<PAGE>   1
                UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                  FORM 10-K/A

(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, 1997
                                   -----------------

                                       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 jurisdiction          (I.R.S. Employer Identification No.)
  of incorporation or organization)

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

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]

On May 20, 1998, the aggregate market value of the Registrant's common stock
held by non-affiliates was approximately $20,828,000.

On May 20, 1998, there were 7,662,095 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 1998 Annual Meeting of
Stockholders filed on April 30, 1998 (the "Proxy Statement") are incorporated by
reference into Part III.


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         THIS FORM 10-K/A AND OTHER STATEMENTS ISSUED OR MADE FROM TIME TO TIME
BY CYTRX CORPORATION OR ITS REPRESENTATIVES CONTAIN STATEMENTS WHICH MAY
CONSTITUTE "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF THE SECURITIES
ACT OF 1933, AS AMENDED (THE "1933 ACT"), AND THE SECURITIES EXCHANGE ACT OF
1934, AS AMENDED. THOSE STATEMENTS INCLUDE STATEMENTS REGARDING THE INTENT,
BELIEF OR CURRENT EXPECTATIONS OF CYTRX CORPORATION AND MEMBERS OF ITS
MANAGEMENT TEAM, AS WELL AS THE ASSUMPTIONS ON WHICH SUCH STATEMENTS ARE BASED.
PROSPECTIVE INVESTORS ARE CAUTIONED THAT ANY SUCH FORWARD-LOOKING STATEMENTS
ARE NOT GUARANTEES OF FUTURE PERFORMANCE AND INVOLVE RISKS AND UNCERTAINTIES,
AND THAT ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE COMPLETED BY SUCH
FORWARD-LOOKING STATEMENTS. IMPORTANT FACTORS CURRENTLY KNOWN TO MANAGEMENT
THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE IN
FORWARD-LOOKING STATEMENTS ARE INCLUDED AS EXHIBIT 99.1 TO THIS FORM 10-K/A,
AND ARE HEREBY INCORPORATED BY REFERENCE. THE COMPANY UNDERTAKES NO OBLIGATION
TO UPDATE OR REVISE FORWARD-LOOKING STATEMENTS TO REFLECT CHANGED ASSUMPTIONS,
THE OCCURRENCE OF UNANTICIPATED EVENTS OR CHANGES TO FUTURE OPERATING RESULTS
OVER TIME. 


                                     PART I

ITEM 1.  BUSINESS

GENERAL

         CytRx Corporation ("CytRx") was founded in 1985 and is engaged in the
development and commercialization of pharmaceutical-related products and
services primarily involving human therapeutics focused on high-value 
critical-care therapies (the "Core Business").

         CytRx has in the past, and may in the future, create operating 
subsidiaries to develop its technologies for indications outside of its Core
Business. CytRx intends to use the proceeds from the operation or sale of its
subsidiaries to fund its Core Business. Vaxcel, Inc. ("Vaxcel") is developing
technologies to enhance the effectiveness of vaccines. Prior to its divestiture
in April 1998, Vetlife, Inc. ("VetLife") was engaged in developing technologies
to enhance food animal growth and marketing and distributing products to enhance
North American beef cattle productivity. Before its divestiture by CytRx in
February 1998 (see "New Business Developments"), Proceutics, Inc. ("Proceutics")
provided preclinical development services to the pharmaceutical industry.
Reference herein to "the Company" includes CytRx and its majority-owned
subsidiaries.

         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.

NEW BUSINESS DEVELOPMENTS

Acquisition of Zynaxis, Inc.

         Effective May 21, 1997, Zynaxis, Inc. ("Zynaxis"), a publicly-held
biotechnology company engaged in the development of certain vaccine
technologies, merged with Vaxcel Merger Sub, a wholly-owned subsidiary of
Vaxcel formed for the purpose of the transaction (such transaction hereinafter
referred to as the "Vaxcel Merger"). As a result of the Vaxcel Merger, Zynaxis
became a wholly-owned subsidiary of Vaxcel.

         As part of the Vaxcel Merger (i) shares of common stock of Vaxcel were
issued to the existing shareholders of Zynaxis in exchange for all of the
outstanding shares of capital stock of Zynaxis and (ii) Vaxcel issued to CytRx
shares of common stock of Vaxcel and a warrant to purchase additional shares of
common stock of Vaxcel in exchange for CytRx's contribution to Vaxcel of $4
million, less the outstanding principal and interest under a secured loan
extended to Zynaxis by CytRx.


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         As a result of the Vaxcel Merger, CytRx owns approximately 87.5% of
the outstanding common shares of Vaxcel, with the remaining 12.5% held by the
former shareholders of Zynaxis. The Vaxcel Merger was treated as a purchase by
Vaxcel and constituted a tax-free reorganization for the former Zynaxis
shareholders. Also in connection with the Vaxcel Merger (i) options and
warrants to purchase Zynaxis common stock were converted into options and
warrants for the purchase of Vaxcel common stock, and (ii) convertible notes
issued by Zynaxis were converted into the right to receive shares of Vaxcel
common stock.

         As a result of the Vaxcel Merger, Vaxcel acquired the PLG
microencapsulation and mucoadhesive vaccine technologies of Zynaxis. The
Company believes that the Zynaxis technologies will be complementary to
Vaxcel's current technologies, which are primarily focused on enhancing the
effectiveness of injectable vaccines, while the Zynaxis technologies are
primarily targeted toward development of vaccines for oral and mucosal
delivery.

Issuance of Convertible Debentures

         On October 22, 1997, the Company privately placed (the "Note Sale")
with certain investors (the "Investors") $2,000,000 of convertible notes (the
"Debentures"). The Debentures may be converted into CytRx Common Stock at a
price of the lesser of 85% of the average closing bid price for the 10 days
preceding the conversion, or $5.68 per share (the "Conversion Price"). The
Debentures were sold at par and bear interest at a rate of 6% per annum. The
terms of the Debentures grant CytRx the right to redeem the Debentures at 110%
of par if the Conversion Price falls below $4. Also in connection with the Note
Sale, the Investors were issued two year warrants to purchase 40,000 shares of
CytRx Common Stock at an exercise price of $5.68. The fair value of such
warrants was determined to be insignificant.

         In addition, CytRx has the option to sell to the Investors an
additional $2,000,000 in value of the Debentures at any time between 90 and 270
days after the effective date of the Shelf Registration (as defined in that
certain Registration Rights Agreement dated October 22, 1997),  subject to
certain conditions, including, without limitation, (i) that the 10 day average
closing price of the Company's common stock is not below $3.50 per share on the
day that the Company gives the Investor notice of the Company's election to
exercise the Option and the day before the closing of the Option, (ii) that the
Company is not in default under any material borrowings from any financial
institutions or other persons, (iii) that the class of common stock into which
the Debentures are convertible shall continue to be listed by Nasdaq and (iv)
that the Company has not been convicted of any fraud in the sale of its
securities. Also in connection with the Note Sale, CytRx filed a registration
statement in connection with the shares of CytRx Common Stock into which the
Debentures are convertible (the "Securities"), and agreed to keep such
registration statement effective until October 22, 1999 (or such earlier date
when the holders of the Securities are able to sell all such securities
immediately without restriction pursuant to Rule 144(k) under the Securities Act
of 1933 or any successor rule thereunder or otherwise).

         In February and March 1998, an aggregate of $500,000 of the Debentures
were converted into 204,104 shares of Common Stock. In February 1998, $400,000
of the Debentures were redeemed by the Company and in May 1998, the Company
redeemed an additional $200,000 of the Debentures.  In addition, in May 1998
the Company received notice from an Investor of its intent to convert the
remaining $900,000 of Debentures.  The Company intends to exercise its rights
to redeem such $900,000 of Debentures in accordance with their terms.

Divestiture of Subsidiaries and Sale of Real Estate


         During the first two calender quarters of 1998, CytRx divested itself
of two operating subsidiaries and its real estate assets to allow the Company to
focus its activities on its Core Business and, specifically, to raise capital to
undertake Phase III testing of FLOCOR. See "Product Development." The Company
expects these transactions to make an additional $12 million cash available in
1998, which should be sufficient to fund the Company's operations, including the
commencement of the Phase III testing of FLOCOR, through late 1999.

         On February 16, 1998, the Company consummated a sale of substantially
all of the assets of Proceutics other than real estate to Oread Laboratories,
Inc. ("Oread") for approximately $2.1 million. Proceutics retained its real
estate assets and leased the laboratory building at 150


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Technology Parkway, Norcross, Georgia to Oread. The Company expects a gain
related to this transaction which will be recognized in 1998.

         On April 17, 1998, CytRx and VetLife consummated a sale of 
substantially all of the assets of VetLife for approximately $3.5 million in
cash, an unsecured subordinated promissory note in the principal amount of $4.0
million, and certain payments contingent upon the sales of certain of the
purchaser's products of up to $5.5 million.  The Company expects to recognize a
gain related to this transaction in 1998. Vetlife had earnings in only one year,
1997. The Company could not be certain that Vetlife would remain profitable.
The majority of Vetlife's revenues were realized from the distribution of a
line of cattle food implants and value added services to three customers. A
loss of any one of these customers could have had a material adverse impact on
the Company. In addition, under its distribution agreements with its supplier,
Vetlife could have been required to make purchases up to $10 million of
implants for each of the next five years regardless of whether Vetlife could
sell the purchased product.

         On May 11, 1998, CytRx and Proceutics consummated the sale of the two
buildings owned by them at 150 and 154 Technology Parkway, Norcross, Georgia, to
ARE - 150/154 Technology Parkway, LLC ("Alexandria"), an affiliate of Alexandria
Real Estate Equities, Inc., for an aggregate of $4.5 million.  Proceutics'
rights and obligations under the lease to Oread was assigned to Alexandria and
CytRx entered into a ten year lease with Alexandria regarding the building at
154 Technology Parkway.  The Company expects a gain related to this transaction
which will be recognized in 1998.

PRODUCT DEVELOPMENT

FLOCOR(TM)

         CytRx's human therapeutics product development efforts are focused on
critical-care products providing target opportunities for high-value
breakthrough products to address unmet medical needs. CytRx's current product
development focus is FLOCOR (TM), which the Company believes has the potential
to alleviate pain and suffering associated with sickle cell crisis.

         In 1995, results from a 2,900 patient RheothRx(R) trial indicated a
rise in creatinine, a marker of kidney toxicity, in a small percentage of heart
attack patients, at doses that provided a therapeutic benefit. As a result,
CytRx's licensee, Glaxo Wellcome PLC ("GW"), returned the rights to RheothRx to
the Company. Following GW's termination of the license, CytRx completed a
purification process that removed certain impurities in the compound, and
conducted experiments that showed higher toleration in models of renal failure.
The purified form of RheothRx is now named FLOCOR, and a composition of matter
patent was issued for the new compound in June 1996. CytRx believes that FLOCOR
provides an opportunity to satisfy unmet medical needs in treating sickle cell
crisis and other vascular-occlusive disorders.

