<PAGE>

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

                               -----------------

                                   FORM 10-K

                 FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO
          SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
    ACT OF 1934
     For the fiscal year ended December 31, 2001
                                      OR

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

                          Commission File No. 0-15327

                               -----------------

                               CYTRX CORPORATION
            (Exact name of Registrant as specified in its charter)

                      Delaware                 58-1642740
                   (State or other               (I.R.S.
                   jurisdiction of       Employer Identification
                  incorporation or                No.)
                    organization)

               154 Technology Parkway
                      Suite 200
               Norcross, Georgia 30092            30092
                (Address of principal          (Zip Code)
                 executive offices)

      Registrant's telephone number, including area code: (770) 368-9500

                               -----------------

          Securities registered pursuant to Section l2(b) of the Act:
                                     None

          Securities registered pursuant to Section 12(g) of the Act:
                    Common Stock, $.001 par value per share

                               -----------------

Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days.  YES [X]   NO [_]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]

The aggregate market value of the Registrant's common stock held by
non-affiliates on March 26, 2002 was approximately $9.3 million. On March 26,
2002, there were 11,564,779 shares of the Registrant's common stock
outstanding, exclusive of treasury shares.

                      DOCUMENTS INCORPORATED BY REFERENCE

Portions of the CytRx Corporation Proxy Statement for the 2002 Annual Meeting
of Stockholders (the "Proxy Statement") are incorporated by reference into Part
III.

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<PAGE>

                       "SAFE HABOR" STATEMENT UNDER THE
               PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

From time to time, we make oral and written statements that may constitute
"forward looking statements" (rather than historical facts) as defined in the
Private Securities Litigation Reform Act of 1995 or by the Securities and
Exchange Commission (the "SEC") in its rules, regulations and releases,
including Section 27A of the Securities Act of 1933, as amended (the
"Securities Act") and Section 21E or the Securities Exchange Act of 1934, as
amended. We desire to take advantage of the "safe harbor" provisions in the
Private Securities Litigation Reform Act of 1995 for forward looking statements
made from time to time, including, but not limited to, the forward looking
statements made in this Annual Report on Form 10-K (the "Annual Report"), as
well as those made in other filings with the SEC.

Forward looking statements can be identified by our use of forward looking
terminology such as "may", "will", "expect", "anticipate", "estimate",
"believe", "continue", or other similar words. Such forward looking statements
are based on our management's current plans and expectations and are subject to
risks, uncertainties and changes in plans that could cause actual results to
differ materially from those described in the forward looking statements. In
the preparation of this Annual Report, where such forward looking statements
appear, we have sought to accompany such statements with meaningful cautionary
statements identifying important factors that could cause actual results to
differ materially from those described in the forward looking statements, and
we have described many such items under "Risk Factors" set forth in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" below.

We do not have, and expressly disclaim, any obligation to release publicly any
updates or any changes in our expectations or any changes in events, conditions
or circumstances on which any forward looking statement is based.

                                      2

<PAGE>

                                    PART I

Item 1.  Business

General

We are a Delaware corporation, which was incorporated in 1985, and are engaged
in the development and commercialization of pharmaceutical products. Our
current research and development activities include FLOCOR, an intravenous
agent for treatment of sickle cell disease and other acute vaso-occlusive
disorders, and TranzFect, a delivery technology for DNA-based vaccines. We also
have a research pipeline with opportunities in the areas of muscular dystrophy,
cancer, spinal cord injury, vaccine delivery and gene therapy. See "Product
Development" below.

Certain financial information concerning the industry segments in which the
Company operates can be found in Note 14 to the Company's Consolidated
Financial Statements.

Recent Developments

On February 11, 2002 the Company entered into an Agreement and Plan of Merger
whereby CytRx will acquire Global Genomics Capital, Inc. ("GGC"), a privately
held genomics holding company, pursuant to the merger of GGC Merger
Corporation, a wholly-owned subsidiary of CytRx, with and into GGC. GGC will
continue as a wholly-owned subsidiary of CytRx after the merger. The terms of
the merger provide for CytRx to acquire all outstanding shares and rights to
acquire capital stock of GGC in return for the issuance or reservation for
issuance of a maximum of 9,962,881 shares of CytRx Common Stock. The closing of
the transaction is anticipated in the second quarter of 2002, and is contingent
upon approval by the shareholders of each company and other customary closing
conditions. Subject to shareholder approval, CytRx will change its name to
Global Genomics, Inc. upon completion of the merger.

In February 2002, the Company terminated the operations of its Spectrum
Recruitment Research recruiting services segment and assigned the rights to use
the Spectrum tradenames to a consulting firm comprised of former Cytrx
employees. See Note 16 to the Company's Consolidated Financial Statements.

Product Development

Therapeutic Copolymer Programs

General.  Our primary focus is on CRL-5861 (purified poloxamer 188), a novel,
intra-vascular agent with pharmacological properties that can be characterized
as rheologic, cytoprotective and anti-adhesive/anti-thrombotic. CRL-5861 is an
intravenous solution that has the unique property of improving micro-vascular
blood flow. Extensive preclinical and clinical studies suggest CRL-5861 may be
of significant benefit in acute ischemic vascular disorders such as stroke,
heart attack, and vaso-occlusive crisis of sickle cell disease. CRL-5861 may
also provide benefit in cancer when used in combination with radiation or
cytotoxic drugs. Through its effect on increasing blood flow, CRL-5861 is
thought to (1) increase delivery of cytotoxic drugs to ischemic portions of
tumors, and (2) increase oxygen delivery, thus increasing the sensitivity of
tumor cells to drug and radiation therapy.

The safety profile of CRL-5861 is well established. It has been investigated in
over 17 clinical studies representing administration to approximately 4,000
patients and healthy volunteers.

Sickle Cell Disease.  We believe CRL-5861 has significant potential in treating
a variety of vascular-occlusive diseases, including sickle cell disease, spinal
cord compression injury, muscular dystrophy and delivery of anti-cancer agents.
For purposes of our sickle cell disease development program, we refer to
CRL-5861 as "FLOCOR".

Sickle cell disease is a devastating disorder originating from an inherited
abnormality of hemoglobin, the oxygen-carrying molecule in red blood cells.
Under conditions of low blood oxygen, which is generally caused by dehydration
or stress, the sickle cell victim's hemoglobin becomes rigid causing red blood
cells to become rough, sticky and irregularly shaped, often looking like
sickles, which gives the disease its name. Estimates place the number of
persons suffering from sickle cell anemia in the U.S. at about 72,000, or
roughly one in 400 African-Americans. It is also estimated that complications
from sickle cell disease result in healthcare expenditures of $1.0 to $1.5
billion annually in the U.S.

                                      3

<PAGE>

The most common problem sickle cell patients face is episodic pain (also
referred to as vaso-occlusive crisis, or VOC). These episodes can last anywhere
from days to weeks, and can vary significantly in their severity. The deformed
sickle cells cannot easily flow through the smaller blood vessels of the body
and tend to clump together, forming occlusions which impede blood flow. The
occlusions deprive tissues of vital oxygen that can result in tissue death,
inflammation and intense throbbing pain. Aside from causing considerable pain
and suffering, these crisis episodes slowly destroy vital organs as they are
deprived of oxygen. As a result, the life expectancy of sickle cell victims is
about twenty years shorter than those without the disease. Patients suffering
from sickle cell disease may experience several crisis episodes each year.
Hospitalization is required when pain becomes too much to bear. There are about
75,000 hospital admissions annually to treat sickle cell patients undergoing
acute vascular-occlusive crisis caused by the disease. On average, these
patients require in-patient treatment for four to seven days. Currently there
is no disease modifying treatment for acute crisis of sickle cell disease and
treatment is limited to narcotics, fluids, and bed rest.

In sickle cell disease, the application of FLOCOR can best be described as an
intravenous blood "lubricant". FLOCOR's unique surface-active properties
decrease blood viscosity and enable the rigid sickled cells to become more
flexible, thus allowing easier passage of blood cells through narrow blood
vessels. We believe FLOCOR can shorten the episodes of vaso-occlusive crises
and, most importantly, preserve organ function.

On December 21, 1999, we reported results from a Phase III clinical study of
FLOCOR for treatment of acute sickle cell crisis. Although the study did not
demonstrate statistical significance in the primary endpoint, statistically
significant and clinically important benefits associated with FLOCOR were
observed in certain subgroups. In addition, among the entire patient
population, treatment with FLOCOR resulted in a statistically significant
increase in the percentage of patients achieving resolution of their crisis.
The Phase III study also demonstrated that FLOCOR is well tolerated. Based on
the encouraging efficacy results and a good safety profile, our independent
Data and Safety Monitoring Board (DSMB) and other thought leaders in the area
of sickle cell disease recommended that we continue with clinical development
of FLOCOR in sickle cell disease. We presented the results of the Phase III
trial at the 24th Annual Meeting of the National Sickle Cell Disease Program in
Philadelphia on April 12, 2000, and published the results in the Journal of the
American Medical Association (2001, vol. 286).

Based on our conversations with the United States Food and Drug Administration
(FDA), it is likely that either two small additional pivotal trials or one
large trial will be required for FLOCOR's approval, along with one to two
additional safety studies. We have collaborated with a consortium of pediatric
hematology centers, led by Johns Hopkins University School of Medicine, to
design a follow-up Phase III trial to further investigate FLOCOR in children
with sickle cell crisis. Johns Hopkins University School of Medicine, in
cooperation with the Maryland Medical Research Institute, has submitted grant
applications to the National Heart, Lung and Blood Institute of the National
Institutes of Health for financial support of the trial. We believe there is a
reasonable possibility of obtaining government funding to support one or more
of the remaining trials, which will minimize, but not eliminate our
expenditures. If we are successful, we would anticipate earliest funding
approval in the third quarter of 2002. The additional studies would take
approximately three years to complete following patient enrollment, which might
begin in the first quarter of 2003.

FLOCOR has been granted "Orphan Drug" designation by the FDA for the treatment
of sickle cell crisis. The Orphan Drug Act of 1983, as amended, provides
incentive to drug manufacturers to develop drugs for the treatment of rare
diseases (for example diseases that affect less than 200,000 individuals in the
United States, or diseases that affect more than 200,000 individuals in the
United States where the sponsor does not reasonably anticipate that its product
will become profitable). As a result of the designation of FLOCOR as an Orphan
Drug, if we are the first manufacturer to obtain FDA approval to market FLOCOR
for treatment of sickle cell crisis, we will obtain a seven-year period of
marketing exclusivity beginning from the date of FLOCOR's approval. During this
period, the FDA may not approve the same drug for the same use from another
sponsor.

Cancer--Cancer is the second leading cause of death in the United States.
Chemotherapy and/or radiation treatments have highly variable results and
improvements to these standard regimens are drastically needed.

                                      4

<PAGE>

CRL-5861 possesses properties that appear to increase blood flow to poorly
perfused areas of tumors, thus allowing chemotherapeutic agents to treat such
areas more effectively. By increasing blood flow, the tumors become more active
and sensitive to chemotherapy or radiation. Early preclinical studies have
shown promising results of CRL-5861's activity.

Muscular Dystrophy--Duchenne muscular dystrophy (DMD) is an inherited disorder
caused by an abnormal gene for a muscle protein known as dystrophin. Muscles
deficient in dystrophin break down under normal muscular activity and the
disease results in progressive muscle wasting, paralysis, and death often by
age 20. There is no treatment that is effective in preventing the progressive
muscle destruction of this devastating disorder. Several years ago, we began
collaborating with researchers at the University of Cincinnati Medical Center
to study CRL-5861 in the treatment of Muscular Dystrophy. Recently, the
collaboration was awarded a research grant from the Muscular Dystrophy
Association for further studies in animal models. If these laboratory studies
suggest CRL-5861 can protect dystrophin deficient mice, it may work similarly
in humans with DMD.

Spinal Cord Injury--Traumatic spinal cord damage is one of the most devastating
injuries imaginable, and unfortunately occurs primarily in young people, often
resulting in complete paralysis. Researchers believe that a significant portion
of spinal cord damage results from a secondary progression of damage after the
initial injury. This secondary injury results from membrane injury to nerve
cells, causing them to lose function over time.

We are currently testing CRL-5861 for its ability to interact with damaged
nerve membranes in such a way as to "seal" the damage and restore membrane
integrity. If successful, this treatment could limit the progression of
secondary, post-injury damage, thereby maintaining or restoring spinal cord
function. Based on the successful outcome of these studies, we believe we can
proceed very quickly with the clinical development of this agent since the
program will benefit from the existing safety and manufacturing capabilities
already in place for our FLOCOR program.

Vaccine Enhancement and Gene Therapy

DNA Vaccines & Gene Therapy--Gene therapy and/or gene based vaccines are
mediated through the delivery of DNA containing selected genes into cells by a
process known as transfection. We refer to our gene delivery technology as
TranzFect. A common class of materials used to enhance the transfection process
are known as cationic lipids. This type of lipid can associate with and alter
the integrity of a cell membrane, thus increasing the uptake of the complexed
DNA. Unfortunately, cationic lipids are toxic to cells and are readily
metabolized. Thus the effect of these agents in transfection protocols is not
readily reproducible when used in vivo.

