<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-19635
GENTA INCORPORATED
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CERTIFICATE OF INCORPORATION)
Delaware 33-0326866
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
99 Hayden Avenue, Suite 200 02421-7966
Lexington, Massachusetts (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(781) 860-5150
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
As of August 6, 1999, the registrant had 18,719,391 shares of common
stock outstanding.
================================================================================
<PAGE> 2
GENTA INCORPORATED
INDEX TO FORM 10-Q
PART I. FINANCIAL INFORMATION Page
----
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets at December 31, 1998
and June 30, 1999 3
Condensed Consolidated Statements of Operations for the
Three and Six Months Ended June 30, 1998 and 1999 4
Condensed Consolidated Statements of Cash Flows for the
Six Months Ended June 30, 1998 and 1999 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 24
Item 4. Submission of Matters to a Vote of Security Holders 24
Item 6. Exhibits and Reports on Form 8-K 25
SIGNATURES 26
2
<PAGE> 3
GENTA INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
--------------------------------
1998 1999
--------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ...................................................... $ 1,566,288 $ 3,224,878
Short term investments ......................................................... 892,372 501,400
Notes receivable ............................................................... -- 1,400,000
Prepaid expenses ............................................................... 405,700 199,500
Property held for sale ......................................................... 290,000 --
Other current assets ........................................................... 176,700 35,318
Net current assets of discontinued operations .................................. 2,606,304 --
--------------------------------
Total current assets .............................................................. 5,937,364 5,361,096
--------------------------------
Property and equipment, net ....................................................... 148,245 36,203
Intangibles, net .................................................................. 1,460,383 1,143,108
Deposits and other assets ......................................................... 5,301 --
--------------------------------
Total assets ...................................................................... $ 7,551,293 $ 6,540,407
================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ............................................................... $ 432,116 $ 625,389
Payable to research institutions ............................................... 635,661 635,661
Accrued compensation ........................................................... 84,888 49,768
Other accrued expenses ......................................................... 580,779 708,510
Net liabilities of liquidated foreign subsidiary ............................... 574,812 574,812
--------------------------------
Total current liabilities ......................................................... 2,308,256 2,594,140
--------------------------------
Deficit in joint venture .......................................................... 2,284,018 --
Stockholders' equity:
Preferred stock; 5,000,000 shares authorized, convertible
preferred shares outstanding:
Series A convertible preferred stock, $.001 par value;
447,600 and 283,300 shares issued and outstanding at
December 31, 1998 and June 30, 1999, respectively, liquidation
value is $16,998,000 at June 30, 1999 ...................................... 448 283
Series D convertible preferred stock, $.001 par value; 186,021 and 127,010
shares issued and outstanding at December 31, 1998 and June 30, 1999,
respectively; liquidation value is $17,781,400 at June 30, 1999 ............ 186 127
Common stock; $.001 par value; 70,000,000 shares authorized,
10,426,215 and 18,221,992 shares issued and outstanding at
December 31, 1998 and June 30, 1999, respectively ............................ 10,426 18,222
Additional paid-in capital ..................................................... 130,627,251 134,346,244
Accumulated deficit ............................................................ (132,053,657) (132,575,254)
Accrued dividends payable ...................................................... 5,108,790 4,208,219
Deferred compensation .......................................................... (734,425) (2,051,574)
--------------------------------
Total stockholders' equity ........................................................ 2,959,019 3,946,267
--------------------------------
Total liabilities and stockholders' equity ........................................ $ 7,551,293 $ 6,540,407
================================
</TABLE>
See accompanying notes.
3
<PAGE> 4
GENTA INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
------------------------------- -------------------------------
1998 1999 1998 1999
----------- ----------- ----------- -----------
(restated) (restated)
<S> <C> <C> <C> <C>
Revenues:
Collaborative research and development ........ $ 17,396 $ -- $ 34,792 $ --
----------- ----------- ----------- -----------
17,396 -- 34,792 --
Cost and expenses:
Research and development ...................... 572,011 752,991 1,385,702 1,842,957
General and administrative .................... 749,575 1,201,615 1,745,298 2,314,027
----------- ----------- ----------- -----------
1,321,586 1,954,606 3,131,000 4,156,984
----------- ----------- ----------- -----------
Loss from operations ............................. (1,304,190) (1,954,606) (3,096,208) (4,156,984)
Equity in net (loss) income of
joint venture .................................. 70,847 0 (84,897) 2,284,018
Other income (expense):
Interest income ............................... 97,899 31,240 183,666 83,104
Interest expense .............................. (3,339) 0 (6,769) (173)
Other expense ................................. -- 0 -- (149,114)
----------- ----------- ----------- -----------
Net loss from continuing operations .............. (1,138,783) (1,923,366) (3,004,208) (1,939,149)
Income (loss) from discontinued operations ....... (376,437) 0 (273,377) (189,407)
Gain on sale of discontinued operations .......... -- 1,606,956 -- 1,606,956
----------- ----------- ----------- -----------
Net loss ......................................... (1,515,220) (316,410) (3,277,585) (521,600)
Dividends accrued on preferred stock ............. -- (400,020) -- (742,429)
----------- ----------- ----------- -----------
Net loss applicable to common shares ............. $(1,515,220) $ (716,430) $(3,277,585) $(1,264,029)
=========== =========== =========== ===========
Net (loss) income per share
Continuing operations .......................... $ (0.19) $ (0.14) $ (0.52) $ (0.19)
Discontinued operations ........................ (0.07) 0.10 (0.05) 0.10
----------- ----------- ----------- -----------
Net loss per common share ........................ $ (0.26) $ (0.04) $ (0.57) $ (0.09)
=========== =========== =========== ===========
Shares used in computing net
loss per common share .......................... 5,745,250 16,392,981 5,736,193 14,657,253
=========== =========== =========== ===========
</TABLE>
See accompanying notes.
4
<PAGE> 5
GENTA INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
-----------------------------
1998 1999
----------- -----------
(restated)
<S> <C> <C>
OPERATING ACTIVITIES
Net loss ....................................................................... $(3,277,585) $ (521,600)
Items reflected in net loss not requiring cash:
Depreciation and amortization ............................................... 406,114 356,325
Equity in net loss (gain) of joint venture .................................. 84,897 (2,284,018)
Gain on sale of discontinued operations ..................................... -- (1,606,956)
Loss on abandonment of patents .............................................. -- 118,157
Compensation expense related to stock options ............................... -- 285,591
Loss on sale of fixed assets ................................................ -- 149,026
Changes in operating assets and liabilities .................................... (650,472) (51,731)
----------- -----------
Net cash used in operating activities .......................................... (3,437,046) (3,555,206)
INVESTING ACTIVITIES
Purchase of short-term investments ............................................. -- (501,400)
Maturities of short-term investments ........................................... 2,480,378 892,372
Purchase of property and equipment ............................................. -- (36,531)
Sale of property and equipment ................................................. -- 66,087
Purchase of intangibles ........................................................ -- (100,000)
Investment in and advances to joint venture .................................... -- --
Deposits and other ............................................................. 5,150 5,069
----------- -----------
Net cash provided by investing activities ...................................... 2,485,528 325,597
FINANCING ACTIVITIES
Issuance of common stock upon exercise of warrants ............................. -- 95,319
Proceeds from equipment conversion to lease .................................... -- 51,827
Proceeds from sale of discontinued operations .................................. -- 4,750,000
Increase in current portion capital leases ..................................... 166,816 --
----------- -----------
Net cash provided by financing activities ...................................... 166,816 4,897,146
----------- -----------
(Decrease) increase in cash and cash equivalents ............................... (784,702) 1,667,537
Less cash at liquidated foreign subsidiary ..................................... -- (8,947)
Cash and cash equivalents at beginning of period ............................... 1,202,668 1,566,288
----------- -----------
Cash and cash equivalents at end of period ..................................... $ 417,966 $ 3,224,878
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid .................................................................. $ 7,269 $ 173
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Preferred stock dividends accrued .............................................. -- 742,429
Common stock issued in payment of dividends on preferred stock ................. 55,000 18,597
Note Receivable from sale of discontinued operations ........................... -- 1,200,000
Note Receivable from sale of equipment ......................................... -- 200,000
</TABLE>
See accompanying notes.