         FLOCOR is an intravenous solution that has the unique property of
improving blood flow. The Company believes that FLOCOR has significant potential
in treating a variety of vascular-occlusive diseases where blood flow is
restricted. CytRx has chosen the painful vaso-occlusive crisis associated with
sickle cell anemia as its first development priority. Currently there is no
effective treatment to alleviate the pain and suffering sickle cell anemia
patients in crisis must endure. Sickle cell anemia primarily affects
African-Americans. It is 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. This causes red blood cells to lose their
normal flexibility. The cells become rough, sticky and irregularly shaped, often
looking like sickles, which gives the disease its name.


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         These deformed 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 which can result in
tissue death, inflammation and intense throbbing pain. Patients suffering from
sickle cell disease may experience several crisis episodes each year.
Hospitalization is required when pain becomes too much to bear. As there is
currently no effective treatment to alleviate the crisis, patients only receive
narcotics, fluids and rest. 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.

         Estimates place the number of persons suffering from sickle cell
anemia in the U.S. at about 60,000. There are about 100,000 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 7.2 days, resulting in significant healthcare costs. A recent
study indicated that each year an average sickle cell patient consumes about
$25,000 in hospital goods and services while seeking treatment for his or her
pain.

         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.

         A Phase II human clinical trial conducted by Burroughs Wellcome Co. has
indicated trends towards reducing the duration of sickle cell crisis and
associated hospital stay when FLOCOR is used. Also, the trial indicated that
FLOCOR significantly reduced use of medication required to alleviate the severe
pain. CytRx has completed a small safety and dose ranging study with the new
purified material. A Phase III double-blind placebo-controlled multicenter study
is currently enrolling patients to assess the efficacy and safety of FLOCOR in
vaso-occlusive crisis of sickle cell disease.

         The Company believes that FLOCOR has the potential to be an effective
treatment for other vascular-occlusive diseases as well. Once the sickle cell
program is underway, CytRx plans to explore the opportunities with FLOCOR in
significant diseases such as Acute Respiratory Distress Syndrome (ARDS) and
stroke. However, CytRx's current strategy is to focus its efforts and resources
on gaining approval for the acute crisis of sickle cell anemia.

         In June 1989, the FDA informed CytRx of its decision to grant
RheothRx(R) "Orphan Drug" designation 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 (e.g.
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 RheothRx/FLOCOR as an Orphan
Drug, if the Company is the first manufacturer to obtain FDA approval to market
FLOCOR for treatment of sickle cell crisis, the Company will obtain a
seven-year period of marketing exclusivity beginning from the date of its
approval. During this period, the FDA cannot approve the same drug for the same
use from another sponsor. In March 1990, RheothRx also received Orphan Drug
designation for the treatment of severe burns.


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Vaccine Delivery Technologies

         Vaxcel has four proprietary adjuvant and delivery system technologies
which can be used to increase the effectiveness and/or convenience of both
currently marketed and new vaccines. Vaxcel derives its rights to these four
technologies from the following: (a) the rights to OPTIVAX(R) ("Optivax") are
derived from an exclusive, worldwide license agreement with CytRx; (b) the
rights to PLG microspheres for oral vaccine delivery are derived as a result of
the Vaxcel Merger; (c) the rights to mucoadhesives for oral vaccine delivery are
also derived as a result of the Vaxcel Merger; and (d) the rights to entrapment
techniques for vaccine delivery using certain water soluble polymers are derived
from a Research Agreement and Options Agreement with Vanderbilt University
("Vanderbilt"). These technologies are complementary to each other, thereby
providing Vaxcel with a broad portfolio of technologies for the development of
vaccines to be delivered by the injectable, oral, and mucosal routes of
administration.

         Optivax is the tradename for a family of proprietary nonionic block
copolymers which augment or modify the immune response to vaccines when
administered primarily by injection. Optivax acts both as a delivery system by
targeting vaccines to cells of the immune system and as an adjuvant because of
its ability to augment the immune system's response to vaccines. Vaxcel and its
institutional / corporate collaborators have performed numerous preclinical
studies (including several studies in non-human primates) to characterize the
adjuvant activity of Optivax. Vaxcel also performed a Phase I clinical trial to
help demonstrate that Optivax was safe and effective in humans. In this trial,
the results of which were published in the December 1997 issue of Clinical
Cancer Research, Optivax in combination with a subpotent cancer immunogen
generated potentially beneficial humoral and cellular immune responses in
patients with advanced cancer without evidence of significant local or systemic
toxicity.

         Vaxcel's business strategy is to sublicense its technologies on a
vaccine-by-vaccine basis to companies engaged in vaccine development. Such
sublicense agreements may be either exclusive, co-exclusive, or non-exclusive
in the field depending upon the situation. The sublicensees will combine their
vaccine with Vaxcel's technology and then be responsible for product
development, regulatory approval, and commercialization of the final product at
their expense. In return, Vaxcel will receive licensing fees, milestone
payments, and royalty on sales. At present, Vaxcel has entered into an option
agreement for Optivax with Medeva PLC ("Medeva"), a license agreement for
Optivax with Corixa Corporation ("Corixa"), and a license agreement for PLG
microspheres with ALK A/S ("ALK").

Other Product Development Efforts

         CytRx is also developing its copolymer technology for use as a
treatment for tuberculosis as well as for use in combination with certain
antibiotic and anti-viral compounds to enhance their uptake and resulting
effectiveness. These products are is currently in preclinical development.


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         Consolidated expenditures for research and development activities were
$4.6 million, $2.8 million, and $7.1 million during the years ended December
31, 1997, 1996, and 1995, respectively.

PRODUCTS AND SERVICES CURRENTLY MARKETED

Titermax(R)

         CytRx manufactures, markets and distributes TiterMax, an adjuvant used
to produce cell mediated and humoral responses in research animals. The keys to
the potency of TiterMax lie in its immunostimulatory activity and the formation
of stable water-in-oil emulsions. TiterMax aids in the antigen's effective
presentation to the immune system without the toxic effects of other research
adjuvants.

Other

         CytRx also has a small group of human resource professionals who, in
addition to their services to the Company, provide recruiting services to third
parties under the name of Spectrum Recruitment Research.

MANUFACTURING

         The Company has maintained a portion of Proceutics' Norcross, Georgia
facility as a pilot manufacturing facility. The pilot facility is intended for
manufacture of investigational supplies of certain of the Company's products
under development and is generally not large enough to produce quantities of
product adequate for commercial purposes. The process used in the pilot
facility also may require modification to achieve commercial scale. The pilot
facility is contained within the building leased to Oread (see "New Business
Developments"). Oread has agreed to maintain Good Manufacturing Practices
("GMP") conditions in the facility for a minimum of two years from the date of
their lease and to allow the Company reasonable usage of the facility.

         Management believes that the Company has an adequate supply of 
materials on hand to meet the Company's needs for 2 to 3 years (both drug
substance and formulated drug product) which management anticipates to be
sufficient to complete the anticipated studies necessary for filing a New Drug
Application/Product License Application with the FDA. However, there can be no
assurance that delays and complications, among other factors, could make the
Company's current supply inadequate.

         The Company requires three suppliers of materials or services to
manufacture its product; (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. The Company
has not entered into a formal agreement with any supplier for the raw drug
substance because of its wide availability. To obtain the purified drug
substance, the Company has entered into an agreement with a French company.
Management believes that such agreement provides for adequate material to meet
the Company's needs for the next 2 to 3 years. There can be no assurance that
the Company's relationship with such supplier will continue or that the Company
will be able to obtain additional purified drug substance if the Company's
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 the Company's business. To meet the need for
manufacture of the Company's finished drug product, the Company has entered
into a supply agreement with the Hospital Products Division of Abbott
Laboratories. The inability of the Company to maintain such relationship on
terms acceptable to the Company could have a material adverse effect on the
Company's business.

         If the Company modifies its manufacturing process or changes the
source or location of product supply, regulatory authorities will require the
Company to demonstrate that the material




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produced from the modified or new process or facility is equivalent to the
material used in the Company's clinical trials. Further, any manufacturing
facility and the quality control and manufacturing procedures used by the
Company for the commercial supply of a product must comply with applicable
OSHA, EPA, and FDA standards, including Good Manufacturing Practice
regulations.

PATENTS AND PROPRIETARY TECHNOLOGY

         The Company actively seeks patent protection for its technologies,
processes, uses, and ongoing improvements and considers its patents and other
intellectual property to be critical to its business.

         The Company continually evaluates the patentability of new inventions
and improvements developed by its employees and collaborators. Whenever
appropriate, the Company 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 result in issued United
States or foreign patents.

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

COMPETITION

         Many companies, including large pharmaceutical, chemical and
biotechnology firms with financial resources, research and development staffs,
and facilities that are substantially greater than those of the Company, are
engaged in the research and development of pharmaceutical products that could
compete with the products under development by the Company. 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 the Company or its licensees and corporate partners. The
Company competes in this research and development environment by attempting to
develop its products and technologies in an innovative and timely fashion that
would provide the Company with an advantage in the licensing and/or marketing
of its products and technologies.


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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
the Company will be able to obtain the required FDA approvals for any of its
products.

         The manufacturing facilities and processes for the Company's products,
whether manufactured directly by the Company or by a third party, will be
subject to rigorous regulation, including the need to comply with Federal Good
Manufacturing Practice regulations. The Company is 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.

ENVIRONMENTAL PROTECTION

         During 1997 compliance with federal, state and local regulations
pertaining to environmental standards did not have a material effect upon the
capital expenditures or earnings of the Company.

EMPLOYEES

         As of December 31, 1997, the Company had 72 full-time and 2 part-time
employees, 40 of which were involved in the conduct of scientific or research
and development activities either for the Company or under contract by third
parties.


ITEM 2.  PROPERTIES



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         The Company currently subleases laboratory and related space from Oread
at 150 Technology Parkway, Norcross, Georgia, and leases administrative office
space from Alexandria at 154 Technology Parkway, Norcross, Georgia. See
"Business - New Business Developments."

         The above-mentioned facilities are in satisfactory condition and
suitable for the particular purposes for which they were acquired or
constructed and are adequate for present operations.

ITEM 3.  LEGAL PROCEEDINGS

None

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

         The Company's Common Stock is traded on The Nasdaq Stock Market under
the symbol CYTR. The following table sets forth the high and low sale prices
for the 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. Such prices have been adjusted to reflect the one-for-four
reverse stock split effected February 6, 1996.

