Edgar Filing: CALLISTO PHARMACEUTICALS INC

As filed with the Securities and Exchange Commission on August 5, 2004

Registration Number 333-115471

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

AMENDMENT NO. 1
TO
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

CALLISTO PHARMACEUTICALS, INC.
(Name of Small Business Issuer in its Charter)

Delaware 2834 13-3894575
(State or other jurisdiction (Primary Standard (I.R.S. Employer)
of incorporation Industrial Classification Identification No.)
or organization) Code Number)

420 Lexington Avenue, Suite 1609
New York, New York 10170
(212) 297-0010
(Address and telephone number of principal executive offices)

Gary S. Jacob
Chief Executive Officer
Callisto Pharmaceuticals, Inc.
420 Lexington Avenue, Suite 1609
New York, New York 10170
(212) 297-0010
(Name, address and telephone number of agent for service)

Copies to:
Jeffrey J. Fessler, Esq.
Sills Cummis Epstein & Gross, P.C.
One Riverfront Plaza
Newark, New Jersey 07102-5400
(973) 643-5974

Approximate date of commencement of proposed sale to the public: From time to
time after the effective date of this Registration Statement.

If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X ]

If this form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]

If this form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, please check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ______

If this form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. [ ] ________

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]

The registrant hereby amends this registration statement on such date
or date(s) as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended, or until the registration statement
shall become effective on such date as the commission acting pursuant to said
Section 8(a) may determine.

The information in this prospectus is not complete and may be changed. The
securities may not be sold until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.

PROSPECTUS

Subject to Completion, Dated August 5, 2004

CALLISTO PHARMACEUTICALS, INC.

6,056,541 Shares of Common Stock

The selling stockholders named in this prospectus are offering to sell
up to 6,056,541 shares of common stock of Callisto Pharmaceuticals, Inc. which
are currently issued and outstanding and were previously issued by us to the
selling stockholders in private transactions. We will not receive any proceeds
from the resale of shares of our common stock.

Our common stock currently trades on the Over the Counter Bulletin
Board ("OTC Bulletin Board") under the symbol "CLSP.OB."

On August 3, 2004, the last reported sale price for our common stock on
the OTC Bulletin Board was $1.72 per share.

The securities offered in this prospectus involve a high degree of
risk. See "Risk Factors" beginning on page 5 of this prospectus to read about
factors you should consider before buying shares of our common stock.

The selling stockholders are offering these shares of common stock. The
selling stockholders may sell all or a portion of these shares from time to time
in market transactions through any market on which our common stock is then
traded, in negotiated transactions or otherwise, and at prices and on terms that
will be determined by the then prevailing market price or at negotiated prices
directly or through a broker or brokers, who may act as agent or as principal or
by a combination of such methods of sale. The selling stockholders will receive
all proceeds from the sale of the common stock. For additional information on
the methods of sale, you should refer to the section entitled "Plan of
Distribution."

Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined whether
this prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.

The date of this Prospectus is ________________, 2004

TABLE OF CONTENTS

Page

Prospectus Summary...................................................... 3
Risk Factors............................................................ 5
Forward Looking Statements.............................................. 14
Use of Proceeds......................................................... 14
Management's Discussion and Analysis of
Financial Condition or Plan of Operation................................ 14
Description of Business................................................. 19
Description of Property................................................. 23
Legal Proceedings....................................................... 23
Directors and Executive Officers........................................ 23
Executive Compensation.................................................. 26
Changes In and Disagreements With Accountants on
Accounting and Financial Disclosure..................................... 29
Market for Common Equity and Related
Stockholder Disclosure.................................................. 29
Security Ownership of Certain Beneficial Owners
and Management.......................................................... 30
Selling Shareholders.................................................... 32
Certain Transactions.................................................... 34
Description of Securities............................................... 34
Plan of Distribution.................................................... 35
Legal Matters........................................................... 36
Experts................................................................. 36
Where You Can Find More Information..................................... 37
Disclosure of Commission Position on Indemnification
for Securities Act Liabilities.......................................... 37
Index to Consolidated Financial Statements.............................. F-1

You may only rely on the information contained in this prospectus or that we
have referred you to. We have not authorized anyone to provide you with
different information. This prospectus does not constitute an offer to sell or a
solicitation of an offer to buy any securities other than the common stock
offered by this prospectus. This prospectus does not constitute an offer to sell
or a solicitation of an offer to buy any common stock in any circumstances in
which such offer or solicitation is unlawful. Neither the delivery of this
prospectus nor any sale made in connection with this prospectus shall, under any
circumstances, create any implication that there has been no change in our
affairs since the date of this prospectus or that the information contained by
reference to this prospectus is correct as of any time after its date.

PROSPECTUS SUMMARY

This summary highlights information contained elsewhere in this
prospectus. You should read the entire prospectus carefully, including, the
section entitled "Risk Factors" before deciding to invest in our common stock.
Callisto Pharmaceuticals, Inc. is referred to throughout this prospectus as
"Callisto," "we" or "us."

We are a biopharmaceutical company focused on the development of drugs
to treat multiple myeloma (an incurable blood cancer that invades and
proliferates in bone marrow), other cancers and osteolytic bone disease. Our
lead drug candidate, Atiprimod, is a small-molecule, orally available drug with
antiproliferative and antiangiogenic activity.

Atiprimod successfully completed Phase I clinical trials in rheumatoid
arthritis patients and in May 2004 we commenced a Phase I/IIa open-label
clinical trial of Atiprimod in relapsed multiple myeloma patients. These are
patients that no longer respond to chemotherapy, and are in advanced stages of
the disease. The Phase I/IIa clinical trial will be performed at two sites, the
Dana-Farber Cancer Institute (Boston) and The University of Texas M.D. Anderson
Cancer Center (Houston). On January 6, 2004, we announced that the Office of
Orphan Products Development of the United States Food and Drug Administration,
or FDA, granted orphan drug designation to Atiprimod for the treatment of
multiple myeloma.

Our principal executive office is located at 420 Lexington Avenue,
Suite 1609, New York, New York 10170 and our telephone number is (212) 297-0010.

THIS OFFERING

Shares offered by Selling
Stockholders 6,056,541

Use of Proceeds We will not receive any of the proceeds from
the sale of common stock by the selling
stockholders. The proceeds from this
offering are solely for the account of the
selling stockholders.

Risk Factors The purchase of our common stock involves a
high degree of risk. You should carefully
review and consider "Risk Factors" beginning
on page 5.

OTC Bulletin Board
Trading Symbol CLSP.OB

SUMMARY FINANCIAL INFORMATION

The following table summarizes our financial data. The statement of
operations data for the two years ended December 31, 2003 and 2002 are derived
from our audited financial statements included elsewhere in this prospectus. The
balance sheet data as of June 30, 2004 and the statement of operations data for
the six months ended June 30, 2004 and 2003 and for the period June 5, 1996
(inception) to June 30, 2004 are derived from our unaudited financial
statements, which are included elsewhere in this prospectus. You should read
this data together with our financial statements and related notes included
elsewhere in this prospectus and the information under "Management's Discussion
and Analysis of Financial Condition or Plan of Operation."

Statement of Operations Data:

For the Years Ended Six Months Ended For the Period
December 31, June 30, June 5, 1996
---------------------------- ---------------------------- (Inception) to
2003 2002 2004 2003 June 30, 2004
---- ---- ---- ---- --------------

Revenues $-- $-- $-- $-- $--
Costs and expenses:
Research and development 1,369,985 491,430 925,652 308,986 5,828,013
Government grant -- -- (100,220) -- (100,220)
Purchased in-process research
and development 6,734,818 -- 209,735 6,833,454 6,944,553
General and administrative 1,398,090 1,227,699 1,074,233 497,619 7,323,706
Stock-based compensation 3,833,946 332 1,665,594 2,463,007 10,284,096
------------ ------------ ------------ ------------ ------------
Loss from operations (13,336,839) (1,719,461) (3,774,994) (10,103,066) (30,280,148)
------------ ------------ ------------ ------------ ------------
Interest income 8,767 34,496 37,284 7,056 502,884
Other income 221,824 -- -- -- 221,824
------------ ------------ ------------ ------------ ------------
Net loss $(13,106,247) $ (1,684,965) $ (3,737,710) $(10,096,010) $(29,555,440)
============ ============ ============ ============ ============
Net loss per common share:
Basic and diluted $ (0.61) $ (0.10) $ (0.13) $ (0.52)
Weighted average shares
outstanding:
Basic and diluted 21,357,659 17,318,994 27,767,221 19,306,915

Balance Sheet Data:
As of June 30, 2004
-------------------

Cash and cash equivalents $ 7,269,421
Current assets 7,371,187
Total liabilities 478,880
Total stockholders' equity 6,987,959

RISK FACTORS

An investment in our shares involves a high degree of risk. Before
making an investment decision, you should carefully consider all of the risks
described in this prospectus. If any of the risks discussed in this prospectus
actually occur, our business, financial condition and results of operations
could be materially and adversely affected. If this were to happen, the price of
our shares could decline significantly and you may lose all or a part of your
investment. The risk factors described below are not the only ones that may
affect us. Additional risks and uncertainties that we do not currently know
about or that we currently deem immaterial may also adversely affect our
business, financial condition and results of operations. Our forward-looking
statements in this prospectus are subject to the following risks and
uncertainties. Our actual results could differ materially from those anticipated
by our forward-looking statements as a result of the risk factors below. See
"Forward-Looking Statements."

RISKS RELATED TO OUR BUSINESS

We are at an early stage of development as a company, currently have no
source of revenue and may never become profitable.

We are a development stage biopharmaceutical company. Currently, we
have no products approved for commercial sale and, to date, we have not
generated any revenue. Our ability to generate revenue depends heavily on:

o demonstration in Phase I/IIa clinical trials that our lead product
candidate, Atiprimod for the treatment of multiple myeloma, is safe and
effective;

o the successful development of our other product candidates;

o our ability to seek and obtain regulatory approvals, including with
respect to the indications we are seeking;

o the successful commercialization of our product candidates; and

o market acceptance of our products.

All of our existing product candidates will require extensive
additional clinical evaluation, regulatory review, significant marketing efforts
and substantial investment before they could provide us with any revenue. For
example, Atiprimod for the treatment of multiple myeloma entered Phase I/IIa
clinical trials in May 2004 and our other product candidates are in preclinical
development. As a result, if we do not successfully develop and commercialize
Atiprimod for the treatment of multiple myeloma, we will be unable to generate
any revenue for many years, if at all. We do not anticipate that we will
generate revenue for several years, at the earliest, or that we will achieve
profitability for at least several years after generating material revenue, if
at all. If we are unable to generate revenue, we will not become profitable, and
we may be unable to continue our operations.

We have incurred significant losses since inception and anticipate that we will
incur continued losses for the foreseeable future.

As of June 30, 2004, we had an accumulated deficit of $29,555,440. We
have incurred losses in each year since our inception in 1996. We incurred a net
loss of $13,106,247 and $3,737,710 for the year ended December 31, 2003 and the
six months ended June 30, 2004, respectively. These losses, among other things,
have had and will continue to have an adverse effect on our stockholders' equity
and working capital. We expect to incur significant and increasing operating
losses for the next several years as we expand our research and development,
initiate our clinical trials of Atiprimod for the treatment of multiple myeloma,
acquire or license technologies, advance our other product candidates into
clinical development, seek regulatory approval and, if we receive FDA approval,
commercialize our products. Because of the numerous risks and uncertainties
associated with our product development efforts, we are unable to predict the
extent of any future losses or when we will become profitable, if at all. If we
are unable to achieve and then maintain profitability, the market value of our
common stock will likely decline.

We will need to raise substantial additional capital to fund our operations, and
our failure to obtain funding when needed may force us to delay, reduce or
eliminate our product development programs or collaboration efforts.

Our operations have consumed substantial amounts of cash since
inception. We expect to continue to spend substantial amounts to:

o complete the clinical development of our lead product candidate,
Atiprimod for the treatment of multiple myeloma;

o continue the development of our other product candidates;

o finance our general and administrative expenses;

o prepare regulatory approval applications and seek approvals for
Atiprimod for the treatment of multiple myeloma and our other product
candidates;

o license or acquire additional technologies;

o launch and commercialize our product candidates, if any such product
candidates receive regulatory approval; and

o develop and implement sales, marketing and distribution capabilities.

In 2003, our cash used in operations increased significantly over 2002
and we expect that our cash used in operations will continue to increase for the
next several years. We expect that our existing capital resources will be
sufficient to fund our operations for at least the next 12 months. We will be
required to raise additional capital to complete the development and
commercialization of our current product candidates. Our future funding
requirements will depend on many factors, including, but not limited to:

o the rate of progress and cost of our clinical trials and other
development activities;

o any future decisions we may make about the scope and prioritization of
the programs we pursue;

o the costs of filing, prosecuting, defending and enforcing any patent
claims and other intellectual property rights;

o the costs and timing of regulatory approval;

o the costs of establishing sales, marketing and distribution
capabilities;

o the effect of competing technological and market developments;

o the terms and timing of any collaborative, licensing and other
arrangements that we may establish; and

o general market conditions for offerings from biopharmaceutical
companies.

To date, our sources of cash have been primarily limited to the sale of
our equity securities. We cannot be certain that additional funding will be
available on acceptable terms, or at all. To the extent that we raise additional
funds by issuing equity securities, our stockholders may experience significant
dilution. Any debt financing, if available, may involve restrictive covenants
that impact our ability to conduct our business. If we are unable to raise
additional capital when required or on acceptable terms, we may have to
significantly delay, scale back or discontinue the development and/or
commercialization of one or more of our product candidates. We also may be
required to:

o seek collaborators for our product candidates at an earlier stage than
otherwise would be desirable and on terms that are less favorable than
might otherwise be available; and

o relinquish, license or otherwise dispose of rights to technologies,
product candidates or products that we would otherwise seek to develop
or commercialize ourselves on unfavorable terms.

If our agreement with AnorMED Inc. terminates, we may be unable to continue our
business.

Our business is dependent on rights we have licensed from AnorMED Inc.
Under the terms of the license agreement, we are obligated to make specified
payments. If we fail to fulfill those obligations or other material obligations,
the license agreement may be terminated. If AnorMED terminates its agreement
with us, we will have no further rights to utilize the intellectual property
covered by the terminated agreement, we would not be able to commercialize
Atiprimod and we may be forced to cease our operations, particularly if we do
not have rights to other product candidates.

Clinical trials involve a lengthy and expensive process with an uncertain
outcome, and results of earlier studies and trials may not be predictive of
future trial results.

In order to receive regulatory approval for the commercialization of
our product candidates, we must conduct, at our own expense, extensive clinical
trials to demonstrate safety and efficacy of these product candidates. Clinical
testing is expensive, can take many years to complete and its outcome is
uncertain. Failure can occur at any time during the clinical trial process.

The results of preclinical studies and early clinical trials of our
product candidates do not necessarily predict the results of later-stage
clinical trials. Product candidates in later stages of clinical trials may fail
to show the desired safety and efficacy traits despite having progressed through
initial clinical testing. The data collected from clinical trials of our product
candidates may not be sufficient to support the submission of a new drug
application or to obtain regulatory approval in the United States or elsewhere.
Because of the uncertainties associated with drug development and regulatory
approval, we cannot determine if or when we will have an approved product for
commercialization or achieve sales or profits.

Delays in clinical testing could result in increased costs to us and delay our
ability to generate revenue.

We may experience delays in clinical testing of our product candidates.
We do not know whether planned clinical trials will begin on time, will need to
be redesigned or will be completed on schedule, if at all. Clinical trials can
be delayed for a variety of reasons, including delays in obtaining regulatory
approval to commence a trial, in reaching agreement on acceptable clinical trial
terms with prospective sites, in obtaining institutional review board approval
to conduct a trial at a prospective site, in recruiting patients to participate
in a trial or in obtaining sufficient supplies of clinical trial materials. Many
factors affect patient enrollment, including the size of the patient population,
the proximity of patients to clinical sites, the eligibility criteria for the
trial, competing clinical trials and new drugs approved for the conditions we
are investigating. Prescribing physicians will also have to decide to use our
product candidates over existing drugs that have established safety and efficacy
profiles. Any delays in completing our clinical trials will increase our costs,
slow down our product development and approval process and delay our ability to
generate revenue.

We may be required to suspend or discontinue clinical trials due to
unexpected side effects or other safety risks that could preclude approval of
our product candidates.

Our clinical trials may be suspended at any time for a number of
reasons. For example, we may voluntarily suspend or terminate our clinical
trials if at any time we believe that they present an unacceptable risk to the
clinical trial patients. In addition, regulatory agencies may order the
temporary or permanent discontinuation of our clinical trials at any time if
they believe that the clinical trials are not being conducted in accordance with
applicable regulatory requirements or that they present an unacceptable safety
risk to the clinical trial patients.

Administering any product candidates to humans may produce undesirable
side effects. These side effects could interrupt, delay or halt clinical trials
of our product candidates and could result in the FDA or other regulatory
authorities denying further development or approval of our product candidates
for any or all targeted indications. Ultimately, some or all of our product
candidates may prove to be unsafe for human use. Moreover, we could be subject
to significant liability if any volunteer or patient suffers, or appears to
suffer, adverse health effects as a result of participating in our clinical
trials.

If we are unable to satisfy regulatory requirements, we may not be able to
commercialize our product candidates.

We need FDA approval prior to marketing our product candidates in the
United States. We commenced in May 2004 a Phase I/IIa trial of Atiprimod for the
treatment of multiple myeloma. If we fail to obtain FDA approval to market our
product candidates, we will be unable to sell our product candidates in the
United States and we will not generate any revenue.

This regulatory review and approval process, which includes evaluation
of preclinical studies and clinical trials of a product candidate as well as the
evaluation of our manufacturing process and our contract manufacturers'
facilities, is lengthy, expensive and uncertain. To receive approval, we must,
among other things, demonstrate with substantial evidence from well-controlled
clinical trials that the product candidate is both safe and effective for each
indication where approval is sought. Satisfaction of these requirements
typically takes several years and the time needed to satisfy them may vary
substantially, based on the type, complexity and novelty of the pharmaceutical
product. We cannot predict if or when we might submit for regulatory review any
of our product candidates currently under development. Any approvals we may
obtain may not cover all of the clinical indications for which we are seeking
approval. Also, an approval might contain significant limitations in the form of
narrow indications, warnings, precautions, or contra-indications with respect to
conditions of use.

The FDA has substantial discretion in the approval process and may
either refuse to file our application for substantive review or may form the
opinion after review of our data that our application is insufficient to allow
approval of our product candidates. If the FDA does not file or approve our
application, it may require that we conduct additional clinical, preclinical or
manufacturing validation studies and submit that data before it will reconsider
our application. Depending on the extent of these or any other studies, approval
of any applications that we submit may be delayed by several years, or may
require us to expend more resources than we have available. It is also possible
that additional studies, if performed and completed, may not be considered
sufficient by the FDA to make our applications approvable. If any of these
outcomes occur, we may be forced to abandon our applications for approval, which
might cause us to cease operations.

We will also be subject to a wide variety of foreign regulations
governing the development, manufacture and marketing of our products. Whether or
not FDA approval has been obtained, approval of a product by the comparable
regulatory authorities of foreign countries must still be obtained prior to
manufacturing or marketing the product in those countries. The approval process
varies from country to country and the time needed to secure approval may be
longer or shorter than that required for FDA approval. We cannot assure you that
clinical trials conducted in one country will be accepted by other countries or
that approval in one country will result in approval in any other country.

The commercial success of our product candidates will depend upon the degree of
market acceptance of these products among physicians, patients, health care
payors and the medical community.

Our product candidates have never been commercialized for any
indication. Even if approved for sale by the appropriate regulatory authorities,
physicians may not prescribe our product candidates, in which case we could not
generate revenue or become profitable. Market acceptance of Atiprimod for the
treatment of multiple myeloma and our other product candidates by physicians,
healthcare payors and patients will depend on a number of factors, including:

o acceptance by physicians and patients of each such product as a safe
and effective treatment;

o cost effectiveness;

o adequate reimbursement by third parties;

o potential advantages over alternative treatments;

o relative convenience and ease of administration; and

o prevalence and severity of side effects.

If our product candidates are unable to compete effectively with marketed cancer
drugs, our commercial opportunity will be reduced or eliminated.

