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GENTA INC DE/ 10-Q --12-31 859370993 false 0000880643 Yes No Smaller Reporting Company No 2011 Q3 2011-09-30

<table align="center" border="0" cellpadding="0" cellspacing="0" id="hangingindent" width="100%" style="FONT-SIZE: 10pt; FONT-FAMILY: times new roman; FONT-SIZE: 10pt; FONT-FAMILY: times new roman"> <tr valign="top" style="LINE-HEIGHT: 1.25;"> <td style="WIDTH: 18pt"> <div>   </div> </td> <td style="WIDTH: 18pt"> <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt"> 1. </div> </td> <td> <div align="left"> Reverse Stock Split </div> </td> </tr> </table> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 18pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"> At a Special Meeting of Stockholders of the Genta Incorporated (“Genta” or the “Company”) on December 29, 2010, the Company’s stockholders authorized its Board of Directors to effect up to two reverse stock splits of all outstanding shares of common stock before December 31, 2011, with each reverse stock split having an exchange ratio from 1-for-2 up to 1-for-100. The Board of Directors subsequently approved the implementation of one reverse stock split at a ratio of 1-for-50 shares and the reverse stock split became effective on February 18, 2011. All common share and per common share data in these condensed consolidated financial statements and related notes hereto have been retroactively adjusted to account for the effect of the reverse stock splits for all periods presented prior to the reverse stock split. </div>

<table align="center" border="0" cellpadding="0" cellspacing="0" id="hangingindent-0" width="100%" style="FONT-SIZE: 10pt; FONT-FAMILY: times new roman; FONT-SIZE: 10pt; FONT-FAMILY: times new roman"> <tr valign="top" style="LINE-HEIGHT: 1.25;"> <td style="WIDTH: 18pt"> <div>   </div> </td> <td style="WIDTH: 18pt"> <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt"> 2. </div> </td> <td> <div align="left"> Organization and Liquidity </div> </td> </tr> </table> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 18pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"> Genta is a biopharmaceutical company engaged in pharmaceutical research and development, its sole reportable segment. The Company is dedicated to the identification, development and commercialization of novel drugs for the treatment of cancer and related diseases. </div> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 18pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"> The Company has had recurring annual operating losses and negative cash flows from operations since its inception. The Company expects that such losses will continue at least until one or more of its product candidates are approved by one or more regulatory authorities for commercial sale in one or more indications. For the nine months ended September 30, 2011, the Company had a net loss of $37.4 million and a net cash outflow from operations of $10.3 million. As of September 30, 2011, the Company had an accumulated deficit of $1,235.1 million. Cash and cash equivalents as of September 30, 2011 were $5.9 million. In recent years, the Company has financed its operations from the sale of convertible notes, shares of common stock and warrants. </div> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 18pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"> The Company has prepared its financial statements under the assumption that it is a going concern. The Company’s recurring losses and negative cash flows from operations raise substantial doubt about its ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. </div> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 18pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"> In September 2011, the Company issued $12.7 million of units, consisting of $4.2 million of senior secured convertible notes and $8.5 million of senior secured cash collateralized convertible notes. In connection with the sale of the units, the Company also issued two types of debt warrants in an amount equal to 100% of the purchase price for each unit. The Company had direct access to $4.2 million of the proceeds, and the remaining $8.5 million of the proceeds were placed in a blocked account as collateral security for the $8.5 million senior secured cash collateralized convertible notes. Presently, with no further financing, the Company projects that it will run out of funds during the first quarter of 2012. The Company currently does not have any additional financing in place. If it is unable to raise additional funds, the Company could be required to reduce its spending plans, reduce its workforce, license one or more of its products or technologies that it would otherwise seek to commercialize itself, sell some or all of its assets, cease operations or even declare bankruptcy. There can be no assurance that the Company can obtain financing, if at all, or raise such additional funds, on terms acceptable to it. </div> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 18pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"> The Company’s historical operating results cannot be relied on to be an indicator of future performance, and management cannot predict whether the Company will obtain or sustain positive operating cash flow or generate net income in the future. </div>

<table align="center" border="0" cellpadding="0" cellspacing="0" id="hangingindent-1" width="100%" style="FONT-SIZE: 10pt; FONT-FAMILY: times new roman; FONT-SIZE: 10pt; FONT-FAMILY: times new roman"> <tr valign="top" style="LINE-HEIGHT: 1.25;"> <td style="WIDTH: 18pt"> <div>   </div> </td> <td style="WIDTH: 18pt"> <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt"> 3. </div> </td> <td> <div align="left"> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt; TEXT-ALIGN: left"> Summary of Significant Accounting Policies </div> </div> </td> </tr> </table> <div style="DISPLAY: block; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25"> Accounting Standards Updates </div> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 18pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"> Accounting Standards Updates which are not effective until after September 30, 2011 are not expected to have a significant effect on the Company’s consolidated financial position or results of operations. </div> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"> Basis of Presentation </div> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 18pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"> The foregoing consolidated financial statements are unaudited and have been prepared from the books and records of the Company. In the Company’s opinion, all normal and recurring adjustments necessary for a fair presentation of the financial position of the Company as of September 30, 2011, the results of operations for the three and nine months ended September 30, 2011 and 2010 and the cash flows for the nine months ended September 30, 2011 and 2010 have been made in conformity with United States generally accepted accounting principles. The results of operations for the three and nine months ended September 30, 2011 may not be indicative of expected results of operations for the year ended December 31, 2011, or any other period. These interim financial statements and notes are condensed as permitted by the instructions to Form 10-Q and should be read in conjunction with the audited Consolidated Financial Statements of the Company included in its Form 10-K for the year ended December 31, 2010. </div> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"> Use of Estimates </div> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 18pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"> The preparation of financial statements in conformity with United States generally accepted accounting principles requires management to make certain estimates and assumptions that affect reported earnings, financial position and various disclosures. Actual results could differ from those estimates. </div> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"> Cash and Cash Equivalents </div> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 18pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"> Cash and cash equivalents consists of highly liquid instruments with maturities of three months or less from the date acquired and are stated at cost that approximates their fair market value. </div> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"> Revenue Recognition </div> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 18pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"> Genta recognizes revenue from product sales when title to product and associated risk of loss has passed to the customer and the Company is reasonably assured of collecting payment for the sale. All revenue from product sales are recorded net of applicable allowances for returns, rebates and other applicable discounts and allowances. The Company allows return of its product for up to 12 months after product expiration. </div> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"> Research and Development </div> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 18pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"> Research and development costs are expensed as incurred, including raw material costs required to manufacture products for clinical trials. </div> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"> Income Taxes </div> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 18pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"> The Company uses the liability method of accounting for income taxes. Deferred income taxes are determined based on the estimated future tax effects of differences between the financial statement and tax bases of assets and liabilities given the provisions of the enacted tax laws. Management records valuation allowances against net deferred tax assets, if based upon the available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. The Company generated additional net operating losses during the nine months ended September 30, 2011 and continues to maintain a full valuation allowance against its net deferred tax assets. Utilization of the Company’s net operating loss (NOL) and research and development (R&D) credit carryforwards may be subject to a substantial annual limitation due to ownership change limitations that have occurred or that could occur in the future, as required by Section 382 of the Internal Revenue Code of 1986, as amended, or the Code, as well as similar state provisions. These ownership changes may limit the amount of NOL and R&D credit carryforwards that can be utilized annually to offset future taxable income and tax, respectively. In general, an “ownership change” as defined by Section 382 of the Code results from a transaction or series of transactions over a three-year period resulting in an ownership change of more than 50 percentage points of the outstanding stock of a company by certain stockholders or public groups. </div> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 18pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"> The Company's policy for recording interest and penalties associated with audits is that penalties and interest expense are recorded in interest expense in the Company’s Condensed Consolidated Statements of Operations. </div> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"> Restricted Stock Units and Stock Options </div> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 18pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"> Restricted stock units (“RSUs”) and stock options are recognized in the Condensed Consolidated Statements of Operations based on their fair values. The amount of compensation cost is measured based on the grant-date fair value of the equity instrument issued. The Company utilizes a Black-Scholes option-pricing model to measure the fair value of stock options granted to employees. See Note 7 to the Condensed Consolidated Financial Statements for a further discussion on share-based compensation. </div> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"> Deferred Financing Costs </div> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 18pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"> In conjunction with the issuance of convertible notes issued in June 2008, April 2009, July 2009, September 2009, March 2010 and September 2011 (as described in Note 6 to the Condensed Consolidated Financial Statements), the Company incurred certain financing costs, including, for several of the financings, the issuance of warrants to purchase the Company’s common stock. This additional consideration is being amortized over the term of the notes through their respective maturity dates. If the maturity of the notes is accelerated because of conversions or defaults, then the amortization is accelerated. The fair value of the warrants issued as placement fees in connection with these financings are calculated utilizing the Black-Scholes option-pricing model. </div> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"> Net Income/(Loss) Per Common Share </div> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 18pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"> Net income/(loss) per common share for the three and nine months ended September 30, 2011 and September 30, 2010 are based on the weighted average number of shares of common stock outstanding during the periods. There is no difference between the basic and diluted net loss per share for the three and nine months ended September 30, 2011 and for the nine months ended September 30, 2010, as potentially dilutive securities have been excluded from the calculation of the diluted net loss per common share, as the inclusion of such securities would be antidilutive. At September 30, 2011, the potentially dilutive securities include 42,811 million shares reserved for the conversion of convertible notes, convertible preferred stock, vesting of outstanding RSUs and the exercise of outstanding warrants and debt warrants. </div>

