  and with the  agency's  approval,  JBL is
monitoring  groundwater  conditions  at the site on a  quarterly  basis.  JBL is
currently in the  pre-regulatory  action stage with ongoing site  monitoring and
site   assessment.   In  addition,   current   sampling  results  indicate  that
contaminants may be migrating off-site. An off-site well, used as a domestic and
irrigation  water source,  has shown evidence of being impacted by chloroform at
0.9  ug/liter,  significantly  below (less than one  percent of) the  California
Drinking Water Maximum  Contamination Level for trihalomethanes of 100 ug/liter,
and toluene at 0.9 ug/liter, also significantly below (less than one percent of)
the California  Toxicity  Action Level of 100 ug/liter.  While another  off-site
well has been found to contain chloroform,  the engineering consultant concluded
that the  contaminants  do not appear to relate to impact from the JBL site. 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. The Company
believes that it is in material compliance with


                                     - 46 -

<PAGE>

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.

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
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


                                     - 47 -

<PAGE>

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
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


                                     - 48 -

<PAGE>

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  to  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 Company's or Genta Jago's products.
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).  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


                                     - 49 -

<PAGE>

Company or Genta Jago will succeed in the  development  and marketing of any new
drug  products,  or that they  will not be  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.

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.


                                     - 50 -

<PAGE>

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  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 is actively
engaged in the search for a new Chief  Financial  Officer and a head of Research
and  Development.  In  March  1998,  the  Company's  Controller  resigned  and a
replacement is being sought.  At the present time the Company believes its Stock
Option Plan is inadequate to provide  sufficient  incentives  for the successful
recruitment  of key  personnel  and a new plan will be proposed for  stockholder
approval at the next annual  stockholders'  meeting.  In  addition,  the current
senior  officers and directors have not been granted  options in accordance with
appointment   offers  since  the  current  plan  does  have  sufficient  options
available.  There can be no assurance that the stockholders  will approve such a
plan or that, if approved,  it will be adequate to enable recruitment of new, or
retention of existing, key employees and directors.

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. If available,
product  liability  insurance  for  the  pharmaceutical  industry  generally  is
expensive. The Company has obtained a level of


                                     - 51 -

<PAGE>

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.

         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 $27.2 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 $31.8 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) 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.

         The SEC Staff is currently  in the process of reviewing a  registration
statement filed by the Company,  and has raised certain questions  regarding the
Company's  classification  of the  Preferred  Stock as  permanent  (rather  than
"mezzanine")  equity.  Management  of  the  Company  believes,  based  upon  its
Certificate of Incorporation  and the agreement  pursuant to which the Preferred
Stock was issued, and after discussion with Company counsel, that the conditions
for redemption of the Preferred Stock require  volitional acts undertaken by the
Company and are therefore  solely within the control of the Company.  If the SEC
Staff does not accept the Company's position, the Company will file an amendment
to this Form 10-K  reclassifying the Preferred Stock as "mezzanine"  rather than
permanent equity.


                                     - 52 -

<PAGE>

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.  At  the  Company's   Annual  Meeting  of
Stockholders  held on April 4, 1997, the  stockholders  approved an amendment to
the Company's  Restated  Certificate  of  Incorporation  effecting a one-for-ten
reverse  stock  split of its Common  Stock.  The  stockholders  also  approved a
reduction of the Company's authorized shares of Common Stock from 150,000,000 to
70,000,000.  The Company  commenced trading on a post reverse split basis at the
commencement  of trading on April 7, 1997. As of March 1, 1998,  the Company had
5,737,756  shares of Common  Stock  outstanding.  The  Company  intends  to seek
stockholder  approval  of  another  reverse  stock  split  at  its  next  annual
stockholders'  meeting.  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.


                                     - 53 -

<PAGE>

         No  predictions  can be made of the effect that future  market sales of
the shares of Common Stock  underlying the  convertible  securities and warrants
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 Trust, a Cayman  Islands trust,  and the Aries Domestic Fund,
L.P., a Delaware limited partnership (collectively, 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.,  PhD., and Andrew J.
Stein as  nominees  to the Board of  Directors.  Such  persons  were  elected as
Directors of the Company.  David R. Walner, the Secretary of the Company,  is an
Associate  Director and Secretary of Paramount  Capital Asset  Management,  Inc.
("PCAM").  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--Concen-  tration of
Ownership and Control" below. In addition to the Aries Funds' investments in the
Company that are disclosed in "Market for Registrant's Common Equity and Related
Stockholder  Matters--Recent Sales of Unregistered Securities," above, the Aries
Funds also engaged in the following  transactions:  the Aries Funds purchased an
aggregate  of 10,000  shares  of Series D  Preferred  Stock and  50,000  Class D
Warrants  in the  Private  Placement;  on  December  2,  1997,  the Aries  Funds
purchased an aggregate of 54,000 shares of Series A Preferred Stock; on December
29,  1997,  warrants  to  purchase  an  aggregate  of 1,000  shares  of Series D
Preferred  Stock and 5,000 Class D Warrants were allocated to the Aries Funds by
Paramount  Capital,  Inc.,  which warrants were received in connection  with the
Private  Placement;  and on December 31,  1997,  the Aries Funds  converted  the
outstanding  principal  of, and  interest on, their  respective  Senior  Secured
Convertible  Bridge Notes of the Company  into an aggregate of 52,415  shares of
Series D Preferred  Stock.  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, a New York-based merchant banking and venture
capital firm  specializing in biotechnology  companies  ("PCI").  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


                                     - 54 -

<PAGE>

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.

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 of any of the  anti-takeover  provisions  contained  in the  Company's
Restated  Certificate of Incorporation.  The Company's By-laws currently provide
that  meetings  of the  stockholders  may only be called by the  Chairman of the
Board, the Chief Executive Officer or the Board of Directors. At its next annual
stockholders'  meeting the Company  intends to seek  stockholder  approval of an
amendment  to its  Restated  Certificate  of  Incorporation  that would have the
effect of eliminating  the  requirement  that  stockholder  action be taken at a
meeting. Additionally, the Company has contractual obligations to certain of its
security holders that may impair potential takeovers. See


                                     - 55 -

<PAGE>

"MD&A--Certain  Trends and  Uncertainties--Certain  Interlocking  Relationships;
Potential  Conflicts  of  Interest."  Further,  pursuant  to  the  terms  of its
stockholder  rights plan adopted in December 1993, the Company has distributed a
dividend of one right for each outstanding  share of Common Stock.  These rights
will cause a substantial  dilution to a person or group that attempts to acquire
the  Company on terms not  approved by the Board of  Directors  and may have the
effect of deterring hostile takeover  attempts.  The stockholder rights plan was
amended  to permit  the  consummation  of the $3 million  private  placement  in
February 1997 and the Private Placement in June 1997. Additionally,  pursuant to
the Company's Restated Certificate of Incorporation,  if any "person" or "Group"
(as defined), together with any affiliates thereof, becomes the beneficial owner
(as defined) 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),
then a  Fundamental  Change (as  defined)  would occur and the Company  would be
obligated  to  redeem  the  Series  A  and  Series  D  Preferred   Stocks.   See
"MD&A--Certain  Trends and Uncertainties  Fundamental  Change." This Fundamental
Change provision is a further  disincentive for any person attempting to acquire
60% or more of the total voting power of the Company's Voting Shares.

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
less  than  $5.00  per share or with 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;  (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 and (iii) the  securities'  issuer  having
average  revenues  of at least  $6,000,000  for the last three  years (all three
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


                                     - 56 -

<PAGE>

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.


                                     - 57 -

<PAGE>

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA

                               Genta Incorporated

                      Index to Financial Statements Covered
                       by Reports of Independent Auditors


<TABLE>
<CAPTION>
GENTA INCORPORATED

<S>                                                                                       <C>
Report of Ernst & Young LLP, Independent Auditors..........................................59

Consolidated Balance Sheets at December 31, 1996 and 1997..................................61

Consolidated Statements of Operations for the years ended
December 31, 1995, 1996 and 1997...........................................................62

Consolidated Statements of Stockholders' Equity 
for the years ended December 31, 1995, 1996 and 1997.......................................63

Consolidated Statements of Cash Flows for the years ended
December 31, 1995, 1996 and 1997...........................................................69

Notes to Consolidated Financial Statements.................................................70

GENTA JAGO TECHNOLOGIES B.V. (A DEVELOPMENT STAGE COMPANY)

Report of Ernst & Young LLP, Independent Auditors..........................................93

Balance Sheets at December 31, 1996 and 1997...............................................94

Statements of Operations for the years ended December 31, 1995, 1996 and 1997
and for the period December 15, 1992 (inception) through December 31, 1997.................95

Statement of Stockholders' Equity (Net Capital Deficiency) for the Period
December 15, 1992 (inception) through December 31, 1997....................................96

Statements of Cash Flows for the years ended December 31, 1995, 1996 and
1997 and for the period December 15, 1992 (inception) through December 15, 1997............97

Notes to Financial Statements..............................................................98
</TABLE>


                                     - 58 -

<PAGE>

                Report of Ernst & Young LLP, Independent Auditors

The Board of Directors and Stockholders
Genta Incorporated

We  have  audited  the  accompanying   consolidated   balance  sheets  of  Genta
Incorporated  as of  December  31,  1996 and 1997 and the  related  consolidated
statements of operations,  stockholders'  equity, and cash flows for each of the
three 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, 1996 and 1997 and the consolidated results of its operations and
its cash flows for each of the three 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.


