13. Stock Options and Warrants

CytRx Options

The Company has a 2000 Long-Term Incentive Plan under which 10.0 million shares of common stock were originally reserved for issuance. As of December 31, 2011, there were approximately 7.2 million shares subject to outstanding stock options. This plan expired on August 6, 2010, and thus no further shares are available for future grant under this plan.

The Company also has a 2008 Stock Incentive Plan under which 10.0 million shares of common stock were originally reserved for issuance. As of December 31, 2011, there were 6.1 million shares subject to outstanding stock options and 3.9 million shares available for future grant under this plan.

The Company has adopted the provisions of ASC 718, which requires the measurement and recognition of compensation expense for all stock-based awards made to employees and non-employees.

At the 2009 Annual Meeting of Stockholders, which was held on July 1, 2009, the Company's stockholders approved an amendment to the Company's 2000 Long-Term Incentive Plan to allow for a one-time stock option re-pricing program for employees and officers. Pursuant to the re-pricing program, 3,265,500 eligible stock options held by ten eligible employees and officers were amended to reduce the exercise prices of the options to $1.15 per share, which was the closing sale price of the Company's common stock as reported on the Nasdaq Capital Market on the July 1, 2009 completion date of the re-pricing program, and to impose a new option vesting schedule. None of the amended options vested immediately. To the extent a participating employee's or officer's eligible options were vested on the amendment date, the amended options vested in full on December 31, 2009, so long as the employee or officer remained in the Company's employ through that date. To the extent a participating employee's or officer's eligible options were unvested as of July 1, 2009, the original scheduled vesting was suspended until December 31, 2009 and resumed after that date, so long as the employee or officer remained in the Company's employ through such date. The incremental cost of the re-pricing program was approximately $0.4 million.

ASC 718 requires the re-pricing of equity awards to be treated as the repurchase of the old award for a new award of equal or greater value, incurring additional compensation cost for any incremental value. This incremental difference in value is measured as the excess of the fair value of the modified award determined in accordance with the provisions of ASC 718 over the fair value of the original award immediately before its terms are modified, measured based on the share price and other pertinent factors at that date. ASC 718 provides that this incremental fair value, plus the remaining unrecognized compensation cost from the original measurement of the fair value of the old option, must be recognized over the remaining vesting period.

The fair value of the stock options at the date of grant was estimated using the Black-Scholes option-pricing model, based on the following assumptions:

	2011			2010			2009
Risk-free interest rate		1.23	%		2.50	%		1.95	%
Expected volatility		89	%		91	%		97	%
Expected lives (years)		6			6			6
Expected dividend yield		0.00	%		0.00	%		0.00	%

The Company's computation of expected volatility is based on the historical daily volatility of its publicly traded stock. For option grants issued during years ended December 31, 2011, 2010 and 2009, the Company used a calculated volatility for each grant. The Company's computation of expected lives was estimated using the simplified method provided for under ASC 718, which averages the contractual term of the Company's options of ten years with the average vesting term of three years for an average of six years. The dividend yield assumption of zero is based upon the fact the Company has never paid cash dividends and presently has no intention of paying cash dividends. The risk-free interest rate used for each grant is equal to the U.S. Treasury rates in effect at the time of the grant for instruments with a similar expected life. Based on historical experience, for the year ended December 31, 2011, the Company has estimated an annualized forfeiture rate of 13% for options granted to its employees, 2% for options granted to senior management and 0% for options granted to directors. For the years ended December 31, 2010 and 2009, the Company has estimated an annualized forfeiture rate of 13% and 14%, respectively, for options granted to its employees, 2% and 2%, respectively, for options granted to senior management and 0% and 0%, respectively, for options granted to directors. Compensation costs will be adjusted for future changes in estimated forfeitures. The Company will record additional expense if the actual forfeitures are lower than estimated and will record a recovery of prior expense if the actual forfeiture rates are higher than estimated. No amounts relating to employee stock-based compensation have been capitalized.

At December 31, 2011, there remained approximately $1.7 million of unrecognized compensation expense related to unvested stock options granted to current and former employees and directors, to be recognized as expense over a weighted-average period of 1.28 years. Presented below is the Company's stock option activity for employees and directors:

	Stock Options									Weighted Average Exercise Price
	2011			2010			2009			2011		2010		2009
Outstanding - beginning of year		8,877,460			8,012,090			6,409,940		$	1.07	$	1.99	$	1.99
Granted		3,495,000			1,715,500			2,351,000			0.34		0.98		1.00
Exercised		-			(223,633	)		(8,333	)		-		0.66		0.37
Forfeited		(25,000	)		(626,497	)		(713,018	)		0.99		1.01		2.57
Expired		-			-			(27,499	)		-		-		1.07
Outstanding - end of year		12,347,460			8,877,460			8,012,090			0.86		1.07		1.02
Exercisable at end of year		7,492,933			5,701,946			4,998,400		$	1.07	$	0.99	$	1.16
Weighted average fair value of stock options granted during the year:	$	0.25		$	0.75		$	0.77

A summary of the activity for unvested employee stock options as of December 31, and changes during the year is presented below:

	Stock Options									Weighted Average Grant Date Fair Value per Share
	2011			2010			2009			2011		2010		2009
Nonvested at January 1,		3,175,514			3,013,690			2,300,100		$	0.75	$	0.70	$	1.52
Granted		3,495,000			1,715,500			2,351,000			0.34		0.75		0.77
Vested		(1,790,987	)		(927,179	)		(924,392	)		0.70		0.75		2.10
Pre-vested forfeitures		(25,000	)		(626,497	)		(713,018	)		0.99		0.62		2.11
Nonvested at December 31,		4,854,527			3,175,514			3,013,690		$	0.41	$	0.75	$	0.70

For stock options paid in consideration of services rendered by non-employees, the Company recognizes compensation expense in accordance with the requirements of ASC 718 and ASC 505-50.