<TABLE>
<CAPTION>

                                                                   High                   Low
                                                                   ----                   ---
<S>                                                               <C>                     <C> 
COMMON STOCK:
     1998
         January 1 to May 20                                      3 5/8                   2 1/2
     1997
         Fourth Quarter                                           5 5/8                   2 7/8
         Third Quarter                                            5                       3 5/32
         Second Quarter                                           4 1/4                   3 1/4
         First Quarter                                            5                       3 1/4
     1996
         Fourth Quarter                                           4 9/16                  3 5/16
         Third Quarter                                            4 13/16                 3 5/8
         Second Quarter                                           6 1/8                   3 7/8
         First Quarter                                            6                       3 3/8
</TABLE>


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<PAGE>   11


         On May 20, 1998, the closing price of the Common Stock as reported on
The Nasdaq Stock Market, was $2.75 and there were approximately 1,500 holders of
record of the Company's Common Stock. The number of record holders does not
reflect the number of beneficial owners of the Company's Common Stock for whom
shares are held by Cede & Co., certain brokerage firms and other institutions.
The Company has not paid any dividends since its inception and does not
contemplate payment of dividends in the foreseeable future.

         On October 22, 1997, the Company sold $2,000,000 of convertible notes
(the "Debentures") to the Investors in reliance upon exemptions from
registration under Section 4(2) of the Securities Act of 1933, as amended, and
Regulation D promulgated thereunder. The Debentures are convertible into common
stock of the Company at a price of the lesser of (i) 85% of the average closing
bid price for the 10 days preceding the conversion or (ii) $5.68 per share (the
"Conversion Price"). The Company has the right to redeem the Debentures at 110%
of par if the Conversion Price falls below $4. In connection with the sale of
the Debentures, the Investors were issued warrants to purchase an aggregate of
40,000 shares of the Company's common stock at an exercise price of $5.68. Such
warrants are exercisable for two years. See "Business - New Business
Developments - Issuance of Convertible Debentures."

ITEM 6.  SELECTED FINANCIAL DATA

FIVE YEAR SELECTED FINANCIAL DATA *
-----------------------------------
CytRx Corporation and Subsidiaries

<TABLE>
<CAPTION>

                                                     1997              1996              1995              1994           1993
                                               --------------      ------------      -------------     ------------   -------------
<S>                                            <C>                 <C>               <C>               <C>            <C>         
Statement of Operations Data
Revenues:
  Net Sales                                    $   14,347,461      $  1,591,123      $     512,528     $    500,814   $    506,317
  Investment and other income                       1,439,419         1,452,867          2,030,802        1,987,204      4,038,221
                                               --------------      ------------      -------------     ------------   ------------
Total revenues                                     15,786,880         3,043,990          2,543,330        2,488,018      4,544,538
Loss from continuing operations                    (5,915,060)       (4,343,812)       (10,652,582)      (7,700,186)    (3,228,600)
Loss from discontinued operations                    (137,932)       (1,447,967)                --               --             --
Net loss                                           (6,052,992)       (5,791,779)       (10,652,582)      (7,700,186)    (3,228,600)


Basic and diluted loss per common share:
  Loss from continuing operations                       (0.80)     $      (0.56)     $       (1.35)    $      (0.98)  $      (0.41)
  Loss from discontinued operations                     (0.02)            (0.19)                --               --             --
                                               --------------      ------------      -------------     ------------   ------------
  Net loss                                              (0.82)            (0.75)             (1.35)           (0.98)         (0.41)


Balance Sheet Data:
Total assets                                   $   24,905,995        24,299,322        $30,959,983     $ 38,660,567   $ 49,760,261  
Convertible debentures                              2,000,000                --                 --               --             -- 
Total stockholders' equity                         19,248,395        22,337,734         29,770,485       38,026,347     47,685,269
</TABLE>

*Restated for discontinued operations.


                                     10
<PAGE>   12
ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
         AND RESULTS OF OPERATIONS

Liquidity and Capital Resources

         At December 31, 1997 the Company had cash and short-term investments of
$5.9 million and net assets of $19.2 million, compared to $11.0 million and
$22.3 million, respectively, at December 31, 1996. Working capital totaled $7.1
million at December 31, 1997, compared to $10.2 million at December 31, 1996.

         Management believes that cash and investments on hand, combined with
interest income, operating revenues and the proceeds from the transactions
discussed below, will be sufficient to satisfy the Company's projected liquidity
and working capital needs through late 1999, but it is likely that additional
funding will be required to accomplish the necessary testing and data collection
procedures prescribed by the U.S. Food and Drug Administration for the
commercialization of any products for human use. Definitive statements as to the
time required and costs involved in reaching certain objectives for the
Company's products are difficult to project due to the uncertainties of the
medical research field. Requirements could vary depending upon the results of
research, competitive and technological developments, and the time and expense
required for governmental approval of products, some of which factors are beyond
management's control. CytRx anticipates that it may raise funds through equity
offerings.  Additional funding for research and development expenditures may be
obtained through joint ventures and product licensing arrangements with other
companies.

         During 1996 and 1997, the Company received federal government funding
for certain research and development activities via several Small Business
Innovative Research (SBIR) grants. Most recently, the Company received a grant
from the U.S. Food and Drug Administration's Division of Orphan Drug Development
to support CytRx's Phase III clinical trial of FLOCOR. This grant will provide
approximately $400,000 over two years to help defray the overall costs of the
study. The Company intends to continue to seek government assistance for its
product development efforts.

         In October 1997, CytRx sold $2.0 million of convertible notes through a
private placement, realizing approximately $1.8 million in net proceeds. (See
Note 6 to Financial Statements.) CytRx has the option to sell an additional $2.0
million to the same investors under certain conditions.

         In February 1998, CytRx's wholly-owned subsidiary, Proceutics, Inc.
("Proceutics") consummated a sale of substantially all of its non-real estate
assets to Oread Laboratories, Inc. ("Oread") for approximately $2.1 million.
(See Note 12 to Financial Statements.) Also, in May 1998, CytRx and Proceutics
consummated a sale of the two buildings owned by them at 150 and 154 Technology
Parkway, Norcross, Georgia to ARE-150/154 Technology Parkway, LLC
("Alexandria"), an affiliate of Alexandria Real Estate Equities, Inc. for
approximately $4.5 million. Alexandria assumed the existing lease with Oread. In
addition, CytRx entered into a 10 year lease with Alexandria for administrative
office space at the 154 Technology Parkway building.

                                     11
<PAGE>   13

(See Note 13 to Financial Statements.)

         On April 17, 1998, the Company and VetLife entered into an Acquisition
Agreement (the "Acquisition Agreement") with VetLife L.L.C., a Delaware limited
liability company ("VL LLC"), pursuant to which VL LLC acquired substantially
all of VetLife's assets related to VetLife's business of marketing and
distributing products that improve the value of food animal products to the
cattle industry (collectively, the "Assets") for a total purchase price
consisting of: (i) a cash payment of $3,500,000, subject to certain working
capital adjustments, (ii) an unsecured, subordinated promissory note in the
principal amount of $4,000,000 bearing interest at an annual rate of 12%, and
(iii) certain contingent payments based on future sales of specified products of
VL LLC and its affiliates that, if made in full, could total up to $5,500,000.
The sale of the Assets closed on the same day.

         At December 31, 1997, the Company had outstanding firm purchase
commitments for inventory of approximately $46.0 million related to minimum
annual purchase volumes under certain contracts covering a period of four years.
Such contracts are with the supplier of the Company's cattle growth promotant
products. Purchases from this supplier totaled $7,270,000 and $2,000 during the
years ended December 31, 1997 and 1996, respectively. As of April 17, 1998,
these purchase commitments were dissolved.

         The Company has consulting agreements with various individuals and
companies for routine business activities including assistance with regulatory,
marketing, investor relations and research and development activities. As of
December 31, 1997 there were no significant firm commitments pursuant to any of
such agreements, and none of such agreements are with affiliates of the Company.

         At December 31, 1997 the Company had net operating loss carryforwards
for income tax purposes of approximately $44.6 million, which will expire in
2000 through 2012 if not utilized. The Company also has research and development
credits available to reduce income taxes, if any, of approximately $1.1 million
which will expire in 2000 through 2010 if not utilized. Based on an assessment
of all available evidence including, but not limited to, the Company's limited
operating history and lack of profitability, uncertainties of the commercial
viability of the Company's technology, the impact of government regulation and
healthcare reform initiatives, and other risks normally associated with
biotechnology companies, the Company has 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 the Company's plans and expectations for
future financing are forward-looking statements that are subject to a number of
risks and uncertainties. The Company's ability to obtain future financings
through joint ventures, product licensing arrangements, equity financings or
otherwise is subject to market conditions and the Company's ability to identify
parties that are willing and able to enter into such arrangements on terms that
are satisfactory to the Company. There can be no assurance that the Company will
be able to obtain future financing from these sources. Additionally, depending
upon the outcome of the Company's fund raising efforts via its subsidiaries
discussed above, the accompanying financial information may not necessarily be
indicative of future operating results or future financial condition.

Results of Operations

         The following table presents the breakdown of consolidated results of
operations by operating unit for 1997, 1996 and 1995. Although the subsequent
discussion addresses the consolidated results of operations for CytRx and its
subsidiaries, management believes this presentation of net results by operating
unit is important to an understanding of the consolidated financial statements
taken as a whole.


                                       12
<PAGE>   14

<TABLE>
<CAPTION>

                                                                Year ended December 31,
                                                   -----------------------------------------------
(in thousands)                                      1997                 1996              1995
                                                   -------             -------           --------
<S>                                                <C>                 <C>               <C>
CytRx                                              $(4,462)            $(2,205)          $ (8,441)
Vaxcel                                              (2,599)             (1,124)            (1,386)
Vetlife                                              1,146              (1,015)              (826)
                                                   -------             -------           --------
Net loss from Continuing Operations                $(5,915)            $(4,344)          $(10,653)

Proceutics (discontinued operations)                  (138)             (1,448)                 -
                                                   -------             -------           --------

Net loss                                           $(6,053)            $(5,792)          $(10,653)
                                                   =======             =======           ========
</TABLE>

         Consolidated net sales from continuing operations for 1997 were
$14,347,000, as compared to $1,591,000 in 1996 and $513,000 in 1995. Cost of
sales from continuing operations was $7,206,000 in 1997, $652,000 in 1996,and
$50,000 in 1995. The dramatic increase in net sales was due to the initiation of
sales and marketing activities by Vetlife during the fourth quarter of 1996. The
significant components of net sales are shown below.