We face competition from established pharmaceutical and biotechnology
companies, as well as from academic institutions, government agencies and
private and public research institutions. Many of our competitors have
significantly greater financial resources and expertise in research and
development, manufacturing, preclinical testing, conducting clinical trials,
obtaining regulatory approvals and marketing approved products than we do.
Smaller or early-stage companies may also prove to be significant competitors,
particularly through collaborative arrangements with large, established
companies. Our commercial opportunity will be reduced or eliminated if our
competitors develop and commercialize cancer drugs that are safer, more
effective, have fewer side effects or are less expensive than our product
candidates. These third parties compete with us in recruiting and retaining
qualified scientific and management personnel, establishing clinical trial sites
and patient registration for clinical trials, as well as in acquiring
technologies and technology licenses complementary to our programs or
advantageous to our business.

We expect that our ability to compete effectively will depend upon our ability
to:

o successfully and rapidly complete clinical trials and submit for and
obtain all requisite regulatory approvals in a cost-effective manner;

o maintain a proprietary position for our products and manufacturing
processes and other related product technology;

o attract and retain key personnel;

o develop relationships with physicians prescribing these products; and

o build an adequate sales and marketing infrastructure for our product
candidates.

Because we will be competing against significantly larger companies
with established track records, we will have to demonstrate to physicians that,
based on experience, clinical data, side-effect profiles and other factors, our
products are preferable to existing cancer drugs. If we are unable to compete
effectively in the cancer drug market and differentiate our products from
currently marketed cancer drugs, we may never generate meaningful revenue.

We currently have no sales and marketing organization. If we are unable to
establish a direct sales force in the United States to promote our products, the
commercial opportunity for our products may be diminished.

We currently have no sales and marketing organization. If any of our
product candidates are approved by the FDA, we intend to market that product
directly to hospitals in the United States through our own sales force. We will
incur significant additional expenses and commit significant additional
management resources to establish this sales force. We may not be able to
establish these capabilities despite these additional expenditures. We will also
have to compete with other pharmaceutical and biotechnology companies to
recruit, hire and train sales and marketing personnel. If we elect to rely on
third parties to sell our product candidates in the United States, we may
receive less revenue than if we sold our products directly. In addition, we may
have little or no control over the sales efforts of those third parties. In the
event we are unable to develop our own sales force or collaborate with a third
party to sell our product candidates, we may not be able to commercialize our
product candidates which would negatively impact our ability to generate
revenue.

We may need others to market and commercialize our product candidates in
international markets.

In the future, if appropriate regulatory approvals are obtained, we
intend to commercialize our product candidates in international markets.
However, we have not decided how to commercialize our product candidates in
those markets. We may decide to build our own sales force or sell our products
through third parties. If we decide to sell our product candidates in
international markets through a third party, we may not be able to enter into
any marketing arrangements on favorable terms or at all. In addition, these
arrangements could result in lower levels of income to us than if we marketed
our product candidates entirely on our own. If we are unable to enter into a
marketing arrangement for our product candidates in international markets, we
may not be able to develop an effective international sales force to
successfully commercialize those products in international markets. If we fail
to enter into marketing arrangements for our products and are unable to develop
an effective international sales force, our ability to generate revenue would be
limited.

If the FDA does not approve our contract manufacturers' facilities, we may be
unable to develop or commercialize our product candidates.

We rely on third-party contract manufacturers to manufacture our
product candidates, and currently have no plans to develop our own manufacturing
facility. The facilities used by our contract manufacturers to manufacture our
product candidates must be approved by the FDA. If the FDA does not approve
these facilities for the manufacture of our product, we may need to fund
additional modifications to our manufacturing process, conduct additional
validation studies, or find alternative manufacturing facilities, any of which
would result in significant cost to us as well as a delay of up to several years
in obtaining approval for and manufacturing of our product candidates. In
addition, our contract manufacturers will be subject to ongoing periodic
unannounced inspection by the FDA and corresponding state agencies for
compliance with good manufacturing practices regulations, or cGMPs, and similar
foreign standards. These regulations cover all aspects of the manufacturing,
testing, quality control and record keeping relating to our product candidates.
We do not have control over our contract manufacturers' compliance with these
regulations and standards. Failure by our contract manufacturers to comply with
applicable regulations could result in sanctions being imposed on us, including
fines, injunctions, civil penalties, failure of the government to grant market
approval of drugs, delays, suspension or withdrawals of approvals, operating
restrictions and criminal prosecutions, any of which could significantly and
adversely affect our business. In addition, we have no control over our contract
manufacturers' ability to maintain adequate quality control, quality assurance
and qualified personnel. Failure by our contract manufacturers to comply with or
maintain any of these standards could adversely affect the development of our
product candidates and our business.

If product liability lawsuits are successfully brought against us, we may incur
substantial liabilities and may be required to limit commercialization of our
product candidates.

We face an inherent risk of product liability lawsuits related to the
testing of our product candidates, and will face an even greater risk if we sell
our product candidates commercially. Currently, we are not aware of any
anticipated product liability claims with respect to our product candidates. In
the future, an individual may bring a liability claim against us if one of our
product candidates causes, or merely appears to have caused, an injury. If we
cannot successfully defend ourselves against the product liability claim, we may
incur substantial liabilities. Regardless of merit or eventual outcome,
liability claims may result in:

o decreased demand for our product candidates;

o injury to our reputation;

o withdrawal of clinical trial participants;

o costs of related litigation;

o substantial monetary awards to patients;

o product recalls;

o loss of revenue; and

o the inability to commercialize our product candidates.

We have "clinical trial" liability insurance with a $2,000,000 annual
aggregate limit for up to 40 patients participating in our Atiprimod clinical
trials. We intend to expand our insurance coverage to include the sale of
commercial products if marketing approval is obtained for our product
candidates. Our current insurance coverage may prove insufficient to cover any
liability claims brought against us. In addition, because of the increasing
costs of insurance coverage, we may not be able to maintain insurance coverage
at a reasonable cost or obtain insurance coverage that will be adequate to
satisfy any liability that may arise.

Even if we receive regulatory approval for our product candidates, we will be
subject to ongoing significant regulatory obligations and oversight.

If we receive regulatory approval to sell our product candidates, the
FDA and foreign regulatory authorities may, nevertheless, impose significant
restrictions on the indicated uses or marketing of such products, or impose
ongoing requirements for post-approval studies. Following any regulatory
approval of our product candidates, we will be subject to continuing regulatory
obligations, such as safety reporting requirements, and additional
post-marketing obligations, including regulatory oversight of the promotion and
marketing of our products. If we become aware of previously unknown problems
with any of our product candidates here or overseas or our contract
manufacturers' facilities, a regulatory agency may impose restrictions on our
products, our contract manufacturers or on us, including requiring us to
reformulate our products, conduct additional clinical trials, make changes in
the labeling of our products, implement changes to or obtain re-approvals of our
contract manufacturers' facilities or withdraw the product from the market. In
addition, we may experience a significant drop in the sales of the affected
products, our reputation in the marketplace may suffer and we may become the
target of lawsuits, including class action suits. Moreover, if we fail to comply
with applicable regulatory requirements, we may be subject to fines, suspension
or withdrawal of regulatory approvals, product recalls, seizure of products,
operating restrictions and criminal prosecution. Any of these events could harm
or prevent sales of the affected products or could substantially increase the
costs and expenses of commercializing and marketing these products.

We rely on third parties to conduct our clinical trials. If these third parties
do not successfully carry out their contractual duties or meet expected
deadlines, we may not be able to seek or obtain regulatory approval for or
commercialize our product candidates.

We have agreements with third-party contract research organizations, or
CROs, to provide monitors and to manage data for our clinical programs. We and
our CROs are required to comply with current Good Clinical Practices, or GCPs,
regulations and guidelines enforced by the FDA for all of our products in
clinical development. The FDA enforces GCPs through periodic inspections of
trial sponsors, principal investigators and trial sites. In the future, if we or
our CROs fail to comply with applicable GCPs, the clinical data generated in our
clinical trials may be deemed unreliable and the FDA may require us to perform
additional clinical trials before approving our marketing applications. We
cannot assure you that, upon inspection, the FDA will determine that any of our
clinical trials for products in clinical development comply with GCPs. In
addition, our clinical trials must be conducted with product produced under cGMP
regulations, and will require a large number of test subjects. Our failure to
comply with these regulations may require us to repeat clinical trials, which
would delay the regulatory approval process.

If any of our relationships with these third-party CROs terminate, we
may not be able to enter into arrangements with alternative CROs. If CROs do not
successfully carry out their contractual duties or obligations or meet expected
deadlines, if they need to be replaced, or if the quality or accuracy of the
clinical data they obtain is compromised due to the failure to adhere to our
clinical protocols, regulatory requirements or for other reasons, our clinical
trials may be extended, delayed or terminated, and we may not be able to obtain
regulatory approval for or successfully commercialize our product candidates. As
a result, our financial results and the commercial prospects for our product
candidates would be harmed, our costs could increase, and our ability to
generate revenue could be delayed.

If we fail to attract and keep senior management and key scientific personnel,
we may be unable to successfully develop our product candidates, conduct our
clinical trials and commercialize our product candidates.

Our success depends in part on our continued ability to attract, retain
and motivate highly qualified management, clinical and scientific personnel and
on our ability to develop and maintain important relationships with leading
academic institutions, clinicians and scientists. We are highly dependent upon
our senior management and scientific staff, particularly Gary S. Jacob, our
Chief Executive Officer, and Donald Picker, our Executive Vice President, R&D.
The loss of services of Dr. Jacob, Dr. Picker or one or more of our other
members of senior management could delay or prevent the successful completion of
our planned clinical trials or the commercialization of our product candidates.

The competition for qualified personnel in the biotechnology and
pharmaceuticals field is intense. We will need to hire additional personnel as
we expand our clinical development and commercial activities. We may not be able
to attract and retain quality personnel on acceptable terms given the
competition for such personnel among biotechnology, pharmaceutical and other
companies. We do not carry "key person" insurance covering any members of our
senior management.

If we fail to acquire and develop other products or product candidates, we may
be unable to grow our business.

To date, we have in-licensed or acquired the rights to each of our
product candidates. As part of our growth strategy, we intend to license or
acquire additional products and product candidates for development and
commercialization. Because we have limited internal research capabilities, we
are dependent upon pharmaceutical and biotechnology companies and other
researchers to sell or license products to us. The success of this strategy
depends upon our ability to identify, select and acquire the right
pharmaceutical product candidates and products.

Any product candidate we license or acquire may require additional
development efforts prior to commercial sale, including extensive clinical
testing and approval by the FDA and applicable foreign regulatory authorities.
All product candidates are prone to the risks of failure inherent in
pharmaceutical product development, including the possibility that the product
candidate will not be shown to be sufficiently safe and effective for approval
by regulatory authorities. In addition, we cannot assure you that any products
that we license or acquire that are approved will be manufactured or produced
economically, successfully commercialized or widely accepted in the marketplace.

Proposing, negotiating and implementing an economically viable product
acquisition or license is a lengthy and complex process. Other companies,
including those with substantially greater financial, marketing and sales
resources, may compete with us for the acquisition or license of product
candidates and approved products. We may not be able to acquire or license the
rights to additional product candidates and approved products on terms that we
find acceptable, or at all.

We may undertake acquisitions in the future, and any difficulties from
integrating these acquisitions could damage our ability to attain or maintain
profitability.

We may acquire additional businesses, products or product candidates
that complement or augment our existing business. Integrating any newly acquired
business or product could be expensive and time-consuming. We may not be able to
integrate any acquired business or product successfully or operate any acquired
business profitably. Moreover, we many need to raise additional funds through
public or private debt or equity financing to make acquisitions, which may
result in dilution to stockholders and the incurrence of indebtedness that may
include restrictive covenants.

We will need to increase the size of our organization, and we may experience
difficulties in managing growth.

We are a small company with 6 employees as of August 3, 2004, most of
whom have joined us in the preceding 12 months. To continue our clinical trials
and commercialize our product candidates, we will need to expand our employee
base for managerial, operational, financial and other resources. Future growth
will impose significant added responsibilities on members of management,
including the need to identify, recruit, maintain and integrate additional
employees. Our future financial performance and our ability to commercialize our
product candidates and to compete effectively will depend, in part, on our
ability to manage any future growth effectively. To that end, we must be able
to:

o manage our development efforts effectively;

o manage our clinical trials effectively;

o integrate additional management, administrative, manufacturing and
sales and marketing personnel;

o maintain sufficient administrative, accounting and management
information systems and controls; and

o hire and train additional qualified personnel.

We may not be able to accomplish these tasks, and our failure to
accomplish any of them could harm our financial results.

Reimbursement may not be available for our product candidates, which could
diminish our sales.

Market acceptance and sales of our product candidates may depend on
reimbursement policies and health care reform measures. The levels at which
government authorities and third-party payors, such as private health insurers
and health maintenance organizations, reimburse patients for the price they pay
for our products could affect whether we are able to commercialize these
products. We cannot be sure that reimbursement will be available for any of
these products. Also, we cannot be sure that reimbursement amounts will not
reduce the demand for, or the price of, our products. We have not commenced
efforts to have our product candidates reimbursed by government or third party
payors. If reimbursement is not available or is available only to limited
levels, we may not be able to commercialize our products.

In recent years, officials have made numerous proposals to change the
health care system in the United States. These proposals include measures that
would limit or prohibit payments for certain medical treatments or subject the
pricing of drugs to government control. In addition, in many foreign countries,
particularly the countries of the European Union, the pricing of prescription
drugs is subject to government control. If our products are or become subject to
government regulation that limits or prohibits payment for our products, or that
subject the price of our products to governmental control, we may not be able to
generate revenue, attain profitability or commercialize our products.

As a result of legislative proposals and the trend towards managed
health care in the United States, third-party payors are increasingly attempting
to contain health care costs by limiting both coverage and the level of
reimbursement of new drugs. They may also refuse to provide any coverage of uses
of approved products for medical indications other than those for which the FDA
has granted market approvals. As a result, significant uncertainty exists as to
whether and how much third-party payors will reimburse patients for their use of
newly-approved drugs, which in turn will put pressure on the pricing of drugs.

Legislative or regulatory reform of the healthcare system may affect our ability
to sell our products profitably.

In both the United States and certain foreign jurisdictions, there have
been a number of legislative and regulatory proposals to change the healthcare
system in ways that could impact upon our ability to sell our products
profitably. In recent years, new legislation has been proposed in the United
States at the federal and state levels that would effect major changes in the
healthcare system, either nationally or at the state level.

These proposals have included prescription drug benefit proposals for
Medicare beneficiaries introduced in Congress. Legislation creating a
prescription drug benefit and making certain changes in Medicaid reimbursement
has recently been enacted by Congress and signed by the President. Given this
legislation's recent enactment, it is still too early to determine its impact on
the pharmaceutical industry and our business. Further federal and state
proposals are likely. The potential for adoption of these proposals affects or
will affect our ability to raise capital, obtain additional collaborators and
market our products. We expect to experience pricing pressures in connection
with the sale of our products due to the trend toward managed health care, the
increasing influence of health maintenance organizations and additional
legislative proposals. Our results of operations could be adversely affected by
future healthcare reforms.

RISKS RELATED TO OUR INTELLECTUAL PROPERTY

It is difficult and costly to protect our proprietary rights, and we may not be
able to ensure their protection.

Our commercial success will depend in part on obtaining and maintaining
patent protection and trade secret protection of our product candidates, and the
methods used to manufacture them, as well as successfully defending these
patents against third-party challenges. We will only be able to protect our
product candidates from unauthorized making, using, selling, offering to sell or
importation by third parties to the extent that we have rights under valid and
enforceable patents or trade secrets that cover these activities.

As of August 3, 2004, we own 4 issued United States patents and have
licensed rights to 8 issued United States patents and 78 issued foreign patents,
and to 3 pending United States patent applications and 39 pending foreign patent
applications. We do not and have not had any control over the filing or
prosecution of these patents or patent applications. We may file additional
patent applications and extensions.

The patent positions of pharmaceutical and biotechnology companies can
be highly uncertain and involve complex legal and factual questions for which
important legal principles remain unresolved. No consistent policy regarding the
breadth of claims allowed in biotechnology patents has emerged to date in the
United States. The biotechnology patent situation outside the United States is
even more uncertain. Changes in either the patent laws or in interpretations of
patent laws in the United States and other countries may diminish the value of
our intellectual property. Accordingly, we cannot predict the breadth of claims
that may be allowed or enforced in our licensed patents or in third-party
patents.

The degree of future protection for our proprietary rights is uncertain
because legal means afford only limited protection and may not adequately
protect our rights or permit us to gain or keep our competitive advantage. For
example:

o others may be able to make compounds that are competitive with our
product candidates but that are not covered by the claims of our
licensed patents, or for which we are not licensed under our license
agreements;

o we or our licensors might not have been the first to make the
inventions covered by our pending patent application or the pending
patent applications and issued patents of our licensors;

o we or our licensors might not have been the first to file patent
applications for these inventions;

o others may independently develop similar or alternative technologies or
duplicate any of our technologies;

o it is possible that our pending patent application or one or more of
the pending patent applications of our licensors will not result in
issued patents;

o the issued patents of our licensors may not provide us with any
competitive advantages, or may be held invalid or unenforceable as a
result of legal challenges by third parties;

o we may not develop additional proprietary technologies that are
patentable; or

o the patents of others may have an adverse effect on our business.

We also may rely on trade secrets to protect our technology, especially
where we do not believe patent protection is appropriate or obtainable. However,
trade secrets are difficult to protect. While we use reasonable efforts to
protect our trade secrets, our employees, consultants, contractors, outside
scientific collaborators and other advisors may unintentionally or willfully
disclose our information to competitors. Enforcing a claim that a third party
illegally obtained and is using our trade secrets is expensive and time
consuming, and the outcome is unpredictable. In addition, courts outside the
United States are sometimes less willing to protect trade secrets. Moreover, our
competitors may independently develop equivalent knowledge, methods and
know-how.

We may incur substantial costs as a result of litigation or other proceedings
relating to patent and other intellectual property rights and we may be unable
to protect our rights to, or use, our technology.

If we choose to go to court to stop someone else from using the
inventions claimed in our licensed patents, that individual or company has the
right to ask the court to rule that these patents are invalid and/or should not
be enforced against that third party. These lawsuits are expensive and would
consume time and other resources even if we were successful in stopping the
infringement of these patents. In addition, there is a risk that the court will
decide that these patents are not valid and that we do not have the right to
stop the other party from using the inventions. There is also the risk that,
even if the validity of these patents is upheld, the court will refuse to stop
the other party on the ground that such other party's activities do not infringe
our rights to these patents.

Furthermore, a third party may claim that we are using inventions
covered by the third party's patent rights and may go to court to stop us from
engaging in our normal operations and activities, including making or selling
our product candidates. These lawsuits are costly and could affect our results
of operations and divert the attention of managerial and technical personnel.
There is a risk that a court would decide that we are infringing the third
party's patents and would order us to stop the activities covered by the
patents. In addition, there is a risk that a court will order us to pay the
other party damages for having violated the other party's patents. The
biotechnology industry has produced a proliferation of patents, and it is not
always clear to industry participants, including us, which patents cover various
types of products or methods of use. The coverage of patents is subject to
interpretation by the courts, and the interpretation is not always uniform. If
we are sued for patent infringement, we would need to demonstrate that our
products or methods of use either do not infringe the patent claims of the
relevant patent and/or that the patent claims are invalid, and we may not be
able to do this. Proving invalidity, in particular, is difficult since it
requires a showing of clear and convincing evidence to overcome the presumption
of validity enjoyed by issued patents.

Because some patent applications in the United States may be maintained
in secrecy until the patents are issued, because patent applications in the
United States and many foreign jurisdictions are typically not published until
eighteen months after filing, and because publications in the scientific
literature often lag behind actual discoveries, we cannot be certain that others
have not filed patent applications for technology covered by our licensors'
issued patents or our pending applications or our licensors' pending
applications or that we or our licensors were the first to invent the
technology. Our competitors may have filed, and may in the future file, patent
applications covering technology similar to ours. Any such patent application
may have priority over our or our licensors' patent applications and could
further require us to obtain rights to issued patents covering such
technologies. If another party has filed a United States patent application on
inventions similar to ours, we may have to participate in an interference
proceeding declared by the United States Patent and Trademark Office to
determine priority of invention in the United States. The costs of these
proceedings could be substantial, and it is possible that such efforts would be
unsuccessful, resulting in a loss of our United States patent position with
respect to such inventions.