                                     - 59 -

<PAGE>

As disclosed 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.
The Company also restated its  operating  results for 1995 to include the effect
of recording imputed non-cash  dividends on preferred stock totaling  $1,000,000
not previously  recorded in operating  results for 1995.  This had the effect of
increasing  net  loss  applicable  to  common  shareholders  by  $3,014,667  and
$1,000,000 in 1996 and 1995,  respectively,  and  increasing  net loss per share
(basic and diluted) by $(1.01) and $(.51) in 1996 and 1995, respectively.

San Diego, California
April  15, 1998


                                     - 60 -

<PAGE>

                               Genta Incorporated

                           Consolidated Balance Sheets
<TABLE>
<CAPTION>

                                                                                                December 31,
                                                                                 ------------------------------------------
                                                                                              1996                 1997
                                                                                 ------------------------------------------
                                                                                          (restated)
Assets
<S>                                                                                  <C>                   <C>         
Current assets:
   Cash and cash equivalents                                                         $     532,013         $  1,202,668
   Short-term investments, available-for-sale                                                    -            7,253,756
   Trade accounts receivable                                                               602,696              431,046
   Notes receivable from officers and employees                                             62,000                    -
   Inventories                                                                             992,243              826,008
   Other current assets                                                                    185,164              218,513
                                                                                 ------------------------------------------
Total current assets                                                                     2,374,116            9,931,991

Property and equipment, net                                                              3,634,281            1,718,150
Intangibles, net                                                                         4,022,242            3,390,032
Deposits and other assets                                                                1,138,745              713,730
                                                                                 ------------------------------------------
Total assets                                                                           $11,169,384          $15,753,903
                                                                                 ==========================================

Liabilities and stockholders' equity

Current liabilities:
   Accounts payable                                                                    $ 1,179,056           $  882,111
   Payable to research institution                                                         551,213              602,658
   Accrued payroll                                                                         782,280              548,295
   Other accrued expenses                                                                  981,087              992,660
   Deferred revenue                                                                        193,121              198,570
   Short-term notes payable                                                                350,000                    -
   Current portion of notes payable and capital lease obligations                        1,332,304              900,558
                                                                                 ------------------------------------------
Total current liabilities                                                                5,369,071            4,124,852

Notes payable and capital lease obligations, less current portion                          119,578                    -
Deficit in joint venture                                                                 1,606,503            2,204,053

Stockholders' equity:
   Preferred stock;  5,000,000 shares authorized,  convertible  preferred shares
     outstanding:
       Series A  convertible  preferred  stock,  $.001 par  value;  528,100  and
         456,600  shares issued and  outstanding  at December 31, 1996 and 1997,
         respectively; liquidation value is $27,396,000
         at December 31, 1997                                                                  528                  457
       Series C convertible preferred stock, $.001 par value; 1,424
         and no shares issued and outstanding at December 31, 1996
         and 1997, respectively                                                                  1                    -
       Series D convertible preferred stock, $.001 par value; $100
         stated value, no shares  and 226,995 shares issued and
         outstanding at December 31, 1996 and 1997, respectively;
         liquidation value is $31,779,300 at December 31, 1997                                   -                  227
   Common stock, $.001 par value; 70,000,000 shares authorized;
      3,999,368 and 5,712,363 shares issued and outstanding at
      December 31, 1996 and 1997, respectively                                               3,999                5,712
   Additional paid-in capital                                                          109,490,222          126,320,493
   Accumulated deficit                                                                (109,042,074)        (124,467,891)
   Accrued dividends payable in common stock                                             3,671,532            4,566,000
   Notes receivable from stockholders                                                      (49,976)                    -
                                                                                 ------------------------------------------
Total stockholders' equity                                                               4,074,232            6,424,998
                                                                                 ------------------------------------------
Total liabilities and stockholders' equity                                             $11,169,384          $15,753,903
                                                                                 ==========================================
</TABLE>
See accompanying notes.



                                     - 61 -
<PAGE>

                               Genta Incorporated

                      Consolidated Statements of Operations

<TABLE>
<CAPTION>
                                                      YEARS ENDED DECEMBER 31,
                                         --------------------------------------------

                                             1995             1996             1997
                                         --------------------------------------------
                                            (restated)    (restated)
<S>                                      <C>             <C>             <C>         
Revenues:
   Product sales                         $  3,781,983    $  4,924,694    $  4,701,649
   Gain on sale of technology                    --           373,261            --
   Contract revenue from Genta Jago         2,747,678       1,558,962         350,097
   Collaborative research and
      development                           1,125,000            --            50,000
                                         --------------------------------------------
                                            7,654,661       6,856,917       5,101,746
Costs and expenses:
   Cost of products sold                    1,899,216       2,479,337       3,099,078
   Research and development                13,102,821       6,777,043       5,387,095
   Charge for acquired in-process
      research and development              4,762,000            --              --
   Selling, general and administrative      6,360,402       6,254,366       8,075,229
                                         --------------------------------------------
                                           26,124,439      15,510,746      16,561,402
                                         --------------------------------------------

Loss from operations                      (18,469,778)     (8,653,829)    (11,459,656)
Equity in net loss of joint venture        (6,913,180)     (2,712,183)     (1,193,321)

Other income (expense):
  Interest income                             348,470         159,165         550,195
  Interest expense                           (331,226)       (885,602)     (3,323,035)
                                         --------------------------------------------
Net loss                                  (25,365,714)    (12,092,449)    (15,425,817)
Dividends accrued on preferred stock       (2,551,726)     (2,524,701)     (1,694,677)
Dividends imputed on preferred stock       (1,000,000)     (2,348,000)    (16,158,000)
                                         --------------------------------------------
Net loss applicable to common shares     $(28,917,440)   $(16,965,150)   $(33,278,494)
                                         ============================================

Net loss per share (basic and diluted)   $     (14.82)   $      (5.69)   $      (7.52)
                                         ============================================
 Shares used in computing net loss per
  share                                     1,951,862       2,983,449       4,422,409
                                         ============================================
</TABLE>

See accompanying notes.


                                     - 62 -
<PAGE>



                               Genta Incorporated

                 Consolidated Statements of Stockholders' Equity



<TABLE>
<CAPTION>
                                                                      CONVERTIBLE
                                                                    PREFERRED STOCK                  COMMON STOCK
                                                              ---------------------------
                                                                                              ---------------------------
                                                                SHARES       AMOUNT             SHARES       AMOUNT
                                                              ---------------------------     ---------------------------

<S>                                                             <C>           <C>             <C>               <C>     
Balance at December 31, 1994                                    600,000       $      600      1,387,731         $  1,387
     Issuance of common stock                                         -                -        573,441              573
     Issuance of common stock upon conversion
       of promissory notes                                            -                -        177,790              178
     Issuance of common stock for acquired
       in-process research and development                            -                -        124,000              124
     Issuance of Series B convertible preferred stock             3,000                3              -                -
     Issuance of warrants to purchase common stock                    -                -              -                -
     Issuance of common stock on exercise of options                  -                -            732                1
     Issuance of common stock as dividend on preferred
       stock                                                          -                -        132,863              133
     Dividends accrued on preferred stock                             -                -              -                -
     Repayment of notes receivable from stockholders                  -                -              -                -
     Amortization of deferred compensation                            -                -              -                -
     Net loss                                                         -                -              -                -

                                                              -----------------------------------------------------------
Balance at December 31, 1995                                    603,000              603      2,396,557            2,396
     Issuance of Series C convertible preferred stock             6,000                6              -                -
     Issuance of Series C convertible preferred stock
       upon conversion of promissory notes                        1,044                1              -                -
     Issuance of common stock upon conversion of
       Series A convertible preferred stock and related
       accrued dividends                                        (71,900)             (72)       255,446              255
     Issuance of common stock upon conversion of Series
       B convertible preferred stock and related accrued         (3,000)              (3)       226,943              227
       dividends
</TABLE>


                                     - 63 -
<PAGE>

                               Genta Incorporated

                 Consolidated Statements of Stockholders' Equity


<TABLE>
<CAPTION>

                                                                                                               ACCRUED
                                                                       ADDITIONAL                            DIVIDENDS IN     
                                                                        PAID-IN           ACCUMULATED         PREFERRED       
                                                                        CAPITAL             DEFICIT             STOCK         
                                                                    ----------------------------------------------------------

Balance at December 31, 1994                                          $  85,797,104        $(71,583,911)       $ 1,420,862    
     Issuance of common stock                                             9,164,704                   -                  -    
     Issuance of common stock upon conversion
       of promissory notes                                                3,022,260                   -                  -    
     Issuance of common stock for acquired
       in-process research and development                                1,611,876                   -                  -    
     Issuance of Series B convertible preferred stock                     2,774,897                   -                  -    
     Issuance of warrants to purchase common stock                          173,118                   -                  -    
     Issuance of common stock on exercise of options                          3,661                   -                  -    
     Issuance of common stock as dividend on preferred
       stock                                                              2,399,779                   -         (2,400,000)    
     Dividends accrued on preferred stock                               (2,551,726)                   -          2,551,726    
     Repayment of notes receivable from stockholders                              -                   -                  -    
     Amortization of deferred compensation                                        -                   -                  -    
     Net loss                                                                     -         (25,365,714)                 -    
                                                                    ----------------------------------------------------------