We have identified a series of non-ionic block copolymers known as poloxamers
that share several physico-chemical traits with the cationic lipids in that
they associate with DNA and cell membranes. However, the block copolymers are
significantly less toxic than the cationic lipids and are not metabolized in
vivo. In addition, the poloxamer family of non-ionic block copolymers have a
significant history of being safely used in a wide variety of oral, injectable,
and topical pharmaceutical products. Importantly, a poloxamer known as CRL-1005
which is among the most active in transfection protocols and is adjuvant
active, has been studied in a Phase I clinical trial. In that trial, CRL-1005
was well tolerated at doses significantly higher than those anticipated to be
useful in gene therapy or DNA vaccine studies.

In addition to the ability of poloxamers to enhance transfection, these
compounds have significant immuno-adjuvant activity. Accordingly, we believe
that an optimal application for this technology may be in the field of DNA
vaccines. We believe that in this application, the activity of poloxamers will
be two-fold. First, the poloxamers will act as delivery/transfection agents to
facilitate the intracellular delivery and protection of the DNA from enzymatic
digestion. Second the poloxamer will act as an immuno-adjuvant. Since the
poloxamer is not metabolized and has surface active properties, it is likely to
remain on the surface of the transfected cell awaiting expression of the gene.
When the gene product is excreted from the cell, the poloxamer is likely to

                                      5

<PAGE>

associate with the antigen and exert immuno-adjuvant actions. Numerous
preclinical and clinical studies have demonstrated that conventional vaccines
adjuvanted with poloxamers are well tolerated and result in significantly
enhanced antibody and cellular immune responses.

A large majority of CytRx's revenus over the past two years has been generated
from license fees paid to CytRx with respect to its TranzFect technology.

Merck License--In November 2000, we entered into an exclusive, worldwide
license agreement with Merck & Co., Inc. whereby we granted Merck the right to
use our TranzFect technology in DNA-based vaccines targeted to four infectious
diseases, one of which is HIV.

In November 2000 Merck paid us a signature payment of $2 million and in
February 2002, Merck paid us an additional $1 million milestone fee related to
the commencement by Merck of the first FDA Phase I Study for the first product
incorporating TranzFect designed for the prevention and treatment of HIV. Merck
will also pay us up to $3 million in $1 million increments within 30 days of
the occurrence of each of the following: (1) the commencement by Merck of the
earlier of the first FDA Phase IIb Study or Phase III Study for such HIV
product; (2) the filing by Merck of the first U.S. Public Health Service Act
Product License Application in one of the countries mentioned below for such
HIV product; and (3) notification from a regulatory authority in the United
States, Canada, France, Germany, Italy, Spain, the United Kingdom, or Japan
that all approvals for the marketing of such HIV product, including pricing
approvals, have been granted. Merck will also pay us an annual fee of $50,000
the first year, $75,000 the second year, and $100,000 the third year and each
additional year thereafter until Merck receives notification from a regulatory
authority as mentioned above.

For the products incorporating TranzFect targeting the other diseases, Merck
will pay us milestone payments of up to $2,850,000 in the following increments:
(1) $100,000 for the commencement by Merck of the first FDA Phase I Study; (2)
$250,000 for the commencement by Merck of the earlier of the first FDA Phase
IIb Study or Phase III Study; (3) $500,000 for the filing by Merck of the first
U.S. Public Health Service Act Product License Application in one of the
countries mentioned below; and (4) $2 million for notification from a
regulatory authority in the United States, Canada, France, Germany, Italy,
Spain, the United Kingdom, or Japan that all approvals for the marketing of
such product, including pricing approvals, have been granted.

Merck also will pay to us royalties of between 2% and 4%, on a
country-by-country basis, based on net sales. Merck will pay an additional 1%
royalty on net sales if certain conditions are met regarding patent protection
and Merck's competitive position. The royalty payments are subject to certain
reductions.

This agreement remains effective unless terminated according to its terms by
either party or until the expiration of all royalty obligations thereunder.
Merck may terminate this agreement at any time in its sole discretion by giving
90 days written notice. Upon termination by Merck, the rights and obligations
under the agreement, including any licenses and payment obligations not yet
due, also terminate. The agreement may also be terminated for cause by either
party. All amounts paid to us are non-refundable and require no additional
efforts on our part.

Restrictions in the Merck license prevent us from disclosing certain of its
terms, including some of the specific disease targets covered. We have applied
with the SEC for and have received confidential treatment for certain portions
of the agreement, which have been omitted from the exhibit filed with the SEC.

Vical License--On December 7, 2001, CytRx entered into a license agreement with
Vical Incorporated granting Vical exclusive, worldwide rights to use or
sublicense CytRx's TranzFect poloxamer technology to enhance viral or non-viral
delivery of polynucleotides (such as DNA and RNA) in all preventive and
therapeutic human and animal health applications, except for (1) four
infectious disease vaccine targets previously licensed by CytRx to Merck, and
(2) DNA vaccines or therapeutics based on prostate-specific membrane antigen
(PSMA). In addition, the Vical license permits Vical to use TranzFect poloxamer
technology to enhance the delivery of proteins in prime-boost vaccine
applications that involve the use of polynucleotides.

Under the Vical license, CytRx received an up-front payment of $3,750,000 and
has the potential to receive milestone and royalty payments in the future based
on criteria described in the agreement. All amounts paid to us are
non-refundable upon termination and require no additional effort on our part.
Restrictions in the Vical license

                                      6

<PAGE>

prevent us from disclosing certain of its terms, including some of the specific
terms of the potential milestone and royalty payments. We have applied with the
SEC for confidential treatment for certain portions of the agreement that we
have omitted from the exhibit filed with the SEC.

Conventional Vaccines--As part of our TranzFect program, we have developed a
library of compounds, many of which have been shown to enhance the activity of
conventional vaccines. We refer to this program as Optivax. Other companies are
currently evaluating the Optivax compounds for possible license.

Other Product Development Efforts

Food Animal Growth Promotant--The United States Food and Drug Administration
has expressed a growing concern about the use of low level antibiotics in
animal feed and the possibility of resultant antibiotic resistance in human
pathogens. Pending regulations at the FDA could suspend farmers' use of any
antibiotics found to promote the spread of resistant human pathogens. In
experimental studies, our compound, CRL-8761, has been shown to have a
consistent effect to improve the rate of weight gain and feed efficiency in
well-controlled studies in poultry and swine. CRL-8761 consistently provides
the same growth performance benefits as antibiotics but, since it has no
antibiotic activity, it is free from human health concerns over the use of
antibiotics.

In February 2001, we entered into a license agreement with Ivy Animal Health,
Inc. under which we granted Ivy a worldwide exclusive license to CRL-8761. As
part of the license, we received a nominal upfront payment, and will receive a
milestone fee upon regulatory approval in the United States and a future
royalty equal to 5% of net sales.

Research and Development Expenditures

Expenditures for research and development activities related to continuing
operations were $1.8 million, $2.0 million and $12.8 million during the years
ended December 31, 2001, 2000 and 1999, respectively.

Manufacturing

We require three suppliers of materials or services to manufacture CRL-5861;
(i) a supplier of the raw drug substance, (ii) a supplier of the purified drug
which is refined from the raw drug substance and (iii) a manufacturer who can
formulate and sterile fill the purified drug substance into the finished drug
product. The raw drug substance is currently widely available at commercial
scales from numerous manufacturers. We have not entered into a formal agreement
with any supplier for the raw drug substance because of its wide availability.
In August 1999, we entered into a long-term commercial supply contract with
Organichem, Corp., located in Rennselaer, New York for production of the
purified drug substance. There can be no assurance that our relationship with
such supplier will continue or that we will be able to obtain additional
purified drug substance if our current supply is inadequate. Such inability to
obtain additional purified drug substance in amounts and at prices acceptable
to the Company could have a material adverse effect on our business. To meet
the need for manufacture of our finished drug product, we have entered into a
supply agreement with the Hospital Products Division of Abbott Laboratories.
Our inability to maintain such relationship on terms acceptable to us could
have a material adverse effect on our business.

If we modify our manufacturing process or change the source or location of
product supply, regulatory authorities will require us to demonstrate that the
material produced from the modified or new process or facility is equivalent to
the material used in our clinical trials. Further, any manufacturing facility
and the quality control and manufacturing procedures used by us for the
commercial supply of a product must comply with applicable Occupational Safety
and Health Administration, Environmental Protection Agency, and FDA standards,
including Good Manufacturing Practice regulations. See "Government Regulation"
below.

                                      7

<PAGE>

Patents and Proprietary Technology

We actively seek patent protection for our technologies, processes, uses, and
ongoing improvements and consider our patents and other intellectual property
to be critical to our business.

We continually evaluate the patentability of new inventions and improvements
developed by our employees and collaborators. Whenever appropriate, we will
endeavor to file United States and international patent applications to protect
these new inventions and improvements. However, there can be no assurance that
any of the current pending patent applications or any new patent applications
that may be filed will ever be issued in the United States or any other country.

We also attempt to protect our proprietary products, processes and other
information by relying on trade secrets and non-disclosure agreements with our
employees, consultants and certain other persons who have access to such
products, processes and information. Under the agreements, all inventions
conceived by employees are our exclusive property. Nevertheless, there can be
no assurance that these agreements will afford significant protection against
misappropriation or unauthorized disclosure of our trade secrets and
confidential information.

We believe we have worldwide comprehensive intellectual property covering the
use of poloxamers in a number of therapeutic areas. We have patents claiming
broad areas of the use of these compounds currently pending or issued in
Canada, Japan, South Korea, the European Patent Office and the United States.
On November 23, 1999 the U.S. Patent Office issued patent No. 5,990,241
"Polyoxypropylene/Polyoxyethylene Copolymers With Improved Biological Activity"
to us. We believe the issue of this patent provides important exclusivity since
it contains composition of matter claims for purified poloxamers used in our
products and technologies, including purified poloxamer 188, the active
ingredient in CRL-5861. This patent will expire in 2017. We also own a
comprehensive group of patents that broadly claim the use of poloxamers as
vaccine adjuvants that will provide additional coverage for DNA vaccines.

Competition

Many companies, including large pharmaceutical, chemical and biotechnology
firms with financial resources, research and development staffs, and facilities
that are substantially greater than ours, are engaged in the research and
development of pharmaceutical products that could compete with products under
development by us. The industry is characterized by rapid technological
advances and competitors may develop their products more rapidly and/or such
products may be more effective than those under development by us or our
licensees and corporate partners.

Government Regulation

The marketing of pharmaceutical products requires the approval of the FDA and
comparable regulatory authorities in foreign countries. The FDA has established
guidelines and safety standards which apply to the pre-clinical evaluation,
clinical testing, manufacture and marketing of pharmaceutical products. The
process of obtaining FDA approval for a new therapeutic product (drug)
generally takes several years and involves the expenditure of substantial
resources. The steps required before such a product can be produced and
marketed for human use in the United States include preclinical studies in
animal models, the filing of an Investigational New Drug ("IND") application,
human clinical trials and the submission and approval of a New Drug Application
("NDA"). The NDA involves considerable data collection, verification and
analysis, as well as the preparation of summaries of the manufacturing and
testing processes, preclinical studies, and clinical trials. The FDA must
approve the NDA before the drug may be marketed. There can be no assurance that
we will be able to obtain the required FDA approvals for any of our products.

The manufacturing facilities and processes for our products, whether
manufactured directly by us or by a third party, will be subject to rigorous
regulation, including the need to comply with Federal Good Manufacturing
Practice regulations. We are also subject to regulation under the Occupational
Safety and Health Act, the Environmental Protection Act, the Nuclear Energy and
Radiation Control Act, the Toxic Substance Control Act and the Resource
Conservation and Recovery Act.

                                      8

<PAGE>

Employees

As of December 31, 2001, we had four full-time employees and one part-time
employee.

Item 2.  Properties

We currently lease administrative office space at 154 Technology Parkway,
Norcross, Georgia. These facilities are in satisfactory condition and suitable
for our purposes and present operations. We also use contract lab facilities
for research and development purposes.

Item 3.  Legal Proceedings

We are not a party to any material litigation. We are occasionally involved in
other claims arising out of our operations in the normal course of business,
none of which are expected, individually or in the aggregate, to have a
material adverse affect on us.

Item 4.  Submission of Matters to a Vote of Security Holders

None.

                                    PART II

Item 5.  Market for Registrant's Common Equity and Related Stockholder Matters

Our Common Stock is traded on the Nasdaq National Market under the symbol CYTR.
The following table sets forth the high and low sale prices for our Common
Stock for the periods indicated as reported by Nasdaq. Such prices represent
prices between dealers without adjustment for retail mark-ups, mark-downs, or
commissions and may not necessarily represent actual transactions.

<TABLE>
<CAPTION>
                                                 High Low
                                                 ---- ---
                       <S>                       <C>  <C>
                       COMMON STOCK:
                        2002
                          January 1 to March 26. 1.00 .56
                        2001
                          Fourth Quarter........  .94 .45
                          Third Quarter......... 1.12 .61
                          Second Quarter........ 1.35 .79
                          First Quarter......... 1.22 .75
                        2000
                          Fourth Quarter........ 1.56 .47
                          Third Quarter......... 1.63 .81
                          Second Quarter........ 2.88 .81
                          First Quarter......... 6.44 .91
</TABLE>

On March 26, 2002, the closing price of our Common Stock as reported on The
Nasdaq Stock Market, was $0.86 and there were approximately 1,100 holders of
record of our Company's Common Stock. The number of record holders does not
reflect the number of beneficial owners of our Common Stock for whom shares are
held by brokerage firms and other institutions. We have not paid any dividends
since our inception and do not contemplate payment of dividends in the
foreseeable future.

