form10-q.htm

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PART I. — FINANCIAL INFORMATION
Item 1.Financial Statements (unaudited)	1
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations	13
Item 3.Quantitative and Qualitative Disclosures About Market Risk	18
Item 4.Controls and Procedures	18

PART II. — OTHER INFORMATION
Item 1A.Risk Factors	19
Item 6.Exhibits	19

SIGNATURES	20

INDEX TO EXHIBITS	21

	June 30, 2014			December 31, 2013
ASSETS
Current assets:
Cash and cash equivalents	$	51,866,891		$	11,483,112
Short-term investments		50,601,506			27,084,980
Receivables		1,597,594			117,527
Interest receivable		57,393			8,464
Prepaid expenses and other current assets		913,949			2,329,742
Total current assets		105,037,333			41,023,825
Equipment and furnishings, net		238,835			175,452
Goodwill		183,780			183,780
Other assets		121,898			116,998
Total assets	$	105,581,846		$	41,500,055
LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities: Accounts payable	$	3,801,005		$	3,853,531
Accrued expenses and other current liabilities		6,750,958			2,802,833
Warrant liabilities		11,948,023			24,182,324
Total current liabilities		22,499,986			30,838,688

Commitments and contingencies

Stockholders’ equity:
Preferred Stock, $0.01 par value, 5,000,000 shares authorized, including 25,000 shares of Series A Junior Participating Preferred Stock; no shares issued and outstanding		—			—
Common stock, $0.001 par value, 250,000,000 shares authorized; 55,920,319 shares issued and outstanding at June 30, 2014; 42,116,964 shares issued and outstanding at December 31, 2013		55,922			42,118
Additional paid-in capital		373,003,698			289,426,100
Treasury stock, at cost (171,536 shares at June 30, 2014 and 143,796 shares at December 31, 2013)		(2,533,201	)		(2,417,247	)
Accumulated deficit		(287,444,559	)		(276,389,604	)
Total stockholders’ equity		83,081,860			10,661,367
Total liabilities and stockholders’ equity	$	105,581,846		$	41,500,055

	Three Months Ended June 30,						Six Months Ended June 30,
	2014			2013			2014			2013
Revenue:
License revenue	$	—		$	200,000		$	—		$	200,000

Expenses:
Research and development		10,427,877			4,626,244			17,415,725			7,815,003
General and administrative		2,909,127			1,970,930			6,040,201			3,788,255
		13,337,004			6,597,174			23,455,926			11,603,258

Loss before other income (loss)		(13,337,004	)		(6,397,174	)		(23,455,926	)		(11,403,258	)

Other income (loss):
Interest income		89,377			35,564			160,015			75,822
Other income (loss), net		(3,243	)		4,761			6,655			201,698
Gain (loss) on warrant derivative liability		(2,468,603	)		2,933,707			12,234,301			838,487

Net loss	$	(15,719,473	)	$	(3,423,142	)	$	(11,054,955	)	$	(10,287,251	)

Basic and diluted net loss per share	$	(0.28	)	$	(0.11	)	$	(0.21	)	$	(0.34	)

Basic and diluted weighted-average shares outstanding		55,676,766			30,418,435			53,010,556			30,417,906

	Six Months Ended June 30,
	2014			2013
Cash flows from operating activities:
Net loss	$	(11,054,955	)	$	(10,287,251	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		64,856			59,226
Stock compensation and warrant expense		2,627,010			762,748
Fair value adjustment on warrant liabilities		(12,234,301	)		(838,487	)
Net foreign exchange gain		(64	)		(138,709	)
Changes in assets and liabilities:
Receivables		(1,480,067	)		(101,824	)
Interest receivable		(48,929	)		(29,934	)
Prepaid expenses and other current assets		1,410,893			631,137
Accounts payable		(160,032	)		(278,151	)
Accrued expenses and other current liabilities		3,832,235			(139,290	)
Net cash used in operating activities		(17,043,354	)		(10,360,535	)

Cash flows from investing activities:
Purchase of short-term investments		(45,601,506	)		—
Proceeds from the sale of short-term investments		22,084,980			7,000,000
Purchases of equipment and furnishings		(20,733	)		(4,000	)
Net cash provided by (used in) investing activities		(23,537,259	)		6,996,000

Cash flows from financing activities: Net proceeds from public offering		80,535,401			—
Proceeds from issuance of restricted stock to employee		100			—
Net proceeds from exercise of warrants and stock options		428,891			933
Net cash provided by financing activities		80,964,392			933

Net increase (decrease) in cash and cash equivalents		40,383,779			(3,363,602	)
Cash and cash equivalents at beginning of period		11,483,112			14,344,088
Cash and cash equivalents at end of period	$	51,866,891		$	10,980,486

Supplemental disclosure of cash flow information:

