10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

x

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2003

OR

o

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

For the transition period from __________to __________

Commission file number 0-15327

CYTRX CORPORATION

(Exact name of Registrant as specified in its charter)

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

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


90049
(Zip Code)

Registrant’s telephone number, including area code: (310) 826-5648

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 (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES x NO o

Number of shares of CytRx Corporation Common Stock, $.001 par value, issued and outstanding as of May 8, 2003: 23,331,019.

CYTRX CORPORATION

Form 10-Q

Table of Contents

		Page
PART I.	FINANCIAL INFORMATION
Item 1	Financial Statements:
	Condensed Balance Sheets as of March 31, 2003 (unaudited) and December 31, 2002	3
	Condensed Statements of Operations (unaudited) for the Three Month Periods Ended March 31, 2003 and 2002	4
	Condensed Statements of Cash Flows (unaudited) for the Three Month Periods Ended March 31, 2003 and 2002	5
	Notes to Condensed Financial Statements	6
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	9
Item 3	Quantitative and Qualitative Disclosures About Market Risk	20
Item 4	Controls and Procedures	20
PART II.	OTHER INFORMATION
Item 6	Exhibits and Reports on Form 8-K	20

SIGNATURES 20

2

Part I – FINANCIAL INFORMATION

Item 1. – Financial Statements

CYTRX CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS

	March 31, 2003			December 31, 2002
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	1,280,832		$	387,314
Short-term investments		—			1,401,358
Accounts receivable, less allowances		47,452			98,529
Current portion of note receivable		138,702			135,291
Prepaid insurance		85,410			119,332
Other current assets		27,708			4,166
Total current assets		1,580,104			2,145,990
Property and equipment, net		1,024			1,084
Other assets:
Investment in Blizzard Genomics - acquired developed technology		6,390,928			6,644,492
Note receivable, less current portion		193,977			229,958
Prepaid insurance		198,356			208,160
Other assets		53,900			53,900
Total other assets		6,837,161			7,136,510
Total assets	$	8,418,289		$	9,283,584
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	138,693		$	79,947
Accrued expenses and other current liabilities		284,054			428,490
Total current liabilities		422,747			508,437
Accrued loss on facility abandonment		411,912			419,038
Deferred gain on sale of building		114,780			121,762
Deferred revenue from license agreements		275,000			275,000
Total liabilities		1,224,439			1,324,237
Commitments
Stockholders’ equity:
Preferred Stock, $.01 par value, 1,000 shares authorized, including 1,000 shares of Series A Junior Participating Preferred Stock; no shares issued and outstanding		—			—
Common stock, $.001 par value, 50,000,000 shares authorized; and 22,143,927 shares issued at March 31, 2003 and December 31, 2002		22,144			22,144
Additional paid-in capital		82,322,339			82,173,839
Treasury stock, at cost (633,816 shares held at March 31, 2003 and December 31, 2002)		(2,279,238	)		(2,279,238	)
Accumulated deficit		(72,871,395	)		(71,957,398	)
Total stockholders’ equity		7,193,850			7,959,347
Total liabilities and stockholders’ equity	$	8,418,289		$	9,283,584

See accompanying notes.

3

CYTRX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

	Three Month Period Ended March 31,
	2003			2002
Revenues:
Service revenues	$	—		$	22,453
License fees		—			1,000,000
Interest income		15,766			32,117
Grant revenue		—			31,313
Other		10,337			55,137
		26,103			1,141,020
Expenses:
Cost of service revenues		—			11,287
Research and development		2,500			292,435
Depreciation and amortization		182,814			146,220
Selling, general and administrative		683,976			442,316
Contractual payment to officer		—			428,007
		869,290			1,320,265
Loss before other expenses		(843,187	)		(179,245	)
Equity in losses from Blizzard Genomics		(70,810	)		—
Net loss	$	(913,997	)	$	(179,245	)
Basic and diluted loss per common share	$	(0.04	)	$	(0.02	)
Basic and diluted weighted average shares outstanding		21,510,111			11,091,535

See accompanying notes.

4

CYTRX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

	Three Month Period Ended March 31,
	2003			2002
Cash flows from operating activities:
Net loss	$	(913,997	)	$	(179,245	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation		60			146,220
Amortization of intangible assets		182,754			—
Equity in losses from Blizzard Genomics		70,810			—
Stock option and warrant expense		148,500			89,000
Net change in assets and liabilities		4,033			(705,314	)
Total adjustments		406,157			(470,094	)
Net cash used in operating activities		(507,840	)		(649,339	)
Cash flows from investing activities:
Maturity of held-to-maturity securities		1,401,358			—
Net cash provided by financing activities		1,401,358			—
Cash flows from financing activities:
Net proceeds from issuance of common stock		—			365,122
Net cash provided by financing activities		—			365,122
Net increase (decrease) in cash and cash equivalents		893,518			(284,217	)
Cash and cash equivalents at beginning of period		387,314			5,272,914
Cash and cash equivalents at end of period	$	1,280,832		$	4,988,697

See accompanying notes.

5

CYTRX CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS

March 31, 2003
(Unaudited)

1.

Description of Company and Basis of Presentation

CytRx Corporation (“CytRx” or “the Company”) is a biopharmaceutical company engaged in the development and commercialization of pharmaceutical products. The Company’s current products are FLOCOR, an intravenous agent for treatment of sickle cell disease and other acute vaso-occlusive disorders, and TranzFect, a delivery technology for DNA and conventional-based vaccines. Sickle cell disease is an inherited disease caused by a genetic mutation of hemoglobin in the blood and vaso-occlusive disorders are a blockage of blood flow caused by deformed or “sickled” red blood cells which can cause intense pain in sickle cell disease patients. CytRx is currently seeking strategic partners to complete the development of FLOCOR, and TranzFect is currently being developed by licensees for this product. The Company may also seek to license TranzFect as a potential conventional adjuvant for hepatitis B and C, flu, malaria and other viral diseases. (Adjuvants are agents added to a vacine to increase its effectiveness.) CytRx also has a portfolio of potential products and technologies in the areas of spinal cord injury, vaccine delivery and gene therapy.

On July 19, 2002, CytRx consummated a merger with Global Genomics Capital, Inc., which became a wholly-owned subsidiary of the Company and was renamed GGC Pharmaceuticals, Inc. (“Global Genomics”). Global Genomics is a genomics holding company that currently has a 40% ownership interest in Blizzard Genomics, Inc. in Minneapolis, Minnesota and a 5% ownership interest in Psynomics, Inc., a central nervous system genomics company in San Diego, California. Blizzard Genomics, Inc. is developing instrumentation, software, and consumable supplies (including patent-pending “T-Chip” and “Contact” technologies) for the genomics industry. Global Genomics expects that DNA chips may significantly impact a broad range of biomedical and agricultural businesses. These include drug development, diagnostic testing, forensics, environmental testing and plant biotechnology. Psynomics, Inc. is an early stage genomics company developing technology for the diagnosis and treatment of neuropsychiatric diseases and has rights to access a significant database of patient data and corresponding tissue samples. The Company accounts for its investment in Blizzard Genomics using the equity method. The Company’s investment in Psynomics is accounted for using the cost method.

The accompanying condensed consolidated financial statements at March 31, 2003 and for the three month periods ended March 31, 2003 and 2002 are unaudited, but include all adjustments, consisting of normal recurring entries, which the Company’s management believes to be necessary for a fair presentation of the periods presented. Interim results are not necessarily indicative of results for a full year. The accounts of Global Genomics are included since July 19, 2002. Certain prior year amounts have been reclassified to conform to the 2003 financial statement presentation. The financial statements should be read in conjunction with the Company’s audited financial statements in its Form 10-K/A for the year ended December 31, 2002.

2.

Adoption of Recently Issued Accounting Standards

In April 2002, the FASB issued Statement of Financial Accounting Standards No. 145, Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13 and Technical Corrections (“SFAS 145”). SFAS 145 rescinds SFAS 4, Reporting Gains and Losses from Extinguishment of Debt, and an amendment of SFAS 4, SFAS 64, Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements. SFAS 145 also rescinds SFAS 44, Accounting for Intangible Assets of Motor Carriers and amends SFAS 16, Accounting for Leases, to eliminate an inconsistency between the required accounting for sale-leaseback transactions and the required accounting for certain lease modifications that have economic effects that are similar to sale-leaseback transactions. SFAS 145 also amends other existing authoritative pronouncements to make various technical corrections, clarify meanings, or

6

describe their applicability under changed conditions. SFAS 145 is effective for fiscal years beginning after May 15, 2002. The provisions of SFAS 145 related to SFAS 13 are effective for transactions occurring after May 15, 2002. All other provisions of SFAS 145 are effective for financial statements issued on or after May 15, 2002. The Company adopted SFAS 145 as of January 1, 2003. Adoption of the pronouncement did not have a material impact on the consolidated financial statements.

3.

Loss Per Common Share

Basic and diluted loss per common share are computed based on the weighted average number of common shares outstanding. Common share equivalents (which may consist of options and warrants) are excluded from the computation of diluted loss per share since the effect would be antidilutive. Common share equivalents which could potentially dilute basic earning per share in the future, and which were excluded from the computation of diluted loss per share totaled approximately 6,379,000 and 5,532,000 shares at March 31, 2003 and 2002, respectively.

4.

Stock Based Compensation

The Company uses the intrinsic value method of APB Opinion No. 25, Accounting for Stock Issued to Employees (“APB 25”), in accounting for its employee stock options, and presents disclosure of pro forma information required under Statement of Financial Accounting Standards No. 123, Accounting for Stock-based Compensation (“SFAS 123”), as amended by Statement of Financial Accounting Standards No. 148, Accounting for Stock-Based Compensation – Transition and Disclosure (“SFAS 148”).

The following table illustrates the effect on net loss and loss per share if the Company had applied the fair value recognition provisions of SFAS 123 to stock-based employee compensation (amounts in thousands except per share data.)

	Three Months Ended
	2003			2002
Net loss, as reported	$	(914	)	$	(179	)
Deduct: Total stock –based employee compensation expense determined under fair-value based method for all awards		(72	)		(122	)
Pro forma net loss	$	(986	)	$	(301	)
Loss per share,as reported (basic and diluted)	$	(0.04	)	$	(0.02	)
Loss per share, pro forma (basic and diluted)	$	(0.05	)	$	(0.03	)

5.