                                      9

<PAGE>

Item 6.  Selected Financial Data

<TABLE>
<CAPTION>
                                              2001        2000          1999         1998         1997
                                           ----------  -----------  ------------  -----------  -----------
<S>                                        <C>         <C>          <C>           <C>          <C>
Statement of Operations Data:
Revenues:
 Service revenues......................... $  101,463  $   451,031  $    322,536  $   350,789  $   422,039
 License fees.............................  3,751,000    2,000,000            --           --           --
 Interest and other income................    546,947      876,827     1,068,924    1,762,747    1,381,306
                                           ----------  -----------  ------------  -----------  -----------
Total revenues............................  4,399,410    3,327,858     1,391,460    2,113,536    1,803,345
                                           ==========  ===========  ============  ===========  ===========
Loss from continuing operations...........   (931,341)  (1,147,457)  (15,269,918)  (7,737,296)  (4,618,867)
Income (loss) from discontinued operations         --      799,355       240,627    2,943,937   (1,434,125)
Extraordinary item........................         --           --            --     (325,120)          --
                                           ----------  -----------  ------------  -----------  -----------
Net loss.................................. $ (931,341) $  (348,102) $(15,029,291) $(5,118,479) $(6,052,992)
                                           ==========  ===========  ============  ===========  ===========
Basic and diluted loss per common share:
 Loss from continuing operations.......... $    (0.09) $     (0.12) $      (1.99) $     (1.01) $     (0.62)
 Income (loss) from discontinued
   operations.............................         --         0.08          0.03         0.38        (0.20)
 Extraordinary item.......................         --           --            --        (0.04)          --
                                           ----------  -----------  ------------  -----------  -----------
 Net loss................................. $    (0.09) $     (0.04) $      (1.96) $     (0.67) $     (0.82)
                                           ==========  ===========  ============  ===========  ===========
Balance Sheet Data:
Total assets.............................. $7,610,596  $ 6,859,238  $  6,128,063  $16,641,568  $24,905,995
Long-term debt............................         --           --       650,000           --           --
Other long-term liabilities...............         --           --     1,693,638           --           --
Convertible debentures....................         --           --            --           --    2,000,000
Total stockholders' equity................  6,582,751    5,618,814     1,032,688   14,688,548   19,248,395
</TABLE>

Item 7.  Management's Discussion and Analysis of Financial Condition and
Results of Operations

This discussion includes "forward looking" statements that reflect our current
views with respect to future events and financial performance. Investors should
be aware that actual results may differ materially from our expressed
expectations because of risks and uncertainties inherent in future events,
particularly those risks identified under "Risk Factors" set forth below, and
should not unduly rely on these forward looking statements. We undertake no
duty to update the information in this discussion if any forward looking
statement later turns out to be inaccurate.

The following should be read in conjunction with Selected Financial Data and
the audited consolidated financial statements of CytRx included in this report.

Critical Accounting Policies and Estimates

Management's discussion and analysis of its financial condition and results of
operation are based on our consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States. The preparation of these financial statements requires
management to make estimates and judgments that affect the reported amounts of
assets, liabilities, revenues and expenses, and related disclosure of
contingent assets and liabilities.

On an on-going basis, management evaluates its estimates, including those
related to revenue recognition, bad debts, accrued liabilities and certain
expenses. We base our estimates on historical experience and on various other
assumptions that are believed to be reasonable under the circumstances, the
results of which form the basis for making judgments about the carrying values
of assets and liabilities that are not readily apparent from other sources.
Actual results may differ materially from these estimates under different
assumptions or conditions.

                                      10

<PAGE>

Our significant accounting policies are summarized in Note 2 to the financial
statements. We believe the following critical accounting policies affect our
more significant judgments and estimates used in the preparation of our
consolidated financial statements.

Revenue Recognition

Service revenues are recognized at the time services are rendered. CytRx does
not require collateral or other securities for sales made on credit. Revenues
from collaborative research arrangements and grants are generally recorded as
the related costs are incurred. The costs incurred under such arrangements are
recorded as research and development expense and approximated the revenues
reported in the accompanying statements of operations. Non-refundable license
fee revenue is recognized upon receipt when no continuing involvement of CytRx
is required and payment of the license fee represents the culmination of the
earnings process. Non-refundable license fees received subject to future
performance by CytRx or that are credited against future payments due to CytRx
are deferred until services are performed, future payments are received or
termination of the agreement, whichever is earlier.

Stock-based Compensation

CytRx grants stock options and warrants for a fixed number of shares to key
employees and directors with an exercise price equal to the fair market value
of the shares at the date of grant. CytRx accounts for stock option grants and
warrants in accordance with APB Opinion No. 25, Accounting for Stock Issued to
Employees and related interpretations, and, accordingly, recognizes no
compensation expense for the stock option grants and warrants for which the
terms are fixed. For stock option grants and warrants which vest based on
certain corporate performance criteria, compensation expense is recognized to
the extent that the quoted market price per share exceeds the exercise price on
the date such criteria are achieved or are probable. At each reporting period
end, CytRx must estimate the probability of the criteria specified in the stock
based awards being met. Different assumptions in assessing this probability
could result in additional compensation expense being recognized. In October
1995, the FASB issued Statement of Financial Accounting Standards No. 123,
Accounting for Stock-based Compensation, which provides an alternative to APB
25 in accounting for stock-based compensation issued to employees. However,
CytRx has continued to account for stock-based compensation in accordance with
APB 25 (See Note 8 to financial statements). CytRx has also granted stock
options and warrants to certain consultants and other third parties. Stock
options and warrants granted to consultants and other third parties are
accounted for in accordance with Emerging Issues Task Force No. 96-18,
Accounting for Equity Instruments That Are Issued for Sales of Goods and
Services to Other Than Employees, and are valued at the fair market value of
the options and warrants granted or the services received, whichever is more
reliably measurable. Expense is recognized in the period in which a performance
commitment exists or the period in which the services are received, whichever
is earlier.

Liquidity and Capital Resources

At December 31, 2001, we had cash and cash equivalents of $5.3 million and net
assets of $6.6 million, compared to $3.8 million and $5.6 million,
respectively, at December 31, 2000. Working capital totaled $4.4 million at
December 31, 2001, compared to $2.7 million at December 31, 2000.

On December 7, 2001, CytRx entered into a license agreement with Vical
Incorporated granting Vical exclusive, worldwide rights to use or sublicense
CytRx's TranzFect poloxamer technology to enhance viral or non-viral delivery
of polynucleotides (such as DNA and RNA) in all preventive and therapeutic
human and animal health applications, except for (1) four infectious disease
vaccine targets previously licensed by CytRx to Merck, and (2) DNA vaccines or
therapeutics based on prostate-specific membrane antigen (PSMA). In addition,
the Vical license permits Vical to use TranzFect poloxamer technology to
enhance the delivery of proteins in prime-boost

                                      11

<PAGE>

vaccine applications that involve the use of polynucleotides. Under the Vical
license, CytRx received an up-front payment of $3,750,000 and has the potential
to receive milestone and royalty payments in the future based on criteria
described in the agreement. Restrictions in the Vical license prevent us from
disclosing certain of its terms, including some of the specific terms of the
potential milestone and royalty payments. All amounts paid to us are
non-refundable upon termination and require no additional effort on our part.

In November 2000, we entered into an exclusive, worldwide license agreement
with Merck & Co., Inc. whereby we granted to Merck the right to use our
TranzFect technology in DNA-based vaccines targeted to four infectious
diseases, one of which is HIV. For the license to the TranzFect technology to
treat the first disease target, Merck has paid us a signature payment of $2
million. In addition, in February 2002, Merck paid us a $1 million milestone
fee related to the commencement by Merck of the first U.S. Food and Drug
Administration Phase I Study for the first product incorporating TranzFect
designed for the prevention and treatment of HIV. Merck may pay us additional
milestone and product approval payments in the future of up to $3 million as
they develop the product. Additionally, if certain conditions are met regarding
patent protection and Merck's competitive position, Merck may pay a royalty to
us of 1% on net sales of products incorporating TranzFect for the first disease
target. For each of the licenses to the TranzFect technology to treat the three
additional disease targets, Merck will make a series of milestone and product
approval payments to us totaling up to $2,850,000 each. If and when sales of
products incorporating TranzFect for the three additional disease targets
commence, we will receive royalties of between 2 and 4% of the net sales from
such products. Additionally, if certain conditions are met regarding patent
protection and Merck's competitive position, Merck may pay an additional
royalty of 1% on net sales of products incorporating TranzFect for these
additional disease targets. Merck will also pay an annual fee of between
$50,000 and $100,000 until the first product approval for one of the three
additional disease targets. Merck may terminate the license at any time, upon
90 days written notice. All amounts paid to us are non-refundable upon
termination and require no additional effort on our part.

In April 2000, we entered into a private equity line of credit agreement
whereby we have the right to put shares of our common stock to an investor from
time to time to raise up to $5,000,000, subject to the conditions and
restrictions included in the agreement. Our ability to raise significant funds
through this mechanism is subject to a number of risks and uncertainties,
including stock market conditions and our ability to obtain and maintain an
effective registration of the related shares with the Securities and Exchange
Commission. To date, we have not exercised our right to sell shares under this
agreement.

We are seeking government support for additional clinical studies of CRL-5861
(FLOCOR) in sickle cell disease. Based on the encouraging results we observed
in children in the previous Phase III clinical study of CARL, we have
collaborated with a consortium of pediatric hematology centers led by Johns
Hopkins University School of Medicine to design a follow-up Phase III trial to
further investigate CARL in children with sickle cell crisis. Johns Hopkins
University School of Medicine, in cooperation with the Maryland Medical
Research Institute, has submitted grant applications to the National Heart,
Lung and Blood Institute of the National Institutes of Health (NHLBI) for
financial support of the trial. We expect the NHLBI to make funding decisions
with regard to these grant applications during the third quarter of 2002. We
also continue to engage in discussions with third parties for the possible
license of CRL-5861.


On February 11, 2002, we entered into a merger agreement with Global Genomics
Capital, Inc. ("GGC") whereby CytRx will acquire GGC, a privately held genomics
holding company, through a merger of a wholly owned subsidiary of CytRx into
GGC. The closing of the transaction is anticipated in the second quarter of
2002, and is contingent upon approval by the shareholders of each company and
other customary closing conditions. If our proposed merger with GGC is
completed, we will become obligated under contracts with our Chief Executive
Officer and other officers to make cash payments to such officers of up to $1.2
million in the aggregate upon termination of their employment for severance,
stay bonuses and other benefits.

We cannot assure our stockholders that the merger with GGC, if it closes, will
have a positive impact on CytRx, our financial condition or results of
operations, or the trading price of our Common Stock.

We believe that we will have adequate working capital to allow us to operate
through early 2003, but that additional funds will be needed to significantly
advance any of our technologies under development. Some of our

                                      12

<PAGE>

additional capital requirements may be provided by the equity line of credit
agreement and by potential milestone payments pursuant to the Merck and Vical
licenses, but we will also pursue other sources of equity capital. The results
of our technology licensing efforts and/or the actual proceeds of any
fund-raising activities will determine our ongoing ability to operate as a
going concern with the current portfolio of technologies under development.
These efforts are subject to market conditions and our ability to identify
parties that are willing and able to enter into such arrangements on terms that
are satisfactory to us. There is no assurance that such funding will be
available to finance our operations on acceptable terms, if at all.
Insufficient funding may require us to delay, reduce or eliminate some or all
of our research and development activities, planned clinical trials and
administrative programs.

At December 31, 2001, we had consolidated net operating loss carryforwards for
income tax purposes of approximately $54.1 million, which will expire in 2003
through 2020 if not utilized. We also have research and development tax credits
and orphan drug tax credits available to reduce income taxes, if any, of
approximately $6.7 million, which will expire in 2003 through 2021 if not
utilized. Based on an assessment of all available evidence including, but not
limited to, our limited operating history and lack of profitability,
uncertainties of the commercial viability of our technology, the impact of
government regulation and healthcare reform initiatives, and other risks
normally associated with biotechnology companies, we have concluded that it is
more likely than not that these net operating loss carryforwards and credits
will not be realized and, as a result, a 100% deferred tax valuation allowance
has been recorded against these assets.

The above statements regarding our plans and expectations for future financing
are forward-looking statements that are subject to a number of risks and
uncertainties. Our ability to obtain future financings through joint ventures,
product licensing arrangements, equity financings or otherwise is subject to
market conditions and our ability to identify parties that are willing and able
to enter into such arrangements on terms that are satisfactory to us. There can
be no assurance that we will be able to obtain future financing from these
sources. Additionally, depending upon the outcome of our fund raising efforts,
the accompanying financial information may not necessarily be indicative of
future operating results or future financial condition.

Results of Operations

We recorded a net loss of $931,000 for the year ended December 31, 2001 as
compared to net losses of $348,000 for 2000 and $15,029,000 for 1999. Loss from
continuing operations was $931,000, $1,147,000 and $15,270,000 in 2001, 2000
and 1999, respectively.