Equipment and furnishings purchased on credit	$	107,506		$	1,529

Cashless warrant exercises	$	133		$	—

Repurchase of Company’s own stock for treasury	$	115,954		$	56,580

Cash paid for income taxes	$	59,431		$	5,600

CytRx Corporation (“CytRx” or the “Company”) is a biopharmaceutical research and development company specializing in oncology. The Company currently is focused on the clinical development of aldoxorubicin (formerly known as INNO-206), its modified version of the widely-used chemotherapeutic agent, doxorubicin. CytRx has reported positive top-line results from its global Phase 2b clinical trial with aldoxorubicin as a treatment for soft tissue sarcoma, has completed a Phase 1b/2 clinical trial primarily in the same indication, a Phase 1b study of aldoxorubicin in combination with doxorubicin in patients with advanced solid tumors, and a Phase 1b pharmacokinetics clinical trial in patients with metastatic solid tumors. CytRx also has initiated under a Special Protocol Assessment, or “SPA,” granted by the U.S. Food and Drug Administration, or the “FDA,” a pivotal Phase 3 global trial of aldoxorubicin as a therapy for patients with soft tissue sarcoma whose tumors have progressed following treatment with chemotherapy. The Company also has initiated Phase 2 clinical trials with aldoxorubicin in patients with late-stage glioblastoma (brain cancer) and AIDS-related Kaposi’s sarcoma. CytRx is opening a research and development laboratory in Freiberg, Germany to expand its pipeline of oncology candidates based on a linker platform technology that can be utilized with multiple chemotherapeutic agents and may allow for greater concentration of drug at tumor sites.

The accompanying condensed financial statements at June 30, 2014 and for the three-month and six-month periods ended June 30, 2014 and 2013, respectively, are unaudited, but include all adjustments, consisting of normal recurring entries, that management believes to be necessary for a fair presentation of the periods presented. Prior period figures have been reclassified, wherever necessary, to conform to current presentation. Interim results are not necessarily indicative of results for a full year. Balance sheet amounts as of December 31, 2013 have been derived from the Company’s audited financial statements as of that date.

The financial statements included herein have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations. The financial statements should be read in conjunction with the Company’s audited financial statements contained in its Annual Report on Form 10-K for the year ended December 31, 2013. The Company’s operating results will fluctuate for the foreseeable future. Therefore, period-to-period comparisons should not be relied upon as predictive of the results in future periods.

The U.S. dollar has been determined to be the functional currency for the net assets of the CytRx German Branch. The transactions are recorded in the local currencies and are remeasured at each reporting date using the historical rates for nonmonetary assets and liabilities and exchange rates for monetary assets and liabilities at the balance sheet date. Exchange gains and losses from the remeasurement of monetary assets and liabilities are recognized in other income (loss). The Company recognized a loss of approximately $4,900 for the three-month and six-month periods ended June 30, 2014 and zero for the comparative periods in 2013.

The Company held $50.6 million of short-term investments at June 30, 2014, as compared to $27.1 million at December 31, 2013. The Company has classified these investments as available for sale. These investments are federally insured certificates of deposit in the following amounts and maturities: $11.5 million with a maturity date of August 28, 2014; $5.0 million with a maturity date of October 30, 2014; $12.0 million with a maturity date of February 26, 2015; $10.0 million with a maturity date of April 23, 2015; and $12.1 million with a maturity date of April 30, 2015.

On April 8, 2011, Mast Therapeutics, Inc. (formerly ADVENTRX Pharmaceuticals) completed its acquisition of SynthRx, Inc., in which the Company held a 19.1% interest. As a result of the transaction, the Company received approximately 126,000 shares of common stock of Mast Therapeutics, which it sold on October 11, 2011 for $112,200. In June 2012, the Company received an additional 38,196 shares of common stock of Mast Therapeutics that had been held in an escrow established in connection with the acquisition, which it sold on June 6, 2012 for $17,900. The Company received an additional 92,566 shares in January 2013 and an additional 47,745 shares in June 2013, all of which shares were sold in June 2013 for $60,566. If all of the development milestones under the acquisition agreement were to be achieved, the Company would be entitled to receive up to 2.8 million additional Mast Therapeutics shares. Our former interest in SynthRx had a zero carrying value.

Basic and diluted net loss per common share is computed based on the weighted-average number of common shares outstanding. Common share equivalents (which consist of options, warrants and restricted stock) are excluded from the computation of diluted net income (loss) per common share where the effect would be anti-dilutive. Common share equivalents that could potentially dilute net income (loss) per share in the future, and which were excluded from the computation of diluted loss per share, totaled 14.6 million shares for each of the three-month and six-month periods ended June 30, 2014, and 11.2 million shares for each of the three-month and six-month periods ended June 30, 2013.

Liabilities measured at market value on a recurring basis include warrant liabilities resulting from the Company’s past equity financings. In accordance with ASC 815-40, Derivatives and Hedging – Contracts in Entity’s Own Equity (“ASC 815-40”), the warrant liabilities are being marked to market until they are completely settled. The warrants are valued using the Black-Scholes method, using assumptions consistent with our application of ASC 505-50, Equity-Based Payments to Non-Employees (“ASC 505-50”). The gain or loss resulting from the marked to market calculation is shown on the Condensed Statements of Operations as gain (loss) on warrant derivative liabilities. The Company recognized a gain (loss) of ($2.5) million and $2.9 million for the three-month periods ended June 30, 2014 and 2013, respectively, and a gain of $12.2 million and $0.8 million for the six-month periods ended June 30, 2014 and 2013, respectively. The following reflects the weighted-average assumptions for each of the six-month periods indicated:

The dividend yield assumption of zero is based upon the fact that the Company has never paid cash dividends and presently has no intention to do so. The risk-free interest rate used for each warrant classified as a derivative is equal to the U.S. Treasury rates in effect at June 30 of each year presented. The expected lives are based on the remaining contractual lives of the related warrants at the valuation date.