Equity in Losses From Blizzard Genomics

The Company records its portion of the losses of Blizzard using the equity method. For the period January 1, 2003 to March 31, 2003, the Company recorded $61,288 as its share in the loss of Blizzard. This amount is reported as a separate line item in the accompanying condensed consolidated statement of operations. Summarized financial information for Blizzard as of March 31, 2003 and for the period January 1, 2003 to March 31, 2003 that has been provided by Blizzard is as follows (amounts in thousands):

	Total			Company’s Share
Current assets	$	15		$	6
Other assets		12			5
Current liabilities		690			276
Long-term convertible notes payable		134			54
Other long-term liabilities		10			4
Net assets		(807	)		(333	)
Net loss		(177	)		(71	)

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6.

Segment Reporting

(in thousands)	Product Development			Recruiting Services*		Recruiting Services *
Three Months Ended March 31, 2003
Revenues from external customers	$	—		$	—	$
Intersegment sales		—			—		—
Collaborative, grant & other income					—
Interest income		16			—		16
Interest expense		—			—		—
Depreciation and amortization		183			—		183
Stock option and warrant expense		149			—		149
Equity in loss from Blizzard Genomics		(71	)		—		(71	)
Segment profit (loss)		(914	)		—		(914	)
Total assets		8,418			—		8,418
Capital expenditures		—			—		—
Three Months Ended March 31, 2002
Revenues from external customers		—			22		22
Intersegment sales		—			—		—
Collaborative, grant & other income		1,086			—		1,086
Interest income		32			—		32
Interest expense		—			—		—
Depreciation and amortization		146			—		146
Stock option and warrant expense		89			—		89
Segment profit (loss)		(184	)		5		(179	)
Total assets		7,604			—		7,604
Capital expenditures		—			—		—

*

The activities of the Spectrum Recruitment Research segment were terminated effective February 1, 2002.

7.

Subsequent Event - License Agreements with the University of Massachusetts Medical School

In April 2003, CytRx entered into exclusive license agreements with the University of Massachusetts Medical School (“UMMS”) covering potential applications for UMMS’s proprietary gene silencing technology in the treatment of specified diseases, including those within the areas of cancer, obesity and type II diabetes. RNA interference (RNAi) has been shown to effectively silence a targeted disease-causing gene within a living cell. The technology essentially uses ribonucleic acid (RNA) to selectively turn off the harmful genes of infectious viruses or malignant tumor cells. In consideration of the licenses, CytRx made aggregate cash payments to UMMS of approximately $186,000 and issued it and another medical institution involved in developing the gene silencing technology a total of 1,613,258 shares of CytRx common stock. As part of the strategic alliance with UMMS, CytRx also agreed to fund certain pre-clinical research at UMMS relating to the use of its gene silencing technology for the development of therapeutic products within the fields of obesity and type II diabetes and cancer.

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Item 2. — Management’s Discussion and Analysis of Financial Condition And Results of Operations

This discussion includes “forward looking” statements that reflect our current views with respect to future events and financial performance. Investors should be aware that actual results may differ materially from our expressed expectations because of risks and uncertainties inherent in future events, particularly those risks identified under “Risk Factors” set forth in our Annual Report for 2002 on Form 10-K/A, and should not unduly rely on these forward looking statements. We undertake no duty to update the information in this discussion.

Liquidity and Capital Resources

At March 31, 2003, we had cash, cash equivalents and short-term investments of $1,281,000 and net assets of $7,194,000, compared to $1,789,000 and $7,959,000, respectively, at December 31, 2002. Working capital totaled $1,157,000 at March 31, 2003, compared to $1,638,000 at December 31, 2002.

Subsequent to our merger with Global Genomics in July 2002, we modified our corporate business strategy by discontinuing any additional internal research and development efforts for any of our existing products or technologies. We have, instead, more recently focused our efforts on obtaining strategic alliances, license partners or other collaborative arrangements with larger pharmaceutical companies for FLOCOR and additional strategic partners or licensees for TranzFect. Our spending for each of these technologies now will primarily relate to maintaining patents and other agreements as required under our existing license agreements and to support our additional licensing efforts. We may also pursue product or technology acquisition opportunities, such as the license agreements with the University of Massachusetts Medical School discussed below.

In April 2003, we entered into exclusive license agreements with the University of Massachusetts Medical School (“UMMS”) covering potential applications for UMMS’s proprietary gene silencing technology in the treatment of specified diseases, including those within the areas of cancer, obesity and type II diabetes. RNA interference (RNAi) has been shown to effectively silence a targeted disease-causing gene within a living cell. The technology essentially uses ribonucleic acid (RNA)to selectively turn off the harmful genes of infectious viruses or malignant tumor cells. In consideration of the licenses, we made aggregate cash payments to UMMS of approximately $186,000 and issued it and another medical institution involved in developing the gene silencing technology a total of 1,613,258 shares of our common stock. As part of our strategic alliance with UMMS, we also agreed to fund certain pre-clinical research at UMMS relating to the use of its gene silencing technology for the development of therapeutic products within the fields of obesity and type II diabetes and cancer. Although we intend to internally fund the early stage development work for certain gene silencing product applications, we may seek as part of our corporate business strategy to secure strategic alliances or license agreements with larger pharmaceutical companies to fund subsequent development of these potential products.

We currently have three license agreements for our technologies – with Merck & Co, Inc. (TranzFect), Vical, Incorporated (TranzFect), and Ivy Animal Health, Inc. (CRL-8761). From the dates that we entered into these agreements through March 31, 2003, we have received $7,200,000 in upfront fees, milestone payments and annual maintenance fees pursuant to these agreements, and have the potential to receive in excess of $17,000,000 in additional milestone and maintenance fees, plus additional royalties on eventual sales of approved products of from 1% to 5% of net sales by the licensees.

We believe that we will have adequate working capital to allow us to operate through the end of 2003. Our strategic alliance with UMMS may require us to make significant expenditures to fund research at that medical institution relating to developing therapeutic products based on that institution’s proprietary technology that has been licensed to us. The aggregate amount of these expenditures under certain circumstances could range from approximately $1,600,000 to $1,800,000 annually over the next three years. These expenditures, together with potential future milestone payments based on development of these products, could substantially exceed our current financial resources and require us to raise additional capital or secure a licensee, or strategic partner to fulfill our obligations to UMMS and to develop any products based on the technology that we have licensed from that medical institution.

We also may require additional working capital in order to fund any product acquisitions that we consummate. Any additional capital requirements may be provided by potential milestone payments pursuant to the Merck and Vical

9

licenses or by potential payments from future strategic alliance partners or licensees of our technologies. However, Merck is at an early stage of clinical trials of a product utilizing TranzFect, and Vical has not yet commenced any clinical trials of a product utilizing TranzFect so that there is likely to be a substantial period of time, if ever, before we receive any further significant payments from Merck or Vical. Our recent efforts to license or find a strategic partner for FLOCOR have thus far been unsuccessful, although we will continue to seek such a licensee or partner. We may also pursue other sources of capital, although we do not currently have commitments from any third parties to provide us with 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. These efforts are subject to market conditions and our ability to identify parties that are willing and able to enter into such arrangements on terms that are satisfactory to us. There is no assurance that such funding will be available to finance our operations on acceptable terms, if at all.

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

Results of Operations

We recorded a net loss of $914,000 for the three month period ended March 31, 2003 as compared to $179,000 for the same period in 2002.

From 1996 to 2002 we marketed the services of a small group of human resources professionals under the name of Spectrum Recruitment Research as a way of offsetting our cost of maintaining this function. In February 2002 the operations of Spectrum were terminated and the rights to use the Spectrum tradenames were transferred to Albert, Isaac & Alexander, Inc., a consulting firm comprised of former Spectrum employees. Service revenues related to Spectrum were $0 and $22,000 during the three months ended March 31, 2003 and 2002, respectively. Cost of service revenues was $0 in 2003 versus $11,000 in 2002.

License fee income was $0 and $1,000,000 during the three months ended March 31, 2003 and 2002, respectively. License fees for 2002 consist of a milestone fee received from Merck related to the commencement by Merck of a Phase I human clinical trial incorporating our TranzFect technology.

Interest income for the first quarter of 2003 was $16,000 versus $32,000 for the same period in 2002. The variance generally corresponds to fluctuating cash and investment balances.

Grant income was $0 in the first quarter of 2003 versus $31,000 in the first quarter of 2002. Costs related to grant income are included in research and development expense and generally approximate the amount of revenue recognized. Grant income for the 2002 period primarily relates to SBIR (Small Business Innovative Research) grants we received from the National Institutes of Health in support of our research and development activities. Since our new business strategy (see Liquidity and Capital Resources) does not contemplate further spending by us on research activities conducted directly by us, we do not expect to record additional grant revenue in the foreseeable future.

Other income was $10,000 in the first quarter of 2003 versus $55,000 for the same period in 2002. Other income primarily consists of subrental revenues for our former headquarters facility located in Atlanta, Georgia. The decrease represents the effect of vacancy in the building during the first quarter of 2003. During the fourth quarter of 2002, we accrued the estimated loss on the facility represented by the difference between the total remaining lease obligations and estimated operating costs through the remainder of the lease term, less estimated sublease income. This accrual is being written off against the actual expenses as they occur.

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Research and development expenses were $3,000 and $292,000 during the three months ended March 31, 2003 and 2002, respectively. The virtual elimination of research and development expense during 2003 is attributable to the modification of our corporate business strategy subsequent to our merger with Global Genomics, such that we do not presently intend to pursue additional internal research and development efforts for any of our existing products or technologies, other than through partnering or out-licensing this research and development work to outside parties. We do, however, expect research and development expense to increase in the future as a result of our commitment to fund research and development activities conducted at UMMS related to the technologies covered by the UMMS license agreements. The aggregate amount of these commitments under certain circumstances could range from approximately $1,600,000 to $1,800,000 annually over each of the next three years.

Depreciation and amortization expense was $183,000 and $146,000 during the three months ended March 31, 2003 and 2002, respectively. The amount for 2003 consists almost entirely of amortization of intangible assets related to our acquisition of Global Genomics in July 2002. During the fourth quarter of 2002, we recorded an impairment loss equal to the net book value of most of our equipment and related leasehold improvements associated with FLOCOR. As a result of the recognition of this impairment charge, our property balances have been reduced to a nominal amount as of December 31, 2002, and therefore, our depreciation expense will be nominal for the foreseeable future.