Since 1996 we have marketed the services of a small group of human resource
professionals to third parties under the name of Spectrum Recruitment Research
as a way of offsetting our cost of maintaining this function. Service revenues
related to Spectrum were $101,000 in 2001, $451,000 in 2000 and $323,000 in
1999. Cost of service revenues was $71,000 in 2001, $268,000 in 2000 and
$240,000 in 1999, or 70%, 59% and 74% of service revenues, respectively. As
more thoroughly discussed in Note 16 to CytRx's consolidated financial
statements below, the operations of Spectrum were terminated in February 2002.

Interest income was $162,000 in 2001 as compared to $170,000 in 2000 and
$463,000 in 1999. The variance between years is attributable primarily to
fluctuating cash balances. License fee income of $3,751,000 in 2001 and
$2,000,000 in 2000 relates to our licenses of TranzFect to Vical and Merck,
respectively (see Note 12 to financial statements). Grant income was $157,000
in 2001 versus $349,000 in 2000 and $464,000 in 1999; the higher amount during
1999 is primarily due to a $445,000 grant from the U.S. Food and Drug
Administration's Division of Orphan Drug Development to support our Phase III
clinical trial of FLOCOR during 1998 and 1999. Other income was $228,000,
$358,000 and $142,000 in 2001, 2000 and 1999, respectively. Other income for
2000 includes $225,000 in fees paid to us by Merck pursuant to an evaluation
agreement for our TranzFect technology and pursuant to a fee for service
agreement whereby we provided certain chemistry services to Merck.

Research and development expenses during 2001 were $1,844,000 versus $1,962,000
in 2000 and $12,812,000 in 1999. Research and development expenses were higher
in 1999 primarily due to our clinical development activities for CRL-5861
(FLOCOR). In March 1998, we began a Phase III trial of CRL-5861 for treatment
of acute sickle cell crisis, which was completed in December 1999. During 1999,
we also continued our Phase I trial of CRL-5861 for treatment of Acute Chest
Syndrome in sickle cell patients and initiated two additional clinical

                                      13

<PAGE>

trials of CRL-5861--a Phase III study investigated repeat use of FLOCOR in
patients with acute sickle cell crisis and a Phase I/II study for treatment of
Acute Lung Injury. Subsequent to the completion of the Phase III trial, we
reduced our clinical development activities for CRL-5861 pending further
analysis of the Phase III results. Our development activities during 2000 and
2001 have consisted primarily of analysis of the Phase III results,
consultation with our scientific and regulatory advisors and meetings with
regulatory authorities regarding preparation for the next clinical activities
for CRL-5861. The Phase III study did not achieve the high level of statistical
significance required by the FDA for the study as a whole; the results in
children, however, were statistically significant and our planned future
studies will focus on the pediatric sickle cell population. Based on our recent
conversations with the FDA, it is likely that either two small additional
pivotal trials or one large trial will be required for approval, along with one
to two additional safety studies. During 2001 we also initiated additional
preclinical studies investigating the use of CRL-5861 in the areas of cancer
and spinal cord injury.

Selling, general and administrative expenses during 2001 were $3,416,000 as
compared to $2,245,000 in 2000 and $3,610,000 in 1999. We recorded non-cash
charges of $1,441,000, $365,000 and $1,043,000 during 2001, 2000 and 1999,
respectively, related to the issuance of stock warrants to certain consultants
and certain vesting events for management stock options. Excluding these
charges, selling, general and administrative expenses were $1,975,000,
$1,880,000 and $2,567,000 during 2001, 2000 and 1999, respectively. The
decrease from 1999 to 2000 reflects staff reductions and other measures we took
during the first quarter of 2000 to reduce our expenses and conserve cash
resources.

Discontinued Operations

Net income (loss) from the discontinued operations of Titermax and Vaxcel (net
of minority interest) was $-0-, $799,000 and $241,000 in 2001, 2000 and 1999.
See Note 13 to financial statements. The following table presents the breakdown
of net income (loss) from discontinued operations.

<TABLE>
<CAPTION>
                                                2001   2000     1999
                                                ---- -------- --------
        <S>                                     <C>  <C>      <C>
        Titermax:
           Operations..........................  --   119,000  281,000
           Gain on sale of business............  --   680,000       --
                                                ---  -------- --------
                                                 --   799,000  281,000
        Vaxcel:
           Operations..........................  --        --  (44,000)
           Minority interest...................  --        --    4,000
                                                ---  -------- --------
                                                 --        --  (40,000)
                                                ---  -------- --------
        Net income from discontinued operations $--  $799,000 $241,000
                                                ===  ======== ========
</TABLE>

Risk Factors

Any investment in CytRx involves a high degree of risk. You should carefully
consider each of the following risks and all of the other information set forth
in this Form 10-K. If any of the following risks actually occur, our business
prospects, financial condition and results of operations could be materially
adversely affected and the trading price of our common stock could decline. In
any such case, you could lose all or part of your investment in our company.

We May Not Be Able to Obtain Adequate Funds to Continue Product Testing and
Research and Development, Which Will Severely Reduce or Terminate Our
Operations and Could Negatively Impact Our Future Profitability and Growth.

On December 31, 2001, we had approximately $5.3 million in cash and cash
equivalents and working capital of $4.4 million. Our products are governed by
extensive U.S. regulation and foreign regulation in other countries where we
test and intend to market our current and future products. Approval of a
product can take several years

                                      14

<PAGE>

and requires substantial capital resources. We do not currently have adequate
funds to conduct the required testing and data collection necessary for the
Food and Drug Administration, or FDA, to approve FLOCOR or any of our other
products. As a result, we must either severely reduce or terminate testing and
research and development activities, or obtain additional financing from third
parties to fund the required testing. If we elect to attempt to obtain
additional financing, we may be unable to obtain funds from any third party on
terms that we believe are acceptable. Our inability to obtain additional
financing would require us to severely reduce or terminate testing and research
and development activities and could result in the termination of our
operations. We do not currently have enough funds to complete the required
testing and data collections necessary to obtain regulatory approval of FLOCOR
or any of our other products currently under development or to manufacture,
market, and distribute any products that may obtain FDA approval. Delays in
regulatory approval will cause substantial unanticipated costs. We need to
raise additional funds through equity or debt financing, or a combination of
both. We may be unable to obtain any financing or financing on acceptable
terms. Any financing may be on terms that dilute our stockholders. A lack of
financing would require us to severely reduce or terminate testing and research
and development activities and could result in the termination of our
operations.

We Have No Significant Source of Revenue From Our Operations and If We Are
Unable to Generate Revenues From Our Operations We May Have to Depend on Third
Parties to Raise Funds.

We currently have no significant source of operating revenue. Our total
revenues for 2001 were approximately $4.4 million, which included $3.75 million
in license fees and $547,000 from other non-operating sources. If the FDA does
not approve, for commercial sale, FLOCOR or one of our other products, we may
not be able to generate significant revenues for an extended period of time.
Lack of revenues adequate to satisfy our operating needs will cause us to
depend on equity or debt financing, or a combination of both.

We Have Operated at a Loss For Over Five Years and Will Likely Continue to
Operate at a Loss For Some Time.

We incurred significant net losses for each of the last five years. Since our
inception, we have primarily conducted research and development of our
products. The costs of our research and development and our lack of operating
revenues has resulted in our net losses. We will probably incur losses until
one or more of our products is approved by the FDA and that product has
achieved significant sales volume. The activities required for the FDA review
process of a new pharmaceutical are extremely costly and usually take several
years. We may never obtain FDA approval of any of our products currently under
development.

The Nasdaq National Market May Delist Our Common Stock and If We Are Delisted
There May Not Be an Active Trading Market for Our Common Stock.

Our ability to remain listed on the Nasdaq National Market will depend on our
ability to satisfy applicable Nasdaq criteria, including our ability to
maintain a minimum bid price of $1.00 per share. Our minimum bid price has been
below the Nasdaq required $1.00 since August 14, 2001. In addition, until
November 1, 2002, in order to remain listed on the Nasdaq National Market, we
must maintain at least $4 million in "net tangible assets" (defined as total
assets minus total liabilities minus goodwill minus redeemable securities).
After November 1, 2002, we must satisfy a minimum stockholders' equity
requirement of $10 million to remain listed on the Nasdaq National Market,
rather than the "net tangible assets" criteria. As of December 31, 2001, our
net tangible assets were $6.6 million and as of December 31, 2001, our
stockholders' equity was $6.6 million.

If we fail to continue to satisfy any of the above criteria, Nasdaq may begin
procedures to remove our common stock from the Nasdaq National Market. If we
are delisted from the Nasdaq National Market, an active trading market for our
common stock may no longer exist.

                                      15

<PAGE>

We May Be Unable to Successfully Develop or Commercialize Our Products, Which
Would Severely Reduce or Terminate Our Operations.

Our continued operations substantially depend on our ability to successfully
develop and commercialize our products. In a Phase III clinical study, a drug
is tested in a large patient population to provide a thorough understanding of
the drug's effectiveness, benefits and the range of possible side effects. A
Phase III study must be successfully completed before a company can request FDA
approval for marketing the drug. In December 1999, we reported results from our
Phase III clinical study of FLOCOR for treatment of sickle cell disease
patients experiencing an acute vaso-occlusive crisis (a blockage of blood flow
caused by deformed, or "sickled" red blood cells). Overall, the study did not
achieve the statistical target for its primary objective, which was to decrease
the length of vaso-occlusive crisis for the study population as a whole. To
collect adequate information for FDA approval, we will need to conduct
additional clinical studies, which we will not begin unless we are able to
raise additional funds. Even if we are able to obtain FDA approval of one or
more of our products, we may not have adequate financial or other resources, or
expertise to commercialize, market and distribute those products successfully.
If we do not have adequate resources or the expertise to commercialize our
products successfully, we may rely on third parties to provide financial or
other resources to help us commercialize those products or we may have such
third parties market and distribute our products for us. In order to enter into
any such arrangements with a third party, we may have to give up some or all of
our rights to some of our products. We may be unable to find a third party
willing to provide us with resources or to market and distribute our products.
Even if we find a willing third party, we may not be able to reach an agreement
on terms that we believe are acceptable.

We Depend on a Limited Number of Suppliers For an Adequate Supply of Materials,
Which May Negatively Affect Our Ability to Manufacture Our Products.

We require three suppliers of materials or services to manufacture FLOCOR.
These consist of a supplier of poloxamer 188, which is the raw material used to
manufacture FLOCOR (the raw drug substance), a manufacturer who can refine the
raw drug substance to our specifications (the purified drug substance), and a
manufacturer who can mix the purified drug substance with other inactive
ingredients in a sterile environment to produce the final dosage form of
FLOCOR. Our inability to maintain relationships with those suppliers could
result in lengthy delays in the FDA and other regulatory agencies approval
processes, causing us to incur substantial unanticipated costs or our inability
to produce, market and distribute our product. We have not entered into an
agreement with any supplier for the raw drug substance because we believe that
it is widely available. In August 1999, we entered into a long-term commercial
supply contract with Organichem Corp. of Rensselaer, New York to obtain the
purified drug substance. We have also entered into an agreement with the
Hospital Products Division of Abbott Laboratories for the manufacture of our
finished drug product. If we are unable to maintain those relationships on
terms acceptable to us or to replace such suppliers if they fail to adequately
perform, we will experience delays in clinical trials or commercialization of
our products.

We May Incur Substantial Costs and Liability From Product Liability Claims.

If any of our products are alleged defective, they may expose us to claims for
personal injury. Even if the commercialization of one or more of our products
is approved by the FDA, users may claim that such product caused unintended
adverse effects. We currently carry product liability insurance covering the
use of our products in human clinical trials and may extend that coverage to
third parties who collaborate with us on the development of our products.
However, if someone asserts a claim against us and the amount of such claim
exceeds our policy limits or is not covered by our policy, such successful
claim may exceed our financial resources and cause us to discontinue
operations. Even if claims asserted against us are unsuccessful, they may
divert management's attention from our operations and we may have to incur
substantial costs to defend such claims.

                                      16

<PAGE>

We May Experience Volatility in Our Stock Price, Which May Negatively Impact
Your Investment.

The market price of our common stock has experienced significant volatility in
the past and may continue to experience significant volatility from time to
time. Our stock price has ranged from $0.45 to $6.44 over the past five years.
Factors such as the following may affect such volatility:

..   our quarterly operating results;

..   announcements of regulatory developments or technological innovations by us
    or our competitors;

..   government regulation of drug pricing;

..   developments in patent or other technology ownership rights; and

..   public concern regarding the safety of our products.

Other factors which may affect our stock price are general changes in the
economy, financial markets or the pharmaceutical or biotechnology industries.

Our Anti-Takeover Provisions May Limit Stockholder Value.

We have a shareholder rights plan and provisions in our bylaws that may
discourage or prevent a person or group from acquiring us without our board of
directors' approval. The intent of the shareholder rights plan and our bylaw
provisions is to protect our shareholders' interests by encouraging anyone
seeking control of CytRx to negotiate with our board of directors.

We have a classified board of directors, which requires that at least two
annual stockholder meetings, instead of one, will be required to effect a
change in the majority control of our board of directors without our board of
director's prior consent. This provision applies to every election of
directors, not just an election occurring after a change in control. The
classification of our board increases the amount of time it takes to change
majority control of our board of directors and may cause our potential
purchasers to lose interest in the potential purchase of us, regardless of
whether our purchase would be beneficial to us and our stockholders. Our bylaws
provide that directors may only be removed for cause by the affirmative vote of
the holders of at least a majority of the outstanding shares of our capital
stock then entitled to vote at an election of directors. This provision
prevents stockholders from removing any incumbent director without cause.