Balance at December 31, 1995                                            102,395,673         (96,949,625)         1,572,588    
     Issuance of Series C convertible preferred stock                     5,492,633                   -                  -    
     Issuance of Series C convertible preferred stock
       upon conversion of promissory notes                                1,044,000                   -                  -    
     Issuance of common stock upon conversion of
       Series A  convertible preferred stock and related
        accrued dividends                                                   326,838                   -           (327,021)    
     Issuance of common stock upon conversion of Series
       B convertible preferred stock and related accrued                     33,783                   -            (34,007)    
       dividends


<CAPTION>

                                                                                                                                
                                                                   NOTES RECEIVABLE                               TOTAL         
                                                                         FROM               DEFERRED          STOCKHOLDERS'     
                                                                     STOCKHOLDERS         COMPENSATION           EQUITY         
                                                                 ------------------------------------------------------------   
                                                                                                                                
<S>                                                                      <C>                 <C>                 <C>            
Balance at December 31, 1994                                             $  (74,726)         $  (64,836)         $15,496,486    
     Issuance of common stock                                                      -                   -           9,165,277    
     Issuance of common stock upon conversion                                                                                   
       of promissory notes                                                         -                   -           3,022,438    
     Issuance of common stock for acquired                                                                                      
       in-process research and development                                         -                   -           1,612,000    
     Issuance of Series B convertible preferred stock                              -                   -           2,774,900    
     Issuance of warrants to purchase common stock                                 -                   -             173,118    
     Issuance of common stock on exercise of options                               -                   -               3,662    
     Issuance of common stock as dividend on preferred                                                                          
       stock                                                                       -                   -                (88)    
     Dividends accrued on preferred stock                                          -                   -                   -    
     Repayment of notes receivable from stockholders                          24,750                   -              24,750    
     Amortization of deferred compensation                                         -              64,836              64,836    
     Net loss                                                                      -                   -        (25,365,714)    
                                                                 ------------------------------------------------------------   
                                                                                                                                
Balance at December 31, 1995                                                (49,976)                   -           6,971,659    
     Issuance of Series C convertible preferred stock                              -                   -           5,492,639    
     Issuance of Series C convertible preferred stock                                                                           
       upon conversion of promissory notes                                         -                   -           1,044,001    
     Issuance of common stock upon conversion of                                                                                
       Series A  convertible preferred stock and related                                                                        
        accrued dividends                                                          -                   -           3,595,000    
     Issuance of common stock upon conversion of Series                                                                         
       B convertible preferred stock and related accrued                           -                   -                   -    
       dividends                                                                                                                
</TABLE>

                                     - 64 -
<PAGE>


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

                                                                      CONVERTIBLE
                                                                    PREFERRED STOCK                  COMMON STOCK
                                                              ---------------------------     ---------------------------
                                                                SHARES       AMOUNT             SHARES       AMOUNT
                                                              ---------------------------     ---------------------------
<S>                                                            <C>                  <C>        <C>                  <C>
     Issuance of common stock upon conversion of Series C 
       convertible  preferred
       stock and related accrued
       dividends                                               (5,620)              (6)        524,749              525
     Issuance of common stock upon
       conversion of convertible debentures                          -                -        587,790              588
     Issuance of warrants to purchase
       common stock for patent legal services                        -                -              -                -
     Issuance of common stock on exercise of options                 -                -          7,882                8
     Dividends accrued on preferred stock                            -                -              -                -
     Interest imputed on convertible debentures                      -                -              -                -
     Net loss                                                        -                -              -                -
                                                              -----------------------------------------------------------

Balance at December 31, 1996                                   529,524              530      3,999,367           3,999
     Issuance of common stock                                        -                -         38,400               38
     Retirement 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
     Issuance of common stock upon conversion of
       Series C convertible preferred stock and
       related accrued dividends                               (1,424)              (1)        952,841              953
     Issuance of common stock upon conversion of
       convertible debentures                                        -                -        204,263              204
     Issuance of Series D convertible preferred stock          161,580              162              -                -


</TABLE>


                                     - 65 -
<PAGE>



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


                                                                                                             ACCRUED
                                                                    ADDITIONAL                            DIVIDENDS ON     
                                                                     PAID-IN           ACCUMULATED          PREFERRED      
                                                                     CAPITAL             DEFICIT              STOCK        
                                                                 ----------------------------------------------------------
<S>                                                                      <C>                                   <C>         
     Issuance of common stock upon conversion 
       of Series C convertible  preferred
       stock and related accrued
       dividends                                                         64,210                   -             (64,729)    
     Issuance of common stock upon
       conversion of convertible debentures                           1,598,011                   -                   -    
     Issuance of warrants to purchase
       common stock for patent legal services                           221,543                   -                   -    
     Issuance of common stock on exercise of options                    171,565                   -                   -    
     Dividends accrued on preferred stock                            (2,524,701)                  -           2,524,701    
     Interest imputed on convertible debentures                         666,667                   -                   -    
     Net loss                                                                 -         (12,092,449)                  -    
                                                                 ----------------------------------------------------------

Balance at December 31, 1996                                        109,490,222        (109,042,074)           3,671,532    
     Issuance of common stock                                             2,000                   -                   -    
     Retirement common stock in exchange for
       forgiveness of note receivable                                         -                   -                   -    
     Issuance of common stock upon conversion of
       Series A convertible preferred stock and
       related accrued dividends                                        714,552                   -            (715,000)    
     Issuance of common stock upon conversion of
       Series C convertible preferred stock and
       related accrued dividends                                         84,257                   -             (85,209)    
     Issuance of common stock upon conversion of
       convertible debentures                                           358,355                   -                   -    
     Issuance of Series D convertible preferred stock                13,957,100                   -                   -    

<CAPTION> 

                                                                  NOTES RECEIVABLE                               TOTAL
                                                                        FROM                DEFERRED         STOCKHOLDERS'
                                                                    STOCKHOLDERS          COMPENSATION          EQUITY
                                                                ------------------------------------------------------------
<S>                                                                                                                       
     Issuance of common stock upon conversion                             <C>                        <C>      <C>
       of Series C convertible  preferred
       stock and related accrued
       dividends                                                                 -                   -                   -
     Issuance of common stock upon
       conversion of convertible debentures                                      -                   -           1,598,599
     Issuance of warrants to purchase
       common stock for patent legal services                                    -                   -             221,543
     Issuance of common stock on exercise of options                             -                   -             171,573
     Dividends accrued on preferred stock                                        -                   -                   -
     Interest imputed on convertible debentures                                  -                   -             666,667
     Net loss                                                                    -                             (12,092,449)
                                                                ------------------------------------------------------------

Balance at December 31, 1996                                               (49,976)                  -           4,074,252
     Issuance of common stock                                                    -                   -              42,038
     Retirement 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                                                 -                   -                   -
     Issuance of common stock upon conversion of
       Series C convertible preferred stock and
       related accrued dividends                                                 -                   -                   -
     Issuance of common stock upon conversion of
       convertible debentures                                                    -                   -             358,559
     Issuance of Series D convertible preferred stock                            -                   -          13,957,262

</TABLE>

                                     - 66 -
<PAGE>

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

                                                                           CONVERTIBLE
                                                                         PREFERRED STOCK                  COMMON STOCK
                                                                   ---------------------------     ---------------------------
                                                                     SHARES        AMOUNT            SHARES        AMOUNT
                                                                   ---------------------------     ---------------------------

<S>                                                                    <C>                 <C>                               
     Issuance of Series D convertible  preferred stock 
       upon conversion of senior
       secured convertible bridge
       notes and accrued interest                                      65,415              65               -               -
     Dividends accrued on preferred stock                                   -               -               -               -
     Issuance of warrants to purchase common
       stock in connection with line of credit                              -               -               -               -
     Interest imputed on convertible
       debentures                                                           -               -               -               -
     Net loss                                                               -               -               -               -
                                                                   -----------------------------------------------------------
Balance at December 31, 1997                                          683,595         $   684       5,712,363          $5,712
                                                                   ===========================================================

</TABLE>

See accompanying notes.


                                     - 67 -
<PAGE>


                               Genta Incorporated

                 Consolidated Statements of Stockholders' Equity

<TABLE>
<CAPTION>
                                                                                                             ACCRUED
                                                                    ADDITIONAL                            DIVIDENDS ON      
                                                                     PAID-IN           ACCUMULATED          PREFERRED       
                                                                     CAPITAL             DEFICIT              STOCK         
                                                                 -----------------------------------------------------------

<S>                                                                  <C>               <C>                    <C>
     Issuance of Series D convertible  preferred stock 
       upon conversion of senior
       secured convertible bridge
       notes and accrued interest                                      3,270,684                   -                   -    
     Dividends accrued on preferred stock                            (1,694,677)                   -           1,694,677    
     Issuance of warrants to purchase common
       stock in connection with line of credit                            98,000                   -                   -    
     Interest imputed on convertible
       debentures                                                      3,000,000                   -                   -    
     Net loss                                                                  -        (15,425,817)                   -    
                                                                 -----------------------------------------------------------
Balance at December 31, 1997                                        $126,320,493      $(124,467,891)          $4,566,000    
                                                                 ===========================================================

<CAPTION>

                                                                  NOTES RECEIVABLE                                 TOTAL
                                                                        FROM                 DEFERRED          STOCKHOLDERS'
                                                                    STOCKHOLDERS           COMPENSATION            EQUITY
                                                                 --------------------------------------------------------------

<S>                                                                                                                           
     Issuance of Series D convertible  preferred stock                  <C>             <C>                       <C>
       upon conversion of senior
       secured convertible bridge
       notes and accrued interest                                                  -                    -            3,270,749
     Dividends accrued on preferred stock                                          -                    -                    -
     Issuance of warrants to purchase common
       stock in connection with line of credit                                     -                    -               98,000
     Interest imputed on convertible
       debentures                                                                  -                    -            3,000,000
     Net loss                                                                      -                    -         (15,425,817)
                                                                 --------------------------------------------------------------
Balance at December 31, 1997                                             $         -    $               -           $6,424,998
                                                                 ==============================================================

</TABLE>


See accompanying notes.