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, 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.

	Three Months Ended June 30,				Six Months Ended June 30,
	2014		2013		2014		2013
Research and development — employee	$	234,484	$	53,583	$	409,638	$	103,755
General and administrative — employee		325,379		202,589		637,339		387,229
Total employee stock-based compensation	$	559,863	$	256,172	$	1,046,977	$	490,984

Research and development — non-employee	$	—	$	—	$	—	$	—
General and administrative — non-employee		160,629		152,074		352,620		179,286
Total non-employee stock-based compensation	$	160,629	$	152,074	$	352,620	$	179,286

The Company’s computation of expected volatility is based on the historical daily volatility of its publicly traded stock. The Company uses historical information to compute expected lives. In the six-month period ended June 30, 2014, the contractual term of the options granted was ten years and the Company used six years as the expected life. The contractual term for the warrants issued was ten years. The dividend yield assumption of zero is based upon the fact the Company has never paid cash dividends and presently has no intention to do so. The risk-free interest rate used for each grant and issuance is equal to the U.S. Treasury rates in effect at the time of the grant and issuance for instruments with a similar expected life. Based on historical experience, for the six-month period ended June 30, 2014, the Company has estimated an annualized forfeiture rate of 12% for options granted to its employees, 2% for options granted to senior management and 0% for options granted to directors and non-employees and warrants issued to non-employees. For the comparative six-month period ended June 30, 2013, the Company has estimated an annualized forfeiture rate of 12% for options granted to its employees, 3% for options granted to senior management and 0% for options granted to directors and non-employees. No non-employee warrants were issued in the six-month period ended June 30, 2013. 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 stock-based compensation have been capitalized.

	Six Months Ended June 30, 2014
	Number of Options (Employees)			Number of Options (Non-Employees)		Total Number of Options			Weighted-Average Exercise Price
Outstanding at January 1, 2014		6,228,593			167,143		6,395,736		$	3.11
Granted		300,000			—		300,000		$	5.31
Forfeited		(4,500	)		—		(4,500	)	$	2.35
Outstanding at June 30, 2014		6,524,093			167,143		6,691,236		$	3.21
Options exercisable at June 30, 2014		3,705,835			167,143		3,872,978		$	3.64

	Number of Options (Employees)			Number of Options (Non-Employees)		Total Number of Options			Weighted-Average Grant Date Fair Value per Share
Non-vested at January 1, 2014		3,102,873			—		3,102,873		$	1.66
Granted		300,000			—		300,000		$	3.92
Forfeited		(4,500	)		—		(4,500	)	$	1.69
Vested		(580,115	)		—		(580,115	)	$	1.74
Non-vested at June 30, 2014		2,818,258			—		2,818,258		$	1.88

Range of Exercise Prices		Number of Options		Weighted-Average Remaining Contractual Life (years)		Weighted-Average Exercise Price		Number of Options Exercisable		Weighted-Average Remaining Contractual Life (years)		Weighted-Average Exercise Price
$	1.83 - $2.50		5,126,723		8.96	$	2.22		2,649,036		8.96	$	2.16
$	2.51 – $3.50		194,482		6.46	$	2.79		154,720		6.46	$	2.69
$	3.51 – $8.00		991,534		6.54	$	6.27		690,725		6.54	$	6.70
$	8.01 – $32.55		378,497		2.63	$	8.86		378,497		2.63	$	8.86
			6,691,236		8.17	$	3.21		3,872,978		8.17	$	3.64

On January 1, 2014, the Company granted to Dr. Daniel Levitt, Executive Vice President and Chief Medical Officer, 100,000 shares of CytRx Corporation restricted stock pursuant to the 2008 Plan, of which 50,000 shares vested on June 30, 2014, and the remaining 50,000 shares will vest in equal monthly installments over the subsequent six months, provided that Dr. Levitt remains employed by the Company on each vesting date. The Company also granted to Dr. Levitt 100,000 shares of CytRx Corporation restricted stock pursuant to the 2008 Plan on December 31, 2012, which shares were fully vested as of June 30, 2014. The fair value of the restricted stock is based on the market price of the Company’s shares on the grant date less the par value received as consideration. The fair value of the restricted shares granted on January 1, 2014 was $627,000, and the fair value of the restricted shares granted on December 31, 2012 was $186,900. The stock-based compensation expense relating to restricted stock for the three-month and six-month periods ended June 30, 2014 was $156,296 and $310,874, respectively. The stock-based compensation expense relating to restricted stock for the three-month and six-month periods ended June 30, 2013 was $46,495 and $92,478, respectively.

Liabilities measured at market value on a recurring basis include warrant liabilities resulting from the Company’s July 2009 and August 2011 equity financings. In accordance with ASC 815-40, the warrant liabilities are marked to market each quarter-end until they are completely settled. The warrants are valued using the Black-Scholes method, using assumptions consistent with the Company’s application of ASC 505-50. The change in the fair value of the liabilities classified in Level III is due to the unrealized gain of $12.2 million recognized and the gain is presented in the Condensed Statement of Operations (see Note 7).

