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


                                   FORM 10-K/A
                                (AMENDMENT NO. 3)


                      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 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  5,737,606  shares of  Common  Stock
outstanding.

                       Documents Incorporated by Reference

None.


                                       -2-


<PAGE>

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

The  statements  contained  in this  Annual  Report on Form  10-K/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.


                                       -3-


<PAGE>

                                     PART I

ITEM 1.  BUSINESS

OVERVIEW

        Genta  Incorporated  ("Genta" or the "Company"),  incorporated under the
laws  of  the  State  of  Delaware   on   February  4,  1988,   is  an  emerging
biopharmaceutical   company   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 status of products or product candidates under development,  as well
as other aspects of the Company's business:


                                       -4-


<PAGE>

<TABLE>
<CAPTION>
       Program                 Therapeutic Indications                         Development Status
       -------                 -----------------------                         ------------------



<S>  <C>                      <C>                                          <C>
1.   ANTICODE

     G3139                    o   Impairs production of key cancer         Phase I/IIa clinical  trials in the
                                  protein, bcl-2 (non-Hodgkin's            United   Kingdom  with  respect  to
                                  lymphoma, prostate, melanoma, breast     non-Hodgkin's  lymphoma  and in the
                                  and possibly others)                     U.S.  with  respect to prostate and
                                                                           possibly other advanced solid tumor
                                                                           malignancies.                      
                                                                     

     Anti-FAK 
     Oligonucleotides         o   Impairs production of key cancer        Pre-clinical
                                  protein, 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  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
backbones. The Company has licensed patents


                                       -5-


<PAGE>

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 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.


                                       -6-


<PAGE>

        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.

        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  "MD&A --  Certain  Trends  and
Uncertainties--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.


                                       -7-


<PAGE>

        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. 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


                                       -8-


<PAGE>

methylphosphonates  as  pharmaceutical  agents.  Dr.  Ts'o  is  a  Professor  of
Biophysics,  Department  of  Biochemistry,  and Dr.  Miller  is a  Professor  of
Biochemistry,  both at the School of Public  Health and Hygiene,  Johns  Hopkins
University  ("Johns  Hopkins").  In May 1990, the Company entered into a license
agreement with Johns Hopkins (the "Johns Hopkins  Agreement,"  and  collectively
with the Ts'o/Miller Agreement,  referred to herein as the  "Ts'o/Miller/Hopkins
Agreements")  pursuant to which Johns Hopkins granted Genta an exclusive license
to its  rights in  certain  issued  patents,  patent  applications  and  related
technology  developed as a result of research conducted at Johns Hopkins by Drs.
Ts'o and Miller and related to the use of nucleic acids and  oligonucleotides as
pharmaceutical  agents. In addition,  Johns Hopkins granted Genta certain rights
of  first  negotiation  to  inventions  made by Drs.  Ts'o and  Miller  in their
laboratories  in  the  area  of  oligonucleotides  and  to  inventions  made  by
investigators at Johns Hopkins in the course of research funded by Genta,  which
inventions  are not otherwise  included in the  Ts'o/Miller/Hopkins  Agreements.
Genta had agreed to pay Dr. Ts'o, Dr. Miller and Johns Hopkins  royalties on net
sales of products covered by the issued patents and patent applications, but not
the related  technology,  licensed to the Company under the  Ts'o/Miller/Hopkins
Agreements.  The Company also agreed to pay certain  minimum  royalties prior to
commencement  of  commercial  sales of such  products,  which  royalties  may be
credited under certain conditions against royalties payable on subsequent sales.
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. On June 4, 1998, the Company's statutory process agent
received a Summons and Complaint in a lawsuit  brought by Johns Hopkins  against
the Company in Maryland  Circuit Court for Baltimore  City (Case No.  98120110).
Johns Hopkins  alleges in the Complaint  that the Company has breached the Johns
Hopkins Agreement and owes it licensing royalty fees and related expenses in the
amount of  $308,832.24.  Johns  Hopkins also alleges the existence of a separate
March 1993 letter  agreement  wherein the Company agreed to support a fellowship
program  at the Johns  Hopkins  School of  Hygiene  and  Public  Health  and the
Company's breach thereof, with damages of $326,829.00.  The Company is currently
in the process of retaining  Maryland  counsel so that it can properly  evaluate
these lawsuit  documents and respond.  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 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


                                       -9-


<PAGE>

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

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

        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." From 1992 through 1997, Genta advanced an aggregate of $15.8 million
in such  working  capital  loans.  In 1995,  Genta Jago  returned  the  Anticode
technology  to Genta in exchange  for  Genta's  forgiveness  of $4.4  million of
principal  and $0.3  million of  interest  outstanding  under  existing  working
capital  loans to Genta Jago.  This  amount was  determined  by an  arm's-length
negotiation between Genta,  Jagotec,  and Genta Jago and was based on the amount
actually  expended by Genta Jago for  research  and  development  related to the
Anticode(TM)


                                      -10-


<PAGE>

technology from the time Genta Jago originally  acquired the relevant license in
1992 through the date of return in 1995.

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

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

        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.


                                      -11-


<PAGE>

        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
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--VoltarenXR(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
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


                                      -12-


<PAGE>

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 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


                                      -13-


<PAGE>


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  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 is working with ANVAR to achieve a mutually
satisfactory  resolution,  however  there  can  be  no  assurance  that  such  a
resolution will be obtained.

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


                                      -14-


<PAGE>

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  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


                                      -15-


<PAGE>

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.

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

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

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

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

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

        Genta   requires  its   employees,   consultants,   outside   scientific
collaborators  and  sponsored  researchers  and  other  advisors  to  execute  a
confidentiality  agreement upon the  commencement of an employment or consulting
relationship with the Company. The agreement generally provides that all


                                      -16-


<PAGE>

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  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


                                      -17-


<PAGE>

("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 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


                                      -18-


<PAGE>

the required data and information,  including data establishing  bioequivalence.
However,  effective  approval of such ANDAs were  dependent  upon there being no
outstanding patent or non-patent exclusivities.

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


                                      -19-


<PAGE>

        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   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 "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


                                      -20-


<PAGE>

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  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,  including Paramount Capital
Inc., of which Lindsay A. Rosenwald, M.D. is the sole stockholder and Michael S.
Weiss is a Senior Managing  Director,  and various related entities and persons.
LBC's  claims  relate to the  alleged  breach by the  Company of certain  letter
agreements,  allegedly entered into by LBC and the Company in 1995 and 1996 with
respect  to  brokerage  and/or  investment  banking  services,  particularly  in
connection  with a $3 million  investment,  for which LBC is  seeking a fee.


                                      -21-


<PAGE>

In April 1998, a Complaint was filed in the United States District Court for the
Southern  District of New York (98 Civ. 2491) by LBC against the Company and the
same other parties. The Company is currently involved in settlement  discussions
with LBC.

        On June 4,  1998,  the  Company's  statutory  process  agent  received a
Summons and Complaint in a lawsuit  brought by Johns Hopkins against the Company
in Maryland Circuit Court for Baltimore City (Case No. 98120110).  Johns Hopkins
alleges  in the  Complaint  that the  Company  has  breached  the Johns  Hopkins
Agreement  (see  "Business--Anticode(TM)   Brand  of  Antisense  Oligonucleotide
Programs--Oligonucleotide  Collaborative and Licensing  Agreements--Ts'o/Miller/
Hopkins") and owes it licensing  royalty fees and related expenses in the amount
of  $308,832.24.  Johns Hopkins also alleges the  existence of a separate  March
1993 letter agreement wherein the Company agreed to support a fellowship program
at the Johns  Hopkins  School of  Hygiene  and Public  Health and the  Company's
breach  thereof,  with damages of  $326,829.00.  The Company is currently in the
process of retaining  Maryland  counsel so that it can properly  evaluate  these
lawsuit documents and respond.

        (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.


                                      -22-


<PAGE>

                                     PART II

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

(A)     MARKET INFORMATION

        Throughout 1996 and in the beginning of 1997, the Company's common stock
was traded on the Nasdaq  National  Market  under the symbol  "GNTA."  Beginning
February 7, 1997,  the  Company's  common stock  traded in the  over-the-counter
market on the Nasdaq SmallCap Market, initially under the symbol "GNTAC." During
the 20 trading days  immediately  following  the  Company's  reverse stock split
effected on April 7, 1997,  the  Company's  common stock traded under the symbol
"GNTCD." Genta resumed  trading under the symbol "GNTA" on July 24, 1997,  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


                                      -23-


<PAGE>

dividends on its common stock until such time as all  cumulative  dividends have
been  paid on  outstanding  shares  of its  Series A and  Series  D  convertible
preferred stocks. The Company currently intends to retain its earnings,  if any,
after  payment  of  dividends  on  outstanding  shares of Series A and  Series D
convertible   preferred  stock,  for  the  development  of  its  business.   See
"MD&A--Liquidity and Capital Resources."

(D)     RECENT SALES OF UNREGISTERED SECURITIES

        In February  1997,  the Company raised gross proceeds of $3 million in a
private  placement,  to The Aries Fund, a Cayman  Islands  Trust,  and the Aries
Domestic Fund, L.P.  (collectively the "Aries Funds"),  of Convertible Notes and
warrants to purchase common stock ("Bridge  Warrants").  The Convertible  Notes,
together with accrued interest thereon,  were converted  pursuant to their terms
into an aggregate of 65,415  shares of Series D Preferred  Stock,  which in turn
are convertible,  at $0.94375 per share,  into 6,931,391 shares of common stock.
The Bridge  Warrants  permit the  purchase of up to an  aggregate  of  6,357,616
shares of Common Stock at an exercise  price of $0.471875 per share  (subject to
adjustment  upon the  occurrence  of certain  events).  Pursuant to the Note and
Warrant Purchase  Agreement dated as of January 28, 1997 between the Company and
the Aries Funds (the "Note and  Warrant  Purchase  Agreement"),  the Aries Funds
have the right to appoint a majority of the members of the Board of Directors of
the Company. See "MD&A--Certain Trends and  Uncertainties--Certain  Interlocking
Relationships; Potential Conflicts of Interest."

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

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

         On   June   30,   1997,   a   total   of   161.58   Premium   Preferred
Units(TM)("Units") were sold to accredited investors in a private placement (the
"Private  Placement").  Such sale was made in  reliance  on the  exemption  from
registration  pursuant to Rule 506 of Regulation D of the  Securities  Act. Each
unit sold in the Private Placement consists of 1,000 shares of Premium Preferred
Stock(TM),  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 $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


                                      -24-


<PAGE>

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."


                                      -25-


<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 share (1)                  $ (7.52)        $ (5.69)     $(14.82)       $(19.00)       $(11.90)
                                        --------         -------     --------       --------        -------
Shares used in computing net
  loss per  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)

                                                                    DECEMBER 31,
                                   ----------------------------------------------------------------------------
                                            1997            1996         1995           1994           1993
                                            ----            ----         ----           ----           ----
                                                                  (In thousands)
CONSOLIDATED BALANCE
SHEET DATA:

Cash, cash equivalents and short-term
     investments                          $8,456            $532         $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                 9,425           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.


                                      -26-


<PAGE>

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

OVERVIEW

        Since its  inception in February  1988,  Genta has devoted its principal
efforts  toward  drug  discovery,  research  and  development.  Genta  has  been
unprofitable  to  date  and,  even  if it  obtains  financing  to  continue  its
operations,  expects to incur substantial  operating losses 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.

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 1995.  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


                                      -27-


<PAGE>

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.

        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


                                      -28-


<PAGE>

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 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.


                                      -29-


<PAGE>

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

        The  Company's  policy is to evaluate  the  appropriateness  of carrying
values  of the  unamortized  balances  of  intangible  assets  on the  basis  of
estimated future cash flows (undiscounted) and other factors. If such evaluation
were to  identify  a  material  impairment  of  these  intangible  assets,  such
impairment  would be recognized by a write-down of the  applicable  assets.  The
Company  continues  to  evaluate  the  continuing  value of  patents  and patent
applications,  particularly  as expenses to prosecute or maintain  these patents
come due. Through this evaluation, the Company may elect to continue to maintain
these patents;  seek to out-license  them; or abandon them. 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 $4.4 million in principal and $0.3 million
in accrued  interest.  Genta Jago  recorded the loan credit and related  accrued
interest as a gain on waiver of debt in exchange for return of license rights to
related  party.  Furthermore,  since  Genta Jago was no longer  responsible  for
developing  Anticode(TM)  oligonucleotide  products,  its future working capital
requirements were reduced. The equity in net loss of joint venture is determined
by reducing the loss per Genta Jago financials by Genta's 20% markup on internal
costs for which the joint  venture is billed  plus the  interest  accrued on the
working capital loans.