                                     - 68 -
<PAGE>


                               Genta Incorporated

                      Consolidated Statements of Cash Flows

<TABLE>
<CAPTION>

                                                                                  Years ended December 31,
                                                              --------------------------------------------------------------
                                                                      1995                 1996                1997
                                                              --------------------------------------------------------------
<S>                                                                 <C>                  <C>                 <C>          
Operating activities
Net loss                                                            $(25,365,714)        $(12,092,449)       $(15,425,817)
Items reflected in net loss not requiring cash:
   Depreciation and amortization                                       1,761,530            1,518,142           1,022,432
   Equity in net loss of joint venture                                 6,913,180            2,712,183           1,193,321
   Loss on disposal of fixed assets                                            -                    -           1,130,809
   Loss on abandonment of patents                                              -                    -             600,000
   Interest accrued on convertible notes and debentures                        -                    -             279,308
   Fair value of warrants issued in connection with line of                    -                    -              98,000
      credit
   Forgiveness of shareholder note                                             -                    -              49,976
   Fair value of common stock issued for severance and                         -                    -              42,038
      services
   Charge for acquired in-process research and development
      and other                                                        3,807,556                    -                   -
   Interest imputed on convertible debentures                                  -              666,667           3,000,000
   Changes in operating assets and liabilities:
      Accounts and notes receivable                                      294,012              168,600             233,650
      Inventories                                                        106,909             (289,599)            166,235
      Other current assets                                               366,790              (33,241)            (33,349)
      Accounts payable, accrued expenses and other                       467,738             (803,347)           (467,922)
      Deferred revenue                                                  (976,468)              44,589               5,449
                                                              --------------------------------------------------------------
Net cash used in operating activities                                (12,624,467)          (8,108,455)         (8,105,870)

INVESTING ACTIVITIES
 Purchase of short-term investments                                            -           (1,497,775)         (9,763,493)
 Maturities of short-term investments                                  3,843,685            1,497,775           2,509,737
 Purchase of property and equipment                                     (778,964)            (115,922)            (34,246)
 Proceeds from sale of property and equipment                                  -                    -              70,691
 Loans receivable from joint venture                                  (7,722,255)            (846,784)           (595,771)
 Deposits and other                                                   (2,021,908)             642,654             (67,331)
                                                              --------------------------------------------------------------
Net cash used in investing activities                                 (6,679,442)            (320,052)         (7,880,413)

FINANCING ACTIVITIES
Proceeds from notes payable                                            4,877,471            2,176,500           3,000,000
 Repayment of notes payable and capital leases                        (1,743,728)          (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                           9,168,939              171,573                   -
 Other                                                                    13,762               21,591                   -
                                                              --------------------------------------------------------------
Net cash provided by financing activities                             12,316,444            8,688,765          16,656,938
                                                              --------------------------------------------------------------
 Increase (decrease) in cash and cash equivalents                     (6,987,465)             260,258             670,655
Cash and cash equivalents at beginning of year                         7,259,220              271,755             532,013
                                                              --------------------------------------------------------------
Cash and cash equivalents at end of year                           $     271,755        $     532,013          $1,202,668
                                                              ==============================================================

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid                                                       $    298,432        $     225,186        $     33,914
                                                              ==============================================================

  SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND
   FINANCING ACTIVITIES:
 Capital lease obligations entered into for equipment                    622,746                    -                   -
 Preferred stock dividend accrued                                      2,551,726            2,524,701           1,694,677
 Dividends imputed on preferred stock                                  1,000,000            2,348,000          16,158,000
 Common stock issued in payment of dividends on preferred              2,399,912              425,757             800,209
   stock
 Preferred stock issued upon conversion of notes payable and
   accrued interest                                                            -            1,044,001                   -
 Preferred stock issued for receivable                                 2,774,900                    -                   -
  Common stock issued upon conversion of notes and
   convertible debentures and accrued interest                         3,022,438            1,598,599             358,559
 Exchange of deposits for purchase of equipment                                -            1,200,000             251,000
 Preferred stock issued upon conversion of short-term notes
   payable and accrued interest                                                -                    -           3,270,749

See accompanying notes.
</TABLE>

                                     - 69 -
<PAGE>

                               Genta Incorporated

                   Notes to Consolidated Financial Statements

                               December 31, 1997

      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 owns 50% of a drug delivery  system joint
venture with Jagotec AG ("Jagotec")  named 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 also manufactures and
markets  specialty  biochemicals  and  intermediate  products  to the  in  vitro
diagnostic and pharmaceutical  industries through its manufacturing  subsidiary,
JBL Scientific, Inc. ("JBL").

      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.  The  Company is  actively  seeking  collaborative
agreements,  additional  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 1997 financial  statements do not include any adjustments  that might result
from the outcome of this uncertainty.

      As disclosed 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.  The Company also restated its  operating  results for 1995 to include
the effect of recording  imputed non-cash  dividends on preferred stock totaling
$1,000,000 not previously  recorded in operating  results for 1995. This had the
effect of increasing net loss  applicable to common  shareholders  by $3,014,667
and $1,000,000 in 1996 and 1995, respectively, and increasing net loss per share
(basic and diluted) by $(1.01) and $(.51) in 1996 and 1995, respectively.

      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.,
the Company's European  subsidiary based in Marseilles,  France. All significant
intercompany accounts and transactions have been eliminated in consolidation.

      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).


                                      -70-
<PAGE>

                               Genta Incorporated

             Notes to Consolidated Financial Statements (continued)

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.  One customer,  a
European  distributor,  accounted for approximately  21%, 27% and 25% of product
sales during the years ended December 31, 1995, 1996 and 1997, respectively. One
other  customer,  who  accounted  for less  than 10% of  product  sales in 1997,
accounted for  approximately 16% of product sales during the year ended December
31,  1995.  Collaborative  research  and  development  revenues  are recorded as
earned,  generally ratably, as research and development activities are performed
under the terms of the contracts.  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 one year from December 31, 1997.  The estimated fair value of each
investment security approximates the amortized cost and therefore, no unrealized
gains or losses existed as of December 31, 1997.

      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 in debt  instruments of  corporations
with strong credit ratings.  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.


                                      -71-
<PAGE>

                               Genta Incorporated

             Notes to Consolidated Financial Statements (continued)

      Inventories

      Inventories  are  stated at the  lower of cost  (first-in,  first-out)  or
market.

      Property and Equipment

      Property  and  equipment  is  stated  at cost  and  depreciated  over  the
estimated useful lives 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.

      Intangible Assets

      Intangible  assets,  consisting  primarily of capitalized patent costs and
purchased  proprietary  technology,  are amortized using the straight line basis
over a term of 5 years  (formerly 5-17 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  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. In 1997, as a result
of such  evaluation,  the Company  recorded  charges to General & Administrative
Expenses of $600,000 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  is
based on the fair market  value of such  shares of common  stock on the date the
dividends become due.

      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.


                                      -72-
<PAGE>

                               Genta Incorporated

             Notes to Consolidated Financial Statements (continued)

      Under APB 25, deferred compensation is recorded for the excess of the fair
value of the stock on the date of the option grant,  over the exercise  price of
the option.  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.

      Net Loss Per Common Share

      As required,  the Company adopted SFAS No. 128,  "Earnings Per Share," for
the year ended  December  31,  1997.  SFAS No. 128  changes  the method  used to
calculate  earnings per share and requires the restatement of all prior periods.
Under SFAS No.  128,  the  Company is  required  to  present  basic and  diluted
earnings  per  share if  applicable.  Basic  earnings  per share is based on 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, 1995,  1996 and
1997 is  based  on the  weighted  average  number  of  shares  of  common  stock
outstanding during the periods. Potentially dilutive securities include options,
warrants and convertible preferred stock; however, such securities have not been
included in the  calculation of the net loss per common share as their effect is
antidilutive  where,  as here,  there is loss rather than  earnings.  Therefore,
there is no  difference  between the basic and diluted net loss per common share
for any of the periods presented.