Some of our competitors may be able to sustain the costs of complex
patent litigation more effectively than we can because they have substantially
greater resources. In addition, any uncertainties resulting from the initiation
and continuation of any litigation could have a material adverse effect on our
ability to raise the funds necessary to continue our operations.

RISKS RELATED TO OUR COMMON STOCK

Market volatility may affect our stock price and the value of your investment.

The market prices for securities of biopharmaceutical companies in
general have been highly volatile and may continue to be highly volatile in the
future. The following factors, in addition to other risk factors described in
this section, may have a significant impact on the market price of our common
stock:

o announcements of technological innovations or new products by us or our
competitors;

o announcement of FDA approval or non-approval of our product candidates
or delays in the FDA review process;

o actions taken by regulatory agencies with respect to our product
candidates, clinical trials, manufacturing process or sales and
marketing activities;

o regulatory developments in the United States and foreign countries;

o the success of our development efforts and clinical trials;

o the success of our efforts to acquire or in-license additional products
or product candidates;

o any intellectual property infringement action, or any other litigation,
involving us;

o announcements concerning our competitors, or the biotechnology or
biopharmaceutical industries in general;

o actual or anticipated fluctuations in our operating results;

o changes in financial estimates or recommendations by securities
analysts;

o sales of large blocks of our common stock;

o sales of our common stock by our executive officers, directors and
significant stockholders; and

o the loss of any of our key scientific or management personnel.

The occurrence of one or more of these factors may cause our stock
price to decline, and you may not be able to resell your shares at or above the
price you paid for your shares. In addition, the stock markets in general, and
the markets for biotechnology and biopharmaceutical stocks in particular, have
experienced extreme volatility that has often been unrelated to the operating
performance of particular companies. These broad market fluctuations may
adversely affect the trading price of our common stock.

We are at risk of securities class action litigation.

In the past, securities class action litigation has often been brought
against a company following a decline in the market price of its securities.
This risk is especially relevant for us because biotechnology and
biopharmaceutical companies have experienced significant stock price volatility
in recent years. If we faced such litigation, it could result in substantial
costs and a diversion of management's attention and resources, which could harm
our business.

The ownership interests of our officers, directors and largest stockholders
could conflict with the interests of our other stockholders.

As of August 3, 2004, our officers, directors and holders of 5% or more
of our outstanding common stock beneficially own approximately 27.9% of our
common stock As a result, these stockholders, acting together, will be able to
significantly influence all matters requiring approval by our stockholders,
including the election of directors and the approval of mergers or other
business combination transactions. The interests of this group of stockholders
may not always coincide with our interests or the interests of other
stockholders.

Our common stock may be deemed penny stock with a limited trading market.

Our common stock is currently listed for trading in the OTC Bulletin
Board which is generally considered to be a less efficient market than markets
such as NASDAQ or other national exchanges, and which may cause difficulty in
conducting trades and difficulty in obtaining future financing. Further, our
securities are subject to the "penny stock rules" adopted pursuant to Section 15
(g) of the Securities Exchange Act of 1934, as amended, or Exchange Act. The
penny stock rules apply to non-NASDAQ companies whose common stock trades at
less than $5.00 per share or which have tangible net worth of less than
$5,000,000 ($2,000,000 if the company has been operating for three or more
years). Such rules require, among other things, that brokers who trade "penny
stock" to persons other than "established customers" complete certain
documentation, make suitability inquiries of investors and provide investors
with certain information concerning trading in the security, including a risk
disclosure document and quote information under certain circumstances. Many
brokers have decided not to trade "penny stock" because of the requirements of
the penny stock rules and, as a result, the number of broker-dealers willing to
act as market makers in such securities is limited. In the event that we remain
subject to the "penny stock rules" for any significant period, there may develop
an adverse impact on the market, if any, for our securities. Because our
securities are subject to the "penny stock rules," investors will find it more
difficult to dispose of our securities. Further, for companies whose securities
are traded in the OTC Bulletin Board, it is more difficult: (i) to obtain
accurate quotations, (ii) to obtain coverage for significant news events because
major wire services, such as the Dow Jones News Service, generally do not
publish press releases about such companies, and (iii) to obtain needed capital.

We have not paid cash dividends in the past and do not expect to pay cash
dividends in the future. Any return on investment may be limited to the value of
our stock.

We have never paid cash dividends on our stock and do not anticipate
paying cash dividends on our stock in the foreseeable future. The payment of
cash dividends on our stock will depend on our earnings, financial condition and
other business and economic factors affecting us at such time as the board of
directors may consider relevant. If we do not pay cash dividends, our stock may
be less valuable because a return on your investment will only occur if our
stock price appreciates.

A sale of a substantial number of shares of our common stock may cause the price
of our common stock to decline.

If our stockholders sell substantial amounts of our common stock in the
public market, including shares issued upon the exercise of outstanding options
or warrants, the market price of our common stock could fall. These sales also
may make it more difficult for us to sell equity or equity-related securities in
the future at a time and price that we deem reasonable or appropriate.
Approximately 21.6 million shares of our restricted common stock is eligible for
sale pursuant to Rule 144. In addition, the 6,056,541 shares of common stock to
be registered under this registration statement will be freely tradable upon
effectiveness of this registration statement.

FORWARD-LOOKING STATEMENTS

The Private Securities Litigation Reform Act of 1995 (the "Act")
provides a safe harbor for forward-looking statements made by us or on our
behalf. We and our representatives may from time to time make written or oral
statements that are "forward-looking," including statements contained in this
prospectus and other filings with the Securities and Exchange Commission,
reports to our stockholders and news releases. All statements that express
expectations, estimates, forecasts or projections are forward-looking statements
within the meaning of the Act. In addition, other written or oral statements
which constitute forward-looking statements may be made by us or on our behalf.
Words such as "expects," "anticipates," "intends," "plans," "believes," "seeks,"
"estimates," "projects," "forecasts," "may," "should," variations of such words
and similar expressions are intended to identify such forward-looking
statements. These statements are not guarantees of future performance and
involve risks, uncertainties and assumptions which are difficult to predict.
Therefore, actual outcomes and results may differ materially from what is
expressed or forecasted in or suggested by such forward-looking statements. We
undertake no obligation to update publicly any forward-looking statements,
whether as a result of new information, future events or otherwise. Among the
important factors on which such statements are based are assumptions concerning
our ability to complete ongoing clinical trials, results of our clinical trials,
the timing of approval of our products by the United States Food and Drug
Administration, our ability to obtain additional financing, our ability to
attract and retain key employees, our ability to protect intellectual property,
and our ability to adapt to economic, political and regulatory conditions
affecting the healthcare industry.

USE OF PROCEEDS

We will not receive any of the proceeds from the resale of the shares.
All proceeds from the sale of these shares will be solely for the accounts of
the selling stockholders.

MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

The following discussion should be read in conjunction with our
financial statements and other financial information appearing elsewhere in this
prospectus. In addition to historical information, the following discussion and
other parts of this prospectus contain forward-looking information that involves
risks and uncertainties.

OVERVIEW

We are a development stage biopharmaceutical company, whose primary
focus is on biopharmaceutical product development. Since inception in June 1996
our efforts have been principally devoted to research and development, securing
patent protection, obtaining corporate relationships and raising capital. Since
inception through June 30, 2004, we have sustained cumulative net losses of
$29,555,440. Our losses have resulted primarily from expenditures incurred in
connection with the purchase of in-process research and development, stock based
compensation expense, patent filing and maintenance, outside accounting and
legal services and regulatory consulting fees.

From inception through June 30, 2004 we have not generated any revenue
from operations. We expect to incur additional losses to perform further
research and development activities. We do not currently have any commercial
biopharmaceutical products, and do not expect to have such for several years, if
at all. Our lead drug candidate, Atiprimod, is a small molecule, orally
available drug, with antiprolifererative and antiangiogenic activity. Atiprimod
successfully completed Phase I clinical trials in rheumatoid arthritis patients.

HISTORY

In March 2002, Callisto Pharmaceuticals, Inc., or Old Callisto,
purchased 99.7% of the outstanding common shares of Webtronics, Inc., or
Webtronics, a public company for $400,000. Webtronics was incorporated in
Florida on February 2, 2001 and had limited operations at December 31, 2002.

PLAN OF OPERATION

Our plan of operations for the next twelve months is to focus primarily
on the clinical development of Atiprimod for multiple myeloma and bone
resorption disease. Additionally we are seeking to acquire or in-license
additional clinical drug candidates.

On August 28, 2002, Synergy entered into a worldwide license agreement
with AnorMED Inc., or AnorMED, to research, develop, sell and commercially
exploit the Atiprimod patent rights. The license agreement provides for
aggregate milestone payments by Synergy of up to $14 million based on achieving
regulatory submissions and approvals for an initial indication and additional
payments of $16 million for each additional indication based on achieving
regulatory submissions and approvals. In addition, the license agreement
requires Synergy to pay royalties based on net sales to AnorMED. Commencing on
January 1, 2004 and on January 1 of each subsequent year Synergy is obligated to
pay AnorMED a maintenance fee of $200,000 until the first commercial sale of the
product. The first of these annual maintenance fee payments under this agreement
was made on January 22, 2004 and was reported as research and development
expense in the quarter ended March 31, 2004.

On September 23, 2003, we submitted to the FDA an IND for Atiprimod to
treat multiple myeloma patients. In May 2004 we commenced a Phase I/IIa clinical
trial of Atiprimod in relapsed multiple myeloma patients at two sites, the
Dana-Farber Cancer Institute (Boston) and The University of Texas M.D. Anderson
Cancer Center (Houston). This Phase I/IIa clinical trial is an open label study,
with the primary objective of assessing safety of our drug and identifying the
maximum tolerated dose. The duration of this Phase I/IIa clinical trial will
depend on how well the drug is tolerated, and on drug response, with final
results not available until the fourth quarter of 2004 or the first quarter of
2005. If Atiprimod produces positive responses, we intend to initiate a Phase
IIb trial in relapsed multiple myeloma patients in 2005.

From November 2003 through January 21, 2004, we sold and issued
3,905,432 shares of common stock at an issue price of $1.50 per share for
aggregate gross proceeds of $5,858,148. We incurred fees aggregating $508,615 to
various selling agents. In addition, we issued 31,467 shares of common stock and
an aggregate 370,543 warrants to purchase common stock to such selling agents.
The warrants are immediately exercisable at $1.90 per share and will expire five
years after issuance. As of December 31, 2003, we had closed on a portion of
this transaction, specifically 2,776,666 shares of common stock at a price of
$1.50 per share, for aggregate gross proceeds of $4,164,721, less $361,625 in
fees to various selling agents.

On April 19, 2004, we sold and issued 2,151,109 shares of common stock
at an issue price of $2.25 per share for aggregate gross proceeds of $4,839,995
and incurred fees and expenses aggregating $294,241 to various selling agents.
In addition, we issued an aggregate 124,711 warrants to purchase common stock to
such selling agents. The warrants are immediately exercisable at $2.48 per share
and will expire five years after issuance.

ATIPRIMOD FOR OTHER CANCER INDICATIONS

The National Cancer Institute (NCI) is presently evaluating Atiprimod
in a number of xenograft mouse tumor model studies, including breast, colon,
lung and prostate solid tumors at no cost to us. Successful completion of these
models could provide an additional therapeutic use for Atiprimod that would
require only a small amendment to the existing IND to begin further clinical
trials of Atiprimod. This study is being funded entirely by NCI. We have filed
new patents for broad use of Atiprimod to treat cancer.

DNA INTERCALATION TECHNOLOGY

On February 24, 2004, we entered into an agreement with Houston
Pharmaceuticals, Inc., or HPI, to acquire the rights to a novel site-directed
DNA intercalation cancer platform technology. We issued to HPI 25,000 shares of
common stock and reimbursed HPI approximately $100,000 for various costs and
expenses. In addition we granted HPI 1,170,000 performance based stock options
exercisable at $3.60 per share which vest upon the achievement of certain
milestones. We also agreed to pay HPI a royalty of 2% of the net sales of any
products resulting from commercializing the patents. The technology platform for
site-directed DNA intercalation is exemplified by the identification of a lead
drug candidate for melanoma that shows remarkable selectivity for human melanoma
cancer cell lines. We intend to pre-clinically evaluate this compound as a
potential drug to treat melanoma, and plan to pursue further development of
site-directed intercalation studies to identify additional clinical candidates
from this technology.

SUPERANTIGEN-BASED BIOTERORRISM DEFENSE

We intend to evaluate our superantigen-based monoclonal antibody in an
animal model for toxic shock syndrome in 2004. Successful demonstration of this
antibody's ability to protect animals against aerosolized forms of superantigen
toxins is key to the development of this antibody as a biodefense against
bioweapons that utilize streptococcal and staphylococcal bacteria.

MANUFACTURING

We currently do not manufacture our drug compounds in-house and we do
not intend to do so in the future. We currently use a non-commercial supplier to
manufacture Atiprimod for use in our clinical trials. We intend to identify and
contract with a commercial supplier of Atiprimod in the fourth quarter of 2004.

EMPLOYEES

Our plan is to use contract research organizations for most of our
development efforts, including monitoring of clinical trial results, thus
minimizing the need to hire full time employees. As of August 3, 2004, we had 6
full-time employees.

Our product development activities are in their early stages and we
cannot make estimates of the costs or the time it will take to complete. Net
cash inflows from any products developed may take several years to achieve. We
may need additional funding to complete these activities. We expect that our
existing capital resources will be sufficient to fund our operations for at
least the next 12 months.

OFF-BALANCE SHEET ARRANGEMENTS

We had no off-balance sheet arrangements as of June 30, 2004.

CRITICAL ACCOUNTING POLICIES

Financial Reporting Release No. 60 requires all companies to include a
discussion of critical accounting policies or methods used in the preparation of
financial statements. Our accounting policies are described in Note 3 of the
notes to our consolidated financial statements included in this prospectus. The
financial statements are prepared in accordance with accounting principles
generally accepted in the United States of America, which requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.

Accounting for Stock Based Compensation: We have adopted Statement of
Financial Accounting Standard No. 123, "Accounting for Stock-Based Compensation"
("SFAS 123"). As provided for by SFAS 123, we have also elected to account for
our stock-based compensation programs according to the provisions of Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
("APB 25")." Accordingly, compensation expense has been recognized based on the
intrinsic value of stock issued or options granted to employees and directors
for services rendered.

Research and Development: We do not currently have any commercial
biopharmaceutical products, and do not expect to have such for several years, if
at all and therefore our research and development costs are expensed as
incurred. These include expenditures in connection with an in-house research and
development laboratory, salaries and staff costs, application and filing for
regulatory approval of our proposed products, purchase of in-process research
and development, regulatory and scientific consulting fees, contract research
and royalty payments to outside suppliers, facilities and universities as well
as legal and professional fees associated with filing and maintaining our patent
and license rights to our proposed products. While certain of our research and
development costs may have future benefits, our policy of expensing all research
and development expenditures is predicated on the fact that we have no history
of successful commercialization of biopharmaceutical products to base any
estimate of the number of future periods that would be benefited.

Research Grants: We currently have a research grant from the National
Institute of Health for studies on Atiprimod. The studies began in early 2004
and no funding was received during 2003. We request grant funding to reimburse
expenses as incurred and record the receipt as an offset to research and
development expense.

RESULTS OF OPERATIONS

Six Months Ended June 30, 2004 and 2003

We had no revenues during the six months ended June 30, 2004 and 2003
because we do not have any commercial biopharmaceutical products, and we do not
expect to have such products for several years, if at all.

Research and development expenses increased approximately $616,666, or
200%, to $925,652 for the six months ended June 30, 2004 from $308,986 for the
same period in 2003. Of this increase in research and development expense,
$200,000 was attributable to our payment of the first annual maintenance fee to
AnorMED, Inc. for the Atiprimod license. In addition, approximately $280,000 was
incurred in preparing for and administering the clinical trials of Atiprimod
which began during the six months ended June 30, 2004, whereas none of these
costs were incurred during the same period of 2003. These clinical trial costs
included management consulting fees paid to contract research organizations to
develop and advise on clinical trial protocols, site selection and principal
investigator contracting, patient site cost plus formulation of drugs and
clinical trial liability insurance. Also contributing to this increase in
research and development expense was an increase of approximately $118,000 in
personnel costs as we retained two Synergy executive staff scientists, Drs.
Picker and Shailubhai, subsequent to our merger with Synergy.

Government grant funding for the six months ended June 30, 2004 was
$100,220 as compared to $0 for the six months ended June 30, 2003. We request
grant funding to reimburse research and development expenses as incurred and
record the receipt as an offset to research and development expenses.

General and administrative expenses for the six months ended June 30,
2004 were $1,074,233 an increase of $576,614, or 116%, from $497,619 for the six
months ended June 30, 2003. The increase was due primarily to approximately (i)
$139,000 of increased personnel costs as a result of the merger with Synergy and
the hiring of a senior financial officer in January 2004, (ii) $113,000 in
higher facilities and office overhead related to the move into our new corporate
headquarters in New York City during the quarter ended September 30, 2003, (iii)
$100,000 in higher legal and accounting fees related to certain regulatory
filings and corporate business development activities, (iv) $70,000 in higher
business travel, (v) $63,000 in higher public relations costs associated with
news of Atiprimod clinical trial start-up and our fund raising efforts and (vi)
$44,000 in outside director fees associated with the cost of attracting outside
directors to serve on our Board.

Purchased in-process research and development was $209,735 for the six
months ended June 30, 2004, primarily the result of $159,750 consideration paid
in connection with the acquisition of rights to two key patents covering a novel
cancer platform technology from HPI. We issued to HPI 25,000 shares of common
stock at a fair value of $56,250 and reimbursed HPI approximately $103,500 for
various costs and expenses. The total consideration of $159,750 was allocated in
full to the HPI patent rights, which have not yet reached technological
feasibility, and having no alternative use, was expensed as purchased in-process
research and development during the quarter ended March 31, 2004. During the six
months ended June 30, 2003 we recorded $6,833,454 of purchased in-process
research and development expense in connection with the merger with Synergy.

Net loss for the six months ended June 30, 2004 was $3,737,710 compared
to a net loss of $10,096,010 incurred for the six months ended June 30, 2003.
The decreased net loss is primarily the result of the lower purchased in-process
research and development costs, partially offset by higher research,
development, general and administrative expenses discussed above. In addition we
recorded lower stock based compensation expense of $1,665,594 during the six
months ended June 30, 2004, as compared to $2,463,007 recorded during the same
period ended June 30, 2003.

Twelve Months Ended December 31, 2003 and December 31, 2002

We had no revenues during the twelve months ended December 31, 2003 and
December 31, 2002 because we do not have any commercial biopharmaceutical
products, and we do not expect to have such products for several years, if at
all.

Research and development expenses increased $878,555 or 179% to
$1,369,985 for the twelve months ended December 31, 2003 from $491,430 for the
same period in 2002. The results of operations of Synergy for the period May 1,
2003 through December 31, 2003 are included in the consolidated statement of
operations for the year ended December 31, 2003, and are not included in the
results of 2002. Of this increase in research and development expense,
approximately 63% or $556,000 was attributable to costs associated with
preparing and filing our IND for Atiprimod in September of 2003. These IND
related costs included quantitative analysis and synthesis, as well as
pre-clinical management consulting fees paid to contract research organizations
to develop and advise on IND requirements, proposed clinical trial protocols,
site selection and principal investigator contracting. Also contributing to this
increase in research and development expense were higher salaries and wages,
which increased approximately $200,000 as we retained two key executive staff
scientists from Synergy. The remainder of this increase in research and
development was primarily due to the acquisition of the Synergy research
laboratory facility in conjunction with the Synergy merger. No such expenses
were incurred in 2002. We expect our research and development expenses to
increase in 2004 as our products move into more expensive later stages of
development.

During the twelve months ended December 31, 2003 we also incurred
$6,734,818 of net purchased in-process research and development expense related
to the Synergy merger. There was no such expense during the twelve months ended
December 31, 2002.