        Since the formation of Genta Jago,  no products  have been  successfully
developed and marketed. Since the initial plans called for earlier introductions
and since there have been significant  changes in the market  environment  since
the Company entered into the joint venture,  there is reason to believe that any
products that may be marketed in the future could represent significantly poorer
financial  opportunities  than those that were anticipated in the earlier plans.
This  reduction  in  opportunity  derives  from  factors such as the presence of
direct  competitors  to Genta Jago's  products being in the  marketplace  before
Genta


                                      -30-


<PAGE>

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  $124.5  million  through  December  31, 1997,
including  net proceeds of $17.0  million  raised  during 1997.  At December 31,
1997, the Company had cash, cash 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


                                      -31-


<PAGE>

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,  to
conduct clinical trials, to obtain  regulatory  approvals and, if such approvals
are obtained, to manufacture and market products.  See "MD&A--Certain Trends and
Uncertainties--Need for Additional Funds; Risk of Insolvency."

        If the Company  successfully  secures sufficient levels of collaborative
revenues and other  sources of  financing,  it expects to use such  financing to
continue 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  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  reduction of  approximately  $4.4 million and reduction of interest
thereon of approximately $0.3 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


                                      -32-



<PAGE>


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
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


                                      -33-


<PAGE>

stock,  an  increase  in the Par  value of  Common  Stock,  and an  increase  in
Additional  paid-in  capital.  Should the remaining shares of Series A Preferred
stock be redeemed for, or converted into, the Company's Common Stock, the effect
on the financial statements will be the same as that previously  described.  The
Company is restricted from paying cash dividends on Common Stock until such time
as all  cumulative  dividends  on  outstanding  shares of Series A and  Series D
Preferred  Stock have been paid.  The  Company  currently  intends to retain its
earnings,  if any, after payment of dividends on outstanding  shares of Series A
and Series D Preferred Stock,  for the development of its business.  See "MD&A--
Certain Trends and  Uncertainties--Subordination of Common Stock to Series A and
Series D Preferred Stock; Risk of Dilution; Anti-Dilution Adjustments."

        The Company continually  evaluates its intangible assets for impairment.
If  evidence  of  impairment  is noted,  the  Company  determines  the amount of
impairment and charges such  impairment to expense in the period that impairment
is determined.  Through  December 31, 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 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.


                                      -34-


<PAGE>

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.  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


                                      -35-


<PAGE>

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 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


                                      -36-


<PAGE>

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 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.  On June
4, 1998, the Company's  statutory process agent received a Summons and Complaint
in a lawsuit  brought by Johns Hopkins  against the Company in Maryland  Circuit
Court for  Baltimore  City (Case No.  98120110).  Johns  Hopkins  alleges in the
Complaint that the Company has breached the Johns Hopkins  Agreement and owes it
licensing royalty fees and related expenses in the amount of $308,832.24.  Johns
Hopkins also alleges the  existence  of a separate  March 1993 letter  agreement
wherein the Company agreed to support a fellowship  program at the Johns Hopkins
School of Hygiene  and Public  Health and the  Company's  breach  thereof,  with
damages of  $326,829.00.  The Company is  currently  in the process of retaining
Maryland  counsel so that it can properly  evaluate these lawsuit  documents and
respond.  See   "Business--Anticode(TM)   Brand  of  Antisense   Oligonucleotide
Programs--Oligonucleotide          Collaborative          and          Licensing
Agreements--Ts'o/Miller/Hopkins"  and "Legal Proceedings." The French government
agency L'Agence Nationale de Valorisation de la Recherche (ANVAR) asserted, in a
letter dated February 13, 1998, that Genta Europe was not in compliance with the
ANVAR  Agreement,  and that ANVAR might request the immediate  repayment of such
loan.  The  Company  is working  with  ANVAR to achieve a mutually  satisfactory
resolution;  however,  there can be no assurance that such a resolution  will be
obtained. See "Business--Genta  Europe." 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 can
be no assurance that the novel approach of oligonucleotide technology will


                                      -37-


<PAGE>

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.

        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."


                                      -38-


<PAGE>

Dividends.

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

No Assurance of Regulatory Approval; Government Regulation.

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


                                      -39-


<PAGE>

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  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


                                      -40-


<PAGE>

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

Dependence on Others.

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

Technology Licensed From Third Parties.

        The Company has entered  into  certain  agreements  with,  and  licensed
certain technology and compounds from, third parties.  The Company has relied on
scientific,   technical,  clinical,  commercial  and  other  data  supplied  and
disclosed by others in entering into these agreements,  including the Genta Jago
agreements,  and will rely on such data in  support  of  development  of certain
products.  Although the Company has no reason to believe  that this  information
contains errors of omission or fact, there can be no assurance that there are no
errors of omission or fact that would materially affect the future approvability
or commercial viability of these products.

Potential Adverse Effect of Technological Change and Competition.

        The biotechnology  industry is subject to intense  competition and rapid
and significant  technological  change. The Company and Genta Jago have numerous
competitors  in the  United  States  and other  countries  for their  respective
technologies  and products  under  development,  including  among others,  major
pharmaceutical  and  chemical  companies,   specialized   biotechnology   firms,
universities and other research institutions. There can be no assurance that the
Company's or Genta Jago's competitors will not succeed in developing products or
other novel technologies that are more effective than any which have been or are
being developed by the Company or Genta Jago or which would render the Company's
or Genta Jago's technology and products  non-competitive.  Many of the Company's
and Genta Jago's


                                      -41-


<PAGE>


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 the  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  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,


                                      -42-


<PAGE>

Genta requires raw materials  currently  provided by a single  supplier which is
itself a  development  stage  biotechnology  company  (and a  competitor  of the
Company) and is subject to uncertainties  including the potential for a decision
by such supplier to discontinue production of such raw materials, the insolvency
of  such  supplier,  or the  failure  of  such  supplier  to  follow  applicable
regulatory  guidelines.  Products based on chemically modified  oligonucleotides
have never been  manufactured on a commercial  scale.  The manufacture of all of
the  Company's  and  Genta  Jago's  products  will be  subject  to  current  GMP
requirements  prescribed  by  the  FDA  or  other  standards  prescribed  by the
appropriate  regulatory  agency in the country of use. There can be no assurance
that the  Company or Genta Jago will be able to  manufacture  products,  or have
products  manufactured  for it, in a timely  fashion at  acceptable  quality and
prices,  that they or third party manufacturers can comply with GMP or that they
or third party  manufacturers  will be able to manufacture an adequate supply of
product. Failure to establish compliance with GMP to the satisfaction of the FDA
can result in delays in, or  prohibition  from,  initiating  clinical  trials or
commercial marketing of a product.

Limited Sales, Marketing and Distribution Experience.

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

Uncertainty of Product Pricing, Reimbursement and Related Matters.

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


                                      -43-


<PAGE>

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 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,


                                      -44-


<PAGE>

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.

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


                                      -45-


<PAGE>

commencement  of trading on April 7, 1997.  As of June 1, 1998,  the Company had
5,752,116  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.

        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 Funds have the contractual  right to appoint a majority of the
members  of the  Board  of  Directors  of the  Company.  The  Aries  Funds  have
designated Michael S. Weiss, Glenn L. Cooper, M.D., Donald G. Drapkin,  Bobby W.
Sandage,  Jr., Ph.D., and Andrew J. Stein as nominees to the Board of Directors.
Such persons were  elected as  Directors  of the Company.  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--Concentration  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  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


                                      -46-


<PAGE>

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 "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


                                      -47-


<PAGE>

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 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.


                                      -48-


<PAGE>

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA

                               Genta Incorporated

                      Index to Financial Statements Covered
                       by Reports of Independent Auditors

GENTA INCORPORATED

Report of Ernst & Young LLP, Independent Auditors.............................50

Consolidated Balance Sheets at December 31, 1996 and 1997.....................51

Consolidated Statements of Operations for the years ended
December 31, 1995, 1996 and 1997..............................................52

Consolidated Statements of Stockholders' Equity
for the years ended December 31, 1995, 1996 and 1997..........................53

Consolidated Statements of Cash Flows for the years ended
December 31, 1995, 1996 and 1997..............................................59

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

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

Report of Ernst & Young LLP, Independent Auditors.............................79

Balance Sheets at December 31, 1996 and 1997..................................80

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.....................................................81

Statement of Stockholders' Equity (Net Capital Deficiency) 
for the Period December 15, 1992 (inception) through
December 31, 1997.............................................................82

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.....................................................83

Notes to Financial Statements.................................................84


                                      -49-


<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.

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.


                                        /s/ ERNST AND YOUNG LLP

San Diego, California
June 18, 1998


                                      -50-

<PAGE>


<TABLE>

                                      Genta Incorporated
                                  Consolidated Balance Sheets

                                                                   DECEMBER 31,
                                                         -----------------------------
                                                              1996           1997
                                                         -----------------------------
Assets                                                     (restated)
<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                                       $     780,650  $    849,108
  Payable to research institution                              700,871       635,661
  Accrued payroll                                              782,280       548,295
  Other accrued expenses                                     1,229,845       992,660
  Deferred revenue                                             193,121       198,570
  Short-term notes payable                                     350,000             -
  Current portion of notes payable and capital
     lease obligatiions                                      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   129,320,493
  Accumulated deficit                                     (109,042,074) (124,467,891)
  Accrued dividends payable                                  3,671,532     4,566,000
  Notes receivable from stockholders                           (49,976)            -
                                                         -----------------------------
Total stockholders' equity                                     4,074,232     9,424,998
                                                           -----------------------------
Total liabilities and stockholders' equity                 $  11,169,384  $ 15,753,903
                                                           =============================
See accompanying notes.
</TABLE>


                                     - 51 -

<PAGE>

<TABLE>

                                      Genta Incorporated

                             Consolidated Statements of Operations


                                                          YEARS ENDED DECEMBER 31,
                                               -----------------------------------------------
                                                     1995           1996            1997
                                               -----------------------------------------------
Revenues:                                         (restated)     (restated)
<S>                                               <C>            <C>             <C>

     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
                                               ===============================================

See accompanying notes.
</TABLE>


                                     - 52 -

<PAGE>
<TABLE>

                                      Genta Incorporated

                        Consolidated Statements of Stockholders' Equity


                                                   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      6,000           6            -        -
    stock
  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 dividends                    (3,000)        (3)      226,943      227

</TABLE>


                                     - 53 -

<PAGE>

<TABLE>

                                      Genta Incorporated

          Consolidated Statements of Stockholder's Equity (Continued)


 
                                                                            ACCRUED
                                                ADDITIONAL                 DIVIDENDS     NOTES RECEIVABLE                TOTAL
                                                  PAID-IN    ACCUMULATED   PAYABLE IN         FROM        DEFERRED    STOCKHOLDERS'
                                                  CAPITAL      DEFICIT    COMMON STOCK    STOCKHOLDERS   COMPENSATION    EQUITY
                                                ----------------------------------------------------------------------------------
<S>                                           <C>          <C>           <C>                <C>          <C>         <C>
Balance at December 31, 1994                   $85,797,104  $(71,583,911) $   1,420,862      $ (74,726)   $ (64,836)  $15,496,480
    Issuance of common stock                     9,164,704             -             -               -            -     9,165,277
    Issuance of common stock upon conversion
      of promissory notes                        3,022,260             -             -               -            -     3,022,438
    Issuance of common stock for acquired
      in-process research and development        1,611,876             -             -               -            -     1,612,000
    Issuance of Series B convertible
      preferred stock                            2,774,897             -             -               -            -     2,774,900
    Issuance of warrants to purchase common
      stock                                        173,118             -             -               -            -       173,118
    Issuance of common stock on exercise of
      options                                        3,661             -             -               -            -         3,662
    Issuance of common stock as dividend on
      preferred stock                            2,399,779             -    (2,400,000)              -            -           (88)
    Dividends accrued on preferred stock        (2,551,726)            -     2,551,726               -            -             -
    Repayment of notes receivable from
      stockholders                                       -             -             -          24,750            -        24,750
    Amortization of deferred compensation                -             -             -               -       64,836        64,836
    Net loss                                             -   (25,365,714)            -               -            -   (25,365,714)
                                                ----------------------------------------------------------------------------------