      Recently Issued Accounting Standards

      In June 1997,  the Financial  Accounting  Standards  Board issued SFAS No.
130, "Reporting  Comprehensive Income," and SFAS No. 131, "Segment Information."
Both of these  standards are effective for fiscal years beginning after December
15, 1997.  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.  Comprehensive  income is  defined as the change in
equity during a period from transactions and other events and circumstances from
non-owner sources. Net income and other comprehensive income,  including foreign
currency   translation   adjustments,   and  unrealized   gains  and  losses  on
investments,  shall be reported,  net of their related tax effect,  to arrive at
comprehensive  income. The Company does not believe that comprehensive income or
loss has been materially  different than net income or loss. 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


                                      -73-
<PAGE>

                               Genta Incorporated

             Notes to Consolidated Financial Statements (continued)

by  the  Company  in  deciding  how  to  allocate  resources  and  in  assessing
performance.  The financial  information is required to be reported on the basis
that is used internally for evaluating the segment performance. The Company does
not  believe  adoption  of SFAS  No.  131 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. Inventories

      Inventories are comprised of the following:

                                                              December 31,

                                                          1996            1997
                                                      --------------------------
Raw materials and supplies ...................         $342,875         $329,691
Work-in-process ..............................          272,259          141,120
Finished goods ...............................          377,109          355,197
                                                      --------------------------
                                                       $992,243         $826,008
                                                      ==========================


                                      -74-
<PAGE>

                               Genta Incorporated

             Notes to Consolidated Financial Statements (continued)

3. Property and Equipment

      Property and equipment is comprised of the following:

                                                           December 31,

                                                      1996              1997
                                                  ------------------------------
Equipment ..................................      $ 4,093,563       $ 3,923,653
Leasehold improvements .....................        1,128,520           724,456
Furniture and fixtures .....................          105,318            59,739
Construction in progress ...................          624,167              --
                                                  ------------------------------
                                                    5,951,568         4,707,848
Less accumulated depreciation and
   amortization ............................       (2,317,287)       (2,989,698)
                                                  ------------------------------
                                                  $ 3,634,281       $ 1,718,150
                                                  ==============================

      Cost and accumulated amortization of equipment under capital leases at
December 31, 1996 was $200,000 and $80,000, respectively. No equipment was
subject to capital leases at December 31, 1997.

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

      In 1992, Genta and Jagotec determined to enter into a joint venture (Genta
Jago).  The  Company's  purpose  in  establishing  Genta  Jago  was to  obtain 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 and also  contributed  the Initial  License  referred to below.
Genta issued 120,000 shares of Common Stock valued at $7.2 million to Jagotec in
1992 as  consideration  for a license (the  "Initial  License") for Genta to use
Jagotec's GEOMATRIX Technology with respect to


                                      -75-
<PAGE>

                               Genta Incorporated

             Notes to Consolidated Financial Statements (continued)

approximately  25 products,  under the condition that Genta then contribute such
technology to Genta Jago,  which Genta did. 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 as acquired  in-process  research and development in 1992
on Genta's  books.  The value of the Common  Stock  Genta  issued to Jagotec was
considered by the parties to be substantially below the actual fair market value
of the Initial License. The $4.0 million in cash paid to Genta Jago by Genta was
recorded on Genta's books as investment in joint  venture.  The shares of Common
Stock  issued to Jagotec  were valued at their fair market  value at the date of
issuance and were expensed as Acquired in-process  research and development,  as
there  were  no  alternative  future  uses  for  the  acquired  technology,  and
realization  of ultimate  profits from the acquired  technology was not assured.
Thus, upon the acquisition of the license,  Genta had no carrying value assigned
to the GEOMATRIX  technology,  and when Genta  contributed  both its proprietary
Anticode  and its recently  in-licensed  GEOMATRIX  technologies  to Genta Jago,
there was no  accounting  for such capital  contributions.  Since its $4 million
cash  investment  in Genta Jago was paid to the joint  venture to cover  initial
funding of  development,  Genta  initially  carried it as an Investment in joint
venture on its balance sheet.

      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 purchasing  from Jagotec the  Additional  License at
what the parties believed was a substantial discount to its actual value, on the
condition that Genta then contribute it to the joint venture.  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 $2.0 million Deposit was
recorded on Genta's books 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


                                      -76-

<PAGE>

                               Genta Incorporated

             Notes to Consolidated Financial Statements (continued)

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.  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.

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

      The Company  provides  funding to Genta Jago pursuant to a working capital
loan agreement which expires in October 1998. See  "MD&A--Liquidity  and Capital
Resources."  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.  As of December 31, 1997, the Company had advanced  working capital
loans of approximately $15.8 million to Genta Jago, net of principal  repayments
and $4.7 million in forgiven  principal  and accrued  interest.  Such loans bear
interest at rates per annum ranging from 5.81% to 7.5%,  and are payable in full
on October 20, 1998,  or earlier in the event  certain  revenues are received by
Genta Jago and specified cash balances are  maintained by Genta Jago.  There can
be no assurance,  however,  that Genta Jago will obtain the necessary  financial
resources to repay such loans to Genta.  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
spend the funds,  since  Genta  believed  it had the legal  right to recover any
unexpended  funds as a  debt-holder.  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.

      The Company is currently in  negotiations  with Jagotec and its affiliates
to reach an  agreement  under  which  the terms of the  joint  venture  would be
restructured  and future  funding  levels could be  determined.  There can be no
assurance  that  such  negotiations  will  result  in  a  mutually  satisfactory
agreement.


                                      -77-
<PAGE>

                               Genta Incorporated

             Notes to Consolidated Financial Statements (continued)

      In 1995, Genta Jago returned certain  Anticode(TM)  technology to Genta in
exchange  for Genta's  forgiveness  of $4.7  million of  principal  and 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 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
cash,  and had no carrying  value for the loans at the time of the  forgiveness.
The  forgiveness  was  treated  by Genta  Jago as a gain on the  waiver  of debt
because this reflected the legal form of the transaction.

      Under  terms of the joint  venture,  Genta  Jago has  contracted  with the
Company to conduct  research and development and provide certain other services.
Revenues  associated  with providing such services,  totaled $2.7 million,  $1.6
million and  $350,000  for the years ended  December  31,  1995,  1996 and 1997,
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. See "Business--Genta Jago."

      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.


                                      -78-
<PAGE>

                               Genta Incorporated

             Notes to Consolidated Financial Statements (continued)

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

                                                          December 31,

                                                      1996             1997
                                                 -------------------------------
Balance Sheet Data:

Receivables under collaboration
  agreements ...............................     $    904,000      $  1,400,000
Other current assets .......................          142,000            31,000
                                                 -------------------------------
Total current assets .......................        1,046,000         1,431,000
Other assets ...............................           11,000             4,000
                                                 -------------------------------
                                                 $  1,057,000      $  1,435,000
                                                 ===============================

Current liabilities ........................     $  3,053,000      $  5,213,000
Notes payable to Genta Incorporated ........       15,287,000        15,837,000
Net capital deficiency .....................      (17,283,000)      (19,615,000)
                                                 ===============================
                                                 $  1,057,000      $  1,435,000
                                                 ===============================
<TABLE>
<CAPTION>

                                                            Year Ended December 31,

                                                       1995           1996           1997
                                                 ---------------------------------------------
<S>                                              <C>             <C>             <C>         
Statements of Operations Data:
  Collaborative research and
    development revenues .....................   $  3,634,000    $  5,477,000    $  2,968,000
  Costs and expenses .........................      4,791,000       8,453,000      10,336,000
                                                 ---------------------------------------------
  Loss from operations .......................     (1,157,000)     (2,976,000)     (7,368,000)
  Gain on waiver of debt in exchange for
     return of license rights to related party           --              --         4,703,000
  Interest expense ...........................     (1,175,000)       (956,000)       (746,000)
                                                 ---------------------------------------------
  Net loss ...................................   $ (2,332,000)   $ (3,932,000)   $ (3,411,000)
                                                 =============================================
</TABLE>


                                      -79-
<PAGE>

                               Genta Incorporated

             Notes to Consolidated Financial Statements (continued)

6. Intangibles

Intangibles consist of the following:

                                                            December 31,

                                                       1996             1997
                                                   -----------------------------
  Purchased proprietary technology ...........     $ 1,747,082      $ 1,747,082
  Patent and patent applications .............       2,964,193        2,605,539
  Organizational and other amortizable
     costs ...................................         414,521          414,521
                                                   -----------------------------
                                                     5,125,796        4,767,142
  Less accumulated amortization ..............      (1,103,554)      (1,377,110)
                                                   -----------------------------
                                                   $ 4,022,242      $ 3,390,032
                                                   =============================

7. Notes Payable and Leases

Notes payable consist of the following:

                                                            December 31,

                                                        1996            1997
                                                    ---------------------------

Note payable with interest at 12.63%, due in
monthly installments of $22,407, secured by
equipment; extinguished in 1997 through monthly
payments and application of $251,000 security
deposit to remaining principal balance ..........   $   328,367      $    --

Research financing obligation payable to a French
governmental agency, non- interest bearing,
maturing through 2002 ...........................     1,040,462        897,627

Other ...........................................         7,435          2,931
                                                    ---------------------------
                                                      1,376,264        900,558
Less current portion ............................    (1,287,338)      (900,558)
                                                    ---------------------------
                                                    $    88,926      $    --
                                                    ===========================


                                      -80-
<PAGE>

                               Genta Incorporated

             Notes to Consolidated Financial Statements (continued)

      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.  Accordingly,  the Company has
included the ANVAR note payable in the current  portion of notes  payable in the
balance  sheet.  The Company  does not believe that under the terms of the ANVAR
Agreement ANVAR is entitled to request early repayment and is working with ANVAR
to achieve a mutually satisfactory resolution.  Contractual principal maturities
of  notes  payable  for the  years  1998  through  2002 are  $86,000,  $133,000,
$166,000, $332,000 and $184,000, respectively.