Selling, general and administrative expenditures were $684,000 and $442,000 during the three months ended March 31, 2003 and 2002, respectively. During the first quarter of 2003 and 2002, we recognized non-cash charges of $149,000 and $89,000, respectively, related to the issuance of stock purchase warrants to consultants. Excluding these non-cash charges, selling, general and administrative expenditures were $535,000 and $353,000 during the three months ended March 31, 2003 and 2002, respectively. Contributing to the increase for 2003 were (a) a greater percentage allocation of facilities costs to administrative expense versus research and development expense (contributing approximately $153,000 to the increase), and (b) higher legal and accounting costs (contributing approximately $60,000 to the increase).

Pursuant to his employment agreement, our former President and CEO, Jack Luchese, was entitled to a payment of $435,000 upon the execution of the merger agreement between Global Genomics and us and an additional $435,000 upon the closing of the merger. In order to reduce the amount of cash that we had to pay to Mr. Luchese, Mr. Luchese and we agreed that approximately $325,200 of the first $435,000 payment would be satisfied by CytRx granting a stock award to Mr. Luchese under the CytRx Corporation 2000 Long-Term Incentive Plan under which CytRx issued Mr. Luchese 558,060 shares of our common stock. Those shares of stock were issued at a value equal to 85% of the volume weighted average price of our common stock for the 20 trading days ended on February 8, 2002. The cash payment and fair value of the shares issued were recognized as expense (total of $428,000) during the first quarter of 2002 and is reported as a separate line item on the accompanying condensed consolidated statement of operations.

Equity in Losses of Blizzard. We record our portion of the loss in Blizzard Genomics on the equity method. For the first quarter of 2003, we recorded $70,810 as our share in the loss of Blizzard Genomics. This amount is reported as a separate line item in the accompanying condensed consolidated statement of operations.

Related Party Transactions

In July 2002, the Company entered into a services and facilities agreement with The Kriegsman Group (“TKG”) and Kriegsman Capital Group (“KCG”), which was subsequently amended in January 2003, whereby TKG and KCG agreed to provide us with office space and certain administrative services. TKG and KCG are owned by Steven A. Kriegsman, our President and CEO. During the first quarter of 2003, we paid a total of approximately $25,500 to TKG under this agreement. The charges are determined based upon actual space used and estimated percentages of employee time used. We believe that such charges approximate the fair value of the space and services provided.

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Risk Factors

You should carefully consider the following risks before deciding to purchase shares of our common stock. If any of the following risks actually occur, our business or prospects could be materially adversely affected and the trading price of our common stock could be negatively impacted, and investors in our securities could lose all or part of their investment. You should also refer to the other information in this Quarterly Report, including our financial statements and the related notes.

We Have Operated at a Loss and Will Likely Continue to Operate at a Loss For the Foreseeable Future

We have incurred significant losses over the past five years, including net losses of approximately $914,000 for the three months ended March 31, 2003 (on an unaudited basis), and $6,176,000, $931,000 and $348,000 for 2002, 2001 and 2000, respectively, and we had an accumulated deficit of approximately $72,871,000 (on an unaudited basis) as of March 31, 2003. Our operating losses have been due primarily to our expenditures for research and development on our products and for general and administrative expenses and our lack of significant revenues. We are likely to continue to incur operating losses until such time, if ever, that we generate significant recurring revenues. Unless we are able to acquire products from third parties that are already being marketed and that can be profitably marketed by us, it will take an extended period of time for us to generate recurring revenues. We anticipate that it will take at least several years before the development of any of our licensed or other current potential products is completed, FDA marketing approvals are obtained and commercial sales of any of these products can begin.

We Have No Source of Significant Recurring Revenues, Which May Make Us Dependent on Financing to Sustain Our Operations

Although we generated $1,001,000 in revenues from milestone payments and license fees from our licensees during 2002, we do not have any significant sources of recurring operating revenues. We will not have significant recurring operating revenues until at least one of the following occurs:

•

one or more of our currently licensed products is commercialized by our licensees that generates royalty income for us

•

we are able to enter into license or other arrangements with third parties who are then able to complete the development and commercialize one or more of our other products that are currently under development

•

we are able to acquire products from third parties that are already being marketed or are approved for marketing

We are likely to incur negative cash from operations until such time, if ever, as we can generate significant recurring revenues. Should we be unable to generate these recurring revenues by early 2004, it is likely that we will become dependent on obtaining financing from third parties to maintain our operations. We have no commitments from third parties to provide us with any debt or equity financing. Accordingly, financing may be unavailable to us or only available on terms that substantially dilute our existing shareholders. A lack of needed financing could force us to reduce the scope of or terminate our operations or to seek a merger with or be acquired by another company. There can be no assurance that we would be able to identify an appropriate company to merge with or be acquired by or that we could consummate such a transaction on terms that would be attractive to our shareholders or at all.

Most of Our Revenues Have Been Generated by License Fees for TranzFect, Which May Not be a Recurring Source of Revenue for Us

License fees paid to us with respect to our TranzFect technology have represented 78%, 85% and 60% of our total revenues for the years ended December 31, 2002, 2001 and 2000, respectively. We have already licensed most of the potential applications for this technology, and there can be no assurance that we will be able to generate additional license fee revenues from any new licensees for this technology. Our current licensees for TranzFect (Merck and Vical) may be required to make further milestone payments to us under their licenses based on their future development of products using TranzFect. However, Merck is at an early stage of clinical trials of a product

12

utilizing TranzFect, and Vical has not yet commenced any clinical trials of a product utilizing TranzFect. Accordingly, there is likely to be a substantial period of time, if ever, before we receive any further significant payments from Merck or Vical under their TranzFect licenses.

We Have Changed Our Business Strategy, Which Will Require Us to Find and Rely Upon Third Parties for the Development of Our Products and to Provide Us With Products

We have modified our prior business strategy of internally developing FLOCOR and our other potential products not yet licensed to third parties. We will now seek to enter into strategic alliances, license agreements or other collaborative arrangements with larger pharmaceutical companies that will provide for those companies to be responsible for the development and marketing of our products, although we intend to internally fund the early stage development work for certain product applications based on the gene silencing technology that we have licensed from the University of Massachusetts Medical School. There can be no assurance that our products will have sufficient potential commercial value to enable us to secure these arrangements with suitable companies on attractive terms or at all. If we enter into these arrangements, we will be dependent upon the timeliness and effectiveness of the development and marketing efforts of our contractual partners. If these companies do not allocate sufficient personnel and resources to these efforts or encounter difficulties in complying with applicable FDA requirements, the timing of receipt or amount of revenues from these arrangements may be materially and adversely affected. By entering into these arrangements rather than completing the development and then marketing these products on our own, we may suffer a reduction in the ultimate overall profitability for us of these products. If we are unable to enter into these arrangements for a particular product, we may be required to either sell the product to a third party or abandon it unless we are able to raise sufficient capital to fund the substantial expenditures necessary for development and marketing of the product.

We will also seek to acquire products from third parties that already are being marketed or have previously been marketed. We have not yet identified any of these products. It may be difficult for us to acquire these types of products with our limited financial resources, and we may incur substantial shareholder dilution if we acquire these products with our securities. We do not have any prior experience in acquiring or marketing products and may need to find third parties to market these products for us. We may also seek to acquire products through a merger with one or more privately held companies that own such products. Although we anticipate that we would be the surviving company in any such merger, the owners of the private company could be issued a substantial or even controlling amount of stock in our company.

Our Limited Financial Resources May Adversely Impact Our Ability to Execute Certain Strategic Initiatives

On March 31, 2003 we had $1,281,000 in cash and cash equivalents and $1,157,000 in working capital. Our recently modified product development strategy calls for seeking strategic alliances, licensing agreements or other collaborative arrangements with larger pharmaceutical companies to complete the development of FLOCOR and our other potential products, and we will not continue any further FLOCOR development work on our own in the meantime. Although we are not doing any further development work on TranzFect, our two licensees for this technology (Merck and Vical) are continuing to do development work on product applications for this technology that could entitle us to future milestone payments should they continue with this work and it successfully meets the defined milestones, as well as future royalty payments should either of these licensees commercialize products based on our technology. However, there can be no assurance that our licensees will continue to develop or ever commercialize any products that are based on our TranzFect technology.

Our strategic alliance with the University of Massachusetts Medical School may require us to make significant expenditures to fund research at that medical institution relating to developing therapeutic products based on that institution’s proprietary technology that has been licensed to us The aggregate amount of these expenditures under certain circumstances could range from $1,600,000 to $1,800,000 annually over the next three years. These expenditures, together with potential future milestone payments based on development of these products, could substantially exceed our current financial resources and require us to raise additional capital or secure a licensee or strategic partner to fulfill our obligations to the University of Massachusetts Medical School and to develop any products based on the technology that we have licensed from that medical institution. If we are unable to meet our various financial obligations under our license agreements with the University of Massachuesetts Medical School,

13

which include a requirement that we raise additional capital within 18 months after the signing of these agreements, we could lose all of our rights under these agreements.

We also will seek to acquire products from third parties that already are being or have previously been marketed or are approved for marketing. Although we believe this strategy will enhance our ability to achieve profitability, our lack of substantial available funds may make it difficult for us to acquire new products or to adopt other strategic initiatives in the future, such as acquiring or developing a marketing organization for our products or resuming internal development work on our products.

Our Recent Acquisition of Global Genomics May Place Additional Financial and Operational Burdens on Us

In July 2002, we acquired Global Genomics through a merger. Global Genomics is a development stage company that, to date, has not generated any operating revenue, does not expect to generate any revenues in the foreseeable future and has operated at a loss since its organization in May 2000. Global Genomics incurred losses of approximately $71,000 for the three months ended March 31, 2003 (on an unaudited basis), and $303,000 and $1,563,000 for the years ended December 31, 2002 and 2001, respectively. Since the date of acquisition, Global Genomic’s net losses have been primarily the result of its 40% equity ownership of Blizzard Genomics.

We have moved our headquarters in connection with the merger to Los Angeles, California while we continue to incur a substantial lease expense (approximately $14,000 per month, less offsetting sublease income of currently $3,000 per month) for our prior headquarters in Norcross, Georgia. We may be unable to substantially mitigate the future rental expense for our prior headquarters by subleasing this space.

Although a majority of the members of our board of directors were directors prior to our merger with Global Genomics, all of our then current operating officers were terminated as a part of the merger. This change in personnel may place additional administrative burdens on our management in conducting our operations.