Balance at December 31, 1995                   102,396,673   (96,949,625)    1,572,588         (49,976)           -     6,971,659
    Issuance of Series C convertible
      preferred stock                            5,492,633             -             -               -            -     5,492,639
    Issuance of Series C convertible preferred
      stock upon conversion of promissory notes  1,044,000             -             -               -            -     1,044,001
    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 dividends                     33,783             -       (34,007)              -            -             -

</TABLE>


                                     - 54 -

<PAGE>

<TABLE>

                                      Genta Incorporated

          Consolidated Statements of Stockholders' Equity (Continued)


                                            
                                               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     529      3,999,367     3,999
    Issuance of common stock                      -       -         38,400        38
    Retirement of common stock in exchange
      for forgiveness of note receivable          -       -         (1,250)       (1)
    Issuance of common stock upon
      conversion of Series A convertible
      preferred stock and related accrued
      dividends                             (71,500)    (71)       518,742       519
    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>


                                     - 55 -


<PAGE>


                               Genta Incorporated

           Consolidated Statements of Stockholder's Equity (Continued)


<TABLE>
<CAPTION>
                                                                            STOCKHOLDERS' EQUITY
                                             -----------------------------------------------------------------------------------
                                                                           ACCRUED                                  
                                              ADDITIONAL                 DIVIDENDS     NOTES RECEIVABLE                 TOTAL     
                                               PAID-IN     ACCUMULATED    PAYABLE IN      FROM         DEFERRED      STOCKHOLDERS'
                                               CAPITAL       DEFICIT   COMMON STOCK    STOCKHOLDERS    COMPENSATION    EQUITY
                                             -----------------------------------------------------------------------------------
<S>                                          <C>         <C>            <C>            <C>          <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             -             -              -             -     1,598,599
    Issuance of warrants to purchase
      common stock for patent legal services    221,543             -             -              -             -       221,543
    Issuance of common stock on exercise of
      options                                   171,565             -             -              -             -       171,573
    Dividends accrued on preferred stock     (2,524,701)            -     2,524,701              -             -             -
    Interest imputed on convertible
      debentures                                666,667             -             -              -             -       666,667
    Net loss                                          -   (12,092,449)            -              -                 (12,092,449)
                                             -----------------------------------------------------------------------------------

Balance at December 31, 1996                109,490,222  (109,042,074)    3,671,532        (49,976)            -     4,074,232
    Issuance of common stock                     42,000             -             -              -             -        42,038
    Retirement of common stock in exchange
      for forgiveness of note receivable              -             -             -         49,976             -        49,975
    Issuance of common stock upon
      conversion of Series A convertible
      preferred stock and related accrued
      dividends                                 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             -             -              -             -       358,559
    Issuance of Series D convertible
      preferred stock                        13,957,100             -             -              -             -    13,957,262
</TABLE>


                                     - 56 -

<PAGE>

<TABLE>

                               Genta Incorporated

                 Consolidated Statements of Stockholders' Equity (Continued)



                                                   CONVERTIBLE
                                                 PREFERRED STOCK         COMMON STOCK
                                               -------------------    ------------------
                                               SHARES    AMOUNT       SHARES   AMOUNT
                                               -------------------    ------------------
<S>                                          <C>          <C>        <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>


                                     - 57 -

<PAGE>
<TABLE>


                               Genta Incorporated

                Consolidated Statements Of Stockholders' Equity (Continued)


                                                                        
                                     
                                                                     ACCRUED
                                       ADDITIONAL                  DIVIDENDS     NOTES RECEIVABLE                     TOTAL
                                        PAID-IN      ACCUMULATED    PAYABLE IN        FROM           DEFERRED      STOCKHOLDERS'
                                        CAPITAL        DEFICIT     COMMON STOCK    STOCKHOLDERS     COMPENSATION       EQUITY
                                      -----------------------------------------------------------------------------------------
<S>                                   <C>            <C>            <C>             <C>            <C>            <C>
    Issuance of Series D convertible
      preferred  stock upon
      conversion of senior
      secured convertible bridge
      notes and accrued interest         3,270,684               -             -                -              -       3,270,749
    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               -             -                -              -          98,000
    Interest imputed on convertible
      debentures                         3,000,000               -             -                -              -       3,000,000
    Net loss                                     -     (15,425,817)            -                -              -     (15,425,817)
                                      -----------------------------------------------------------------------------------------
Balance at December 31, 1997          $129,320,493   $(124,467,891)   $4,566,000      $         -   $          -      $9,424,998
                                      =========================================================================================

See accompanying notes.

</TABLE>


                                     - 58 -

<PAGE>

<TABLE>
                               Genta Incorporated

                      Consolidated Statements of Cash Flows

                                                     YEARS ENDED DECEMBER 31,
                                            -------------------------------------------
                                                 1995          1996          1997
                                            -------------------------------------------
                                              (restated)    (restated)
OPERATING ACTIVITIES
<S>                                         <C>           <C>           <C>
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 credit                     -            -         98,000
  Forgiveness of shareholder note                       -             -        49,976
  Fair value of common stock issued for
     severance and services                             -             -        42,038
  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 stock               2,399,912       425,757       800,209
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                    -             -     3,270,749
     accrued interest

                            See accompanying notes.
</TABLE>


                                     - 59 -

<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")  and 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 $(0.51) 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.


                                     - 60 -

<PAGE>


                                  Genta Incorporated

                Notes to Consolidated Financial Statements (continued)


        Investment in Joint Venture

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

        Use of Estimates

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

        Revenue Recognition and Major Customers

        Revenue from product sales is recognized upon shipment.  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.

        Inventories

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


                                     - 61 -

<PAGE>


                                  Genta Incorporated

                Notes to Consolidated Financial Statements (continued)


        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 for issued  patents,  14 years for purchased  proprietary
technology and 5-7 years for  organizational  and other  amortizable  costs. The
Company's  policy is to evaluate the  appropriateness  of the carrying values of
the unamortized  balances of intangible  assets on the basis of estimated future
cash flows (undiscounted) and other factors. If such evaluation were to indicate
an impairment of these intangible assets, such impairment would be recognized by
a write-down of the applicable  assets.  The Company  evaluates,  each financial
reporting  period,  the  continuing  value of patents  and patent  applications.
Through  this  evaluation,  the Company may elect to continue to maintain  these
patents; seek to out-license them; or abandon them. 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.

        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.


                                     - 62 -

<PAGE>

                                  Genta Incorporated

                Notes to Consolidated Financial Statements (continued)



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 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:
<TABLE>
                                                        DECEMBER 31,
                                                   1996             1997
                                            -----------------------------------
<S>                                            <C>              <C>

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
                                            ===================================
</TABLE>


                                     - 63 -

<PAGE>

<TABLE>
                                  Genta Incorporated

                Notes to Consolidated Financial Statements (continued)


3.  PROPERTY AND EQUIPMENT

        Property and equipment is comprised of the following:

                                                        DECEMBER 31,
                                                   1996             1997
                                            -----------------------------------
<S>                                            <C>             <C>
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
                                            ===================================
</TABLE>

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


                                     - 64 -

<PAGE>

                               Genta Incorporated

             Notes to Consolidated Financial Statements (continued)

technology  was not assured.  Since Genta had no carrying  value assigned to the
technology Genta contributed technologies to Genta Jago, there was no accounting
for such capital  contribution.  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 requiring  Jagotec to  contribute  rights under the
Additional  License at what the parties  believed was a substantial  discount to
its actual fair value. The $1.85 million was considered by Genta to be a partial
cost of acquiring the Additional License, and, since it was not refundable under
any  circumstances  and there was no assurance of future  recoverability  of the
$1.85  million (i.e.  recoverability  was  dependent  upon Genta Jago  achieving
profitability),  Genta  expensed  such  payment in 1994 as  Acquired  in-process
research  and  development.  An  additional  $2.0 million  (the  "Deposit")  was
deposited  with  Jagotec in 1994,  but would only be  retained  by  Jagotec,  as
partial  payment  of the  exercise  price  for the  Expansion  Option,  if Genta
actually  exercised  the  Expansion  Option.  If such  Expansion  Option was not
exercised,  the $2.0 million  Deposit would be  transferred to Genta Jago in the
form of working  capital loans payable by Genta Jago to Genta.  Accordingly,  at
December 31, 1994,  the $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 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 $4.4 million in forgiven  principal  and $0.3  million in forgiven  interest
accrued thereon


                                     - 65 -

<PAGE>

                               Genta Incorporated

             Notes to Consolidated Financial Statements (continued)


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.

        In 1995, Genta Jago returned certain Anticode(TM) technology to Genta in
exchange for Genta's  forgiveness  of $4.4 million of principal and $0.3 million
of interest outstanding under existing working capital loans to Genta Jago. This
amount was determined by an arm's length negotiation between Genta,  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.


                                     - 66 -


<PAGE>

                               Genta Incorporated

             Notes to Consolidated Financial Statements (continued)


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

<TABLE>
<CAPTION>
                                                           DECEMBER 31,
                                                    1996                1997
                                            -----------------------------------------
Balance Sheet Data:
<S>                                           <C>                 <C>
  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
                                            =========================================



                                                          YEAR ENDED DECEMBER 31,
                                                      1995           1996            1997
                                                -------------------------------------------------
<S>                                            <C>            <C>             <C>
Statements of Operations Data:
  Collaborative research and
    development revenues                        $  2,968,000   $  5,477,000     $ 3,634,000   
  Costs and expenses......................        10,336,000      8,453,000       4,791,000   
                                                -------------------------------------------------
  Loss from operations....................        (7,368,000)    (2,976,000)     (1,157,000)  
  Gain on waiver of debt in exchange for                                                      
    return of license rights to Genta              4,703,000             --             --    
  Interest expense........................          (746,000)      (956,000)     (1,175,000)  
                                                -------------------------------------------------
  Net loss................................      $ (3,411,000)  $ (3,932,000)    $(2,332,000)  
                                                =================================================
</TABLE>                                                                     
                                                

                                     - 67 -

<PAGE>

<TABLE>
                                  Genta Incorporated

                Notes to Consolidated Financial Statements (continued)


6.  INTANGIBLES

Intangibles consist of the following:

                                                            DECEMBER 31,
                                                     1996                1997
                                            ------------------------------------------
<S>                                          <C>                  <C>
  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
                                            ==========================================
</TABLE>

7.  NOTES PAYABLE AND LEASES

Notes payable consist of the following:
<TABLE>

                                                          DECEMBER 31,
                                                     1996                1997
                                            ------------------------------------------
<S>                                          <C>                     <C>

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

</TABLE>


                                     - 68 -

<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  is  working  with  ANVAR to  achieve  a  mutually
satisfactory  resolution;  however, there  can  be  no  assurance  that  such  a
resolution will be obtained.  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:
<TABLE>
                                               Operating Leases
                                        -------------------------------
                                         Related parties    Others
                                        --------------------------------
<S>                                      <C>             <C>
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
                                        ================================
</TABLE>

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.


                                     - 69 -

<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 (i) 1,000 shares of Premium Preferred Stock(TM), par value
$.001 per share,  stated value $100 per share (the "Series D Preferred  Stock"),
and (ii) warrants to purchase 5,000 shares of the Company's  common stock,  (the
"Class D  Warrants")  at any time  prior to the fifth  anniversary  of the final
closing (the "Class D Warrants").  The Series D Preferred  Stock is  immediately
convertible  at the  option of the  holder  into  shares  of common  stock at an
initial  conversion  price  of  $0.94375  per  share  (subject  to  antidilution
adjustment).  In addition,  the holders of the Series D Preferred  Stock sold in
the Private  Placement  are  entitled to a  liquidation  preference  aggregating
$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.