      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, 1997 are as follows:

                                                        Operating Leases
                                                 ---------------------------
     
                                                   Related
                                                   Parties         Others
                                                 ---------------------------
     1998 ....................................   $  408,000     $  131,000
     1999 ....................................      429,000         99,000
     2000 ....................................      188,000         99,000
     2001 ....................................         --           99,000
     2002 ....................................         --           99,000
     Thereafter ..............................         --           99,000
                                                 ---------------------------
     Total future minimum less payments ......   $1,025,000     $  626,000
                                                 ===========================

      Total rent expense under operating leases for the years ended December 31,
1995, 1996 and 1997 was $1,117,000, $1,043,000 and $774,000, respectively.


                                      -81-
<PAGE>

                               Genta Incorporated                     
                                                                      
             Notes to Consolidated Financial Statements (continued)   

8. Stockholders' Equity

      Common Stock

      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 retroactively reflect the stock split.

      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.

      Preferred Stock

      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 1,000 shares of Premium  Preferred  Stock(TM),  par value
$.001 per share,  stated value $100 per share (the "Series D Preferred  Stock"),
and 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
$31,779,300.  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.

                                      -82-
<PAGE>

                               Genta Incorporated                     
                                                                      
             Notes to Consolidated Financial Statements (continued)   

      In February  1997,  the Company  raised gross  proceeds of $3 million in a
private placement of 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 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 was
allocated to the warrants.  In addition,  interest  expense of $3.0 million plus
interest at the stated rate of 12% on the notes was  recorded  during the period
the notes were outstanding.

      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,  beginning in October 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 April
1998,  in  consideration  of 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"),  which was issued in
March 1997,  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.

      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


                                      -83-
<PAGE>

                               Genta Incorporated                     
                                                                      
             Notes to Consolidated Financial Statements (continued)   

      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  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,  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 15% acquisition 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 one share of Series A Preferred Stock
and a 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.  At December 31,
1997, each share of Series A Preferred Stock was convertible into 7.25 shares of
Common Stock.

      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 may be
paid in cash or Common Stock or a combination  thereof at the Company's  option.
Dividends on the Series A Preferred  Stock  accrue on a daily basis  (whether or
not declared) and shall accumulate to the extent not paid on the annual dividend
payment date following the dividend period for which they accrue.

                                      -84-

<PAGE>

                               Genta Incorporated                     
                                                                      
             Notes to Consolidated Financial Statements (continued)   


      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.  Through December 31, 1997,  holders
of 143,400  shares of Series A Preferred  Stock redeemed such shares and related
accrued and unpaid dividends for an aggregate of 774,188 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 will 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 SEC Staff is  currently  in the process of  reviewing  a  registration
statement filed by the Company,  and has raised certain questions  regarding the
Company's  classification  of the  Preferred  Stock as  permanent  (rather  than
"mezzanine")  equity.  Management  of  the  Company  believes,  based  upon  its
Certificate of Incorporation  and the agreement  pursuant to which the Preferred
Stock was issued, and after discussion with Company counsel, that the conditions
for redemption of the Preferred Stock require  volitional acts undertaken by the
Company and are therefore  solely within the control of the Company.  If the SEC
Staff does not accept the Company's position, the Company will file an amendment
to this Form 10-K  reclassifying the Preferred Stock as "mezzanine"  rather than
permanent equity.

      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.

                                      -85-
<PAGE>

                               Genta Incorporated

             Notes to Consolidated Financial Statements (continued)

      Warrants

         At December 31, 1997, warrants (the "Series A Warrants") to purchase an
aggregate of 675,966  shares of common stock,  exercisable at $9.32 per share as
adjusted  for the effect of  anti-dilution  provisions,  were  outstanding.  The
Series A  Warrants  were  originally  issued  in  connection  with the  Series A
Preferred  Stock in 1993. The Series A Warrants expire in September 1998 and are
subject to  anti-dilution  adjustments.  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 $3.0 million  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 cash  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
agreed to enter into a financial  advisory  agreement  with the placement  agent
pursuant to which the financial  advisor shall 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.


                                      -86-
<PAGE>

                               Genta Incorporated

             Notes to Consolidated Financial Statements (continued)

      Stock Benefit Plans

         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:

                                                                     Weighted
                                                                     average
                                                   Shares under   exercise price
                                                      option         per share
                                                   -----------------------------
 Balance at December 31, 1994 .................       174,722         $78.12
  Granted .....................................       198,803         $23.55
  Exercised ...................................          (732)        $ 5.00
  Canceled ....................................      (183,909)        $73.09
                                                   ---------------
 Balance at December 31, 1995 .................       188,884         $23.96
  Granted .....................................        13,677         $17.71
  Exercised ...................................        (7,882)        $21.77
  Canceled ....................................       (29,749)        $22.32
                                                   ---------------
Balance at December 31, 1996 ..................       164,930         $23.77
  Granted .....................................         6,670         $ 3.71
  Exercised ...................................          --           $  --
  Canceled ....................................       (48,688)        $23.21
                                                   ---------------
 Balance at December 31, 1997 .................       122,912         $22.90
                                                   =============================

      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

                                      -87-
<PAGE>

                               Genta Incorporated

             Notes to Consolidated Financial Statements (continued)

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, 1997, options to purchase  approximately 109,552 shares of
common  stock were  exercisable  at a weighted  average  price of  approximately
$23.46 per share and approximately 155,602 shares of common stock were available
for grant or sale  under the Plan.  An  aggregate  of  approximately  39,881,519
shares of common stock were reserved for the  conversion of preferred  stock and
the exercise of outstanding options and warrants at December 31, 1997.

      Adjusted 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 1995, 1996
and 1997:  volatility  factors of the  expected  market  value of the  Company's
common stock of 70%, 80% and 102%, respectively; risk-free interest rates of 6%;
dividend  yields of 0%; and a  weighted-average  expected life of the options of
five years.

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

<TABLE>
<CAPTION>
                                                   Years Ended December 31,

                                          1995              1996               1997
                                    ---------------------------------------------------
<S>                                 <C>               <C>               <C>            
Adjusted pro forma net less         $  (29,027,475)   $  (17,294,920)   $  (33,493,186)
Adjusted pro forma loss per share   $       (14.87)   $        (5.80)   $        (7.57)
</TABLE>

      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 as these
amounts reflect the expense for only one, two or three years vesting.


                                      -88-
<PAGE>

                               Genta Incorporated

             Notes to Consolidated Financial Statements (continued)

      The  weighted-average  grant-date fair value of the options granted during
the years ended  December 31, 1995,  1996 and 1997 was $8.22,  $11.59 and $2.75,
respectively.  Following is a further breakdown of the options outstanding as of
December 31, 1997:

<TABLE>
<CAPTION>
                                                                     Weighted
                                                                     average
                                Weighted   Weighted               exercise price
                                average     average                     of
    Range         Options      remaining   exercise     Options       options
  of prices     outstanding  life in years   price    exercisable   exercisable
-------------------------------------------------------------------------------
<S>               <C>            <C>       <C>           <C>        <C>    
 $3.13 - $5.00    13,368         6.06      $  4.27       6,939      $  3.89
 $5.01 -$19.99     6,537         8.56        14.77       3,714        16.90
$20.00 -$75.00   103,007         7.27        25.02      98,899        25.08
              -------------------------------------------------------------
                 122,912         7.21      $ 22.90     109,552      $ 23.46
              =============================================================
</TABLE>

9. Research, Development and Licensing Arrangements

      The  Company  entered  into  a  collaborative   research  and  development
agreements  with The Procter & Gamble Company ("P&G") during 1991. The agreement
generally provided for the Company to receive research funding for the discovery
and  development  of specified  Anticode  products.  The P&G  collaboration,  as
extended and modified,  ended in September 1995.  Collaborative revenues of $1.1
million  were  recognized   under  this  contract  during  1995,   which  amount
approximates costs incurred on the programs.

      In addition  to the  aforementioned  arrangement,  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, the Company recorded royalty
expense of $100,000, $100,000 and $87,500 in 1995, 1996 and 1997, respectively.

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

10. Income Taxes

      Significant components of the Company's deferred tax assets as of December
31, 1996 and 1997 are shown below. A valuation allowance of $36,456,000 has been
recognized to


                                      -89-
<PAGE>

                               Genta Incorporated

             Notes to Consolidated Financial Statements (continued)

offset  the  deferred  tax  assets  as it is more  likely  than not that the net
deferred tax assets will not be realized.