If Our Products Are Not Successfully Developed and Approved by the FDA, We May Be Forced to Reduce or Terminate Our Operations

Each of our products is in the development stage and must be approved by the FDA or similar foreign governmental agencies before they can be marketed. The process for obtaining FDA approval is both time-consuming and costly, with no certainty of a successful outcome. This process typically includes the conduct of extensive pre-clinical and clinical testing, which may take longer or cost more than we or our licensees currently anticipate due to numerous factors such as:

•

difficulty in securing centers to conduct trials

•

difficulty in enrolling patients in conformity with required protocols or projected timelines

•

unexpected adverse reactions by patients in trials

•

difficulty in obtaining clinical supplies of the product

•

changes in the FDA s requirements for our testing during the course of that testing

•

inability to generate statistically significant data confirming the efficacy of the product  being tested

Our TranzFect technology is currently in Phase I clinical trials that are being conducted by our licensee, Merck & Co., as a component of a vaccine to prevent AIDS. Since TranzFect is to be used as a component in vaccines, we do not need to seek FDA approval, but the vaccine manufacturer will need to seek FDA approval for the final vaccine formulation containing TranzFect.

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We Were Only Able to Establish the Effectiveness of FLOCOR in a Subset of Patients in a Recent Clinical Trial and May Be Unable to Establish a Viable Medical Indication for FLOCOR or Find a Partner to Fund the Necessary Research for FLOCOR

In December 1999, we reported results from our Phase III clinical trial of FLOCOR for treatment of sickle cell disease patients experiencing an acute vaso-occlusive crisis. Overall, the study was not able to achieve its primary objective, which was to show a statistically significant decrease in the length of vaso-occlusive crisis for the study population as a whole. However, for patients 15 years of age or younger, the number of patients achieving resolution of crisis was higher for FLOCOR-treated patients at all time periods than for placebo-treated patients, which may indicate that future clinical trials should focus on juvenile patients. We believe that there were certain design flaws in the protocol for the previous Phase III clinical trial relating primarily to the assumed period for resolution of a vaso-occlusive crisis in patients not treated with FLOCOR that may have impacted the results of that clinical trial and that would need to be addressed in properly designing any future trial.

To generate sufficient data to seek FDA approval for FLOCOR will require additional clinical studies, which will entail substantial time and expense. We currently estimate the cost of these clinical trials to be in the range of $10,000,000 - $12,000,000, although the actual costs could vary substantially, depending on the nature and number of trials that the FDA ultimately would require. We do not intend to conduct or fund these tests ourselves but will seek a strategic alliance partner or licensee for this purpose. The failure of our prior Phase III trial to generate sufficient data could make it more difficult for us to secure a strategic alliance partner or licensee for this product. In June 2002, the NIH turned down a grant application by Johns Hopkins University School of Medicine to provide financial support for a potential new Phase III trial for FLOCOR. Since this grant application was submitted at the NIH’s suggestion, we believed that there was a reasonable possibility of obtaining government funding for a portion of the cost of a new FLOCOR trial. However, based on the NIH’s rejection of the Johns Hopkins application, we may encounter difficulty in obtaining future governmental financial support for FLOCOR development work should we or any strategic alliance partner or licensee seek such support in the future.

If Blizzard Genomics Fails to Successfully Commercialize Its Products, the Value of Our Assets Will Be Adversely Impacted

Blizzard Genomics, which is Global Genomics’ principal portfolio company, has not yet commercialized any of its products. Although Blizzard Genomics plans to introduce its first product, the I-Scan Imager™ chip reader , a low cost DNA chip reader, during 2003 and its T-Chip  technology, in 2004, it may experience delays in completing the development of or commercially launching these products, which will be used in research laboratories and will not require FDA approval prior to their being marketed. These products are likely to face intense market competition from existing products or technologies and products or technologies that are developed in the future. Blizzard Genomics is the licensee of several U.S. patents, and is seeking additional patent protection for its products and technologies. There can be no assurance, however, that the company will be able to secure sufficient patent coverage for its products and technologies. The failure of Blizzard Genomics to successfully commercialize its products would require us to write down or write off on our balance sheet the substantial carrying value of Global Genomics’ investment in that company as part of our assets, which would have a materially adverse effect on our stockholders’ equity.

Blizzard Genomics May Be Unable to Raise Sufficient Funding to Commercialize Its Products, Which Would Adversely Impact the Value of Our Assets

Blizzard Genomics has no working capital and is currently seeking to raise up to $2,000,000 in capital to fund the commercial launch of the I-Scan Imager™ chip reader, completion of development of its T-Chip™ technology and for its working capital needs. Blizzard Genomics has encountered difficulty to date in obtaining this capital. Failure to raise at least a portion of this capital could delay Blizzard Genomics’ commercialization of its products and might force it to suspend its operations. Should Blizzard Genomics raise at least $750,000 in capital, it believes that it would have sufficient funding to begin commercial marketing of the I-Scan Imager™ chip reader but would require additional capital to complete development of its T-Chip technology on a timely basis and might need additional capital to support its operations. Any significant delay in the commercialization of Blizzard Genomics’ products or the cessation of its operations would adversely affect the carrying value of Global Genomics’ investment in that

15

company as part of our assets, which would have a materially adverse effect on our stockholders’ equity. Although we may consider making a further investment in Blizzard Genomics if we raise additional capital, we have not discussed the terms of any such investment with Blizzard Genomics and have no obligation to make any new investment in that company.

We Are Dependent Upon a Limited Operational Management Team and Need to Recruit a Chief Financial Officer and Perhaps Other Personnel to Effectively Operate

Our current management team is limited to Steven A. Kriegsman, our Chief Executive Officer and interim Chief Financial Officer, and Kathryn H. Hernandez, our Corporate Secretary. We are, therefore, very dependent on the availability and quality of the efforts of Mr. Kriegsman in managing our company. We will need to recruit a permanent Chief Financial Officer and may need to recruit other personnel in order to effectively operate the company and carry out our business plan. Mr. Kriegsman’s employment agreement expires in July 2003. Although Mr. Kriegsman has expressed a willingness to extend his employment agreement as Chief Executive Officer for an additional one-year term and we have begun discussing an extension with him, there can be no assurance that we will be able to reach an agreement with Mr. Kriegsman to extend his employment with us.

We Are Subject to Intense Competition That Could Materially Impact Our Operating Results

We and our strategic partners or licensees may be unable to compete successfully against our current or future competitors. The pharmaceutical, biopharmaceutical and biotechnology industry is characterized by intense competition and rapid and significant technological advancements. Many companies, research institutions and universities are working in a number of areas similar to our primary fields of interest to develop new products. There also is intense competition among companies seeking to acquire products that already are being marketed. Many of the companies developing or marketing products with which our products and technologies will compete have or are likely to have substantially greater research and product development capabilities and financial, technical, scientific, manufacturing, marketing, distribution and other resources than at least some of our present or future strategic partners or licensees.

As a result, these competitors may:

•

Succeed in developing competitive products earlier than we or our strategic partners or licensees

•

Obtain approvals for such products from the FDA or other regulatory agencies more rapidly than we or our strategic partners or licensees do

•

Obtain patents that block or otherwise inhibit the development and commercialization of our product candidates

•

Develop treatments or cures that are safer or more effective than those we propose for our products

•

Devote greater resources to marketing or selling their products

•

Introduce or adapt more quickly to new technologies or scientific advances

•

Introduce products that make the continued development of our product candidates uneconomical

•

Withstand price competition more successfully than our strategic partners or licensees can

•

More effectively negotiate third-party strategic alliances or licensing arrangements

•

Take advantage of product acquisition or other opportunities more readily than we can

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Although we do not expect FLOCOR to have direct competition from other products currently available or that we are aware of that are being developed related to FLOCOR’s ability to reduce blood viscosity in the cardiovascular area, there are a number of anticoagulant products that FLOCOR would have to compete against, such as tissue plasminogen activator (t-PA) and streptokinase (blood clot dissolving enzymes) as well as blood thinners such as heparin and coumatin, even though FLOCOR acts by a different mechanism to prevent damage due to blood coagulation. In the sickle cell disease area, we would compete against companies that are developing or marketing other products to treat sickle cell disease, such as Droxia (hydroxyurea) marketed by Bristol-Myers Squibb Co. and Decitabine, which is being developed by SuperGen, Inc. Our TranzFect technology will compete against a number of companies that have developed adjuvant products, such as the adjuvant QS-21 marketed by Aquila Biopharmaceuticals, Inc. and adjuvants marketed by Corixa. Blizzard Genomics’ products will compete with a number of currently marketed products, including those offered by Axon Instruments, Affymetrix, Applied Precision, Perkin Elmer and Agilent Technologies. A number of medical institutions and pharmaceutical companies are seeking to develop products based on gene silencing technologies. Companies working in this area include Sirna Therapeutics, Inc., Ribopharma A.G., Alnvlam, Inc., Nucleonics, Inc., and a number of the multinational pharmaceutical companies.

The Manufacturing Requirements for FLOCOR May Make It More Difficult for Us to License FLOCOR or for Our Licensee to Develop FLOCOR

The manufacture of CRL-5861 requires the following:

•

a supply of the raw drug substance

•

a supply of the purified drug which is refined from the raw drug substance

•

formulation and sterile filling of the purified drug substance into the finished drug product

A number of suppliers and manufacturers can provide the raw drug substance and the finished drug product. Prior to the change in our business strategy to now seek a strategic partner or licensee for FLOCOR (who we anticipate would be responsible for the manufacture of FLOCOR), we entered into an agreement with Organichem Corp. to provide us with commercial supplies of the purified drug substance. However, this agreement will expire before the end of 2003, which will be well before any potential strategic parties or licensee that we secure will need commercial supplies of this substance. There can be no assurance that any strategic partner or licensee that we secure will either have the specific equipment expertise to purify the FLOCOR drug substance or will be able to enter into an agreement with Organichem or another supplier on acceptable terms. An inability to obtain purified drug substance in sufficient amounts and at acceptable prices could have a material adverse effect on our ability to secure a strategic partner or licensee or on the ability of that partner or licensee to commercialize FLOCOR.