5
<PAGE> 6
GENTA INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
(UNAUDITED)
(1) BASIS OF PRESENTATION
The unaudited condensed consolidated financial statements of Genta
Incorporated, a Delaware corporation (the "Company"), presented herein have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q. Accordingly, they
do not include all of the information and note disclosures required to be
presented for complete financial statements. The accompanying financial
statements reflect all adjustments (consisting only of normal recurring
accruals) which are, in the opinion of management, necessary for a fair
presentation of the results for the interim periods presented. Certain balances
in 1998 have been reclassified to conform with the presentation in 1999.
Research and development and general and administrative expenses were restated
for the three and six months ended June 30, 1998 to reflect the reclassification
of amortization and depreciation expense to research and development. Also,
equity in net loss of joint venture was restated for the three and six months
ended June 30, 1998. The impact for the three and six months ended June 30,
1999, was a reduction in net loss of $147,637 or $0.03 per share and $278,683 or
$0.04 per share, respectively.
The unaudited condensed consolidated financial statements and related
disclosures have been prepared with the presumption that users of the interim
financial information have read or have access to the audited financial
statements for the preceding fiscal year. Accordingly, these financial
statements should be read in conjunction with the audited consolidated financial
statements and the related notes thereto included in the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1998, as amended (the "1998
Form 10-K").
The Company has experienced significant quarterly fluctuations in
operating results and it expects that these fluctuations in revenues, expenses
and losses will continue, although, as a result of the sale of the business of
JBL Scientific, Inc. ("JBL"), a subsidiary of the Company which was engaged in
the specialty chemicals business to Promega Corporation ("Promega"), revenues
are expected to decrease. The Company's independent auditors have included an
explanatory paragraph in their report to the 1998 Form 10-K with respect to the
Company's ability to continue as a going concern.
(2) DISCONTINUED OPERATIONS
On March 19, 1999, the Company entered into an Asset Purchase
Agreement ("the AGREEMENT") with Promega Corporation ("Promega"), whereby a
wholly owned subsidiary of Promega acquired substantially all of the assets and
assumed certain liabilities of JBL for approximately $5.0 million in cash, a
promissory note for $1.2 million, and certain pharmaceutical development
services in support of the Company's development activities. As part of the
Agreement, $250,000 has been withheld by Promega while the closing balance sheet
of JBL is finalized. The purchase price may be reduced as a result of such
post-closing audit of JBL's balance sheet which would result in a dollar for
dollar reduction of the purchase to the extent that the net book value of the
purchased assets is less than $1,768,000. The closing of the sale of JBL was
completed on May 10, 1999 with a gain on the sale of approximately $1.6 million
being recognized, based upon the purchase price of JBL less its net assets and
costs and expenses associated with the sale, including lease termination costs
of $1.0 million, JBL losses of $147,000 and legal, accounting, tax and other
miscellaneous costs of disposing JBL of approximately $653,000. As of June 30,
1999, the Company was still negotiating the final withholding amount and
accordingly such gain on sale is subject to change.
As a result of the sale of JBL's business, the Company's specialty
biochemical manufacturing segment (JBL) has been presented as discontinued
operations for the six months ended June 30, 1998 and through May 10, 1999. The
assets and liabilities relating to the discontinued operations are included in
net assets of discontinued operations in the consolidated balance sheets at
December 31, 1998 and written off to gain on sale of JBL as of
6
<PAGE> 7
May 10, 1999. The results of operations for the discontinued segment are
included in discontinued operations in the consolidated statements of operations
for the three and six months ended June 30, 1998. In connection with the sale of
JBL's business and pursuant to a lease termination agreement, the Company
granted stock options to acquire 450,000 shares of the Company's common stock,
par value $.001 per share ("Common Stock"), to the owners of the building
previously leased to JBL. Those options will be accounted for pursuant to
guidelines in Statement of Financial Accounting Standards ("SFAS") No. 123,
"Accounting for Stock-Based Compensation," and EITF 96-18 using the
Black-Scholes method and have an approximate value of $1.0 million and has been
charged against the gain on the sale of JBL. In addition, there were 246,000
options granted to the former employees of JBL upon the closing of the sale of
JBL's business in connection with an ongoing service arrangement between Promega
and the Company, which will be accounted for prospectively pursuant to SFAS No.
123 using the Black-Scholes guidelines. The estimated value of these options
totaled $375,500 as of June 30, 1999 of which $52,300 is included in continuing
operations and will be charged to research and development expense until the
vesting date, which will be no later than one year from the closing date of the
sale.
Net current assets of discontinued operations consisted of the
following:
<TABLE>
<CAPTION>
December 31, 1998 May 10, 1999
----------------- ------------
<S> <C> <C>
Accounts receivable, net ........................... $ 832,018 $ 479,608
Inventories, net ................................... 963,611 973,098
Property and equipment, net ........................ 763,082 605,364
Other assets ....................................... 897,399 940,542
Liabilities ........................................ (849,806) (546,171)
---------- ----------
Total .................................... $2,606,304 $2,452,441
========== ==========
</TABLE>
Operating results of the discontinued segment consisted of the
following:
<TABLE>
<CAPTION>
Three Months Period from Period from January 1,
Ended April 1, 1999 to Six Months Ended 1999 to May 10, 1999
June 30, 1998 May 10, 1999 June 30, 1998
<S> <C> <C> <C> <C>
Product sales $ 1,056,799 $ 445,123 $ 2,658,978 $ 1,718,721
Operating expenses (1,221,986) (590,167) (2,721,855) (2,051,720)
Other income (expense) (1,250) (2,383) (500) (3,835)
----------- --------- ----------- -----------
Income (loss) $ (166,437) $(147,427) $ (63,377) $ (336,834)
=========== ========= =========== ===========
</TABLE>
7
<PAGE> 8
(3) NET LOSS PER COMMON SHARE
Under SFAS No. 128, "Earnings per Share," the Company is required to
present basic and diluted earnings per share if applicable. Basic earnings per
share includes 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 three and six months ended June 30,
1998 and 1999 is based on the weighted average number of shares of Common Stock
outstanding during the periods. Basic and diluted loss per share are the same
for all periods presented as potentially dilutive securities, including options,
warrants and convertible preferred stock have not been included in the
calculation of the net loss per common share as their effect is antidilutive.