Our bylaws also provide that a stockholder must give us at least 120 days
notice of a proposal or director nomination that such stockholder desires to
present at any annual meeting or special meeting of stockholders. Such
provision prevents a stockholder from making a proposal or director nomination
at a stockholder meeting without us having advance notice of that proposal or
director nomination. This could make a change in control more difficult by
providing our directors with more time to prepare an opposition to a proposed
change in control.

Item 7A.  Qualitative and Quantitative Disclosures About Market Risk

Our financial instruments that are sensitive to changes in interest rates are
our investments. As of December 31, 2001, we held no investments other than
amounts invested in money market accounts. We are not subject to any other
material market risks.

Item 8.  Financial Statements and Supplementary Data

Our consolidated financial statements and supplemental schedule and the notes
thereto as of December 31, 2001 and 2000, and for each of the three years ended
December 31, 2001, 2000 and 1999, together with the independent auditors'
report thereon, are set forth on pages F-1 to F-18 of this Annual Report on
Form 10-K.

Item 9.  Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure

None.

                                      17

<PAGE>

                                   PART III

Item 10.  Directors and Executive Officers of the Registrant

Information with respect to this item is incorporated herein by reference from
the section entitled "CytRx Management" of the Proxy Statement.

Item 11.  Executive Compensation

Information with respect to this item is incorporated herein by reference from
the section entitled "CytRx Management" of the Proxy Statement.

Item 12.  Security Ownership of Certain Beneficial Owners and Management

Information with respect to this item is incorporated herein by reference from
the section entitled "CytRx Management" of the Proxy Statement.

Item 13.  Certain Relationships and Related Transactions

Information with respect to this item is incorporated herein by reference from
the section entitled "CytRx Management" of the Proxy Statement.

                                    PART IV

Item 14.  Exhibits, Financial Statement Schedules, and Reports on Form 8-K

(a)  Documents filed as part of this 10-K:

(1)  Financial Statements

The consolidated financial statements of the Company and the related report of
independent auditors thereon are set forth on pages F-1 to F-17 of this Annual
Report on Form 10-K. These consolidated financial statements are as follows:

Consolidated Balance Sheets as of December 31, 2001 and 2000

Consolidated Statements of Operations for the Years Ended December 31, 2001,
2000 and 1999

Consolidated Statements of Stockholders' Equity for the Years Ended December
31, 2001, 2000 and 1999

Consolidated Statements of Cash Flows for the Years Ended December 31, 2001,
2000 and 1999

Notes to Consolidated Financial Statements

Report of Independent Auditors

(2)  Financial Statement Schedules

The following financial statement schedule is set forth on page F-18 of this
    Annual Report on Form 10-K.

Schedule II--Valuation and Qualifying Accounts for the years ended December 31,
2001, 2000 and 1999

All other schedules are omitted because they are not required, not applicable,
or the information is provided in the financial statements or notes thereto.

(3)  Exhibits

See Exhibit Index on page 19 of this Annual Report on Form 10-K.

(b)  Reports on Form 8-K

On December 21, 2001 the Registrant filed a Current Report on Form 8-K
reporting the license of its TranzFect technology to Vical, Incorporated.

                                      18

<PAGE>

                               CytRx Corporation
                            Form 10-K Exhibit Index

<TABLE>
<CAPTION>
Exhibit
Number
------
<C>      <S>                                                                                         <C>
 2.1     Agreement and Plan of Merger dated February 11, 2002 among CytRx Corporation, GGC
         Merger Corporation and Global Genomics Capital, Inc.
 3.1     Restated Certificate of Incorporation                                                       (a)
 3.2     Restated By-Laws                                                                            (b)
 4.1     Shareholder Protection Rights Agreement dated April 16, 1997 between CytRx Corporation and
         American Stock Transfer & Trust Company as Rights Agent                                     (c)
 4.2     Amendment No. 1 to Shareholder Protection Rights Agreement
10.1     Agreement with Emory University, as amended                                                 (d)
10.2     Agreement with BASF Corporation, as amended                                                 (d)
10.3  *  Amended and Restated Employment Agreement between CytRx Corporation and Jack J.
         Luchese                                                                                     (i)
10.4  *  Amendment No. 1 to Employment Agreement with Jack J. Luchese
10.5  *  Amended and Restated Change of Control Employment Agreement between CytRx Corporation
         and Jack J. Luchese                                                                         (i)
10.6  *  Amendment No. 1 to Change in Control Employment Agreement with Jack J. Luchese
10.7  *  1986 Stock Option Plan, as amended and restated                                             (f)
10.8  *  1994 Stock Option Plan, as amended and restated                                             (e)
10.9  *  1995 Stock Option Plan                                                                      (g)
10.10 *  1998 Long-Term Incentive Plan                                                               (h)
10.11 *  2000 Long-Term Incentive Plan                                                               (l)
10.12 *  Amendment No. 1 to 2000 Long-Term Incentive Plan
10.13 *  Amendment No. 2 to 2000 Long-Term Incentive Plan
10.14    Purchase and Sale Agreement dated February 23, 1998 by and between CytRx Corporation and
         Alexandria Real Estate Equities, Inc.                                                       (h)
10.15    Common Stock Purchase Agreement dated March 24, 2000 by and between CytRx Corporation
         and the Investors Signatory Thereto                                                         (i)
10.16    Private Equity Line of Credit Agreement dated April 26, 2000, between CytRx Corporation and
         Majorlink Holdings Limited                                                                  (j)
10.17 +  License Agreement dated November 1, 2000 by and between CytRx Corporation and Merck &
         Co., Inc.                                                                                   (k)
10.18    License Agreement dated February 16, 2001 by and between CytRx Corporation and Ivy Animal
         Health, Inc.                                                                                (l)
10.19 ++ License Agreement dated December 7, 2001 by and between CytRx Corporation and Vical
         Incorporated                                                                                (m)
21.1     Subsidiaries
23.1     Consent of Ernst & Young LLP
</TABLE>
--------
*  Indicates a management contract or compensatory plan or arrangement.
+  Confidential treatment has been granted for certain portions which have been
   blanked out in the copy of the exhibit filed with the Securities and
   Exchange Commission. The omitted information has been filed separately with
   the Securities and Exchange Commission.
++ Confidential treatment has been requested with respect to certain portions
   of this agreement.
--------
(a) Incorporated by reference to the Registrant's Registration Statement on
    Form S-3 (File No. 333-39607) filed on November 5, 1997.
(b) Incorporated by reference to the Registrant's Registration Statement on
    Form S-8 (File No. 333-37171) filed on July 21, 1997.
(c) Incorporated by reference to the Registrant's Current Report on Form 8-K
    filed on April 21, 1997.

                                      19

<PAGE>

(d) Incorporated by reference to the Registrant's Registration Statement on
    Form S-l (File No. 33-8390) filed on November 5, 1986.
(e) Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q
    filed on November 13, 1997.
(f) Incorporated by reference to the Registrant's Annual Report on Form 10-K
    filed on March 27, 1996.
(g) Incorporated by reference to the Registrant's Registration Statement on
    Form S-8 (File No. 33-93818) filed on June 22, 1995.
(h) Incorporated by reference to the Registrant's Annual Report on Form 10-K
    filed on March 30, 1998.
(i) Incorporated by reference to the Registrant's Annual Report on Form 10-K
    filed on March 30, 2000.
(j) Incorporated by reference to the Registrant's Registration Statement on
    Form S-1 filed on June 21, 2000.
(k) Incorporated by reference to the Registrant's Current Report on Form 8-K/A
    filed on March 16, 2001.
(l) Incorporated by reference to the Registrant's Annual Report on Form 10-K
    filed on March 27, 2001.
(m) Incorporated by reference to the Registrant's Current Report on Form 8-K
    filed on December 21, 2001.

                                      20

<PAGE>

                                  SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

                                          CYTRX CORPORATION

                                                    /s/  JACK J. LUCHESE
                                          By:
                                             -----------------------------------
                                                 Jack J. Luchese, President
                                                and Chief Executive Officer
                                               (Principal Executive Officer)
Date: March 29, 2002

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.

          Signature                       Title                  Date
          ---------                       -----                  ----

 /s/  ALEXANDER L. CAPPELLO   Director                      March 29, 2002
-----------------------------
    Alexander L. Cappello

/s/  RAYMOND C. CARNAHAN, JR. Director                      March 29, 2002
-----------------------------
  Raymond C. Carnahan, Jr.

        /s/  MAX LINK         Chairman of the Board of      March 29, 2002
-----------------------------   Directors
          Max Link

    /s/  JACK J. LUCHESE      Director President and Chief  March 29, 2002
-----------------------------   Executive Officer
       Jack J. Luchese          (Principal Executive
                                Officer)

 /s/  HERBERT H. MCDADE, JR.  Director                      March 29, 2002
-----------------------------
   Herbert H. McDade, Jr.

    /s/  MARK W. REYNOLDS     Vice President, Finance       March 29, 2002
-----------------------------   (Principal Financial
      Mark W. Reynolds          Officer)

                                      21

<PAGE>

                               CYTRX CORPORATION

                  INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
                       AND FINANCIAL STATEMENT SCHEDULE

<TABLE>
            <S>                                                <C>

            Consolidated Balance Sheets....................... F-2

            Consolidated Statements of Operations............. F-3

            Consolidated Statements of Stockholders' Equity... F-4

            Consolidated Statements of Cash Flows............. F-5

            Notes to Consolidated Financial Statements........ F-6

            Report of Independent Auditors.................... F-17

            Financial Statement Schedule
               Schedule II--Valuation and Qualifying Accounts. F-18
</TABLE>

                                      F-1

<PAGE>

                               CYTRX CORPORATION

                          CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                       December 31,
                                                                                --------------------------
                                                                                    2001          2000
                                                                                ------------  ------------
<S>                                                                             <C>           <C>
ASSETS
Current assets:
   Cash and cash equivalents................................................... $  5,272,914  $  3,779,376
   Accounts receivable, less allowances of $39,050 in 2001 and $11,900 in
     2000......................................................................       28,000        54,160
   Current portion of note receivable..........................................      122,467       110,859
   Other current assets........................................................       23,238        34,171
                                                                                ------------  ------------
       Total current assets....................................................    5,446,619     3,978,566
Property and equipment, net....................................................    1,745,728     2,331,977
Other assets:
   Note receivable.............................................................      365,249       487,717
   Other assets................................................................       53,000        60,978
                                                                                ------------  ------------
       Total other assets......................................................      418,249       548,695
                                                                                ------------  ------------
       Total assets............................................................ $  7,610,596  $  6,859,238
                                                                                ============  ============

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
   Accounts payable............................................................ $    178,777  $    298,236
   Accrued expenses and other current liabilities..............................      849,068       942,188
                                                                                ------------  ------------
       Total current liabilities...............................................    1,027,845     1,240,424
Commitments
Stockholders' equity:
   Preferred Stock, $.01 par value, 1,000 shares authorized, including 1,000
     shares of Series A Junior Participating Preferred Stock; no shares issued
     and outstanding...........................................................           --            --
   Common stock, $.001 par value, 50,000,000 shares authorized; 11,459,012
     and 10,734,012 shares issued at December 31, 2001 and 2000,
     respectively..............................................................       11,459        10,734
   Additional paid-in capital..................................................   74,632,292    72,737,739
   Treasury stock, at cost (633,816 shares held at December 31, 2001 and
     2000).....................................................................   (2,279,238)   (2,279,238)
   Accumulated deficit.........................................................  (65,781,762)  (64,850,421)
                                                                                ------------  ------------
       Total stockholders' equity..............................................    6,582,751     5,618,814
                                                                                ------------  ------------
       Total liabilities and stockholders' equity.............................. $  7,610,596  $  6,859,238
                                                                                ============  ============
</TABLE>

                            See accompanying notes.

                                      F-2

<PAGE>

                               CYTRX CORPORATION

                     CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                              Year Ended December 31,
                                                      --------------------------------------
                                                         2001         2000          1999
                                                      -----------  -----------  ------------
<S>                                                   <C>          <C>          <C>
Revenues:
   Service revenues.................................. $   101,463  $   451,031  $    322,536
   License fees......................................   3,751,000    2,000,000            --
   Interest income...................................     162,284      170,433       462,634
   Grant revenue.....................................     156,729      348,790       464,442
   Other.............................................     227,934      357,604       141,848
                                                      -----------  -----------  ------------
                                                        4,399,410    3,327,858     1,391,460
Expenses:
   Cost of service revenues..........................      70,501      267,915       239,840
   Research and development..........................   1,844,038    1,962,171    12,811,925
   Selling, general and administrative...............   3,416,212    2,245,229     3,609,613
                                                      -----------  -----------  ------------
                                                        5,330,751    4,475,315    16,661,378
                                                      -----------  -----------  ------------
Loss from continuing operations......................    (931,341)  (1,147,457)  (15,269,918)
Income (loss) from discontinued operations...........          --      799,355       236,730
Minority interest in discontinued operations.........          --           --        (3,897)
                                                      -----------  -----------  ------------
Net loss............................................. $  (931,341) $  (348,102) $(15,029,291)
                                                      ===========  ===========  ============
Basic and diluted income (loss) per common share:
   Continuing operations............................. $     (0.09) $     (0.12) $      (1.99)
   Discontinued operations...........................          --         0.08          0.03
                                                      -----------  -----------  ------------
   Net loss.......................................... $     (0.09) $     (0.04) $      (1.96)
                                                      ===========  ===========  ============
Basic and diluted weighted average shares outstanding  10,358,381    9,423,787     7,652,227
</TABLE>


                            See accompanying notes.