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


                                     - 70 -

<PAGE>

the  holders,  at any time on or after  October  23,1996,  into shares of common
stock at a conversion price equal to 75% of the average Nasdaq closing bid price
of Genta's common stock for a specified  period prior to the date of conversion.
Terms of the Convertible Debentures also provided for interest payable in shares
of  the  Company's  common  stock.  In  November  1996,  $1.65  million  of  the
Convertible  Debentures  and the related  accrued  interest was  converted  into
approximately 590,000 shares of common stock and in 1997, the remaining $350,000
and related accrued  interest was converted into 204,263 shares of common stock.
In 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.

        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.


                                     - 71 -

<PAGE>

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

        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


                                     - 72 -

<PAGE>

paid.  The  Company  currently  intends to retain its  earnings,  if any,  after
payment of  dividends on  outstanding  shares of Series A and Series D Preferred
Stock, for the development of its business.

        Warrants

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

        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:


                                     - 73 -

<PAGE>
<TABLE>

                                                                                WEIGHTED
                                                                                 AVERAGE
                                                            SHARES UNDER     EXERCISE PRICE
                                                               OPTION           PER SHARE
                                                               ------           ---------
<S>                                                       <C>                   <C>
 Balance at December 31, 1994                                   174,722            $78.12
  Granted..............................................         198,803            $23.55
  Exercised............................................            (732)           $ 5.00
  Cancelled.............................................       (183,909)           $73.09
                                                               ---------           ------

 Balance at December 31, 1995                                   188,884            $23.96
  Granted..............................................          13,677            $17.71
  Exercised............................................          (7,882)           $21.77
  Cancelled.............................................        (29,749)           $22.32
                                                                --------           ------

Balance at December 31, 1996                                    164,930            $23.77
  Granted..............................................           6,670              3.71
  Exercised............................................              --            $   --
  Cancelled.............................................        (48,688)           $23.21
                                                                --------           ------
 Balance at December 31, 1997                                   122,912            $22.90
                                                                =======            ======
</TABLE>

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

        At December 31, 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.


                                     - 74 -

<PAGE>

        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>

                                                         YEARS ENDED DECEMBER 31,
                                                   1995             1996             1997
                                            ----------------------------------------------------
<S>                                         <C>             <C>                <C>
Adjusted pro forma net loss                   $(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.

        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>
                                                                                         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>          <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
agreement 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.


                                     - 75 -

<PAGE>

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 offset the deferred tax assets as it is more likely than
not that the net deferred tax assets will not be realized.
<TABLE>
                                                        DECEMBER 31,
                                                   1996              1997
                                            -------------------------------------
<S>                                           <C>             <C>
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.....................    $        --     $         --
                                            =====================================
</TABLE>

        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.

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.


                                     - 76 -

<PAGE>

12.  EMPLOYEE TERMINATIONS

        In  March,  1995,  in an effort to  reduce  costs and  conserve  working
capital,  Genta initiated a termination plan,  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 in 1995
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 the related accrued severance costs.

        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 related accrued  severance  costs.  There have  subsequently
been no  adjustments  to the  liabilities  originally  recorded  and the  actual
termination benefits paid were equal to the liabilities recorded.

13.  CONTINGENCIES

        LBC Capital Resources, Inc. ("LBC"), a Philadelphia-based broker/dealer,
has asserted claims against the Company and others,  including Paramount Capital
Inc., of which Dr.  Rosenwald is the sole  stockholder and Mr. Weiss is a Senior
Managing Director, and various related entities and persons. LBC's claims relate
to the alleged  breach by the Company of certain  letter  agreements,  allegedly
entered  into by LBC and the Company in 1995 and 1996 with  respect to brokerage
and/or investment banking services, particularly in connection with a $3 million
investment, for which LBC is seeking a fee. In April 1998, the Company's counsel
learned that a Complaint had 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.  The  Company  is  currently  engaged  in  settlement
discussions with LBC.

        On June 4,  1998,  the  Company's  statutory  process  agent  received a
Summons and Complaint in a lawsuit  brought by Johns Hopkins against the Company
in Maryland Circuit Court for Baltimore City (Case No. 98120110).  Johns Hopkins
alleges  in the  Complaint  that the  Company  has  breached  the Johns  Hopkins
Agreement  (see  "Business--Anticode(TM)   Brand  of  Antisense  Oligonucleotide
Programs--Oligonucleotide          Collaborative          and          Licensing
Agreements--Ts'o/Miller/Hopkins") and owes it licensing royalty fees and related
expenses in the amount of $308,832.24.  Johns Hopkins also alleges the existence
of a separate March 1993 letter agreement  wherein the Company agreed to support
a fellowship  program at the Johns  Hopkins  School of Hygiene and Public Health
and the Company's  breach thereof,  with damages of $326,829.00.  The Company is
currently in the process of retaining  Maryland  counsel so that it can properly
evaluate these lawsuit documents and respond.

        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


                                     - 77 -

<PAGE>

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.


                                     - 78 -


<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.


                                                         /s/ ERNST & YOUNG LLP

San Diego, California
June 18, 1998


                                     - 79 -

<PAGE>
<TABLE>
                          Genta Jago Technologies B.V.
                         (a development stage company)

                                 Balance Sheets

                                                                     DECEMBER 31,
                                                                 1996           1997
                                                           -------------------------------
<S>                                                        <C>             <C>
ASSETS
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 DEFICIENCY
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
                                                           ===============================
</TABLE>

See accompanying notes.

                                     - 80 -

<PAGE>
<TABLE>
                          Genta Jago Technologies B.V.
                         (a development stage company)

                            Statements of Operations

                                                                                  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.


                                     - 81 -

<PAGE>
<TABLE>

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

           Statement of Stockholders' Equity (Net Capital Deficiency)

               December 15, 1992 (inception) to December 31, 1997
                                                                                                      DEFICIT
                                                                                                    ACCUMULATED       STOCKHOLDERS'
                                                        COMMON STOCK                                 DURING THE        EQUITY (NET
                                                 ----------------------------        ADDITIONAL      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)
                                                 ==================================================================================

                                See accompanying notes.
</TABLE>


                                     - 82 -

<PAGE>
<TABLE>
                          Genta Jago Technologies B.V.
                         (a development stage company)

                            Statements of Cash Flows

                                                                                 CUMULATIVE
                                                                                FROM DECEMBER
                                                                                  15, 1992
                                                                               (INCEPTION) TO
                                              YEARS ENDED DECEMBER 31,          DECEMBER 31,
                                          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
                                      ======================================== ===============

                            See accompanying notes.
</TABLE>


                                     - 83 -

<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
Jago   obtained   from   Jagotec  an  exclusive   license  to   GEOMATRIX   oral
controlled-release  technology  for the  development  and  commercialization  of
approximately 25 specified products. In May 1995, Genta and Jagotec entered into
an  agreement  to  expand  Genta  Jago by  adding  the  rights  to  develop  and
commercialize  an additional 35 products (see "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.

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.


                                     - 84 -

<PAGE>

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 Anticode(TM)  oligonucleotide
products  and with  Jagotec  in  connection  with the  planned  development  and
commercialization of GEOMATRIX oral  controlled-release  products.  Genta Jago's
license with Genta in relation to the Anticode(TM)  oligonucleotide products was
terminated  in 1995,  however,  the license in relation  to the  GEOMATRIX  oral
controlled-release  products with Jagotec was not  terminated.  Pursuant to such
agreements,  Genta Jago  recorded  license fee expense of $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.  Genta issued  120,000  shares of
Common Stock valued at $7.2 million to Jagotec and its  affiliates in 1992,  for
its interest in Genta Jago, to induce Jagotec to license to Genta Jago, for what
the parties  believed was a substantial  discount from the  underlying  value of
such license,  Jagotec's  GEOMATRIX  technology with respect to approximately 25
products (the "Initial  License")  and to license to Genta  Jagotec's  GEOMATRIX
technology for use in Genta's Anticode(TM) oligonucleotide development programs.
In  addition,  Genta Jago entered into a working  capital  agreement  with Genta
which expires in October  1998.  See "MD&A--  Liquidity and Capital  Resources."
Pursuant to this agreement, Genta is required to make working capital


                                     - 85 -

<PAGE>

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.

Expansion of Genta Jago

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

Return of Anticode(TM) Antisense License

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

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 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


                                     - 86 -

<PAGE>

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

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

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

4.  INCOME TAXES

        Significant  components  of  Genta  Jago's  deferred  tax  assets  as of
December 31, 1997 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.
<TABLE>
                                                                 DECEMBER 31,
                                                           1996                 1997
                                                   -----------------------------------------
<S>                                               <C>                   <C>
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                                $        --          $        --
                                                   =========================================
</TABLE>

        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.


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

        Not Applicable.


                                     - 87 -

<PAGE>

                                    PART III

          ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

             INFORMATION CONCERNING DIRECTORS AND EXECUTIVE OFFICERS

               Set forth below is certain  information  regarding  the Company's
directors and executive officers,  including information furnished by them as to
their  principal  occupations  and business  experience for the past five years,
certain  directorships  held by each,  their respective ages as of April 1, 1998
and the year in which each became a director of the Company.  Each  director has
served  continuously  with the Company  since his first  election  as  indicated
below.

               Name                                                   Age
               ----------------------------------------------------------

               CLASS I (TERMS EXPIRE IN 1998)

Kenneth G. Kasses, Ph.D.(1)............................................53
Peter Salomon, M.D. ...................................................38
Andrew J. Stein(2).....................................................53
Harlan J. Wakoff(3)....................................................31

               CLASS II (TERMS EXPIRE IN 1999)

Glenn L. Cooper, M.D.(1),(2)...........................................45
Lawrence J. Kessel, M.D.(3)............................................44
Bobby W. Sandage, Jr., Ph.D.(3)........................................44

               CLASS III (TERMS EXPIRE IN 2000)

Donald G. Drapkin(1)...................................................50
Michael S. Weiss(1),(2)................................................32
Robert E. Klem, Ph.D. .................................................52


1) Member of the Company's Executive Committee formed by resolution of
   the  Board of  Directors  on  January  29,  1998.
2) Member of the Company's
   Compensation Committee formed by resolution of the Board of Directors on
   January 29, 1998.
3) Member of the Company's Audit Committee formed by resolution of the
   Board of Directors on January 29, 1998.

Kenneth G. Kasses, Ph.D., has been Genta's President and Chief Executive Officer
since October 1997 and a member of the Board of Directors  since September 1997.
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  1973-1986 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.

Peter  Salomon,  M.D.,  FACG,  has been a member of the Genta Board of Directors
since  September 1997. His principal  employment  during the last five years has
been as a Board Certified  Gastroenterologist  in private practice in Boca Raton
and Delray Beach, Florida with Gastroenterology Consultants of South Florida. In
addition,  he is an expert  consultant for several  insurance  companies and law
firms in the areas of gastroenterology and liver


                                     - 88 -
<PAGE>

diseases.  Dr.  Salomon  graduated  magna cum laude from New York  University in
1981. He received his Medical Degree from New York University in 1985. Following
this he received his training in Internal Medicine and  Gastroenterology  at The
Mount Sinai Hospital in New York where he also held a grant from the Crohn's and
Colitis  Foundation to perform  research in inflammatory  bowel disease.  He was
also selected to receive advanced training in therapeutic  endoscopic techniques
at Aarhus  Kommunehospital  in Aarhus,  Denmark.  He has been elected to the Phi
Beta Kappa society and is a member of MENSA.  He has done extensive  research in
the field of  gastroimmunology  and has  published  numerous  articles  and book
chapters  in various  leading  scientific  journals  and  textbooks.  He is also
currently a director of PolaRx, a privately-held biotechnology firm.

Andrew  J.  Stein  has been a member  of the  Genta  Board  of  Directors  since
September  1997.  In addition,  he is President  of Benake  Corporation,  Equity
Partner  in  Metromedia  Asia and a member  of the  Board of  Directors  of News
Communications.  Mr. Stein is also a member of the New York State  Commission of
Privatization and the New York State Research Council on  Privatization.  He was
the  Chairman of the  Commission  for the Study of Youth Crime and  Violence and
Reform of the Juvenile Justice System from 1993-1995.  From 1986 to 1993, he was
President of the Council,  New York City. From 1978 to 1985, he was President of
the Borough of Manhattan  and from 1969 to 1977, he was a member of the New York
State Assembly where he served on the Health Committee and was appointed by Gov.
Nelson  Rockefeller  as  Chairman  of the  Commission  on  Living  Costs and the
Economy, which reformed the nursing home industry in New York State. He was also
Chairman  of  the  New  York  City   Commission   on  Public   Information   and
Communication,  and has been a Trustee of the New York City Employees Retirement
System and an ex officio  member of The Museum of The City of New York,  The New
York  Public  Library,  The  Metropolitan  Museum of Art and The Queens  Borough
Public Library.