<TABLE>
<CAPTION>

                                                                Year ended December 31,
                                                     ------------------------------------------
(in thousands)                                         1997             1996              1995
                                                     -------           ------            ------
<S>                                                  <C>               <C>               <C>
Product Sales (Vetlife)                              $13,469             $711            $    -
Product Sales (CytRx)                                    456              522               513
Services (CytRx)                                         422              358                 -
                                                     -------           ------            ------
Net Sales from Continuing Operations                 $14,347           $1,591            $  513
                                                      ======           ======            ======
</TABLE>

         Investment income from continuing operations was $797,000 in 1997, as
compared to $1,169,000 in 1996 and $1,804,000 in 1995. The decrease for each
year is attributable to declining cash and investment balances. In 1995 CytRx
chose to convert the majority of its short-term investments into cash
equivalents. At January 1, 1995, the Company had $2.5 million in unrealized
losses as a result of 1994's dramatic increase in interest rates. By taking
advantage of strength in the bond market during the second quarter of 1995,
CytRx reduced its unrealized losses by $1.4 million, recording non-cash charges
of $1.1 million during 1995. These charges are shown as a separate line item in
the Consolidated Statements of Operations. Due to the higher yield on its
longer-term investments during the period in which these losses were incurred
and then recognized (February 1994 to June 1995), total investment income, net
of realized losses, exceeded the amount of potential investment income which
would have been realized had the Company avoided such losses by investing in
shorter-term securities.

         Research and development expenditures from continuing operations during
1997 were $4,649,000 versus $2,806,000 in 1996 and $7,071,000 in 1995. The
decrease from 1995 to 1996 was primarily due to a shift of personnel and capital
resources from the Company's internal research efforts to Proceutics, coupled
with a broader base of selling and administrative activities in Proceutics and
Vetlife to which overall facilities costs and shared services are allocated,
thereby reducing such allocations to research and development. Research and
development expenditures increased in 1997 as a result of the Company's
development activities for


                                       13
<PAGE>   15

FLOCOR, including the completion of a Phase II clinical trial and preparation
for a Phase III trial which was initiated in March 1998. The Company also
devoted significant resources toward addressing manufacturing issues for FLOCOR.
In 1997, the Company recognized a $951,000 charge for acquired in-process
research and development as a result of Vaxcel's acquisition of Zynaxis (See
Note 5 to Financial Statements). The acquisition of this in-process research and
development did not significantly impact the Company's ongoing research and
development expenditures during 1997; however, the Company anticipates
significant future expenditures will be required to continue development of
these technologies into commercially viable products. Such expenditures will be
limited by Vaxcel's available capital resources.

         Selling, general and administrative expenses from continuing operations
during 1997 were $8,846,000 as compared to $3,929,000 in 1996 and $3,575,000 in
1995. The increase from 1996 to 1997 is primarily due to the initiation of
selling activities for Vetlife. Management believes that inflation had no
material impact on the Company's operations during the three year period ended
December 31, 1997.

Year 2000

         The Year 2000 Issue is the result of computer programs being written
using two digits rather than four to define the applicable year. As a result,
those computer programs having time-sensitive software would recognize a date
using "00" as the year 1900 rather than the year 2000.

         Based on a recent assessment, the Company determined that its
accounting software will need to be updated or modified. This should be
accomplished through updates from the software manufacturer. The Company does
not expect any material costs associated with this modification or any
disruptions to its primary operations. The Company anticipates no other year
2000 problems which are reasonably likely to have a material adverse effect on
the Company's operations. There can be no assurance, however, that such problems
will not arise.

Impact of Recently Issued Accounting Standards

         In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement No. 130, Reporting Comprehensive Income ("Statement 130"). Statement
130 establishes new standards for the reporting and display of comprehensive
income and its components in a full set of general purpose financial statements.
These new standards require that all items recognized as components of
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial statements. Statement 130 is effective
for fiscal years beginning after December 15, 1997. The adoption of Statement
130 will not impact the Company's consolidated financial statements.

         In June 1997, the FASB issued Statement 131, Disclosures About Segments
of an Enterprise and Related Information ("Statement 131"). Statement 131
changes the way public companies report segment information in annual financial
statements and also requires those companies to report selected segment
information in interim financial reports. Statement 131 is



                                       14
<PAGE>   16

effective for periods beginning after December 15, 1997. The adoption of
Statement 131 will not have a significant impact on the Company's consolidated
financial statements.


                                       15
<PAGE>   17

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

CONSOLIDATED BALANCE SHEETS

CytRx Corporation and Subsidiaries

<TABLE>
<CAPTION>

                                                                                       December 31,
                                                                            -------------------------------
ASSETS                                                                          1997              1996
                                                                            ------------       ------------
<S>                                                                         <C>                <C>
Current assets:

     Cash and cash equivalents                                              $  5,895,008       $  1,429,207
     Short-term investments                                                            -          9,564,827
     Accounts receivable                                                       1,917,013            643,079
     Inventories                                                               2,272,798              9,508
     Other current assets                                                         29,157            532,399
                                                                            ------------       ------------

        Total current assets                                                  10,113,976         12,179,020

Property and equipment, net                                                    4,713,586          5,012,809

Other assets:

     Long-term investments (restricted)                                        5,326,647          5,979,430
     Notes receivable                                                            400,000            975,000
     Acquired developed technology, net                                        3,454,356                  -
     Other assets                                                                897,430            153,063
                                                                            ------------       ------------

        Total other assets                                                    10,078,433          7,107,493
                                                                            ------------       ------------

        Total assets                                                        $ 24,905,995       $ 24,299,322
                                                                            ============       ============


LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
     Accounts payable                                                       $  1,273,303       $    586,920
     Accrued liabilities                                                       1,599,628          1,123,476
     Unearned revenue                                                            166,187            251,192
                                                                            ------------       ------------

        Total current liabilities                                              3,039,118          1,961,588

6% Convertible debentures                                                      2,000,000                  -
Minority interest in Vaxcel,Inc.                                                 618,482                  -

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, 18,750,000 shares authorized;
        7,986,441 and 7,945,203 shares issued at December 31, 1997
        and 1996, respectively                                                     7,986              7,945
     Additional paid-in capital                                               65,793,491         62,653,015
     Treasury stock, at cost (555,154 and 507,750 shares held at
        December 31, 1997 and 1996, respectively)                             (2,198,533)        (2,021,669)
     Accumulated deficit                                                     (44,354,549)       (38,301,557)
                                                                            ------------       ------------

        Total stockholders' equity                                            19,248,395         22,337,734
                                                                            ------------       ------------

        Total liabilities and stockholders' equity                          $ 24,905,995       $ 24,299,322
                                                                            ============       ============
</TABLE>

                             See accompanying notes.

                                       16
<PAGE>   18

CONSOLIDATED STATEMENTS OF OPERATIONS

CytRx Corporation and Subsidiaries

<TABLE>
<CAPTION>

                                                                       Year Ended December 31,
                                                           --------------------------------------------
                                                               1997             1996            1995
                                                           ------------    ------------    ------------
<S>                                                        <C>             <C>             <C>
Revenues:

     Net sales                                             $ 14,347,461    $  1,591,123    $    512,528
     Investment income                                          797,069       1,168,641       1,803,988
     Collaborative, grant and license fee income                337,438         187,667         115,000
     Other                                                      304,912          96,559         111,814
                                                           ------------    ------------    ------------
                                                             15,786,880       3,043,990       2,543,330

Expenses:

     Cost of sales                                            7,205,522         652,465          49,789
     Research and development                                 4,648,555       2,806,216       7,070,600
     Acquired incomplete research and development               951,017               -               -
     Selling, general and administrative                      8,846,285       3,929,121       3,574,651
     Write-off of patent costs                                        -               -       1,395,476
     Realized loss on short-term investments                          -               -       1,102,622
     Interest                                                   293,048               -           2,774
                                                           ------------    ------------    ------------
                                                             21,944,427       7,387,802      13,195,912
                                                           ------------    ------------    ------------

Loss from continuing operations before minority interest     (6,157,547)     (4,343,812)    (10,652,582)
Minority interest                                              (242,487)              -               -
                                                           ------------    ------------    ------------
Loss from continuing operations                              (5,915,060)     (4,343,812)    (10,652,582)

Loss from discontinued operations                              (137,932)     (1,447,967)              -
                                                           ============    ============    ============
Net loss                                                   $ (6,052,992)   $ (5,791,779)   $(10,652,582)
                                                           ============    ============    ============

Basic and diluted loss per common share:

     Loss from continuing operations                       $      (0.80)   $      (0.56)   $      (1.35)
     Loss from discontinued operations                            (0.02)          (0.19)              -
                                                           ============    ============    ============
     Net loss                                              $      (0.82)   $      (0.75)   $      (1.35)
                                                           ============    ============    ============

Basic and diluted weighted average shares outstanding         7,424,372       7,737,949       7,905,364
</TABLE>

                            See accompanying notes.


                                       17
<PAGE>   19

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

CytRx Corporation and Subsidiaries

<TABLE>
<CAPTION>
                                                    Common Stock                                                        
                                               ----------------------      Additional                   Net Unrealized
                                                Shares                      Paid-in       Accumulated       Loss on
                                                Issued        Amount        Capital         Deficit      Investments
                                               ----------------------------------------------------------------------

<S>                                            <C>          <C>          <C>             <C>            <C>
Balance at December 31, 1994                   7,893,962    $   7,894    $ 62,350,926    $(21,857,196)   $(2,475,277)
     Issuance of common stock upon
        exercise of stock options and other       21,346           21         163,765
     Reduction of unrealized loss
        on investments                                                                                     2,475,277
     Purchase of treasury stock
     Net loss                                                                             (10,652,582)
                                               ----------------------------------------------------------------------
Balance at December 31, 1995                   7,915,308        7,915      62,514,691     (32,509,778)             -
     Issuance of common stock                     29,895           30         138,324
     Purchase of treasury stock
     Net loss                                                                              (5,791,779)
                                               ----------------------------------------------------------------------
Balance at December 31, 1996                   7,945,203        7,945      62,653,015     (38,301,557)             -
     Issuance of common stock                     41,238           41         169,373
     Purchase of treasury stock
     Unrealized gain on sale of shares
        of subsidiary                                                       2,706,397
     Beneficial conversion feature of
        convertible debentures                                                264,706
     Net loss                                                                              (6,052,992)
                                               ----------------------------------------------------------------------
Balance at December 31, 1997                   7,986,441    $   7,986     $65,793,491    $(44,354,549)   $         -
                                               ======================================================================


<CAPTION>

                                               Treasury
                                                 Stock            Total
                                             ------------------------------

<S>                                          <C>               <C>
Balance at December 31, 1994                 $        -        $ 38,026,347
     Issuance of common stock upon
        exercise of stock options and other                         163,786
     Reduction of unrealized loss
        on investments                                            2,475,277
     Purchase of treasury stock                 (242,343)          (242,343)
     Net loss                                                   (10,652,582)
                                             ------------------------------
Balance at December 31, 1995                    (242,343)        29,770,485
     Issuance of common stock                                       138,354
     Purchase of treasury stock               (1,779,326)        (1,779,326)
     Net loss                                                    (5,791,779)
                                             ------------------------------
Balance at December 31, 1996                  (2,021,669)        22,337,734
     Issuance of common stock                                       169,414
     Purchase of treasury stock                 (176,864)          (176,864)
     Unrealized gain on sale of shares
        of subsidiary                                             2,706,397
     Beneficial conversion feature of
        convertible debentures                                      264,706
     Net loss                                                    (6,052,992)
                                             ------------------------------
Balance at December 31, 1997                 $(2,198,533)      $ 19,248,395
                                             ==============================
</TABLE>

                             See accompanying notes.