At June 30, 2014, the Company had cash and cash equivalents of approximately $51.9 million and short-term investments of approximately $50.6 million. Management believes that the Company’s current cash and cash equivalents and short-term investments will be sufficient to fund its operations for the foreseeable future. The estimate is based, in part, upon the Company’s currently projected expenditures for the remainder of 2014 and the first six months of 2015 of approximately $56.4 million, which includes approximately $42.5 million for its clinical programs for aldoxorubicin, approximately $2.1 million for pre-clinical development of new albumin-binding cancer drug candidates, approximately $3.9 million for general operation of its clinical programs, and approximately $7.9 million for other general and administrative expenses. These projected expenditures are also based upon numerous other assumptions and subject to many uncertainties, and our actual expenditures may be significantly different from these projections.

If the Company obtains marketing approval and successfully commercializes aldoxorubicin or other product candidates, the Company anticipates it will take several years, for it to generate significant recurring revenue. The Company will be dependent on future financing and possible strategic partnerships until such time, if ever, as it can generate significant recurring revenue. The Company has no commitments from third parties to provide any additional financing, and it may not be able to obtain future financing on favorable terms, or at all. If the Company fails to obtain sufficient funding when needed, it may be forced to delay, scale back or eliminate all or a portion of its development programs or clinical trials, seek to license to other companies its product candidates or technologies that it would prefer to develop and commercialize itself, or seek to sell some or all of its assets or merge with or be acquired by another company.

We have an agreement with KTB for the exclusive license of patent rights held by KTB for the worldwide development and commercialization of aldoxorubicin. Under the agreement, we must make payments to KTB in the aggregate of $7.5 million upon meeting clinical and regulatory milestones up to and including the product’s second final marketing approval. In the six months ended June 30, 2014, we met two clinical milestones, resulting in total payments of $2.0 million to KTB. We also agreed to pay:

We are occasionally involved in legal proceedings and other matters arising from the normal course of business. There are currently two purported federal securities class actions pending in the United States District Court for the Central District of California. In addition, there are currently a derivative action pending in the United States District Court for the Central District of California and two derivative actions pending in the Court of Chancery of the State of Delaware. These actions are described more fully below.

On March 14, 2014, a purported securities class action lawsuit was filed against the Company and an officer, as well as DreamTeamGroup and MissionIR, two external investor and public relations firms unaffiliated with the Company, in the United States District Court for the Central District of California, captioned Chen vs. CytRx Corporation, et al., No. 2:14-cv-14-01956-GHK-(RTWx). The complaint purports to be brought on behalf of all shareholders who purchased the Company’s common stock between November 22, 2013 and March 13, 2014. The complaint alleges that defendants violated the federal securities laws in connection with various public statements purportedly issued by us or on our behalf. On May 29, 2014, the court dismissed DreamTeamGroup and MissionIR without prejudice from the action for plaintiff’s failure to serve those parties. The complaint seeks compensatory damages in an unspecified amount and attorney’s fees and costs.

On March 18, 2014, a purported securities class action lawsuit was filed against the Company and an officer, in the United States District Court for the Central District of California, captioned Perri v. CytRx Corporation, et al., No. 2:14-cv-02052-DDP-(JCGx). The complaint, which purports to be brought on behalf of all shareholders who purchased the Company’s common stock between November 20, 2013 and March 13, 2014, asserts claims substantially identical to those asserted in Chen v. CytRx Corporation, et al., No. 2:14-cv-14-01956-GHK-(RTWx), described above. The complaint seeks compensatory damages in an unspecified amount and attorney’s fees and costs.

On April 9, 2014, a purported securities class action lawsuit was filed against the Company and an officer, in the United States District Court for the Central District of California, captioned Kim v. CytRx Corporation, et al., No. 2:14-cv-02689-DMG-(AJWx). The complaint, which purports to be brought on behalf of all shareholders who purchased the Company’s common stock between November 22, 2013 and March 13, 2014, asserts claims substantially identical to those asserted in Chen v. CytRx Corporation, et al., No. 2:14-cv-14-01956-GHK-(RTWx), and Perri v. CytRx Corporation, et al., No. 2:14-cv-02052-DDP-(JCGx), described above. The complaint seeks compensatory damages in an unspecified amount and attorney’s fees and costs.

On April 3, 2014, a purported class action lawsuit was filed against the Company and certain officers and each director, as well as certain underwriters, in the Superior Court of California, County of Los Angeles, captioned Rajasekaran v. CytRx Corporation, et al., BC541426. The complaint purports to be brought on behalf of all shareholders who purchased or otherwise acquired the Company’s common stock pursuant and/or traceable to the Company’s secondary common stock offering, which closed on February 5, 2014. The complaint alleges that defendants violated the federal securities laws by making materially false and misleading statements in filings with the SEC. The complaint seeks compensatory damages in an unspecified amount, rescission, and attorney’s fees and costs.

On May 2, 2014, CytRx and the named officers and directors, joined by the underwriter defendants, removed this action to the United States District Court for the Central District of California. Plaintiff filed a motion to remand the case to state court on June 11, 2014. CytRx and the named officers and directors, as well as the underwriter defendants, opposed that motion on July 14, 2014.

On July 3, 2014, a purported verified shareholder derivative action was filed in the United States District Court for the Central District of California, captioned Fishman v. Kriegsman, et al., 2:14-cv-05169, against nominal defendant CytRx and certain officers and each director of the Company. The complaint alleges breach of fiduciary duty, corporate waste, gross mismanagement, and unjust enrichment in connection with the Company's alleged retention of DreamTeamGroup and MissionIR, two external investor and public relations firms unaffiliated with the Company. The complaint seeks damages, restitution, corporate governance reforms, and attorney’s fees and costs.