<table align="center" border="0" cellpadding="0" cellspacing="0" id="hangingindent-2" width="100%" style="FONT-SIZE: 10pt; FONT-FAMILY: times new roman; FONT-SIZE: 10pt; FONT-FAMILY: times new roman"> <tr valign="top" style="LINE-HEIGHT: 1.25;"> <td style="WIDTH: 18pt"> <div>   </div> </td> <td style="WIDTH: 18pt"> <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt"> 4. </div> </td> <td> <div align="left"> Inventory </div> </td> </tr> </table> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 18pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"> Inventories are stated at the lower of cost or market with cost being determined using the first-in, first-out (FIFO) method. Inventories consisted of the following ($ in thousands): </div> <table cellpadding="0" cellspacing="0" width="80%" style="FONT-SIZE: 10pt; FONT-FAMILY: times new roman; FONT-SIZE: 10pt; FONT-FAMILY: times new roman"> <tr> <td valign="bottom" width="64%">   </td> <td valign="bottom" width="1%">   </td> <td colspan="2" valign="bottom" width="16%"> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"> September 30, </div> </td> <td nowrap="nowrap" valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> <td valign="bottom" width="1%">   </td> <td colspan="2" valign="bottom" width="16%"> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"> December 31, </div> </td> <td nowrap="nowrap" valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> </tr> <tr> <td valign="bottom" width="64%" style="PADDING-BOTTOM: 2px">   </td> <td valign="bottom" width="1%" style="PADDING-BOTTOM: 2px">   </td> <td colspan="2" valign="bottom" width="16%" style="BORDER-BOTTOM: black 2px solid"> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"> 2011 </div> </td> <td nowrap="nowrap" valign="bottom" width="1%" style="PADDING-BOTTOM: 2px; TEXT-ALIGN: left">   </td> <td valign="bottom" width="1%" style="PADDING-BOTTOM: 2px">   </td> <td colspan="2" valign="bottom" width="16%" style="BORDER-BOTTOM: black 2px solid"> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"> 2010 </div> </td> <td nowrap="nowrap" valign="bottom" width="1%" style="PADDING-BOTTOM: 2px; TEXT-ALIGN: left">   </td> </tr> <tr style="background-color: #C0FFFF;"> <td align="left" valign="bottom" width="64%"> <div style="DISPLAY: block; MARGIN-LEFT: 18pt; TEXT-INDENT: -18pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 9.35pt" align="left"> Raw materials </div> </td> <td valign="bottom" width="1%">   </td> <td valign="bottom" width="1%" style="TEXT-ALIGN: left"> $ </td> <td valign="bottom" width="15%" style="TEXT-ALIGN: right"> 24 </td> <td nowrap="nowrap" valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> <td valign="bottom" width="1%">   </td> <td valign="bottom" width="1%" style="TEXT-ALIGN: left"> $ </td> <td valign="bottom" width="15%" style="TEXT-ALIGN: right"> 24 </td> <td nowrap="nowrap" valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> </tr> <tr style="background-color: white;"> <td align="left" valign="bottom" width="64%" style="PADDING-BOTTOM: 2px"> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"> Finished goods </div> </td> <td valign="bottom" width="1%" style="PADDING-BOTTOM: 2px">   </td> <td valign="bottom" width="1%" style="BORDER-BOTTOM: black 2px solid; TEXT-ALIGN: left">   </td> <td valign="bottom" width="15%" style="BORDER-BOTTOM: black 2px solid; TEXT-ALIGN: right"> - </td> <td nowrap="nowrap" valign="bottom" width="1%" style="PADDING-BOTTOM: 2px; TEXT-ALIGN: left">   </td> <td valign="bottom" width="1%" style="PADDING-BOTTOM: 2px">   </td> <td valign="bottom" width="1%" style="BORDER-BOTTOM: black 2px solid; TEXT-ALIGN: left">   </td> <td valign="bottom" width="15%" style="BORDER-BOTTOM: black 2px solid; TEXT-ALIGN: right"> 7 </td> <td nowrap="nowrap" valign="bottom" width="1%" style="PADDING-BOTTOM: 2px; TEXT-ALIGN: left">   </td> </tr> <tr style="background-color: #C0FFFF;"> <td valign="bottom" width="64%" style="PADDING-BOTTOM: 4px">   </td> <td valign="bottom" width="1%" style="PADDING-BOTTOM: 4px">   </td> <td valign="bottom" width="1%" style="BORDER-BOTTOM: black 4px double; TEXT-ALIGN: left"> $ </td> <td valign="bottom" width="15%" style="BORDER-BOTTOM: black 4px double; TEXT-ALIGN: right"> 24 </td> <td nowrap="nowrap" valign="bottom" width="1%" style="PADDING-BOTTOM: 4px; TEXT-ALIGN: left">   </td> <td valign="bottom" width="1%" style="PADDING-BOTTOM: 4px">   </td> <td valign="bottom" width="1%" style="BORDER-BOTTOM: black 4px double; TEXT-ALIGN: left"> $ </td> <td valign="bottom" width="15%" style="BORDER-BOTTOM: black 4px double; TEXT-ALIGN: right"> 31 </td> <td nowrap="nowrap" valign="bottom" width="1%" style="PADDING-BOTTOM: 4px; TEXT-ALIGN: left">   </td> </tr> </table>

<table align="center" border="0" cellpadding="0" cellspacing="0" id="hangingindent-3" width="100%" style="FONT-SIZE: 10pt; FONT-FAMILY: times new roman; FONT-SIZE: 10pt; FONT-FAMILY: times new roman"> <tr valign="top" style="LINE-HEIGHT: 1.25;"> <td style="WIDTH: 18pt"> <div>   </div> </td> <td style="WIDTH: 18pt"> <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt"> 5. </div> </td> <td> <div align="left"> <div align="left"> Office Lease Settlement Obligation </div> </div> </td> </tr> </table> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 18pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"> In March 2010, the Company entered into an amendment of its lease for office space with its landlord, whereby the lease for its office space in Berkeley Heights, New Jersey was extended until August 2015. In addition, as part of the amendment, the Company is due to pay an office settlement lease obligation over the life of the lease with a final payment of $1.6 million due in August 2015. </div>

<table align="center" border="0" cellpadding="0" cellspacing="0" id="hangingindent-4" width="100%" style="FONT-SIZE: 10pt; FONT-FAMILY: times new roman; FONT-SIZE: 10pt; FONT-FAMILY: times new roman"> <tr valign="top" style="LINE-HEIGHT: 1.25;"> <td style="WIDTH: 18pt"> <div>   </div> </td> <td style="WIDTH: 18pt"> <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt"> 6. </div> </td> <td> <div align="left"> <div align="left"> Convertible Notes and Warrants </div> </div> </td> </tr> </table> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 18pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"> On September 9, 2011, the Company issued $12.7 million of units (the “2011 Units”), pursuant to a securities purchase agreement dated September 2, 2011 (the “September 2011 Purchase Agreement”), each 2011 Unit consisting of (i) 12% senior secured convertible promissory notes due September 9, 2021, convertible into shares of common stock, at an initial conversion rate of 671,040 shares of common stock for every $1,000 of principal and accrued interest due under the notes (the “G Notes”), (ii) 12% senior secured cash collateralized convertible promissory notes due September 9, 2021, convertible into shares of common stock, at a rate of 671,040 shares of common stock for every $1,000 of principal and accrued interest due under the notes (the “H Notes”, together with the G Notes, the “September 2011 Notes”), (iii) senior secured convertible promissory note warrants to purchase an amount of G Notes equal to the G Notes purchased at the closing, with a maturity of five years (the “G Warrants”), which purchase price may be paid through a cashless “net exercise” feature, and (iv) senior secured cash collateralized convertible promissory note warrants to purchase an amount of G Notes equal to the H Notes purchased at closing, with a maturity of five years (the “H Warrants,” together with the G Warrants, the “September 2011 Debt Warrants”), which purchase price may also be paid through a cashless “net exercise” feature. The issuance of the September 2011 Notes and September 2011 Debt Warrants in exchange for $12.7 million is referred to herein as the “September 2011 Financing.” </div> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 18pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"> The September 2011 Notes are secured by all of the assets of the Company. The Company had direct access to $4.2 million of the proceeds and the remaining $8.5 million of the proceeds were placed in a blocked account as collateral security for the $8.5 million in principal amount of H Notes. The security interest in the cash collateral in the blocked account maintained for the benefit of the holders of the H Notes will be released if over any consecutive ten day trading period, the trading volume and price of the Company’s common stock meet certain levels. The security interest will also be released dollar for dollar upon conversion of any part of the H Notes or upon the approval of each holder of the then outstanding H Notes with respect to such holder’s H Notes only. At any time after the first anniversary of the issuance date, the holder of a G Note can require the Company to redeem the note upon 10 days prior written notice and at any time after the six-month anniversary of the issuance date, the holder of a H Note can require the Company to redeem the note upon 10 days prior written notice. </div> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 18pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"> Pursuant to the terms of the G Notes, as amended, there are certain provisions providing for the adjustment of the conversion price of the G Notes. If on the last trading day prior to the Saturday that is one week after the Reverse Split Effective Date (as defined in the September 2011 Purchase Agreement) (the “First Adjustment Date”), the volume weighted closing price of the Company’s common stock for the three consecutive day period prior to the First Adjustment Date (the “First 3-Day VWCP”) is less than the conversion price for the G Notes then in effect, the conversion price for the G Notes shall be reduced to a price equal to 10% of the First 3-Day VWCP.  If on the last trading day prior to December 3, 2011 (the “Second Adjustment Date”) the volume weighted closing price of the Company’s common stock for the three consecutive trading day period prior to the Second Adjustment Date (the “Second 3-Day VWCP”) is less than the conversion price for the G Notes then in effect, the conversion price for the G Notes shall be reduced to a price equal to 10% of the Second 3-Day VWCP. Also, if on the last trading day prior to the Saturday following the date that is six months after September 9, 2011 (the “Third Adjustment Date”) the volume weighted closing price of the Company’s common stock for the three consecutive trading day period prior to the Third Adjustment Date (the “Third 3-Day VWCP”) is less than the conversion price for the G Notes then in effect, the conversion price for the G Notes shall be reduced to a price equal to 10% of the Third 3-Day VWCP. In accordance with the terms of all of the Company’s other convertible notes, debt warrants, March 2010 Warrants, December 2010 Warrants, and September 2011 Warrants, all described below, the conversion prices of all of the Company’s other notes, debt warrants, March 2010 Warrants, December 2010 Warrants and September 2011 Warrants will be adjusted to be the same conversion price of the G Notes. </div> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 18pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"> In connection with the September 2011 Financing, pursuant to a Note Conversion and Amendment Agreement (the “Amendment Agreement”), the maturity dates of the June 2008 Notes, April 2009 Notes and September 2009 Notes, all described below, were extended to September 9, 2013, and  the holders of such existing indebtedness acknowledged that the June 2008 Notes, April 2009 Notes and September 2009 Notes are subordinate and subject in right of payment to the prior payment in full of the September 2011 Notes. Additionally, holders of the March 2010 Notes also acknowledged that the March 2010 Notes are subordinate and subject in right of payment to the prior payment in full of the September 2011 Notes. </div> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 18pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"> Also, pursuant to the Amendment Agreement, effective September 2, 2011, the conversion rate of the April 2009 Notes, defined below, was changed to 671,040 shares of common stock for every $1,000 of principal or interest that is being converted. In accordance with the terms of all of the Company’s other convertible notes, debt warrants, March 2010 Warrants and December 2010 Warrants,  the conversion prices of all of the Company’s other notes, debt warrants, March 2010 Warrants and December 2010 Warrants were also adjusted to equal $0.00149, effective September 2, 2011. The Company valued this change in the conversion rate on September 2, 2011; the aggregate intrinsic value of the difference in conversion rates was in excess of the face value of each of its convertible notes. Thus, a full debt discount was recorded in an amount equal to the face value of each of the Company’s convertible notes on September 2, 2011 and the Company began amortizing the resultant debt discount over the remaining term of the convertible notes. </div> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 18pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"> As consideration for the amendments above, the Company issued to each of the holders of the then outstanding June 2008 Notes, April 2009 Notes and September 2009 Notes, a three-year warrant to purchase shares of common stock at an exercise price equal to the Conversion Price as defined in the September 2011 Notes, (the “September 2011 Warrants”). Each September 2011 Warrant shall be exercisable for a number of shares of common stock equal to one hundred percent (100%) of the number of shares of common stock that would be issuable if such holder converted all of the outstanding principal and interest underlying all of such holder’s June 2008 Notes, April 2009 Notes or September 2009 Notes, on the date of the Agreement. </div> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 18pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"> The September 2011 Warrants and the September 2011 Debt Warrants both have anti-dilution protection and can be exercised using a cashless exercise procedure; warrants with these characteristics are accounted for as liabilities and marked-to-market over their lives. Based upon a Black-Scholes valuation model, on September 9, 2011, a liability of $17.7 million was recorded for the value of the September 2011 Warrants and a liability of $54.6 million was recorded for the value of the September 2011 Debt Warrants. At September 30, 2011, the September 2011 Warrants were valued at $4.2 million and the September 2011 Debt Warrants were valued at $12.7 million based upon a Black-Scholes valuation model, resulting in a net expense of $16.9 million on the Condensed Consolidated Statements of Operations for the three months ended September 30, 2011. </div> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 18pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"> The September 2011 Warrants were valued at September 30, 2011 and September 9, 2011 using the Black-Scholes valuation model with the following assumptions: </div> <table bgcolor="white" cellpadding="0" cellspacing="0" width="80%" style="FONT-SIZE: 10pt; FONT-FAMILY: times new roman; FONT-SIZE: 10pt; FONT-FAMILY: times new roman"> <tr> <td valign="bottom" width="64%" style="PADDING-BOTTOM: 2px">   </td> <td valign="bottom" width="1%" style="PADDING-BOTTOM: 2px">   </td> <td colspan="2" valign="bottom" width="16%" style="BORDER-BOTTOM: black 2px solid; TEXT-ALIGN: center"> September 30, 2011 </td> <td nowrap="nowrap" valign="bottom" width="1%" style="PADDING-BOTTOM: 2px; TEXT-ALIGN: left">   </td> <td valign="bottom" width="1%" style="PADDING-BOTTOM: 2px">   </td> <td colspan="2" valign="bottom" width="16%" style="BORDER-BOTTOM: black 2px solid; TEXT-ALIGN: center"> September 9, 2011 </td> <td nowrap="nowrap" valign="bottom" width="1%" style="PADDING-BOTTOM: 2px; TEXT-ALIGN: left">   </td> </tr> <tr style="background-color: #C0FFFF;"> <td valign="bottom" width="64%"> Price per share of Genta common stock </td> <td valign="bottom" width="1%">   </td> <td valign="bottom" width="1%" style="TEXT-ALIGN: left"> $ </td> <td valign="bottom" width="15%" style="TEXT-ALIGN: center"> 0.0015 </td> <td nowrap="nowrap" valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> <td valign="bottom" width="1%">   </td> <td valign="bottom" width="1%" style="TEXT-ALIGN: left"> $ </td> <td valign="bottom" width="15%" style="TEXT-ALIGN: center"> 0.0064 </td> <td nowrap="nowrap" valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> </tr> <tr style="background-color: white;"> <td valign="bottom" width="64%"> Volatility </td> <td valign="bottom" width="1%">   </td> <td valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> <td valign="bottom" width="15%" style="TEXT-ALIGN: center"> 305% </td> <td nowrap="nowrap" valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> <td valign="bottom" width="1%">   </td> <td valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> <td valign="bottom" width="15%" style="TEXT-ALIGN: center"> 304% </td> <td nowrap="nowrap" valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> </tr> <tr style="background-color: #C0FFFF;"> <td valign="bottom" width="64%"> Risk-free interest rate </td> <td valign="bottom" width="1%">   </td> <td valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> <td valign="bottom" width="15%" style="TEXT-ALIGN: center"> 0.41% </td> <td nowrap="nowrap" valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> <td valign="bottom" width="1%">   </td> <td valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> <td valign="bottom" width="15%" style="TEXT-ALIGN: center"> 0.31% </td> <td nowrap="nowrap" valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> </tr> <tr style="background-color: white;"> <td valign="bottom" width="64%"> Remaining contractual lives </td> <td valign="bottom" width="1%">   </td> <td valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> <td valign="bottom" width="15%" style="TEXT-ALIGN: center"> 2.95 </td> <td nowrap="nowrap" valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> <td valign="bottom" width="1%">   </td> <td valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> <td valign="bottom" width="15%" style="TEXT-ALIGN: center"> 3.0 </td> <td nowrap="nowrap" valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> </tr> </table> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 18pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"> The September 2011 Debt Warrants were valued at September 30, 2011 and September 9, 2011 using the Black-Scholes valuation model with the following assumptions: </div> <table bgcolor="white" cellpadding="0" cellspacing="0" width="80%" style="FONT-SIZE: 10pt; FONT-FAMILY: times new roman; FONT-SIZE: 10pt; FONT-FAMILY: times new roman"> <tr> <td valign="bottom" width="64%" style="PADDING-BOTTOM: 2px">   </td> <td valign="bottom" width="1%" style="PADDING-BOTTOM: 2px">   </td> <td colspan="2" valign="bottom" width="16%" style="BORDER-BOTTOM: black 2px solid; TEXT-ALIGN: center"> September 30, 2011 </td> <td nowrap="nowrap" valign="bottom" width="1%" style="PADDING-BOTTOM: 2px; TEXT-ALIGN: left">   </td> <td valign="bottom" width="1%" style="PADDING-BOTTOM: 2px">   </td> <td colspan="2" valign="bottom" width="16%" style="BORDER-BOTTOM: black 2px solid; TEXT-ALIGN: center"> September 9, 2011 </td> <td nowrap="nowrap" valign="bottom" width="1%" style="PADDING-BOTTOM: 2px; TEXT-ALIGN: left">   </td> </tr> <tr style="background-color: #C0FFFF;"> <td valign="bottom" width="64%"> Price per share of Genta common stock </td> <td valign="bottom" width="1%">   </td> <td valign="bottom" width="1%" style="TEXT-ALIGN: left"> $ </td> <td valign="bottom" width="15%" style="TEXT-ALIGN: center"> 0.0015 </td> <td nowrap="nowrap" valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> <td valign="bottom" width="1%">   </td> <td valign="bottom" width="1%" style="TEXT-ALIGN: left"> $ </td> <td valign="bottom" width="15%" style="TEXT-ALIGN: center"> 0.0064 </td> <td nowrap="nowrap" valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> </tr> <tr style="background-color: white;"> <td valign="bottom" width="64%"> Volatility  </td> <td valign="bottom" width="1%">   </td> <td valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> <td valign="bottom" width="15%" style="TEXT-ALIGN: center"> 252% </td> <td nowrap="nowrap" valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> <td valign="bottom" width="1%">   </td> <td valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> <td valign="bottom" width="15%" style="TEXT-ALIGN: center"> 251% </td> <td nowrap="nowrap" valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> </tr> <tr style="background-color: #C0FFFF;"> <td valign="bottom" width="64%"> Risk-free interest rate  </td> <td valign="bottom" width="1%">   </td> <td valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> <td valign="bottom" width="15%" style="TEXT-ALIGN: center"> 0.95% </td> <td nowrap="nowrap" valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> <td valign="bottom" width="1%">   </td> <td valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> <td valign="bottom" width="15%" style="TEXT-ALIGN: center"> 0.81% </td> <td nowrap="nowrap" valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> </tr> <tr style="background-color: white;"> <td valign="bottom" width="64%"> Remaining contractual lives </td> <td valign="bottom" width="1%">   </td> <td valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> <td valign="bottom" width="15%" style="TEXT-ALIGN: center"> 4.95 </td> <td nowrap="nowrap" valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> <td valign="bottom" width="1%">   </td> <td valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> <td valign="bottom" width="15%" style="TEXT-ALIGN: center"> 5.0 </td> <td nowrap="nowrap" valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> </tr> </table> <div style="TEXT-INDENT: 18pt; TEXT-ALIGN: justify"> In connection with the September 2011 Financing, the Company issued warrants to its private placement agent to purchase 170,412,799 shares of common stock at an exercise price of $0.00149 per share, subject to antidilution adjustments, and incurred financing fees of $0.4 million. The financing fees and the initial value of the warrants of $1.1 million are being amortized over the term of the September 2011 Notes. </div> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 18pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt; TEXT-ALIGN: justify"> On March 9, 2010, the Company issued $10 million of senior unsecured convertible notes (the “B Notes”), $10 million of senior unsecured convertible notes (the “C Notes”) and $5 million of senior unsecured convertible notes (the “D Notes”). In connection with the sale of the notes, the Company also issued warrants (the “March 2010 Debt Warrants”) to purchase $10 million of senior unsecured convertible notes (the “E Notes”). In March and April 2010, four investors who had participated in the Company’s April 2009 financing, described below, exercised their rights under the April 2009 securities purchase agreement and the April 2009 consent agreement to acquire $1.0 million of senior unsecured convertible notes (the “F Notes”). In May 2010, two holders of March 2010 Debt Warrants totaling $1.3 million exercised their warrants using a cashless exercise procedure and received, in total, $1.1 million of E Notes. In October 2010, two investors exercised March 2010 Debt Warrants totaling $4.0 million using a cashless exercise procedure and received $3.6 million of E Notes. In January 2011, two investors exercised March 2010 Debt Warrants totaling $2.7 million using a cashless exercise procedure and received $2.4 million of E Notes. The notes in all of the above transactions, (“the March 2010 Notes”), bear interest at an annual rate of 12% payable semiannually in cash or in other convertible notes. At any time after the second anniversary of the issuance date, the holder can require the Company to redeem the note upon 10 days prior written notice. As of September 30, 2011, the March 2010 Notes were convertible into shares of Genta common stock at a conversion rate of $0.00149. </div> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 18pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"> Concurrent with the sale of the March 2010 Notes, the Company also extended the maturity date of the outstanding June 2008 Notes from June 9, 2010 to June 9, 2011 in exchange for three-year warrants (“March 2010 Warrants”) to purchase the same number of shares of the Company’s common stock issuable upon conversion of such June 2008 Notes. Subsequently, the maturity of the outstanding June 2008 Notes was extended to September 4, 2011, as discussed below, and to September 9, 2013. </div> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 18pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"> Prior to the approval of a reverse stock split that was implemented in August 2010, there were not enough shares of common stock authorized under the Company’s certificate of incorporation to cover the shares underlying all of the March 2010 Notes. The Company accounted for the conversion options embedded in the March 2010 Notes in accordance with “Accounting for Derivative Instruments and Hedging Activities”, FASB ASC 815-10, and “Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock”, FASB ASC 815-40. FASB ASC 815-10 generally requires companies to bifurcate conversion options embedded in convertible notes from their host instruments and to account for them as free standing derivative financial instruments in accordance with FASB ASC 815-40. FASB ASC 815-40 states that if the conversion option requires net cash settlement in the event of circumstances that are not solely within the Company’s control, then the notes should be classified as a liability measured at fair value on the balance sheet. In this case, the holder of each March 2010 Note has the right to require the Company to repay 100% of the outstanding principal and accrued interest on each note in cash on the second anniversary of the closing date of the March 2010 financing. </div> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 18pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"> In accordance with FASB ASC 815-40, when there were insufficient authorized shares to permit exercise of all of the issued convertible notes, the debt warrants and warrants, the conversion obligation for the notes and the warrant obligations were classified as liabilities and measured at fair value on the balance sheet. The conversion feature liabilities and the warrant liabilities were accounted for using mark-to-market accounting at each reporting date until all the criteria for permanent equity were met. </div> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 18pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"> In connection with the March 2010 financing, the convertible features of the B, C, and D Notes were recorded as derivative liabilities of $263.5 million, resulting in an expense of $238.5 million. The Company recorded an initial discount of $25.0 million, equal to the face value of the notes, which is being amortized over the life of the notes through their maturity dates. Similarly, in March and April 2010, in connection with a $1.0 million exercise of purchase rights/options, the convertible features of the F Notes were recorded as a derivative liability of $5.4 million, resulting in an expense of $4.4 million. The Company recorded an initial discount of $1.0 million, equal to the face value of the F Notes, which is being amortized over the life of the notes through their maturity dates.  In May 2010, in connection with the issuance of the $1.1 million of E Notes, the convertible features of the E Notes were recorded as a derivative liability of $7.5 million, resulting in expense of $6.4 million. The Company recorded an initial discount of $1.1 million, equal to the face value of the E Notes, which is being amortized over the life of the notes through their maturity dates. </div> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 18pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"> On July 9, 2010, the Company’s Board of Directors approved the implementation of a reverse stock split at a ratio of 1-for-100 shares, resulting in the Company having enough shares to accommodate the potential number of shares underlying the March 2010 Notes and the March 2010 Debt Warrants. The fair value of the conversion feature liability of the March 2010 Notes was re-measured at July 9, 2010 at $81.8 million and credited to permanent equity, resulting in income of $14.6 million for the three months ended September 30, 2010. </div> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 18pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"> The conversion feature liability for the March 2010 Notes were valued at July 9, 2010 and the date of the transactions using the Black-Scholes valuation model with the following assumptions: </div> <table cellpadding="0" cellspacing="0" width="100%" style="FONT-SIZE: 10pt; FONT-FAMILY: times new roman; FONT-SIZE: 10pt; FONT-FAMILY: times new roman"> <tr> <td valign="bottom">   </td> <td valign="bottom">   </td> <td colspan="2" valign="bottom"> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"> July 9, </div> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"> 2010 </div> </td> <td nowrap="nowrap" valign="bottom" style="TEXT-ALIGN: left">   </td> <td valign="bottom">   </td> <td colspan="2" valign="bottom"> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"> May 6/10, </div> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"> 2010 </div> </td> <td nowrap="nowrap" valign="bottom" style="TEXT-ALIGN: left">   </td> <td valign="bottom">   </td> <td colspan="2" valign="bottom"> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"> April 9, </div> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"> 2010 </div> </td> <td nowrap="nowrap" valign="bottom" style="TEXT-ALIGN: left">   </td> <td valign="bottom">   </td> <td colspan="2" valign="bottom"> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 5.4pt" align="center"> March 17/22, </div> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 5.4pt" align="center"> 2010 </div> </td> <td nowrap="nowrap" valign="bottom" style="TEXT-ALIGN: left">   </td> <td valign="bottom">   </td> <td colspan="2" valign="bottom"> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"> March 9, </div> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"> 2010 </div> </td> <td nowrap="nowrap" valign="bottom" style="TEXT-ALIGN: left">   </td> </tr> <tr style="background-color: #C0FFFF;"> <td valign="bottom" width="40%"> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"> Price per share of Genta common stock </div> </td> <td align="right" valign="bottom" width="1%">   </td> <td valign="bottom" width="1%" style="TEXT-ALIGN: left"> $ </td> <td valign="bottom" width="9%" style="TEXT-ALIGN: right"> 152.50 </td> <td nowrap="nowrap" valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> <td align="right" valign="bottom" width="1%">   </td> <td valign="bottom" width="1%" style="TEXT-ALIGN: left"> $ </td> <td valign="bottom" width="9%" style="TEXT-ALIGN: right"> 322.00 </td> <td nowrap="nowrap" valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> <td align="right" valign="bottom" width="1%">   </td> <td valign="bottom" width="1%" style="TEXT-ALIGN: left"> $ </td> <td valign="bottom" width="9%" style="TEXT-ALIGN: right"> 78.00 </td> <td nowrap="nowrap" valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> <td align="right" valign="bottom" width="1%">   </td> <td valign="bottom" width="1%" style="TEXT-ALIGN: left"> $ </td> <td valign="bottom" width="9%" style="TEXT-ALIGN: right"> 310.00 </td> <td nowrap="nowrap" valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> <td align="right" valign="bottom" width="1%">   </td> <td valign="bottom" width="1%" style="TEXT-ALIGN: left"> $ </td> <td valign="bottom" width="9%" style="TEXT-ALIGN: right"> 530.00 </td> <td nowrap="nowrap" valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> </tr> <tr style="background-color: white;"> <td valign="bottom" width="40%"> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"> Volatility </div> </td> <td align="right" valign="bottom" width="1%">   </td> <td valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> <td valign="bottom" width="9%" style="TEXT-ALIGN: right"> 287 </td> <td nowrap="nowrap" valign="bottom" width="1%" style="TEXT-ALIGN: left"> % </td> <td align="right" valign="bottom" width="1%">   </td> <td valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> <td valign="bottom" width="9%" style="TEXT-ALIGN: right"> 278 </td> <td nowrap="nowrap" valign="bottom" width="1%" style="TEXT-ALIGN: left"> % </td> <td align="right" valign="bottom" width="1%">   </td> <td valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> <td valign="bottom" width="9%" style="TEXT-ALIGN: right"> 272 </td> <td nowrap="nowrap" valign="bottom" width="1%" style="TEXT-ALIGN: left"> % </td> <td align="right" valign="bottom" width="1%">   </td> <td valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> <td valign="bottom" width="9%" style="TEXT-ALIGN: right"> 267 </td> <td nowrap="nowrap" valign="bottom" width="1%" style="TEXT-ALIGN: left"> % </td> <td align="right" valign="bottom" width="1%">   </td> <td valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> <td valign="bottom" width="9%" style="TEXT-ALIGN: right"> 266 </td> <td nowrap="nowrap" valign="bottom" width="1%" style="TEXT-ALIGN: left"> % </td> </tr> <tr style="background-color: #C0FFFF;"> <td valign="bottom" width="40%"> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"> Risk-free interest rate </div> </td> <td align="right" valign="bottom" width="1%">   </td> <td valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> <td valign="bottom" width="9%" style="TEXT-ALIGN: right"> 0.89 </td> <td nowrap="nowrap" valign="bottom" width="1%" style="TEXT-ALIGN: left"> % </td> <td align="right" valign="bottom" width="1%">   </td> <td valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> <td valign="bottom" width="9%" style="TEXT-ALIGN: right"> 1.34 </td> <td nowrap="nowrap" valign="bottom" width="1%" style="TEXT-ALIGN: left"> % </td> <td align="right" valign="bottom" width="1%">   </td> <td valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> <td valign="bottom" width="9%" style="TEXT-ALIGN: right"> 1.68 </td> <td nowrap="nowrap" valign="bottom" width="1%" style="TEXT-ALIGN: left"> % </td> <td align="right" valign="bottom" width="1%">   </td> <td valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> <td valign="bottom" width="9%" style="TEXT-ALIGN: right"> 1.47 </td> <td nowrap="nowrap" valign="bottom" width="1%" style="TEXT-ALIGN: left"> % </td> <td align="right" valign="bottom" width="1%">   </td> <td valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> <td valign="bottom" width="9%" style="TEXT-ALIGN: right"> 1.43 </td> <td nowrap="nowrap" valign="bottom" width="1%" style="TEXT-ALIGN: left"> % </td> </tr> <tr style="background-color: white;"> <td valign="bottom" width="40%"> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"> Remaining contractual lives </div> </td> <td align="right" valign="bottom" width="1%">   </td> <td valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> <td valign="bottom" width="9%" style="TEXT-ALIGN: right"> 2.7 </td> <td nowrap="nowrap" valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> <td align="right" valign="bottom" width="1%">   </td> <td valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> <td valign="bottom" width="9%" style="TEXT-ALIGN: right"> 2.8 </td> <td nowrap="nowrap" valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> <td align="right" valign="bottom" width="1%">   </td> <td valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> <td valign="bottom" width="9%" style="TEXT-ALIGN: right"> 2.9 </td> <td nowrap="nowrap" valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> <td align="right" valign="bottom" width="1%">   </td> <td valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> <td valign="bottom" width="9%" style="TEXT-ALIGN: right"> 3.0 </td> <td nowrap="nowrap" valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> <td align="right" valign="bottom" width="1%">   </td> <td valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> <td valign="bottom" width="9%" style="TEXT-ALIGN: right"> 3.0 </td> <td nowrap="nowrap" valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> </tr> </table> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 18pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"> Pursuant to the terms of the Amendment and Consent Agreement dated December 14, 2010 between the Company and certain investors, the conversion prices of the B Notes and E Notes were adjusted to $0.0142 effective March 12, 2011. In accordance with the terms of all of the Company’s other convertible notes, March 2010 Debt Warrants, March 2010 Warrants and December 2010 Warrants, described below, the conversion prices of all of the Company’s other notes, March 2010 Debt Warrants, March 2010 Warrants and December 2010 Warrants were also adjusted to $0.0142 effective March 12, 2011. The Company valued this change in the conversion rate on March 12, 2011; the aggregate intrinsic value of the difference in conversion rates was in excess of the face value of each of its convertible notes. Thus, a full debt discount was recorded in an amount equal to the face value of each of its convertible notes on March 12, 2011 and the Company began amortizing the resultant debt discount over the remaining term of the convertible notes. </div> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 18pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"> From January 1, 2011 through September 30, 2011, holders of the B Notes voluntarily converted $2.0 million, resulting in an issuance of 278.3 million shares of common stock, holders of C Notes voluntarily converted $0.9 million, resulting in an issuance of 71.9 million shares of common stock, holders of D Notes voluntarily converted $0.2 million, resulting in an issuance of 11.1 million shares of common stock, holders of E Notes voluntarily converted $1.1 million, resulting in an issuance of 201.3 million shares of common stock and holders of F Notes voluntarily converted $0.2 million, resulting in an issuance of 17.4 million shares of common stock. At September 30, 2011, the face value outstanding of the B Notes were $5.9 million, the C Notes were $7.7 million, the D Notes were $5.8 million and the E Notes were $6.8 million. </div> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 18pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"> The Company recorded the liability for the March 2010 Debt Warrants at a fair value of $105.6 million on March 9, 2010, based upon a Black-Scholes calculation. The debt warrant liability was marked-to-market and charged/credited to expense in a manner similar to the conversion feature at each reporting date until all the criteria for permanent equity were met on July 9, 2010. The March 2010 Debt Warrants and March 2010 Warrants were re-measured at July 9, 2010 at $30.3 million and $5.6 million, respectively, and credited to permanent equity, resulting in income for the three months ended September 30, 2010 of $6.4 million. </div> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 18pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"> The debt warrant liability was valued at July 9, 2010 and March 9, 2010 using the Black-Scholes valuation model with the following assumptions: </div> <table bgcolor="white" cellpadding="0" cellspacing="0" width="80%" style="FONT-SIZE: 10pt; FONT-FAMILY: times new roman; FONT-SIZE: 10pt; FONT-FAMILY: times new roman"> <tr> <td valign="bottom" width="66%">   </td> <td valign="bottom" width="1%">   </td> <td colspan="2" valign="bottom" width="15%" style="TEXT-ALIGN: center"> July 9, 2010 </td> <td nowrap="nowrap" valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> <td valign="bottom" width="1%">   </td> <td colspan="2" valign="bottom" width="15%" style="TEXT-ALIGN: center"> March 9, 2010 </td> <td nowrap="nowrap" valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> </tr> <tr style="background-color: #C0FFFF;"> <td valign="bottom" width="66%"> Price per share of Genta common stock </td> <td valign="bottom" width="1%">   </td> <td valign="bottom" width="1%" style="TEXT-ALIGN: left"> $ </td> <td valign="bottom" width="14%" style="TEXT-ALIGN: right"> 152.50 </td> <td nowrap="nowrap" valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> <td valign="bottom" width="1%">   </td> <td valign="bottom" width="1%" style="TEXT-ALIGN: left"> $ </td> <td valign="bottom" width="14%" style="TEXT-ALIGN: right"> 530.00 </td> <td nowrap="nowrap" valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> </tr> <tr style="background-color: white;"> <td valign="bottom" width="66%"> Volatility </td> <td valign="bottom" width="1%">   </td> <td valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> <td valign="bottom" width="14%" style="TEXT-ALIGN: right"> 237 </td> <td nowrap="nowrap" valign="bottom" width="1%" style="TEXT-ALIGN: left"> % </td> <td valign="bottom" width="1%">   </td> <td valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> <td valign="bottom" width="14%" style="TEXT-ALIGN: right"> 225 </td> <td nowrap="nowrap" valign="bottom" width="1%" style="TEXT-ALIGN: left"> % </td> </tr> <tr style="background-color: #C0FFFF;"> <td valign="bottom" width="66%"> Risk-free interest rate </td> <td valign="bottom" width="1%">   </td> <td valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> <td valign="bottom" width="14%" style="TEXT-ALIGN: right"> 1.54 </td> <td nowrap="nowrap" valign="bottom" width="1%" style="TEXT-ALIGN: left"> % </td> <td valign="bottom" width="1%">   </td> <td valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> <td valign="bottom" width="14%" style="TEXT-ALIGN: right"> 2.15 </td> <td nowrap="nowrap" valign="bottom" width="1%" style="TEXT-ALIGN: left"> % </td> </tr> <tr style="background-color: white;"> <td valign="bottom" width="66%"> Remaining contractual lives </td> <td valign="bottom" width="1%">   </td> <td valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> <td valign="bottom" width="14%" style="TEXT-ALIGN: right"> 4.3 </td> <td nowrap="nowrap" valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> <td valign="bottom" width="1%">   </td> <td valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> <td valign="bottom" width="14%" style="TEXT-ALIGN: right"> 4.6 </td> <td nowrap="nowrap" valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> </tr> </table> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 18pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"> In December 2010, the Company extended the maturity date of its outstanding June 2008 Notes from June 9, 2011 to September 4, 2011 in exchange for December 2010 Warrants. The December 2010 Warrants allow the holder to purchase 10% of the number of shares of common stock issuable upon conversion of June 2008 Notes in December 2010 and have the same expiration date as the March 2010 Warrants. Both the March 2010 Warrants and the December 2010 Warrants have anti-dilution protection. Based upon a Black-Scholes valuation model, a liability of $18.7 million was recorded at December 31, 2010 for the value of the March 2010 Warrants and December 2010 Warrants. At September 30, 2011, the March 2010 Warrants and December 2010 Warrants were valued at $1.4 million based upon a Black-Scholes valuation model, resulting in income of $0.7 million on the Condensed Consolidated Statements of Operations for the three months ended September 30, 2011. </div> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 18pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"> The liability for the March 2010 Warrants and December 2010 Warrants was valued at September 30, 2011 and December 31, 2010 using a Black-Scholes valuation model with the following assumptions: </div> <table cellpadding="0" cellspacing="0" width="80%" style="FONT-SIZE: 10pt; FONT-FAMILY: times new roman; FONT-SIZE: 10pt; FONT-FAMILY: times new roman"> <tr> <td valign="bottom" width="66%">   </td> <td valign="bottom" width="1%">   </td> <td colspan="2" valign="bottom" width="15%"> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"> September 30, </div> </td> <td nowrap="nowrap" valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> <td valign="bottom" width="1%">   </td> <td colspan="2" valign="bottom" width="15%"> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"> December 31, </div> </td> <td nowrap="nowrap" valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> </tr> <tr> <td valign="bottom" width="66%">   </td> <td valign="bottom" width="1%">   </td> <td colspan="2" valign="bottom" width="15%"> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"> 2011 </div> </td> <td nowrap="nowrap" valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> <td valign="bottom" width="1%">   </td> <td colspan="2" valign="bottom" width="15%"> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"> 2010 </div> </td> <td nowrap="nowrap" valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> </tr> <tr style="background-color: #C0FFFF;"> <td valign="bottom" width="66%"> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"> Price per share of Genta common stock </div> </td> <td valign="bottom" width="1%">   </td> <td valign="bottom" width="1%" style="TEXT-ALIGN: left"> $ </td> <td valign="bottom" width="14%" style="TEXT-ALIGN: right"> 0.0015 </td> <td nowrap="nowrap" valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> <td valign="bottom" width="1%">   </td> <td valign="bottom" width="1%" style="TEXT-ALIGN: left"> $ </td> <td valign="bottom" width="14%" style="TEXT-ALIGN: right"> 1.475 </td> <td nowrap="nowrap" valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> </tr> <tr style="background-color: white;"> <td valign="bottom" width="66%"> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"> Volatility </div> </td> <td valign="bottom" width="1%">   </td> <td valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> <td valign="bottom" width="14%" style="TEXT-ALIGN: right"> 252 </td> <td nowrap="nowrap" valign="bottom" width="1%" style="TEXT-ALIGN: left"> % </td> <td valign="bottom" width="1%">   </td> <td valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> <td valign="bottom" width="14%" style="TEXT-ALIGN: right"> 316 </td> <td nowrap="nowrap" valign="bottom" width="1%" style="TEXT-ALIGN: left"> % </td> </tr> <tr style="background-color: #C0FFFF;"> <td valign="bottom" width="66%"> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"> Risk-free interest rate </div> </td> <td valign="bottom" width="1%">   </td> <td valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> <td valign="bottom" width="14%" style="TEXT-ALIGN: right"> 0.19 </td> <td nowrap="nowrap" valign="bottom" width="1%" style="TEXT-ALIGN: left"> % </td> <td valign="bottom" width="1%">   </td> <td valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> <td valign="bottom" width="14%" style="TEXT-ALIGN: right"> 0.70 </td> <td nowrap="nowrap" valign="bottom" width="1%" style="TEXT-ALIGN: left"> % </td> </tr> <tr style="background-color: white;"> <td valign="bottom" width="66%"> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"> Remaining contractual lives </div> </td> <td valign="bottom" width="1%">   </td> <td valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> <td valign="bottom" width="14%" style="TEXT-ALIGN: right"> 1.5 </td> <td nowrap="nowrap" valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> <td valign="bottom" width="1%">   </td> <td valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> <td valign="bottom" width="14%" style="TEXT-ALIGN: right"> 2.2 </td> <td nowrap="nowrap" valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> </tr> </table> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 18pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"> On September 4, 2009, the Company issued $7 million of additional July 2009 Notes (defined below), common stock and July 2009 Warrants. Also on September 4, 2009, the Company issued $3 million of September 2009 Notes, common stock and September 2009 Warrants to certain accredited institutional investors. The September 2009 Notes bear interest at an annual rate of 8% payable semi-annually in other senior unsecured convertible promissory notes to the holder, and with the conversion price reset on September 2, 2011 noted above, are convertible into shares of common stock at a conversion rate of $0.00149. </div> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 18pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"> From January 1, 2011 through September 30, 2011, holders of the September 2009 Notes and July 2009 Notes issued on September 4, 2009 voluntarily converted $0.7 million, resulting in an issuance of 48.4 million shares of common stock. At September 30, 2011, $1.9 million of the September 2009 Notes and July 2009 Notes issued on September 4, 2009 were outstanding. </div> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 18pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"> On July 7, 2009, the Company issued $3 million of July 2009 Notes, common stock and July 2009 Warrants. At September 30, 2011, due to voluntary conversions by noteholders, there were no July 2009 Notes outstanding. </div> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 18pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"> On April 2, 2009, the Company issued $6 million of April 2009 Notes and corresponding warrants to purchase common stock. The April 2009 Notes bear interest at an annual rate of 8% payable semi-annually in other senior unsecured convertible promissory notes to the holder. At any time after the second anniversary of the issuance date, the holder can require the Company to redeem the note upon 10 days prior written notice. With the conversion price reset on September 2, 2011 noted above, the April 2009 Notes are convertible into shares of common stock at a conversion rate of $0.00149. At September 30, 2011, $0.2 million of the April 2009 Notes were outstanding. </div> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 18pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"> On June 9, 2008, the Company issued $20 million of June 2008 Notes. The notes bear interest at an annual rate of 15% payable at quarterly intervals in other senior unsecured convertible promissory notes to the holder, and with the conversion price reset on September 2, 2011 noted above, are convertible into shares of common stock at a conversion rate of $0.00149. </div> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 18pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"> From January 1, 2011 through September 30, 2011, holders of the June 2008 Notes voluntarily converted $0.1 million, resulting in an issuance of 20.0 million shares of common stock. At September 30, 2011, $2.0 million of the June 2008 Notes were outstanding. </div> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 18pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"> The Company is in compliance with all debt-related covenants at September 30, 2011. Upon the occurrence of an event of default, holders of the Company’s notes have the right to require the Company to prepay all or a portion of their notes. </div> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 18pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"> The conversion rate of all of the Company’s convertible notes will be reduced if the Company issues additional shares of common stock or common stock equivalents for consideration that is less than the then applicable conversion price or if the conversion or exercise price of any common stock equivalent (including the convertible notes) is adjusted or modified to a price less than the then applicable conversion price. Conversion price resets were effected on January 1, 2011, March 12, 2011 and September 2, 2011.  As noted above, there are three scheduled adjustments to the conversion prices of the Company’s convertible notes. </div> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 18pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"> At September 30, 2011, the maturities of the Company’s convertible notes are as follows: </div> <table cellpadding="0" cellspacing="0" width="95%" style="FONT-SIZE: 10pt; FONT-FAMILY: times new roman; FONT-SIZE: 10pt; FONT-FAMILY: times new roman"> <tr> <td align="left" valign="bottom" width="52%"> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"> ($ in thousands, face value amounts) </div> </td> <td align="right" valign="bottom" width="1%">   </td> <td align="right" colspan="2" valign="bottom" width="10%"> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="right"> 2011 </div> </td> <td nowrap="nowrap" valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> <td align="right" valign="bottom" width="1%">   </td> <td align="right" colspan="2" valign="bottom" width="10%"> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="right"> 2012 </div> </td> <td nowrap="nowrap" valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> <td align="right" valign="bottom" width="1%">   </td> <td align="right" colspan="2" valign="bottom" width="10%"> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="right"> 2013 </div> </td> <td nowrap="nowrap" valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> <td align="right" valign="bottom" width="1%">   </td> <td align="right" colspan="2" valign="bottom" width="10%"> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="right"> 2021 </div> </td> <td nowrap="nowrap" valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> </tr> <tr> <td valign="bottom" width="52%">   </td> <td valign="bottom" width="1%">   </td> <td colspan="2" valign="bottom" width="10%">   </td> <td nowrap="nowrap" valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> <td valign="bottom" width="1%">   </td> <td colspan="2" valign="bottom" width="10%">   </td> <td nowrap="nowrap" valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> <td valign="bottom" width="1%">   </td> <td colspan="2" valign="bottom" width="10%">   </td> <td nowrap="nowrap" valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> <td valign="bottom" width="1%">   </td> <td colspan="2" valign="bottom" width="10%">   </td> <td nowrap="nowrap" valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> </tr> <tr style="background-color: #C0FFFF;"> <td align="left" valign="bottom" width="52%"> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"> June 2008 Notes, April 2009 Notes and September 2009 Notes and July 2009 Notes issued in September 2009 </div> </td> <td align="right" valign="bottom" width="1%">   </td> <td valign="bottom" width="1%" style="TEXT-ALIGN: left"> $ </td> <td valign="bottom" width="9%" style="TEXT-ALIGN: right"> - </td> <td nowrap="nowrap" valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> <td align="right" valign="bottom" width="1%">   </td> <td valign="bottom" width="1%" style="TEXT-ALIGN: left"> $ </td> <td valign="bottom" width="9%" style="TEXT-ALIGN: right"> - </td> <td nowrap="nowrap" valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> <td align="right" valign="bottom" width="1%">   </td> <td valign="bottom" width="1%" style="TEXT-ALIGN: left"> $ </td> <td valign="bottom" width="9%" style="TEXT-ALIGN: right"> 4,110 </td> <td nowrap="nowrap" valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> <td align="right" valign="bottom" width="1%">   </td> <td valign="bottom" width="1%" style="TEXT-ALIGN: left"> $ </td> <td valign="bottom" width="9%" style="TEXT-ALIGN: right"> - </td> <td nowrap="nowrap" valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> </tr> <tr style="background-color: white;"> <td align="left" valign="bottom" width="52%"> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"> March 2010 Notes </div> </td> <td align="right" valign="bottom" width="1%">   </td> <td valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> <td valign="bottom" width="9%" style="TEXT-ALIGN: right"> - </td> <td nowrap="nowrap" valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> <td align="right" valign="bottom" width="1%">   </td> <td valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> <td valign="bottom" width="9%" style="TEXT-ALIGN: right"> - </td> <td nowrap="nowrap" valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> <td align="right" valign="bottom" width="1%">   </td> <td valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> <td valign="bottom" width="9%" style="TEXT-ALIGN: right"> 26,252 </td> <td nowrap="nowrap" valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> <td align="right" valign="bottom" width="1%">   </td> <td valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> <td valign="bottom" width="9%" style="TEXT-ALIGN: right"> - </td> <td nowrap="nowrap" valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> </tr> <tr style="background-color: #C0FFFF;"> <td align="left" valign="bottom" width="52%" style="PADDING-BOTTOM: 2px"> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"> September 2011 Notes </div> </td> <td align="right" valign="bottom" width="1%" style="PADDING-BOTTOM: 2px">   </td> <td valign="bottom" width="1%" style="BORDER-BOTTOM: black 2px solid; TEXT-ALIGN: left">   </td> <td valign="bottom" width="9%" style="BORDER-BOTTOM: black 2px solid; TEXT-ALIGN: right"> - </td> <td nowrap="nowrap" valign="bottom" width="1%" style="PADDING-BOTTOM: 2px; TEXT-ALIGN: left">   </td> <td align="right" valign="bottom" width="1%" style="PADDING-BOTTOM: 2px">   </td> <td valign="bottom" width="1%" style="BORDER-BOTTOM: black 2px solid; TEXT-ALIGN: left">   </td> <td valign="bottom" width="9%" style="BORDER-BOTTOM: black 2px solid; TEXT-ALIGN: right"> - </td> <td nowrap="nowrap" valign="bottom" width="1%" style="PADDING-BOTTOM: 2px; TEXT-ALIGN: left">   </td> <td align="right" valign="bottom" width="1%" style="PADDING-BOTTOM: 2px">   </td> <td valign="bottom" width="1%" style="BORDER-BOTTOM: black 2px solid; TEXT-ALIGN: left">   </td> <td valign="bottom" width="9%" style="BORDER-BOTTOM: black 2px solid; TEXT-ALIGN: right"> - </td> <td nowrap="nowrap" valign="bottom" width="1%" style="PADDING-BOTTOM: 2px; TEXT-ALIGN: left">   </td> <td align="right" valign="bottom" width="1%" style="PADDING-BOTTOM: 2px">   </td> <td valign="bottom" width="1%" style="BORDER-BOTTOM: black 2px solid; TEXT-ALIGN: left">   </td> <td valign="bottom" width="9%" style="BORDER-BOTTOM: black 2px solid; TEXT-ALIGN: right"> 12,700 </td> <td nowrap="nowrap" valign="bottom" width="1%" style="PADDING-BOTTOM: 2px; TEXT-ALIGN: left">   </td> </tr> <tr style="background-color: white;"> <td align="left" valign="bottom" width="52%" style="PADDING-BOTTOM: 4px"> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left">    Total </div> </td> <td align="right" valign="bottom" width="1%" style="PADDING-BOTTOM: 4px">   </td> <td valign="bottom" width="1%" style="BORDER-BOTTOM: black 4px double; TEXT-ALIGN: left"> $ </td> <td valign="bottom" width="9%" style="BORDER-BOTTOM: black 4px double; TEXT-ALIGN: right"> - </td> <td nowrap="nowrap" valign="bottom" width="1%" style="PADDING-BOTTOM: 4px; TEXT-ALIGN: left">   </td> <td align="right" valign="bottom" width="1%" style="PADDING-BOTTOM: 4px">   </td> <td valign="bottom" width="1%" style="BORDER-BOTTOM: black 4px double; TEXT-ALIGN: left"> $ </td> <td valign="bottom" width="9%" style="BORDER-BOTTOM: black 4px double; TEXT-ALIGN: right"> - </td> <td nowrap="nowrap" valign="bottom" width="1%" style="PADDING-BOTTOM: 4px; TEXT-ALIGN: left">   </td> <td align="right" valign="bottom" width="1%" style="PADDING-BOTTOM: 4px">   </td> <td valign="bottom" width="1%" style="BORDER-BOTTOM: black 4px double; TEXT-ALIGN: left"> $ </td> <td valign="bottom" width="9%" style="BORDER-BOTTOM: black 4px double; TEXT-ALIGN: right"> 30,362 </td> <td nowrap="nowrap" valign="bottom" width="1%" style="PADDING-BOTTOM: 4px; TEXT-ALIGN: left">   </td> <td align="right" valign="bottom" width="1%" style="PADDING-BOTTOM: 4px">   </td> <td valign="bottom" width="1%" style="BORDER-BOTTOM: black 4px double; TEXT-ALIGN: left"> $ </td> <td valign="bottom" width="9%" style="BORDER-BOTTOM: black 4px double; TEXT-ALIGN: right"> 12,700 </td> <td nowrap="nowrap" valign="bottom" width="1%" style="PADDING-BOTTOM: 4px; TEXT-ALIGN: left">   </td> </tr> </table>

<table align="center" border="0" cellpadding="0" cellspacing="0" id="hangingindent-6" width="100%" style="FONT-SIZE: 10pt; FONT-FAMILY: times new roman; FONT-SIZE: 10pt; FONT-FAMILY: times new roman"> <tr valign="top" style="LINE-HEIGHT: 1.25;"> <td style="WIDTH: 9pt"> <div>   </div> </td> <td style="WIDTH: 27pt"> <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt"> 7. </div> </td> <td> <div align="justify"> Stock Incentive Plans and Share-Based Compensation </div> </td> </tr> </table> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 18pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"> During 2009, the Company established the 2009 Stock Incentive Plan (“2009 Plan”). The following table summarizes the RSU activity under the 2009 Plan for the nine months ended September 30, 2011: </div> <table cellpadding="0" cellspacing="0" width="100%" style="FONT-SIZE: 10pt; FONT-FAMILY: times new roman; FONT-SIZE: 10pt; FONT-FAMILY: times new roman"> <tr> <td align="left" valign="bottom"> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"> Restricted Stock Units </div> </td> <td valign="bottom">   </td> <td colspan="2" valign="bottom"> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"> Number of Shares </div> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"> (in thousands) </div> </td> <td nowrap="nowrap" valign="bottom" style="TEXT-ALIGN: left">   </td> <td valign="bottom">   </td> <td colspan="2" valign="bottom"> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"> Weighted Average </div> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"> Grant Date Fair Value </div> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"> per Share </div> </td> <td nowrap="nowrap" valign="bottom" style="TEXT-ALIGN: left">   </td> </tr> <tr style="background-color: #C0FFFF;"> <td valign="bottom" width="70%" style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt; TEXT-ALIGN: left"> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt; TEXT-ALIGN: left"> Outstanding  nonvested RSUs at January 1, 2011 </div> </td> <td valign="bottom" width="1%">   </td> <td valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> <td valign="bottom" width="12%" style="TEXT-ALIGN: right"> 192 </td> <td nowrap="nowrap" valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> <td valign="bottom" width="1%">   </td> <td valign="bottom" width="1%" style="TEXT-ALIGN: left"> $ </td> <td valign="bottom" width="12%" style="TEXT-ALIGN: right"> 67.21 </td> <td nowrap="nowrap" valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> </tr> <tr style="background-color: white;"> <td valign="bottom" width="70%" style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt; TEXT-ALIGN: left"> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt; TEXT-ALIGN: left"> Granted </div> </td> <td valign="bottom" width="1%">   </td> <td valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> <td valign="bottom" width="12%" style="TEXT-ALIGN: right"> 21,328 </td> <td nowrap="nowrap" valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> <td