                                      F-3

<PAGE>

                               CYTRX CORPORATION

                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                             Common Stock
                                          ------------------
                                                             Additional
                                            Shares            Paid-in    Accumulated    Treasury
                                            Issued   Amount   Capital      Deficit       Stock         Total
                                          ---------- ------- ----------- ------------  -----------  ------------
<S>                                       <C>        <C>     <C>         <C>           <C>          <C>
Balance at December 31, 1998.............  8,236,926 $ 8,237 $66,423,577 $(49,473,028) $(2,270,238) $ 14,688,548
    Issuance of common stock.............    136,927     137     339,078           --           --       339,215
    Issuance of stock options/warrants...         --      --   1,043,216           --           --     1,043,216
    Purchase of treasury stock...........         --      --          --           --       (9,000)       (9,000)
    Net loss.............................         --      --          --  (15,029,291)          --   (15,029,291)
                                          ---------- ------- ----------- ------------  -----------  ------------
Balance at December 31, 1999.............  8,373,853   8,374  67,805,871  (64,502,319)  (2,279,238)    1,032,688
    Issuance of common stock.............  2,360,159   2,360   4,567,255           --           --     4,569,615
    Issuance of stock options/warrants...         --      --     364,613                                 364,613
    Net loss.............................         --      --          --     (348,102)          --      (348,102)
                                          ---------- ------- ----------- ------------  -----------  ------------
Balance at December 31, 2000............. 10,734,012  10,734  72,737,739  (64,850,421)  (2,279,238)    5,618,814
    Issuance of common stock.............    725,000     725     453,619           --           --       454,344
    Issuance of stock options/warrants...         --      --   1,440,934           --           --     1,440,934
    Net loss.............................         --      --          --     (931,341)          --      (931,341)
                                          ---------- ------- ----------- ------------  -----------  ------------
Balance at December 31, 2001............. 11,459,012 $11,459 $74,632,292 $(65,781,762) $(2,279,238) $  6,582,751
                                          ========== ======= =========== ============  ===========  ============
</TABLE>



                            See accompanying notes.

                                      F-4

<PAGE>

                               CYTRX CORPORATION

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
                                                                           Year Ended December 31,
                                                                    -------------------------------------
                                                                       2001        2000          1999
                                                                    ----------  -----------  ------------
<S>                                                                 <C>         <C>          <C>
Cash flows from operating activities:
   Net loss........................................................ $ (931,341) $  (348,102) $(15,029,291)
   Adjustments to reconcile net loss to net cash used in operating
     activities:
       Depreciation................................................    586,249      317,850        68,377
       Gain on sales of segment operations.........................         --     (679,784)     (240,196)
       Minority interest in net loss of subsidiary.................         --           --        (3,897)
       Stock option and warrant expense............................  1,440,934      364,613     1,043,216
       Changes in assets and liabilities:
          Receivables..............................................     26,160       52,811       (91,043)
          Inventories..............................................         --        3,585         4,455
          Notes receivable.........................................    110,860       51,424       300,000
          Other assets.............................................     18,911      198,454       (93,675)
          Accounts payable.........................................   (119,459)     124,868       546,019
          Other liabilities........................................    (93,120)  (1,435,841)    1,950,233
                                                                    ----------  -----------  ------------
   Total adjustments...............................................  1,970,535   (1,002,020)    3,483,489
                                                                    ----------  -----------  ------------
       Net cash provided by (used in) operating activities.........  1,039,194   (1,350,122)  (11,545,802)
Cash flows from investing activities:
   Maturities of held-to-maturity securities.......................         --           --     6,417,066
   Net proceeds from sales of segment operations...................         --      100,000       240,196
   Net proceeds from sale of technology............................         --           --       600,000
   Capital (expenditures) retirements, net.........................         --      (28,032)   (2,515,157)
                                                                    ----------  -----------  ------------
       Net cash provided by investing activities...................         --       71,968     4,742,105
Cash flows from financing activities:
   Net proceeds from issuance of common stock......................    454,344    2,225,637       339,215
   Redemption/retirement of debt...................................         --     (200,000)           --
   Purchase of treasury stock......................................         --           --        (9,000)
   Proceeds from issuance of debt, net of issuance costs...........         --           --       650,000
                                                                    ----------  -----------  ------------
       Net cash provided by financing activities...................    454,344    2,025,637       980,215
                                                                    ----------  -----------  ------------
Net increase (decrease) in cash and cash equivalents...............  1,493,538      747,483    (5,823,482)
Cash and cash equivalents at beginning of year.....................  3,779,376    3,031,893     8,855,375
                                                                    ----------  -----------  ------------
Cash and cash equivalents at end of year........................... $5,272,914  $ 3,779,376  $  3,031,893
                                                                    ==========  ===========  ============
</TABLE>

                            See accompanying notes

                                      F-5

<PAGE>

                               CYTRX CORPORATION

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.  Nature of Business

CytRx Corporation ("CytRx" or "the Company") is a biopharmaceutical company
focused on the development and commercialization of high-value human
therapeutics. The Company's current research and development include CRL-5861,
an intravenous agent for treatment of sickle cell disease and other acute
vaso-occlusive disorders, and TranzFect, a delivery technology for DNA-based
vaccines. CytRx also has a research pipeline with opportunities in the areas of
muscular dystrophy, cancer, spinal cord injury, vaccine delivery and gene
therapy.

The Company's sales relate to Spectrum Recruitment Research ("Spectrum"),
through which the Company markets the services of its small group of human
resources professionals as a way of offsetting the Company's cost of
maintaining this function. Spectrum's services are marketed primarily within
metropolitan Atlanta, Georgia. The Company's operational focus is on the
development and commercialization of pharmaceutical products; the Spectrum
operations were formed as an ancillary activity. As more thoroughly discussed
in Note 16, the operations of Spectrum were terminated in February 2002.

2.  Summary of Significant Accounting Policies

Basis of Presentation--The consolidated financial statements include the
accounts of CytRx together with those of its majority-owned subsidiaries.
Certain prior year amounts have been reclassified to conform to the 2001
financial statement presentation. As more thoroughly discussed in Note 13, the
operations of Vaxcel, Inc. and the Company's TiterMax business segment are
presented as discontinued operations for all periods presented.

Revenue Recognition--Service revenues are recognized at the time services are
rendered. The Company does not require collateral or other securities for sales
made on credit. Revenues from collaborative research arrangements and grants
are generally recorded as the related costs are incurred. The costs incurred
under such arrangements are recorded as research and development expense and
approximated the revenues reported in the accompanying statements of
operations. Non-refundable license fee revenue is recognized upon receipt when
no continuing involvement of the Company is required and payment of the license
fee represents the culmination of the earnings process. Non-refundable license
fees received subject to future performance by the Company or that are credited
against future payments due to the Company are deferred until services are
performed, future payments are received or termination of the agreement,
whichever is earlier.

Cash Equivalents--The Company considers all highly liquid debt instruments with
an original maturity of 90 days or less to be cash equivalents. Cash
equivalents consist primarily of commercial paper and amounts invested in money
market accounts.

Fair Value of Financial Instruments--The carrying amounts reported in the
balance sheet for cash and cash equivalents, accounts receivable, notes
receivable and accounts payable approximate their fair values.

Property and Equipment--Property and equipment are stated at cost and
depreciated using the straight-line method based on the estimated useful lives
(generally five years for equipment and furniture) of the related assets.
Leasehold improvements are amortized over the term of the related lease or
other contractual arrangement. Management continuously monitors and evaluates
the realizability of recorded long-lived assets to determine whether their
carrying values have been impaired. In accordance with Financial Accounting
Standards Board ("FASB") Statement No. 121, Accounting for the Impairment of
Long-Lived Assets, the Company records impairment losses on long-lived assets
used in operations when events and circumstances indicate that the assets might
be impaired and the nondiscounted cash flows estimated to be generated by those
assets are less than the

                                      F-6

<PAGE>

                               CYTRX CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

carrying amount of those assets. Any impairment loss is measured by comparing
the fair value of the asset to its carrying amount.

Patents and Patent Application Costs--Although the Company believes that its
patents and underlying technology have continuing value, the amount of future
benefits to be derived therefrom is uncertain. Patent costs are therefore
expensed rather than capitalized.

Accrued Expenses--Accrued expenses and other current liabilities at December 31
are summarized below (in thousands).

<TABLE>
<CAPTION>
                                                  2001 2000
                                                  ---- ----
                     <S>                          <C>  <C>
                     Clinical research activities $194 $378
                     Deferred revenue............  303  256
                     Other miscellaneous.........  352  308
                                                  ---- ----
                            Total................ $849 $942
                                                  ==== ====
</TABLE>

Basic and Diluted Loss per Common Share--Basic and diluted loss per share are
computed based on the weighted average number of common shares outstanding.
Common share equivalents (which may consist of options and warrants) are
excluded from the computation of diluted loss per share since the effect would
be antidilutive.

Shares Reserved for Future Issuance--As of December 31, 2001, the Company has
reserved approximately 3,566,000 of its authorized but unissued shares of
common stock for future issuance pursuant to its employee stock option plans
and warrants, and 5,612,000 shares pursuant to warrants issued to consultants
and investors.

Stock-based Compensation--The Company grants stock options and warrants for a
fixed number of shares to key employees and directors with an exercise price
equal to the fair market value of the shares at the date of grant. The Company
accounts for stock option grants and warrants in accordance with APB Opinion
No. 25, Accounting for Stock Issued to Employees ("APB 25") and related
Interpretations, and, accordingly, recognizes no compensation expense for the
stock option grants and warrants for which the terms are fixed. For stock
option grants and warrants which vest based on certain corporate performance
criteria, compensation expense is recognized to the extent that the quoted
market price per share exceeds the exercise price on the date such criteria are
achieved or are probable. In October 1995, the FASB issued Statement of
Financial Accounting Standards No. 123, Accounting for Stock-based Compensation
("Statement 123"), which provides an alternative to APB 25 in accounting for
stock-based compensation issued to employees. However, the Company has
continued to account for stock-based compensation in accordance with APB 25
(See Note 8). The Company has also granted stock options and warrants to
certain consultants and other third parties. Stock options and warrants granted
to consultants and other third parties are accounted for in accordance with
Emerging Issues Task Force ("EITF") No. 96-18, Accounting for Equity
Instruments That Are Issued for Sales of Goods and Services to Other Than
Employees, and are valued at the fair market value of the options and warrants
granted or the services received, whichever is more reliably measurable.
Expense is recognized in the period in which a performance commitment exists or
the period in which the services are received, whichever is earlier.

Concentrations of Credit Risk--Financial instruments that potentially subject
the Company to significant concentrations of credit risk consist principally of
cash and cash equivalents, accounts receivable and note receivable. The Company
maintains cash and cash equivalents in large well-capitalized financial
institutions and the Company's investment policy disallows investment in any
debt securities rated less than "investment-grade"

                                      F-7

<PAGE>

                               CYTRX CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

by national ratings services. The Company generally does not require collateral
from its customers. The Company is at risk to the extent accounts receivable
and note receivable amounts become uncollectible.

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

Recently Issued Accounting Standards-- In December 1999, the SEC staff issued
Staff Accounting Bulletin No. 101, Revenue Recognition in Financial Statements
("SAB 101"). SAB 101 explains how the SEC staff applies by analogy the existing
rules on revenue recognition to other transactions not covered by such rules.
In March 2000, the SEC issued SAB 101A that delayed the original effective date
of SAB 101 until the second quarter of 2000 for calendar year companies. In
June 2000, the SEC issued SAB 101B that further delayed the effective date of
SAB 101 until no later than the fourth fiscal quarter of fiscal years beginning
after December 15, 1999. The adoption of SAB 101 has not had a material impact
on the Company's financial statements.

In June 2001, the FASB issued SFAS No. 141, Business Combinations ("SFAS 141").
This statement eliminates the pooling of interests method of accounting for all
business combinations initiated after June 30, 2001, and addresses the initial
recognition and measurement of goodwill and other intangible assets acquired in
a business combination. On February 11, 2002, the Company entered into an
agreement to acquire Global Genomics Capital, Inc., a privately held genomics
company in Los Angeles, California, through a merger of a wholly owned
subsidiary of the Company into Global Genomics Capital. The merger is subject
to the shareholder approval of both companies and other customary closing
conditions. See Note 16. The Company intends to account for the merger in
accordance with the provisions of SFAS 141.

In June 2001, the FASB issued SFAS No. 142, Goodwill and Other Intangible
Assets ("SFAS 142"). This statement changes the accounting for goodwill from an
amortization method to an impairment only approach. SFAS 142 is not expected to
have a significant impact on the results of operations of the Company upon
adoption.

In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets ("SFAS 144"), which addresses financial
accounting and reporting for the impairment or disposal of long-lived assets
and supercedes SFAS No. 121, Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of, and the accounting and reporting
provisions of APB Opinion No. 30, Reporting the Results of Operations, for a
disposal of a segment of a business. SFAS 144 is effective for fiscal years
beginning after December 15, 2001, with earlier application encouraged. The
Company expects to adopt SFAS 144 as of January 1, 2002. In February 2002, the
Company transferred all of its ownership rights in Spectrum Recruitment
Research to Albert, Isaac & Alexander, Inc., a consulting firm comprised of
former CytRx (Spectrum) employees. Since the disposal of Spectrum occurred
after the balance sheet date, the Company has not restated its financial
statements to reflect Spectrum as a discontinued operation in accordance with
the transition provisions of SFAS 144. See Note 16.