General and administrative expenses for the twelve months ended
December 31, 2003 of $1,398,090 increased $170,391 or 14% from the $1,227,699 we
incurred for the twelve months ended December 31, 2002. During 2002, we recorded
a charge of $400,000 associated with the purchase of Webtronics. Excluding this
$400,000 charge in 2002, the increase in general and administrative expenses was
$570,391 or 69% from 2002 to 2003 primarily from higher legal, accounting and
professional fees incurred in connection with the Synergy merger, regulatory
filings, insurance and travel associated with fund raising activities during
2003.

Stock-based compensation expense recorded during the twelve months
ended December 31, 2003, totaled $3,833,946 as compared to $332 recorded during
the twelve months ended December 31, 2002. This increase was primarily
attributable to options issued in connection with the Synergy merger, to retain
several key Synergy scientists, at approximately the same time our shares of
common stock commenced trading on the OTC Bulletin Board on June 17, 2003. The
remaining balance of unamortized deferred stock based compensation expense,
presented in the stockholder's equity section of our December 31, 2003 Balance
Sheet, totaled $5,480,007.

During December 2003 Synergy sold certain New Jersey State tax loss
carry forwards under a state economic development program for cash of
approximately $221,000, the proceeds of which have been and will be used to
support research and development activities in New Jersey. This state tax
benefit was recorded as Other Income during the fourth quarter ended December
31, 2003 and there was no such benefit in 2002.

Net loss for the twelve months ended December 31, 2003 was $13,106,247
compared to a net loss of $1,684,965 incurred for the twelve months ended
December 31, 2002.

LIQUIDITY AND CAPITAL RESOURCES

As of June 30, 2004 we had $7,269,421 in cash and cash equivalents,
compared to $3,956,486 as of December 31, 2003. This increase in cash of
$3,312,935 during the six months ended June 30, 2004 was principally the result
of completing two private placements of common stock yielding net proceeds of
$6,099,012. This was partially offset by cash used in operating activities of
$2,786,077 during the six months ended June 30, 2004.

In January 2004, we completed a private placement begun in late 2003
and issued 1,128,766 shares of common stock at an issue price of $1.50 per share
for aggregate proceeds of $1,693,149, less $139,891 in fees to various selling
agents. As of December 31, 2003, we had issued 2,776,666 shares of common stock
at a price of $1.50 per share for aggregate gross proceeds of $4,164,999, less
$361,625 in fees to various selling agents. In addition, we issued 31,467 shares
of common stock and 370,543 warrants to purchase common stock to such selling
agents. The warrants are exercisable at $1.90 per share and will expire five
years after issuance.

On April 19, 2004, we sold and issued in a private placement to
accredited investors an aggregate 2,151,109 shares of common stock at an issue
price of $2.25 per share for aggregate gross proceeds of $4,839,995. We incurred
fees and expenses aggregating $294,241 to various selling agents. In addition,
we issued an aggregate 124,711 warrants to purchase common stock to such selling
agents. The warrants are immediately exercisable at $2.48 per share and will
expire five years after issuance.

Our working capital requirements will depend upon numerous factors
including but not limited to the nature, cost and timing of: pharmaceutical
research and development programs; pre-clinical and clinical testing; obtaining
regulatory approvals; technological advances and our ability to establish
collaborative arrangements with research organizations and individuals needed to
commercialize our products.

Our capital resources will be focused primarily on the clinical
development and regulatory approval of Atiprimod for multiple myeloma and bone
resorption disease and the acquisition of licenses and rights to certain other
cancer related drug technologies. In May 2004, we commenced a Phase I/IIa trial
of Atiprimod for the treatment of multiple myeloma.

On October 7, 2003, we were awarded a $265,267 Small Business
Technology Transfer Research grant from the National Institutes of Health for
studies on Atiprimod. The studies began in early 2004 and no funding was
received during 2003. We request grant funding to reimburse expenses as incurred
and record the receipt as an offset to research and development expenses.

Our product development efforts are thus in their early stages and we
cannot make estimates of the costs or the time it will take to complete. The
risk of completion of any program is high because of the long duration of
clinical testing, extended regulatory approval and review cycles and uncertainty
of the costs. Net cash inflows from any products developed make take several
years to achieve. We could however receive grants, contracts or technology
licenses in the short-term. The amount and timing of these inflows, if any, is
not known.

We expect that our existing capital resources will be sufficient to
fund our operations for at least the next 12 months. We will be required to
raise additional capital to complete the development and commercialization of
our current product candidates.

CONTRACTUAL OBLIGATIONS AND COMMITMENTS

The following is a summary of our significant contractual cash
obligations for the periods indicated that existed as of December 31, 2003, and
is based on information appearing in the Notes to Consolidated Financial
Statements.

Less than 1 - 3 3 - 5 More than
Total 1 year years years 5 years
----- ------ ----- ----- ---------

Operating Leases $ 582,710 $ 150,895 $ 253,983 $ 177,832 -
Minimum patent royalty
/license fees 1,037,500 207,500 415,000 415,000 (1)
---------- ---------- ---------- ---------- ---------

Total obligations $1,620,210 $ 358,395 $ 668,983 $ 592,832 -
========== ========== ========== ========== =========

(1) For purposes of this schedule we have assumed that all patents not
commercialized within 5 years will be abandoned, license agreements will be
terminated and associated minimum royalty payments will cease.

On June 7, 2004, we extended our lease for our corporate headquarters
in New York City for two additional years through August 2010 and increased our
space by approximately 60%. These changes have increased average annual rent by
approximately $50,000 to $150,000.

On July 22, 2004, the employment agreement of Donald H. Picker, our
Executive Vice President, R&D was amended. Dr, Picker's salary was increased
from $175,000 to $200,000 per year and certain milestones were added upon which
achievement cash bonuses of up to $92,500 may be paid over a 12 month period.

DESCRIPTION OF BUSINESS

Atiprimod successfully completed Phase I clinical trials in rheumatoid
arthritis patients and in May 2004 we commenced a Phase I/IIa open-label
clinical trial of Atiprimod in relapsed multiple myeloma patients. These are
patients that no longer respond to chemotherapy, and are in advanced stages of
the disease. The Phase I/IIa clinical trial is being performed at two sites, the
Dana-Farber Cancer Institute (Boston) and The University of Texas M.D. Anderson
Cancer Center (Houston). On January 6, 2004, we announced that the Office of
Orphan Products Development of the United States Food and Drug Administration,
or FDA, granted orphan drug designation to Atiprimod for the treatment of
multiple myeloma.

On April 30, 2003, pursuant to an Agreement and Plan of Merger dated
March 10, 2003, as amended April 4, 2003, Synergy Acquisition Corp., a
wholly-owned subsidiary of Webtronics merged into Synergy Pharmaceuticals Inc.,
or Synergy, and Callisto Acquisition Corp., a wholly-owned subsidiary of
Webtronics merged into Old Callisto. As a result of the merger, Old Callisto and
Synergy became wholly-owned subsidiaries of Webtronics. In the merger,
Webtronics issued 17,318,994 shares of its common stock in exchange for
outstanding Old Callisto common stock and an additional 4,395,684 shares in
exchange for outstanding Synergy common stock. Old Callisto changed its name to
Callisto Research Labs, LLC and Webtronics changed its name to Callisto
Pharmaceuticals, Inc. and changed its state of incorporation from Florida to
Delaware. Subsequently, 171,818 shares of common stock issued to former Synergy
shareholders were returned to us under the terms of certain indemnification
agreements.

On February 24, 2004, we entered into an agreement with HPI to acquire
rights to a novel cancer platform technology that deals with the design of novel
intercalator drug candidates that specifically target sites on DNA using a
technique referred to as site-directed intercalation. The site-directed
intercalation technology has resulted in the identification of a lead drug
candidate for melanoma that shows remarkable selectivity for human melanoma
cancer cell lines. We intend to pre-clinically evaluate this compound as a drug
candidate to treat melanoma. We intend to further explore the site-directed
intercalation technology as a platform to provide new anti-cancer drug
candidates for development.

ATIPRIMOD TO TREAT MULTIPLE MYELOMA

On August 28, 2002, our wholly-owned subsidiary, Synergy, entered into
a license agreement with AnorMED Inc., or AnorMED, a Canadian corporation, to
license Atiprimod from AnorMED. Atiprimod is one of a class of compounds known
as azaspiranes and was originally developed as a potential treatment for
rheumatoid arthritis based on encouraging data from a number of animal models of
arthritis and autoimmune indications. The development of this drug originated
with a partnership between AnorMED and SmithKline Beecham that led to the
successful filing of an investigational new drug application, or IND, and
completion of three Phase I clinical trials involving a total of 63 patients.
The drug successfully completed both single and multiple dose Phase I clinical
trials in patients with rheumatoid arthritis. Both trials evaluated the safety
and pharmacokinetics (how the body takes up and eliminates drugs) of Atiprimod
and showed that the drug is well tolerated. In the third Phase I clinical trial,
the drug was found to be well tolerated in an open label extension study
performed with 43 patients from the first two studies, with patients on the drug
for as long as one year.

PRECLINICAL STUDIES

Atiprimod's specific lowering effect on the level of key growth factors
known to play an important role in the pathogenesis of multiple myeloma is the
basis for its potential use as a drug to treat this disease. Atiprimod has been
shown to inhibit the production of the pro-inflammatory mediators IL-6 and TNFa
in a number of animal models of inflammation and autoimmune disease. Atiprimod
has also been demonstrated using in vitro models of autocrine and paracrine
growth to inhibit proliferation of a number of human multiple myeloma cell
lines. Characterization of the mechanism of Atiprimod's antiproliferative
activity in a series of experiments showed that the drug works by inducing
apoptosis (programmed cell death) in myeloma cells. In a second series of
experiments performed with Atiprimod on co-cultures composed of multiple myeloma
cells plus bone marrow stromal cells (used to simulate the human disease), the
drug was found to have a profound effect on secretion of the angiogenic growth
factor VEGF. A separate set of experiments also suggest an additional
explanation for the disease modifying activity of Atiprimod originally observed
in adjuvant-induced arthritic-rat animal studies, and provide a further
rationale for the application of this drug to treat multiple myeloma. Using a
bone resorption assay to measure the effect of drug on osteoclast-mediated bone
resorption, Atiprimod demonstrated a profound effect on osteoclast function. The
drug appears to be selectively toxic for activated osteoclasts, displaying a
negligible effect on bone marrow stromal cells. Atiprimod has also recently been
demonstrated to show anti-cancer activity in the low micromolar range in human
colorectal cancer cell lines and in a number of other human tumor cell lines.
The drug was found to induce apoptosis and display anti-angiogenic activity.
Additional anticancer uses for Atiprimod are presently being evaluated
preclinically.

COMPLETED CLINICAL STUDIES

Atiprimod successfully completed single and multiple dose Phase I
clinical trials in patients with rheumatoid arthritis, or RA. In the initial
Phase I study, 28 patients were given single escalating doses of drug (0.002 -
1.0 mg/kg), with a 4-month follow-up. Atiprimod was well tolerated, displaying
no clinically relevant changes in any laboratory parameters. In particular,
liver function tests remained in the normal range. The second Phase I study
involved a 28-day multiple-dose-rising study in 35 RA patients. The study
evaluated the effect of food on bioavailability, as well as the safety and
pharmacokinetics of repeat dosing. Dosages included 0.1, 1.0, 5.0, and 10 mg/day
plus a 14-day cohort at 30 mg/day, with 4-month follow-up. All doses were well
tolerated and clinical tests were unremarkable. Significantly, reductions in
tender and swollen joint counts were noted in a number of subjects during the
course of the dosing period. Individuals from the two Phase I safety studies
were also involved in a Phase I open-label extension trial. Forty-three patients
entered the study and remained on the drug as long as 12 months. Clinical
laboratory results for all patients were unremarkable; in particular liver
enzyme levels remained within the normal range in all patients throughout the
study period.

DEVELOPMENT STRATEGY

On September 23, 2003, we submitted to the FDA an IND for Atiprimod to
treat multiple myeloma patients. In May 2004 we commenced a Phase I/IIa clinical
trial of Atiprimod in relapsed multiple myeloma patients at two sites, the
Dana-Farber Cancer Institute (Boston) and The University of Texas M.D. Anderson
Cancer Center (Houston). The clinical trial is an open label study, with the
primary objective assessing safety of drug and identifying the maximum tolerated
dose. The secondary objectives are to measure the pharmacokinetics, evaluate the
response in patients with refractory disease and to identify possible surrogate
responses to drug to better determine the mechanism of drug action. The duration
of this clinical study will depend on how well the drug is tolerated, and on
drug response, with final results not available until the fourth quarter of 2004
or the first quarter of 2005. If Atiprimod produces positive responses, we
intend to initiate a Phase IIb trial in relapsed multiple myeloma patients in
2005.

Although the primary indication of this Phase I/IIa clinical trial will
focus on multiple myeloma, the clinical trial will also look at bone resorption,
a considerable problem in multiple myeloma patients. We have preclinical data
showing a potent ability of Atiprimod to suppress bone resorption. Successful
demonstration of this indication in a clinical setting could have broad
applicability to other medical conditions exhibiting bone resorption, such as
metastatic breast and prostate cancer.

MANUFACTURING

A practical, efficient and cost effective synthetic route for producing
Atiprimod on a commercial scale was originally developed by SmithKline Beecham,
or SKB. In the course of this work, a new dimaleate salt form was developed.
Over 7 kilos of Atiprimod drug substance, available from SKB, were used as a
source for generating the Atiprimod dimaleate drug product needed for the
planned Phase I/IIa clinical study. Several lots of drug substance were
re-qualified to meet current FDA approved release specifications. The full
package of fully validated analytical methods developed by SKB was transferred
to a contract research organization used by us to perform all analytical tests.
We intend to identify and contract with a future commercial supplier of both
drug substance and drug product in the fourth quarter of 2004.

ORPHAN DRUG STATUS

On January 6, 2004, we announced that the Office of Orphan Products
Development of the FDA granted orphan drug designation to Atiprimod for the
treatment of multiple myeloma. The FDA grants orphan drug status for drug
candidates that are intended to treat rare life-threatening diseases that, at
the time of application, affect no more than 200,000 patients in the United
States. The drug must have the ability to provide significant patient benefit
over currently available treatment or fill an unmet medical need. Orphan drug
designation entitles us to seven years of market exclusivity in the United
States, and ten years of market exclusivity in Europe, upon FDA marketing
approval, provided that we continue to meet certain conditions established by
the FDA. Once the FDA grants marketing approval of a new drug, the FDA will not
accept or approve other applications to market the same medicinal product for
the same therapeutic indication. Other incentives provided by orphan status
include certain tax benefits, eligibility for research grants and protocol
assistance. Protocol assistance includes regulatory assistance and possible
exemptions or reductions of certain regulatory fees.

STUDIES ON ATIPRIMOD FOR OTHER CANCER INDICATIONS

We have also tested Atiprimod in the National Cancer Institute, or NCI,
cancer screen and found the drug to be highly active in vitro screens of human
cell lines from a number of solid tumors. The NCI is presently evaluating
Atiprimod in a number of xenograft mouse tumor model studies, including breast,
colon, lung and prostate solid tumors. Successful completion of these models
could provide an additional therapeutic use for Atiprimod that would require
only a small amendment to the existing IND to begin further clinical trials of
Atiprimod. New patents have been filed for broad use of Atiprimod to treat
cancer.

SITE DIRECTED INTERCALATION TECHNOLOGY

On February 24, 2004, we entered into an agreement with HPI to acquire
the rights to two key patents covering a novel cancer platform technology. The
lead inventor on both patents, Dr. Waldemar Priebe, a Professor of Medicinal
Chemistry at The University of Texas M.D. Anderson Cancer Center, is an expert
in the synthesis of novel anti-cancer compounds. The first patent covers a
technology platform for site-directed DNA intercalation. This approach to target
intercalator drug candidates to new sites on DNA can potentially provide a new
way to attack cancer targets not achievable with older technologies. The second
patent covers new anthacycline analogs with increased potency and reduced
toxicity.

The site-directed intercalation technology is exemplified by the
identification of a lead drug candidate for melanoma that shows remarkable
selectivity for human melanoma cancer cell lines. We intend to pre-clinically
evaluate this compound as a potential drug to treat melanoma.

We also plan to pursue further development of site-directed
intercalation studies to identify additional clinical candidates from this
technology.

GUANYLYL CYCLASE RECEPTOR AGONIST TECHNOLOGY

Our guanylyl cyclase receptor agonist, or GCRA, program is focused on
the control of cyclic GMP, an important second messenger involved in key
cellular functions that are tied to inflammation, anti-tumorigenic responses
and/or cellular death (apoptosis). Uroguanylin, a hormone produced and secreted
by specialized cells in the human gastrointestinal tract, activates synthesis of
cyclic GMP, leading to apoptosis, an important event in the turnover of cells
lining the GI tract mucosa. Production of uroguanylin is dramatically suppressed
in colon cancer patients, and there is increasing evidence that the deficiency
of uroguanylin is one of the major reasons for development of polyps and colon
cancer. The discovery that uroguanylin is dramatically reduced in
gastrointestinal polyps and colon cancer and that the deficiency of this hormone
peptide is linked to the onset of colon carcinogenesis forms the basis for the
development of GCRA peptides as drugs to treat colon cancer and gastrointestinal
inflammation.

Our GCRA program led to the development of CP304, a biologically
functional analog that has demonstrated superior biological activity, enhanced
temperature and protease stability and superior pH characteristics relative to
human uroguanylin. We are presently looking to out-license the GCRA technology,
or seek a partner, for further development as a potential treatment for colon
cancer and gastrointestinal inflammation.

SUPERANTIGEN-BASED BIOTERORRISM DEFENSE

We have designed both a monoclonal antibody and a peptide that prevents
unregulated activation of T-cells (human white blood cells) by a wide range of
bacterial toxins (superantigens). This form of T-cell activation leads to a
lethal condition called toxic shock syndrome, and is typically generated by
bacteria from the class of Staphylococcus aureus and Streptococcus pyogens.
These bacteria offer attractive opportunities for bioterrorists, and, in
particular, the toxin from S. aureus is listed as a priority list B bioagent by
the national bioterrorism defense program. Both the antibody and the antagonist
peptide developed by us effectively block actions of the toxins in in vitro
assays as well as in mice and in rabbits. These experiments indicate that both
the peptide and the antibody have potential as biodefensive agents against a
bioweapon that utilizes toxins from staphylococcus and streptococcus strains. In
addition, the peptide may also be used directly or indirectly as an antigen in a
vaccine for the prevention and control of toxic shock and septic shock due to
Staphylococcal and Streptococcal infections.

DRUG DEVELOPMENT STRATEGY

We are exploring the development of the monoclonal antibody as a
therapeutic agent to prevent, treat and control superantigen-mediated
bioweapons. Our goal is to demonstrate therapeutic utility of this agent in
animal models in which toxic shock and septic shock are induced by aerosolized
forms of superantigen toxins. The research work will be accomplished jointly in
collaboration with Dr. John Zabriskie, Professor Emeritus at the Rockefeller
University, NY, and with Dr. Sina Bavari, U.S. Army Medical Research Institute
of Infectious Diseases, Fort Detrick, MD. This program has been funded in part
by a $1.1 million grant from the U.S. Army.

DIAGNOSTIC TEST FOR OBSESSIVE-COMPULSIVE DISORDER

During 2003 our Management and Board of Directors decided to terminate
our program to develop a diagnostic test for obsessive-compulsive disorder.

LICENSE AGREEMENTS

On August 28, 2002, Synergy entered into a worldwide license agreement
with AnorMED to research, develop, sell and commercially exploit the Atiprimod
patent rights. The license agreement provides for aggregate milestone payments
by Synergy of up to $14 million based on achieving regulatory submissions and
approvals for an initial indication and additional payments of $16 million for
each additional indication based on achieving regulatory submissions and
approvals. In addition, the license agreement requires Synergy to pay royalties
based on net sales to AnorMED. Commencing on January 1, 2004 and on January 1 of
each subsequent year Synergy is obligated to pay AnorMED a maintenance fee of
$200,000 until the first commercial sale of the product. The first of these
annual maintenance fee payments under this agreement was made on January 22,
2004.

On July 25, 2001, we entered into a license agreement to research,
develop, sell and commercially exploit certain Rockefeller University licensed
patents covering peptides and antibodies useful in treating toxic shock syndrome
and septic shock. We will pay Rockefeller a $7,500 annual maintenance fee until
the first commercial sale of the product. We will also pay royalties of 2% and
0.75% of net sales of product as defined in the agreement and will pay
Rockefeller 15% of any sublicense fee paid by sublicensees.