valign="bottom" width="1%">   </td> <td valign="bottom" width="1%" style="TEXT-ALIGN: left"> $ </td> <td valign="bottom" width="12%" style="TEXT-ALIGN: right"> 0.02 </td> <td nowrap="nowrap" valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> </tr> <tr style="background-color: #C0FFFF;"> <td valign="bottom" width="70%" style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt; TEXT-ALIGN: left"> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt; TEXT-ALIGN: left"> Vested </div> </td> <td valign="bottom" width="1%">   </td> <td valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> <td valign="bottom" width="12%" style="TEXT-ALIGN: right"> - </td> <td nowrap="nowrap" valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> <td valign="bottom" width="1%">   </td> <td valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> <td valign="bottom" width="12%" style="TEXT-ALIGN: right"> - </td> <td nowrap="nowrap" valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> </tr> <tr style="background-color: white;"> <td valign="bottom" width="70%" style="PADDING-BOTTOM: 2px; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt; TEXT-ALIGN: left"> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt; TEXT-ALIGN: left"> Forfeited or expired </div> </td> <td valign="bottom" width="1%" style="PADDING-BOTTOM: 2px">   </td> <td valign="bottom" width="1%" style="BORDER-BOTTOM: black 2px solid; TEXT-ALIGN: left">   </td> <td valign="bottom" width="12%" style="BORDER-BOTTOM: black 2px solid; TEXT-ALIGN: right"> - </td> <td nowrap="nowrap" valign="bottom" width="1%" style="PADDING-BOTTOM: 2px; TEXT-ALIGN: left">   </td> <td valign="bottom" width="1%" style="PADDING-BOTTOM: 2px">   </td> <td valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> <td valign="bottom" width="12%" style="PADDING-BOTTOM: 2px; TEXT-ALIGN: right"> - </td> <td nowrap="nowrap" valign="bottom" width="1%" style="PADDING-BOTTOM: 2px; TEXT-ALIGN: left">   </td> </tr> <tr style="background-color: #C0FFFF;"> <td valign="bottom" width="70%" style="PADDING-BOTTOM: 4px; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt; TEXT-ALIGN: left"> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt; TEXT-ALIGN: left"> Outstanding  nonvested RSUs at September 30, 2011 </div> </td> <td valign="bottom" width="1%" style="PADDING-BOTTOM: 4px">   </td> <td valign="bottom" width="1%" style="BORDER-BOTTOM: black 4px double; TEXT-ALIGN: left">   </td> <td valign="bottom" width="12%" style="BORDER-BOTTOM: black 4px double; TEXT-ALIGN: right"> 21,520 </td> <td nowrap="nowrap" valign="bottom" width="1%" style="PADDING-BOTTOM: 4px; TEXT-ALIGN: left">   </td> <td valign="bottom" width="1%" style="PADDING-BOTTOM: 4px">   </td> <td valign="bottom" width="1%" style="TEXT-ALIGN: left"> $ </td> <td valign="bottom" width="12%" style="PADDING-BOTTOM: 4px; TEXT-ALIGN: right"> 0.65 </td> <td nowrap="nowrap" valign="bottom" width="1%" style="PADDING-BOTTOM: 4px; TEXT-ALIGN: left">   </td> </tr> </table> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 18pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"> Based on the closing price of Genta common stock of $0.0015 per share on September 30, 2011, the fair value of the nonvested RSUs at September 30, 2011 is $32 thousand. As of September 30, 2011, there was approximately $73 thousand of total unrecognized compensation cost related to non-vested share-based compensation granted under the 2009 Plan, which is expected to be recognized over a weighted-average period of 0.9 year. Under the terms of the RSUs granted, the holders of the RSUs are entitled to anti-dilution protection in the form of additional shares of stock to be issued on the vesting dates of the underlying RSUs. The Company remeasures the obligation to issue incremental shares under anti-dilution provisions to fair value at each reporting period until the shares are issued. At September 30, 2011, the Company has reserved 21,328 restricted shares for anti-dilution protection. </div> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 18pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"> Share-based compensation expense recognized for the three and nine months ended September 30, 2011 and 2010, respectively, was comprised as follows: </div> <table cellpadding="0" cellspacing="0" width="100%" style="FONT-SIZE: 10pt; FONT-FAMILY: times new roman; FONT-SIZE: 10pt; FONT-FAMILY: times new roman"> <tr> <td valign="bottom" width="52%">   </td> <td valign="bottom" width="1%">   </td> <td colspan="6" valign="bottom" width="22%"> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"> Three Months ended </div> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"> September 30, </div> </td> <td nowrap="nowrap" valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> <td valign="bottom" width="1%">   </td> <td colspan="6" valign="bottom" width="22%"> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"> Nine months ended </div> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"> September 30, </div> </td> <td nowrap="nowrap" valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> </tr> <tr> <td valign="bottom" width="52%"> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"> ($ in thousands, except per share data) </div> </td> <td valign="bottom" width="1%">   </td> <td colspan="2" valign="bottom" width="10%"> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"> 2011 </div> </td> <td nowrap="nowrap" valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> <td valign="bottom" width="1%">   </td> <td colspan="2" valign="bottom" width="10%"> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"> 2010 </div> </td> <td nowrap="nowrap" valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> <td valign="bottom" width="1%">   </td> <td colspan="2" valign="bottom" width="10%"> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"> 2011 </div> </td> <td nowrap="nowrap" valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> <td valign="bottom" width="1%">   </td> <td colspan="2" valign="bottom" width="10%"> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"> 2010 </div> </td> <td nowrap="nowrap" valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> </tr> <tr> <td valign="bottom" width="52%">   </td> <td valign="bottom" width="1%">   </td> <td colspan="2" valign="bottom" width="10%">   </td> <td nowrap="nowrap" valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> <td valign="bottom" width="1%">   </td> <td colspan="2" valign="bottom" width="10%">   </td> <td nowrap="nowrap" valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> <td valign="bottom" width="1%">   </td> <td colspan="2" valign="bottom" width="10%">   </td> <td nowrap="nowrap" valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> <td valign="bottom" width="1%">   </td> <td colspan="2" valign="bottom" width="10%">   </td> <td nowrap="nowrap" valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> </tr> <tr style="background-color: #C0FFFF;"> <td align="left" valign="bottom" width="52%"> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"> Research and development expenses </div> </td> <td valign="bottom" width="1%">   </td> <td valign="bottom" width="1%" style="TEXT-ALIGN: left"> $ </td> <td valign="bottom" width="9%" style="TEXT-ALIGN: right"> (17 </td> <td nowrap="nowrap" valign="bottom" width="1%" style="TEXT-ALIGN: left"> ) </td> <td valign="bottom" width="1%">   </td> <td valign="bottom" width="1%" style="TEXT-ALIGN: left"> $ </td> <td valign="bottom" width="9%" style="TEXT-ALIGN: right"> 287 </td> <td nowrap="nowrap" valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> <td valign="bottom" width="1%">   </td> <td valign="bottom" width="1%" style="TEXT-ALIGN: left"> $ </td> <td valign="bottom" width="9%" style="TEXT-ALIGN: right"> 112 </td> <td nowrap="nowrap" valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> <td valign="bottom" width="1%">   </td> <td valign="bottom" width="1%" style="TEXT-ALIGN: left"> $ </td> <td valign="bottom" width="9%" style="TEXT-ALIGN: right"> 1,506 </td> <td nowrap="nowrap" valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> </tr> <tr style="background-color: white;"> <td align="left" valign="bottom" width="52%" style="PADDING-BOTTOM: 2px"> <div style="DISPLAY: block; MARGIN-LEFT: 18pt; TEXT-INDENT: -18pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"> Selling, general and administrative </div> </td> <td valign="bottom" width="1%" style="PADDING-BOTTOM: 2px">   </td> <td valign="bottom" width="1%" style="BORDER-BOTTOM: black 2px solid; TEXT-ALIGN: left">   </td> <td valign="bottom" width="9%" style="BORDER-BOTTOM: black 2px solid; TEXT-ALIGN: right"> (122 </td> <td nowrap="nowrap" valign="bottom" width="1%" style="PADDING-BOTTOM: 2px; TEXT-ALIGN: left"> ) </td> <td valign="bottom" width="1%" style="PADDING-BOTTOM: 2px">   </td> <td valign="bottom" width="1%" style="BORDER-BOTTOM: black 2px solid; TEXT-ALIGN: left">   </td> <td valign="bottom" width="9%" style="BORDER-BOTTOM: black 2px solid; TEXT-ALIGN: right"> 405 </td> <td nowrap="nowrap" valign="bottom" width="1%" style="PADDING-BOTTOM: 2px; TEXT-ALIGN: left">   </td> <td valign="bottom" width="1%" style="PADDING-BOTTOM: 2px">   </td> <td valign="bottom" width="1%" style="BORDER-BOTTOM: black 2px solid; TEXT-ALIGN: left">   </td> <td valign="bottom" width="9%" style="BORDER-BOTTOM: black 2px solid; TEXT-ALIGN: right"> 81 </td> <td nowrap="nowrap" valign="bottom" width="1%" style="PADDING-BOTTOM: 2px; TEXT-ALIGN: left">   </td> <td valign="bottom" width="1%" style="PADDING-BOTTOM: 2px">   </td> <td valign="bottom" width="1%" style="BORDER-BOTTOM: black 2px solid; TEXT-ALIGN: left">   </td> <td valign="bottom" width="9%" style="BORDER-BOTTOM: black 2px solid; TEXT-ALIGN: right"> 2,491 </td> <td nowrap="nowrap" valign="bottom" width="1%" style="PADDING-BOTTOM: 2px; TEXT-ALIGN: left">   </td> </tr> <tr style="background-color: #C0FFFF;"> <td align="left" valign="bottom" width="52%" style="PADDING-BOTTOM: 4px"> <div style="DISPLAY: block; MARGIN-LEFT: 18pt; TEXT-INDENT: -18pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"> Total share-based compensation expense </div> </td> <td valign="bottom" width="1%" style="PADDING-BOTTOM: 4px">   </td> <td valign="bottom" width="1%" style="BORDER-BOTTOM: black 4px double; TEXT-ALIGN: left"> $ </td> <td valign="bottom" width="9%" style="BORDER-BOTTOM: black 4px double; TEXT-ALIGN: right"> (139 </td> <td nowrap="nowrap" valign="bottom" width="1%" style="PADDING-BOTTOM: 4px; TEXT-ALIGN: left"> ) </td> <td valign="bottom" width="1%" style="PADDING-BOTTOM: 4px">   </td> <td valign="bottom" width="1%" style="BORDER-BOTTOM: black 4px double; TEXT-ALIGN: left"> $ </td> <td valign="bottom" width="9%" style="BORDER-BOTTOM: black 4px double; TEXT-ALIGN: right"> 692 </td> <td nowrap="nowrap" valign="bottom" width="1%" style="PADDING-BOTTOM: 4px; TEXT-ALIGN: left">   </td> <td valign="bottom" width="1%" style="PADDING-BOTTOM: 4px">   </td> <td valign="bottom" width="1%" style="BORDER-BOTTOM: black 4px double; TEXT-ALIGN: left"> $ </td> <td valign="bottom" width="9%" style="BORDER-BOTTOM: black 4px double; TEXT-ALIGN: right"> 193 </td> <td nowrap="nowrap" valign="bottom" width="1%" style="PADDING-BOTTOM: 4px; TEXT-ALIGN: left">   </td> <td valign="bottom" width="1%" style="PADDING-BOTTOM: 4px">   </td> <td valign="bottom" width="1%" style="BORDER-BOTTOM: black 4px double; TEXT-ALIGN: left"> $ </td> <td valign="bottom" width="9%" style="BORDER-BOTTOM: black 4px double; TEXT-ALIGN: right"> 3,997 </td> <td nowrap="nowrap" valign="bottom" width="1%" style="PADDING-BOTTOM: 4px; TEXT-ALIGN: left">   </td> </tr> <tr style="background-color: white;"> <td align="left" valign="bottom" width="52%"> <div style="DISPLAY: block; MARGIN-LEFT: 18pt; TEXT-INDENT: -18pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"> Share-based compensation expense, per basic common share </div> </td> <td valign="bottom" width="1%">   </td> <td valign="bottom" width="1%" style="TEXT-ALIGN: left"> $ </td> <td valign="bottom" width="9%" style="TEXT-ALIGN: right"> 0.00 </td> <td nowrap="nowrap" valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> <td valign="bottom" width="1%">   </td> <td valign="bottom" width="1%" style="TEXT-ALIGN: left"> $ </td> <td valign="bottom" width="9%" style="TEXT-ALIGN: right"> 3.95 </td> <td nowrap="nowrap" valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> <td valign="bottom" width="1%">   </td> <td valign="bottom" width="1%" style="TEXT-ALIGN: left"> $ </td> <td valign="bottom" width="9%" style="TEXT-ALIGN: right"> 0.00 </td> <td nowrap="nowrap" valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> <td valign="bottom" width="1%">   </td> <td valign="bottom" width="1%" style="TEXT-ALIGN: left"> $ </td> <td valign="bottom" width="9%" style="TEXT-ALIGN: right"> 33.39 </td> <td nowrap="nowrap" valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> </tr> <tr style="background-color: #C0FFFF;"> <td align="left" valign="bottom" width="52%"> <div style="DISPLAY: block; MARGIN-LEFT: 18pt; TEXT-INDENT: -18pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"> Share-based compensation expense, per diluted common share </div> </td> <td valign="bottom" width="1%">   </td> <td valign="bottom" width="1%" style="TEXT-ALIGN: left"> $ </td> <td valign="bottom" width="9%" style="TEXT-ALIGN: right"> 0.00 </td> <td nowrap="nowrap" valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> <td valign="bottom" width="1%">   </td> <td valign="bottom" width="1%" style="TEXT-ALIGN: left"> $ </td> <td valign="bottom" width="9%" style="TEXT-ALIGN: right"> 0.65 </td> <td nowrap="nowrap" valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> <td valign="bottom" width="1%">   </td> <td valign="bottom" width="1%" style="TEXT-ALIGN: left"> $ </td> <td valign="bottom" width="9%" style="TEXT-ALIGN: right"> 0.00 </td> <td nowrap="nowrap" valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> <td valign="bottom" width="1%">   </td> <td valign="bottom" width="1%" style="TEXT-ALIGN: left"> $ </td> <td valign="bottom" width="9%" style="TEXT-ALIGN: right"> 33.39 </td> <td nowrap="nowrap" valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> </tr> </table>