(4) STOCKHOLDERS' EQUITY
During the six months ended June 30, 1999, an aggregate of 60,747
shares of the Company's Series D Convertible Preferred Stock, par value $.001
per share ("Series D Preferred Stock"), were converted at the option of
the holders thereof into an aggregate of 6,477,178 shares of Common Stock at a
conversion price of $0.94375 per share. An aggregate of 164,300 shares of the
Company's Series A Preferred Stock, par value $.001 per share ("Series A
Preferred Stock"), were converted at the option of the holders of thereof into
an aggregate of 1,217,599 shares of Common Stock at a conversion price of $8.08
per share. An aggregate of 101,000 shares of Common Stock were issued pursuant
to warrant exercises.
In 1999, the Board of Directors of the Company and certain holders of
Common Stock, Series A Preferred Stock and Series D Preferred Stock approved, in
accordance with Delaware law, an amendment to the Company's Restated Certificate
of Incorporation to remove the "Fundamental Change" redemption right. The
Company has formally amended its Restated Certificate of Incorporation after the
expiration of the 20-day period provided for in Rule 14c-5 promulgated under the
Securities Exchange Act of 1934, as amended (the "Exchange Act").
(5) NOTES RECEIVABLE
The Company accepted a $1.2 million promissory note (accruing 7%
annual interest rate) from Promega as part of the sale price of JBL (see Note
2). The principal of the note and accrued interest is due and payable as
follows: $700,000 plus interest is due on June 30, 2000 and $500,000 plus
interest is due on the later of June 30, 2000 or the Environmental Compliance
Date as defined in the Agreement (See Note 2). The Company also accepted a
non-interest bearing promissory note from HealthStar, Inc. for $200,000 for the
sale of equipment to be paid in 10 equal monthly installments.
(6) GENTA JAGO
On March 4, 1999, the Company and SkyePharma (on behalf of itself and
its affiliates) entered into an interim agreement (the "Interim JV Agreement")
pursuant to which the Company was released from all liability relating to unpaid
development costs and funding obligations of Genta Jago Technologies B.V.
("Genta Jago"), the joint venture between the Company and SkyePharma. SkyePharma
agreed to be responsible for substantially all the obligations of the joint
venture to third parties and for the further development of the joint venture's
products, with any net income resulting therefrom to be allocated in agreed-upon
percentages between the Company and SkyePharma. As a result of the Interim JV
Agreement, the Company wrote off its equity interest in the net loss of the
joint venture and, as such, recorded a gain of approximately $2.3 million for
the three months ended March 31, 1999.
8
<PAGE> 9
(7) LEGAL PROCEEDINGS
On June 4, 1998, the Company's statutory process agent received a
Summons and Complaint in a lawsuit brought by Johns Hopkins University ("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. Johns Hopkins also alleges the
existence of a separate March 1993 letter agreement wherein the Company agreed
to support a fellowship program at the Johns Hopkins School of Hygiene and
Public Health and the Company's breach thereof, with damages of $326,829. On
August 10, 1998, the Company's statutory process agent received a Summons and
Complaint in a related lawsuit brought by the Ts'o/Miller Partnership and others
against the Company in the same court (Case No. 98182113). The Ts'o/Miller
Partnership claims that it is owed licensing royalty fees in the amount of
$287,671. The Company is currently in settlement negotiations. The Company
believes that no further accrual should be necessary in connection with this
settlement.
In October 1996, JBL retained a chemical consulting firm to advise it
with respect to an incident of soil and groundwater contamination (the "Spill").
Sampling conducted at the JBL facility revealed the presence of chloroform and
perchloroethylenes ("PCEs") in the soil and groundwater at this site. A
quarterly groundwater monitoring program is being conducted, under the
supervision of the California Regional Water Quality Control Board for the
purposes of determining whether the levels of chloroform and PCEs have decreased
over time. The results of the latest sampling conducted show that PCEs and
chloroform have decreased in all but one of the monitoring sites. The Company
has agreed to indemnify Promega in respect of this matter. The Company believes
that any costs stemming from further investigating or remediating this
contamination will not have a material adverse effect on the business of the
Company, although there can be no assurance thereof.
JBL received notice on October 16, 1998 from Region IX of the
Environmental Protection Agency (the "EPA") that it had been identified as a
potentially responsible party ("PRP") at the Casmalia Disposal Site, which is
located in Santa Barbara, California. JBL has been designated as a de minimis
PRP by the EPA. The EPA currently estimates that de minimis PRPs will be
required to pay as little as $75,000 and as much as $750,000 to settle their
potential liability, depending upon the volume of wastes attributed to them. The
Company received an estimated volume calculation from the EPA, and a response,
which was due on June 9, 1999, has been extended to September 23, 1999. While
the terms of a settlement have not been finalized, they should contain standard
contribution protection and release language. The Company has accrued $75,000
during 1998. The Company believes that any costs stemming from further
investigating or remediating this contamination will not have a material adverse
effect on the business of the Company, although there can be no assurance
thereof. The Company has agreed to indemnify Promega in respect of this matter.
9
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
Since its inception in February 1988, the Company has devoted its
principal efforts toward drug discovery and research and development. The
Company 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 activities, regulatory
activities, possible establishment of manufacturing activities and a sales and
marketing organization. From the period since its inception to June 30, 1999,
the Company has incurred a cumulative net loss of approximately $132.8 million.
The Company has experienced significant quarterly fluctuations in operating
results and it expects that these fluctuations in revenues, expenses and losses
will continue, although, as a result of the sale of JBL's business, revenues
from product sales will be discontinued.
The unaudited condensed consolidated financial statements contained
in this Quarterly Report on Form 10-Q that are not historical are
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended and Section 21E of the Exchange Act, 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
and 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 ("MD&A") and elsewhere in this
Quarterly Report on Form 10-Q. The Company does not undertake to update any
forward-looking statements.
RESULTS OF OPERATIONS
The following discussion of results of operations relates to the
Company's continuing business and accordingly exclude the operations of the
Company's discontinued segment JBL Scientific.
Operating revenues totaled $17,396 for the three months ended June
30, 1998 and decreased to $0 for the same period in 1999, and $34,792 for the
six months ended June 30, 1998 and $0 for the same period in 1999. The changes
in operating revenue have largely reflected the Company's lessened involvement
in Genta Jago development activities. The expenses relating to these revenues
are recognized as costs and expenses in the same period such that the net effect
on the Company's consolidated financial statements is zero. The Company has
focused its resources on development of its lead Anticode(TM) oligonucleotide,
G3139.