GOVERNMENT REGULATION

Regulation by governmental authorities in the United States and other
countries will be a significant factor in the production and marketing of any
products that may be developed by us. The nature and the extent to which such
regulation may apply will vary depending on the nature of any such products.
Virtually all of our potential products will require regulatory approval by
governmental agencies prior to commercialization. In particular, human
therapeutic products are subject to rigorous pre-clinical and clinical testing
and other approval procedures by the FDA and similar health authorities in
foreign countries. Various federal statutes and regulations also govern or
influence the manufacturing, safety, labeling, storage, record keeping and
marketing of such products. The process of obtaining these approvals and the
subsequent compliance with appropriate federal and foreign statutes and
regulations requires the expenditure of substantial resources. In order to test
clinically, produce and market products for diagnostic or therapeutic use, a
company must comply with mandatory procedures and safety standards established
by the FDA and comparable agencies in foreign countries. Before beginning human
clinical testing of a potential new drug, a company must file an IND and receive
clearance from the FDA. This application is a summary of the pre-clinical
studies that were conducted to characterize the drug, including toxicity and
safety studies, as well as an in-depth discussion of the human clinical studies
that are being proposed.

The pre-marketing program required for approval of a new drug typically
involves a time-consuming and costly three-phase process. In Phase I, trials are
conducted with a small number of patients to determine the early safety profile,
the pattern of drug distribution and metabolism. In Phase II, trials are
conducted with small groups of patients afflicted with a target disease in order
to determine preliminary efficacy, optimal dosages and expanded evidence of
safety. In Phase III, large scale, multi-center comparative trials are conducted
with patients afflicted with a target disease in order to provide enough data
for statistical proof of efficacy and safety required by the FDA and others.

The FDA closely monitors the progress of each of the three phases of
clinical testing and may, in its discretion, reevaluate, alter, suspend or
terminate the testing based on the data that have been accumulated to that point
and its assessment of the risk/benefit ratio to the patient. Estimates of the
total time required for carrying out such clinical testing vary between two and
ten years. Upon completion of such clinical testing, a company typically submits
a New Drug Application (NDA) or Product License Application (PLA) to the FDA
that summarizes the results and observations of the drug during the clinical
testing. Based on its review of the NDA or PLA, the FDA will decide whether or
not to approve the drug. This review process can be quite lengthy, and approval
for the production and marketing of a new pharmaceutical or medical diagnostic
product can require a number of years and substantial funding, and there can be
no assurance that any approvals will be granted on a timely basis, if at all.

Once the product is approved for sale, FDA regulations govern the
production process and marketing activities, and a post-marketing testing and
surveillance program may be required to monitor continuously a product's usage
and effects. Product approvals may be withdrawn if compliance with regulatory
standards are not maintained. Other countries in which any products developed by
us may be marketed may impose a similar regulatory process.

COMPETITION

The biopharmaceutical industry is characterized by rapidly evolving
technology and intense competition. Our competitors include major pharmaceutical
and biotechnology companies, most of which have financial, technical and
marketing resources significantly greater than our resources. Academic
institutions, governmental agencies and other public and private research
organizations are also conducting research activities and seeking patent
protection and may commercialize products on their own or through joint venture.
We are aware of certain development projects for products to prevent or treat
certain diseases targeted by us. The existence of these potential products or
other products or treatments of which we are not aware, or products or
treatments that may be developed in the future, may adversely affect the
marketability of products developed.

RESEARCH AND DEVELOPMENT EXPENSES

Research and development expenses consist primarily of salaries and
other personnel-related expenses, facilities costs, laboratory supplies, license
fees and patent legal costs. Research and development expenses were $1,369,985
and $925,652 for the year ended December 31, 2003 and the six months ended June
30, 2004, respectively, compared to $491,430 and $308,986 for the year ended
December 31, 2002 and the six months ended June 30, 2003, respectively. We
expect our research and development expenses to increase in 2004 as our products
move into more expensive later stages of development, including the Phase I/IIa
clinical study on Atiprimod and related activities.

In addition, during the twelve months ended December 31, 2003 and the
six months ended June 30, 2004, we incurred $6,734,818 and $209,735,
respectively, of net purchased in-process research and development expense
related to the Synergy merger. During the twelve months ended December 31, 2002
there was no such expense and during the six months ended June 30, 2003, we
incurred $6,833,454 of such expense.

On October 7, 2003 we were awarded a $265,267 Small Business Technology
Transfer Research grant from the National Institutes of Health for studies on
Atiprimod. The Principal and Co-Principal Investigators of the grant entitled
"Atiprimod to Treat Multiple Myeloma and Bone Resorption" are Dr. Gary S. Jacob,
our Chief Executive Officer, and Dr. Kenneth C. Anderson, Director of the Jerome
Lipper Multiple Myeloma Center of the Dana-Farber Cancer Institute,
respectively. The studies, which began in early 2004, utilize unique in vitro
and in-vivo methods and animal models at the Dana-Farber Cancer Institute and at
our in house laboratory facilities to explore Atiprimod's pharmacological
activity and mechanism of action. No funding was received during 2003 and we
will request grant funding as expenses are incurred during the first half of
2004. Approximately $25,000 of this grant will defray certain salary and wages
of our in-house scientists, the balance of which will reimburse incremental
supplies and sub-contractors.

PROPRIETARY RIGHTS

We are able to protect our technology from unauthorized use by third
parties only to the extent that it is covered by valid and enforceable patents
or is effectively maintained as a trade secret. Accordingly, patents or other
proprietary rights are an essential element of our business. We are the assignee
or exclusive licensee of 3 pending patent applications and 12 issued patents in
the United States, and in most cases corresponding patents/applications in
foreign countries that we have deemed desirable. We seek patent protection of
inventions originating from our ongoing research and development activities that
are commercially important to our business.

We have obtained licenses from various parties that give us rights to
technologies that we deem to be necessary or desirable for our research and
development. These licenses (both exclusive and non-exclusive) may require us to
pay royalties to the parties in addition to upfront or milestone payments.

Patents extend for varying periods according to the date of patent
filing or grant and the legal term of patents in the various countries where
patent protection is obtained. The actual protection afforded by a patent, which
can vary from country to country, depends on the type of patent, the scope of
its coverage and the availability of legal remedies in the country.

While trade secret protection is an essential element of our business
and we have taken security measures to protect our proprietary information and
trade secrets, we cannot give assurance that our unpatented proprietary
technology will afford us significant commercial protection. We seek to protect
our trade secrets by entering into confidentiality agreements with third
parties, employees and consultants. Our employees and consultants also sign
agreements requiring that they assign to us their interests in intellectual
property arising from their work for us. All employees sign an agreement not to
engage in any conflicting employment or activity during their employment with us
and not to disclose or misuse our confidential information. However, it is
possible that these agreements may be breached or invalidated, and if so, there
may not be an adequate corrective remedy available. Accordingly, we cannot
ensure that employees, consultants or third parties will not breach the
confidentiality provisions in our contracts, infringe or misappropriate our
trade secrets and other proprietary rights or that measures we are taking to
protect our proprietary rights will be adequate.

In the future, third parties may file claims asserting that our
technologies or products infringe on their intellectual property. We cannot
predict whether third parties will assert such claims against us or against the
licensors of technology licensed to us, or whether those claims will harm our
business. If we are forced to defend ourselves against such claims, whether they
are with or without merit and whether they are resolved in favor of, or against,
our licensors or us, we may face costly litigation and the diversion of
management's attention and resources. As a result of such disputes, we may have
to develop costly non-infringing technology or enter into licensing agreements.
These agreements, if necessary, may be unavailable on terms acceptable to us, or
at all.

EMPLOYEES

As of August 3, 2004, we had 6 full-time employees. We believe our
employee relations are satisfactory.

DESCRIPTION OF PROPERTY

We currently lease 3,886 square feet of office space located at 420
Lexington Avenue, Suite 1609, New York, New York through June 30, 2010. This
facility contains our executive and administrative headquarters. Additionally,
we currently lease 2,120 square feet of laboratory space located at 7 Deer Park
Drive, Suite N, Monmouth Junction, New Jersey through November 2005 and
approximately 300 square feet in Frankfurt, Germany. We believe our existing
facilities are well maintained, in good operating condition, and that our
existing and planned facilities will be adequate to support our operations for
the foreseeable future.

LEGAL PROCEEDINGS

We are not a party to any pending legal proceedings.

DIRECTORS AND EXECUTIVE OFFICERS

The following table sets forth certain information regarding the directors and
executive officers of Callisto Pharmaceuticals, Inc. as of August 3, 2004:

Name Age Positions
---- --- ---------
Gabriele M. Cerrone 32 Chairman of the Board
Gary S. Jacob 57 Chief Executive Officer, Chief Scientific
Officer; Chairman of Synergy Pharmaceuticals Inc.
Donald H. Picker 58 Executive Vice President, R&D
Bernard F. Denoyer 57 Vice President, Finance
Kunwar Shailubhai 46 Senior Vice President, Drug Discovery of
Synergy Pharmaceuticals Inc.
Christoph Bruening 36 Director
Albert J. Henry 66 Director
Iain G. Ross 50 Director
Edwin Snape 63 Director
Michael J. Zelefsky 43 Director
John P. Brancaccio 56 Director

Gabriele M. Cerrone has served as our Chairman of the Board of
Directors since May 2003. Mr. Cerrone has served as a Senior Vice President of
Investments of Oppenheimer & Co. Inc., a financial services firm since March
1999. Prior to such affiliation, Mr. Cerrone held the position of Managing
Director of Investments at Barrington Capital, L.P., a merchant bank, between
March 1998 and March 1999. Between May 2001 and May 2003, Mr. Cerrone served on
the board of directors of SIGA Technologies, Inc.

Gary S. Jacob, Ph.D. has served as our Chief Executive Officer as well
as Chief Scientific Officer since May 2003 and Chairman of Synergy
Pharmaceuticals Inc. since October 2003. Dr. Jacob served as Chief Scientific
Officer of Synergy Pharmaceuticals Inc. from 1999 to 2003. From 1990 to 1998,
Dr. Jacob served as a Monsanto Science Fellow, specializing in the field of
Glycobiology. From 1997 to 1998, Dr. Jacob was Director of Functional Genomics,
Corporate Science & Technology, Monsanto, where he played a pivotal role in the
rapid development of Monsanto's plant genomics strategy and the buildup of the
in-house advanced genomics program. From 1990 to 1997, Dr. Jacob was Director of
Glycobiology, G.D. Searle Pharmaceuticals Inc. From 1986 to 1990, Dr. Jacob was
Manager of the G.D. Searle Glycobiology Group located at Oxford University,
England.

Donald H. Picker, Ph.D. has served as our Executive Vice President, R&D
since April 2004. From May 2003 until March 2004, Dr. Picker served as Senior
Vice President, Drug Development. Dr. Picker was Chief Executive Officer and
President of Synergy Pharmaceuticals Inc. and a member of its board of directors
from 1998 to April 2003. From 1996 to 1998, Dr. Picker was President and Chief
Operating Officer of LXR Biotechnology Inc., an apoptosis drug development
company. From 1991 to 1996, he was Senior Vice President of Research and
Development at Genta Inc., an antisense drug development company.

Bernard F. Denoyer, CPA has served as our Vice President, Finance since
January 2004. From July 2003 to December 2003, Mr. Denoyer served as an
independent consultant to our company providing interim CFO services. In
addition to our company, Mr. Denoyer provided interim CFO and other services to
emerging technology companies, principally portfolio companies of Marsh &
McLennan Capital, LLC, from October 2000 to December 2003. From October 1994
until September 2000, Mr. Denoyer served as Chief Financial Officer and Senior
Vice President. at META Group, Inc., a public information technology research
company. From 1990 to 1993 he was Vice President Finance of Environetics, Inc.,
a pharmaceutical water diagnostic business.

Kunwar Shailubhai, Ph.D., has served as Senior Vice President, Drug
Discovery of Synergy Pharmaceuticals Inc. since April 2004. From May 2003 until
March 2004, Dr. Shailubhai served as our Executive Vice President. From 2001 to
April 2003, Dr. Shailubhai held the position of Vice President, Drug Discovery
at Synergy Pharmaceuticals Inc. Between 1993 and 2000, he was affiliated with
Monsanto Company as Group Leader of the cancer chemoprevention group during
which time he was involved in several cancer research projects.

Christoph Bruening has served as a Director of our company since May
2003. Mr. Bruening organized Value Relations GmbH, a full service investor
relations firm operating in Frankfurt, Germany in 1999 and currently serves as
its Managing Partner. From 1998 to 1999, Mr. Bruening served as a funds manager
and Director of Asset Management for Value Management and Research AG, a private
investment fund and funds manager in Germany. From 1997 to 1998, Mr. Bruening
was a financial analyst and Head of Research for Value Research GmbH. On
February 26, 2004, Mr. Bruening became President and the sole director of Used
Kar Parts, Inc., a company which planned to develop an on-line marketplace for
used car parts. Mr. Bruening is currently evaluating the company's current
business plan and evaluating potential acquisitions. In addition, Mr. Bruening
is currently a member of the advisory board of Clarity AG.

Albert J. Henry has served as a Director of our company since May 2003.
From 1992 to 1996 Mr. Henry was Chief Executive Officer of Synergy
Pharmaceuticals Inc. and from 1992 to April 2003, Mr. Henry served as Chairman
of Synergy Pharmaceuticals Inc. Mr. Henry is founder of the Wall Street venture
capital firm Henry & Associates. Most recently, Mr. Henry was Vice Chairman of
IVAC Medical Systems, Inc. and Chairman of Ivonyx, Inc. Mr. Henry is currently
Chairman and Chief Executive Officer of Infusion Reimbursement Specialists, Inc.
and MSO Medical. Mr. Henry is currently a director of Motion Analysis Corp and
Intercept Corp.

Iain G. Ross has served as a Director of our company since June 2003.
Mr. Ross has been Chairman of Biomer Technology Ltd. since January 2003 and
serves as a director of a number of healthcare technology companies including
Angle Technology plc, Eden Biopharm Group and Pegasus Therapeutics Ltd. Mr. Ross
is an advisor to Apax Partners and PPM Ventures in London. From 2001 to 2002,
Mr. Ross was Chairman and Chief Executive Officer of Allergy Therapeutics Ltd.
and from 1995 to 2000, Mr. Ross was Chief Executive Officer of Quadrant
Healthcare plc, which was sold to Elan Corporation in 2000.

Edwin Snape, Ph.D. has served as a Director of our company since May
2003. Dr. Snape has been a principal at New England Partners, a private equity
firm for ten years. Previously, he was Managing General Partner of the Vista
Group, an international private equity firm. Dr. Snape is Chairman of Memry
Corporation and Vice Chairman of Deltex Medical Holdings, Inc. He is also a
director of Diomed, Inc.

Michael J. Zelefsky, M.D. has served as a Director of our company since
September 2003. Since 1997, Dr. Zelefsky has been the Chief of Brachytherapy
Service, Department of Radiation Oncology, Memorial Sloan-Kettering Cancer
Center, where he is board certified in radiation oncology. He is Editor-In-Chief
of the Journal of Brachytherapy, and Past President of the American
Brachytherapy Society. Dr. Zelefsky has received a number of awards including
the Memorial Sloan-Kettering Cancer Center Boyer Award for Excellence in
Clinical Research. He is an active clinical researcher, as well, who has been
the Principal Investigator on prospective trials using novel therapeutic agents
with radiotherapy for patients with advanced stage genitourinary and head and
neck cancers.

John P. Brancaccio has served as a Director of our company since April
2004. Since April 2004, Mr. Brancaccio has been the Chief Financial Officer of
Accelerated Technologies, Inc., an incubator for medical device companies. From
May 2002 until March 2004, Mr. Brancaccio was the Chief Financial Officer of
Memory Pharmaceuticals Corp., a biotechnology company. From 2000 to 2002, Mr.
Brancaccio was the Chief Financial Officer/Chief Operating Officer of Eline
Group, an entertainment and media company. Mr. Brancaccio is currently a
director of Alfacell Corporation.

COMPENSATION OF DIRECTORS

Each of our directors is entitled to receive a cash payment of $5,750
per calendar quarter. Messrs. Cerrone, Snape and Henry have waived their right
to such payments. Messrs. Cerrone, Bruening, Ross, Snape and Henry each received
a grant of 75,000 stock options to purchase common stock at an exercise price
equal to $1.50 per share. Such options vest over a period of three years. Dr.
Zelefsky received a grant of 60,000 stock options to purchase common stock at an
exercise price equal to $2.50 per share and Mr. Brancaccio received a grant of
75,000 stock options to purchase common stock at an exercise price equal to
$3.20 per share. These options also vest over a period of three years.

AUDIT COMMITTEE

The audit committee's responsibilities include: (i) reviewing the
independence, qualifications, services, fees, and performance of the independent
auditors, (ii) appointing, replacing and discharging the independent auditors,
(iii) pre-approving the professional services provided by the independent
auditors, (iv) reviewing the scope of the annual audit and reports and
recommendations submitted by the independent auditors, and (v) reviewing our
financial reporting and accounting policies, including any significant changes,
with management and the independent auditors. The audit committee currently
consists of John Brancaccio, chairman of the audit committee, and Christoph
Bruening. Our Board has determined that each of Mr. Bruening and Mr. Brancaccio
is "independent" as that term is defined under applicable SEC rules. Mr.
Brancaccio is our audit committee financial expert.

COMPENSATION COMMITTEE

We have a compensation committee consisting of Iain Ross and Christoph
Bruening. The compensation committee reviews, and makes recommendations to the
board of directors regarding, the compensation and benefits of our chief
executive officer and other executive officers. The compensation committee also
administers the issuance of stock options and other awards under our stock plan
and establishes and reviews policies relating to the compensation and benefits
of our employees.

SCIENTIFIC ADVISORY BOARD

Our scientific advisory board assists us in identifying research and
development opportunities, in reviewing with management the progress of our
projects and in recruiting and evaluating scientific staff. Although we expect
to receive guidance from the members of our scientific advisory board, all of
its members are employed on a full-time basis by others and, accordingly, are
able to devote only a small portion of their time to us. Management expects to
meet with its scientific advisory board members individually from time to time
on an informal basis. We have entered into a consulting agreement with each
member of the scientific advisory board. The scientific advisory board consists
of the following scientists:

Robert A. Kyle, M.D. Dr. Kyle is the Chairman of our scientific
advisory board and is Professor of Medicine and Laboratory Medicine at Mayo
Medical School. He served as the William H. Donner Professor of Medicine at Mayo
Medical School. He was previously Section Head of the Division of Hematology and
subsequently, Chairman of the Division of Hematology at Mayo Clinic, and served
as Secretary-General of the International Society of Hematology. He is currently
on the Board of Directors and is Chairman of the Scientific Advisory Board of
the International Myeloma Foundation. Dr. Kyle's research interests include the
biology and management of multiple myeloma, amyloidosis and monoclonal
gammopathy of undetermined significance. Dr. Kyle has received a number of
awards including the Waldenstrom Award for Myeloma Research, Henry S. Plummer
Distinguished Internist Award and the Distinguished Clinician Award from Mayo
Clinic.

Kenneth C. Anderson, M.D. Dr. Anderson is the Kraft Family Professor of
Medicine at Harvard Medical School; and serves as Chief of the Division of
Hematologic Neoplasia, Director of the Jerome Lipper Multiple Myeloma Center and
Vice Chair of the Joint Program in Transfusion Medicine at Dana-Farber Cancer
Institute. His translational research focuses on development of novel
therapeutics targeting the myeloma cell in its microenvironment. He hosted the
VI International Myeloma Workshop on Multiple Myeloma, serves on the Board of
Directors and as Chairman of the Scientific Advisors of the Multiple Myeloma
Research Foundation, and is a Doris Duke Distinguished Clinical Research
Scientist.