<table border="0" cellpadding="0" cellspacing="0" id="hangingindent-7" width="100%" style="FONT-SIZE: 10pt; FONT-FAMILY: times new roman; FONT-SIZE: 10pt; FONT-FAMILY: times new roman"> <tr valign="top"> <td style="WIDTH: 18pt">   </td> <td align="right" style="WIDTH: 18pt"> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt; TEXT-ALIGN: left"> 8. </div> </td> <td align="left"> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt; TEXT-ALIGN: left"> Net Income/(Loss) per Share </div> </td> </tr> </table> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 18pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"> The information required to compute basic and diluted net income/(loss) per share is as follows: </div> <table cellpadding="0" cellspacing="0" width="100%" style="FONT-SIZE: 10pt; FONT-FAMILY: times new roman; FONT-SIZE: 10pt; FONT-FAMILY: times new roman"> <tr> <td align="left" valign="bottom"> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left">  ($ in thousands, except per share amounts) </div> </td> <td valign="bottom">   </td> <td colspan="6" valign="bottom"> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"> Three months ended </div> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"> September 30, </div> </td> <td nowrap="nowrap" valign="bottom" style="TEXT-ALIGN: left">   </td> <td valign="bottom">   </td> <td colspan="6" valign="bottom"> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"> Nine months ended  </div> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"> September 30, </div> </td> <td nowrap="nowrap" valign="bottom" style="TEXT-ALIGN: left">   </td> </tr> <tr> <td valign="bottom">   </td> <td align="right" valign="bottom">   </td> <td align="right" colspan="2" valign="bottom"> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="right"> 2011 </div> </td> <td nowrap="nowrap" valign="bottom" style="TEXT-ALIGN: left">   </td> <td align="right" valign="bottom">   </td> <td align="right" colspan="2" valign="bottom"> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="right"> 2010 </div> </td> <td nowrap="nowrap" valign="bottom" style="TEXT-ALIGN: left">   </td> <td align="right" valign="bottom">   </td> <td align="right" colspan="2" valign="bottom"> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="right"> 2011 </div> </td> <td nowrap="nowrap" valign="bottom" style="TEXT-ALIGN: left">   </td> <td align="right" valign="bottom">   </td> <td align="right" colspan="2" valign="bottom"> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="right"> 2010 </div> </td> <td nowrap="nowrap" valign="bottom" style="TEXT-ALIGN: left">   </td> </tr> <tr> <td align="left" valign="bottom"> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"> Numerator: </div> </td> <td valign="bottom">   </td> <td colspan="2" valign="bottom">   </td> <td nowrap="nowrap" valign="bottom" style="TEXT-ALIGN: left">   </td> <td valign="bottom">   </td> <td colspan="2" valign="bottom">   </td> <td nowrap="nowrap" valign="bottom" style="TEXT-ALIGN: left">   </td> <td valign="bottom">   </td> <td colspan="2" valign="bottom">   </td> <td nowrap="nowrap" valign="bottom" style="TEXT-ALIGN: left">   </td> <td valign="bottom">   </td> <td colspan="2" valign="bottom">   </td> <td nowrap="nowrap" valign="bottom" style="TEXT-ALIGN: left">   </td> </tr> <tr style="background-color: #C0FFFF;"> <td align="left" valign="bottom" width="52%"> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left">      Net income/(loss) </div> </td> <td align="right" valign="bottom" width="1%">   </td> <td valign="bottom" width="1%" style="TEXT-ALIGN: left"> $ </td> <td valign="bottom" width="9%" style="TEXT-ALIGN: right"> (26,298 </td> <td nowrap="nowrap" valign="bottom" width="1%" style="TEXT-ALIGN: left"> ) </td> <td align="right" valign="bottom" width="1%">   </td> <td valign="bottom" width="1%" style="TEXT-ALIGN: left"> $ </td> <td valign="bottom" width="9%" style="TEXT-ALIGN: right"> 7,742 </td> <td nowrap="nowrap" valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> <td align="right" valign="bottom" width="1%">   </td> <td valign="bottom" width="1%" style="TEXT-ALIGN: left"> $ </td> <td valign="bottom" width="9%" style="TEXT-ALIGN: right"> (37,369 </td> <td nowrap="nowrap" valign="bottom" width="1%" style="TEXT-ALIGN: left"> ) </td> <td align="right" valign="bottom" width="1%">   </td> <td valign="bottom" width="1%" style="TEXT-ALIGN: left"> $ </td> <td valign="bottom" width="9%" style="TEXT-ALIGN: right"> (133,433 </td> <td nowrap="nowrap" valign="bottom" width="1%" style="TEXT-ALIGN: left"> ) </td> </tr> <tr style="background-color: white;"> <td align="left" valign="bottom" width="52%"> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left">      Plus: income impact of assumed conversion </div> </td> <td valign="bottom" width="1%">   </td> <td valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> <td valign="bottom" width="9%" style="TEXT-ALIGN: right">   </td> <td nowrap="nowrap" valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> <td valign="bottom" width="1%">   </td> <td valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> <td valign="bottom" width="9%" style="TEXT-ALIGN: right">   </td> <td nowrap="nowrap" valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> <td valign="bottom" width="1%">   </td> <td valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> <td valign="bottom" width="9%" style="TEXT-ALIGN: right">   </td> <td nowrap="nowrap" valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> <td valign="bottom" width="1%">   </td> <td valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> <td valign="bottom" width="9%" style="TEXT-ALIGN: right">   </td> <td nowrap="nowrap" valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> </tr> <tr style="background-color: #C0FFFF;"> <td align="left" valign="bottom" width="52%" style="PADDING-BOTTOM: 2px"> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left">               interest on convertible debt </div> </td> <td align="right" valign="bottom" width="1%" style="PADDING-BOTTOM: 2px">   </td> <td valign="bottom" width="1%" style="BORDER-BOTTOM: black 2px solid; TEXT-ALIGN: left">   </td> <td valign="bottom" width="9%" style="BORDER-BOTTOM: black 2px solid; TEXT-ALIGN: right"> - </td> <td nowrap="nowrap" valign="bottom" width="1%" style="PADDING-BOTTOM: 2px; TEXT-ALIGN: left">   </td> <td align="right" valign="bottom" width="1%" style="PADDING-BOTTOM: 2px">   </td> <td valign="bottom" width="1%" style="BORDER-BOTTOM: black 2px solid; TEXT-ALIGN: left">   </td> <td valign="bottom" width="9%" style="BORDER-BOTTOM: black 2px solid; TEXT-ALIGN: right"> 935 </td> <td nowrap="nowrap" valign="bottom" width="1%" style="PADDING-BOTTOM: 2px; TEXT-ALIGN: left">   </td> <td align="right" valign="bottom" width="1%" style="PADDING-BOTTOM: 2px">   </td> <td valign="bottom" width="1%" style="BORDER-BOTTOM: black 2px solid; TEXT-ALIGN: left">   </td> <td valign="bottom" width="9%" style="BORDER-BOTTOM: black 2px solid; TEXT-ALIGN: right"> - </td> <td nowrap="nowrap" valign="bottom" width="1%" style="PADDING-BOTTOM: 2px; TEXT-ALIGN: left">   </td> <td align="right" valign="bottom" width="1%" style="PADDING-BOTTOM: 2px">   </td> <td valign="bottom" width="1%" style="BORDER-BOTTOM: black 2px solid; TEXT-ALIGN: left">   </td> <td valign="bottom" width="9%" style="BORDER-BOTTOM: black 2px solid; TEXT-ALIGN: right"> - </td> <td nowrap="nowrap" valign="bottom" width="1%" style="PADDING-BOTTOM: 2px; TEXT-ALIGN: left">   </td> </tr> <tr style="background-color: white;"> <td align="left" valign="bottom" width="52%" style="PADDING-BOTTOM: 4px"> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left">      Net income/(loss) plus assumed conversion </div> </td> <td align="right" valign="bottom" width="1%" style="PADDING-BOTTOM: 4px">   </td> <td valign="bottom" width="1%" style="BORDER-BOTTOM: black 4px double; TEXT-ALIGN: left"> $ </td> <td valign="bottom" width="9%" style="BORDER-BOTTOM: black 4px double; TEXT-ALIGN: right"> (26,298 </td> <td nowrap="nowrap" valign="bottom" width="1%" style="PADDING-BOTTOM: 4px; TEXT-ALIGN: left"> ) </td> <td align="right" valign="bottom" width="1%" style="PADDING-BOTTOM: 4px">   </td> <td valign="bottom" width="1%" style="BORDER-BOTTOM: black 4px double; TEXT-ALIGN: left"> $ </td> <td valign="bottom" width="9%" style="BORDER-BOTTOM: black 4px double; TEXT-ALIGN: right"> 8,677 </td> <td nowrap="nowrap" valign="bottom" width="1%" style="PADDING-BOTTOM: 4px; TEXT-ALIGN: left">   </td> <td align="right" valign="bottom" width="1%" style="PADDING-BOTTOM: 4px">   </td> <td valign="bottom" width="1%" style="BORDER-BOTTOM: black 4px double; TEXT-ALIGN: left"> $ </td> <td valign="bottom" width="9%" style="BORDER-BOTTOM: black 4px double; TEXT-ALIGN: right"> (37,369 </td> <td nowrap="nowrap" valign="bottom" width="1%" style="PADDING-BOTTOM: 4px; TEXT-ALIGN: left"> ) </td> <td align="right" valign="bottom" width="1%" style="PADDING-BOTTOM: 4px">   </td> <td valign="bottom" width="1%" style="BORDER-BOTTOM: black 4px double; TEXT-ALIGN: left"> $ </td> <td valign="bottom" width="9%" style="BORDER-BOTTOM: black 4px double; TEXT-ALIGN: right"> (133,433 </td> <td nowrap="nowrap" valign="bottom" width="1%" style="PADDING-BOTTOM: 4px; TEXT-ALIGN: left"> ) </td> </tr> <tr style="background-color: #C0FFFF;"> <td valign="bottom" width="52%">   </td> <td valign="bottom" width="1%">   </td> <td valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> <td valign="bottom" width="9%" style="TEXT-ALIGN: right">   </td> <td nowrap="nowrap" valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> <td valign="bottom" width="1%">   </td> <td valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> <td valign="bottom" width="9%" style="TEXT-ALIGN: right">   </td> <td nowrap="nowrap" valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> <td valign="bottom" width="1%">   </td> <td valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> <td valign="bottom" width="9%" style="TEXT-ALIGN: right">   </td> <td nowrap="nowrap" valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> <td valign="bottom" width="1%">   </td> <td valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> <td valign="bottom" width="9%" style="TEXT-ALIGN: right">   </td> <td nowrap="nowrap" valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> </tr> <tr style="background-color: white;"> <td align="left" valign="bottom" width="52%"> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"> Denominator: </div> </td> <td valign="bottom" width="1%">   </td> <td valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> <td valign="bottom" width="9%" style="TEXT-ALIGN: right">   </td> <td nowrap="nowrap" valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> <td valign="bottom" width="1%">   </td> <td valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> <td valign="bottom" width="9%" style="TEXT-ALIGN: right">   </td> <td nowrap="nowrap" valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> <td valign="bottom" width="1%">   </td> <td valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> <td valign="bottom" width="9%" style="TEXT-ALIGN: right">   </td> <td nowrap="nowrap" valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> <td valign="bottom" width="1%">   </td> <td valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> <td valign="bottom" width="9%" style="TEXT-ALIGN: right">   </td> <td nowrap="nowrap" valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> </tr> <tr style="background-color: #C0FFFF;"> <td align="left" valign="bottom" width="52%"> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"> Weighted average shares outstanding: </div> </td> <td valign="bottom" width="1%">   </td> <td valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> <td valign="bottom" width="9%" style="TEXT-ALIGN: right">   </td> <td nowrap="nowrap" valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> <td valign="bottom" width="1%">   </td> <td valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> <td valign="bottom" width="9%" style="TEXT-ALIGN: right">   </td> <td nowrap="nowrap" valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> <td valign="bottom" width="1%">   </td> <td valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> <td valign="bottom" width="9%" style="TEXT-ALIGN: right">   </td> <td nowrap="nowrap" valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> <td valign="bottom" width="1%">   </td> <td valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> <td valign="bottom" width="9%" style="TEXT-ALIGN: right">   </td> <td nowrap="nowrap" valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> </tr> <tr style="background-color: white;"> <td align="left" valign="bottom" width="52%"> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left">      Basic </div> </td> <td align="right" valign="bottom" width="1%">   </td> <td valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> <td valign="bottom" width="9%" style="TEXT-ALIGN: right"> 303,233 </td> <td nowrap="nowrap" valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> <td align="right" valign="bottom" width="1%">   </td> <td valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> <td valign="bottom" width="9%" style="TEXT-ALIGN: right"> 175 </td> <td nowrap="nowrap" valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> <td align="right" valign="bottom" width="1%">   </td> <td valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> <td valign="bottom" width="9%" style="TEXT-ALIGN: right"> 157,547 </td> <td nowrap="nowrap" valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> <td align="right" valign="bottom" width="1%">   </td> <td valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> <td valign="bottom" width="9%" style="TEXT-ALIGN: right"> 120 </td> <td nowrap="nowrap" valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> </tr> <tr style="background-color: #C0FFFF;"> <td align="left" valign="bottom" width="52%"> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left">      Effect of dilutive convertible notes </div> </td> <td align="right" valign="bottom" width="1%">   </td> <td valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> <td valign="bottom" width="9%" style="TEXT-ALIGN: right"> - </td> <td nowrap="nowrap" valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> <td align="right" valign="bottom" width="1%">   </td> <td valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> <td valign="bottom" width="9%" style="TEXT-ALIGN: right"> 642 </td> <td nowrap="nowrap" valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> <td align="right" valign="bottom" width="1%">   </td> <td valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> <td valign="bottom" width="9%" style="TEXT-ALIGN: right"> - </td> <td nowrap="nowrap" valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> <td align="right" valign="bottom" width="1%">   </td> <td valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> <td valign="bottom" width="9%" style="TEXT-ALIGN: right"> - </td> <td nowrap="nowrap" valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> </tr> <tr style="background-color: white;"> <td align="left" valign="bottom" width="52%"> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left">      Effect of dilutive warrants/rights </div> </td> <td align="right" valign="bottom" width="1%">   </td> <td valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> <td valign="bottom" width="9%" style="TEXT-ALIGN: right"> - </td> <td nowrap="nowrap" valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> <td align="right" valign="bottom" width="1%">   </td> <td valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> <td valign="bottom" width="9%" style="TEXT-ALIGN: right"> 237 </td> <td nowrap="nowrap" valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> <td align="right" valign="bottom" width="1%">   </td> <td valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> <td valign="bottom" width="9%" style="TEXT-ALIGN: right"> - </td> <td nowrap="nowrap" valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> <td align="right" valign="bottom" width="1%">   </td> <td valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> <td valign="bottom" width="9%" style="TEXT-ALIGN: right"> - </td> <td nowrap="nowrap" valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> </tr> <tr style="background-color: #C0FFFF;"> <td align="left" valign="bottom" width="52%" style="PADDING-BOTTOM: 2px"> <div style="DISPLAY: block; MARGIN-LEFT: 18pt; TEXT-INDENT: -18pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left">      Effect of dilutive restricted stock units and convertible preferred stock </div> </td> <td align="right" valign="bottom" width="1%" style="PADDING-BOTTOM: 2px">   </td> <td valign="bottom" width="1%" style="BORDER-BOTTOM: black 2px solid; TEXT-ALIGN: left">   </td> <td valign="bottom" width="9%" style="BORDER-BOTTOM: black 2px solid; TEXT-ALIGN: right">  - </td> <td nowrap="nowrap" valign="bottom" width="1%" style="PADDING-BOTTOM: 