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

FORM 10-Q

(Mark One)

þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2004

OR

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

For the transition period from _______ to _______

Commission File Number 0-19635

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

Delaware   33-0326866
(State or other jurisdiction of
incorporation or organization)
  (I.R.S. Employer
Identification Number)
     
Two Connell Drive
Berkeley Heights, NJ
   07922
(Address of principal executive offices)   (Zip Code)

(908) 286-9800
(Registrant’s telephone number, including area code)

     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes þ No o

     Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Securities Exchange Act of 1934).

Yes þ No o

As of October 31, 2004, the registrant had 80,358,215 shares of common stock outstanding.

 

Genta Incorporated
INDEX TO FORM 10-Q

PART I. FINANCIAL INFORMATION Page
     
Item 1. Financial Statements:  
     
     Consolidated Balance Sheets at September 30, 2004  
        and December 31, 2003 3
     
     Consolidated Statements of Operations for the  
        Three and Nine Months Ended September 30, 2004 and 2003 4
     
     Consolidated Statements of Cash Flows for the  
        Nine Months Ended September 30, 2004 and 2003 5
     
     Notes to Consolidated Financial Statements 6
     
Item 2. Management’s Discussion and Analysis of Financial Condition  
  and Results of Operations 13 
     
Item 3. Quantitative and Qualitative Disclosures about Market Risk 22 
     
Item 4. Controls and Procedures 23 
     
PART II.   OTHER INFORMATION  
     
Item 1. Legal Proceedings 24 
     
Item 6. Exhibits and Reports on Form 8-K 24 
     
SIGNATURES 26 
     
CERTIFICATIONS  
     
31.1 Certification by Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 29 
31.2 Certification by Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 30 
32.1 Certification by Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 31 
32.2 Certification by Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 32 

2

 

GENTA INCORPORATED
CONSOLIDATED BALANCE SHEETS

(In thousands, except par value data)

ASSETS     September 30,
2004 		  December 31,
2003 		 
     
 
 
      (Unaudited)        
Current assets:                
   Cash and cash equivalents     $ 30,930   $ 25,153  
   Marketable securities (Note 3)       5,773     57,776  
   Accounts receivable - net       4,951     16,675  
   Notes receivable       200     200  
   Inventory (Note 4)       1,016     518  
   Prepaid expenses and other current assets       784     3,313  
     
 
 
Total current assets       43,654     103,635  
Property and equipment, net (Note 5)       3,382     4,917  
Notes receivable (Note 10)       –     3,542  
Intangibles, net (Note 6)       430     863  
Prepaid royalties       1,268     1,268  
Other assets       1,631     450  
     
 
 
Total assets     $ 50,365   $ 114,675  
     
 
 
 
LIABILITIES AND STOCKHOLDERS’ DEFICIT/EQUITY    
     
Current liabilities:    
   Accounts payable and accrued expenses     $ 18,073   $ 15,319  
   Notes payable       279     748  
   Deferred revenues, current portion       5,273     5,287  
   Short term debt (Note 7)       19,001     –  
     
 
 
Total current liabilities       42,626     21,354  
   Deferred revenues       32,154     36,067  
   Convertible debt (Note 8)       10,000     10,000  
   Long term debt (Note 7)       –     35,000  
     
 
 
Total liabilities       84,780     102,421  
     
 
 
     
Commitments and contingencies (Note 11)    
     
Stockholders’ (deficit)/equity:    
   Series A convertible preferred stock, $.001 par value; 5,000 shares authorized,             
        10 shares and 261 shares issued and outstanding, liquidation value of $485 and             
        $13,025 at September 30, 2004 and December 31, 2003 respectively       –     –  
   Common stock, $.001 par value; 155,000 shares authorized,    
       80,358 and 75,927 shares issued and outstanding at September 30, 2004    
       and December 31, 2003, respectively       80     76  
   Additional paid-in capital       336,189     335,713  
   Deferred financing costs       (48 )   –  
   Accumulated deficit       (370,567 )   (323,299 )
   Deferred compensation       (52 )   (261 )
   Accumulated other comprehensive (loss)/income       (17 )   25  
     
 
 
Total stockholders’ (deficit)/equity       (34,415 )   12,254  
     
 
 
Total liabilities and stockholders’ deficit/equity     $ 50,365   $ 114,675  
     
 
 