Non-employee option grants that do not vest immediately upon grant are recorded as an expense over the vesting period. At the end of each financial reporting period prior to performance, the value of these options, as calculated using the Black-Scholes option-pricing model, is determined, and compensation expense recognized or recovered during the period is adjusted accordingly. Since the fair market value of options granted to non-employees is subject to change in the future, the amount of the future compensation expense is subject to adjustment until the common stock options are fully vested.

The Company recorded $31,000, $400,000 and $0 of non-cash charges related to the issuance of stock options to certain consultants in exchange for services during 2011, 2010 and 2009, respectively.

At December 31, 2011, there was no unrecognized compensation expense related to unvested non-employee stock options. Presented below is the Company's non-employee stock option activity:

	Stock Options							Weighted Average Exercise Price
	2011		2010			2009		2011		2010		2009
Outstanding - beginning of year		995,000		995,000			995,000	$	0.90	$	0.91	$	0.91
Granted		10,000		395,000			-		0.42		1.22		-
Exercised		-		-			-		-		-		-
Forfeited		-		-			-		-		-		-
Expired		-		(395,000	)		-		-		1.28		-
Outstanding - end of year		1,005,000		995,000			995,000		0.88		0.90		0.91
Exercisable at end of year		880,000		707,541			545,080	$	0.85	$	1.00	$	1.00
Weighted average fair value of stock options granted during the year:	$	0.42	$	0.87		$	0.00

The fair value of the stock options at the date of grant was estimated using the Black-Scholes option-pricing model, based on the following assumptions:

	2011			2010			2009
Risk-free interest rate		2.77	%		2.37	%		-
Expected volatility		70	%		92	%		-
Expected lives (years)		10			5			-
Expected dividend yield		0	%		0	%		-

A summary of the activity for nonvested, non-employee stock options as of December 31, and changes during the years are presented below:

	Stock Options									Weighted Average Grant Date Fair Value per Share
	2011			2010			2009			2011		2010		2009
Nonvested at January 1,		287,459			449,920			550,000		$	1.98	$	1.38	$	0.58
Granted		10,000			395,000			-			0.42		0.87		-
Vested		(172,459	)		(162,461	)		(100,080	)		1.23		0.33		0.33
Pre-vested forfeitures		-			(395,000	)		-			-		1.12		-
Nonvested at December 31,		125,000			287,459			449,920		$	1.11	$	1.98	$	1.38

The following table summarizes significant ranges of outstanding stock options under the three plans at December 31, 2011:

Range of Exercise Prices		Number of Options		Weighted Average Remaining Contractual Life (years)		Weighted Average Exercise Price		Number of Options Exercisable		Weighted Average Contractual Life		Weighted Average Exercise Price
$	0.28 - 1.00		5,647,607		8.51	$	0.44		2,339,233		8.62	$	0.64
$	1.01 - 1.50		7,465,983		5.79		1.14		5,840,831		6.22		1.17
$	2.35 - 3.33		175,000		4.46		3.05		175,000		2.55		3.05
			13,288,590		6.93	$	0.86		8,355,064		7.09	$	1.05

The aggregate intrinsic value of outstanding options as of December 31, 2011 was $0.8 million, which represents options whose exercise price was less than the closing fair market value of the Company's common stock on December 30, 2011 of $0.28.

CytRx Warrants

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

	Warrants									Weighted Average Exercise Price
	2011			2010			2009			2011		2010		2009
Outstanding - beginning of year		9,062,074			15,418,178			10,634,848		$	1.47	$	1.50	$	1.40
Granted		45,080,000			1,200,000			6,328,330			0.64		1.80		1.61
Exercised		-			(40,000	)		(250,000	)		0.76		0.26		1.16
Forfeited		-			-			-			-		-		-
Expired		(2,360,569	)		(7,516,104	)		(1,295,000	)		1.24		2.04		1.28
Outstanding - end of year		51,781,505			9,062,074			15,418,178			0.76		1.47		1.50
Exercisable at end of year		51,781,505			8,762,074			15,418,178		$	0.76	$	1.50	$	1.50
Weighted average fair value of warrants granted during the year:	$	0.64		$	0.55		$	1.61

The following table summarizes additional information concerning warrants outstanding and exercisable at December 31, 2011:

		Warrants Outstanding
Range of Exercise Prices		Number of Shares		Weighted Average Remaining Contractual Life (years)		Weighted Average Exercise Price		Warrants Number of Shares Exercisable		Exercisable Weighted Average Exercise Price
$	0.26 - 1.00		46,400,000		4.53	$	0.64		46,300,000	$	0.64
$	1.01 - 2.00		4,896,757		2.61		1.70		4,896,757		1.70
$	2.01 - 3.00		324,678		3.83		2.75		324,678		2.75
$	3.01 - 3.50		160,000		3.86		3.50		160,000		3.50
			51,781,435		4.35	$	0.76		51,681,435	$	0.76