2px; TEXT-ALIGN: left">   </td> <td align="right" valign="bottom" width="1%" style="PADDING-BOTTOM: 2px">   </td> <td valign="bottom" width="1%" style="BORDER-BOTTOM: black 2px solid; TEXT-ALIGN: left">   </td> <td valign="bottom" width="9%" style="BORDER-BOTTOM: black 2px solid; TEXT-ALIGN: right">  7 </td> <td nowrap="nowrap" valign="bottom" width="1%" style="PADDING-BOTTOM: 2px; TEXT-ALIGN: left">   </td> <td align="right" valign="bottom" width="1%" style="PADDING-BOTTOM: 2px">   </td> <td valign="bottom" width="1%" style="BORDER-BOTTOM: black 2px solid; TEXT-ALIGN: left">   </td> <td valign="bottom" width="9%" style="BORDER-BOTTOM: black 2px solid; TEXT-ALIGN: right">  - </td> <td nowrap="nowrap" valign="bottom" width="1%" style="PADDING-BOTTOM: 2px; TEXT-ALIGN: left">   </td> <td align="right" valign="bottom" width="1%" style="PADDING-BOTTOM: 2px">   </td> <td valign="bottom" width="1%" style="BORDER-BOTTOM: black 2px solid; TEXT-ALIGN: left">   </td> <td valign="bottom" width="9%" style="BORDER-BOTTOM: black 2px solid; TEXT-ALIGN: right">  - </td> <td nowrap="nowrap" valign="bottom" width="1%" style="PADDING-BOTTOM: 2px; TEXT-ALIGN: left">   </td> </tr> <tr style="background-color: white;"> <td align="left" valign="bottom" width="52%" style="PADDING-BOTTOM: 4px"> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left">      Diluted </div> </td> <td align="right" valign="bottom" width="1%" style="PADDING-BOTTOM: 4px">   </td> <td valign="bottom" width="1%" style="BORDER-BOTTOM: black 4px double; TEXT-ALIGN: left">   </td> <td valign="bottom" width="9%" style="BORDER-BOTTOM: black 4px double; TEXT-ALIGN: right"> 303,233 </td> <td nowrap="nowrap" valign="bottom" width="1%" style="PADDING-BOTTOM: 4px; TEXT-ALIGN: left">   </td> <td align="right" valign="bottom" width="1%" style="PADDING-BOTTOM: 4px">   </td> <td valign="bottom" width="1%" style="BORDER-BOTTOM: black 4px double; TEXT-ALIGN: left">   </td> <td valign="bottom" width="9%" style="BORDER-BOTTOM: black 4px double; TEXT-ALIGN: right"> 1,061 </td> <td nowrap="nowrap" valign="bottom" width="1%" style="PADDING-BOTTOM: 4px; TEXT-ALIGN: left">   </td> <td align="right" valign="bottom" width="1%" style="PADDING-BOTTOM: 4px">   </td> <td valign="bottom" width="1%" style="BORDER-BOTTOM: black 4px double; TEXT-ALIGN: left">   </td> <td valign="bottom" width="9%" style="BORDER-BOTTOM: black 4px double; TEXT-ALIGN: right"> 157,547 </td> <td nowrap="nowrap" valign="bottom" width="1%" style="PADDING-BOTTOM: 4px; TEXT-ALIGN: left">   </td> <td align="right" valign="bottom" width="1%" style="PADDING-BOTTOM: 4px">   </td> <td valign="bottom" width="1%" style="BORDER-BOTTOM: black 4px double; TEXT-ALIGN: left">   </td> <td valign="bottom" width="9%" style="BORDER-BOTTOM: black 4px double; TEXT-ALIGN: right"> 120 </td> <td nowrap="nowrap" valign="bottom" width="1%" style="PADDING-BOTTOM: 4px; TEXT-ALIGN: left">   </td> </tr> <tr style="background-color: #C0FFFF;"> <td valign="bottom" width="52%">   </td> <td valign="bottom" width="1%">   </td> <td valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> <td valign="bottom" width="9%" style="TEXT-ALIGN: right">   </td> <td nowrap="nowrap" valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> <td valign="bottom" width="1%">   </td> <td valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> <td valign="bottom" width="9%" style="TEXT-ALIGN: right">   </td> <td nowrap="nowrap" valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> <td valign="bottom" width="1%">   </td> <td valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> <td valign="bottom" width="9%" style="TEXT-ALIGN: right">   </td> <td nowrap="nowrap" valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> <td valign="bottom" width="1%">   </td> <td valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> <td valign="bottom" width="9%" style="TEXT-ALIGN: right">   </td> <td nowrap="nowrap" valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> </tr> <tr style="background-color: white;"> <td align="left" valign="bottom" width="52%"> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"> Net income/(loss) per share: </div> </td> <td valign="bottom" width="1%">   </td> <td valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> <td valign="bottom" width="9%" style="TEXT-ALIGN: right">   </td> <td nowrap="nowrap" valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> <td valign="bottom" width="1%">   </td> <td valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> <td valign="bottom" width="9%" style="TEXT-ALIGN: right">   </td> <td nowrap="nowrap" valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> <td valign="bottom" width="1%">   </td> <td valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> <td valign="bottom" width="9%" style="TEXT-ALIGN: right">   </td> <td nowrap="nowrap" valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> <td valign="bottom" width="1%">   </td> <td valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> <td valign="bottom" width="9%" style="TEXT-ALIGN: right">   </td> <td nowrap="nowrap" valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> </tr> <tr style="background-color: #C0FFFF;"> <td align="left" valign="bottom" width="52%"> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left">      Basic </div> </td> <td align="right" valign="bottom" width="1%">   </td> <td valign="bottom" width="1%" style="TEXT-ALIGN: left"> $ </td> <td valign="bottom" width="9%" style="TEXT-ALIGN: right"> (0.09 </td> <td nowrap="nowrap" valign="bottom" width="1%" style="TEXT-ALIGN: left"> ) </td> <td align="right" valign="bottom" width="1%">   </td> <td valign="bottom" width="1%" style="TEXT-ALIGN: left"> $ </td> <td valign="bottom" width="9%" style="TEXT-ALIGN: right"> 44.20 </td> <td nowrap="nowrap" valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> <td align="right" valign="bottom" width="1%">   </td> <td valign="bottom" width="1%" style="TEXT-ALIGN: left"> $ </td> <td valign="bottom" width="9%" style="TEXT-ALIGN: right"> (0.24 </td> <td nowrap="nowrap" valign="bottom" width="1%" style="TEXT-ALIGN: left"> ) </td> <td align="right" valign="bottom" width="1%">   </td> <td valign="bottom" width="1%" style="TEXT-ALIGN: left"> $ </td> <td valign="bottom" width="9%" style="TEXT-ALIGN: right"> (1,114.57 </td> <td nowrap="nowrap" valign="bottom" width="1%" style="TEXT-ALIGN: left"> ) </td> </tr> <tr style="background-color: white;"> <td align="left" valign="bottom" width="52%"> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left">      Diluted </div> </td> <td align="right" valign="bottom" width="1%">   </td> <td valign="bottom" width="1%" style="TEXT-ALIGN: left"> $ </td> <td valign="bottom" width="9%" style="TEXT-ALIGN: right"> (0.09 </td> <td nowrap="nowrap" valign="bottom" width="1%" style="TEXT-ALIGN: left"> ) </td> <td align="right" valign="bottom" width="1%">   </td> <td valign="bottom" width="1%" style="TEXT-ALIGN: left"> $ </td> <td valign="bottom" width="9%" style="TEXT-ALIGN: right"> 8.18 </td> <td nowrap="nowrap" valign="bottom" width="1%" style="TEXT-ALIGN: left">   </td> <td align="right" valign="bottom" width="1%">   </td> <td valign="bottom" width="1%" style="TEXT-ALIGN: left"> $ </td> <td valign="bottom" width="9%" style="TEXT-ALIGN: right"> (0.24 </td> <td nowrap="nowrap" valign="bottom" width="1%" style="TEXT-ALIGN: left"> ) </td> <td align="right" valign="bottom" width="1%">   </td> <td valign="bottom" width="1%" style="TEXT-ALIGN: left"> $ </td> <td valign="bottom" width="9%" style="TEXT-ALIGN: right"> (1,114.57 </td> <td nowrap="nowrap" valign="bottom" width="1%" style="TEXT-ALIGN: left"> ) </td> </tr> </table>

<table border="0" cellpadding="0" cellspacing="0" id="hangingindent-8" width="100%" style="FONT-SIZE: 10pt; FONT-FAMILY: times new roman; FONT-SIZE: 10pt; FONT-FAMILY: times new roman"> <tr valign="top"> <td style="WIDTH: 18pt">   </td> <td align="right" style="WIDTH: 18pt"> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt; TEXT-ALIGN: left"> 9. </div> </td> <td align="left"> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt; TEXT-ALIGN: left"> Commitments and Contingencies </div> </td> </tr> </table> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 18pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"> Litigation and Potential Claims </div> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 18pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"> In September 2008, several stockholders, on behalf of themselves and all others similarly situated, filed a class action complaint against the Company, the Board of Directors, and certain of its executive officers in Superior Court of New Jersey, captioned Collins v. Warrell, Docket No. L-3046-08. The complaint alleged that in issuing convertible notes in June 2008, the Board of Directors and certain officers breached their fiduciary duties, and the Company aided and abetted the breach of fiduciary duty. On March 20, 2009, the Superior Court of New Jersey granted the Company’s motion to dismiss the class action complaint and dismissed the complaint with prejudice. On April 30, 2009, the plaintiffs filed a notice of appeal with the Appellate Division. On May 13, 2009, the plaintiffs filed a motion for relief from judgment based on a claim of new evidence, which was denied on June 12, 2009. The plaintiffs also asked the Appellate Division for a temporary remand to permit the Superior Court judge to resolve the issues of the new evidence plaintiffs sought to raise and the Appellate Division granted the motion for temporary remand. Following the briefing and a hearing, the Superior Court denied the motion for relief from judgment on August 28, 2009. Thus, this matter proceeded in the Appellate Division. Plaintiffs' brief before the Appellate Division was filed on October 28, 2009, and the Company’s responsive brief was filed on January 27, 2010. The plaintiffs’ reply brief was filed on March 15, 2010. On August 3, 2011, the Appellate Division affirmed the decision of the Superior Court in part and reversed the decision of the Superior Court in part. The Appellate Division held that the Superior Court properly dismissed the complaint, but should have permitted the plaintiffs to file an amended complaint. The Appellate Division remanded the case to the Superior Court. On August 15, 2011, the defendants moved for reconsideration by the Appellate Division, but their motion was denied on August 26, 2011.  The Company, Board of Directors and Officers deny these allegations and intend to vigorously defend this lawsuit. </div>

<table border="0" cellpadding="0" cellspacing="0" id="hangingindent-9" width="100%" style="FONT-SIZE: 10pt; FONT-FAMILY: times new roman; FONT-SIZE: 10pt; FONT-FAMILY: times new roman"> <tr valign="top"> <td align="right" style="WIDTH: 27pt"> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt; TEXT-ALIGN: left"> 10. </div> </td> <td align="left"> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt; TEXT-ALIGN: left"> Supplemental Disclosure of Cash Flows Information and Non-Cash Investing and Financing Activities </div> </td> </tr> </table> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 18pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"> No interest or income taxes were paid with cash during the nine months ended September 30, 2011 and September 30, 2010. On September 2, 2011, the Company issued $9 thousand of April 2009 Notes in lieu of interest due on its April 2009 Notes. On September 9, 2011, the Company issued $72 thousand of June 2008 Notes in lieu of interest due on its June 2008 Notes. On September 9, 2011, the Company issued March 2010 Notes totaling $1.5 million in lieu of interest due on its March 2010 Notes. On June 9, 2011, the Company issued $69 thousand of June 2008 Notes in lieu of interest due on its June 2008 Notes. On March 9, 2011, the Company issued $68 thousand of June 2008 Notes in lieu of interest due on its June 2008 Notes. On March 9, 2011 the Company issued March 2010 Notes totaling $1.5 million in lieu of interest due on the March 2010 Notes. On March 2, 2011, the Company issued $9 thousand in April 2009 Notes in lieu of interest due on its April 2009 Notes. On January 7, 2011, the Company issued $1 thousand in July 2009 Notes in lieu of interest due on its July 2009 Notes. On January 4, 2011, the Company issued $100 thousand of September 2009 Notes in lieu of interest due on its September 2009 Notes. On June 9, 2010, the Company issued $66 thousand of June 2008 Notes in lieu of interest due on its June 2008 Notes. On March 9, 2010, the Company issued $67 thousand in June 2008 Notes in lieu of interest due on its June 2008 Notes. On March 2, 2010, the Company issued $163 thousand in April 2009 Notes in lieu of interest due on its April 2009 Notes. On January 7, 2010, the Company issued $30 thousand in July 2009 Notes in lieu of interest due on its July 2009 Notes. On January 4, 2010, the Company issued $187 thousand of September 2009 Notes in lieu of interest due on its September 2009 Notes. </div> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 18pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"> From January 1, 2011 through September 30, 2011, holders of the Company’s convertible notes voluntarily converted approximately $5.2 million, resulting in an issuance of 662.2 million shares of common stock. From January 1, 2010 through September 30, 2010, holders of the Company’s convertible notes voluntarily converted approximately $11.4 million, resulting in an issuance of 212 thousand shares of common stock. </div> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 18pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"> From January 1, 2011 through September 30, 2011, holders of the Company’s March 2010 Warrants voluntarily exercised a portion of their warrants, resulting in an issuance of 2.1 million shares. </div>

<table border="0" cellpadding="0" cellspacing="0" id="hangingindent-10" width="100%" style="FONT-SIZE: 10pt; FONT-FAMILY: times new roman; FONT-SIZE: 10pt; FONT-FAMILY: times new roman"> <tr valign="top"> <td align="right" style="WIDTH: 27pt"> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt; TEXT-ALIGN: left"> 11. </div> </td> <td align="left"> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt; TEXT-ALIGN: left"> Subsequent Events </div> </td> </tr> </table> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 18pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"> From October 1, 2011 through November 8, 2011, holders of convertible notes have voluntarily converted approximately $2.6 million of their notes, resulting in an issuance of 186.7 million shares of common stock. </div> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 18pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"> On October 7, 12, 19, 24, and 31, 2011 and on November 7, 2011, the Company entered into amendment agreements with certain investors in the September 2011 Financing to amend the terms of the G Notes to reflect the adjustments described in Note 6 above and to extend the deadline set forth in the September 2011 Purchase Agreement for the Company to effect a reverse stock split. </div> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 18pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"> At a Special Meeting of Stockholders of the Company, held on October 21, 2011, the Company’s stockholders authorized its Board of Directors to effect up to two reverse stock splits of all outstanding shares of common stock before December 31, 2012, with each reverse stock split having an exchange ratio from 1-for-2 up to 1-for-500. </div>