Harlan  J.  Wakoff  has been a member  of the  Genta  Board of  Directors  since
September  1997. He is also the Chairman of the Company's Audit  Committee.  Mr.
Wakoff  has been a Vice  President  of the  Media and  Entertainment  Investment
Banking  Group  at  Furman  Selz  L.L.C.  since  June  1996.  He was  previously
affiliated  with the investment  banking groups at NatWest  Markets from January
1995 to June 1996 and Kidder Peabody & Co. from August 1993 to January 1995. Mr.
Wakoff  received  an  M.B.A.  from  The  Wharton  School  at the  University  of
Pennsylvania  in May 1993 and a B.S. in  accounting,  summa cum laude,  from the
State University of New York at Albany.

Glenn L. Cooper,  M.D., has been a member of the Genta Board of Directors  since
September 1997. He is also the Chairman of the Company's Compensation Committee.
He  has  also  been  President,  Chief  Executive  Officer  and  a  director  of
Interneuron  Pharmaceuticals,  Inc. since May 1993.  From September 1992 to June
1994 Dr.  Cooper was  President,  Chief  Executive  Officer  and a  director  of
Progenitor, Inc. and is currently Chairman at Progenitor. He is also Chairman of
Intercardia, Inc., Chairman and Acting President of Transcell Technologies, Inc.
and  a  director  of  InterNutria,  Inc.,  all  of  which  are  subsidiaries  of
Interneuron.   In  addition,   Dr.   Cooper  serves  as  a  director  of  Aeolus
Pharmaceuticals,  Inc., a subsidiary of  Intercardia.  Dr. Cooper also served as
President and Chief Executive  Officer of Intercardia from March 1994 to January
1995. Prior to joining  Progenitor,  Dr. Cooper was Executive Vice President and
Chief Operating Officer of Sphinx Pharmaceuticals Corporation since August 1990.
Dr. Cooper had been associated  with Eli Lilly since 1985,  most recently,  from
June  1987 to July  1990,  as  Director,  Clinical  Research,  Europe,  of Lilly
Research Center Limited;  from October 1986 to May 1987 as International Medical
Advisor, International Research Coordination of Lilly Research Laboratories; and
from  June  1985 to  September  1986 as  Medical  Advisor,  Regulatory  Affairs,
Chemotherapy  Division at Lilly Research  Laboratories.  Dr. Cooper received his
M.D.  from Tufts  University  School of  Medicine,  performed  his  postdoctoral
training  in  Internal  Medicine  and  Infectious  Diseases  at the New  England
Deaconess  Hospital and Massachusetts  General Hospital and is a magna cum laude
graduate of Harvard College.

Lawrence J.  Kessel,  M.D.,  FACP,  CMD, has been a member of the Genta Board of
Directors since September 1997. Dr. Kessel is a physician in private practice in
Philadelphia and a diplomate in both internal  medicine and geriatric  medicine,
as well as a Fellow  of the  American  College  of  Physicians  and a  Certified
Medical Director of Long-Term Nursing Facilities.  Dr. Kessel is affiliated with
Chestnut  Hill  Hospital,   Roxborough   Memorial  Hospital  and  Chestnut  Hill
Rehabilitation Hospital and serves as a clinical instructor at Jefferson Medical
College. He is also a medical director at Integrated Health Services (IHS) and a
staff  physician at Fairview Paper Mill,  Green Acres Ivy Hill and St.  Joseph's
Villa.  Dr.  Kessel is a director  of  PolaRx,  a  privately-held  biotechnology
company.

                                       - 89 -

<PAGE>

Bobby W. Sandage,  Jr., Ph.D., has been a member of the Genta Board of Directors
since September 1997. Dr. Sandage joined  Interneuron  Pharmaceuticals,  Inc. in
November 1991 as Vice President,  Medical and Scientific Affairs. Since December
1995 he has been Executive Vice  President,  Research and  Development and Chief
Scientific  Officer of Interneuron.  From February 1989 to November 1991 he held
management positions in the Cardiovascular  Research and Development division of
The DuPont Merck Pharmaceutical  Company.  From May 1985 to February 1989 he was
affiliated  with the Medical  Department of DuPont Critical Care. Dr. Sandage is
an adjunct  professor in the  Department of  Pharmacology  at the  Massachusetts
College of Pharmacy.  Dr. Sandage  received his Ph.D. in Clinical  Pharmacy from
Purdue University and his B.S. in Pharmacy from the University of Arkansas.  Dr.
Sandage  is  a  director  of  Aeolus  Pharmaceuticals,  Inc.,  a  subsidiary  of
Intercardia, Inc.

Donald G.  Drapkin  has been  Chairman  of the Genta  Board of  Directors  since
September  1997. He is also the Chairman of the Company's  Executive  Committee.
Mr.  Drapkin  has been a  director  and Vice  Chairman  of  MacAndrews  & Forbes
Holdings,  Inc. and various of its affiliates since March 1987. Prior to joining
MacAndrews & Forbes, Mr. Drapkin was a partner in the law firm of Skadden, Arps,
Meagher & Flom in New York for more  than  five  years.  Mr.  Drapkin  also is a
director  of the  following  corporations  which file  reports  pursuant  to the
Securities Exchange Act of 1934: Algos  Pharmaceutical  Corporation,  Anthracite
Capital,  Inc.,  BlackRock  Asset  Investors,  Cardio  Technologies,  Inc.,  The
Cosmetic Center, Inc., Playboy Enterprises,  Inc., Revlon, Inc., Revlon Consumer
Products   Corporation,   VIMRx   Pharmaceuticals   Inc.  and  Weider  Nutrition
International.

Michael S. Weiss has been Vice  Chairman of the Genta Board of  Directors  since
September 1997 and was the Interim Chairman from May 1997 to September 1997. Mr.
Weiss is currently  Senior  Managing  Director of Paramount  Capital,  Inc.,  an
investment banking firm, and serves in a similar capacity for certain affiliated
entities.  He joined the  companies  in 1993.  Prior to that,  Mr.  Weiss was an
attorney  with  Cravath,  Swaine & Moore.  Mr. Weiss also serves on the Board of
Directors of Pacific  Pharmaceuticals,  Inc., Palatin  Technologies,  Inc., AVAX
Technologies,  Inc.,  as  Secretary  of Atlantic  Pharmaceuticals,  Inc.  and as
Chairman  of the  Board  of  Procept  Inc.,  all  publicly-traded  biotechnology
companies.  Additionally,  Mr.  Weiss is a member of the board of  directors  of
several privately-held  biopharmaceutical companies. Mr. Weiss received his J.D.
from  Columbia  University  School of Law and a B.S.  in Finance  from the State
University of New York at Albany.

Robert E. Klem,  Ph.D.,  has been a member of the Genta Board of Directors since
February  1991,  a Vice  President  of the  Company  since  October  1991 and is
currently the Company's  Principal  Accounting  Officer and Principal  Financial
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  responsibility  for  research,
development and marketing activities. Previously, Dr. Klem was the Plant Manager
for E.I.  DuPont in  Victoria,  Texas from 1970 to 1974.  Dr. Klem  received his
Ph.D. in Organic Chemistry from the University of California at Riverside.
<TABLE>
                                  EXECUTIVE OFFICERS

               Name                                                                 Age
               ------------------------------------------------------------------------
<S>                                                                                 <C>
Lauren R. Brown, Ph.D................................................................56
Kenneth G. Kasses, Ph.D..............................................................53
Robert E. Klem, Ph.D. ...............................................................52
</TABLE>

Lauren R. Brown,  Ph.D.,  has been Vice  President of the Company  since October
1991.  He co-founded  JBL in 1973 and since then has been  President 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 board of directors of the YMCA and the Chamber of Commerce.

               David Hale resigned as a Class III director effective January 28,
1997. On May 5, 1997, Thomas Adams resigned as a Class I director.  On September
11, 1997,  Sharon B. Webster  resigned as a Class I director and Paul O.P.  Ts'o
resigned as a Class II director.


                                       - 90 -

<PAGE>

               The Board of  Directors  held 17  meetings  during the year ended
December 31, 1997. All directors  attended at least 75% of the aggregate  number
of meetings of the Board of Directors, except that Dr. Cooper did not attend one
of the two  meetings  held  during the time he served as a  director.  Directors
receive no fees for their services,  but non-employee directors are eligible for
stock options.

                SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

               Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the  directors  and  executive  officers of the Company and persons who
beneficially   own  more  than  ten  percent  of  the  Company's   Common  Stock
(collectively,  the  "Reporting  Persons")  to  report  their  ownership  of and
transactions  in the  Company's  Common  Stock to the  Securities  and  Exchange
Commission (the  "Commission").  Copies of these reports are also required to be
supplied to the Company.  The Company  believes,  upon a review of the copies of
such reports  received by the Company and written  representations  furnished by
the Reporting  Persons to the Company,  that during the year ended  December 31,
1997 the Reporting Persons complied with all applicable  Section 16(a) reporting
requirements,  except as  follows:  Mr.  Weiss did not file a Form 3 on a timely
basis to report his appointment as a director of the Company.


                                       - 91 -

<PAGE>

ITEM 11.       EXECUTIVE COMPENSATION

               The following table sets forth  compensation  for services in all
capacities to the Company,  for the fiscal years ended  December 31, 1995,  1996
and 1997,  of: (i) those persons who were,  respectively,  the  Company's  Chief
Executive  Officer for any time  period  during 1997 and up to four of the other
most highly  compensated  executive  officers of the Company who were serving as
executive  officers at December 31, 1997 whose total annual salary and bonus for
the fiscal year ending December 31, 1997 exceeded  $100,000;  and (ii) up to two
additional  individuals  who would have been two of such other four most  highly
compensated  executive  officers  if such  individuals  had served as  executive
officers for the entire fiscal year (collectively, the "Named Officers").
<TABLE>
                              SUMMARY COMPENSATION TABLE
                                                                                                       Long-Term
                                                Annual Compensation                               Compensation Awards
                           --------------------------------------------------------------      -------------------------
Name and                                                                   Other Annual            Securities Underlying
Principal Position           Year            Salary ($)       Bonus ($)    Compensation                 Options (#)
------------------           ----            ----------       ---------    ------------                 -----------
<S>                         <C>            <C>              <C>         <C>                            <C>
Thomas H. Adams, Ph.D.       1997           $ 285,000(1)       --             --                        100,000(2)
Chairman of the Board and    1996             285,000(3)       --             --                          2,799(3)
Chief Executive Officer      1995             285,000(3)       --             --                         20,000(4)

Kenneth G. Kasses, Ph.D.     1997              62,500(5)       --             --                             --
President and
Chief Executive Officer

Zofia E. Dziewanowska        1997            $216,601(6)       --             --                             --
Ph.D., M.D., Senior  Vice    1996             235,000(3)       --             --                          1,574(3)
President, Global Clinical   1995             235,000(3)       --         14,759(7)                      12,000(4)
Affairs

Guy Van de Winckel           1997            $170,000(8)       --             --                             --
Vice President, European     1996             170,000          --             --                             --
Operations and President of  1995             170,000          --             --                             --
Genta Pharmaceuticals
Europe, S.A.

Robert E. Klem, Ph.D.        1997            $170,000(9)       --             --                             --
Vice President, Chairman of  1996             155,000(3)       --          2,580(10)                        853(3)
the Board of JBL             1995             161,458(3)(11)   --          2,580(10)                      4,500(4)

Lauren Brown, Ph.D.          1997             144,000(9)       --             --                             --
President JBL                1996             131,000(3)       --          3,000(10)                      1,285(3)
                             1995             131,000(3)       --          3,000(10)                      2,000(4)
</TABLE>

                                       - 92 -

<PAGE>

(1)    Dr. Adams resigned as Chief  Executive  Officer and Chairman of the Board
       and a Director on May 5, 1997.  Pursuant to a  severance  and  consulting
       agreements  with the Company,  the Company  agreed to continue to pay Dr.
       Adams'  salary  at the  then-current  rate of  $285,000  per  year  for a
       one-year  period,  agreed to continue  eligibility for coverage under the
       Company's health insurance plan for a one-year period and agreed to grant
       options to purchase  100,000 shares of Common Stock  exercisable at $3.00
       per share (100% of the fair market value of such stock on May 5, 1997) as
       consideration for consulting services of at least 24 days.