On July 8, 2014, a purported verified shareholder derivative action was filed in the Court of Chancery of the State of Delaware, captioned Schwartz v. Ignarro, et al., Case No. 9864, against nominal defendant CytRx and certain officers and each director of the Company. The complaint alleges breach of fiduciary duty, corporate waste, and unjust enrichment in connection with the Company’s December 2013 grant of stock options to certain officers and directors of the Company. The complaint seeks damages, rescission, disgorgement, and attorney’s fees and costs.

On July 15, 2014, a purported verified shareholder derivative action was filed in the Court of Chancery of the State of Delaware, captioned Johnson v. Ignarro, et al., Case No. 9884, against nominal defendant CytRx and certain officers and each director of the Company. The complaint alleges breach of fiduciary duty, waste of corporate assets, and unjust enrichment in connection with the Company’s December 2013 grant of stock options to certain officers and directors of the Company. The complaint seeks damages, rescission, disgorgement, and attorney’s fees and costs.

On July 21, 2014, a purported verified shareholder derivative action was filed in the Court of Chancery of the State of Delaware, captioned Silverberg v. Kriegsman, et al., Case No. 9919, against nominal defendant CytRx and certain officers and each director of the Company. The complaint alleges breach of fiduciary duty, waste of corporate assets, and unjust enrichment in connection with the Company’s December 2013 grant of stock options to certain officers and directors as well as the Company’s alleged retention of DreamTeamGroup and MissionIR, two external investor and public relations firms unaffiliated with the Company. The complaint seeks damages, rescission, disgorgement, internal governance reforms, and attorney’s fees and costs.

We intend to vigorously defend against the foregoing complaints. The Company has directors’ and officers’ liability insurance, which will be utilized in the defense of these matters. As at June 30, 2014, the Company has incurred legal expenses of $2.5 million, of which approximately $1.6 million will be submitted to its insurance carrier for reimbursement, which is included in the Receivables on the accompanying Condensed Balance Sheet. The Company expects to recover the receivable amount from its insurance carrier. The liability insurance may not cover all of the future liabilities the Company may incur in connection with the foregoing matters. We record accruals for loss contingencies to the extent that we conclude that it is probable that a liability has been incurred and the amount of the related loss can be reasonably estimated. Based on the very early stage of litigation, it is not possible to estimate the amount or range of possible loss that might result from an adverse judgment or a settlement of these matters. We evaluate developments in legal proceedings and other matters on a quarterly basis.

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

All statements in this Quarterly Report, including statements in this section, other than statements of historical fact are forward-looking statements for purposes of these provisions, including statements of our current views with respect to the recent developments regarding our business strategy, business plan and research and development activities, our future financial results, and other future events. These statements include forward-looking statements both with respect to us, specifically, and the biotechnology industry, in general. In some cases, forward-looking statements can be identified by the use of terminology such as “may,” “will,” “expects,” “plans,” “anticipates,” “estimates,” “potential” or “could” or the negative thereof or other comparable terminology. Although we believe that the expectations reflected in the forward-looking statements contained herein are reasonable, there can be no assurance that such expectations or any of the forward-looking statements will prove to be correct, and actual results could differ materially from those projected or assumed in the forward-looking statements.

All forward-looking statements involve inherent risks and uncertainties, and there are or will be important factors that could cause actual results to differ materially from those indicated in these statements. We believe that these factors include, but are not limited to, the factors discussed in this section and under the caption “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2013, which should be reviewed carefully. If one or more of these or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, actual results may vary materially from what we anticipate. Please consider our forward-looking statements in light of those risks as you read this Quarterly Report. We undertake no obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise.

CytRx Corporation (“CytRx” or the “Company”) are a biopharmaceutical research and development company specializing in oncology. We currently are focused on the clinical development of aldoxorubicin (formerly known as INNO-206), our modified version of the widely-used chemotherapeutic agent, doxorubicin. We have reported positive top-line results from our global Phase 2b clinical trial with aldoxorubicin as a treatment for soft tissue sarcoma, have completed a Phase 1b/2 clinical trial primarily in the same indication, a Phase 1b study of aldoxorubicin in combination with doxorubicin in patients with advanced solid tumors, and a Phase 1b pharmacokinetics clinical trial in patients with metastatic solid tumors. We also have initiated under a Special Protocol Assessment, or “SPA,” granted by the U.S. Food and Drug Administration, or the “FDA,” a pivotal Phase 3 global trial of aldoxorubicin as a therapy for patients with soft tissue sarcoma whose tumors have progressed following treatment with chemotherapy. We have initiated Phase 2 clinical trials with aldoxorubicin in patients with late-stage glioblastoma (brain cancer) and AIDS-related Kaposi’s sarcoma. We are opening a research and development laboratory in Freiberg, Germany to expand our pipeline of oncology candidates based on a linker platform technology that can be utilized with multiple chemotherapeutic agents and may allow for greater concentration of drug at tumor sites.

Management’s discussion and analysis of our financial condition and results of operations are based on our financial statements, which have been prepared in accordance with accounting principles generally accepted in the U.S. The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, management evaluates its estimates, including those related to revenue recognition, impairment of long-lived assets, including finite-lived intangible assets, research and development expenses and clinical trial expenses and stock-based compensation expense.