See accompanying notes to consolidated financial statements

3

 

GENTA INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS

Three Months Ended
September 30, 		  Nine Months Ended
September 30, 		 
 
 
(In thousands, except per share data) 2004   2003   2004   2003  
 
 
 
 
      (Unaudited)   (Unaudited)  
Revenues:                            
   Product sales - net     $ 87   $ –   $ 711   $ –  
   License fees and royalties       261     253     783     795  
   Development funding       1,049     1,043     3,145     3,130  
 
 
 
 
Total revenues       1,397     1,296     4,639     3,925  
                             
   Cost of goods sold       19     –     165     –  
   Provision for excess inventory       693     –     693     –  
 
 
 
 
Total cost of goods sold       712     –     858     –  
 
 
 
 
Gross margin       685     1,296     3,781     3,925  
 
Costs and expenses:    
   Research and development (including non-cash compensation expense    
        of $53 and $52 for the three months ended September 30, 2004    
       and 2003, respectively and $158 and $157 for the nine months ended    
       September 30, 2004 and 2003, respectively )       20,643     21,061     61,940     54,733  
   Selling, general and administrative (including non-cash compensation    
        expense of $11 and $22 for the three months ended September 30, 2004    
        and 2003, respectively and $50 and $205 for the nine months ended    
        September 30, 2004 and 2003, respectively)       4,721     9,309     24,228     20,403  
 
 
 
 
Total costs and expenses - gross       25,364     30,370     86,168     75,136  
   Aventis reimbursement       (20,489 )   (11,760 )   (36,453 )   (40,350 )
 
 
 
 
Total costs and expenses - net       4,875     18,610     49,715     34,786  
 
Loss on disposition of property and equipment       (1,254 )   (2 )   (1,254 )   (2 )
Other (expense)/income       (136 )   151     (79 )   677  
 
 
 
 
Net loss     $ (5,580 ) $ (17,165 ) $ (47,267 ) $ (30,186 )
 
 
 
 
 
Net loss per basic and diluted share     $ (0.07 ) $ (0.23 ) $ (0.60 ) $ (0.40 )
 
 
 
 
Shares used in computing net loss per    
  basic and diluted share       80,358     75,409     78,758     74,699  
 
 
 
 

See accompanying notes to consolidated financial statements

4

 

GENTA INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS

      Nine Months Ended September 30,  
     
 
(In thousands)     2004   2003  
     
 
 
      (Unaudited)  
Operating activities:                
Net loss     $ (47,267 ) $ (30,186 )
Items reflected in net loss not requiring cash:    
    Depreciation and amortization       2,323     1,666  
    Loss on disposition of property and equipment       1,254     2  
    Non-cash reimbursement of research and development expense       (15,541 )   –  
    Provision for excess inventory       693     –  
    Compensation expense related to stock options       208     362  
   Changes in operating assets and liabilities:    
         Accounts receivable       10,558     (399 )
         Inventory       (1,191 )   –  
         Notes receivable       3,542     –  
         Accounts payable, accrued expenses and other current liabilities       3,463     (21,270 )
         Deferred revenue       (3,928 )   –  
         Other assets       1,349     (425 )
     
 
 
Net cash used in operating activities       (44,537 )   (50,250 )
     
 
 
Investing activities:    
    Purchase of marketable securities       (7,281 )   (48,400 )
    Maturities and sales of marketable securities       59,242     61,052  
    Purchase of property and equipment       (1,767 )   (2,615 )
    Proceeds from disposition of property and equipment       157     –  
    Payment to stockholders in conjunction with acquisition       –     (56 )
     
 
 
Net cash provided by investing activities       50,351     9,981  
     
 
 
Financing activities:    
    Borrowings under long-term debt       –     25,000  
    Borrowings under note payable       419     –  
    Repayments of note payable       (888 )   (490 )
    Purchase of treasury stock       –     (303 )
    Deferred financing costs       (48 )   –  
    Issuance of common stock upon exercise of warrants and options       480     2,397  
     
 
 
Net cash (used in)/provided by financing activities       (37 )   26,604  
     
 
 
Increase/(decrease) in cash and cash equivalents       5,777     (13,665 )
Cash and cash equivalents at beginning of period       25,153     32,700  
     
 
 
Cash and cash equivalents at end of period     $ 30,930   $