                                       18
<PAGE>   20

Consolidated Statements of Cash Flows
CytRx Corporation and Subsidiaries

<TABLE>
<CAPTION>

                                                                             Year Ended December 31,
                                                                  --------------------------------------------
                                                                      1997            1996             1995
                                                                  ------------    ------------    ------------
<S>                                                               <C>             <C>             <C>
Cash flows from operating activities:

     Net loss                                                     $ (6,052,992)   $ (5,791,779)   $(10,652,582)
     Adjustments to reconcile net loss to net
        cash used in operating activities:
        Depreciation                                                   607,349         655,006         568,542
        Amortization                                                   145,644               -               -
        Charge for acquired incomplete research and development        951,017               -               -
        Charge for beneficial conversion feature of
           convertible debentures                                      264,706               -               -
        Write-off of patent costs                                            -               -       1,395,476
        Write-off of fixed assets                                            -               -         136,647
        Minority interest in net loss of subsidiary                   (242,487)              -               -
        Changes in assets and liabilities:
           Receivables                                                (979,874)       (552,002)        (22,487)
           Inventories                                              (2,263,290)         (3,190)            333
           Note receivable                                                   -        (975,000)              -
           Other assets                                                537,902        (162,443)        168,299
           Accounts payable                                            640,383         320,795         (18,054)
           Unearned revenue                                            (85,005)        251,192               -
           Other liabilities                                           382,053         200,103         573,332
                                                                  ------------    ------------    ------------

     Total adjustments                                                 (41,602)       (265,539)      2,802,088
                                                                  ------------    ------------    ------------

        Net cash used in operating activities                       (6,094,594)     (6,057,318)     (7,850,494)

Cash flows from investing activities:
     Purchases of held-to-maturity securities                      (22,103,140)    (12,024,022)     (9,632,312)
     Sales of available-for-sale securities                                  -               -      26,437,732
     Maturities of held-to-maturity securities                      32,399,348       5,036,000       4,625,000
     Net cash paid for acquisition                                  (1,257,974)              -               -
     Capital expenditures, net                                        (273,755)       (530,051)       (251,773)
                                                                  ------------    ------------    ------------

        Net cash provided (used) by investing activities             8,764,479      (7,518,073)     21,178,647

Cash flows from financing activities:
     Net proceeds from issuance of common stock                        169,414         138,354         163,786
     Purchase of treasury stock                                       (176,864)     (1,779,326)       (242,343)
     Proceeds from issuance of debt, net of issuance costs           1,803,366               -               -
                                                                  ------------    ------------    ------------

        Net cash provided (used) by financing activities             1,795,916      (1,640,972)        (78,557)
                                                                  ------------    ------------    ------------

Net increase (decrease) in cash and cash equivalents                 4,465,801     (15,216,363)     13,249,596

Cash and cash equivalents at beginning of year                       1,429,207      16,645,570       3,395,974
                                                                  ------------    ------------    ------------

Cash and cash equivalents at end of year                          $  5,895,008    $  1,429,207    $ 16,645,570
                                                                  ============    ============    ============


Supplemental disclosure of cash flow information:
     Cash paid during the year for interest                       $     23,342    $          -    $      2,774
                                                                  ============    ============    ============
</TABLE>

                             See accompanying notes

                                       19
<PAGE>   21

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       CYTRX CORPORATION AND SUBSIDIARIES

1.       NATURE OF BUSINESS

         CytRx Corporation and its subsidiaries (Proceutics, Inc., Vaxcel, Inc.
and Vetlife, Inc.) (collectively the "Company") are engaged in the development
of pharmaceutical products including FLOCOR to treat acute sickle cell crisis
and other vascular diseases and technologies to improve the effectiveness of
vaccines. Prior to the divestiture of VetLife, Inc. in April 1998, the Company
also marketed and distributed products to enhance food animal growth.

2.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         Basis of Presentation - The consolidated financial statements include
the accounts of CytRx Corporation ("CytRx") together with those of its
majority-owned subsidiaries. All significant intercompany transactions have been
eliminated. Certain prior year amounts have been reclassified to conform to the
1997 financial statement presentation. As more thoroughly discussed in Note 12,
Proceutics, Inc. ("Proceutics") is presented as a discontinued operation for all
periods presented.

         Reverse Stock Split - All share and per share information in the
accompanying consolidated financial statements and notes thereto has been
retroactively adjusted to reflect a one-for-four reverse stock split approved on
February 5, 1996 by the Company's stockholders, effective February 6, 1996.

         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 auction-market preferred stock, commercial
paper and amounts invested in money market accounts.

         Restricted Cash - In January 1996 Vetlife, Inc. ("Vetlife") signed an
agreement with IVY Laboratories, Inc. ("IVY") to market and distribute IVY's
line of FDA-approved cattle growth products and devices in North America. In
connection with the agreement, Vetlife was required to obtain a letter of credit
in the amount of $5 million in favor of IVY. Such unused letter of credit is
collateralized by approximately $5.3 and $5.9 million in cash equivalents and
investments at December 31, 1997 and 1996, respectively. Such collateral is
presented as long-term investments in the accompanying consolidated balance
sheet.

         Investments - Management determines the appropriate classification of
debt securities at the time of purchase and reevaluates such designation as of
each balance sheet date. Debt securities are classified as held-to-maturity when
the Company has the positive intent and ability to hold the securities to
maturity. Held-to-maturity securities are stated at amortized cost. Marketable
equity securities and debt securities not classified as held-to-maturity are
classified as


                                       20

<PAGE>   22

available-for-sale. Available-for-sale securities are carried at fair value,
with the unrealized gains and losses reported in a separate component of
stockholders' equity. Realized gains and losses are included in investment
income and are determined on a first-in, first-out basis (see Note 3).

         Fair Value of Financial Instruments - The carrying amounts reported in
the balance sheet for cash and cash equivalents, investments (see Note 3),
accounts receivable, note receivable, accounts payable and convertible
debentures approximate their fair values. The carrying amount reported in the
balance sheet for long-term debt approximates its fair value. The fair value of
such long-term debt is estimated using discounted cash flow analyses based on
the Company's current incremental borrowing rate for similar types of borrowing
arrangements.

         Inventories - Inventories, which are comprised primarily of finished
cattle growth promotant products, are valued at the lower of cost or market
using the first-in, first-out (FIFO) method.

         Property and Equipment - Property and equipment are stated at cost and
depreciated using the straight-line method based on the estimated useful lives
(twenty years for buildings and five to seven years for equipment and furniture)
of the related assets.

         Acquired Developed Technology and Other Intangibles - Acquired 
developed  technology and other intangible assets, primarily goodwill, (See
Note 5) are amortized over their estimated useful lives (fifteen years) on a
straight-line basis. Management continuously monitors and evaluates the
realizability of recorded acquired developed technology and other intangible
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 undiscounted
cash flows estimated to be generated by those assets are less than the carrying
amount of those assets. During 1997, continued losses at Vaxcel indicated that
acquired developed technology of $3.5 million and goodwill of $600,000 might be
impaired. However, the Company's estimate of undiscounted cash flows indicated
that such carrying amounts were expected to be recovered. Nonetheless, it is
reasonably possible that the estimate of undiscounted cash flows may change in
the future resulting in the need to write-down those assets to fair value.

         Patents and Patent Application Costs - Prior to 1995 the Company
capitalized the costs associated with obtaining patents on its technologies.
During the first quarter of 1995 the Company changed from deferring and
amortizing such costs to recording them as expenses when incurred because, even
though the Company believes the patents and underlying technology have
continuing value, the amount of future benefits to be derived therefrom is
uncertain. Accordingly, the new accounting method was adopted in recognition of
a possible change in estimated future benefits. Since the effect of this change
in accounting principle was inseparable from the effect of the change in
accounting estimate, such change was accounted for as a change in estimate in
accordance with Opinion No. 20 of the Accounting Principles Board. As a result,
the Company recorded a non-cash write-off of $1.4 million during 1995 ($.18 per
share). Future patent costs are expected to be expensed since the benefits to be
derived therefrom are likely to be uncertain.

         Basic and Diluted Loss per Common Share - In February 1997, the FASB
issued Statement No. 128, Earnings Per Share ("Statement 128"). Statement 128
replaced the calculation of primary and fully diluted loss per share with basic
and diluted loss per share. Unlike primary loss per share, the calculation of
basic loss per share

                                      21


<PAGE>   23

excludes any dilutive effects of options, warrants and convertible securities.
Diluted loss per share is very similar to the previously reported fully diluted
loss per share. Loss per share amounts for all periods have been presented in
accordance with Statement 128 requirements.

         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, warrants and convertible debentures) are excluded from the
computation of diluted loss per share since the effect would be antidilutive.

         Shares Reserved for Future Issuance - The Company has reserved
approximately 2,238,000 of its authorized but unissued shares of common stock
for future issuance pursuant to stock options and warrants, convertible debt and
employee benefit plans.

         Revenue Recognition - Sales are recognized at the time the products are
shipped or services 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 approximated the revenues
reported in the accompanying statements of operations. License fees reported in
the accompanying statements of operations consist entirely of nonrefundable fees
received upon the signing of certain technology license and option agreements.
These fees were recognized as income when they were received. Such agreements
generally contain provisions for additional fees upon the achievement of certain
development milestones by the licensee and upon approval of the related
products, followed by a royalty based upon net sales. Such fees, if any, will be
recognized as income when they become receivable under the terms of the related
contracts.

         Sale of Stock by a Subsidiary - The Company does not recognize gains on
the sale of previously unissued stock of subsidiaries when there are significant
uncertainties regarding the Company's ability to ultimately realize its
investment in the subsidiary. Such gains are reflected as additional paid-in
capital in the Company's consolidated financial statements.

         Stock-based Compensation - The Company grants stock options 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 in accordance with APB Opinion No. 25, Accounting for
Stock Issued to Employees ("APB 25"), and, accordingly, recognizes no
compensation expense for the stock option grants (see Note 8).