We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ materially from these estimates under different assumptions or conditions.

Monies received for license fees are deferred and recognized ratably over the performance period in accordance with Financial Accounting Standards Board (“FASB”) Accounting Codification Standards (“ASC”) ASC 605-25, Revenue Recognition – Multiple-Element Arrangements (“ASC 605-25”). Milestone payments will be recognized upon achievement of the milestone as long as the milestone is deemed substantive and we have no other performance obligations related to the milestone and collectability is reasonably assured, which is generally upon receipt, or recognized upon termination of the agreement and all related obligations. Deferred revenue represents amounts received prior to revenue recognition.

Revenues from contract research, government grants, and consulting fees are recognized over the respective contract periods as the services are performed, provided there is persuasive evidence or an arrangement, the fee is fixed or determinable and collection of the related receivable is reasonably assured. Once all conditions of the grant are met and no contingencies remain outstanding, the revenue is recognized as grant fee revenue and an earned but unbilled revenue receivable is recorded.

Research and development expenses consist of direct and overhead-related research expenses and are expensed as incurred. Costs to acquire technologies, including licenses, that are utilized in research and development and that have no alternative future use are expensed when incurred. Costs of technology developed for use in our products are expensed as incurred until technological feasibility has been established.

Clinical trial expenses, which are included in research and development expenses, include obligations resulting from our contracts with various clinical research organizations in connection with conducting clinical trials for our product candidates. We recognize expenses for these activities based on a variety of factors, including actual and estimated labor hours, clinical site initiation activities, patient enrollment rates, estimates of external costs and other activity-based factors. We believe that this method best approximates the efforts expended on a clinical trial with the expenses we record. We adjust our rate of clinical expense recognition if actual results differ from our estimates. If our estimates prove incorrect, clinical trial expenses recorded in future periods could vary.

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 is determined using the Black-Scholes option-pricing model, and compensation expense recognized or recovered during the period is adjusted accordingly. Since the fair market value of options granted or issued 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 or warrants are fully vested.

The fair value of each stock option and warrant is estimated using the Black-Scholes option-pricing model, which uses certain assumptions related to risk-free interest rates, expected volatility, expected life of the stock options and future dividends. Compensation expense is recorded based upon the value derived from the Black-Scholes option-pricing model, based on an expected forfeiture rate that is adjusted for our actual experience. If our Black-Scholes option-pricing model assumptions or our actual or estimated forfeiture rate are different in the future, it could materially affect our compensation expense recorded in future periods.

We review long-lived assets, including finite-lived intangible assets, for impairment on an annual basis as of December 31, or on an interim basis if an event occurs that might reduce the fair value of such assets below their carrying values. An impairment loss would be recognized based on the difference between the carrying value of the asset and its estimated fair value, which would be determined based on either discounted future cash flows or other appropriate fair value methods. If our estimates used in the determination of either discounted future cash flows or other appropriate fair value methods are not accurate as compared to actual future results, we may be required to record an impairment charge.

Basic and diluted net loss per common share is computed using the weighted-average number of common shares outstanding. Potentially dilutive stock options and warrants to purchase 14.6 million shares for each of the three-month and six-month periods ended June 30, 2014, and 11.2 million shares for each of the three-month and six-month periods ended June 30, 2013, were excluded from the computation of diluted net loss per share, because the effect would be anti-dilutive.

Liabilities measured at market value on a recurring basis include warrant liabilities resulting from our July 2009 and August 2011 equity financings. In accordance with ASC 815-40, Accounting for Derivative Financial Instruments Indexed to and Potentially Settled in a Company’s Own Stock (“ASC 815-40”), the warrant liabilities are marked to market each quarter-end until they are completely settled. The warrants are valued using the Black-Scholes method, using assumptions consistent with our application of ASC 505-50. The gain or loss resulting from the marked to market calculation is shown on the statements of operations as a gain or loss on warrant derivative liabilities.

On April 8, 2011, Mast Therapeutics, Inc. (formerly “ADVENTRX Pharmaceuticals”) completed its acquisition of SynthRx, Inc., in which we held a 19.1% interest. As a result of the transaction, we received approximately 126,000 shares of common stock of Mast Therapeutics, which we sold on October 11, 2011 for $112,200. In June 2012, we received an additional 38,196 shares of common stock of Mast Therapeutics that had been held in an escrow established in connection with the acquisition, which we sold on June 6, 2012 for $17,900. We received an additional 92,566 shares in January 2013 and an additional 47,745 shares in June 2013, all of which shares were sold in June 2013 for $60,566. If all of the development milestones under the acquisition agreement were to be achieved, we would be entitled to receive up to 2.8 million additional Mast Therapeutics shares. At the time of the sale, our interest in SynthRx had a zero carrying value.

At June 30, 2014, we had cash and cash equivalents of approximately $51.9 million and short-term investments of approximately $50.6 million. Management believes that our current cash on hand and short-term investments will be sufficient to fund our operations for the foreseeable future. The estimate is based, in part, upon our currently projected expenditures for the remainder of 2014 and the first six months of 2015 of approximately $56.4 million, which includes approximately $42.5 million for our clinical programs for aldoxorubicin, approximately $2.1 million for pre-clinical development of new albumin-binding cancer drugs, approximately $3.9 million for general operation of our clinical programs, and approximately $7.9 million for other general and administrative expenses. These projected expenditures are also based upon numerous other assumptions and subject to many uncertainties, and our actual expenditures may be significantly different from these projections.