On March 19, 1999, the Company entered into an Asset Purchase
Agreement with Promega, whereby a wholly owned subsidiary of Promega acquired
substantially all of the assets and assumed certain liabilities of JBL for cash,
a promissory note and certain pharmaceutical development services in support of
Company's development activities. See Note 2 to the Company's consolidated
financial statements. The sale of the assets of JBL was completed on May 10,
1999, and will result in a significant decrease in ongoing revenues, as all of
the Company's product sales have been attributable to JBL.
Costs and expenses totaled approximately $1.3 million in the three
months ended June 30, 1998, and increased to approximately $2.0 million for the
same period in 1999, and $3.1 million for the six months ended
10
<PAGE> 11
June 30, 1998 compared with $4.2 million for the same period in 1999. Primarily,
the overall increase reflects greater activity in clinical trials along with an
increase in general and administrative for legal, accounting and consulting
expenses.
Research and development expenses totaled approximately $0.6 million
in the three months ended June 30, 1998, and increased to approximately $0.8
million for the same period in 1999, and $1.4 million for the six months ended
June 30, 1998 compared with $1.8 million for the same period in 1999. The
increase in research and development expenses is primarily attributable to the
cost particularly the drug supplies associated with more clinical trials and
patients being treated and higher doses. During the six months ended June 30,
1999, $1,129,000 was recorded for clinical trials and for related drug supplies.
It is anticipated that research and development expenses may increase
in the future, assuming the Company obtains sufficient financing, as the
development program for G3139 expands and more patients are treated in clinical
trials at higher doses, through longer or more treatment cycles, or both.
Furthermore, the Company is pursuing other opportunities for new product
development candidates which pursuits, if successful, will require additional
research and development expenses. There can be no assurance, however, that the
trials will proceed in this manner or that the Company will initiate new
development programs.
General and administrative expenses were approximately $0.7 million
for the three months ended June 30, 1998, and increased to $1.2 million for the
same period in 1999, and $1.7 million for the six months ended June 30, 1998
compared with $2.3 million for the same period in 1999. The increase reflects
higher legal and accounting costs associated with the Company's filings with the
Securities and Exchange Commission (the "SEC"), the costs associated with the
relocation of its headquarters from California to Massachusetts and consulting
expense as a result of amortization of deferred compensation related to SFAS No.
123 recording of stock options.
On March 4, 1999, the Company and SkyePharma (on behalf of itself and
its affiliates) entered into the Interim JV Agreement pursuant to which the
Company was released from all liability relating to unpaid development costs and
funding obligations of Genta Jago, the joint venture between the Company and
SkyePharma. SkyePharma agreed to be responsible for substantially all the
obligations of the joint venture to third parties and for the further
development of the joint venture's products, with any net income resulting
therefrom to be allocated in agreed-upon percentages between the Company and
SkyePharma. As a result of the Interim JV Agreement, the Company wrote off its
equity interest in the net loss of the joint venture and, as such, recorded a
gain of approximately $2.3 million for the three months ended March 31, 1999.
For the six months ended June 30, 1999, other expenses include a loss
on the sale of fixed assets as a result of the headquarter relocation.
The Company's net loss from continuing operations before accrued
dividends totaled approximately $1.1 million, or $0.19 per share of Common
Stock, for the three months ended June 30, 1998 compared to a net loss from
continuing operations of approximately $1.9 million, or $0.14 per share of
Common Stock, for the same period in 1999. For the six months ended June 30,
1998, the company's net loss from continuing operations before accrued dividends
totaled $3.0 million, or $0.52 per share compared with a net loss of $1.9
million, or $0.13 per share for the same period in 1999. During the six months
ended June 30, 1999, as a result of accrued dividends on the Company's preferred
stock of approximately $0.4 million, a loss from discontinued operations of
approximately $0.19 million and gain on the sale of discontinued operations of
$1.6 million, the Company's net loss per common share was $0.09. The Company's
net loss for the six months ended June 30, 1999 was lower than those reported
for the comparable period of 1998 primarily as a result of recording
non-recurring income of approximately $2.3 million relating to its equity
interest in the net loss of the joint venture and recording a gain on the sale
of its discontinued operations of $1.6 million.
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
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environment since the Company entered into the joint venture, any products that
may be marketed in the future would have 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
competing products currently in the marketplace, and increasing pricing
pressures on pharmaceuticals, particularly multisource or generic products, from
governmental and third-party payers. On May 20, 1998, Genta Jago received notice
from Apothecon that they had terminated the agreement for the development of
ketoprofen. Apothecon stated that their decision to terminate was based on the
facts that a competing generic is already being successfully marketed, other
competitors already have Abbreviated New Drug Applications (ANDAs ) pending for
their own generic formulations and they consider the GEOMATRIX(R) capsule size
competitively disadvantageous. These factors may adversely affect Genta Jago
even if it is successful in developing products that 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 away from the
joint venture to its Anticode(TM) drug development, specifically G3139, for the
immediate future. On July 27, 1998, SkyePharma PLC, the parent company to
SkyePharma, announced that an ANDA for naproxen sodium filed by Brightstone
Pharma, its U.S. sales and marketing subsidiary, had been accepted for filing by
the FDA. Brightstone has a license from Genta Jago to market this product.
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 for each period.
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 June 30, 1999. At
June 30, 1999, the Company had cash, cash equivalents and short-term investments
totaling approximately $3.7 million compared to approximately $2.5 million at
December 31, 1998.
As discussed in Note 2 to the Company's condensed consolidated
financial statements, the Company entered into an Asset Purchase Agreement with
Promega on March 19, 1999. Under the agreement, a wholly owned subsidiary of
Promega acquired substantially all of the assets and assumed certain liabilities
of JBL for approximately $5.0 million in cash, including $250,000 being withheld
by Promega while the closing balance sheet of JBL is finalized, a promissory
note for $1.2 million at a 7% annual interest rate maturing on the later of June
30, 2000 or the Environmental Compliance Date., and certain pharmaceutical
development services in support of the Company's development activities. The
closing of the sale of JBL was completed on May 10, 1999. As of June 30, 1999,
the Company was still negotiating the final withholding amount and accordingly
the cash portion of the purchase price is subject to change.
The Company will require 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, funds from the
consummation of the JBL sale and its existing cash funds will enable the Company
to maintain its present operations into the first quarter of 2000. To the extent
that the Company is successful in accelerating its development of G3139,
expanding its development portfolio or acquiring or adding new development
candidates, the current cash resources will be consumed at a greater rate. This
will cause the rate of cash utilization to increase. Certain parties with whom
the Company has agreements have claimed default and, should the Company be
obligated to pay these claims or should the Company engage legal services to
defend or negotiate its positions or both, its ability to continue operations
could be significantly reduced or shortened. See "Certain Trends and
Uncertainties--Claims of the Company'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 that the Company devotes to sales
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<PAGE> 13
and marketing capabilities; (iv) technological advances; (v) the activities of
competitors; and (vi) the ability of the Company to establish and maintain
collaborative arrangements with others to fund certain research and development
efforts, to conduct clinical trials, to obtain regulatory approvals and, if such
approvals are obtained, to manufacture and market products. See "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 and clinical testing activities, the manufacturing
and/or market introduction of potential products and expansion of its
administrative activities.