         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.

         The Company has also granted a limited number of stock options to
consultants and certain third parties. These stock options generally expire
after ten years from the date of grant and have exercise prices equal to the
fair market value of the underlying common stock at the date of grant. The fair
value of the stock options granted to consultants and certain third parties was
immaterial.

         Concentrations of Credit Risk - Financial instruments that potentially
subject the Company to significant concentrations of credit risk consist
principally of cash investments. The Company maintains cash equivalents and
investments in large well-capitalized financial

                                      22


<PAGE>   24

institutions and the Company's investment policy disallows investment in any
debt securities rated less than "investment-grade" by national ratings services.

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

3.       Investments

         At January 1, 1995 the Company classified all of its investments as
available-for-sale. Proceeds from sales of available-for-sale securities during
1995 were $25.3 million. Net realized losses on sales of available-for-sale
securities during 1995 were $1.1 million.

         At December 31, 1997 and 1996 the Company has classified all of its
investments as held-to-maturity, as summarized below (in thousands):

<TABLE>
<CAPTION>
                                                                      Gross          Gross          Fair
                                                                    Unrealized     Unrealized      Market
                                                      Cost            Gains          Losses         Value
                                                     -------        ----------     ----------      -------
<S>                                                  <C>            <C>            <C>             <C>    
December 31, 1997:
------------------
Corporate debt securities                            $10,541        $     1        $     -         $10,542


December 31, 1996:
------------------
U.S. government debt securities                      $   598        $     1        $     -         $   599
Corporate debt securities                             15,645              -             64          15,581
                                                     -------        -------        -------         -------
Total                                                $16,243        $     1        $    64         $16,180
                                                     =======        =======        =======         =======
</TABLE>

         On December 31, 1997 and 1996, investments were included in the
following captions on the consolidated balance sheets as follows (in thousands):


<TABLE>
<CAPTION>
                                                                 1997                1996
                                                                 ----                ----
                  <S>                                          <C>                <C>      
                  Cash and cash equivalents                    $ 5,214            $   699
                  Short-term investments                             -              9,565
                  Long-term investments                          5,327              5,979
                                                               -------            -------
                                                               $10,541            $16,243
                                                               =======            =======
</TABLE>

         The contractual maturities of securities held at December 31, 1997 are
one year or less. Actual maturities may differ from contractual maturities
because the issuers of the securities may have the right to prepay obligations
with or without prepayment penalties.


                                       23
<PAGE>   25


4.       Property and Equipment

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

<TABLE>
<CAPTION>
                                                                           1997             1996
                                                                           ----             ----
<S>                                                                      <C>               <C>   
Land                                                                     $   220           $  220
Buildings and improvements                                                 4,184            4,188
Equipment and furnishings                                                  2,963            2,651
                                                                         -------           ------
                                                                           7,367            7,059
Less accumulated depreciation and amortization                            (2,653)          (2,046)
                                                                         -------           ------ 
                                                                         $ 4,714           $5,013
                                                                         =======           ======
</TABLE>

5.       Acquisition of Zynaxis, Inc.

         In December 1996 CytRx, Vaxcel, Inc. ("Vaxcel") and Zynaxis, Inc.
("Zynaxis") signed an agreement whereby Zynaxis would be merged with a
wholly-owned subsidiary of Vaxcel. At that time Zynaxis was a publicly-held
biotechnology company engaged in the development of certain vaccine
technologies. The transaction was approved by the Zynaxis stockholders at a
meeting held on May 21, 1997 and was consummated as of that date.

         Under the terms of the agreement all of the outstanding shares of
Zynaxis were converted into shares of Vaxcel based upon certain exchange ratios
defined in the agreement, resulting in the issuance of an aggregate of 1.4
million (12.5%) of the outstanding (post-merger) shares of Vaxcel common stock
(at $2.91 per share) to former Zynaxis stockholders at the date of closing. The
merger was treated as a purchase by Vaxcel and constituted a tax-free
reorganization for Zynaxis stockholders. The results of operations of Zynaxis
are included in the statement of operations since May 21, 1997.

         Pursuant to the agreement, CytRx was to provide up to $2 million to
Zynaxis under a secured credit facility during the period prior to closing of
the merger, at which time the outstanding principal and interest was to be
contributed to the capital of Vaxcel, together with additional equity in the
amount of $4 million less the outstanding principal and interest of the secured
note. At the time of closing the outstanding principal and interest of the
secured note to Zynaxis was approximately $1.7 million, resulting in a net cash
infusion from CytRx to Vaxcel of approximately $2.3 million. In addition, at the
date of closing, Vaxcel issued to CytRx a one-year warrant entitling CytRx to
purchase a number of shares of Vaxcel common stock equal to the amount of
capital which may be necessary for Vaxcel to satisfy requirements for inclusion
in the Nasdaq SmallCap Market, divided by one-half of the $2.91 per share
transaction price at the date of closing.

         In accordance with the provisions of APB Nos. 16 and 17, all
identifiable assets acquired, including identified intangible assets and
liabilities assumed, were assigned a portion of the purchase price based on
their respective fair values. The fair values of the acquired developed


                                       24
<PAGE>   26


technology and incomplete research and development were determined based on an
independent appraisal. A summary of the allocation of the purchase price is a
follows (in thousands):

<TABLE>
<CAPTION>
          <S>                                                                           <C>    
           Net tangible assets, less outstanding liabilities                            $ (830)
           Acquired developed technology and other intangibles                           4,241
           Acquired incomplete research and development                                    951 
                                                                                        ------
                                                                                        $4,362
                                                                                        ======
</TABLE>

         As a result of this transaction, CytRx owns 87.5% of the outstanding
Vaxcel common stock and former Zynaxis stockholders own the remaining 12.5%. An
unrealized gain of $2,706,000 relating to the sale of 12.5% of Vaxcel common
stock is reflected in stockholders' equity. The change to equity reflecting
CytRx's proportionate share of the increase in Vaxcel's equity related to the
shares issued in connection with the acquisition of Zynaxis was recorded as an
equity transaction since realization of the gain was not assured.

         The following table presents unaudited pro forma operating results for
the years ended December 31, 1997 and 1996, as if the acquisition of Zynaxis had
occurred on January 1 of each period (in thousands, except for per share data).

<TABLE>
<CAPTION>
                                                                  1997                      1996
                                                                  -------                  ------
         <S>                                                      <C>                     <C>   
         Revenues                                                 $16,615                  $4,834
         Loss from continuing operations
            before minority interest                               (5,901)                 (9,624)
         Minority interest                                           (293)                   (800)
         Loss from continuing operations                           (5,608)                 (8,824)
         Net loss                                                  (5,746)                (10,272)
         Basic and diluted loss per share from
            continuing operations                                    (.76)                  (1.14)
         Basic and diluted net loss per share                        (.77)                  (1.33)
</TABLE>

6.       6% CONVERTIBLE DEBENTURES

         On October 22, 1997, the Company privately placed (the "Note Sale")
with certain investors (the "Investors") $2,000,000 of convertible notes (the
"Debentures") which mature in October, 2001. The Debentures may be converted
into CytRx common stock on and after December 21, 1997 at a price equal to the
lesser of 85% of the average closing bid price for the 10 days preceding the
conversion, or $5.68 per share (the "Conversion Price"). Such beneficial
conversion feature was determined to have a fair value of $265,000 at the date
of issuance and has been amortized to interest expense from the date of issuance
through the date the Debentures first became convertible. The Debentures were
sold at par and bear interest at a rate of 6% per annum. The terms of the
Debentures grant CytRx the right to redeem the Debentures at 110% of par if the
Conversion Price falls below $4. Also in connection with the Note Sale, the
Investors were issued two year warrants to purchase 40,000 shares of CytRx
common stock at an exercise price of $5.68. The fair value of such warrants was
determined to be insignificant.



                                       25
<PAGE>   27

         In February 1998, $400,000 of the Debentures were converted into
161,608 shares of common stock, and an additional $400,000 of Debentures were
redeemed by the Company.

7.       COMMITMENTS AND CONTINGENCIES

         Lease Commitments - Rental expense under operating leases during 1997,
1996 and 1995 approximated $118,000, $96,000 and $69,000, respectively. Minimum
annual future obligations for operating leases are $167,000, $50,000 and $45,000
in 1998, 1999 and 2000, respectively. Aggregate minimum future subrentals the
Company expects to receive under noncancellable subleases through January 2000
total approximately $60,000 at December 31, 1997.

         Purchase Commitments - At December 31, 1997, the Company had
outstanding firm purchase commitments for inventory of approximately $46.0
million related to minimum annual purchase volumes under certain contracts
covering a period of four years. Such contracts are with the supplier of the
Company's cattle growth promotant products. Purchases from this supplier totaled
$7,270,000 and $2,000 in the years ended December 31, 1997 and 1996,
respectively.

8.       STOCK OPTIONS AND WARRANTS

         The Company and its subsidiaries, Vaxcel and VetLife, have stock option
plans pursuant to which certain key employees and directors are eligible to
receive incentive and/or nonqualified stock options to purchase shares of the
Company's common stock. The options granted under the plans generally become
exercisable over a three year period from the dates of grant and have lives of
ten years. 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 employment agreement; such warrants have
lives of ten years from the dates of grant. Exercise prices of all options and
warrants are set at the fair market values of the common stock on the dates of
grant.

         A summary of the Company's stock option and warrant activity and
related information for the years ended December 31 is shown below. In January
1995 the Company repriced certain


                                       26
<PAGE>   28


employee stock options and warrants, resulting in the net cancellation of 91,060
options and warrants.