                                      F-8

<PAGE>

                               CYTRX CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


3.  Property and Equipment

Property and equipment at December 31 consist of the following (in thousands):

<TABLE>
<CAPTION>
                                                2001     2000
                                               -------  ------
                 <S>                           <C>      <C>
                 Equipment and furnishings.... $ 2,122  $2,122
                 Leasehold improvements.......     984     984
                                               -------  ------
                                                 3,106   3,106
                 Less accumulated depreciation  (1,360)   (774)
                                               -------  ------
                                               $ 1,746  $2,332
                                               =======  ======
</TABLE>

4.  Exchange of Common Stock for Cancellation of Accounts Payable, Accrued
Expenses and Debt

During the first quarter of 2000, the Company reached agreements with certain
trade creditors whereby an aggregate of $1,894,000 of trade payables was
cancelled in exchange for the issuance of approximately 758,000 shares of
CytRx's Common Stock. The Company also cancelled $650,000 of Long-Term Debt in
exchange for a cash payment of $200,000 and the issuance of 180,000 shares of
CytRx's Common Stock.

5.  Private Placement of Common Stock

Effective March 24, 2000, the Company entered into a Stock Purchase Agreement
with certain investors (the "Investors") whereby the Investors agreed to
purchase 800,000 shares of the Company's Common Stock for an aggregate purchase
price of $1,800,000 and the issuance of warrants to purchase an additional
330,891 shares at $2.25 per share. After consideration of offering expenses,
net proceeds to the Company were approximately $1,649,000. The warrants expire
March 31, 2003. The Investors were granted registration rights for the shares
issued to them and the shares underlying the warrants. Subject to certain
conditions, the Investors were also required, upon effective registration of
the shares, to either (a) purchase an additional 286,000 shares at $2.25 per
share and simultaneously receive an additional three-year warrant to purchase
143,000 shares at $2.25 per share, or (b) purchase 429,000 shares at a price
equal to 75% of a trailing average market price of the Company's Common Stock,
as defined in the Stock Purchase Agreement. In July 2000, the Investors
exercised their rights to purchase 429,000 additional shares at a net price of
$.77 per share, resulting in net proceeds of $307,000 to the Company, after
consideration of offering expenses.

6.  Equity Line of Credit

In April 2000, the Company entered into a Private Equity Line of Credit
Agreement (the "ELC Agreement") with Majorlink Holdings Limited ("Majorlink"),
pursuant to which the Company has the right to put shares of Common Stock to
Majorlink from time to time during the "commitment period" to raise up to
$5,000,000, subject to certain conditions and restrictions. The "commitment
period" began on the effective date (May 3, 2001) of a registration statement
filed by the Company to register the resale by Majorlink of the shares of
Common Stock that Majorlink purchases under the ELC Agreement and ends on the
earliest of (1) the date thirty months from such date, (2) the date on which
Majorlink shall have purchased $5,000,000 of Common Stock under the ELC
Agreement or (3) the date either party terminates the ELC Agreement in
accordance with its terms. Each time the Company desires to raise a specific
amount of cash under the ELC Agreement, the Company will issue to Majorlink a
number of shares of Common Stock determined by dividing the amount of cash
desired to be raised by the Company by 90% of a trailing market average price
of the Company's Common Stock, as defined in the ELC Agreement. No shares were
purchased by Majorlink under the ELC Agreement in

                                      F-9

<PAGE>

                               CYTRX CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

2001 or 2000. In connection with the ELC Agreement, the Company issued
Majorlink a warrant to purchase up to 150,000 shares of Common Stock at a per
share exercise price of $2.25. The warrant is exercisable for a period of three
years.

7.  Commitments and Contingencies

Rental expense from continuing operations under operating leases during 2001,
2000 and 1999 approximated $154,000, $160,000 and $212,000, respectively.
Minimum annual future obligations for operating leases are $172,000, $179,000,
$185,000, $193,000, $200,000 and $285,000 in 2002, 2003, 2004, 2005, 2006 and
2007 and beyond, respectively. Aggregate minimum future subrentals the Company
expects to receive under noncancellable subleases total approximately $106,000
at December 31, 2001.

8.  Stock Options and Warrants

CytRx has stock option plans pursuant to which certain key employees, directors
and consultants are eligible to receive incentive and/or nonqualified stock
options to purchase shares of CytRx's common stock. Fixed options granted under
the plans generally become exercisable over a three year period from the dates
of grant and have lives of ten years. Certain options granted to the Company's
executive officers and others contain alternative or additional vesting
provisions based on the achievement of corporate objectives. Additionally, the
Company has granted warrants to purchase shares of the Company's common stock
to its President and Chief Executive Officer subject to vesting criteria as set
forth in his warrant agreements; such warrants have lives of ten years from the
dates of grant. Exercise prices of all options and warrants for employees and
directors are set at the fair market values of the common stock on the dates of
grant. During 2001, 2000 and 1999, the vesting criteria for certain options and
warrants held by employees were achieved, resulting in $0, $115,000 and
$689,000 of compensation expense, respectively.

The terms of certain employee stock options and warrants were modified during
2001 and 2000. As a result of the modifications, these certain employee options
and warrants are required to be accounted for as variable options under APB 25
and related Interpretations. Depending on the ultimate vesting of these certain
employee options and warrants, compensation expense of up to $56,000 may be
recognized by the Company. No compensation expense related to these certain
employee options and warrants was required to be recognized in 2001 and 2000.

In addition, the Company repriced certain outstanding employee options and
warrants in the current year. As a result of the modification, these certain
employee options and warrants are required to be accounted for as variable
options under APB 25 and related Interpretations. Potential compensation
expense is measured for each reporting period based on the intrinsic value of
these employee options and warrants until the options or warrants are
ultimately exercised, forfeited, cancelled or expire unexercised. No
compensation expense was recognized for the year ended December 31, 2001
related to these employee options and warrants.

During 2001, 2000 and 1999, services were received in exchange for options and
warrants issued to certain consultants, resulting in aggregate non-cash charges
of $1,441,000, $249,000 and $355,000, respectively. Such charges for 2001
included $1,063,000 related to 1,272,492 warrants issued to Cappello Capital
Corp. for financial advisory services. Alexander L. Cappello, a member of the
Company's Board of Directors, is Chairman and CEO of Cappello Group, Inc.,
parent of Cappello Capital Corp.

                                     F-10

<PAGE>

                               CYTRX CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

A summary of the Company's stock option and warrant activity and related
information for the years ended December 31 is shown below.

<TABLE>
<CAPTION>
                                                                               Weighted Average
                                                  Options and Warrants          Exercise Price
                                           ----------------------------------  -----------------
                                              2001        2000        1999     2001  2000  1999
                                           ----------  ----------  ----------  ----- ----- -----
<S>                                        <C>         <C>         <C>         <C>   <C>   <C>
Outstanding--beginning of year............  3,685,682   3,137,852   2,258,308  $1.57 $1.43 $1.17
Granted...................................  2,404,297   1,416,803     961,750   1.03  2.04  2.25
Exercised.................................   (500,000)   (106,567)    (12,103)  0.50  1.28  1.00
Forfeited.................................     (7,501)   (741,989)    (70,103)  1.45  1.86  5.91
Expired...................................    (50,000)    (20,417)         --   1.00  1.00    --
                                           ----------  ----------  ----------
Outstanding--end of year..................  5,532,478   3,685,682   3,137,852  $1.22 $1.57 $1.43
                                           ==========  ==========  ==========
Exercisable at end of year................  4,764,137   2,917,674   2,170,107  $1.26 $1.47 $1.25
Weighted average fair value of options and
  warrants granted during the year........ $     0.66  $     1.98  $     1.59
</TABLE>

The following table summarizes additional information concerning options and
warrants outstanding and exercisable at December 31, 2001:

<TABLE>
<CAPTION>
                    Options Outstanding               Options Exercisable
      ----------------------------------------------- --------------------
                                  Weighted
                                  Average    Weighted             Weighted
                                 Remaining   Average   Number Of  Average
         Range of     Number of Contractual  Exercise   Shares    Exercise
      Exercise Prices  Shares   Life (years)  Price   Exercisable  Price
      --------------- --------- ------------ -------- ----------- --------
      <S>             <C>       <C>          <C>      <C>         <C>
       $0.81 - 1.50   4,785,675     6.6       $1.02    4,017,334   $1.03
        2.00 - 3.43     741,803     1.2        2.45      741,803    2.45
        7.75              5,000     3.2        7.75        5,000    7.75
                      ---------                        ---------
                      5,532,478     5.9        1.22    4,764,137    1.26
                      =========                        =========
</TABLE>

The Company has elected to follow APB 25 and related Interpretations in
accounting for employee stock options and warrants because, as discussed below,
the alternative fair value accounting provided for under Statement 123 requires
use of option valuation models that were not developed for use in valuing
employee stock options.

Pro forma information regarding net loss and loss per share is required by
Statement 123, which also requires that the information be determined as if the
Company had accounted for employee stock options granted and warrants issued
subsequent to December 31, 1994 under the fair value method of that Statement.
The fair value for the Company's options and warrants was estimated at the date
of grant using a Black-Scholes option pricing model with the following
assumptions:

<TABLE>
<CAPTION>
                                                                 2001  2000  1999
                                                                 ----  ----  -----
<S>                                                              <C>   <C>   <C>
Weighted average risk free interest rate........................ 5.29% 6.24%  6.27%
Dividend yields.................................................    0%    0%     0%
Volatility factors of the expected market price of the Company's
  common stock.................................................. 0.98  1.03  1.046
Weighted average life of the option (years).....................  7.2     8      8
</TABLE>

                                     F-11

<PAGE>

                               CYTRX CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
Because the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.

For purposes of pro forma disclosures, the estimated fair value of the employee
options and warrants is amortized to expense over the options' vesting periods.
The Company's pro forma information is as follows (in thousands, except per
share data):

<TABLE>
<CAPTION>
                                                    2001     2000     1999
                                                   -------  ------  --------
  <S>                                              <C>      <C>     <C>
  Pro forma net loss.............................. $(1,594) $ (941) $(16,505)
  Pro forma net loss per share (basic and diluted) $ (0.15) $(0.10) $  (2.16)
</TABLE>

9.  Shareholder Protection Rights Plan

Effective April 16, 1997, the Company's Board of Directors declared a
distribution of one Right for each outstanding share of the Company's common
stock to stockholders of record at the close of business on May 15, 1997 and
for each share of common stock issued by the Company thereafter and prior to a
Flip-in Date (as defined below). Each Right entitles the registered holder to
purchase from the Company one-ten thousandth ( 1/10000th) of a share of Series
A Junior Participating Preferred Stock, at an exercise price of $30. The Rights
are generally not exercisable until 10 business days after an announcement by
the Company that a person or group of affiliated persons (an "Acquiring
Person") has acquired beneficial ownership of 15% or more of the Company's then
outstanding shares of common stock (a "Flip-in Date"). In connection with the
merger agreement with Global Genomics Capital, the Company's Board of Directors
amended the shareholders protection rights agreement to exempt the merger from
triggering a Flip-in Date.

In the event the Rights become exercisable as a result of the acquisition of
shares, each Right will enable the owner, other than the Acquiring Person, to
purchase at the Right's then current exercise price a number of shares of
common stock with a market value equal to twice the exercise price. In
addition, unless the Acquiring Person owns more than 50% of the outstanding
shares of common stock, the Board of Directors may elect to exchange all
outstanding Rights (other than those owned by such Acquiring Person) at an
exchange ratio of one share of common stock per Right. All Rights that are
owned by any person on or after the date such person becomes an Acquiring
Person will be null and void.

The Rights have been distributed to protect the Company's stockholders from
coercive or abusive takeover tactics and to give the Board of Directors more
negotiating leverage in dealing with prospective acquirors.

10.  Retirement Plan

The Company maintained a defined contribution retirement plan (the "Plan")
covering employees of the Company until February 2000, at which time the Plan
was terminated. Total expense for the Plan for the years ended December 31,
2001, 2000 and 1999 was approximately $0, $0 and $69,000, respectively.

                                     F-12

<PAGE>

                               CYTRX CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


11.  Income Taxes

For income tax purposes, CytRx and its subsidiaries have an aggregate of
approximately $54.1 million of net operating losses available to offset against
future taxable income, subject to certain limitations. Such losses expire in
2003 through 2020 as of December 31, 2001. CytRx also has an aggregate of
approximately $6.7 million of research and development and orphan drug credits
available for offset against future income taxes that expire in 2003 through
2021.