We May Be Unable to Protect Our Intellectual Property Rights, Which Could Adversely Affect the Value of Our Assets

Obtaining and maintaining patent and other intellectual property rights for our technologies and potential products is critical to establishing and maintaining the value of our assets and our business. Although we believe that we have significant patent coverage for our FLOCOR and TranzFect technologies, there can be no assurance that this coverage will be broad enough to prevent third parties from developing or commercializing similar or identical technologies, that the validity of our patents will be upheld if challenged by third parties or that our technologies will not be deemed to infringe the intellectual property rights of third parties. We have a non-exclusive license to a patent owned by the University of Massachusetts Medical School and another institution that covers the general field of gene silencing. The specific medical applications of the gene silencing technology that we have licensed from the University of Massachusetts Medical School are covered by a number of pending patent applications. However, other researchers have been active in the field of gene silencing and in seeking patents in this area. These researchers may hold or seek to obtain patents that could make it more difficult or impossible for us to develop products based on the gene silencing technology that we have licensed. Any litigation brought by us to protect our intellectual property rights or by third parties asserting intellectual property rights against us could be costly and have a material adverse effect on our operating results or financial condition and make it more difficult for

17

us to enter into strategic alliances with third parties to develop our products or discourage our existing licensees from continuing their development work on our potential products. If our patent coverage is insufficient to prevent third parties from developing or commercializing similar or identical technologies, the value of our assets is likely to be materially and adversely affected.

We May Incur Substantial Costs from Future Clinical Testing or Product Liability Claims

If any of our products are alleged to be defective, they may expose us to claims for personal injury by patients in clinical trials of our products or by patients using our commercially marketed products. Even if the commercialization of one or more of our products is approved by the FDA, users may claim that such products caused unintended adverse effects. We currently do not carry product liability insurance covering the use of our products in human clinical trials or the commercial marketing of these products but anticipate that our licensees who are developing our products will carry liability insurance covering the clinical testing and marketing of those products. However, if someone asserts a claim against us and the insurance coverage of our licensees or their other financial resources are inadequate to cover a successful claim, such successful claim may exceed our financial resources and cause us to discontinue operations. Even if claims asserted against us are unsuccessful, they may divert management’s attention from our operations and we may have to incur substantial costs to defend such claims.

It Will Be Difficult For Us To Manage Our Operations If We Are Regulated As An Investment Company In The Future

The Investment Company Act of 1940 regulates certain companies that own investment securities with a value greater than 40% of the total assets of that company. In the Global Genomics merger, we acquired a 40% equity interest in Blizzard Genomics, which investment represented approximately 76% of our total assets as of March 31, 2003. Accordingly, because our investment in Blizzard Genomics represents such a large percentage of our total assets, we would be subject to the Investment Company Act if an exemption were not available. The SEC’s regulations, however, exempt certain companies from the Investment Company Act if they, among other things, have a controlling interest in the subsidiary company. While we believe this exemption is currently available to us, if our ownership interest in Blizzard Genomics significantly decreases or we otherwise no longer remain the largest shareholder of Blizzard Genomics, the value of our investment in Blizzard Genomics could cause us to become subject to the provisions of the Investment Company Act. Should we become subject to the Investment Company Act, we would essentially have to operate as a mutual fund and would be subject to all of the substantive regulations imposed on such companies, including the restrictions on the securities we can issue, the rules specifying the composition and structure of our management, the additional reporting requirements, and other limitations on our ability to conduct our operations in the manner currently conducted. Our Board of Directors has determined that, should we become subject to these provisions, we will either (i) seek an order from the SEC exempting us from these provisions, or (ii) attempt to restructure our business in a manner that would relieve us from these provisions. The regulatory requirements for investment companies are extremely restrictive and would materially and adversely affect our ability to manage and operate our business and could materially and adversely affect our financial condition. Although it is our intention to remain an operating company that is not subject to the Investment Company Act, no assurance can be given that we will not become subject to the provisions of that act.

Our Anti-Takeover Provisions May Make It More Difficult to Change Our Management or May Discourage Others From Acquiring Us and Thereby Adversely Affect Shareholder Value

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

We have a classified board of directors, which requires that at least two stockholder meetings, instead of one, will be required to effect a change in the majority control of our board of directors. This provision applies to every election of directors, not just an election occurring after a change in control. The classification of our board increases the amount of time it takes to change majority control of our board of directors and may cause our potential purchasers to lose interest in the potential purchase of us, regardless of whether our purchase would be beneficial to us or our

18

stockholders. The additional time and cost to change a majority of the members of our board of directors makes it more difficult and may discourage our existing shareholders from seeking to change our existing management in order to change the strategic direction or operational performance of our company.

Our bylaws provide that directors may only be removed for cause by the affirmative vote of the holders of at least a majority of the outstanding shares of our capital stock then entitled to vote at an election of directors. This provision prevents stockholders from removing any incumbent director without cause. Our bylaws also provide that a stockholder must give us at least 120 days notice of a proposal or director nomination that such stockholder desires to present at any annual meeting or special meeting of stockholders. Such provision prevents a stockholder from making a proposal or director nomination at a stockholder meeting without us having advance notice of that proposal or director nomination. This could make a change in control more difficult by providing our directors with more time to prepare an opposition to a proposed change in control. By making it more difficult to remove or install new directors, the foregoing bylaw provisions may also make our existing management less responsive to the views of our shareholders with respect to our operations and other issues such as management selection and management compensation.

Our Outstanding Options and Warrants and the Registration of Our Shares Issued in the Global Genomics Merger May Adversely Affect the Trading Price of Our Common Stock

As of May 1, 2003, there were outstanding stock options and warrants to purchase 6,828,433 shares of our common stock at exercise prices ranging from $0.01 to $7.75 per share. Our outstanding options and warrants could adversely affect our ability to obtain future financing or engage in certain mergers or other transactions, since the holders of options and warrants can be expected to exercise them at a time when we may be able to obtain additional capital through a new offering of securities on terms more favorable to us than the terms of outstanding options and warrants. For the life of the options and warrants, the holders have the opportunity to profit from a rise in the market price of our common stock without assuming the risk of ownership. To the extent the trading price of our common stock at the time of exercise of any such options or warrants exceeds the exercise price, such exercise will also have a dilutive effect to our stockholders. We have filed a registration statement covering the shares of common stock that we issued in connection with our merger with Global Genomics or may issue in the future upon the exercise of warrants that we assumed in connection with that merger (a total of approximately 10 million shares). Both the availability for public resale of these shares and the actual resale of these shares could adversely affect the trading price of our common stock.

We May Experience Volatility in Our Stock Price, Which May Adversely Affect the Trading Price of Our Common Stock

The market price of our common stock has experienced significant volatility in the past and may continue to experience significant volatility from time to time. Our stock price has ranged from $0.21 to $6.44 over the past three years. Factors such as the following may affect such volatility:

•

our quarterly operating results

•

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

•

government regulation of drug pricing

•

developments in patent or other technology ownership rights

•

public concern regarding the safety of our products

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

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Item 3. — Quantitative and Qualitative Disclosures About Market Risk

Our financial intruments that are sensitive to changes in interest rates are our investments. As of March 31, 2003, we held no investments other than amounts invested in money market accounts. We are not subject to any other material market risks.

Item 4. — Controls and Procedures

Our Chief Executive Officer and interim Chief Financial Officer, after evaluating the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-14(c) and 15d-14(c)) as of a date within 90 days of the filing date of this Form 10-Q, has concluded that the Company’s disclosure controls and procedures are adequate and effective to ensure that material information relating to us can be gathered, analyzed and disclosed on a timely basis in the reports that we file under the Securities Exchange Act. There were no significant changes in our internal controls or in other factors that could significantly affect these controls subsequent to the date of the most recent evaluation.

PART II — OTHER INFORMATION

Item 2 — Changes in Securities and Use of Proceeds

In February 2003, we issued a warrant to Corporate Capital Group International Ltd. Inc. to purchase 675,000 shares of our common stock at $0.20 per share at any time prior to February 21, 2008. The warrant was issued as partial consideration for certain financial consulting services provided to us by Corporate Capital Group International. The warrant was issued in reliance upon an exemption from registration under the Securities Act of 1933 provided by Regulation D.

Item 6. — Exhibits and Reports on Form 8-K

(a)

Exhibits

The exhibits listed in the accompanying Index to Exhibits are filed as part of this Quarterly Report on Form 10-Q.

(b)

On March 31, 2003, the Registrant filed an amended Current Report on Form 8-K/A amending its previous Form 8-K filed on August 1, 2002 in order to provide updated financial statements and pro forma financial statements related to its acquisition of Global Genomics Capital, Inc.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	CYTRX CORPORATION (Registrant)
Date: May 14, 2003	By:	/s/ STEVEN A. KRIEGSMAN
		Steven A. Kriegsman Chief Executive Officer and Interim Chief Financial Officer

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CERTIFICATION

I, Steven A. Kriegsman, certify that: 

1.

I have reviewed this quarterly report on Form 10-Q of CytRx Corporation;

2.

Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3.

Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4.

I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and I have:

a)

designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to me by others within those entities, particularly during the period in which this quarterly report is being prepared;

b)

evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

c)

presented in this quarterly report my conclusions about the effectiveness of the disclosure controls and procedures based on my evaluation as of the Evaluation Date:

5.

I have disclosed, based on my most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a)

all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

b)

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6.

I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of my most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Dated: May 14, 2003

/s/ STEVEN A. KRIEGSMAN

Steven A. Kriegsman
Chief Executive Officer and
Interim Chief Financial Officer

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INDEX TO EXHIBITS

Exhibit Number	Description
4.1	Warrant issued on February 21, 2003 to Corporate Capital Group International Ltd. Inc.
10.1	Agreement between Kriegsman Capital Group and CytRx Corporation dated January 29, 2003 regarding office space rental and shared services.
10.2	Consulting Agreement, dated February 21, 2003 between CytRx and Corporate Capital Group International Ltd.
99.1	Certification Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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EX-4.1

Exhibit 4.1

THE WARRANT REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”) OR APPLICABLE STATE LAW, AND MAY NOT BE OFFERED OR SOLD EXCEPT (i) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND SUCH STATE LAW, (ii) TO THE EXTENT APPLICABLE, PURSUANT TO RULE 144 UNDER SUCH ACT (OR ANY SIMILAR RULE UNDER SUCH ACT RELATING TO THE DISPOSITION OF SECURITIES), OR (iii) UPON THE DELIVERY BY THE HOLDER TO COMPANY OF AN OPINION OF COUNSEL, REASONABLY SATISFACTORY TO COUNSEL FOR COMPANY, STATING THAT AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT AND STATE LAW IS AVAILABLE.