<TABLE>
<CAPTION>
                                             Options and Warrants                  Weighted Average Exercise Price
                                   ---------------------------------------         -------------------------------
                                       1997          1996           1995            1997        1996         1995
                                       ----          ----           ----            ----        ----         ----
<S>                                <C>            <C>            <C>               <C>         <C>         <C>     
Outstanding - beginning of year     1,237,031     1,018,289      1,084,731         $ 5.00      $ 6.08      $ 10.08
Granted                               221,700       275,688        151,611           4.35        3.72         6.19
Exercised                                   -             -         (3,926)             -           -         7.00
Forfeited                             (19,434)      (56,946)      (214,127)          6.64       20.44        15.36
Expired                                     -             -              -              -           -            -
                                    ---------     ---------      ---------         ------      ------      -------     
Outstanding - end of year           1,439,297     1,237,031      1,018,289         $ 4.87      $ 5.00      $  6.08
                                    =========     =========      =========         ======      ======      =======

Exercisable at end of year            940,541       874,946        842,992         $ 5.22      $ 5.22      $  5.81

Weighted  average  fair  value of
   options and  warrants  granted
   during the year:                     $3.97         $3.39          $6.07
</TABLE>

         The following table summarizes additional information concerning
options and warrants outstanding and exercisable at December 31, 1997:

<TABLE>
<CAPTION>
                     Options Outstanding                                            Options Exercisable
-------------------------------------------------------------------------    --------------------------------
                                          Weighted
                                           Average
                                          Remaining         Weighted                              Weighted
     Range of        Number of Shares    Contractual        Average              Number           Average
  Exercise Prices                       Life (years)     Exercise Price        Exercisable     Exercise Price
-------------------- ----------------- ---------------- -----------------    ---------------- ---------------
<S>                  <C>               <C>              <C>                  <C>              <C>   
$  2.75 -  4.81         1,131,060            7.6           $  4.24                665,437         $ 4.39
   5.00 -  7.00           278,689            5.9              6.98                252,439           6.97
   7.50 - 10.00            26,047            7.0              8.47                 19,164           8.63
  15.75 - 31.00             3,501            6.4             17.41                  3,501          17.41
                        ---------                                                 -------
                        1,439,297            7.3              4.88                940,541           5.22
                        =========                                                 =======
</TABLE>
         A summary of Vaxcel's stock option activity and the related
information for the years ended December 31 is shown below.

<TABLE>
<CAPTION>
                                          Options                   Weighted Average Exercise Price
                               --------------------------------  --------------------------------------
                                 1997        1996          1995       1997         1996         1995
                                 ----        ----          ----       ----         ----         ----

<S>                            <C>          <C>          <C>          <C>          <C>          <C> 
Outstanding - beginning of                      
year                           794,453      735,000      531,500      $1.50        $1.50        $1.50
Granted                         63,000       73,620      203,500       3.18         1.50         1.50         
Exercised                       (5,333)           -            -       1.50            -            - 
Forfeited                       (5,120)     (14,167)           -       1.50         1.50            - 
                               -------      -------      -------     
Outstanding - end of year      847,000      794,453      735,000      $1.63        $1.50        $1.50
                               =======      =======      =======

Exercisable at end of year     293,663      184,332       95,498      $1.57        $1.50        $1.50

Weighted average fair value of
options granted during the year  $1.82        $0.83        $0.87
</TABLE>

         The exercise prices for options outstanding as of December 31, 1997
ranged from $1.00 to $3.25. The weighted average remaining contractual life of
those options is 6.6 years.

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

<TABLE>
<CAPTION>
                                               Options                   Weighted Average Exercise Price
                                   --------------------------------  --------------------------------------
                                    1997         1996         1995        1997         1996         1995
                                    ----         ----         ----        ----         ----         ----
<S>                                <C>          <C>          <C>          <C>          <C>          <C>     
Outstanding - beginning of
year                               895,150      598,150      420,150      $1.50        $1.50        $1.50      
Granted                            115,000      767,000      178,000       1.50         1.50         1.50
Exercised                                -            -            -          -            -            -         
Forfeited                          (20,000)    (470,000)           -       1.50         1.50            -   
                                   -------     --------      -------      
Outstanding - end of year          990,150      895,150      598,150      $1.50        $1.50        $1.50
                                   =======     ========      =======

Exercisable at end of year         199,030      127,116       79,832      $1.50        $1.50        $1.50 

Weighted average fair value of
options granted during the year       $.60         $.60         $.66
</TABLE>
     
         The exercise price for all options outstanding as of December 31, 1997
was $1.50. The weighted average remaining contractual life for options
outstanding at December 31, 1997 was 8.4 years.

         The Company and its subsidiaries have elected to follow APB 25 and
related Interpretations in accounting for their employee stock options 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. Under APB 25, because the exercise
price of the Company's and its subsidiaries' employee stock options equal the
fair market value of the underlying stock on the date of grant, no compensation
expense is recognized. Stock options granted to consultants and certain other
third parties are valued at their fair value on the dates of grant and have been
immaterial to date.

         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 and its subsidiaries had accounted for their employee stock options
granted subsequent to December 31, 1994 under the fair value method of


                                       27




<PAGE>   29
that Statement. The fair value for the Company's options was estimated at the
date of grant using a Black-Scholes option pricing model with the following
assumptions:

<TABLE>
<CAPTION>
                                                  1997                1996           1995
                                                  ----                ----           ----
<S>                                              <C>                  <C>            <C>
Weighted average risk free interest rate          6.22%               6.30%          6.79%
Dividend yields                                      0%                  0%             0%  
Volatility factors of the expected market
price of Vaxcel's common stock                   1.055                1.12           1.12
Weighted average life of the option                  8                   8              8
</TABLE>

         The fair value for Vaxcel's options was estimated at the date of grant
using a Black-Scholes option pricing model with the following assumptions:

<TABLE>
<CAPTION>
                                                  1997                1996           1995
                                                  ----                ----           ----
<S>                                               <C>                 <C>            <C>
Weighted average risk free interest rate          6.53%               6.34%           7.49%
Dividend yields                                      0%                  0%              0%
Volatility factors of the expected market
price of Vaxcel's common stock                    .585                .378            .378
Weighted average life of the option                  8                   8               8
</TABLE>

         The fair value for VetLife's options was estimated at the date of
grant using a minimum value option pricing model, which is appropriate for
nonpublic companies, with the assumptions as shown below. The minimum value
method assumes no volatility in the stock price.

<TABLE>
<CAPTION>
                                                  1997                1996           1995
                                                  ----                ----           ----
<S>                                               <C>                 <C>            <C>
Weighted average risk free interest rate          6.41%               6.36%          7.27%
Dividend yields                                      0%                  0%             0%
Weighted average life of the option                  8                   8              8
</TABLE>


         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 and its subsidiaries' 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
options 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>
                                                           1997              1996            1995
                                                           ----              ----            ----
<S>                                                      <C>               <C>             <C>      
Pro forma net loss                                       ($6,969)          ($6,343)        ($10,936)
Pro forma net loss per share (basic
   and diluted)                                            ($.94)            ($.82)          ($1.38)
</TABLE>

         Statement 123 is applicable only to options granted subsequent to
December 31, 1994; therefore, its proforma effect will not be fully reflected
until 1998.

9.       ADOPTION OF 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 (1/10,000th) 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 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

                                       28
<PAGE>   30

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 acquirers.

10.      RETIREMENT PLAN

         The Company maintains a defined contribution retirement plan (the
"Plan") covering employees of the Company. Historically, at the Board of
Directors' discretion, the Company has matched 50% of the participant's
contribution with common stock. The Company's matching contribution vests over 3
years. Total expense for the Plan for the years ended December 31, 1997, 1996
and 1995 was $164,000, $143,000 and $139,000, respectively, of which $53,000,
$52,000 and $-0- related to the discontinued operations of Proceutics for the
years ended December 31, 1997, 1996 and 1995, respectively.

11.      INCOME TAXES

         For income tax purposes, CytRx and its subsidiaries have an aggregate
of approximately $44.6 million of net operating losses available to offset
against future taxable income, subject to certain limitations. Such losses
expire in 2000 through 2012. They also have an aggregate of approximately $1.1
million of research and development credits available for offset against future
income taxes which expire in 2000 through 2010.

         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:


<TABLE>
<CAPTION>
                                                                                           December 31,
                                                                                           ------------
                                                                                   1997                   1996
                                                                                   ----                   ----
                Deferred tax assets:

                <S>                                                               <C>                   <C>        
                  Net operating loss carryforward                                 $16,942,006           $13,965,378
                  Tax credit carryforward                                           1,095,762             1,075,455
                  Other                                                             1,395,900               334,389
                                                                                  -----------           -----------
                Total deferred tax assets                                          19,433,668            15,375,222
                Deferred tax liabilities:
                  Acquired developed technology and other intangibles              (1,556,100)                    -    
                  Depreciation                                                       (194,065)             (183,542)
                                                                                  -----------           -----------
                Total deferred tax liabilities                                     (1,750,165)             (183,542)
                                                                                  -----------           -----------
                Net deferred tax assets                                            17,683,503            15,191,680
                Valuation allowance                                               (17,683,503)          (15,191,680)
                                                                                  -----------           -----------
                                                                                  $         -           $         -
                                                                                  ===========           ===========
</TABLE>


                                       29




<PAGE>   31


         Based on assessments of all available evidence as of December 31, 1997
and 1996, 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.

          The amount of net operating loss carryforwards generated by Zynaxis
prior to the merger was $31,000,000.  The use of pre-acquisition operating loss
carryforwards is subject to limitations imposed by the Internal Revenue Code.
The Company anticipates that these limitations will affect utilization of the
carryforwards prior to expiration.  Therefore, for financial reporting purposes
the Company has recorded a deferred tax asset of $1,277,000, giving effect to
these limitations with a corresponding valuation allowance of $1,277,000.  When
realized, the tax benefit of these loss carryforwards will be applied to
reduce acquired developed technology and other intangibles related to the
acquisition of Zynaxis.

12.      DISCONTINUED OPERATIONS

         On February 16, 1998, the Company consummated a sale of substantially
all of the assets of Proceutics other than real estate to Oread Laboratories,
Inc. ("Oread") for approximately $2.1 million. Proceutics retained its real
estate assets consisting of a laboratory building which it is leasing to Oread.
The Company expects a gain related to the sale of Proceutics which will be
recognized in 1998.

         Revenues from the discontinued operations of Proceutics approximated
$1,984,000, $1,004,000 and $-0- for the years ended December 31, 1997, 1996 and
1995, respectively. In addition, capital expenditures and depreciation expense
for the years ended December 31, 1997 and 1996 were $165,000 and $365,000; and
$336,000 and $437,000, respectively. A summary of the assets and liabilities of
Proceutics which were sold, and which are included in the consolidated balance
sheets at December 31, 1997 and 1996 are as follows (in thousands):

<TABLE>
<CAPTION>
                                                                   1997                 1996
                                                                  ------                ------
                <S>                                               <C>                   <C>   
                Current assets                                    $  721                $  674
                Property and equipment, net                          696                   721
                                                                  ------                ------
                Total assets                                      $1,417                $1,395
                                                                  ======                ======
                Total liabilities                                 $  228                $  637
                                                                  ======                ======
</TABLE>

13.  POTENTIAL SALE OF REAL ESTATE

         On February 23, 1998, the Company entered into an agreement with
Alexandria Real Estate Equities, Inc. ("Alexandria") pursuant to which CytRx and
Proceutics would sell the two buildings owned by them at 150 and 154 Technology
Parkway, Norcross, Georgia, to Alexandria for $4,500,000. Under the terms of the
Agreement, Proceutics' rights and obligations under the lease to Oread (See Note
12) would be assigned to Alexandria and CytRx would lease the building at 154
Technology Parkway from Alexandria. The Company expects that this transaction
will be consummated in April, 1998 and will result in a gain which will be
recognized in 1998.