(2)    See  Footnote 1 above.  These  options  were  granted to Dr. Adams in May
       1998.

(3)    Options were granted to Named Officers during the year ended December 31,
       1996 to  compensate  them for  accepting  deferral  of the  payment  of a
       portion of base  salary in 1995 and 1996.  The  portions  of  salaries so
       deferred  are  included  in  the  1995  salary  figures  in  this  table,
       consisting  of  $23,750,  $9,792,  $6,458  and  $10,916  for Drs.  Adams,
       Dziewanowska,  Klem  and  Brown,  respectively,  and in the  1996  salary
       figures in this table,  consisting of $11,875,  $9,791, $6,458 and $5,458
       for Drs. Adams, Dziewanowska, Klem and Brown, respectively.

(4)    These  options  (the  "New   Options")   were  granted  in  exchange  for
       unexercised  options  granted  prior to April 20,  1995 with an  exercise
       price above  $22.50 per share (the "Old  Options").  The New Options were
       granted  at fair  market  value at the  date of  grant  and have the same
       vesting  schedule as the Old Options.  However,  the New Options were not
       exercisable  until after April 20, 1997,  regardless  of the Old Options'
       vesting schedule,  unless the holder was terminated involuntarily without
       cause prior to April 20, 1997.  None of these options have been exercised
       to date.

(5)    Salary  payments  commenced  on  October 1, 1997.  See  "Compensation  of
       President and Chief Executive Officer" below.

(6)    Dr.  Dziewanowska  resigned as Senior Vice  President of Global  Clinical
       Affairs on July 31,  1997.  Pursuant  to  severance  agreements  with the
       Company, the Company agreed to continue to pay Dr.  Dziewanowska's salary
       at the then-current  rate of $235,000 per year for the first month and at
       one-half the then-current rate for the next ten months. In addition,  the
       Company agreed to continue  eligibility  for coverage under the Company's
       dental insurance plan and to pay Dr. Dziewanowska  monthly dollar amounts
       equal to the group medical  premiums under the Company's health insurance
       plan for an eleven-month period.

(7)    Represents  payments for expenses  incurred in connection with relocation
       including applicable tax gross-ups.

(8)    Mr. Van de Winckel resigned as Vice President of European  Operations and
       President  of Genta  Pharmaceuticals  Europe,  S.A.  on April  15,  1997.
       Pursuant  to a  severance  arrangement  with  the  Company,  the  Company
       continued to pay Mr. Van de Winckel's salary at the then-current  rate of
       $170,000 per year and agreed to continue  eligibility  for coverage under
       the Company's health insurance plan for a nine-month period.

(9)    This  amount  does not  include  the  payment in 1997 of the full  salary
       amounts deferred from 1995 and 1996, as discussed in Footnote 3 above.

(10)   Represents payments for insurance policies covering Drs. Klem and Brown.

(11)   Represents  25 bimonthly  pay periods  during 1995 that resulted from Dr.
       Klem's having been  transferred  from the Company's  payroll  calendar to
       JBL's payroll calendar.


                                       - 93 -

<PAGE>

COMPENSATION OF PRESIDENT AND CHIEF EXECUTIVE OFFICER

        Pursuant to a Letter Agreement dated September 4, 1997,  between Michael
Weiss,  then the Interim Chairman of the Board of the Company (and presently the
Vice  Chairman),  and Dr.  Kasses  (the  "Letter  Agreement"),  Dr.  Kasses  was
appointed  President  and Chief  Executive  Officer  of the  Company,  effective
October 1, 1997,  subject to Board  ratification.  Among other items, the Letter
Agreement provided the following:

        1. Dr. Kasses would receive a base salary of $300,000 per annum, subject
to semi-annual  review commencing on October 1, 1998. In the event Dr. Kasses is
terminated  without cause or terminates  his  employment  for cause,  Dr. Kasses
would become entitled to receive this amount as severance for one year following
such  termination,  subject to  set-off  for  amounts  earned  from  alternative
employment.  At the end of Dr. Kasses' first year of employment, he would become
entitled to a bonus of  $100,000,  assuming he is then  employed by the Company.
Dr.  Kasses  would also be entitled to an  additional  bonus of up to  $100,000,
subject to achievement of agreed-upon milestones.

        2. Dr.  Kasses  would be  entitled to  receive,  subject to  stockholder
approval,  a grant of stock options to purchase 5% of the fully  diluted  Common
Stock of the Company  outstanding  as of an  agreed-upon  date,  with  quarterly
vesting over four years (assuming continued employment).

        3. Dr. Kasses and his dependents  would receive such medical,  long-term
disability,  life insurance and such other health  benefits as the Company makes
available to its other senior officers and directors.

        The  Letter  Agreement   contemplated   that  these  and  certain  other
provisions would be incorporated into an employment agreement between Dr. Kasses
and the Company.

        The Company expects to seek stockholder  approval of a stock option plan
at its next Annual Meeting of  Stockholders  pursuant to which the stock options
referred to in the Letter  Agreement  would be granted.  (The Company's  current
stock option plan has insufficient shares to permit such grant.)

COMPENSATION OF DIRECTORS

        Directors of the Company receive no fees for their services as directors
or committee members.  Non-employee  directors are reimbursed by the Company for
their  out-of-pocket  expenses  incurred in  attending  meetings of the Board of
Directors and its  committees  and receive  annual grants of stock options under
the Company's  1991 Stock Option Plan. The Company  expects to seek  stockholder
approval  of a stock  option  plan at its next  Annual  Meeting of  Stockholders
pursuant to which directors will be eligible to receive stock option grants.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

        For the Company's  fiscal year ended  December 31, 1997, the Company had
no  Compensation  Committee.  The  entire  Board of  Directors  participated  in
discussions  regarding  compensation matters. None of the directors or executive
officers of the Company had any  "interlock"  relationship  to report during the
Company's fiscal year ended December 31, 1997.

        See "Certain  Relationships and Related  Transactions" for a description
of certain  arrangements  between  the  Company  and Genta  Jago.  Genta's  Vice
Chairman of the Board is a managing director of Genta Jago.

PENSION AND LONG-TERM INCENTIVE PLANS

        The Company has no pension or long-term incentive plans.


                                       - 94 -

<PAGE>

                                  STOCK OPTIONS

        No stock  options  were  issued to any Chief  Executive  Officer,  Named
Executive  Officer or Director by the Company in 1997.  See Footnotes 1 and 2 to
the Summary Compensation Table.
<TABLE>
                       OPTION EXERCISES IN LAST FISCAL YEAR AND
                             FISCAL YEAR END OPTION VALUES

                                                                Number of
                                                                Securities                    Value of
                                                                Underlying                   Unexercised
                                                                Unexercised                 In-the-Money
                                                                Options at                   Options at
                                                             Fiscal Year End(#)          Fiscal Year End($)(1)
                          Shares Acquired   Value        -------------------------   -----------------------------
Name                      On Exercise (#)  Realized ($)  Exercisable  Unexercisable  Exercisable  Unexercisable
------------------------------------------------------------------------------------------------------------------
<S>                          <C>            <C>          <C>           <C>               <C>         <C>
Thomas H. Adams, Ph.D.        --             --           22,799            (2)           --          --

Kenneth G. Kasses, Ph.D.      --             --               --            --            --          --

Zofia E. Dziewanowska,
  Ph.D., M.D.                 --             --           12,333         1,240            --          --

Guy Van de Winckel            --             --               --            --            --          --

Robert E. Klem, Ph.D.         --             --            5,353            --            --          --

Lauren Brown, Ph.D.           --             --            3,285            --            --          --
</TABLE>

(1) Calculated  on the  basis  of  the  fair  market  value  of  the  underlying
    securities  as of December  31, 1997 ($.781 per share),  minus the  exercise
    price.

(2) Does not include  options to purchase  100,000  shares of Common Stock which
    were granted to Dr.  Adams in May 1998  pursuant  to a  consulting  services
    agreement.


                                       - 95 -

<PAGE>

ITEM 12.   STOCK OWNERSHIP OF MANAGEMENT AND CERTAIN  BENEFICIAL  OWNERS

    The following table sets forth  information as of April 1, 1998 as to shares
of Common Stock  beneficially  owned by (i) the  Company's  directors,  (ii) the
Company's  executive officers named in the Summary  Compensation Table set forth
herein, (iii) the directors and executive officers of the Company as a group and
(iv) each person  known by the Company to be the  beneficial  owner of more than
five percent of the outstanding shares of the Common Stock of the Company. As of
April 1, 1998,  each share of Series A Preferred  Stock was  convertible  at the
option of the holder into  approximately  7.26  shares of Common  Stock and each
share of Series D Preferred  Stock was  convertible  at the option of the holder
into approximately  105.96 shares of Common Stock.  Except as required by law or
with respect to the creation or amendment of senior  classes of preferred  stock
or creation of different series or classes of Common Stock, and in certain other
instances,  the  holders of Series A Preferred  Stock do not have voting  rights
until conversion into Common Stock. The conversion price of the Series A and the
Series D Preferred Stock and the numbers of shares of Common Stock issuable upon
conversion thereof may be adjusted in the future, based on the provisions in the
Certificate of Incorporation.
<TABLE>

                                          COMMON STOCK               SERIES D PREFERRED STOCK
                                          ------------               ------------------------
NAME AND ADDRESS OF BENEFICIAL      AMOUNT AND NATURE OF    PERCENT OF    AMOUNT AND NATURE OF     PERCENT
OWNER                              BENEFICIAL OWNERSHIP(1)    CLASS      BENEFICIAL OWNERSHIP(1)   OF CLASS

<S>                                     <C>                  <C>             <C>                    <C>
Lindsay A. Rosenwald, M.D.              15,865,232 (2)       73.8% (3)        83,826 (2)            35.6%
787 Seventh Avenue, 48th Floor
New York, NY  10019

Paramount Capital Asset                 15,042,741 (4)       72.7% (3)        76,414 (4)            33.5%
Management, Inc.
787 Seventh Avenue
New York, NY  10019

United Congregations Mesora              1,109,600 (5)       16.2%            10,000 (5)             4.4%
c/o Aeta Realty
1 State Street Plaza
New York, NY  10004
Attn:  Chana Adelstein

Branco Weiss                               619,800 (6)        9.9%             5,000 (6)             2.2%
Hallwylstrasse 71
CH-8036 Zurich
SWITZERLAND

Diversified Fund Limited                   554,800 (7)        8.8%             5,000 (7)             2.2%
CH-6904 Lugano
Via Zurigo 46
SWITZERLAND

Garo H. Armen                              499,320 (8)        8.0%             4,500 (8)             2.0%
c/o Armen Partners, L.P.
630 Fifth Avenue, Suite 2100
New York, NY  10111
</TABLE>


                                       - 96 -

<PAGE>
<TABLE>

                                          COMMON STOCK               SERIES D PREFERRED STOCK
                                          ------------               ------------------------
NAME AND ADDRESS OF BENEFICIAL      AMOUNT AND NATURE OF    PERCENT OF    AMOUNT AND NATURE OF     PERCENT
OWNER                              BENEFICIAL OWNERSHIP(1)    CLASS      BENEFICIAL OWNERSHIP(1)   OF CLASS
<S>                                  <C>                    <C>               <C>                   <C>
Mark Bercuvitz                          388,360  (9)           6.3%            3,500 (9)             1.5%
1310 Sreene Ave. Suite 660
Westmount, Quebec
CANADA H3Z 2B2

Michael S. Weiss                        148,354 (10)           2.5%            1,337 (10)            0.6%
Robert E. Klem, Ph.D.                    28,711 (11)           0.5%                0                   0%
Lawrence J. Kessel, M.D.                 27,740 (12)           0.5%              250 (12)            0.1%
Peter Salomon, M.D.                         500 (13)             0%                0                   0%
Glenn L. Cooper, M.D.                         0                  0%                0                   0%
Donald G. Drapkin                             0                  0%                0                   0%
Kenneth G. Kasses, Ph.D.                      0                  0%                0                   0%
Bobby W. Sandage, Jr., Ph.D.                  0                  0%                0                   0%
Andrew J. Stein                               0                  0%                0                   0%
Harlan J. Wakoff                              0                  0%                0                   0%
Thomas H. Adams, Ph.D.                   61,132 (14)           1.1%                0                   0%
Lauren Brown, Ph.D.                      23,363 (15)           0.4%                0                   0%
Zofia E. Dziewanowska                    12,333 (16)           0.2%                0                   0%
Guy Van De Winckel                            0                0.0%                0                   0%

All directors and executive             302,133                5.1%            1,587                 0.7%
officers as a group (14 persons)
</TABLE>


(1)     The  number of  shares  beneficially  owned is  determined  under  rules
        promulgated  by  the  SEC,  and  the   information  is  not  necessarily
        indicative of beneficial  ownership  for any other  purpose.  Under such
        rules,  beneficial  ownership  includes  any  shares  as  to  which  the
        individual has sole or shared voting power or investment  power and also
        any shares which the  individual has the right to acquire within 60 days
        of April 1,  1998,  through  the  exercise  or  conversion  of any stock
        option,  convertible  security,  warrant or other right.  The  inclusion
        herein of such shares,  however,  does not  constitute an admission that
        the named  stockholder is a direct or indirect  beneficial owner of such
        shares.  Unless otherwise indicated,  each person or entity named in the
        table has sole voting power and  investment  power (or shares such power
        with his or her  spouse)  with  respect to all  shares of capital  stock
        listed as owned by such person or entity.