If we obtain marketing approval and successfully commercialize aldoxorubicin or other product candidates, we anticipate it will take several years for us to generate significant recurring revenue. We will be dependent on future financing and possible strategic partnerships until such time, if ever, as we can generate significant recurring revenue. We have no commitments from third parties to provide us with any additional financing, and we may not be able to obtain future financing on favorable terms, or at all. If we fail to obtain sufficient funding when needed, we may be forced to delay, scale back or eliminate all or a portion of our development programs or clinical trials, seek to license to other companies our product candidates or technologies that we would prefer to develop and commercialize ourselves, or seek to sell some or all of our assets or merge with or be acquired by another company.

We recorded a net loss in the six-months ended June 30, 2014 of $11.1 million as compared to a net loss in the six-months ended June 30, 2013 of $10.3 million, or an increase of $0.8 million. This was due primarily to an increase in our research and development expenditures in the current six-month period of $17.4 million as compared to $7.8 million in the comparative 2013 period, resulting from increased expenditures associated with our clinical program for aldoxorubicin. This increase was largely offset by a gain of $12.2 million on warrant derivative liability in the current period, as compared to a gain on warrant derivative liability of $0.8 million in the six-months ended June 30, 2013, for a swing of $11.4 million.

The general and administrative expenses in the current six-month period also increased by approximately $2.3 million as compared to the six-month period ended June 30, 2013, due to compensation increases of approximately $0.6 million, additional legal fees of approximately $1.0 million associated with legal proceedings described in Note 13 of the notes to our financial statements, and approximately $0.4 million of additional non-cash expenses.

We purchased $45.6 million and sold $22.1 million of short-term investments, for a net increase of $23.5 million in the six-month period ended June 30, 2014, as compared to proceeds from the sale of short-term investments of $7 million in the comparative 2013 period. We utilized approximately $21,000 for capital expenditures in the six-month period ended June 30, 2014 as compared to approximately $4,000 in the comparable 2013 period. We do not expect any significant capital spending during the next 12 months.

We continue to evaluate potential future sources of capital, as we do not currently have commitments from any third parties to provide us with additional capital. The results of our technology licensing efforts and the actual proceeds of any fund-raising activities will determine our ongoing ability to operate as a going concern. Our ability to obtain future financings through joint ventures, product licensing arrangements, royalty sales, equity financings, grants or otherwise is subject to market conditions and our ability to identify parties that are willing and able to enter into such arrangements on terms that are satisfactory to us. Depending upon the outcome of our fundraising efforts, the accompanying financial information may not necessarily be indicative of our future financial condition.

As a development company that is primarily engaged in research and development activities, we expect to incur significant losses and negative cash flow from operating activities for the foreseeable future. There can be no assurance that we will be able to generate revenues from our product candidates and become profitable. Even if we become profitable, we may not be able to sustain that profitability.

We recorded a net loss of approximately $15.7 million and $11.1 million for the three-month and six-month periods ended June 30, 2014, respectively, as compared to a net loss of approximately $3.4 million and $10.3 million for the three-month and six-month periods ended June 30, 2013, respectively. The increase of $12.3 million in our net loss during the current three-month period resulted primarily to an increase in research and development expenditures, as explained below, partially offset by a loss of $2.5 million on warrant derivative liability in the current quarter, as compared to a gain on warrant derivative liability of $2.9 million in quarter ended June 30, 2013.

We recognized no licensing revenue in the three-month period ended June 30, 2014, as compared to $200,000 of licensing revenue in the three-month period ended June 30, 2013. All future licensing fees under our current licensing agreements are dependent upon successful development milestones being achieved by the licensor. During the remainder of 2014, we do not anticipate receiving any significant licensing fees.

	Three-Month Period Ended June 30,				Six-Month Period Ended June 30,
	2014		2013		2014		2013
	(In thousands)				(In thousands)
Research and development expenses	$	10,028	$	4,517	$	15,760	$	7,601
Non-cash research and development expenses		156		46		1,227		92
Employee stock option expense		235		54		410		104
Depreciation and amortization		9		9		19		18
	$	10,428	$	4,626	$	17,416	$	7,815

Research expenses are expenses incurred by us in the discovery of new information that will assist us in the creation and the development of new drugs or treatments. Development expenses are expenses incurred by us in our efforts to commercialize the findings generated through our research efforts. Our research and development expenses, excluding stock option expense, non-cash expenses and depreciation and amortization, were $10.0 million and $15.8 million for the three-month and six-month periods ended June 30, 2014, respectively, and $4.5 million and $7.6 million, respectively, for the same periods ended June 30, 2013.

Research and development expenses incurred during the three-month period ended June 30, 2014 related primarily to our aldoxorubicin clinical program. In the three-month and six-month periods ended June 30, 2014, the development expenses of our program for aldoxorubicin were $9.3 million and $14.2 million, respectively, as compared to $2.5 million and $4.1 million for the same periods in 2013, respectively. The 2014 aldoxorubicin program expenses include milestone payments to the licensor of $1.0 million and $2.0 million, respectively, for the three-month and six-month periods ended June 30, 2014, respectively. The remainder of our research and development expenses primarily related to research and development support costs. We recorded approximately $0.2 million and $1.2 million of non-cash stock option and warrant expense in the three-month and six-month periods ended June 30, 2014, respectively, as compared to $46,000 and $0.1 million in the comparative 2013 periods, respectively. We recorded approximately $0.2 million and $0.4 million of employee stock option expense in the three-month and six-month periods ended June 30, 2014, as compared to $0.1 million and $0.1 million for the same periods in 2013, respectively.