In the six months ended June 30, 1999, the holders of an aggregate of
60,747 shares of Series D Preferred Stock converted those shares into an
aggregate of 6,477,178 shares of Common Stock, and the holders of an aggregate
of 164,300 shares of Series A Preferred Stock converted those shares into an
aggregate of 1,217,599 shares of Common Stock.
IMPACT OF YEAR 2000
The Company has completed its 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
Company has implemented a plan and acquired and installed new computer hardware
and upgraded software in its facilities. The total year 2000 project cost is not
expected to be material and is expected to be completed not later than October
31, 1999, which is prior to any anticipated impact on its operating systems. The
Company believes that with the 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.
In addition, 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 the failure of those third-party suppliers
to remediate their own year 2000 issues. If through such communication or
otherwise the Company becomes aware of any such failure and is not satisfied
that such failure is being adequately addressed, it will take appropriate steps
to find alternative suppliers. There is no assurance that the systems of other
companies on which the Company's systems rely will be timely converted and will
not have a material adverse effect on the Company's systems.
The costs of the project and the date on which the Company believes
it will complete the Year 2000 modifications are based on management's best
estimates, which were derived using numerous assumptions of future events,
including the continued availability of certain resources and factors. However,
there can be no assurance that these estimates will be achieved and actual
results could differ materially from those anticipated. Specific factors that
might cause such material differences include, but are not limited to, the
availability and cost of personnel trained in this area, the ability to locate
and correct all relevant computer codes, and similar uncertainties.
It has been acknowledged by governmental authorities that year 2000
problems have the potential to disrupt global economies, that no business is
immune from the potentially far-reaching effects of year 2000 problems, and that
it is difficult to predict with certainty what will happen after December 31,
1999. Consequently, it is possible that year 2000 problems will have a material
effect on the Company's business even if the Company takes all appropriate
measures to ensure that it and its key suppliers are year 2000 compliant.
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<PAGE> 14
CERTAIN TRENDS AND UNCERTAINTIES
In addition to the other information contained in this Quarterly
Report on Form 10-Q, the following factors should be considered carefully.
Need for Additional Funds; Risk of Insolvency
The Company's operations to date have consumed substantial amounts of
cash. The Company's independent auditors have included an explanatory paragraph
in their report to the 1998 Form 10-K with respect to the Company's ability to
continue as a going concern. See "Liquidity and Capital Resources." The Company
will need to raise substantial additional funds to continue its operations and
conduct the costly and time-consuming research, preclinical development and
clinical trials necessary to bring its products to market and to establish
production and marketing capabilities. The Company intends to seek additional
funding through public or private financings, including equity financings, and
through collaborative arrangements or the sale of key assets. Adequate funds for
these purposes, whether obtained through financial markets, collaborative
agreements, 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 preclinical
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, the FDA and
foreign regulatory processes, and other factors.
Loss History; Uncertainty of Future Profitability.
The Company 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 June
30, 1999, the Company has incurred a cumulative net loss of approximately $132.8
million. The Company has experienced significant quarterly fluctuations in
operating results and expects that these fluctuations in revenues, expenses and
losses will continue, although, as a result of the sale of JBL's business,
revenues are expected to decrease. See "Certain Trends and Uncertainties--Need
for Additional Funds; Risk of Insolvency."
Subordination of Common Stock to Series A Preferred Stock 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 $17.0
million preference of the 283,300 outstanding shares of Series A Preferred Stock
and the approximately $17.8 million preference of the 127,010 outstanding shares
of Series D Preferred Stock (not including an additional 40,395 shares of Series
D Preferred Stock that are issuable upon exercise of certain warrants).
Dividends may not be paid on the Common Stock unless full cumulative dividends
on the Series A Preferred Stock and Series D Preferred Stock have been paid or
funds have been set aside for such preferred dividends by the Company.
The conversion rate of the Series A Preferred Stock is subject to
adjustment, among other things, upon certain issuances of Common Stock or
securities convertible into Common Stock at $67.50 per share or less. As of June
30, 1999, each share of Series A Preferred Stock is convertible into
approximately 7.430 shares of Common Stock at a conversion price of $8.08 per
share. 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. The conversion rate of the Series D Preferred
Stock and the exercise price of the Series D Warrants are subject to adjustment,
among other things,
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<PAGE> 15
upon certain issuances of Common Stock or securities convertible into Common
Stock at prices per share below certain levels. There are 1,514,800 Class D
Warrants outstanding and another 201,975 Class D Warrants issuable upon the
exercise of certain warrants. In addition, the Company has outstanding Bridge
Warrants to purchase an aggregate of 6,357,616 shares of Common Stock at an
exercise price of $0.471875 per share, Line of Credit Warrants to purchase an
aggregate of 50,000 shares of Common Stock at an exercise price of $2.50 per
share, LBC Warrants to purchase an aggregate of 700,000 shares of Common Stock
at an exercise price of $0.52 per share, warrants to purchase an aggregate of
95,768 shares of Common Stock at various exercise prices between approximately
$13 and $21 per share, 127,828 outstanding employee stock options under the
Company's Amended and Restated 1991 Stock Plan at various exercise prices
between $2.50 and $26.25 per share, and 6,476,763 outstanding employee stock
options under the Company's 1998 Stock Incentive Plan and Non-Employee
Directors' 1998 Stock Option Plan at various exercise prices between $0.88 and
$3.25 per share. The Note and Warrant Purchase Agreement dated as of January 28,
1997 between the Company and The Aries Trust, and the Aries Fund, LP
(collectively the "Aries Funds"), 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 (which closed on
June 30, 1997) that a shelf registration statement covering the Common Stock
underlying the securities purchased pursuant to the Note and Warrant Purchase
Agreement is not filed with the SEC and for each day beyond 210 days after the
closing date of the investment contemplated by the Note and Warrant Purchase
Agreement that such shelf registration statement is not declared effective by
the SEC. The Company filed such shelf registration statement with the SEC on
September 9, 1997, but such shelf registration statement has not been declared
effective by the SEC. As a result, the Company could be obligated to issue
Penalty Warrants to the Aries Funds. The Aries Funds have not, to date,
requested that the Company issue such Penalty Warrants. The Company and the
Aries Funds are currently conducting negotiations to determine whether, and to
what extent, Penalty Warrants will be issued.
Claims of the Company's Default Under Various Agreements.
On May 15, 1997, Johns Hopkins University ("Johns Hopkins") sent the
Company a letter stating that the license agreement entered into between the
Company and Johns Hopkins in May 1990 (the "Johns Hopkins Agreement") was
terminated. On November 26, 1997, Drs. Paul O. P. Ts'o and Paul Miller (the
"Ts'o/Miller Partnership") sent the Company a letter claiming that the Company
was in material breach of the February 1989 license agreement between the
Company and the Ts'o/Miller Partnership (the "Ts'o/Miller Agreement") for
failing to pay royalties from 1995 through 1997. By letter dated April 28, 1998,
the Ts'o/Miller Partnership advised the Company that it was terminating the
license granted pursuant to the Ts'o/Miller Agreement. On June 4, 1998, the
Company's statutory process agent 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. Johns Hopkins also
alleges the existence of a separate March 1993 letter agreement wherein the
Company agreed to support a fellowship program at the Johns Hopkins School of
Hygiene and Public Health and the Company's breach thereof, with damages of
$326,829. On August 10, 1998, the Company's statutory process agent received a
Summons and Complaint in a related lawsuit brought by the Ts'o/Miller
Partnership and others against the Company in the same court (Case No.