(2)     Dr.  Rosenwald may be deemed to have shared voting and investment  power
        over the  15,042,741  shares of Common  Stock  which may be deemed to be
        beneficially owned by Paramount Capital Asset Management,  Inc. ("PCAM")
        of which Dr. Rosenwald is the sole stockholder. See Footnote 4 below. In
        addition, Dr. Rosenwald may be deemed to have sole voting and investment
        power over approximately  822,491 shares of Common Stock which he may be
        deemed beneficially to own,  consisting of approximately  785,429 shares
        of Common Stock issuable upon conversion of  approximately  7,412 shares
        of Series D Preferred  Stock  issuable  upon  exercise of Unit  Purchase
        Warrants and  approximately  37,062 shares of Common Stock issuable upon
        exercise of Class D Warrants  issuable  upon  exercise of Unit  Purchase
        Warrants.  Dr. Rosenwald's  beneficial ownership excludes  approximately
        1,951,801 and 92,101 shares of Common Stock issuable, respectively, upon
        conversion  and  exercise  of  approximately  18,420  shares of Series D
        Preferred  Stock and Class D Warrants  issuable  upon  exercise  of Unit
        Purchase Warrants,  which are not exercisable within 60 days of April 1,
        1998.


                                       - 97 -

<PAGE>

(3)     The  outstanding  shares of Series D Preferred  Stock of the Company are
        entitled  to vote  together  with the  holders  of  Common  Stock on all
        matters  submitted  to a  vote  of  stockholders  of  the  company.  Dr.
        Rosenwald may be deemed  beneficially to own (within the meaning of Rule
        13d-3 under the  Securities  Exchange Act of 1934 (the "1934  Act"),  as
        amended)  37.8% of the  aggregate  voting  power of the Common Stock and
        Series D Preferred  Stock  outstanding.  Similarly,  PCAM,  Inc.  may be
        deemed  beneficially  to own 36.6% of the aggregate  voting power of the
        Common Stock and Series D Preferred Stock outstanding.

(4)     PCAM may be deemed to have shared voting and  investment  power over the
        5,253,866 and 9,788,875 shares of Common Stock, respectively,  which may
        be deemed to be beneficially owned by the Aries Domestic Fund, L.P. (the
        "Aries  Domestic  Fund") and The Aries Fund, a Cayman Islands Trust (the
        "Aries Trust" and,  together with the Aries  Domestic  Fund,  the "Aries
        Funds"),  for which PCAM is the General Partner and Investment  Advisor,
        respectively.  PCAM's beneficial  ownership includes:  27,450 and 64,050
        shares of Common  Stock  held by Aries  Domestic  Fund and Aries  Trust,
        respectively;  2,833,907 and 5,262,940  shares of Common Stock  issuable
        upon  conversion of  approximately  26,745 and 49,669 shares of Series D
        Preferred  Stock  (including  350 and 650  shares of Series D  Preferred
        Stock  issuable upon exercise of Unit Purchase  Warrants)  held by Aries
        Domestic Fund and Aries Trust, respectively; 19,250 and 35,750 shares of
        Common Stock issuable upon exercise of Class D Warrants (including 1,750
        and 3,250  Class D Warrants  issuable  upon  exercise  of Unit  Purchase
        Warrants)  held by Aries  Domestic  Fund and Aries Trust,  respectively;
        approximately  130,593 and 261,185  shares of Common Stock issuable upon
        exercise of 18,000 and 36,000 shares of Series A Preferred Stock held by
        Aries Domestic Fund and Aries Trust, respectively;  Bridge Warrants held
        by  Aries  Domestic  Fund and  Aries  Trust  to  purchase  approximately
        2,225,166 and 4,132,450 shares of Common Stock,  respectively;  and Line
        of  Credit  Warrants  held by Aries  Domestic  Fund and  Aries  Trust to
        purchase 17,500 and 32,500 shares of Common Stock, respectively.

(5)     United  Congregations  Mesora's beneficial  ownership consists of 10,000
        shares  of  Series  D  Preferred  Stock,   which  are  convertible  into
        approximately  1,059,600 shares of Common Stock, and Class D Warrants to
        purchase  up to 50,000  shares  of Common  Stock.  This  information  is
        derived from United  Congregations  Mesora's  Schedule  13D, as amended,
        dated July 11, 1997, filed with the SEC.

(6)     Mr.  Branco  Weiss'  beneficial  ownership  consists of 5,000  shares of
        Series D  Preferred  Stock,  which are  convertible  into  approximately
        529,800  shares of Common  Stock,  Class D Warrants  to  purchase  up to
        25,000 shares of Common Stock and 65,000  shares of Common  Stock.  This
        information  is derived from Mr.  Weiss'  Schedule 13D dated  October 9,
        1997, filed with the SEC.

(7)     Diversified  Fund  Limited's   ("Diversified's")   beneficial  ownership
        consists  of  5,000  shares  of  Series D  Preferred  Stock,  which  are
        convertible into approximately 529,800 shares of Common Stock, and Class
        D  Warrants  to  purchase  up to 25,000  shares of Common  Stock.  Carlo
        Pagani,  in his capacity as President of Diversified,  shares voting and
        dispositive  power with respect to such  securities and may be deemed to
        be the beneficial owner of such securities.  This information is derived
        from Diversified's Schedule 13D dated March 2, 1998, filed with the SEC.

(8)     Dr. Armen's  beneficial  ownership  consists of 4,500 shares of Series D
        Preferred Stock, which are convertible into approximately 476,820 shares
        of Common Stock, and Class D Warrants to purchase up to 22,500 shares of
        Common Stock.  The Series D Preferred Stock and the Class D Warrants are
        held by (a) Armen Partners, L.P., an investment limited partnership,  of
        which Dr. Armen and Armen Capital  Management  Corp.,  a corporation  of
        which Dr. Armen is the principal,  are the general  partners,  (b) Armen
        Partners Offshore Fund, Ltd., an offshore investment fund to which Armen
        Capital  Management  Corp.  acts  as  investment  manager,  and  (c) GHA
        Management Corporation, a corporation wholly-owned by Dr. Armen.


                                       - 98 -

<PAGE>

        This  information is derived from Dr.  Armen's Schedule 13D dated
        July 24, 1997, filed with the SEC.

(9)     Mr. Bercuvitz's  beneficial ownership consists of 3,500 shares of Series
        D Preferred  Stock,  which are convertible  into  approximately  370,860
        shares of Common  Stock,  and Class D Warrants  to purchase up to 17,500
        shares of Common Stock. This information is derived from Mr. Bercuvitz's
        Schedule 13D dated March 2, 1998, filed with the SEC.

(10)    Mr. Michael Weiss' beneficial ownership consists of approximately 15,894
        shares of Common Stock issuable upon  conversion of 150 shares of Series
        D Preferred  Stock; 750 shares of Common Stock issuable upon exercise of
        Class D Warrants;  and approximately  125,775 and 5,935 shares of Common
        Stock   issuable,   respectively,   upon   conversion  and  exercise  of
        approximately  1,187  shares  of  Series D  Preferred  Stock and Class D
        Warrants  issuable upon exercise of Unit Purchase  Warrants.  Mr. Weiss'
        beneficial  ownership excludes 502,993 and 23,735 shares of Common Stock
        issuable,  respectively,  upon conversion and exercise of  approximately
        4,747 shares of Series D Preferred  Stock and Class D Warrants  issuable
        upon  exercise  of Unit  Purchase  Warrants,  which are not  exercisable
        within 60 days of April 1, 1998, that are held by an entity of which Mr.
        Weiss is the managing member. Mr. Weiss' business address is 787 Seventh
        Avenue, New York, NY 10019.

(11)    Dr.  Klem's  beneficial  ownership  consists of 23,358  shares of Common
        Stock and options to purchase  5,353 shares of Common Stock.  Dr. Klem's
        Common  Stock  holdings  include  1,875 shares of Common Stock held by a
        trust for Dr.  Klem's  children,  as to which Dr. Klem has shared voting
        and investment power, and 150 shares of Common Stock owned by Dr. Klem's
        wife, as to which he disclaims beneficial ownership.

(12)    Dr.  Kessel's  beneficial  ownership  consists of 250 shares of Series D
        Preferred Stock, which are convertible into approximately  26,490 shares
        of Common Stock,  and Class D Warrants to purchase up to 1,250 shares of
        Common Stock.

(13)    Dr. Salomon's  beneficial  ownership consists of 500 shares of Common
        Stock.

(14)    Dr.  Adams'  beneficial  ownership  consists of 38,333  shares of Common
        Stock and options to purchase 22,799 shares of Common Stock.  Dr. Adams'
        Common  Stock  holdings  include  8,000  shares of Common  Stock held in
        several trusts for Dr. Adams' children, as to which Dr. Adams has shared
        voting and investment  power,  and 30,333 shares of Common Stock jointly
        owned by Dr. Adams and Dr. Adams' wife, as to which Dr. Adams has shared
        voting and  investment  power.  Dr.  Adams'  options  shown in the table
        exclude  options to purchase  100,000  shares of Common  Stock that were
        granted to him in May 1998 pursuant to a consulting  services agreement.
        See Footnote (2) to the Summary Compensation Table.

(15)   Dr. Brown's beneficial  ownership consists of 20,078 share of Common
       Stock and  options to purchase  3,285  shares of Common Stock.

(16)   Dr. Dziewanowska's beneficial ownership consists of options to purchase
       12,333 shares of Common Stock.