                                                      1996               1997
                                                 -------------------------------
Deferred tax assets:
  Capitalized research expense .............     $  2,663,000      $  2,778,000
  Net operating loss carryforwards .........       22,177,000        25,969,000
  Research and development credits .........        3,248,000         3,703,000
  Purchased technology and license fees ....        4,523,000         4,491,000
  Other, net ...............................        1,108,000           497,000
                                                 -------------------------------
  Total deferred tax assets ................       33,719,000        37,438,000
  Valuation allowance for deferred tax
    assets .................................     `(32,508,000)      (36,456,000)
                                                 -------------------------------
                                                    1,211,000           982,000
Deferred tax liabilities:
  Patent expenses ..........................       (1,211,000)         (729,000)
  Net depreciation .........................             --            (253,000)
                                                 -------------------------------
                                                   (1,211,000)         (982,000)
                                                 -------------------------------
Net deferred tax assets ....................      $       --       $        --
                                                 ===============================

      At December 31, 1997, the Company has federal and California net operating
loss carryforwards of approximately  $71,697,000 and $15,236,000,  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  prior to 1997. The federal tax loss carryforwards
will  begin  expiring  in  2003,  unless  previously   utilized.   Approximately
$2,767,000 of the California tax loss  carryforward  expired during 1997 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 1998,
unless  utilized.  The  Company  also has federal and  California  research  and
development tax credit carryforwards of $2,921,000 and $1,203,000, 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 and 1997.  Because of the decrease in
value of the Company's stock,  the ownership  changes which occurred in 1996 and
1997,  will have a material  adverse impact on the Company's  ability to utilize
these


                                      -90-
<PAGE>

                               Genta Incorporated

             Notes to Consolidated Financial Statements (continued)

carryforwards.   See  "Market  for   Registrant's   Common  Equity  and  Related
Stockholder Matters--Recent Sales of Unregistered Securities."

11. 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.

12. Employee Terminations

      As noted above, in an effort to reduce costs and conserve working capital,
Genta initiated a termination plan in March 1995, whereby the Company terminated
26 employees involved in the Company's research and development activities.  The
Company  recorded  General and  Administrative  expenses  totaling  $250,000 for
accrued severance costs associated with the 26 terminated employees.  In October
1996, Genta again reassessed its personnel requirements and established a second
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 a third  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  accrued  severance  costs.  There  were  no
adjustments to the  liabilities  recorded and actual  termination  benefits paid
were equal to the liabilities recorded.

13. Contingencies

      LBC Capital Resources,  Inc. ("LBC"), a Philadelphia-based  broker/dealer,
has asserted  claims against the Company and others.  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 is  seeking a fee.  On March  30,  1998,  the  Company
received a Statement of Claim under NASD  arbitration  rules, and a request that
the  Company  voluntarily  submit to NASD  arbitration.  The Company has not yet
responded to that request. LBC's Statement of Claim seeks damages in the form of
cash (in excess of $4 million),  stock, warrants and other securities.  On April
9, 1998, the Company's  counsel learned that, in addition,  a Complaint has been
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

                                      -91-
<PAGE>

                               Genta Incorporated

             Notes to Consolidated Financial Statements (continued)

other parties. However, such Complaint has not yet been served upon the Company.
The Company  believes it has valid legal and equitable  defenses to LBC's claim.
Whether LBC's claims are  ultimately  adjudicated  in arbitration or litigation,
the Company  intends to defend  vigorously and possibly to assert  counterclaims
against LBC.

      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.  Chloroform  was  detected  at  levels  of up to 190  ug/liter
on-site, exceeding the California Drinking Water Maximum Contamination Level for
trihalomethanes  of 100 ug/liter.  PCEs were also detected at levels of up to 22
ug/liter on- site, exceeding the California Drinking Water Maximum Contamination
Level of 5 ug/liter.  In  addition,  Toluene  was  detected at levels of up to 2
ug/liter at several points on-site,  which is significantly below the California
Toxicity Action Level of 100 ug/liter. These toxicity levels are not binding, as
the final regulatory maximum levels may be higher or lower. JBL has notified the
appropriate  regulatory  agency,  the California  Regional Water Quality Control
Board,  of  conditions  at the  site,  and with the  agency's  approval,  JBL is
monitoring  groundwater  conditions  at the site on a  quarterly  basis.  JBL is
currently in the  pre-regulatory  action stage with ongoing site  monitoring and
site   assessment.   In  addition,   current   sampling  results  indicate  that
contaminants may be migrating off-site. An off-site well, used as a domestic and
irrigation  water source,  has shown evidence of being impacted by chloroform at
0.9  ug/liter,  significantly  below (less than one  percent of) the  California
Drinking Water Maximum  Contamination Level for trihalomethanes of 100 ug/liter,
and toluene at 0.9 ug/liter, also significantly below (less than one percent of)
the California  Toxicity  Action Level of 100 ug/liter.  While another  off-site
well has been found to contain chloroform,  the engineering consultant concluded
that the  contaminants  do not appear to relate to impact from the JBL site. 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.

14. Genta Europe

      The Company's loss on its European operations for the years ended December
31, 1995, 1996 and 1997 were $1,266,531, $1,247,713 and $806,687, respectively.

15. Gain on Sale of Technology

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


                                      -92-
<PAGE>

                Report of Ernst & Young LLP, Independent Auditors

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

We have audited the accompanying  balance sheets of Genta Jago Technologies B.V.
(a development  stage company) as of December 31, 1996 and 1997, and the related
statements of operations, stockholders' equity (net capital deficiency) and cash
flows for each of the three 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, 1996 and 1997, and the results of its
operations  and its cash flows for each of the three  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  sources of financing
to fund its operations  through 1998. 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.

San Diego, California
April 13, 1998


                                      -93-
<PAGE>

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

                                 Balance Sheets

                                                              December 31,

Assets                                                    1996         1997
                                                     ---------------------------
Current assets:
  Cash and cash equivalents ........................ $     36,092  $      9,247
  Receivables under collaboration agreements .......      903,838     1,399,854
  Other current assets .............................      105,934        22,246
                                                     ---------------------------
Total current assets ...............................    1,045,864     1,431,347

 Property and equipment, net .......................        4,900         2,300
Other assets .......................................        6,651         1,672
                                                     ---------------------------
                                                     $  1,057,415  $  1,435,319
                                                     ===========================
Liabilities and net capital deficiancy
Current liabilities:
  Accounts payable and accrued expenses ............ $    571,539  $  1,792,293
  Payable to related parties .......................    2,481,452     3,420,456
                                                     ---------------------------
Total current liabilities ..........................    3,052,991     5,212,749

Notes payable to Genta Incorporated ................   15,287,099    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 .  (21,536,625)  (23,868,479)
                                                     ---------------------------
Net capital deficiency .............................  (17,282,675)  (19,614,529)
                                                     ---------------------------
                                                     $  1,057,415  $  1,435,319
                                                     ===========================

                             See accompanying notes


                                      -94-
<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:                                             1995            1996            1997            1997
                                                 -------------------------------------------------------------
<S>                                              <C>             <C>             <C>             <C>         
  Collaborative research and
        development                              $  2,968,463    $  5,477,059    $  3,634,516    $ 19,040,894
Cost and expenses:
  Research and development,
    including contractual amounts to
    related parties of $9,318,460, $7,040,438,
    and $4,540,067, and $40,169,225 in 1995,
    1996 and 1997 and the period from
    December 15, 1992 (inception) to
    December 31, 1997, respectively                 9,866,038       8,091,465       4,740,299      43,003,883
  General and administrative                          470,081         361,920          50,869       1,436,252
                                                 -------------------------------------------------------------
                                                   10,336,119       8,453,385       4,791,168      44,440,135
                                                 -------------------------------------------------------------
Loss from operations                               (7,367,656)     (2,976,326)     (1,156,652)    (25,399,241)
Other income (expense):
  Gain on waiver of debt in exchange for
    return of license rights to related party       4,703,352            --              --         4,703,352
Interest income                                         2,620           5,814             209          19,755
Interest expense                                     (749,808)       (961,075)     (1,175,411)     (3,192,345)
                                                 -------------------------------------------------------------
                                                    3,956,164        (955,261)     (1,175,202)      1,530,762
                                                 -------------------------------------------------------------
Net loss                                         $ (3,411,492)   $ (3,931,587)   $ (2,331,854)   $(23,868,479)
                                                 =============================================================
</TABLE>

                             See accompanying notes


                                      -95-
<PAGE>

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

           Statement of Stockholders' Equity (Net Capital Deficiency)

               December 15, 1992 (inception) to December 31, 1997

<TABLE>
<CAPTION>
                                                                                                 
                                                                                                   Deficit                  
                                                                                                 accumulated   Stockholders'
                                                               Common stock        Additional    during the     equity (net 
                                                      ------------------------------------------ development      capital   
                                                         shares       amount     paid-in capital    stage       deficiency)
                                                      ----------------------------------------------------------------------
<S>                                                      <C>     <C>            <C>             <C>            <C>         
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)
                                                      ======================================================================
</TABLE>

                             See accompanying notes.