Moshe Talpaz, M.D. Dr. Talpaz currently holds the titles of Professor
of Medicine, David Burton, Jr. Endowed Chair at the M.D. Anderson Cancer Center,
Houston, Texas. Dr. Talpaz was formerly Chairman of the Department of
Bioimmunotherapy of the M.D. Anderson Cancer Center. Dr. Talpaz has been and
continues to be involved in the clinical development of numerous cancer drugs
and has been a pioneer in developing currently accepted treatment protocols
especially in the leukemia area. Dr. Talpaz is a member of many committees such
as the National Comprehensive Cancer Network Guidelines Panel and sits on
several editorial and advisory boards, such as Hematology Digest, Bone Marrow
Transplantation and Clinical Cancer Research. In 2003, Dr. Talpaz received the
prestigious "Leukemia and Lymphoma Society Service to Mankind Award" for his
pioneering work in this cancer field. Dr. Talpaz discovered the use of
interferon -a for treating chronic myeloid leukemia (CML) and he was the
principal investigator until FDA approval. In addition, Dr. Talpaz has acted as
a consultant to Hoffman LaRoche with regards to the FDA approval process for
interferon.

Randall K. Johnson, Ph.D. Dr. Johnson has over 30 years of experience
in government and industry working in cancer drug discovery and development. His
career began as section head at the laboratories of experimental chemotherapy at
The National Cancer Institute and was followed by over 20 years at SmithKline
Beecham and later GlaxoSmithKline. At SmithKline Beecham and GlaxoSmithKline,
Dr. Johnson held numerous positions including Director of the Department of
Biomolecular Discovery, Development Project Leader, Research Program Leader and
culminating in the Group Director of the Department of Oncology Research. Dr.
Johnson has been involved in numerous cancer working group committees such as
The Southern Cancer Study Group and The Southwest Oncology Group and on
editorial boards of cancer journals such as "Cancer Treatment Reports" and "The
Journal of the National Cancer Institute."

EXECUTIVE COMPENSATION

The following summary compensation table sets forth certain information
concerning compensation paid to our Chief Executive Officer and our two most
highly paid executive officers (the "Named Executive Officers") for services
rendered in all capacities for the year ended December 31, 2003. Our predecessor
company, Webtronics, never paid any executive compensation to its officers. No
other executive officer of our company was paid a salary and bonus aggregating
greater than $100,000 during such time period.

Annual Compensation Long Term Compensation
------------------- ----------------------
Name and Principal Salary Bonus Securities Underlying
Position Year ($) ($) Options (#)
------------------ ---- --- --- ---------------------

Gary S. Jacob 2003 $144,792 $0 500,000
Chief Executive Officer and Chief
Scientific Officer

Donald H. Picker 2003 $126,661 $10,000 325,000
Executive Vice President, R&D

Kunwar Shailubhai 2003 $110,833 $0 350,000(1)
Executive Vice President, Drug
Discovery of Synergy
Pharmaceuticals Inc.

(1) All of such stock options were granted on June 13, 2003 pursuant to an
employment agreement entered into with us at that time. On April 6, 2004, the
employment agreement was terminated and the 325,000 unvested stock options were
canceled. At the same time, Dr. Shailubhai entered into an employment agreement
with Synergy Pharmaceuticals Inc. and was granted 100,000 stock options
exercisable at $1.50 per share, 50,000 of such stock options vest in June 2004
and the remainder vest in December 2004.

OPTION GRANTS IN FISCAL YEAR 2003

The following table sets forth certain information concerning grants of
stock options to the Named Executive Officers during the fiscal year ended
December 31, 2003.

Number of Shares Percent of Total Options
Underlying Options Granted to Employees in Exercise Price Per
Name Granted 2003 Share Expiration Date
---- ------------------ ----------------------- ------------------ ---------------

Gary S. Jacob 500,000 (1) 42.5% $1.50 6/13/2013
Chief Executive Officer and Chief
Scientific Officer

Donald H. Picker 325,000 (2) 27.7% $1.50 9/23/2013
Executive Vice President, R&D

Kunwar Shailubhai 350,000 (3) 29.8% $1.50 6/13/2013
Senior Vice President, Drug
Discovery of Synergy
Pharmaceuticals Inc.

(1) 150,000 options vest on 6/13/2004; 150,000 options vest on 6/13/2005 and
200,000 options vest on 6/13/2006.

(2) 83,333 options vest on 7/19/2004; 108,333 options vest on 7/19/2005 and
133,333 options vest on 7/19/2006.

(3) All of such stock options were granted on June 13, 2003 pursuant to an
employment agreement entered into with us at that time. On April 6, 2004,
the employment agreement was terminated and the 325,000 unvested stock
options were canceled. At the same time, Dr. Shailubhai entered into an
employment agreement with Synergy Pharmaceuticals Inc. and was granted
100,000 stock options exercisable at $1.50 per share, 50,000 of such stock
options vest in June 2004 and the remainder vest in December 2004.

AGGREGATED OPTION EXERCISES IN 2003 AND YEAR END OPTION VALUES

The following table provides certain information with respect to the
Named Executive Officers concerning the exercise of stock options during the
fiscal year ended December 31, 2003 and the value of unexercised stock options
held as of such date.

Value of Unexercised In the
Number of Shares Underlying Options Money Options at December 31,
at December 31, 2003 2003 ($) (1)
----------------------------------- ---------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------- ----------- -------------

Gary S. Jacob 0 500,000 $ 0 $1,225,000
Chief Executive Officer and Chief
Scientific Officer

Donald H. Picker 0 325,000 $ 0 $ 796,250
Executive Vice President, R&D

Kunwar Shailubhai 25,000 325,000(2) $ 61,250 $ 796,250
Senior Vice President, Drug
Discovery of Synergy
Pharmaceuticals Inc.

During the fiscal year ended December 31, 2003, no options were exercised.

(1) Amounts calculated by subtracting the exercise price of the options from
the market value of the underlying common stock using the closing bid
price on the OTCBB of $3.95 per share on December 31, 2003.

(2) All of such stock options were granted on June 13, 2003 pursuant to an
employment agreement entered into with us at that time. On April 6, 2004,
the employment agreement was terminated and the 325,000 unvested stock
options were canceled. At the same time, Dr. Shailubhai entered into an
employment agreement with Synergy Pharmaceuticals Inc. and was granted
100,000 stock options exercisable at $1.50 per share, 50,000 of such stock
options vest in June 2004 and the remainder vest in December 2004.

EMPLOYMENT AGREEMENTS

On June 13, 2003, we entered into an employment agreement with Gary S.
Jacob, Ph.D., our Chief Executive Officer and Chief Scientific Officer. Dr.
Jacob's employment agreement is for a term of 18 months beginning June 13, 2003
and is automatically renewable for successive one year periods at the end of the
term. Dr. Jacob's salary is $225,000 per year and he is eligible to receive a
cash bonus of up to 15% of his salary per year. In connection with the
employment agreement, Dr. Jacob received a grant of 500,000 stock options which
vest over a three year period and are exercisable at $1.50 per share.

On June 13, 2003, we entered into an employment agreement with Kunwar
Shailubhai, Ph.D., pursuant to which Dr. Shailubhai serves as Executive Vice
President, and Head of Research and Development for a term of 18 months
beginning June 13, 2003, which is automatically renewable for successive one
year periods at the end of the term. Dr. Shailubhai's salary is $170,000 per
year and he is eligible to receive a cash bonus of up to 15% of his salary per
year. In connection with the employment agreement, Dr. Shailubhai received a
grant of 25,000 stock options which are fully vested and have an exercise price
of $1.50 per share. Dr. Shailubhai also received a grant of 325,000 stock
options which vest over a three year period and are exercisable at $1.50 per
share.

On April 6, 2004, Dr. Shailubhai's employment agreement was terminated and Dr.
Shailubhai entered into an employment agreement with Synergy pursuant to which
he agreed to serve as Senior Vice President, Drug Discovery of Synergy. The
agreement is for a term of 12 months beginning April 6, 2004 and is
automatically renewable for successive one year periods at the end of term. Dr.
Shailubhai's salary is $150,000 and he is eligible to receive a cash bonus of up
to 15% of his salary. Dr. Shailubhai's 325,000 unvested stock options, granted
pursuant to his previous employment agreement, were cancelled and he received a
new grant of 100,000 stock options exercisable at $1.50 per share, 50,000 of
such stock options vest in June 2004 and the remainder vest in December 2004.

On September 23, 2003, we entered into an employment agreement with
Donald H. Picker, Ph.D., pursuant to which Dr. Picker agreed to serve as our
Vice President, Drug Development. Dr. Picker's employment agreement is for a
term of 18 months beginning September 23, 2003 and is automatically renewable
for successive one year periods at the end of the term. Dr. Picker's salary is
$175,000 per year and he is eligible to receive cash bonuses upon the
achievement of certain milestones. Dr. Picker received a grant of 325,000 stock
options which vest over a three year period and are exercisable at $1.50 per
share. On April 6, 2004 Dr. Picker's employment agreement was amended and his
title changed to Executive Vice President, R&D. On July 22, 2004, Dr. Picker's
employment agreement was further amended and his salary was increased to
$200,000 per year certain performance milestones upon which cash bonuses are
based were added.

On January 15, 2004, we entered into an employment agreement with
Bernard Denoyer, our Vice President, Finance. Mr. Denoyer's employment agreement
is for a term of 12 months beginning January 15, 2004 and is automatically
renewable for successive one year periods at the end of the term. Mr. Denoyer's
salary is $90,000 per year and he is eligible to receive a cash bonus of up to
10% of his salary per year. Mr. Denoyer received a grant of 100,000 stock
options which vest over a three year period and are exercisable at $3.60 per
share.

STOCK OPTION PLAN

We rely on incentive compensation in the form of stock options to
retain and motivate directors, executive officers, employees and consultants.
Incentive compensation in the form of stock options is designed to provide
long-term incentives to directors, executive officers employees and consultants,
to encourage them to remain with us and to enable them to develop and maintain
an ownership position in our common stock.

The stock option plan authorizes the grant of stock options to
directors, eligible employees, including executive officers and consultants. The
value realizable from exercisable options is dependent upon the extent to which
our performance is reflected in the value of our common stock at any particular
point in time. Equity compensation in the form of stock options is designed to
provide long-term incentives to directors, executive officers and other
employees. We approve the granting of options in order to motivate these
employees to maximize stockholder value. Generally, vesting for options granted
under the stock option plan is determined at the time of grant, and options
expire after a 10-year period. Options are generally granted at an exercise
price not less than the fair market value at the date of grant. As a result of
this policy, directors, executives, employees and consultants are rewarded
economically only to the extent that the stockholders also benefit through
appreciation in the market. Options granted to employees are based on such
factors as individual initiative, achievement and performance. In administering
grants to executives, the compensation committee of the Board of Directors
evaluates each executive's total equity compensation package. The compensation
committee generally reviews the option holdings of each of the executive
officers, including vesting and exercise price and the then current value of
such unvested options. We consider equity compensation to be an integral part of
a competitive executive compensation package and an important mechanism to align
the interests of management with those of our stockholders.

As of August 3, 2004, options for 3,032,222 shares were outstanding
under our stock option plan, and options for 6,967,778 shares remain available
for future grants. The options we grant under the Plan may be either "incentive
stock options" within the meaning of Section 422 of the Internal Revenue Code of
1986, as amended (the "Code"), or non-statutory stock options at the discretion
of the Board of Directors and as reflected in the terms of the written option
agreement. The stock option plan is not a qualified deferred compensation plan
under Section 401(a) of the Code, and is not subject to the provisions of the
Employee Retirement Income Security Act of 1974, as amended. In addition, as of
August 3, 2004, we have granted 3,716,338 stock options not subject to the stock
option plan.

CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE

On August 6, 2003, we filed a Form 8-K disclosing that Baum & Company,
PA had resigned as our independent accountants with no disagreements and that
BDO Seidman, LLP had been retained as our independent accountants.

MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

MARKET INFORMATION

Our common stock has been quoted on the OTC Bulletin Board under the
symbol "CLSP.OB" since May 21, 2003. Prior to May 21, 2003, our common stock was
quoted on the OTC Bulletin Board under the symbol "WEBR.OB" but never traded.
The following table shows the reported high and low closing bid quotations per
share for our common stock based on information provided by the OTC Bulletin
Board. Particularly since our common stock is traded infrequently, such
over-the-counter market quotations reflect inter-dealer prices, without markup,
markdown or commissions and may not necessarily represent actual transactions or
a liquid trading market.

High Low
---- ---
2004

First Quarter $4.25 $3.25

Second Quarter $3.70 $1.95

2003

Fourth Quarter $4.05 $3.95

Third Quarter $5.30 $3.00

Second Quarter $5.80 $4.50

NUMBER OF STOCKHOLDERS

As of August 3, 2004, there were 227 holders of record of our common
stock.

DIVIDEND POLICY

Historically, we have not paid any dividends to the holders of our
common stock and we do not expect to pay any such dividends in the foreseeable
future as we expect to retain our future earnings for use in operation and
expansion of our business.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth certain information regarding beneficial
ownership of shares of our common stock as of August 3, 2004 by (i) each person
know to beneficially own more than 5% of the outstanding common stock, (ii) each
of our directors, (iii) the Named Executive Officers and (iv) all directors and
executive officers as a group. Except as otherwise indicated, the persons named
in the table have sole voting and investment power with respect to all shares
beneficially owned, subject to community property laws, where applicable. Unless
otherwise indicated, the address of each beneficial owner listed below is c/o
Callisto Pharmaceuticals, Inc., 420 Lexington Avenue, Suite 1609, New York, N.Y.
10170.

Name and Address of Beneficial Owner Shares of Common Stock Beneficially Owned (1)
------------------------------------ ---------------------------------------------
Number of Shares Percentage of Class
---------------- -------------------

Gabriele M. Cerrone 2,924,237 (2) 9.7%
Chairman of the Board

Gary S. Jacob 258,297 (3) *
Chief Executive Officer and Chief Scientific Officer

Donald H. Picker 180,741 (4) *
Executive Vice President, R&D

Kunwar Shailubhai 75,000 (5) *
Senior Vice President, Drug Discovery of Synergy
Pharmaceuticals Inc.

Iain G. Ross 25,000 (6) *
Director

Edwin Snape 939,402 (7) 3.2%
Director

Michael J. Zelefsky 20,000 (8) *
Director

Christoph Bruening 368,199 (9) 1.3%
Director

Albert J. Henry 1,407,164 (10) 4.8%
Director

John P. Brancaccio 0
Director

All Directors and Executive Officers as a group (11 persons) 6,228,040 (11) 20.4%

Donald G. Drapkin 2,350,000 (12) 8.0%

Panetta Partners Ltd. 2,049,237 7.0%

* less than 1%

(1) Applicable percentage ownership as of August 3, 2004 is based upon
29,175,102 shares of common stock outstanding. Beneficial ownership is
determined in accordance with Rule 13d-3 of the Securities Exchange Act of 1934,
as amended. Under Rule 13d-3, shares issuable within 60 days upon exercise of
outstanding options, warrants, rights or conversion privileges ("Purchase
Rights") are deemed outstanding for the purpose of calculating the number and
percentage owned by the holder of such Purchase Rights, but not deemed
outstanding for the purpose of calculating the percentage owned by any other
person. "Beneficial ownership" under Rule 13d-3 includes all shares over which a
person has sole or shared dispositive or voting power.

(2) Consists of 875,000 shares of common stock issuable upon exercise of stock
options held by Mr. Cerrone and 2,049,237 shares held by Panetta Partners, Ltd.,
of which Mr. Cerrone is the sole general partner and in such capacity only
exercises voting and dispositive control.

(3) Includes 150,000 shares of common stock issuable upon exercise of stock
options.

(4) Includes 83,333 shares of common stock issuable upon exercise of stock
options.

(5) Consists of 75,000 shares of common stock issuable upon exercise of stock
options.

(6) Consists of 25,000 shares of common stock issuable upon exercise of stock
options.

(7) Includes 25,000 shares of common stock issuable upon exercise of stock
options held by Mr. Snape. 714,402 shares are held by NEGF II, L.P. and 200,000
shares are held by New England Partners Capital, L.P. Mr. Snape is a principal
of NEGF II, L.P. and New England Partners Capital, L.P.

(8) Includes 20,000 shares of common stock issuable upon exercise of stock
options.

(9) Includes 25,000 shares of common stock issuable upon exercise of stock
options.

(10) Includes 25,000 shares of common stock issuable upon exercise of stock
options held by Mr. Henry. The remaining 1,382,164 shares are held by Henry
Venture II Limited. Mr. Henry is the Chairman of Henry Venture II Limited.

(11) Includes 1,333,333 shares of common stock issuable upon exercise of stock
options.

(12) Includes 250,000 shares of common stock issuable upon exercise of stock
options held by Mr. Drapkin and 1,500,000 shares of common stock held by the
Drapkin Family Charitable Foundation.

SELLING STOCKHOLDERS

From November 2003 through January 2004, we sold and issued 3,905,432
shares of common stock in a private placement. In addition, on April 19, 2004,
we sold and issued 2,151,109 shares of common stock in a private placement. This
prospectus only covers the 6,056,541 shares of common stock issued in the
private placements. The following table lists certain information with respect
to the selling stockholders as follows: (i) each selling stockholder's name,
(ii) the number of outstanding shares of common stock beneficially owned by the
selling stockholders prior to this offering; (iii) the number of shares of
common stock to be beneficially owned by each selling stockholder after the
completion of this offering assuming the sale of all of the shares of the common
stock offered by each selling stockholder; and (iv) if one percent or more, the
percentage of outstanding shares of common stock to be beneficially owned by
each selling stockholder after the completion of this offering assuming the sale
of all of the shares of common stock offered by each selling stockholder. Except
as noted, none of the selling stockholders have had any position, office, or
other material relationship with us or any of our predecessors or affiliates
within the past three years. The selling stockholders may sell all, or none of
their shares in this offering. See "Plan of Distribution."

Shares Beneficially Owned Shares Beneficially Owned
Selling Stockholder Prior to the Offering Shares Being Offered After the Offering
------------------- --------------------- -------------------- ------------------
Number of
Shares Percentage
------ ----------

Wanda H. Harrington 100,000 100,000 -0-

R. Merrill & Marilyn Hunter
Childrens' Trust f/b/o/
Kathryn Leigh Hunter 50,000 50,000 -0-

R. Merrill & Marilyn Hunter
Childrens' Trust f/b/o
Christopher Tyler Hunter 50,000 50,000 -0-

R. Merrill & Marilyn Hunter
Childrens' Trust f/b/o
Matthew Reaves Hunter 50,000 50,000 -0-

R. Merrill & Marilyn
Hunter Childrens' Trust
f/b/o/ Julianna Marie Hunter 50,000 50,000 -0-

R. Merrill Hunter 1,000,000 1,000,000 -0-

William J. Ritger 181,666 166,666 15,000 *

Robert Shapiro Revocable
Trust u/t/a/ dtd 4/6/94 70,000 70,000 -0-

Jonah Jay Lobell 70,000 70,000 -0-

Alfonse Melohn 210,000 210,000 -0-

WMSBG - Kolel Damesek
Eliezer, Inc. 70,000 70,000 -0-

Howard Zuckerman 34,667 34,667 -0-

John E.M. McConnaughy, Jr 70,000 70,000 -0-

MLC Management Co. 140,000 140,000 -0-

Blenton Management S.A 1,004,099 1,004,099 -0-

Howard Gittis 806,000(3) 400,000 406,000 1.4%

New England Partners
Capital, L.P. 914,402(2) 200,000 714,402 2.4%

Black Flower Ltd. 35,000 35,000 -0-

Stanley Neal Tennant 100,000 100,000 -0-

Keith C. Alliotts 35,000 35,000 -0-

Shekhar Basu 44,444 44,444 -0-

Greenberg Health Care
Partners LLC 444,444 444,444 -0-

Alexandra Global Master
Fund, Ltd. 250,000 250,000 -0-

Punk Ziegel & Company (4) 100,000 100,000 -0-

Atlas Equity I, Ltd. 200,000 200,000 -0-

BioMed Venture Partners, L.P. 150,000 150,000 -0-

InvestBio Partners, L.P. 150,000 150,000 -0-

Pamela Kaweske 22,222 22,222 -0-

Baffles S.A 22,222 22,222 -0-

SEGOES Trust 20,000 20,000 -0-

Hytec International, Ltd. 8,889 8,889 -0-

Nicholas DiFalco 22,222 22,222 -0-

Mark J. Sklar and Andrea D
Sklar 10,000 10,000 -0-

W. Harrison Wellford 40,000 40,000 -0-

Orion Biomedical Offshore
Fund, LP 79,333 79,333 -0-

Orion Biomedical Fund, LP 365,111 365,111 -0-

Seneca Capital International
Ltd. 141,222 141,222 -0-

Seneca Capital L.P. 81,000 81,000 -0-

* less than 1%.