14.      SEGMENT REPORTING

         Commencing in 1996 the Company's continuing operating revenues have
been generated from two primary industry segments: cattle growth promotant
products (Vetlife), and research


                                       30



<PAGE>   32


products (CytRx - Titermax). Financial information for continuing operations by
industry segment at December 31, 1997 and 1996 and for the years then ended is
presented below.

<TABLE>
<CAPTION>
1997:
-----
                                      Cattle
                                      Growth      Research              General    Consolidated
(in thousands)                        Products    Products    Other    Corporate       Total
------------------------------------------------------------------------------------------------
<S>                                   <C>         <C>         <C>      <C>         <C>    
Sales to unaffiliated customers       $13,469        $456     $422     $      -        $14,347

Operating profit (loss)                 1,504         193       77       (7,689)        (5,915)

Identifiable assets                     9,122           -        -       11,608         20,730

Capital expenditures                       11           -        -           98            109

Depreciation and amortization              16           -        -          372            388

1996:
-----
                                      Cattle
                                      Growth      Research              General    Consolidated
(in thousands)                        Products    Products    Other    Corporate       Total
------------------------------------------------------------------------------------------------
Sales to unaffiliated customers       $   711        $522     $358     $      -         $1,591

Operating profit (loss)                  (672)        173       29       (3,874)        (4,344)

Identifiable assets                     6,714           -        -       13,268         19,982

Capital expenditures                      115           -        -           79            194

Depreciation and amortization              15           -        -          203            218
</TABLE>

         Identifiable assets are assets used in the operations of each segment.
The Company has no foreign operations and operating revenues derived from
foreign sources are immaterial to the consolidated total.

         During 1997, three customers of the cattle growth promotant products
segment each contributed significant portions (greater than 10%) of the
Company's consolidated net sales from continuing operations. These three
customers comprise approximately 49.8%, 34.9% and 10.1% of consolidated net
sales from continuing operations. During 1996, two customers each contributed
significant portions (greater than 10%) of the Company's consolidated net sales
(approximately 12% each). Also, during 1997 and 1996, the Company's cattle
growth promotant products were supplied to the Company by two vendors.


                                       31
<PAGE>   33


Report of Independent Auditors
ERNST & YOUNG LLP



The Board of Directors and Stockholders
CytRx Corporation

         We have audited the accompanying consolidated balance sheets of CytRx
Corporation as of December 31, 1997 and 1996, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
three years in the period ended December 31, 1997. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.

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

         In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
CytRx Corporation at December 31, 1997 and 1996 and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.




/s/ Ernst & Young LLP


Atlanta, Georgia
February 27, 1998



                                       32
<PAGE>   34

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

None.


                                       33
<PAGE>   35


                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

         Information with respect to this item is incorporated herein by
reference from the Proxy Statement. 

ITEM 11. EXECUTIVE COMPENSATION

         Information with respect to this item is incorporated herein by
reference from 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 Proxy Statement. 

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

None.


                                    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

                  Consolidated Balance Sheets as of December 31, 1997 and 1996

                  Consolidated Statements of Operations for the Years Ended
                  December 31, 1997, 1996 and 1995

                  Consolidated Statements of Stockholders' Equity for the Years 
                  Ended December 31, 1995, 1996 and 1997

                  Consolidated Statements of Cash Flows for the Years Ended
                  December 31, 1997, 1996 and 1995


                                       34
<PAGE>   36


                  Consolidated Notes to Financial Statements

                  Report of Independent Auditors dated February 27, 1998

         2.       Financial Statement Schedules:

                  Schedule II - Valuation and Qualifying Accounts for the years 
                  ended December 31, 1997, 1996 and 1995                 Page 17

                  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 required by Item 601 of Regulation S-K:

                  See Exhibit Index on page 14 of this Form 10-K.

(b)      Reports on Form 8-K:

         On November 6, 1997, the Registrant filed a Current Report on Form 8-K
         related to its issuance of $2 million of convertible debentures.


                                       35
<PAGE>   37


                               CytRx Corporation
                            Form 10-K Exhibit Index

<TABLE>
<CAPTION>

Exhibit
Number
-------

<S>                                                                                                          <C>
  2.1      Agreement and Plan of Merger and Contribution dated as of December
           6, 1996, among CytRx Corporation, Vaxcel, Inc.,
           Vaxcel Merger Subsidiary, Inc. and Zynaxis, Inc.                                                  (a)
  2.2      Preferred Stock and Warrant Agreement dated as of December 6, 1996,
           among CytRx Corporation, Zynaxis, Inc., Vaxcel, Inc. and each of
           the holders of Zynaxis, Inc. warrants signatory thereto                                           (a)
  2.3      Private Securities and Subscription Agreements dated October 22, 1997
           between CytRx Corporation and various investors                                                   (b)
  3.1      Certificate of Incorporation                                                                      (c)
  3.2      By-Laws                                                                                           (d)
  3.3      CytRx Corporation 6% Converible Debentures dated as of October 22, 1997
           in favor of various investors                                                                     (b)
  4.1      Shareholder Protection Rights Agreement dated April 16, 1997
           between CytRx Corporation and American Stock Transfer & Trust
           Company as Rights Agent                                                                           (e)
  4.2      CytRx Corporation Stock Purchase Warrants dated as of October 22, 1997
           in favor of various investors                                                                     (b)
 10.1      Agreement with Emory University, as amended                                                       (f)
 10.2      Agreement with BASF Corporation, as amended                                                       (f)
 10.3**    1995 Employment Agreement between CytRx Corporation
           and Jack J. Luchese
 10.4*     Amendment No. 1 to 1995 Employment Agreement between
           CytRx Corporation and Jack J. Luchese                                                             (g)
 10.5*     Amendment No. 2 to 1995 Employment Agreement between
           CytRx Corporation and Jack J. Luchese                                                             (h)
 10.6*     Change of Control Employment Agreement between CytRx Corporation
           and Jack J. Luchese                                                                               (h)
 10.7*     1986 Stock Option Plan, as amended and restated                                                   (i)
 10.8*     1994 Stock Option Plan, as amended and restated                                                   (h)
 10.9*     1995 Stock Option Plan                                                                            (j)
10.10**    Asset Purchase Agreement dated February 10, 1998 by and between
           Proceutics, Inc. and Oread Laboratories, Inc.
10.11**    Lease Agreement dated February 16, 1998 by and between
           Proceutics, Inc. and Oread, Inc.
10.12**    Sublease Agreement dated February 16, 1998 by and between CytRx
           Corporation and Oread, Inc.
10.13**    Purchase and Sale Agreement dated February 23, 1998 by and between
           CytRx Corporation and Alexandria Real Estate Equities, Inc.
10.14**    Purchase and Sale Agreement dated February 23, 1998 by and between
</TABLE>


                                       36
<PAGE>   38
                                                   See Prior Page From Placement


<TABLE>

<S>                                                                                                          <C>
           Proceutics, Inc. and Alexandria Real Estate Equities, Inc.
10.15      Acquisition Agreement dated April 17, 1998 by and among CytRx,
           VetLife and VetLife, L.L.C.                                                                       (k)
21.1**     Subsidiaries of Registrant
23.1       Consent of Ernst & Young LLP
27.1**     Financial Data Schedule (for SEC use only).
27.2**     Financial Data Schedule - 1996 Restatement (for SEC use only).
99.1       Private Securities Litigation Reform Act of 1995 Safe Harbor
           Compliance Statement for Forward-looking Statements
</TABLE>



* Indicates a management contract or compensatory plan or arrangement.
**Indicates previously filed with Registrant's Annual Report on Form 10-K for
  the year ended December 31, 1997 filed on March 30, 1998. 
-------------------

(a)      Incorporated by reference to the Registrant's Current Report on Form
         8-K filed on May 21, 1997.

(b)      Incorporated by reference to the Registrant's Current Report on
         Form 8-K filed on November 6, 1997.

(c)      Incorporated by reference to the Registrant's Registration Statement
         on Form S-3 (File No. 333-39607) filed on November 5, 1997.

(d)      Incorporated by reference to the Registrant's Registration Statement
         on Form S-8 (File No. 333-37171) filed on July 21, 1997.

(e)      Incorporated by reference to the Registrant's Quarterly Report on Form
         10-Q for the quarter ended March 31, 1997.

(f)      Incorporated by reference to the Registrant's Registration Statement
         on Form S-l (File No. 33-8390) filed on November 5, 1986.

(g)      Incorporated by reference to the Registrant's Quarterly Report on Form
         10-Q filed on August 14, 1997.

(h)      Incorporated by reference to the Registrant's Quarterly Report on
         Form 10-Q filed on November 6, 1997.

(i)      Incorporated by reference to the Registrant's Annual Report on
         Form 10-K filed on March 27, 1996.

(j)      Incorporated by reference to the Registrant's Registration Statement
         on Form S-8 (File No. 33-93818) filed on June 22, 1995.

(k)      Incorporated by reference to the Registrant's Current Report on Form
         8-K filed on May 1, 1998.

                                       37
<PAGE>   39



                                   SIGNATURES

         Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934 and in accordance with Rule 12b-15 promulgated thereunder,
the Registrant has duly caused this amended report to be signed on its behalf by
the undersigned, thereunto duly authorized.


                                         CYTRX CORPORATION

                                         By:/s/ Jack J. Luchese
                                            -----------------------------------
                                         Jack J. Luchese, President
Date: May 26, 1998                      and Chief Executive Officer
                                         (Principal Executive Officer)


                                       38
<PAGE>   40
                               CYTRX CORPORATION

                SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS

              FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

<TABLE>
<CAPTION>

                                                                Additions
                                                          ----------------------
                                           Balance at     Charged to   Charged to                 Balance at
                                           Beginning      Costs and      Other                       End
Description                                of Period       Expenses      Accounts   Deductions     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, 1997            $    48,430    $   44,850    $    --    $   71,093    $    22,187
   Year ended December 31, 1996                     --         2,516     45,914            --         48,430
   Year ended December 31, 1995                     --            --         --            --             --

  Allowance for Deferred Tax Assets
   Year ended December 31, 1997            $15,200,000    $2,484,000    $    --    $       --    $17,684,000
   Year ended December 31, 1996             13,600,000     1,600,000         --            --     15,200,000
   Year ended December 31, 1995              9,200,000     4,400,000         --            --     13,600,000

  Marketable Securities Valuation Reserve
   Year ended December 31, 1997            $        --    $       --    $    --    $       --    $        --
   Year ended December 31, 1996                     --            --         --            --             --
   Year ended December 31, 1995              2,475,277            --         --     2,475,277             --
</TABLE>

                                     39