                                      -96-
<PAGE>

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

                            Statements of Cash Flows

<TABLE>
<CAPTION>
                                                                                                  Cumulative
                                                                                                 from December
                                                                                                   15, 1992
                                                                                                (inception) to
                                                           Years ended December 31,               December 31,
                                                      1995            1996            1997            1997
                                                 -------------------------------------------------------------
<S>                                              <C>             <C>             <C>             <C>         
Operating Activities
Net Loss ......................................   $ (3,411,492)   $ (3,931,587)   $ (2,331,854)   $(23,868,479)
Items reflected in net loss not requiring cash:
Depreciation and amortization .................          2,600           2,600           2,600          15,768
Technology license fee ........................           --              --              --           192,580
Gain on waiver of debt in exchange for
     return of license rights to related party      (4,703,352)           --              --        (4,703,352)
Changes in operating assets and liabilities:
     Advance contract payments to related
        parties ...............................        435,276       1,538,594            --              --
     Receivables under collaboration
        agreements ............................           --          (903,838)       (496,016)     (1,399,854)
     Other current assets .....................         68,440        (105,934)         83,688         (22,246)
     Accounts payable and accrued expenses ....        112,227         324,185       1,220,754       1,792,293
     Payable to related parties ...............        277,479       1,686,614         939,004       3,420,456
     Deferred contract revenue ................     (1,071,863)       (317,555)           --              --
                                                 -----------------------------------------------  ------------
Net cash used in operating activities .........     (8,290,685)     (1,706,921)       (581,824)    (24,572,834)

Investing Activities
Purchase of property and equipment and
    other .....................................         (4,492)         (2,159)          4,979         (19,740)
                                                 -----------------------------------------------  ------------
Net cash provided by (used in) investing
    activities ................................         (4,492)         (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 ..      8,415,407       1,500,000         550,000      21,140,643
Repayment of notes payable to related party ...           --              --              --          (600,192)
                                                 -----------------------------------------------  ------------
Net cash provided by financing activities .....      8,415,407       1,500,000         550,000      24,601,821
                                                 -----------------------------------------------  ------------
Increase (decrease) in cash and cash
    equivalents ...............................        120,230        (209,080)        (26,845)          9,247
Cash and cash equivalents at beginning of
    period ....................................        124,942         245,172          36,092            --
                                                 -----------------------------------------------  ------------
Cash and cash equivalents at end of period ....   $    245,172    $     36,092    $      9,247    $      9,247
                                                 ===============================================  ============
Supplemental disclosure of cash flow
    information:
                                                 ===============================================  ============
Interest paid .................................   $        --     $        --     $        --     $    299,808
                                                 ===============================================  ============
</TABLE>

                             See accompanying notes.


                                      -97-
<PAGE>

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

                          Notes to Financial Statements

                                December 31, 1997

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
obtained from Jagotec and  subsequently  contributed  to Genta Jago 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  "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.

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.


                                      -98-
<PAGE>

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

                          Notes to Financial Statements

                                December 31, 1997

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.

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").  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.  Comprehensive  income is  defined as the change in
equity during the period from  transactions  and other events and  circumstances
from non-owner sources.  Net income and other  comprehensive  income,  including
unrealized  gains and losses on  investments,  shall be  reported,  net of their
related tax effect,  to arrive at  comprehensive  income.  The Company  does not
believe that comprehensive income or loss has been materially different than net
income or loss.

2. Related Party Transactions

License Agreements

      Genta Jago entered into license  agreements  with Genta in connection with
the   planned    development   and    commercialization    of   GEOMATRIX   oral
controlled-release  products  and  Anticode(TM)  oligonucleotide  products.  The
license with Genta in relation to the Anticode(TM)  oligonucleotide products was
terminated in 1995, however, the license in


                                      -99-
<PAGE>

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

                          Notes to Financial Statements

                                December 31, 1997

relation to the GEOMATRIX oral controlled-release products with Jagotec was not
terminated. Pursuant to such agreements, Genta Jago recorded license fee expense
of $85,000, $620,000 and $85,000 during the years ended December 31, 1995, 1996
and 1997, 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, 1995, 1996 and 1997, Genta Jago
incurred   expenditures   of  $9.3   million,   $7  million  and  $4.5  million,
respectively, pursuant to such research and development and service agreements.

Capital Contributions and Working Capital Agreement

      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 and also  contributed  the Initial
License referred to below. Genta issued 120,000 shares of Common Stock valued at
$7.2 million to Jagotec in 1992 as  consideration  for a license  (the  "Initial
License")  for Genta to use  Jagotec's  GEOMATRIX  technology  with  respect  to
approximately  25 products,  under the condition that Genta then contribute such
technology to Genta Jago, which Genta did. In addition,  Genta Jago entered into
a working  capital  agreement  with Genta  which  expires in October  1998.  See
"MD&A--Liquidity  and Capital Resources."  Pursuant to this agreement,  Genta is
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 is 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, 1997,  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 bear interest at rates per annum ranging from 5.81%
to 7.5%,  and are payable in full on October 20,  1998,  or earlier in the event
certain  revenues are  received by Genta Jago and  specified  cash  balances are
maintained by Genta Jago.


                                     -100-
<PAGE>

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

                          Notes to Financial Statements

                                December 31, 1997

Expansion of Genta Jago

      In 1995, Genta obtained from Jagotec and subsequently contributed to Genta
Jago 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.

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 $1.2 million,  $2.2 million
and $1.9 million of funding in 1997,  1996 and 1995,  respectively,  pursuant to
the  agreement.  Collaborative  revenues of $1.5  million,  $2.8  million and $3
million were recognized  under the agreement during the years ended December 31,
1997, 1996 and 1995, respectively. Effective October 1996, Gensia and SkyePharma
reached an


                                     -101-
<PAGE>

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

                          Notes to Financial Statements

                                December 31, 1997

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 $2.3 million of
collaborative revenue therefrom.


                                     -102-
<PAGE>

4. Income Taxes

      Significant  components of Genta Jago's deferred tax assets as of December
31,  1997  are  shown  below.  A  valuation  allowance  of  $2,387,000  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.

                                                         December 31,

                                                   1996               1997
                                             ---------------------------------

Deferred tax assets:
Net operating loss carryforwards              $    2,154,000     $  2,387,000
Valuation allowance for deferred tax assets       (2,154,000)      (2,387,000)
                                             ---------------------------------
Net deferred tax assets                       $          --      $        --
                                             =================================

      At  December  31,  1997,   Genta  Jago  has  foreign  net  operating  loss
carryforwards of approximately  $23,868,000.  The foreign tax loss carryforwards
will begin expiring in 2000, unless previously utilized.


                                     -103-
<PAGE>

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

            Not Applicable.


                                     -104-
<PAGE>

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

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

            (b) Information  concerning the Company's  Executive Officers is set
forth in Part I of this Form 10-K/A.

ITEM 11. EXECUTIVE COMPENSATION

            The  section  labeled   "Compensation  of  Executive   Officers  and
Directors"  appearing in the Company's Proxy Statement is incorporated herein by
reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

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

                                    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/A.

            (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.


                                     -105-
<PAGE>

      (b)   Reports on Form 8-K. During the fourth quarter of 1997, the Company
            filed the following reports on Forms 8-K:

            (i)   On November 17, 1997, the Company filed a report on Form 8-K
                  dated November 14, 1997 reporting under Item 5 that the
                  Company issued a press release entitled "Genta Incorporated
                  Announces Third Quarterly 1997 Results.

            (ii)  On December 3, 1997, the Company filed a report on Form 8-K
                  dated December 3, 1997 reporting under Item 5 that the Company
                  issued a press release entitled "Genta Announces Initiation of
                  Phase I/II a Prostate Cancer Trial at Memorial Sloan-Kettering
                  Cancer Center."

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

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(ii).1(2)            By-laws of the Company.

3(ii).2(21)           By-laws of the Company, as amended and restated September
                      23, 1997.

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 


                                     -106-
<PAGE>

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

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.

10.3(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.


                                     -107-
<PAGE>

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.

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.


                                     -108-
<PAGE>

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.


                                     -109-
<PAGE>

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

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.


                                     -110-
<PAGE>

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.

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 


                                     -111-
<PAGE>

                      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.

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.


                                     -112-
<PAGE>

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.

22.1(20)              Subsidiaries of the Registrant.

23.1(23)              Consent of Ernst & 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(23)              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.


                                     -113-
<PAGE>

(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.

(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.


                                     -114-
<PAGE>

(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)  Filed herewith.

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


                                     -115-

<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
16th day of April, 1998.

                              GENTA INCORPORATED


                              /s/Kenneth G. Kasses, Ph.D.
                              ------------------------------------------
                              Kenneth G. Kasses, Ph.D.
                              President, Principal Executive Officer and
                              Director



     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.



<TABLE>
<CAPTION>

Signature(s)                        On behalf of                        Capacity                 Date
------------                        ------------                        --------                 ----


<S>                             <C>                         <C>                               <C>
/s/Kenneth G. Kasses, Ph.D.
---------------------------     Kenneth G. Kasses, Ph.D.    President, Principal Executive    April 16, 1998
Kenneth G. Kasses, Ph.D.                                         Officer and Director      

/s/Robert E. Klem
--------------------------      Robert E. Klem, Ph.D.       Principal Accounting Officer,     April 16, 1998
Robert E. Klem, Ph.D.                                       Principal Financial Officer,      
                                                             Vice President and Director 
/s/Kenneth G. Kasses, Ph.D.
---------------------------     Glenn L. Cooper, M.D.       Directors                         April 16, 1998
Kenneth G. Kasses, Ph.D.          Donald G. Drapkin                                           
                              Lawrence J. Kessel, M.D.  
                                 Peter Salomon, M.D.    
                            Bobby W. Sandage, Jr., Ph.D.
                                   Andrew J. Stein      
                                  Harlan J. Wakoff      
                                  Michael S. Weiss      
</TABLE>


                                    - 116 -