98182113). The Ts'o/Miller Partnership claims that it is owed licensing royalty
fees in the amount of $287,671. The Company is currently in settlement
negotiations. See "Legal Proceedings."
The French government agency ANVAR asserted, in a letter dated
February 13, 1998, that Genta Europe was not in compliance with the ANVAR
Agreement, and that ANVAR might request the immediate repayment of such loan. On
July 1, 1998, ANVAR notified Genta Europe by letter of its claim that the
Company remains liable for 4,187,423 FF (as of August 9, 1999, approximately
$682,244) and is required to pay this amount immediately. The Company is working
with ANVAR to achieve a mutually satisfactory resolution; however, there can be
no assurance that such a resolution will be obtained. 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.
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Early Stage of Development; Technological Uncertainty.
The Company is at an early stage of development. All of the
Company's potential therapeutic products are in research or development, and no
revenues have been generated from therapeutic product sales. To date, most of
the Company's resources have been dedicated to applying molecular biology and
medicinal chemistry to the research and development of potential Anticode(TM)
pharmaceutical products based upon oligonucleotide technology. While the Company
has demonstrated the activity of Anticode(TM) oligonucleotide technology in
model systems in vitro and the activity of antisense technology in animals and
has identified compounds that the Company believes are worthy of additional
testing, only one of these potential Anticode(TM) oligonucleotide products has
begun to be tested in humans, with such testing in its early stages. There can
be no assurance that the novel approach of oligonucleotide technology will
result in products that will receive necessary regulatory approvals or that will
be successful commercially. Further, results obtained in preclinical 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 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 the Company'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 "Certain Trends and Uncertainties--Potential Adverse Effect of
Technological Change and Competition."
Limited Availability of Net Operating Loss Carryforwards.
At December 31, 1998, the Company has federal and California net
operating loss carryforwards of approximately $82.0 million and $14.7 million,
respectively. The difference between the federal and California tax loss
carryforwards is primarily attributable to the capitalization of research and
development expenses for California tax purposes and the fifty percent
limitation on California loss carryforwards prior to 1997. The federal tax loss
carryforwards will begin expiring in 2003, unless previously utilized.
Approximately $2.8 million and $0.5 million of the California tax loss
carryforward expired during 1997 and 1998, respectively, and the related
deferred tax asset and tax loss carryforward amounts have been reduced
accordingly. The remaining California tax loss will continue to expire in 1999,
unless utilized. The Company also has federal and California research and
development tax credit carryforwards of $3.2 million and $1.3 million,
respectively, which will begin expiring in 2003, unless previously utilized.
Federal and California tax laws limit the utilization of income tax
net operating loss and credit carryforwards that arise prior to certain
cumulative changes in a corporation's ownership resulting in change of control
of the Company. The future annual use of net operating loss carryforwards and
research and development tax credits will be limited due to the ownership
changes that occurred during 1990, 1991, 1993, 1996, 1997 and 1998. Because of
the decrease in value of the Company's stock, the ownership changes which
occurred in 1996, 1997 and 1998 will have a material adverse impact on the
Company's ability to utilize these carryforwards.
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 Preferred Stock and Series D Preferred Stock. The Company
currently intends to retain its earnings, if any, after payment of dividends on
outstanding shares of Series A Preferred Stock and Series D Preferred Stock, for
the development of its business.
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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 preclinical 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
PCEs in the soil and groundwater at this site. Six soil borings were drilled and
groundwater wells were installed at several locations around the site. The
Company has agreed to indemnify Promega in respect of this matter. The Company
believes that the costs associated with further investigation or remediation
will not have a material adverse effect on the business of the Company, although
there can be no assurance thereof. The Company believes that it is in material
compliance with Governmental Regulations; however, there can be no assurance
that the Company will not be required to incur significant costs to comply with
Governmental Regulations in the future. See Note 7 to the Company's consolidated
financial statements.
JBL received notice on October 16, 1998 from Region IX of the
Environmental Protection Agency ("EPA") that it had been identified as a
potentially responsible party ("PRP") at the Casmalia Disposal Site, which is
located in Santa Barbara, California. JBL has been designated as a de minimis
PRP by the EPA. The EPA currently estimates that the de minimis PRPs will be
required to pay as little as $75,000 and as much as $750,000 to settle their
potential liability, depending upon the volume of wastes attributed to them. On
this basis the Company accrued $75,000 in 1998. The Company received an
estimated volume calculation from the EPA and a response, which was due on June
9, 1999, has been extended to September 23, 1999. While the terms of the
settlement have not been finalized, they should contain standard contribution
release and protection language. The Company has agreed to indemnify Promega in
respect of this matter. See Note 7 to the Company's consolidated financial
statements.
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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.
The Company and Genta Jago have obtained licenses or other rights to
patents and other proprietary rights of third parties, and may be required to
obtain licenses to additional patents or other proprietary rights of third
parties. No assurance can be given that any existing licenses and other rights
will remain in effect or that any licenses required under any such additional
patents or proprietary rights would be made available on terms acceptable to the
Company or Genta Jago, if at all. If the Company's or Genta Jago's licenses and
other rights are terminated or if the Company or Genta Jago cannot obtain such
additional licenses, the Company 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.
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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 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 preclinical testing and human clinical trials of new
pharmaceutical products and obtaining FDA and other regulatory approvals of
products for use in healthcare. Accordingly, the Company's or Genta Jago's
competitors may succeed in obtaining regulatory approval for products more
rapidly than the Company or Genta Jago and such competitors may succeed in
delaying or blocking regulatory approvals of the Company's or Genta Jago's
products. As competitors of the Company or of Genta Jago receive approval for
products that share the same potential market as the Company's or Genta Jago's
potential products, the market share available to the Company or Genta Jago will
likely be reduced, thereby reducing the potential revenues and earnings
available to the Company or Genta Jago. In addition, increased pricing
competition would also likely result, further reducing the earnings potential of
the Company's or Genta Jago's products. The Company is aware that certain
competitors of Genta Jago have filed, and received approval of, an ANDA for a
generic formulation of drugs of which Genta Jago was working to develop generic
formulations. Furthermore, if the Company or Genta Jago is permitted to commence
commercial sales of products, it will also be competing with respect to
marketing capabilities, an area in which it has limited or no experience, and
manufacturing efficiency. There are many public and private companies that are
conducting research and development activities based on drug delivery or
antisense technologies. The Company believes that the industry-wide interest in
such technologies will accelerate and competition will intensify as the
techniques which permit drug design and development based on such technologies
are more widely understood.