(1) Mr. Ritger is the President of The Research Works, Inc. which has a contract
with Callisto to provide equity research services. The Research Works, Inc.
received 15,000 shares of common stock for its services.

(2) NEGF II, L.P. owns 714,402 of such shares. NEGF II, L.P. is an affiliate of
New England Partners Capital, L.P.

(3) Includes 406,000 shares held by the Gittis Family Foundation.

(4) Punk Ziegel & Company LLP acted as placement agent to Callisto in the April
19, 2004 private placement pursuant to an Engagement Letter dated January 22,
2004 and was issued warrants to purchase 101,111 shares of common stock
exercisable at $2.48 per share in addition to a cash placement fee.

CERTAIN TRANSACTIONS

On April 26, 2004, our Board of Directors granted 100,000 stock options
to Gabriele M. Cerrone, Chairman of the Board, in recognition of his efforts
during the past year on behalf of the company. The stock options are exercisable
at $3.20 per share and are immediately exercisable.

On June 29, 2004, our Compensation Committee recommended and our Board
of Directors approved the grant of 275,000 stock options to Gary Jacob, Chief
Executive Officer, as additional compensation. The stock options are exercisable
at $3.00 per share. 25,000 options vest on each of June 1, 2005 and June 1, 2006
and 50,000 options vest on June 1, 2007. The remaining 175,000 options vest upon
the achievement of certain performance milestones.

On June 29, 2004, our Compensation Committee recommended and our Board
of Directors approved the grant of 400,000 stock options to Donald Picker,
Executive Vice President, R&D as additional compensation. The stock options are
exercisable at $3.00 per share. 50,000 options vest on each of June 1, 2005 and
June 1, 2006 and 75,000 options vest on June 1, 2007. The remaining 225,000
options vest upon the achievement of certain performance milestones.

DESCRIPTION OF CAPITAL STOCK

Our authorized capital stock consists of 75,000,000 shares of common
stock, $.0001 par value, and 20,000,000 shares of preferred stock, $.0001 par
value. The following description of our capital stock does not purport to be
complete and is subject to, and qualified in its entirety by, our certificate of
incorporation and bylaws, which are exhibits to the registration statement of
which this prospectus forms a part.

COMMON STOCK

As of August 3, 2004, 29,175,102 shares of our common stock were
outstanding and held of record by 227 stockholders. Each share of our common
stock entitles its holder to one vote on all matters to be voted by our
stockholders. Subject to preferences that may apply to any of our outstanding
preferred stock, holders of our common stock will receive ratably any dividends
our board of directors declares out of funds legally available for that purpose.
If we liquidate, dissolve or wind up, the holders of common stock are entitled
to share ratably in all assets remaining after payment of liabilities and any
liquidation preference of any of our outstanding preferred stock. Our common
stock has no preemptive rights, conversion rights, or other subscription rights
or redemption or sinking fund provisions. The shares of our common stock to be
sold in this offering are fully paid and non-assessable.

PREFERRED STOCK

Our board of directors has the authority, without further action by our
stockholders, to issue up to 20,000,000 shares of our preferred stock in one or
more series. Our board of directors may designate the rights, preferences,
privileges, and restrictions of our preferred stock, including dividend rights,
conversion rights, voting rights, terms of redemption, liquidation preference,
sinking fund terms, and number of shares constituting any series or the
designation of any series. The issuance of our preferred stock could have the
effect of restricting dividends on our common stock, diluting the voting power
of our common stock, impairing the liquidation rights of our common stock, or
delaying or preventing a change in control. Even the ability to issue preferred
stock could delay or impede a change in control. As of August 3, 2004, no shares
of our preferred stock are outstanding, and we currently have no plans to issue
any shares of our preferred stock.

WARRANTS

As of August 3, 2004, 758,995 warrants to purchase common stock were
outstanding. 370,543 of such warrants are exercisable at $1.90 per share and
expire on January 21, 2009, 263,741 of such warrants are exercisable at $1.50
per share and expire on January 21, 2014 and 124,711 of such warrants are
exercisable at $2.48 per share and expire on April 19, 2009.

ANTI-TAKEOVER PROVISIONS

Delaware Law. We are subject to Section 203 of the General Corporation
Law of the State of Delaware, which regulates acquisitions of some Delaware
corporations. In general, Section 203 prohibits, with some exceptions, a
publicly held Delaware corporation from engaging in a "business combination"
with an "interested stockholder" for a period of three years following the date
the person becomes an interested stockholder, unless:

o Our board of directors approved the business combination or the
transaction in which the person became an interested stockholder prior
to the date the person attained this status;

o Upon consummation of the transaction that resulted in the person
becoming an interested stockholder, the person owned at lest 85% of our
voting stock outstanding at the time the transaction commenced,
excluding shares owned by persons who are directors and also officers
and issued under employee stock plans under which employee participants
do not have the right to determine confidentially whether shares held
subject to the plan will be tendered in a tender or exchange offer; or

o On or subsequent to the date the person became an interested
stockholder, our board of directors approved the business combination
and the stockholders other than the interested stockholder authorized
the transaction at an annual or special meeting of stockholders by the
affirmative vote of at least 66 2/3% of the outstanding stock not owned
by the interested stockholder.

Section 203 defines a "business combination" to include:

o Any merger or consolidation involving us and the interested
stockholder;

o Any sale, transfer, pledge or other disposition involving the
interested stockholder of 10% or more of our assets;

o In general, any transaction that results in the issuance or transfer by
us of any of our stock to the interested stockholder;

o Any transaction involving us that has the effect of increasing the
proportionate share of our stock owned by the interested stockholder;

o the receipt by the interested stockholder of the benefit of any loans,
advances, guarantees, pledges, or other financial benefits provided
through us.

In general, Section 203 defines an "interested stockholder" as any
person who, together with the person's affiliates and associates, owns, or
within three years prior to the time of determination of interested stockholder
status did own, 15% or more of a corporation's voting stock.

TRANSFER AGENT

StockTrans, Inc. is the transfer agent for our common stock.

PLAN OF DISTRIBUTION

The selling stockholders, or their pledgees, donees, transferees, or
any of their successors in interest selling shares received from a named selling
stockholder as a gift, partnership distribution or other non-sale-related
transfer after the date of this prospectus (all of whom may be selling
stockholders) may sell the common stock offered by this prospectus from time to
time on any stock exchange or automated interdealer quotation system on which
the common stock is listed or quoted at the time of sale, in the
over-the-counter market, in privately negotiated transactions or otherwise, at
fixed prices that may be changed, at market prices prevailing at the time of
sale, at prices related to prevailing market prices or at prices otherwise
negotiated. The selling stockholders may sell the common stock by one or more of
the following methods, without limitation:

o Block trades in which the broker or dealer so engaged will attempt to
sell the common stock as agent but may position and resell a portion of
the block as principal to facilitate the transaction;

o An exchange distribution in accordance with the rules of any stock
exchange on which the common stock is listed;

o Ordinary brokerage transactions and transactions in which the broker
solicits purchases;

o Privately negotiated transactions;

o In connection with short sales of company shares;

o Through the distribution of common stock by any selling stockholder to
its partners, members or stockholders;

o By pledge to secure debts of other obligations;

o In connection with the writing of non-traded and exchange-traded call
options, in hedge transactions and in settlement of other transactions
in standardized or over-the-counter options;

o Purchases by a broker-dealer as principal and resale by the
broker-dealer for its account; or

o In a combination of any of the above.

These transactions may include crosses, which are transactions in which
the same broker acts as an agent on both sides of the trade. The selling
stockholders may also transfer the common stock by gift. We do not know of any
arrangements by the selling stockholders for the sale of any of the common
stock.

The selling stockholders may engage brokers and dealers, and any
brokers or dealers may arrange for other brokers or dealers to participate in
effecting sales of the common stock. These brokers or dealers may act as
principals, or as an agent of a selling stockholder. Broker-dealers may agree
with a selling stockholder to sell a specified number of the stocks at a
stipulated price per share. If the broker-dealer is unable to sell common stock
acting as agent for a selling stockholder, it may purchase as principal any
unsold shares at the stipulated price. Broker-dealers who acquire common stock
as principals may thereafter resell the shares from time to time in transactions
in any stock exchange or automated interdealer quotation system on which the
common stock is then listed, at prices and on terms then prevailing at the time
of sale, at prices related to the then-current market price or in negotiated
transactions. Broker-dealers may use block transactions and sales to and through
broker-dealers, including transactions of the nature described above. The
selling stockholders may also sell the common stock in accordance with Rule 144
or Rule 144A under the Securities Act, rather than pursuant to this prospectus.
In order to comply with the securities laws of some states, if applicable, the
shares of common stock may be sold in these jurisdictions only through
registered or licensed brokers or dealers.

From time to time, one or more of the selling stockholders may pledge,
hypothecate or grant a security interest in some or all of the shares owned by
them. The pledges, secured parties or person to whom the shares have been
hypothecated will, upon foreclosure in the event of default, be deemed to be
selling stockholders. The number of a selling stockholder's shares offered under
this prospectus will decrease as and when it takes such actions. The plan of
distribution for that selling stockholder's shares will otherwise remain
unchanged. In addition, a selling stockholder may, from time to time, sell the
shares short, and, in those instances, this prospectus may be delivered in
connection with the short sales and the shares offered under this prospectus may
be used to cover short sales.

To the extent required under the Securities Act, the aggregate amount
of selling stockholders' shares being offered and the terms of the offering, the
names of any agents, brokers, dealers or underwriters, any applicable commission
and other material facts with respect to a particular offer will be set forth in
an accompanying prospectus supplement or a post-effective amendment to the
registration statement of which this prospectus is a part, as appropriate. Any
underwriters, dealers, brokers or agents participating in the distribution of
the common stock may receive compensation in the form of underwriting discounts,
concessions, commissions or fees from a selling stockholder and/or purchasers of
selling stockholders' shares, for whom they may act (which compensation as to a
particular broker-dealer might be less than or in excess of customary
commissions). Neither we nor any selling stockholder can presently estimate the
amount of any such compensation.

The selling stockholders and any underwriters, brokers, dealers or
agents that participate in the distribution of the common stock may be deemed to
be "underwriters" within the meaning of the Securities Act, and any discounts,
concessions, commissions or fees received by them and any profit on the resale
of the securities sold by them may be deemed to be underwriting discounts and
commissions. If a selling stockholder is deemed to be an underwriter, the
selling stockholder may be subject to certain statutory liabilities including,
but not limited to Sections 11, 12 and 17 of the Securities Act and Rule 10b-5
under the Exchange Act. Selling stockholders who are deemed underwriters within
the meaning of the Securities Act will be subject to the prospectus delivery
requirements of the Securities Act. The SEC staff is of a view that selling
stockholders who are registered broker-dealers or affiliates of registered
broker-dealers may be underwriters under the Securities Act. We will not pay any
compensation or give any discounts or commissions to any underwriter in
connection with the securities being offered by this prospectus.

A selling stockholder may enter into hedging transactions with
broker-dealers and the broker-dealers may engage in short sales of the common
stock in the course of hedging the positions they assume with that selling
stockholder, including, without limitation, in connection with distributions of
the common stock by those broker-dealers. A selling stockholder may enter into
option or other transactions with broker-dealers, who may then resell or
otherwise transfer those common stock. A selling stockholder may also loan or
pledge the common stock offered hereby to a broker-dealer and the broker-dealer
may sell the common stock offered by this prospectus so loaned or upon a default
may sell or otherwise transfer the pledged common stock offered by this
prospectus.

The selling stockholders and other persons participating in the sale or
distribution of the common stock will be subject to applicable provisions of the
Exchange Act, and the rules and regulations under the Exchange Act, including
Regulation M. This regulation may limit the timing of purchases and sales of any
of the common stock by the selling stockholders and any other person. The
anti-manipulation rules under the Exchange Act may apply to sales of common
stock in the market and to the activities of the selling stockholders and their
affiliates. Regulation M may restrict the ability of any person engaged in the
distribution of the common stock to engage in market-making activities with
respect to the particular common stock being distributed for a period of up to
five business days before the distribution. These restrictions may affect the
marketability of the common stock and the ability of any person or entity to
engage in market-making activities with respect to the common stock.

We have agreed to indemnify the selling stockholders who participated
in our January 21, 2004 private placement and our April 19, 2004 private
placement (the "Private Placement Stockholders") and any brokers, dealers and
agents who may be deemed to be underwriters, if any, of the common stock offered
by this prospectus, against specified liabilities, including liabilities under
the Securities Act. The Private Placement Stockholders have agreed to indemnify
us against specified liabilities.

The common stock offered by this prospectus was originally issued to
the Private Placement Stockholders pursuant to an exemption from the
registration requirements of the Securities Act, as amended. We agreed to
register the common stock issued to the Private Placement Stockholders under the
Securities Act, and to keep the registration statement of which this prospectus
is a part effective until three years after the effective date of the
registration statement. We have agreed to pay all expenses incident to the
registration of the common stock held by the Private Placement Stockholders in
connection with this offering, but all selling expenses related to the
securities registered shall be borne by the individual holders of such
securities pro rata on the basis of the number of shares of securities so
registered on their behalf.

We cannot assure you that the selling stockholders will sell all or any
portion of the common stock offered by this prospectus. In addition, we cannot
assure you that a selling stockholder will not transfer the shares of our common
stock by other means not described in this prospectus.

LEGAL MATTERS

The validity of the common stock has been passed upon by Sills Cummis
Epstein & Gross, P.C., Newark, New Jersey.

EXPERTS

The financial statements included in the Prospectus have been audited
by BDO Seidman, LLP, independent registered public accounting firm to the extent
and for the periods set forth in their report appearing elsewhere herein and are
included in reliance upon such report given upon the authority of said firm as
experts in auditing and accounting.

WHERE YOU CAN FIND MORE INFORMATION

We filed with the SEC a registration statement on Form SB-2 under the
Securities Act for the common stock to be sold in this offering. This prospectus
does not contain all of the information in the registration statement and the
exhibits and schedules that were filed with the registration statement. For
further information with respect to the common stock and us, we refer you to the
registration statement and the exhibits and schedules that were filed with the
registration statement. Statements made in this prospectus regarding the
contents of any contract, agreement or other document that is filed as an
exhibit to the registration statement are not necessarily complete, and we refer
you to the full text of the contract or other document filed as an exhibit to
the registration statement. A copy of the registration statement and the
exhibits and schedules that were filed with the registration statement may be
inspected without charge at the public reference facilities maintained by the
SEC in Room 1024, 450 Fifth Street, NW, Washington, DC 20549, and at the SEC's
regional offices at 500 West Madison Street, Suite 1400, Chicago, Illinois
60661, Woolworth Building, 233 Broadway New York, New York. Copies of all or any
part of the registration statement may be obtained from the SEC upon payment of
the prescribed fee. Information regarding the operation of the public reference
rooms may be obtained by calling the SEC at 1-800-SEC-0330. The SEC maintains a
web site that contains reports, proxy and information statements and other
information regarding registrants that file electronically with the SEC. The
address of the site is http://www.sec.gov.

DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR
SECURITIES ACT LIABILITIES

Section 145 of the Delaware General Corporation Law, the DGCL, empowers
a corporation to indemnify its directors and officers and to purchase insurance
with respect to liability arising out of the performance of their duties as
directors and officers. The DGCL provides further that the indemnification
permitted thereunder shall not be deemed exclusive of any other rights to which
the directors and officers may be entitled under the corporation's by-laws, any
agreement, vote of stockholders or otherwise.

Article Ninth of our Certificate of Incorporation eliminates the
personal liability of our directors to the fullest extent permitted by the DGCL.
Article Ninth also provides for indemnification of all persons whom we have the
power to indemnify pursuant to Section 145 of the DGCL.

Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers or persons controlling Callisto
pursuant to the foregoing provisions, we have been informed that in the opinion
of the Commission, such indemnification is against public policy as expressed in
the Securities Act and is therefore unenforceable.

CALLISTO PHARMACEUTICALS, INC.

(A Development Stage Company)

Index to Consolidated Financial Statements

Page
----

Report of Independent Registered Public Accounting Firm F-2

Consolidated Balance Sheet as of December 31, 2003 and June 30, 2004 (unaudited) F-3

Consolidated Statements of Operations for the two years in the period ended
December 31, 2003, for the six months ended June 30, 2004 and 2003
(unaudited) and for the period from June 5, 1996 (inception) to June 30, 2004 (unaudited) F-4

Consolidated Statements of Changes in Stockholders' Equity for the period from
June 5, 1996 (inception) to December 31, 2003 and for the six months ended
June 30, 2004 (unaudited) F-5

Consolidated Statements of Cash Flows for the years ended December 31, 2003
and 2002, for the six months ended June 30, 2004 and 2003 (unaudited) and
for the period from June 5, 1996 (inception) to June 30, 2004 (unaudited)
F-8

Notes to consolidated financial statements F-9

F-1

Report of Independent Registered Public Accounting Firm

Board of Directors
Callisto Pharmaceuticals, Inc.
New York, NY

We have audited the accompanying consolidated balance sheet of Callisto
Pharmaceuticals, Inc. (a development stage company) (the "Company") as of
December 31, 2003, and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the two years in the period
ended December 31, 2003. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Callisto
Pharmaceuticals, Inc. as of December 31, 2003, and the results of its operations
and its cash flows for each of the two years in the period ended December 31,
2003 in conformity with U.S. generally accepted accounting principles.

/s/ BDO Seidman, LLP

April 8, 2004
New York, New York

F-2

CALLISTO PHARMACEUTICALS, INC.
(A Development Stage Company)

CONSOLIDATED BALANCE SHEETS

December 31, 2003 June 30, 2004
----------------- -------------
(unaudited)

ASSETS
Current assets:

Cash and cash equivalents $ 3,956,486 $ 7,269,421
Prepaid expenses 52,644 101,766
------------ ------------

4,009,130 7,371,187

Property and equipment, net 46,488 32,672
Security deposits 62,980 62,980
------------ ------------

$ 4,118,598 $ 7,466,839

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Accounts payable $ 842,520 $ 387,053
Accrued expenses 79,625 91,827
Selling agent fees payable related to private
placement 341,625 -
------------ ------------

1,263,770 478,880
Stockholders' equity:

Preferred stock, $.0001 par value, authorized
20,000,000 shares, none outstanding -- --
Common stock, $.0001 par value, authorized
75,000,000 shares, 25,928,760 and 29,175,102
outstanding, respectively 2,590 2,915
Additional paid-in-capital 34,149,975 40,702,569
Unamortized deferred stock based compensation (5,480,007) (4,162,080)
Deficit accumulated during the development stage (25,817,730) (29,555,440)
------------ ------------
2,854,828 6,987,959

$ 4,118,598 $ 7,466,839
============ ============

The accompanying notes are an integral part of these consolidated
financial statements.

F-3

CALLISTO PHARMACEUTICALS, INC.
(A Development Stage Company)

CONSOLIDATED STATEMENTS OF OPERATIONS

For the Period
For the Years Ended December 31, Six Months Ended June 30, June 5, 1996
(unaudited) (Inception) to
------------------------------- ------------------------------- June 30, 2004
2003 2002 2004 2003 (unaudited)
------------ ------------ ------------ ------------ ------------

Revenues $-- $-- $-- $-- $--
Costs and expenses:
Research and development 1,369,985 491,430 925,652 308,986 5,828,013
Government grant - - (100,220) - (100,220)
Purchased in-process research
and development 6,734,818 -- 209,735 6,833,454 6,944,553
General and administrative 1,398,090 1,227,699 1,074,233 497,619 7,323,706
Stock-based compensation 3,833,946 332 1,665,594 2,463,007 10,284,096
------------ ------------ ------------ ------------ ------------
Loss from operations (13,336,839) (1,719,461) (3,774,994) (10,103,066) (30,280,148)
------------ ------------ ------------ ------------ ------------
Interest income 8,767 34,496 37,284 7,056 502,884
Other income 221,824 -- -- -- 221,824
------------ ------------ ------------ ------------ ------------
Net loss $(13,106,247) $ (1,684,965) $ (3,737,710) $(10,096,010) $(29,555,440)
------------ ------------ ------------ ------------ ------------

Weighted average shares
outstanding:
Basic and diluted 21,357,659 17,318,994 27,767,221 19,306,915
Net loss per common share:
Basic and diluted $ (0.61) $ (0.10) $ (0.13) $ (0.52)

The accompanying notes are an integral part of these consolidated
financial statements.