THIS WARRANT IS NONTRANSFERABLE, EXCEPT AS SET FORTH HEREIN

Void after 5:00 p.m. California Time, on February 20, 2008.

Warrant to Purchase 675,000 Shares of Common Stock

WARRANT TO PURCHASE COMMON STOCK

of

CYTRX CORPORATION

This is to Certify that, FOR VALUE RECEIVED, Corporate Capital Group International Ltd. Inc. or registered assigns (“Holder”), is entitled to purchase, subject to the provisions of this Warrant, from CytRx Corporation, a Delaware corporation (“Company”), at any time on or after February 21, 2003, and not later than 5:00 p.m., California Time, on February 20, 2008, 675,000 shares of common stock, $0.01 par value, of Company (“Common Stock”) at a purchase price per share of U.S. $0.20. The number of shares of Common Stock to be received upon the exercise of this Warrant and the price to be paid for a share of Common Stock may be adjusted from time to time as hereinafter set forth. The shares of Common Stock deliverable upon such exercise, and as adjusted from time to time, are hereinafter sometimes referred to as “Warrant Stock” and the exercise price of a share of Common Stock in effect at any time and as adjusted from time to time is hereinafter sometimes referred to as the “Exercise Price.”

This Warrant is issued to Holder in connection with the Consulting/Engagement Letter between Holder and the Company dated as of February 21, 2003.

1.

Exercise of Warrant.

(a)

This Warrant may be exercised in whole or in part at any time or from time to time on or after February 21, 2003, and not later than 5:00 p.m., California Time, on February 20, 2008, or if February 20, 2008 is a day on which banking institutions are authorized by law to close, then on the next succeeding day, which shall not be such a day, by presentation and surrender hereof to Company or at the office of its stock transfer agent, if any, with the Purchase Form annexed hereto, duly endorsed and accompanied by payment in full of the Exercise Price

for the number of shares specified in such form, together with all federal and state taxes applicable upon such exercise.

(b)

Upon receipt by the Company of this Warrant at the office or agency of the Company, in proper form for exercise, together with payment in full of the Exercise Price for the number of shares indicated in the Purchase Form, the Holder shall be deemed to be the holder of record of the shares of Common Stock issuable upon such exercise, notwithstanding that the stock transfer books of the Company shall then be closed or that certificates representing such shares of Common Stock shall not then be actually delivered to the Holder.

(c)

Company hereby agrees that at all times there shall be reserved for issuance and delivery upon exercise of this Warrant such number of shares of its Common Stock as shall be required for issuance or delivery upon exercise of this Warrant.

2.

Fractional Shares. No fractional shares or scrip representing fractional shares shall be issued upon the exercise of this Warrant. With respect to any fraction of a share called for upon any exercise hereof, Company shall pay to the Holder an amount in cash equal to such fraction multiplied by the current “Fair Market Value” of a share of Common Stock, determined as follows:

a.

If the Common Stock is listed on a national securities exchange or the Nasdaq National Market, the current Fair Market Value shall be the last reported (as reported by Bloomberg’s Financial Service) sale price of the Common Stock on such exchange or the Nasdaq National Market on the last business day prior to the date of exercise of this Warrant or if no such sale is made on such day, the average closing bid and asked prices for such day on such exchange or the Nasdaq National Market; or

b.

If the Common Stock is not so listed, the current Fair Market Value shall be the mean of the last reported bid and asked prices reported by the National Association of Securities Dealers Quotation System (or, if not so quoted on NASDAQ, by the National Quotation Bureau, Inc.) on the last business day prior to the date of the exercise of this Warrant; or

c.

If the Common Stock is not so listed and bid and asked prices are not so reported, the current Fair Market Value shall be an amount, not less than book value, determined in such reasonable manner as may be prescribed by the Board of Directors of the Company, such determination to be final and binding on the Holder.

3.

Exchange Assignment or Loss of Warrant. This Warrant is exchangeable, without expense, at the option of the Holder, upon presentation and surrender hereof to Company or at the office of its stock transfer agent, if any, for other Warrants of different denominations entitling the holder thereof to purchase in the aggregate the same number of shares of Common Stock purchasable hereunder. This Warrant may not be sold, transferred, assigned or hypothecated, except that it may be transferred by operation of law as a result of the death of Holder or his lawful successors. Any such assignment shall be made by surrender of this Warrant to the Company or at the office of its stock transfer agent, if any, with the Assignment Form annexed hereto duly executed and funds sufficient to pay any transfer tax; whereupon the

2

Company shall, without charge, execute and deliver a new Warrant in the name of the assignee named in such instrument of assignment and this Warrant shall promptly be canceled. This Warrant may be divided or combined with other Warrants which carry the same rights upon presentation hereof at the office of the Company or at the office of its stock transfer agent, if any, together with a written notice specifying the names and denominations in which new Warrants are to be issued and signed by the Holder hereof. The term “Warrant” as used herein includes any Warrants issued in substitution for or replacement of this Warrant, or into which this Warrant may be divided or exchanged. Upon receipt by the Company of evidence satisfactory to it of the loss, theft, destruction, or mutilation of this Warrant, and (in the case of loss, theft or destruction) of reasonably satisfied indemnification, and upon surrender and cancellation of this Warrant, if mutilated, the Company will execute and deliver a new Warrant of like tenor and date. Any such new Warrant executed and delivered shall constitute an additional contractual obligation on the part of the Company, whether or not this Warrant so lost, stolen, destroyed, or mutilated shall be at any time enforceable by anyone.

4.

Rights of the Holder. The Holder shall not, by virtue hereof, be entitled to any rights of a shareholder in the Company, either at law or equity, and the rights of the Holder are limited to those expressed in the Warrant and are not enforceable against Company except to the extent set forth herein.

5.

Anti-Dilution Provisions.

a.

Adjustment of Exercise Price. Anything in this Section 5 to the contrary notwithstanding, in case the Company shall at any time issue Common Stock or Convertible Securities by way of dividend or other distribution on any stock of the Company or subdivide or combine the outstanding shares of Common Stock, the Exercise Price shall be proportionately decreased in the case of such issuance (on the day following the date fixed for determining shareholders entitled to receive such dividend or other distribution) or decreased in the cases of such subdivision or increased in the case of such combination (on the date that such subdivision or combination shall become effective).

b.

No Adjustment for Small Amounts. Anything in this Section 5 to the contrary notwithstanding, the Company shall not be required to give effect to any adjustment in the Exercise Price unless and until the net effect of one or more adjustments, determined as above provided, shall have required a change of the Exercise Price by at least one cent, but when the cumulative net effect of more than one adjustment so determined shall be to change the actual Exercise Price by at least one cent, such change in the Exercise Price shall thereupon be given effect.

c.

Number of Shares Adjusted. Upon any adjustment of the Exercise Price pursuant to Section 5(a), the Holder of this Warrant shall thereafter (until another such adjustment) be entitled to purchase, at the new Exercise Price, the number of shares, calculated to the nearest full share, obtained by multiplying the number of shares of Common Stock initially issuable upon exercise of this Warrant by the original Exercise Price and dividing the product so obtained by the new Exercise Price.

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6.

Officer’s Certificate. Whenever the Exercise Price shall be adjusted as required by the provisions of Section 5 hereof, the Company shall forthwith file in the custody of its Secretary or an Assistant Secretary at its principal office, and with its stock transfer agent, if any, an officer’s certificate showing the adjusted Exercise Price determined as herein provided and setting forth in reasonable detail the facts requiring such adjustment. Each such officer’s certificate shall be made available at all reasonable times for inspection by the Holder and the Company shall, forthwith after each such adjustment, deliver a copy of such certificate to the Holder. Such certificate shall be conclusive as to the correctness of such adjustment.

7.

Notices to Warrant Holder. So long as this Warrant shall be outstanding and unexercised (i) if Company shall pay any dividend or make any distribution upon the Common Stock or (ii) if Company shall offer to the holders of Common Stock for subscription or purchase by them any shares of stock of any class or any other rights or (iii) if any capital reorganization of the Company, reclassification of the capital stock of the Company, consolidation or merger of the Company with or into another corporation, sale, lease or transfer of all or substantially all of the property and assets of the Company to another corporation, or voluntary or involuntary dissolution, liquidation or winding up of the Company shall be effected, then in any such case, the Company shall cause to be delivered to the Holder, at least ten days prior to the date specified in (x) or (y) below, as the case may be, a notice containing a brief description of the proposed action and stating the date on which (x) a record is to be taken for the purpose of such dividend, distribution or rights, or (y) such reclassification, reorganization, consolidation, merger, conveyance, lease, dissolution, liquidation or winding up is to take place and the date, if any, is to be fixed, as of which the holders of Common Stock of record shall be entitled to exchange their shares of Common Stock for securities or other property deliverable upon such reclassification, reorganization, consolidation, merger, conveyance, dissolution, liquidation or winding up.

8.

Reclassification, Reorganization or Merger. In case of any reclassification, capital reorganization or other change of outstanding shares of Common Stock of the Company (other than a change in par value, or from par value to no par value, or from no par value to par value, or as a result of an issuance of Common Stock by way of dividend or other distribution or of a subdivision or combination), or in case of any consolidation or merger of the Company with or into another corporation (other than a merger with a subsidiary in which merger the Company is the continuing corporation and which does not result in any reclassification, capital reorganization or other change of outstanding shares of Common Stock of the class issuable upon exercise of this Warrant) or in case of any sale or conveyance to another corporation of the property of the Company as an entirety or substantially as an entirety, the Company shall cause effective provision to be made so that the holder shall have the right thereafter, by exercising this Warrant, to purchase the kind and amount of shares of stock and other securities and property receivable upon such reclassification, capital reorganization or other change, consolidation, merger, sale or conveyance. Any such provision shall include provision for adjustments which shall be as nearly equivalent as may be practicable to the adjustments provided for in this Warrant. The foregoing provisions of this Section (i) shall similarly apply to successive reclassifications, capital reorganizations and changes of shares of Common Stock and to successive consolidations, mergers, sales or conveyances. In the event that in any such capital reorganization or reclassification, consolidation, merger, sale or conveyance, additional shares of Common Stock shall be issued in exchange, conversion, substitution or payment, in whole or in

4

part, for or of a security of the Company other than Common Stock, any such issue shall be treated as an issue of Common Stock covered by the provisions of subsection (f)(i) hereof with the amount of the consideration received upon the issue thereof being determined by the Board of Directors of the Company, such determination to be final and binding on the Holder.