	Three-Month Period Ended June 30,				Six-Month Period Ended June 30,
	2014		2013		2014		2013
	(In thousands)				(In thousands)
General and administrative expenses	$	2,400	$	1,597	$	5,004	$	3,181
Non-cash general and administrative expenses		161		152		353		179
Employee stock option expense		325		202		637		387
Depreciation and amortization		23		20		46		41
	$	2,909	$	1,971	$	6,040	$	3,788

General and administrative expenses include all administrative salaries and general corporate expenses, including legal expenses. Our general and administrative expenses, excluding stock option expense, non-cash expenses and depreciation and amortization, were $2.4 million and $5.0 million for the three-month and six-month periods ended June 30, 2014, respectively, and $1.6 million and $3.2 million, respectively, for the same periods in 2013.

Employee stock option expense relates to options granted to retain and compensate directors, officers and other employees. We recorded approximately $0.3 million and $0.6 million of employee stock option expense in the three-month and six-month periods ended June 30, 2014, respectively, as compared to $0.2 million and $0.4 million, respectively, for the same periods in 2013. We recorded approximately $0.2 million and $0.4 million of non-employee stock option expense in the three-month and six-month periods, ended June 30, 2014, respectively, and $0.2 million and $0.2 million for the comparative 2013 periods.

Our exposure to market risk is limited primarily to interest income sensitivity, which is affected by changes in the general level of U.S. interest rates, particularly because a significant portion of our investments are in short-term debt securities issued by the U.S. government and institutional money market funds. The primary objective of our investment activities is to preserve principal. Due to the nature of our short-term investments, we believe that we are not subject to any material market risk exposure. We do not have any speculative or hedging derivative financial instruments or foreign currency instruments. If interest rates had varied by 10% in the three-month period ended June 30, 2014, it would not have had a material effect on our results of operations or cash flows for that period.

Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, performed an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Securities Exchange Act Rule 13a-15(e)) as of the end of the quarterly period covered by this Quarterly Report. Based on that evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures were effective to ensure that information required to be disclosed by us in reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC.

There was no change in our internal control over financial reporting that occurred during the quarter ended June 30, 2014 that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. We continually seek to assure that all of our controls and procedures are adequate and effective. Any failure to implement and maintain improvements in the controls over our financial reporting could cause us to fail to meet our reporting obligations under the SEC’s rules and regulations. Any failure to improve our internal controls to address the weaknesses we have identified could also cause investors to lose confidence in our reported financial information, which could have a negative impact on the trading price of our common stock.

Claims have been threatened and have been brought against the Company and its officers and/or directors. Adverse outcomes with respect to some or all of these claims may result in significant monetary damages or injunctive relief that could adversely affect the Company’s ability to conduct its business. Defending a lawsuit can be expensive and can divert the attention of key employees from operating the Company’s business. Litigation and other claims are subject to inherent uncertainties and management’s view of these matters may change in the future. A material adverse impact on the Company’s financial statements also could occur for the period in which the effect of an unfavorable final outcome becomes probable and reasonably estimable.

Exhibit Number		Description
31.1		Certification of Chief Executive Officer Pursuant to 17 CFR 240.13a-14(a)
31.2		Certification of Chief Financial Officer Pursuant to 17 CFR 240.13a-14(a)
32.1		Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2		Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS		XBRL Instance Document
101.SCH		XBRL Schema Document
101.CAL		XBRL Calculation Linkbase Document
101.DEF		XBRL Definition Linkbase Document
101.LAB		XBRL Label Linkbase Document
101.PRE		XBRL Presentation Linkbase Document

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

11726 San Vicente Blvd., Suite 650 Los Angeles, CA	90049
(Address of principal executive offices)	(Zip Code)

Large accelerated filer £	Accelerated filer R	Non-accelerated filer £	Smaller reporting company £
	(Do not check if a smaller reporting company)

	Six Months Ended June 30,
	2014			2013

Risk-free interest rate		0.44	%		0.63	%
Expected dividend yield		0	%		0	%
Expected lives		1.96			2.96
Expected volatility		84.1	%		67.3	%
Warrants classified as liabilities (in shares)		6,984,716			6,984,716
Gain on warrant liabilities	$	12,234,301		$	838,487

	Six Months Ended June 30, 2014			Six Months Ended June 30, 2013
Risk-free interest rate		1.92	%		1.11	%
Expected volatility		87.0% - 89.6	%		85.2% - 85.8	%
Expected lives (years)		6 - 10			6
Expected dividend yield		0.00	%		0.00	%

(In thousands)	Level I		Level II		Level III			Total
Cash equivalents	$	49,281	$	—	$	—		$	49,281
Short-term investments		50,602		—		—			50,602
Warrant liabilities		—		—		(11,948	)		(11,948	)

	CytRx Corporation

Date: August 6, 2014	By:	/s/ JOHN Y. CALOZ
		John Y. Caloz
		Chief Financial Officers