                                     - 99 -

<PAGE>

ITEM 13.       CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

          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  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 was a Director of the Company until  September
11, 1997 and is a Professor of Biophysics,  Department of  Biochemistry at Johns
Hopkins,  and Dr. Miller is a Professor of  Biochemistry at the School of Public
Health and Hygiene,  Johns Hopkins.  In May,  1990,  the Company  entered into a
license  agreement with Johns Hopkins (the "Johns Hopkins  Agreement,"  and such
agreement,  together with the Ts'o/Miller Agreement, being referred to herein as
the  "Ts'o/Miller/Hopkins  Agreements")  pursuant to which Johns Hopkins granted
the Company 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 obligonucleotides as pharmaceutical  agents. In addition,  Johns Hopkins has
granted the Company  certain rights of first  negotiation to inventions  made by
Drs. Ts'o and Miller in their laboratories in the area of  oligonucleotides  and
inventions  made by  investigators  at Johns  Hopkins in the course of  research
funded by the  Company,  which  inventions  are not  otherwise  included  in the
Ts'o/Miller/Hopkins  Agreements.  The Company 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  Agreement. 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 May 15, 1997,  Johns  Hopkins sent the Company a letter  stating
that the Johns  Hopkins  Agreement  was  terminated.  On  November  26, 1997 the
Ts'o/Miller  Partnership sent the Company a letter claiming that the Company 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. On
June 4, 1998,  the  Company's  statutory  process  agent  received a Summons and
Complaint in a lawsuit  brought by Johns Hopkins against the Company in Maryland
Circuit Court for Baltimore City (Case No.  98120110).  Johns Hopkins alleges in
the Complaint that the Company has breached the Johns Hopkins Agreement and owes
it  licensing  royalty fees and related  expenses in the amount of  $308,832.24.
Johns  Hopkins  also  alleges  the  existence  of a separate  March 1993  letter
agreement  wherein the  Company  agreed to support a  fellowship  program at the
Johns  Hopkins  School of Hygiene  and Public  Health and the  Company's  breach
thereof, with damages of $326,829.00. The Company is currently in the process of
retaining  Maryland  counsel  so that it can  properly  evaluate  these  lawsuit
documents  and  respond.  See  "Business  --  Anticode(TM)  Brand  of  Antisense
Oligonucleotide   Programs  --   Oligonucleotide   Collaborative  and  Licensing
Agreements  --  Ts'o/Miller/Hopkins."   The  Company  is  currently  engaged  in
settlement discussions with Johns Hopkins and the Ts'o/Miller partnership.

        In February 1991, in connection with the acquisition of JBL, the Company
assumed certain leases between JBL and Granada Associates and Sueldo Associates,
both of which are affiliates of Drs. Brown and Klem. Dr. Brown is currently Vice
President of the Company and President of JBL. Dr. Klem is Vice  President and a
Director of the Company and Chairman of the Board of JBL. The current  aggregate
monthly payment under such leases is approximately $32,000.

        Dr. Thomas H. Adams resigned as the Chief Executive Officer and Chairman
of the Board of the  Company on May 5,  1997.  As of May 6,  1997,  the  Company
entered  into a  consulting  agreement  with Dr.  Adams,  pursuant  to which the
Company  has  granted  options  to  purchase  100,000  shares  of  Common  Stock
exercisable  at $3.00  per  share as  consideration  for Dr.  Adams'  performing
consulting services of at least 24 days. These options will vest over a two-year
period  commencing on May 5, 1997, except that the vesting will terminate if Dr.
Adams fails to fulfill his  obligations  under the  agreement  or if the Company
terminates the agreement for cause. In addition,  Dr. Adams' previously  granted
options will continue to vest until the end of the 90-day post-termination grace
period for the options  which  commenced  on May 5, 1998.  See Footnote 1 to the
Summary  Compensation  Table included in Item 11 for a description of Dr. Adams'
severance agreement with the Company.

        As of August 1, 1997,  the Company  entered into a consulting  agreement
with Dr. Zofia E.  Dziewanowska  (a former  executive  officer of the  Company),
pursuant to which Dr. Dziewanowska would be compensated for any


                                       - 100 -

<PAGE>

work performed at a rate of $150 per hour through  January 31, 1998 and $300 per
hour thereafter. In addition, Dr. Dziewanowska's options continued to vest until
the end of the 90-day  post-termination  exercise  grace period for the options,
which commenced on January 31, 1998. See Footnote 6 to the Summary  Compensation
Table  included in Item 11 for a  description  of Dr.  Dziewanowska's  severance
agreement with the Company.

        As of August 27,  1997,  the Company  entered into  separate  consulting
agreements with each of Drs. Paul Ts'o and Sharon Webster (both former directors
of the  Company),  pursuant to which the Company  issued 15,400 shares of Common
Stock to Dr. Ts'o and 15,500 shares of Common Stock to Dr. Webster,  paid $4,000
to Dr.  Webster  and  retained  each  of Drs.  Ts'o  and  Webster  to  serve  as
consultants to the Company for a one-year period at a fee of $12,000.

        In February  1997,  the Company raised gross proceeds of $3 million in a
private placement,  to the Aries Funds, of 12% Senior Secured  Convertible Notes
("Convertible Notes") and 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, in connection with such private placement, the Company could
be required to issue Penalty  Warrants to the Aries Funds.  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." Also pursuant
to the Note and Warrant  Purchase  Agreement,  the Aries Funds were  granted the
right to designate nominees  constituting a majority of the members of the Board
of  Directors  of the Company,  subject to certain  conditions.  The Aries Funds
designated  Michael S. Weiss as a nominee for Director  and he was  appointed by
the Board and elected Interim  Chairman of the Company's Board of Directors.  On
September 11, 1997, the Aries Funds designated Glenn L. Cooper,  M.D., Donald G.
Drapkin,  Bobby W. Sandage,  Jr.,  Ph.D.  and Andrew J. Stein as nominees to the
Board of Directors of the Company  (the  "Board"),  such persons were elected as
Directors of the Company,  Michael S. Weiss stepped down as Interim Chairman and
the Board elected Mr. Drapkin Chairman and Mr. Weiss Vice Chairman.

        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.

        On June 30, 1997, the Company sold a total of 161.58  Premium  Preferred
Units(TM)  ("Units") in a private placement (the "Private  Placement") for which
Paramount Capital,  Inc. acted as placement agent. Each unit sold in the Private
Placement  consisted  of 1,000  shares of Series D  Preferred  Stock and Class D
Warrants to purchase 5,000 shares of Common Stock 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 $14,036,772. The conversion price of the Series
D  Preferred  Stock  and the  exercise  price of the Class D  Warrants  are both
$0.94375 per share, subject to adjustment upon the occurrence of certain events.
The Aries Funds  purchased,  for an aggregate of $870,000,  Class D Warrants and
Series D Preferred  Stock in the Private  Placement  presently  exercisable  and
convertible  for  aggregates  of 50,000 and  1,059,603  shares of Common  Stock,
respectively. In connection with the Private Placement,  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
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 Paramount  Capital,  Inc. pursuant to which Paramount  Capital,  Inc. shall
receive  certain cash fees and has received  warrants (the  "Advisory  Warrants"
and,  together with the Placement  Warrants,  the "Unit  Purchase  Warrants") to
purchase  up to 15% of the Units sold in the Private  Placement  for 110% of the
offering price per Unit. Michael S. Weiss, Vice Chairman of the Board of


                                       - 101 -

<PAGE>

the Company,  is a Senior Managing Director of Paramount Capital,  Inc. 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  Aries  Trust  and  Aries   Domestic   Fund,
respectively.  The Aries  Funds  currently  do not hold a  controlling  block of
voting stock of the Company,  although the Aries Funds have the present right to
convert  and  exercise  their  securities  into  a  significant  portion  of the
outstanding  Common Stock, as described  herein.  Dr. Lindsay A. Rosenwald,  the
President  and  sole  stockholder  of  PCAM,  is also  the  President  and  sole
stockholder of Paramount Capital,  Inc., the Company's financial advisor and the
placement  agent for the  Private  Placement.  In  connection  with the  Private
Placement,  Paramount  Capital,  Inc. and their designees received Unit Purchase
Warrants to purchase an aggregate of 40,395  shares of Series D Preferred  Stock
and 201,975 Class D Warrants as compensation for services as placement agent and
financial advisor.  Paramount Capital, Inc. allocated to Mr. Weiss and an entity
of which Mr. Weiss is the managing member, Unit Purchase Warrants to purchase an
aggregate  of 5,934  shares  of Series D  Preferred  Stock  and  29,670  Class D
Warrants.

        In December 1992, the Company and Jagotec formed Genta Jago Technologies
B.V.  ("Genta  Jago"),  a 50/50  joint  venture  to  develop  and  commercialize
therapeutic products on a worldwide basis. In 1996, SkyePharma acquired Jagotec.
Michael  Weiss is a managing  director of Genta Jago.  Among other  things,  the
Company is required to provide loans to Genta Jago pursuant to a working capital
agreement which expires in October 1998. The loans are advanced up to a mutually
agreed upon  maximum  commitment  amount,  which  amount is  established  by the
parties on a periodic  basis.  As of December 31, 1997, the Company had advanced
working  capital  loans  of  approximately  $15,800,000  to Genta  Jago,  net of
principal repayments and credits,  which amount fully satisfied what the Company
believes is the loan commitment  established by the parties through December 31,
1997.  Such loans bear  interest  and are  payable in full in October  1998,  or
earlier in the event  certain  revenues  are  received  by Genta Jago from third
parties.  There can be no  assurance,  however,  that Genta Jago will obtain the
necessary financial resources to repay such loans to the Company.

        Under the 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,  totaling  $350,000 in 1997,
were recorded by the Company as related  party  contract  revenue.  Terms of the
arrangement also grant the Company an option to purchase  Jagotec's  interest in
Genta Jago exercisable from December 1998 through December 2000.


                                       - 102 -

<PAGE>

                                     PART IV

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

        (a)    (1)    Financial statements

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

        (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/IIa  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.


                                     - 103 -

<PAGE>

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

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

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

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

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

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

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

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

10.2(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.

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

                                       - 104 -

<PAGE>

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.

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.


                                       - 105 -

<PAGE>

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

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

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


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


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

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

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

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

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


                                       - 106 -

<PAGE>

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

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

10.77(19)      Senior  Secured  Convertible  Bridge  Note of the  Company  dated
               January 28, 1997 for $1,050,000.                                 
               
10.78(19)      Senior  Secured  Convertible  Bridge  Note of the  Company  dated
               January 28, 1997 for $1,950,000.                                 
               
10.79(19)      Class  A  Bridge  Warrant  of the  Company  for the  purchase  of
               2,730,000 shares of Common Stock.                                
               
10.80(19)      Class  A  Bridge  Warrant  of the  Company  for the  purchase  of
               5,070,000 shares of Common Stock.                                
               
10.81(19)      Class  B  Bridge  Warrant  of the  Company  for the  purchase  of
               4,270,000 shares of Common Stock.                                
               
10.82(19)      Class  B  Bridge  Warrant  of the  Company  for the  purchase  of
               7,930,000 shares of Common Stock.                                
               
10.83(19)      Security  Agreement  dated as of January  28,  1997  between  the
               Company and Paramount Capital, Inc.                              
               
10.84(19)      Letter  Agreement  dated  January  28,  1997  among the  Company,
               Paramount Capital, Inc., the Partnership and the Trust.          
               
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.


                                       - 107 -

<PAGE>

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

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

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

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

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

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

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

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

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

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

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

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

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

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


                                       - 108 -

<PAGE>

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

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

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

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

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

10.110(24)     Severance  Agreement,  Release  and  Covenant  Not to Sue between
               Thomas H. Adams, Ph.D. and the Company, dated May 5, 1998.       
               
10.111(24)     Consulting  Agreement  between  the  Company and Thomas H. Adams,
               Ph.D., dated May 5, 1998.

10.112(25)     Severance Agreement No. 1, Release and Covenant Not  to Sue dated
               July 30, 1997, between the Company and Zofia Dziewanowska.

10.113(25)     Severance Agreement No. 2,  Release and Covenant Not to Sue dated
               August 1, 1997, between the Company and Zofia Dziewanowska.

10.114(25)     Consulting  Agreement  dated  as of July  31,  1997  between  the
               Company and Zofia Dziewanowska.

22.1(20)       Subsidiaries of the Registrant.

23.1(25)       Consent of 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.


                                       - 109 -

<PAGE>

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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


                                       - 110 -

<PAGE>

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

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

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

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

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

(25)    Filed herewith.

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


                                       - 111 -

<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
18th day of June, 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>
<S>                          <C>                           <C>                              <C>
Signature                     On behalf of                 Capacity                          Date
                             
                             
/s/ Kenneth G. Kasses, Ph.D.  Kenneth G. Kasses, Ph.D.     President,                        June 18, 1998
----------------------------
Kenneth G. Kasses, Ph.D.                                   Principal Executive Officer
                                                           and Director
                             
/s/ Robert E. Klem, Ph.D.    Robert E. Klem, Ph.D.         Principal,                        June 18, 1998
----------------------------
Robert E. Klem, Ph.D.                                      Accounting Officer,
                                                           Principal Financial Officer,
                                                           Vice President
                                                           and Director
                             
/s/ Kenneth G. Kasses, Ph.D.                               
----------------------------
Kenneth G. Kasses, Ph.D.     Glenn L. Cooper, M.D.         Directors                         June 18, 1998
                             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>


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