9.

Spin-Offs. In the event the Company spins-off a subsidiary by distributing to the shareholders of the Company as a dividend or otherwise the stock of the subsidiary, the Company shall reserve for the life of the Warrant shares of the subsidiary to be delivered to the Holder of this Warrant upon exercise to the same extent as if such Holder were an owner of record of the Warrant Stock on the record date for payment of the shares of the subsidiary.

10.

Notices. Any notices or certificates by the Company to Holder shall be deemed delivered if in writing and delivered personally or sent by either certified mail or overnight mail (e.g., Federal Express or similar carrier) to Holder at the address for Holder registered on the Company’s books, and by Holder to Company by notice in writing to the Company addressed to it at 11726 San Vicente Blvd., Suite 650, Los Angeles, CA 90049, to the attention of Steven A. Kriegsman, or such other address of which the Company shall give notice. The Company may change its address by written notice to the Holder registered as the owner on the Company’s books and Holder may change its address by written notice to the Company.

11.

Transfer Restrictions. This Warrant may not be assigned, transferred, sold or otherwise disposed of, except by intestate succession or by will.

12.

Restrictive Legend. The Company may cause the following legend to be set forth on each certificate representing Warrant Stock or any other security issued or issuable upon exercise of this Warrant, unless counsel for the Company is of the opinion as to any such certificate that such legend is unnecessary:

THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE OFFERED FOR SALE, SOLD OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT MADE UNDER THE SECURITIES ACT OF 1933 (THE “ACT”) AND APPLICABLE STATE LAW, OR PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE ACT AND SUCH STATE LAW.

13.

Applicable Law. This Warrant shall be governed by, and construed in accordance with, the internal laws of the State of California.

Dated: February 21, 2003
By	/s/ STEVEN A. KRIEGSMAN
	Steven A. Kriegsman

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PURCHASE FORM

Date ___________, 200_

o   The undersigned hereby irrevocably elects to exercise the within Warrant to the extent of purchasing _____ shares of Common Stock and hereby makes payment of $___________ in payment of the actual exercise price thereof.

INSTRUCTIONS FOR REGISTRATION OF STOCK

NAME:_______________________________________________________
(Please type or print in block letters)

NAME:_______________________________________________________

ADDRESS:____________________________________________________

SIGNATURE:__________________________________________________

ASSIGNMENT FORM

FOR VALUE RECEIVED,___________________________________________

hereby sells, assigns and transfers unto:

NAME: _______________________________________________________
(Please type or print in block letters)

ADDRESS:_____________________________________________________

the right to purchase Common Stock represented by this Warrant to the extent of_____ shares as to which such right is exercisable and does hereby irrevocably constitute and appoint ______________________________________, attorney, to transfer the same on the books of the Company with fill power of substitution in the premises.

Date:_______________, 200__

By: 

Name: 

6

EX-10.1

Exhibit 10.1

PROFESSIONAL SERVICES AGREEMENT

This Professional Services Agreement, dated as of January 29, 2003, is made by and between CytRx Corporation (“CytRx”), The Kriegsman Group, an institutional division of Financial West Group (“TKG”), and Kriegsman Capital Group (“KCG”) with reference to the following facts:

A.

TKG and KCG are wholly owned affiliates of Steven A. Kriegsman.

B.

Pursuant to an agreement dated February 11, 2002 between CytRx and KCG (the “Prior Agreement”), TKG has been furnishing since July 16, 2002 certain office space (“Space”) and professional services (“Services”) to CytRx and CytRx has made payments to KCG for such Space and Services, which payments have been assigned by KCG to TKG.

C.

CytRx and TKG have reviewed the amount of Space and Services that were furnished by TKG to CytRx for the period from July 16, 2002 through November 30, 2002 (the “Prior Period”) and have determined that an amount in addition to those amounts previously paid by CytRx to KCG should be paid by CytRx to KCG under the Prior Agreement for the Prior Period.

D.

CytRx, TKG and KCG wish to revise and restate the Prior Agreement to provide that the Space and Services are being provided by TKG to CytRx and to cover the payment to be made by CytRx to TKG for Space and Services to be provided to CytRx subsequent to November 30, 2002.

The parties hereby agree as follows:

1.

Payment for Prior Period. CytRx and KCG hereby agree that the total amount owing for Space and Services provided by KCG during the Prior Period shall be $50,310.86, against which $39,712 had been previously paid by CytRx. In December 2002, CytRx paid KCG an additional $10,598.86 as payment in full for all remaining amounts owed to KCG for Space and Services for the Prior Period.

2.

Monthly Space and Services Payment. Commencing on December 1, 2002, TKG became responsible for providing the Space and Services to CytRx and KCG shall have no further rights or obligations with respect to providing the Space and Services under the Prior Agreement or this Agreement. CytRx shall pay TKG a monthly amount (the “Monthly Payment”), which shall be paid on the 15^th day of each such month, with the first payment to be made on December 15, 2002. The amount of the Monthly Payment has been calculated based on the provision by TKG to CytRx of the following:

(i)

Space conforming to the specific space and percentage of usage set forth in Exhibit A hereto.

(ii)

Services provided by the personnel listed in Exhibit B hereto (other than Kathy Hernandez), at the monthly salaries and in the percentages allocable to CytRx as set forth in Exhibit B. The Services shall consist of the services described in Exhibit B. Personnel shall not be added to Exhibit B or Services modified from those described in Exhibit B without the prior written consent of CytRx.

(iii)

A portion of the services provided by Kathy Hernandez as CytRx’s Secretary for the months of December 2002 and January 2003, based on allocating approximately 93.5% of her time to CytRx and 6.5% of her time to TKG, with her total salary to be allocated between CytRx and TKG being $7,291.66 for each of those two months. ($2,500 of her total December 2002 salary and $2,500 of her total January 2003 salary will be paid to her by CytRx and $4,719.66 of her total December 2002 salary and $4,719.66 of her total January 2003 salary will be paid to her by TKG.) Effective February 1, 2003, CytRx will directly pay her entire salary ($5,833.33 for February 2003 and each month thereafter) and any related payroll costs. The amount of the Monthly Payment, accordingly, will be adjusted as of February 1, 2003 as described below, and TKG shall make a monthly payment to CytRx of $379.15 on the 15^th day of each month commencing with February 2003, which is based on allocating approximately 93.5% of Ms. Hernandez’s time to CytRx and 6.5% of her time to TKG, with her total salary to be allocated between CytRx and TKG being $5,833.33 per month for the month of February 2003 and each month thereafter.

The Monthly Payment for December 2002 and January 2003 shall be $10,728.19 and shall be $6,415.70 for subsequent monthly periods.

3.

Future Adjustments to Monthly Payment. The Monthly Payment shall be reviewed by CytRx and TKG on a quarterly basis (with the first review to be as of March 31, 2003) to make appropriate adjustments as shall be agreed to by CytRx and TKG to reflect changes in the rental rates paid by TKG for and percentage usage by CytRx of the Space and to salary levels of and percentage usage by CytRx of the personnel providing the Services. The monthly payment to be made by TKG to CytRx for the services of Kathy Hernandez shall also be reviewed by CytRx and TKG on a quarterly basis (with the first review to be as of March 31, 2003) to make appropriate changes as shall be agreed to by CytRx and TKG to reflect changes in Ms. Hernandez’s salary level and the percentage usage of her time by TKG.

4.

Miscellaneous. This Agreement shall be governed by and construed in accordance with the internal laws of the State of California. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original and all of which together shall be deemed one and the same document. This Agreement may not be amended without the prior written consent of each of the parties hereto. Any amendment to this Agreement or increase in the amount of the Monthly Payment from the amounts specified in Section 2 shall require the approval of CytRx’s Board of Directors. This Agreement may not be assigned or transferred by either party hereto without the consent of the other party hereto. Either party may terminate this Agreement at any time upon thirty days prior written notice without any further liability among the parties hereto,

2

other than the accrued Monthly Amount (including any pro rata amount for a partial month) through the effective time of such termination. This Agreement shall terminate automatically and without any further action by the parties hereto upon the termination of Steven A. Kriegsman’s employment with CytRx and CytRx shall have no further liability to TKG hereunder other than the accrued Monthly Payment through the date of such termination.

IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written.

CYTRX CORPORATION		KRIEGSMAN CAPITAL GROUP, LLC
By:	/s/ MAX LINK	By:	/s/ STEVEN A. KRIEGSMAN
	Max Link Chairman of the Board		Steven A. Kriegsman

THE KRIEGSMAN GROUP, An Institutional Division of Financial West Group
By:	/s/ STEVEN A. KRIEGSMAN
	Steven A. Kriegsman

3

EXHIBIT A

CYTRX OFFICE SPACE

	Square footage	% used by CytRx	Approximate Cytrx footage
Steve office	210	75	158
Elliott office	195	100	195
Work office	195	0	0
Board room	210	75	158
Ed/Dave	196	40	78
Kathy/Temp	120	95	114
Reception	70	20	14
Work area	105	33	35
Kitchen	133	33	44
*Other area	1322	0	0
Total Area	2756	29%	796

TKG Monthly Rent: **$9,686.59

CytRx portion of rent should be: $2,809.20

*

includes walkways that are used for Cytrx but is not being included in the calculation

**

includes $21.00 common area maintenance fee

CURRENT OFFICE SPACE USAGE

EXHIBIT B

CytRx work performed July 16, 2002 to current date, and to continue to be performed until further notice to the Board.

Employee	TKG Monthly salary	CytRx Duties	Time	% work for CytRx	CytRx portion
David Haen	$ 3,105.00	Assists in identifying and structuring potential business opportunities (in-licensing, outlicensing, M&A), researches current healthcare transactions and trends, helps with other administrative duties for both Steve and Elliott on an ongoing basis	Continual	30%	$  930.50
Carolyn French	$ 2,375.00	Answer phones, assist Corporate Secretary, assemble investor packages	Continual	20%	$  475.00
Ed Umali	$ 5,500.00	Assist Scientific Consultant with power point and other presentations, assist Financial Consultant with payroll and invoices, assist attorney with corporate files, oversee Atlanta facility, supervise Los Angeles phones and information systems, organized CytRx files in storage	Continual	40%	$ 2,200.00
	$10,980.00				$3,605.50

EX-10.2

Exhibit 10.2

Corporate Capital Group International Ltd. Inc.
277 Great River Rd
Great River, NV 11739
631.859.9690 fax 631.859.9693

February 21, 2003

Mr. Steven A. Kriegsman
CEO
CytRx Corporation
11726 San Vicente Blvd. Suite 650
Los Angeles, CA 90049

Re:

Consulting/Engagement Agreement

Dear Mr. Kriegsman

This Consulting/Engagement Agreement (“Agreement’) defines the scope of services to be provided by Corporate Capital Group International Ltd., Inc. or its affiliates (herein, collectively “CCGI”) to CytRx Corporation (the “Company”), as well as the compensation to be paid by the Company to CCGI in exchange, pertaining to the consulting services and potential financing contemplated by and between the Company and CCGI’s network of financing partners.