Deferred income taxes reflect the net effect of temporary differences between
the financial reporting carrying amounts of assets and liabilities and income
tax carrying amounts of assets and liabilities. The components of the Company's
deferred tax assets and liabilities are as follows (in thousands):

<TABLE>
<CAPTION>
                                                       December 31,
                                                    ------------------
                                                      2001      2000
                                                    --------  --------
         <S>                                        <C>       <C>
         Deferred tax assets:
            Net operating loss carryforward........ $ 20,564  $ 20,590
            Tax credit carryforward................    6,667     6,652
            Other..................................    2,584     2,822
                                                    --------  --------
                Total deferred tax assets..........   29,815    30,064
         Deferred tax liabilities:
            Depreciation and other.................   (2,727)   (2,882)
                                                    --------  --------
                Total deferred tax liabilities.....   (2,727)   (2,882)
                                                    --------  --------
         Net deferred tax assets...................   27,088    27,182
         Valuation allowance.......................  (27,088)  (27,182)
                                                    --------  --------
                                                    $     --  $     --
                                                    ========  ========
</TABLE>

Based on assessments of all available evidence as of December 31, 2001 and
2000, management has concluded that the respective deferred income tax assets
should be reduced by valuation allowances equal to the amounts of the deferred
income tax assets.

12.  License Agreements

Ivy Animal Health, Inc.

In February 2001, CytRx entered into a license agreement with Ivy Animal
Health, Inc. ("Ivy") of Overland Park, Kansas, whereby CytRx granted to Ivy a
worldwide exclusive license to its investigational agent, CRL-8761, a
non-antibiotic feed additive that enhances growth performance in monogastric
food animals such as poultry and pigs. As part of the license, CytRx received a
nominal upfront payment, and will receive a milestone fee upon regulatory
approval in the United States and an eventual royalty equal to 5% of net sales.

Vical, Incorporated

On December 7, 2001, CytRx entered into a license agreement (the "Vical
License") with Vical Incorporated ("Vical") granting Vical exclusive, worldwide
rights to use or sublicense CytRx's TranzFect poloxamer technology to enhance
viral or non-viral delivery of polynucleotides (such as DNA and RNA) in all
preventive and therapeutic human and animal health applications, except for (1)
four infectious disease vaccine targets previously licensed by CytRx to Merck,
and (2) DNA vaccines or therapeutics based on prostate-specific

                                     F-13

<PAGE>

                               CYTRX CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

membrane antigen (PSMA). In addition, the Vical License permits Vical to use
TranzFect poloxamer technology to enhance the delivery of proteins in
prime-boost vaccine applications that involve the use of polynucleotides. Under
the Vical License, CytRx received an up-front payment of $3,750,000 and has the
potential to receive milestone and royalty payments in the future based on
criteria described in the agreement. The Company has no commitment for
continuing involvement to earn the upfront payment or the future milestone
payments.

Merck & Co., Inc.

In November 2000, CytRx entered into an exclusive, worldwide license agreement
with Merck and Company, Inc. ("Merck") whereby CytRx granted to Merck rights to
use its TranzFect technology in DNA-based vaccines targeted to four infectious
diseases. In addition to an upfront payment of $2 million for the first disease
target, in February 2002 Merck paid CytRx a $1 million milestone fee related to
the commencement by Merck of the first U.S. Food and Drug Administration Phase
I Study for the first product incorporating TranzFect designed for the
prevention and treatment of HIV. In addition, Merck may pay CytRx milestone and
product approval payments of up to $3 million as they develop the product. The
Company has no commitment for continuing involvement to earn the upfront
payment or the future milestone payments. Thus, the $2 million upfront payment
was recognized as license fee revenue in 2000 and the $1 million milestone
payment will be recognized as license fee revenue in 2002. Additionally, if
certain conditions are met regarding patent protection and Merck's competitive
position, Merck may pay a royalty to CytRx of 1% on net sales of products
incorporating TranzFect for the first disease target. For each of the licenses
for the three additional disease targets, Merck will pay to CytRx a series of
milestone and product approval payments totaling up to $2,850,000 each. If and
when sales of products incorporating TranzFect for the three additional disease
targets commence, CytRx will receive royalties of between 2 and 4% of the net
sales from such products. Additionally, if certain conditions are met regarding
patent protection and Merck's competitive position, Merck may pay an additional
royalty to CytRx of 1% on net sales of products incorporating TranzFect for
these additional disease targets, in which case the total royalties may be up
to 5%.

13.  Discontinued Operations

Titermax

From 1987 to 2000 CytRx manufactured, marketed and distributed Titermax, an
adjuvant used to produce immune responses in research animals. Effective June
15, 2000, the Company entered into a Purchase Agreement with Titermax USA, Inc.
(an unaffiliated company) whereby Titermax USA purchased the worldwide rights
to market and distribute Titermax, including all accounts receivable, inventory
and other assets used in the Titermax business. The gross purchase price was
$750,000, consisting of $100,000 in cash and a $650,000 five-year secured
promissory note bearing interest of 10% annually. Net income associated with
the Titermax activities included in income (loss) from discontinued operations
was approximately $119,000 and $281,000 for 2000 and 1999, respectively. A gain
related to the sale of $680,000 was recorded in 2000 and is also classified as
discontinued operations.

Vaxcel, Inc.

On June 2, 1999, CytRx entered into a Stock Acquisition Agreement with A-Z
Professional Consultants, Inc. ("A-Z") for the sale of CytRx's equity interest
in Vaxcel, Inc The sale was consummated on September 9, 1999. Pursuant to the
agreement, A-Z purchased 9,625,000 shares of common stock of Vaxcel from CytRx
for a cash purchase price of $319,000. Net loss (net of minority interest)
associated with Vaxcel included in income (loss) from discontinued operations
was approximately $40,000 for the year ended December 31, 1999.

                                     F-14

<PAGE>

                               CYTRX CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


14.  Segment Reporting

The Company has four reportable segments: Recruiting Services (Spectrum),
Product Development (core business of development and commercialization of
pharmaceutical-related products), Research Products (TiterMax) and Vaccine
Development (Vaxcel). See Notes 1 and 13 for additional information concerning
these operations.

The Company adopted FASB Statement No. 131, Disclosures About Segments of an
Enterprise and Related Information, in 1998 which outlines the way the Company
reports information about its operating segments. The accounting policies of
the reportable segments are the same as those described in the summary of
significant accounting policies (see Note 2). The Company evaluates performance
of its operating segments based primarily on profit or loss from operations
before income taxes. Summarized financial information concerning the Company's
reportable segments is shown in the following table.

<TABLE>
<CAPTION>
                                           Continuing Operations            Discontinued Operations
                                     --------------------------------  ---------------------------------
                                                              Total                            Total
                                       Product   Recruiting Continuing Research   Vaccine   Discontinued
                                     Development  Services  Operations Products Development  Operations
(in thousands)                       ----------- ---------- ---------- -------- ----------- ------------
<S>                                  <C>         <C>        <C>        <C>      <C>         <C>
2001:
Sales to external customers.........  $     --      $101     $    101    $ --      $ --         $ --
Intersegment sales..................        --        --           --      --        --           --
Collaborative, grant & other revenue     4,136        --        4,136      --        --           --
Interest income.....................       162        --          162      --        --           --
Interest expense....................        --        --           --      --        --           --
Depreciation and amortization.......       586        --          586      --        --           --
Segment profit (loss)...............      (913)      (18)        (931)     --        --           --
Total assets........................     7,611        --        7,611      --        --           --
Capital expenditures................        --        --           --      --        --           --
Stock option and warrant expense....     1,441        --        1,441      --        --           --

2000:
Sales to external customers.........  $     --      $451     $    451    $170      $ --         $170
Intersegment sales..................        --        --           --      --        --           --
Collaborative, grant & other revenue     2,706        --        2,706      --        --           --
Interest income.....................       170        --          170      --        --           --
Interest expense....................        --        --           --      --        --           --
Depreciation and amortization.......       318        --          318      --        --           --
Segment profit (loss)...............    (1,293)      146       (1,147)    799        --          799
Total assets........................     6,859        --        6,859      --        --           --
Capital expenditures................        20        --           20      --        --           --
Stock option and warrant expense....       365        --          365      --        --           --

1999:
Sales to external customers.........  $     --      $323     $    323    $500      $ --         $500
Intersegment sales..................        --        --           --      --                     --
Collaborative, grant & other revenue       606        --          606      --       134          134
Interest income.....................       463        --          463      --         7            7
Interest expense....................        --        --           --      --         4            4
Depreciation and amortization.......        62        --           62      --         6            6
Segment profit (loss)...............   (15,345)       75      (15,270)    281       (40)         241
Total assets........................     6,128        --        6,128      --        --           --
Capital expenditures................     2,515        --        2,515      --        --           --
Stock option and warrant expense....     1,043        --        1,043      --        --           --
</TABLE>

                                     F-15

<PAGE>

                               CYTRX CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


15.  Quarterly Financial Data (unaudited)

Summarized quarterly financial data for 2001 and 2000 is as follows (in
thousands, except per share data):

<TABLE>
<CAPTION>
                                                                Quarter Ended
                                                  ------------------------------------------
                                                  March 31 June 30  September 30 December 31
                                                  -------- -------  ------------ -----------
<S>                                               <C>      <C>      <C>          <C>
2001
Net sales........................................ $    26  $    10    $    28      $   37
Gross profit.....................................      13        3          7           7
Income loss from continuing operations...........  (1,157)  (1,220)    (1,002)      2,448
Income from discontinued operations..............      --       --         --          --
Net income (loss)................................  (1,157)  (1,220)    (1,002)      2,448
Basic and diluted income (loss) per common share:
   Continuing operations.........................   (0.11)   (0.12)     (0.10)       0.23
   Discontinued operations.......................      --       --         --          --
   Net income (loss).............................   (0.11)   (0.12)     (0.10)       0.23

2000
Net sales........................................ $   100  $    85    $   168      $   98
Gross profit.....................................      48       41         86           8
Income (loss) from continuing operations.........    (940)    (762)      (606)      1,161
Income from discontinued operations..............      40      759         --          --
Net income (loss)................................    (900)      (3)      (606)      1,161
Basic and diluted income (loss) per common share:
   Continuing operations.........................   (0.12)   (0.08)     (0.06)       0.11
   Discontinued operations.......................    0.01     0.08         --          --
   Net income (loss).............................   (0.11)   (0.00)     (0.06)       0.11
</TABLE>

16.  Subsequent Events

Transfer of Spectrum Operations

Since 1996 CytRx has marketed the services of its small group of human
resources professionals under the name of Spectrum Recruitment Research
("Spectrum") as a way of offsetting the Company's cost of maintaining this
function. In February 2002 the operations of Spectrum were terminated and the
rights to use the Spectrum tradenames were transferred to Albert, Isaac &
Alexander, Inc., a consulting firm comprised of former CytRx (Spectrum)
employees. Net income (loss) associated with the Spectrum activities included
in income (loss) from operations was approximately $(18,000), $146,000 and
$75,000 for 2001, 2000, and 1999, respectively.

The Company has accounted for the disposal of Spectrum in accordance with the
provisions of SFAS 144. Accordingly, the results of operations of Spectrum are
included in continuing operations for the years ended December 31, 2001, 2000
and 1999 since the criteria for assets held for sale for this disposal group as
outlined in SFAS 144 were not met.

Pending Merger with Global Genomics Capital, Inc.

On February 11, 2002, the Company entered into an agreement whereby the Company
will acquire Global Genomics Capital, Inc. ("GGC"), a privately held genomics
holding company, through a merger of a wholly owned subsidiary of the Company
into GGC. The terms of the merger provide for CytRx to acquire all outstanding
shares of GGC in return for the issuance or reservation for issuance of a
maximum of approximately 9,963,000 shares of CytRx Common Stock, subject to
adjustment. The closing of the transaction is anticipated in the second quarter
of 2002, and is contingent upon approval by the shareholders of each company
and other customary closing conditions. If the merger with GGC is completed,
the Company will become obligated under contracts with its officers to make
cash payments of up to $1.2 million in the aggregate upon termination of their
employment.

                                     F-16

<PAGE>

                        REPORT OF INDEPENDENT AUDITORS

The Board of Directors and Stockholders
Cyt Rx Corporation

We have audited the accompanying consolidated balance sheets of CytRx
Corporation as of December 31, 2001 and 2000, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
three years in the period ended December 31, 2001. Our audits also included the
financial statement schedule listed in the Index at Item 14(a). These financial
statements and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of CytRx
Corporation at December 31, 2001 and 2000 and the results of its operations and
its cash flows for each of the three years in the period ended December 31,
2001, in conformity with accounting principles generally accepted in the United
States. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.

                                          /s/ ERNST & YOUNG LLP

Atlanta, Georgia
March 1, 2002

                                     F-17

<PAGE>

                               CYTRX CORPORATION

                SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS

             FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999

<TABLE>
<CAPTION>
                                                             Additions
                                                        ------------------- -
                                            Balance at  Charged to Charged
                                           Beginning of Costs and  to Other             Balance at
               Description                    Period     Expenses  Accounts Deductions End of Period
               -----------                 ------------ ---------- -------- ---------- -------------
<S>                                        <C>          <C>        <C>      <C>        <C>
Reserve Deducted in the Balance Sheet from
  the Asset to Which it Applies:
   Allowance for Bad Debts
       Year ended December 31, 2001....... $    11,900  $   27,150   $--     $    --    $    39,050
       Year ended December 31, 2000.......          --      11,900    --          --         11,900
       Year ended December 31, 1999.......          --          --    --          --             --
   Allowance for Deferred Tax Assets
       Year ended December 31, 2001....... $27,182,000  $       --   $--     $94,000    $27,088,000
       Year ended December 31, 2000.......  26,364,000     818,000    --          --     27,182,000
       Year ended December 31, 1999.......  20,769,000   5,595,000    --          --     26,364,000
</TABLE>



                                     F-18