Uncertainty of Clinical Trials and Results.
The results of clinical trials and preclinical 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
19
<PAGE> 20
development and marketing of any new drug products, or that they will not be
rendered obsolete by products of competitors. See "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, the Company 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 "Certain Trends and Uncertainties--Potential Adverse Effect of
Technological Change and Competition."
20
<PAGE> 21
Need for and Dependence on Qualified Personnel.
The Company's success is highly dependent on the hiring and retention
of key personnel and scientific staff. The loss of key personnel or the failure
to recruit necessary additional personnel or both is likely further to impede
the achievement of development objectives. There is intense competition for
qualified personnel in the areas of the Company's activities, and there can be
no assurance that the Company will be able to attract and retain the qualified
personnel necessary for the development of its business.
Product Liability Exposure; Limited Insurance Coverage.
The Company's, JBL's and Genta Jago's businesses expose them to
potential product liability risks that are inherent in the testing,
manufacturing, marketing and sale of human therapeutic products. The Company has
also obtained a level of liability insurance coverage that it deems appropriate
for its current stage of development. However, there can be no assurance that
the Company's present insurance coverage is adequate. Such existing coverage may
not be adequate as the Company further develops products, and no assurance can
be given that, in the future, adequate insurance coverage will be available in
sufficient amounts or at a reasonable cost, or that a product liability claim
would not have a material adverse effect on the business or financial condition
of the Company.
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 "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
preclinical studies and clinical trials by the Company, Genta Jago or their
competitors, other evidence of the safety or efficacy of products of the
Company, Genta Jago or their competitors, announcements of technological
innovations or new therapeutic products by the Company, Genta Jago or their
competitors, governmental regulation, developments in patent or other
proprietary rights of the Company, Genta Jago or their respective competitors,
including litigation, fluctuations in the Company's operating results, and
market conditions for biopharmaceutical stocks in general could have a
significant impact on the future price of the Common Stock. As of August 9,
1999, the Company had 18,719,391 shares of Common Stock outstanding. Future
sales of shares of Common Stock by existing stockholders, holders of preferred
stock who might convert such preferred stock into Common Stock, and option and
warrant holders also could adversely affect the market price of the Common
Stock.
No predictions can be made of the effect that future market sales of
the shares of Common Stock underlying the convertible securities and warrants
referred to under the caption "Certain Trends and Uncertainties--Subordination
of Common Stock to Series A Preferred Stock and Series D Preferred Stock; Risk
of
21
<PAGE> 22
Dilution; Anti-dilution Adjustments," or the availability of such securities for
sale, will have on the market price of the Common Stock prevailing from time to
time. Sales of substantial amounts of Common Stock, or the perception that such
sales might occur, could adversely affect prevailing market prices.
Certain Interlocking Relationships; Potential Conflicts of Interest.
The Aries Funds have the contractual right to appoint a majority of
the members of the Board of Directors of the Company. The Aries Funds have
designated Michael S. Weiss, Glenn L. Cooper, M.D., Donald G. Drapkin, Bobby W.
Sandage, Jr., Ph.D., and Andrew J. Stein as nominees to the Board of Directors.
Such persons were elected as Directors of the Company. Paramount Capital Asset
Management, Inc. ("PCAM") is the investment manager and general partner of The
Aries Trust and the Aries Domestic Fund, L.P., respectively. The Aries Funds
have the present right to convert and exercise their securities into a
significant portion of the outstanding Common Stock. See "Certain Trends and
Uncertainties--Concentration of Ownership and Control" below. Dr. Lindsay A.
Rosenwald, the President and sole stockholder of PCAM, is also the President of
Paramount Capital, Inc. and of Paramount Capital Investments LLC ("PCI"), a New
York-based merchant banking and venture capital firm specializing in
biotechnology companies. In the regular course of its business, PCI identifies,
evaluates and pursues investment opportunities in biomedical and pharmaceutical
products, technologies and companies. Generally, Delaware corporate law requires
that any transactions between the Company and any of its affiliates be on terms
that, when taken as a whole, are substantially as favorable to the Company as
those then reasonably obtainable from a person who is not an affiliate in an
arms-length transaction. Nevertheless, neither such affiliates nor PCI is
obligated pursuant to any agreement or understanding with the Company to make
any additional products or technologies available to the Company, nor can there
be any assurance, and the Company does not expect and investors in the Company
should not expect, that any biomedical or pharmaceutical product or technology
identified by such affiliates or PCI in the future will be made available to the
Company. In addition, certain of the current officers and directors of the
Company or certain of any officers or directors of the Company hereafter
appointed may from time to time serve as officers or directors of other
biopharmaceutical or biotechnology companies. There can be no assurance that
such other companies will not have interests in conflict with those of the
Company.
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
"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 "Certain Trends and Uncertainties--Effect
of Certain Anti-Takeover Provisions" below.
Effect of Certain Anti-Takeover Provisions.
The Company's Restated Certificate of Incorporation and By-laws
include provisions that could discourage potential takeover attempts and make
attempts by stockholders to change management more difficult. The approval of
66-2/3% of the Company's voting stock is required to approve certain
transactions and to take certain stockholder actions, including the amendment of
the By-laws and the amendment, if any, of the anti-takeover provisions contained
in the Company's Restated Certificate of Incorporation.
Risks of Low-Priced Stock; Possible Effect of "Penny Stock" Rules on Liquidity
for the Company's Securities.
If the Company's securities were not listed on a national securities
exchange nor listed on a qualified
22
<PAGE> 23
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 an
exercise price of less than $5.00 per share, subject to certain exceptions
including (i) the securities being quoted on the Nasdaq National Market or
SmallCap Market and (ii) the securities' issuer having net tangible assets in
excess of $2,000,000 and having been in continuous operation for at least three
years (both exceptions enumerated above are currently met by the Company). For
transactions covered by Rule 15g-9, a broker-dealer must make a special
suitability determination for the purchaser and have received the purchaser's
written consent to the transaction prior to sale. For any transaction involving
a penny stock, unless exempt, the rules require delivery, prior to any
transaction in a penny stock, of a disclosure schedule prepared by the SEC
relating to the penny stock market. Disclosure is also required to be made about
sales commissions payable to both the broker-dealer and the registered
representative and current quotations for the securities. Finally, monthly
statements are required to be sent disclosing recent price information for the
penny stock held in the account and information on the limited market in penny
stock. Consequently, such Rule may affect the ability of broker-dealers to sell
the Company's securities and may affect the ability of purchasers to sell any of
the Company's securities in the secondary market.
There can be no assurance that the Company's securities will continue
to qualify for exemption from the penny stock restrictions. In any event, even
if the Company's securities are exempt from such restrictions, the Company would
remain subject to Section 15(b)(6) of the Exchange Act, which gives the SEC the
authority to restrict any person from participating in a distribution of penny
stock, if the SEC finds that such a restriction would be in the public interest.
If the Company's securities were subject to the rules on penny
stocks, the market liquidity for the Company's securities could be materially
adversely affected.