1.

Services. CCGI will provide the following services under this Agreement. In rendering these services, CCGI is not guaranteeing that any investors it contacts will purchase stock on the open market or from the Company.

1.1

Retail Exposure. CCGI will expose the Company to retail stock brokers by delivering information on the Company approved by the Company and attempting to generate interest in the Company.

1.2

Institutional Exposure. CCGI will introduce the Company to institutional money managers.

1.3

Road Shows. CCGI will coordinate a number of foreign and domestic road shows to meet individual investors, institutional investors and foreign and domestic money managers.

1.4

Shareholder Awareness. CCGI will work with the Company’s management to generally improve shareholder awareness.

1.5

Advisory Services. CCGI will provide advisory services on a non-exclusive basis to the Company in the areas of corporate development: mergers and acquisitions, corporate finance, public offerings and capital placement transactions for the Company. CCGI will also introduce other firms, products and services to the Company as indicated during the normal course of business and act as coordinator for all activities within its purview. It is also understood that CCGI is acting as an advisor only, and shall have no authority to enter into any commitments on the Company’s behalf, or to negotiate the terms of any transaction, or to hold any funds or securities in connection with any transaction or to perform any other acts on behalf of the Company without the Company’s express written consent.

1.6

Transactions. During the course of the Engagement Period (as defined in Section 2.1), it is anticipated that the Company may, at its sole discretion, choose to execute one or more corporate development or corporate finance transactions introduced by CCGI. CCGI will assist the Company in executing these transactions on a best efforts basis, on terms satisfactory to the Company. CCGI will act as non-exclusive advisor or placement agent on these transactions in accordance with the terms of Section 3.2 below.

2.

Engagement Period. The period of CCGI engagement under this Agreement (the “Engagement Period”) is eight months, starting on February 21, 2003.

3.

Transactions. Other than in the Company’s normal course of business activities, any sale, merger, acquisition, joint venture, strategic alliance, technology partnership, licensing agreement, or other similar agreements introduced by CCGI (except where the Company or Steven Kriegsman has a pre-existing relationship)shall accrue compensation to CCGI under a percentage fee of the aggregate consideration as shown below.

3.1

Mergers. For arranging a merger with the Company that closes within six months of the expiration of the Engagement Period in conjunction with developing market support for the issue, CCGI shall be paid a cash fee equal to 5% on the first $5,000,000 of purchase price and 2% on anything above $5,000,000 of any of the cash or stock received by the Company as part of the merger.

3.2

Corporate Finance. All securities transactions for the benefit of the Company arranged by CCGI that close within six months of the expiration of the Engagement Period will accrue compensation to CCGI according to the corresponding categories below:

3.2.1

Secured Debt Financing. Other than in the Company’s normal course of business activities, for any traditional financing secured for the Company by CCGI (which includes senior debt financing, revolving lines of credit, equipment lease financing, purchase order financing, accounts receivable, or any other type of secured debt financing), with the exception of any extension, expansion or revision of the Company’s existing credit facilities, CCGI shall receive upon closing: a success fee, payable in cash, equal to 1.5% of the gross proceeds received by the Company at each such closing.

3.2.2

Subordinated Debt Financing. Other than in the Company’s normal course of business activities, for any debt investment placed for the Company by CCGI

2

(including mezzanine funding, notes, term loans, promissory notes, debentures, etc.), with the exception of any extension, expansion or revision of the Company’s existing credit facilities, CCGI shall receive upon closing: (i) a success fee, payable in cash equal to 4% of the gross proceeds received by the Company at each such closing, plus (ii) warrants in the entity financed, with a cashless exercise provision, equal to 4% of the gross proceeds received by the Company at each such Closing, exercisable at a strike price equal to 100% of the fair market value price of the common stock for the Company as of the date the Company receives the funds, with such warrants to be exercisable in whole or in part, at any time within three years from issuance.

3.2.3

Equity Investment. For any equity investment into the Company by a financing source secured for the Company by CCGI for which the Company receives funds (including any common stock, preferred stock, convertible preferred stock, convertible debentures, subordinated debt with warrants or any other securities convertible into common stock), CCGI shall receive upon closing: (i) a success fee, payable in cash, equal to 6% of the gross amount to be disbursed to the Company on each said closing, plus (ii) warrants in the entity financed, equal to 10% of the gross amount to be disbursed to the Company at each such closing, exercisable at a strike price equal to 100% of the fair market value price of the common stock for the Company as of the date the Company receives the funds, with such warrants exercisable in whole or in part, at any time within three years from issuance.

3.3

Retainer. The Company shall pay CCGI upon execution of this Agreement and on the 21^st day of each month thereafter through September 21, 2003 an amount of $10,000. In addition, five-year warrants to purchase 675,000 shares of the Company’s common stock at an exercise price of $.20 per share with piggyback registration rights will be issued at signing of the Agreement to CCGI. As a condition to the issuance of the foregoing warrants, warrants to purchase 250,000 shares of the Company’s stock issued to Corporate Consulting International Group, Inc. in July 2002 shall be concurrently cancelled without the payment of any consideration to Corporate Consulting International Group, Inc. for that cancellation.

3.4

Intermediary Transactions. In the event CCGI introduces the Company to a broker dealer or another financial institution (where neither the Company nor Steven Kriegsman has a pre-existing relationship) that provides financing to the Company that closes within six months of the expiration of the Engagement Period. CCGI will be paid a 2% fee at the closing of that financing.

3.5

Expenses. The Company shall reimburse CCGI for expenses directly related to the services performed pursuant to this Agreement. Any expenditure in excess of $500shall be approved in writing in advance by the Company.

4.

Other

4.1

Offering Materials. CCGI will use no offering materials other than such materials prepared by the Company and approved by Company’s counsel. The Company agrees to use its best efforts to approve or prepare, as necessary, any offering materials

3

within 30 days from the date the Company advises CCGI that it intends to execute a financial transaction, in accordance with Section 1.6 hereof.

4.2

Consummation of Transactions. CCGI understands that the Company has no obligation to close any transaction brought to the Company by CCGI and CCGI only gets paid if the Company closes a transaction brought to it by CCGI.

4.3

Confidentiality. This Agreement is for the confidential use of the Company and CCGI only and may not be disclosed by the Company to any person other than its attorneys, accountants and financial advisors, and only on a confidential basis in connection with the proposed transaction or financing, except where disclosure is required by law or is mutually consented to in writing by CCGI and the Company.

4.4

Performance. Notwithstanding any other provision of this Agreement, nothing set forth herein shall be construed as a firm commitment to execute any transaction or place the full amount of any offering or any minimum portion thereof. CCGI cannot guarantee the successful conclusion of any transaction, for which the Company has the right to reject, for any reason, in its sole and absolute discretion.

4.5

Indemnification. The Company shall indemnify and hold harmless CCGI from and against all claims, damages, losses, and liabilities (including, without limitation, reasonable attorneys’ fees and expenses) arising out of or based upon (1) any misstatement or omission or alleged misstatement or omission, in any Company documentation or any other materials or information supplied or approved by the Company which are disseminated by CCGI in accordance with the terms of this Agreement to third parties, including financing sources; or (ii) any agreement between the Company and any financing source; except that the Company shall not be liable for any claim, damage, loss or liability which is finally determined to have resulted from CCGI’s fraud, gross negligence or willful misconduct. In any action where the Company’s indemnity applies, CCGI shall be entitled to its own separate counsel at the Company’s expense if CCGI reasonably determines that there is a conflict that precludes adequate representation of CCGI by counsel for the Company. CCGI shall indemnify and hold harmless the Company from and against all claims, damages, losses and liabilities (including without limitation) reasonable attorneys’ fees and expenses arising out of CCGI’s conduct under this Agreement if such conduct was in breach of the terms of this Agreement or involved gross negligence or willful misconduct on the part of CCGI. The Company shall be entitled to retain its own separate counsel at CCGI’s expense if the Company reasonably determines that there is a conflict that precludes adequate representation of the Company by CCGI’s counsel. Neither termination nor completion of this Agreement shall affect these indemnification provisions, which shall survive any such termination or completion and remain operative and in full force and effect.

4.6

Governing Law/Arbitration. The terms of this Agreement will be governed by and interpreted in accordance with the internal laws of the State of California any dispute shall be resolved by binding arbitration with the American Arbitration Association in Los Angeles, California.

4

If the foregoing is acceptable, please sign and return to CCGI a copy of this Agreement, which shall represent the entire agreement between us with respect to the matters addressed herein. We look forward to working with you and remain.

Yours very truly, Corporate Capital Group International Ltd., Inc.
By:	/s/ PETER SIMONE
	Peter Simone President
Dated:	2/21/03

CytRx Corporation
By:	/s/ STEVEN A. KRIEGSMAN
	StevenA. Kriegsman Chief Executive Officer
Dated:	2/21/03

In consideration of CytRx Corporation entering into the above Agreement, the undersigned agrees to the cancellation of warrants to purchase 250,000 shares of CytRx Corporation common stock issued to the undersigned in July 2002.

Corporate Consulting International Group
By:	/s/ PETER SIMONE
	[Title]
Dated:	2/21/03

5

EX-99.1

Exhibit 99.1

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION1350,
AS ADOPTED PURSUANT TO
SECTION906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of CytRx Corporation (the “Company”) on Form 10-Q for the period ended March 31, 2003 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Steven A. Kriegsman, Chief Executive Officer and interim Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

A signed original of this written statement required by Section 906 has been provided to CytRx Corporation and will be retained by CytRx Corporation and furnished to the Securities and Exchange Commission or its staff upon request.

/s/ STEVEN A. KRIEGSMAN

Steven A. Kriegsman
Chief Executive Officer
and Interim Chief Financial Officer
Date: May14, 2003