23
<PAGE> 24
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On June 4, 1998, the Company's statutory process agent received a Summons
and Complaint in a lawsuit brought by Johns Hopkins against the Company in
Maryland Circuit Court for Baltimore City (Case No. 98120110). Johns Hopkins
alleges in the Complaint that the Company has breached the Johns Hopkins
Agreement and owes it licensing royalty fees and related expenses in the amount
of $308,832. Johns Hopkins also alleges the existence of a separate March 1993
letter agreement wherein the Company agreed to support a fellowship program at
the Johns Hopkins School of Hygiene and Public Health and the Company's breach
thereof, with damages of $326,829. On August 10, 1998, the Company's statutory
process agent received a Summons and Complaint in a related lawsuit brought by
the Ts'o/Miller Partnership and others against the Company in the same court
(Case No. 98182113). The Ts'o/Miller Partnership claims that it is owed
licensing royalty fees in the amount of $287,671. The Company is currently in
settlement negotiations. The Company believes that no further accrual should be
necessary in connection with this settlement.
In October 1996, JBL retained a chemical consulting firm to advise it with
respect to an incident of soil and groundwater contamination (the "Spill").
Sampling conducted at the JBL facility revealed the presence of chloroform and
perchloroethylenes ("PCEs") in the soil and groundwater at this site. A
quarterly groundwater monitoring program is being conducted, under the
supervision of the California Regional Water Quality Control Board, for purposes
of determining whether the levels of chloroform and PCEs have decreased over
time. The results of the latest sampling conducted show that PCEs and chloroform
have decreased in all but one of the monitoring sites. The Company has agreed to
indemnify Promega in respect of this matter. The Company believes that any costs
stemming from further investigating or remediating this contamination will not
have a material adverse effect on the business of the Company, although there
can be no assurance thereof.
JBL received notice on October 16, 1998 from Region IX of the
Environmental Protection Agency ("EPA") that it had been identified as a
potentially responsible party ("PRP") at the Casmalia Disposal Site, which is
located in Santa Barbara, California. JBL has been designated as a de minimis
PRP by the EPA. The EPA currently estimates that the de minimis PRPs will be
required to pay as little as $75,000 and as much as $750,000 to settle their
potential liability, depending upon the volume of wastes attributed to them. The
Company received an estimated volume calculation from the EPA, and a response,
which was due on June 9, 1999 has been extended to September 23, 1999. While the
terms of the settlement with the EPA have not been finalized, they should
contain standard contribution protection and release language. The Company has
accrued $75,000 during 1998. The Company believes that any costs stemming from
further investigating or remediating this contamination will not have a material
adverse effect on the business of the Company, although there can be no
assurance thereof. The Company has agreed to indemnify Promega in respect of
this matter.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
(a) The Company held its Annual Meeting of Stockholders (the "Annual
Meeting") on July 13, 1999.
(b) Proxies for the meeting were solicited pursuant to Regulation 14A
of the Exchange Act. There was no solicitation in opposition to the
Board of Directors' nominees for directors listed in the definitive
proxy statement of the Company dated as of June 15, 1999.
(c) Briefly described below is each matter voted upon at the Annual
Meeting.
(i) Election of ten directors. Total combined voting power of the
shares of Common Stock and Series D Preferred Stock voted and withheld for the
election of each director was as follows:
24
<PAGE> 25
DIRECTORS VOTES FOR WITHHELD
--------- ---------- --------
Glenn L. Cooper, M.D. 22,980,612 29,420
Donald G. Drapkin 22,977,942 32,090
Kenneth G. Kasses, Ph.D. 22,979,802 30,230
Lawrence J. Kessel, M.D. 22,980,112 29,920
Robert E. Klem, Ph.D. 22,979,542 30,490
Peter Salomon, M.D. 22,979,812 30,220
BobbyW.Sandage,Jr., Ph.D. 22,980,452 29,580
Andrew J. Stein 22,967,497 42,535
Harlan J. Wakoff 22,979,692 30,340
Michael S. Weiss 22,979,162 30,870
(i) Ratification of the selection of Deloitte & Touche LLP as the
Company's independent auditors, the result of the voting was as follows:
For: 22,981,774
Against: 15,341
Abstain 12,917
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
Exhibit
Number Description of Document
- ------- -----------------------
27 Financial Data Schedule
(b) Reports on Form 8-K.
A Current Report on Form 8-K was filed by the Company on April 21, 1999 to
put on file a press release dated April 19, 1999 relating the results of
preclinical studies with the Company's lead product in development, G3139.
A Current Report on Form 8-K was filed by the Company on April 21, 1999 to
put on file a press release dated April 21, 1999 relating the Cooperative
Research and Development (CRADA) with the National Cancer Institute for the
development of the Company's G3139 compound as an anticancer agent.
A Current Report on Form 8-K was filed by the Company on April 28, 1999 to
put on file a press release dated April 27, 1999 reporting its operating results
for the fourth quarter and year ended December 31, 1998. An amended Current
Report on Form 8-K/A was filed by the Company on April 29, 1999 to submit the
correct press release.
A Current Report on Form 8-K was filed by the Company on May 3, 1999 to put
on file a press release dated May 3, 1999 announcing a new Phase I/IIa study of
its lead development compound G3139.
A Current Report on Form 8-K was filed by the Company on May 11, 1999 to put
on file a press release dated May 10, 1999 regarding its completion of the sale
of the assets of JBL Scientific, Inc. to Promega Corporation.
A Current Report on Form 8-K was filed by the Company on May 18, 1999 to put
on file a press release dated May 18, 1999 announcing the results of clinical
studies with its lead cancer drug in development, G3139.
A Current Report on Form 8-K was filed by the Company on May 21, 1999 to put
on file a press release dated May 20, 1999 reporting its operating results for
the first quarter ended March 31, 1998.
25
<PAGE> 26
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GENTA INCORPORATED
(Registrant)
By: /s/ Kenneth G. Kasses, Ph.D.
--------------------------------------------
Name: Kenneth G. Kasses, Ph.D.
Title: Chairman of the Board of Directors,
President and Principal Executive Officer
By: /s/ Gerald M. Schimmoeller
--------------------------------------------
Name: Gerald M. Schimmoeller
Title: Vice President, Chief Financial Officer
and Principal Accounting Officer
Date: August 13, 1999
26
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF OPERATIONS CONTAINED
IN THE COMPANY'S QUARTERLY REPORT ON FORM 10-Q FOR PERIOD ENDED JUNE 30, 1999
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
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<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1999
<PERIOD-START> JAN-01-1998 JAN-01-1999
<PERIOD-END> JUN-30-1998 JUN-30-1999
<CASH> 417,966 3,224,878
<SECURITIES> 4,773,378 501,400
<RECEIVABLES> 0 1,400,944
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<CURRENT-ASSETS> 8,015,978 5,361,096
<PP&E> 759,457 36,203
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<OTHER-SE> 9,265,772 3,927,635
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<OTHER-EXPENSES> 0 149,114
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<INTEREST-EXPENSE> (176,897) (82,931)
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<INCOME-CONTINUING> (3,004,208) (1,939,149)
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