F-4

CALLISTO PHARMACEUTICALS, INC.
(A Development Stage Company)

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

Preferred Common Additional
Preferred Stock Par Common Stock Par Paid in
Shares Value Shares Value Capital
------------ ------------ ------------ ------------ ------------

Balance at inception, June 5, 1996 -- $ -- $-- $--
Net loss for the period
Issuance of founder shares -- -- 2,642,500 264 528
Common stock issued -- -- 1,356,194 136 272
Common stock issued via private
placement -- -- 1,366,667 137 1,024,863
------------ ------------ ------------ ------------ ------------

Balance, December 31, 1996 -- -- 5,365,361 537 1,025,663
Net loss for the year -- -- -- -- --
Common stock issued via private
placement -- -- 1,442,666 144 1,081,855
------------ ------------ ------------ ------------ ------------

Balance, December 31, 1997 -- -- 6,808,027 681 2,107,518
Net loss for the year -- -- -- -- --
Amortization of stock based
compensation -- -- -- -- 52,778
Common stock issued via private
placement -- -- 1,416,667 142 1,062,358
Common stock issued for
services -- -- 788,889 79 591,588
Common stock repurchased and
cancelled -- -- (836,792) (84) (96,916)
------------ ------------ ------------ ------------ ------------

Balance, December 31, 1998 -- -- 8,176,791 818 3,717,326
Net loss for the year -- -- -- -- --
Deferred compensation - stock
options -- -- -- -- 9,946
Amortization of stock based
compensation -- -- -- -- --
Common stock issued for
services -- -- -- -- 3,168,832
Common stock issued via private
placement -- -- 346,667 34 259,966
------------ ------------ ------------ ------------ ------------

Balance, December 31, 1999 -- -- 8,523,458 852 7,156,070
Net loss for the year -- -- -- -- --
Amortization of stock based
compensation -- -- -- -- --
Common stock issued -- -- 4,560,237 455 250,889
Other -- -- -- -- 432
Preferred stock issued 3,485,299 348 -- -- 5,986,302
Preferred stock issued for
services 750,000 75 -- -- 1,124,925
------------ ------------ ------------ ------------ ------------

Balance, December 31, 2000 4,235,299 423 13,083,695 1,307 14,518,618
Net loss for the year -- -- -- -- --
Deferred compensation - stock
options -- -- -- -- 20,000
Amortization of stock based
compensation -- -- -- -- --
------------ ------------ ------------ ------------ ------------

Balance, December 31, 2001 4,235,299 423 13,083,695 1,307 14,538,618
Net loss for the year -- -- -- -- --
Amortization of stock based
compensation -- -- -- -- --
------------ ------------ ------------ ------------ ------------

Balance, December 31, 2002 4,235,299 $ 423 13,083,695 $ 1,307 $ 14,538,618

The accompanying notes are an integral part of these consolidated
financial statements.

F-5

CALLISTO PHARMACEUTICALS, INC.
(A Development Stage Company)

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (Continued)

Deficit
Unamortized Accumulated
Deferred during the Total
Stock Based Development Stockholders'
Compensation Stage Equity
------------ ------------ ------------

Balance at inception, June 5, 1996 $-- $-- $--
Net loss for the year -- (404,005) (404,005)
Issuance of founder shares -- -- 792
Common stock issued -- -- 408
Common stock issued via private
placement -- -- 1,025,000
------------ ------------ ------------

Balance, December 31, 1996 -- (404,005) 622,195
Net loss for the year -- (894,505) (894,505)
Common stock issued via private
placement -- -- 1,081,999
------------ ------------ ------------

Balance, December 31, 1997 -- (1,298,510) 809,689
Net loss for the year -- (1,484,438) (1,484,438)
Amortization of stock based
compensation -- -- 52,778
Common stock issued -- -- 1,062,500
Common stock issued for
services -- -- 591,667
Common stock repurchased and cancelled -- -- (97,000)
------------ ------------ ------------

Balance, December 31, 1998 -- (2,782,948) 935,196
Net loss for the year -- (4,195,263) (4,195,263)
Deferred compensation - stock
options (9,946) -- --
Amortization of stock based
compensation 3,262 -- 3,262
Common stock issued for
services -- -- 3,168,832
Common stock issued via private
placement -- -- 260,000
------------ ------------ ------------

Balance, December 31, 1999 (6,684) (6,978,211) 172,027
Net loss for the year -- (2,616,261) (2,616,261)
Amortization of stock based
compensation 4,197 -- 4,197
Common stock issued -- -- 251,344
Other -- -- 432
Preferred stock issued -- -- 5,986,650
Preferred stock issued for
services -- -- 1,125,000
------------ ------------ ------------

Balance, December 31, 2000 (2,487) (9,594,472) 4,923,389
Net loss for the year -- (1,432,046) (1,432,046)
Deferred compensation - stock
options (20,000) -- --
Amortization of stock based
compensation 22,155 -- 22,155
------------ ------------ ------------

Balance, December 31, 2001 (332) (11,026,518) 3,513,498
Net loss for the year -- (1,684,965) (1,684,965)
Amortization of stock based
compensation 332 -- 332
------------ ------------ ------------

Balance, December 31, 2002 -- ($12,711,483) $ 1,828,865

The accompanying notes are an integral part of these consolidated
financial statements.

F-6

CALLISTO PHARMACEUTICALS, INC.
(A Development Stage Company)

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (CONTINUED)

Deficit
Preferred Common Unamortized Accumulated
Stock Stock Additional Deferred during the
Preferred Par Common Par Paid in Stock Based Development
Stock Value Stock Value Capital Compensation Stage
---------- --------- ---------- ------------ ------------ ------------ ------------

Balance, December 31, 2002 4,235,299 $ 423 13,083,695 $ 1,307 $ 14,538,618 -- ($12,711,483)

Net loss for the year -- -- -- -- -- -- (13,106,247)

Conversion of preferred
stock in connection
with the Merger (4,235,299) (423) 4,235,299 423 -- -- --

Common stock issued to
former Synergy
stockholders -- 4,329,927 432 6,494,458 -- --

Common stock issued in
exchange for Webtronics
common stock -- 1,503,173 150 (150) -- --

Deferred compensation -
stock options -- -- -- 9,313,953 (9,313,953) --

Amortization of
stock based compensation -- -- -- -- -- 3,833,946 --

Private placement of
common stock, net -- -- 2,776,666 278 3,803,096 -- --
------------ ------- ------------ ------------ ------------ ------------ ------------

Balance, December 31, 2003 -- -- 25,928,760 2,590 34,149,975 (5,480,007) (25,817,730)

Net loss for the period
(unaudited) -- -- -- -- -- -- (3,737,710)
Amortization of stock
based compensation
(unaudited) -- -- -- -- -- 1,317,927 --

Stock-based compensation
expense (unaudited) -- -- -- -- 286,918 -- --
Common stock issued via
private placements
(unaudited) -- -- 3,311,342 331 6,098,681 -- --
Warrant and stock-based
compensation for
services in connection
with the Merger
(unaudited) -- -- -- -- 269,826 -- --
Common stock issued for
patent rights
(unaudited) -- -- 25,000 3 56,247 -- --
Common stock returned
from former
Synergy stockholders
(unaudited) -- -- (90,000) (9) (159,083) -- --
------------ ------- ------------ ------------ ------------ ------------ ------------

Balance June 30, 2004
(Unaudited) -- $ -- 29,175,102 $ 2,915 $ 40,702,564 ($ 4,162,080) ($29,555,440)
============ ======= ============ ============ ============ ============ ============

Total
Stockholders'
Equity
-------------

Balance, December 31, 2002 $ 1,828,865

Net loss for the year (13,106,247)

Conversion of preferred
stock in connection
with the Merger --

Common stock issued to
former Synergy
stockholders 6,494,890

Common stock issued in
exchange for Webtronics
common stock --

Deferred compensation -
stock options --

Amortization of
stock based compensation 3,833,946

Private placement of
common stock, net 3,803,374
------------

Balance, December 31, 2003 2,854,828

Net loss for the period
(unaudited) (3,737,710)
Amortization of stock
based compensation
(unaudited) 1,317,927

Stock-based compensation
expense (unaudited) 286,918
Common stock issued via
private placements
(unaudited) 6,099,012
Warrant and stock-based
compensation for
services in connection
with the Merger
(unaudited) 269,826
Common stock issued for
patent rights
(unaudited) 56,250
Common stock returned
from former
Synergy stockholders
(unaudited) (159,092)
------------

Balance June 30, 2004
(Unaudited) $ 6,987,959
============

The accompanying notes are an integral part of these consolidated
financial statements.

F-7

CALLISTO PHARMACEUTICALS, INC.
(A Development Stage Company)

CONSOLIDATED STATEMENTS OF CASH FLOWS

Period from
June 5, 1996
Year ended December 31, Six months ended June 30, (Inception) to
(unaudited) June 30, 2004
2003 2002 2004 2003 (unaudited)
---- ---- ---- ---- --------------

Cash flows from operating
activities:
Net loss $(13,106,247) $ (1,684,965) $ (3,737,710) $(10,096,010) $(29,555,440)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Depreciation and amortization 27,755 6,778 13,816 7,850 51,965
Stock-based compensation expense 3,833,946 332 1,665,594 2,463,007 10,284,096
Purchased in-process research
and development - non-cash 6,734,818 -- 106,235 6,833,454 6,841,053
Changes in operating assets and
liabilities:
Prepaid expenses (24,188) (8,796) (49,122) (188,694) (101,766)
Security deposit (62,980) -- -- (47,246) (62,980)
Accounts payable and accrued
expenses 581,008 304,663 (784,890) 127,896 239,384
------------ ------------ ------------ ------------ ------------

Total adjustments 11,090,359 302,977 (951,633) 9,196,267 17,251,753
------------ ------------ ------------ ------------ ------------

Net cash used in operating
activities (2,015,888) (1,381,988) (2,786,077) (899,743) (12,303,688)
------------ ------------ ------------ ------------ ------------

Cash flows from investing
activities:
Acquisition of equipment (54,462) (22,029) -- (54,462) (84,637)
------------ ------------ ------------ ------------ ------------
Net cash used in investing
activities (54,462) (22,029) -- (54,462) (84,637)
------------ ------------ ------------ ------------ ------------

Cash flows from financing
activities:
Net proceeds from issuance of
common and preferred stock, net
of repurchases 3,803,374 -- 6,099,012 -- 19,657,746
------------ ------------ ------------ ------------ ------------

Net cash provided by financing
activities 3,803,374 -- 6,099,012 -- 19,657,746
------------ ------------ ------------ ------------ ------------
Net increase (decrease) in cash and
cash equivalents 1,733,024 (1,404,017) 3,312,935 (954,205) 7,269,421
Cash and cash equivalents at
beginning of year 2,223,462 3,627,479 3,956,486 2,223,462 --
------------ ------------ ------------ ------------ ------------
Cash and cash equivalents at
end of year $ 3,956,486 $ 2,223,462 $ 7,269,421 $ 1,269,257 $ 7,269,421
============ ============ ============ ============ ============
Supplementary disclosure of cash
flows information:
Cash paid for taxes $ 23,834 $ 13,487 $ 2,921 $ 24,558 $ 62,962
============ ============ ============ ============ ============

The accompanying notes are an integral part of these consolidated
financial statements.

F-8

CALLISTO PHARMACEUTICALS, INC.
(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information as of June 30, 2004 and for the periods ended June 30, 2004 and
2003 are unaudited)

1. Business overview:

Callisto Pharmaceuticals, Inc. ("Callisto") is a development stage
biopharmaceutical company, whose primary focus is on biopharmaceutical product
development. See footnote 4 for a complete description of recent business
combination and basis of presentation. Since inception in June of 1996 our
efforts have been principally devoted to research and development, securing and
protecting our patents and raising capital. From inception through June 30,
2004, Callisto has sustained cumulative net losses of $29,555,440. Callisto's
losses have resulted primarily from expenditures incurred in connection with
research and development activities, application and filing for regulatory
approval of our proposed products, stock based compensation expense, patent
filing and maintenance expenses, purchase of in-process research and
development, outside accounting and legal services and regulatory, scientific
and financial consulting fees. From inception through June 30, 2004, Callisto
has not generated any revenue from operations, expects to incur additional
losses to perform further research and development activities and does not
currently have any commercial biopharmaceutical products, and does not expect to
have such for several years, if at all.

Callisto's product development efforts are thus in their early stages and
Callisto cannot make estimates of the costs or the time it will take to
complete. The risk of completion of any program is high because of the many
uncertainties involved in bringing new drugs to market including the long
duration of clinical testing, the specific performance of proposed products
under stringent clinical trial protocols, the extended regulatory approval and
review cycles, the nature and timing of costs and competing technologies being
developed by organizations with significantly greater resources.

2. Basis of presentation:

The accompanying consolidated financial statements of Callisto Pharmaceuticals,
Inc., and its wholly owned subsidiaries Synergy Pharmaceuticals Inc. ("Synergy")
and Callisto Pharmaceuticals, GmbH ("GmbH"), (collectively, "Callisto," a
development stage company), have been prepared in accordance with accounting
principles generally accepted in the United States of America ("GAAP"). All
significant intercompany balances and transactions have been eliminated. The
results of operations of Synergy are included in the consolidated statements of
operations since May 1, 2003 (see note 4).

The accompanying unaudited consolidated financial statements of Callisto have
been prepared in accordance with (i) accounting principles generally accepted in
the United States ("GAAP") for interim financial information and (ii) the rules
of the Securities and Exchange Commission (the "SEC").

In the opinion of management, the accompanying unaudited condensed consolidated
financial statements include all adjustments, primarily consisting of normal
adjustments, necessary for the fair presentation of the balance sheet and
results of operations for the interim periods. The results of operations for the
six months ended June 30, 2004 are not necessarily indicative of the results of
operations to be expected for the full year ending December 31, 2004.

F-9

3. Summary of significant accounting policies

Use of Estimates - The preparation of financial statements in conformity with
GAAP requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual results could
differ from those estimates.

Cash and cash equivalents - Cash and cash equivalents consist of short term,
highly liquid investments, with original maturities of less than three months
when purchased and are stated at cost.

Fair value of financial instruments - Callisto's financial instruments consist
of cash and accounts payable. These financial instruments are stated at their
respective carrying values which are equivalent to fair value due to their short
term nature.

Business concentrations and credit risks - All of Callisto's cash and cash
equivalents as of December 31, 2003 are on deposit with two major money center
financial institutions. Deposits at any point in time may exceed federally
insured limits.

Accounting for stock based compensation - Callisto has adopted Statement of
Financial Accounting Standard ("SFAS") No. 123, "Accounting for Stock-Based
Compensation". As provided for by SFAS 123, Callisto has also elected to
continue to account for its stock-based compensation programs according to the
provisions of Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees ("APB 25")." Accordingly, compensation expense has been
recognized to the extent of employee or director services rendered based on the
intrinsic value of stock options granted under the plans.

Recent accounting pronouncement - In December 2002, the Financial Accounting
Standards Board issued SFAS No. 148, "Accounting for Stock-Based
Compensation-Transition and Disclosure, an amendment of FASB Statement No. 123",
to provide alternative methods of transition for a voluntary change to the fair
value based method of accounting for stock-based employee compensation. In
addition, this statement amends the disclosure requirements of SFAS No. 123 to
require prominent disclosures in both annual (see below) and interim financial
statements about the method of accounting for stock-based employee compensation
and the effect of the method used on reported results.

F-10

Had compensation cost for stock options granted to employee and directors been
determined based upon the fair value at the grant date for awards, consistent
with the methodology prescribed under SFAS 123, Callisto's net loss would have
been as follows:

Years ended December 31, Six Months Ended June 30,
------------------------------- -------------------------------
2003 2002 2004 2003
------------ ------------ ------------ ------------

Net loss, as reported $(13,106,247) $ (1,684,965) $ (3,737,710) $(10,096,010)
Add: Stock-based employee compensation
expense recorded under APB No. 25 1,996,890 -- 1,334,442 1,245,876
Deduct: stock-based employee compensation
expense determined under fair value method (2,510,721) -- (2,041,916) (1,504,199)
------------ ------------ ------------ ------------

Pro forma net loss $(13,620,078) $ (1,684,965) $ (4,445,184) $(10,354,333)
============ ============ ============ ============

Net loss per share:
Basic and diluted -as reported $ (0.61) $ (0.10) $ (0.13) ($ 0.52)
============ ============ ============ ============

Basic and diluted -pro forma $ (0.64) $ (0.10) $ (0.16) $ (0.54)
============ ============ ============ ============

The fair value of the options granted to employees during 2003 and 2002 ranged
from $0.00 to $5.53 on the date of grant using the Black-Scholes methodology.
The following weighted average assumptions were used for determining fair value
in 2003 and 2002: no dividend yield, expected volatility of 0% to April 30, 2003
and 100% since Callisto's common stock began to trade publicly on June 16, 2003,
risk free interest rates of 2.87% to 4.50% and expected lives of 7 to 10 years.

Net Loss per Share - Basic and diluted net loss per share is presented in
conformity with SFAS No. 128, "Earnings per Share", for all periods presented.
In accordance with SFAS No. 128, basic and diluted net loss per common share was
determined by dividing net loss applicable to common stockholders by the
weighted-average common shares outstanding during the period. Diluted
weighted-average shares are the same as basic weighted-average shares since the
inclusion of issuable shares pursuant to the exercise of stock options, would
have been antidilutive. As of December 31. 2003 and 2002, Callisto had 4,853,560
and 2,991,505 stock options outstanding, respectively. As of June 30, 2004 and
2003, Callisto had 6,748,560 and 5,030,227 stock options outstanding,
respectively. In addition Callisto had 758,995 common stock warrants outstanding
as of June 30, 2004. No warrants were outstanding as of December 31, 2003, June
30, 2003 and December 31, 2002.

Research and development - Callisto does not currently have any commercial
biopharmaceutical products, and does not expect to have such for several years,
if at all and therefore research and development costs are expensed as incurred.
These include expenditures in connection with an in-house research and
development laboratory, salaries and staff costs, application and filing for
regulatory approval of our proposed products, patent filing and maintenance
expenses, purchase of in-process research and development, regulatory and
scientific consulting fees as well as contract research and royalty payments to
outside research suppliers, facilities and universities. In addition 100% of the
salary of Callisto's Chief Executive Officer was also included in research and
development expense during the twelve months ended December 31, 2002 due to his
extensive involvement with Callisto's product development efforts. During the
twelve months ended December 31, 2003 Callisto's Chief Executive Officer devoted
nearly 100% of his time to the Merger, staff recruitment, office relocation,
public relations and presentations, and the private placement, thus we charged
his salary to general and administrative expense.

Research Grants - Callisto currently has a research grant from the National
Institutes of Health for studies on Atiprimod. The studies began in early 2004
and no funding was received during 2003. We request grant funding to reimburse
expenses as incurred and record the receipt as an offset to research and
development expense.

F-11

Income taxes - Income taxes are accounted for under the asset and liability
method prescribed by Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes." Deferred income taxes are recorded for temporary
differences between financial statement carrying amounts and the tax basis of
assets and liabilities. Deferred tax assets and liabilities reflect the tax
rates expected to be in effect for the years in which the differences are
expected to reverse. A valuation allowance is provided if it is more likely than
not that some or the entire deferred tax asset will not be realized.

4. Merger and consolidation:

In March 2002, Callisto Pharmaceuticals, Inc. ("Old Callisto") purchased 99.7%
of the outstanding common shares of Webtronics, Inc., ("Webtronics") a public
company for $400,000. Webtronics was incorporated in Florida on February 2, 2001
and had limited operations during the year ended December 31, 2002. The purchase
price of Webtronics was treated as a cost of becoming a public company, however
because there was no capital raised at the time, the amount was charged to
general and administrative expense during the year ended December 31, 2002.

On April 30, 2003, pursuant to an Agreement and Plan of Merger dated March 10,
2003, as amended April 4, 2003, Synergy Acquisition Corp., a wholly-owned
subsidiary of Webtronics merged into Synergy Pharmaceuticals Inc. ("Synergy")
and Callisto Acquisition Corp., a wholly-owned subsidiary of Webtronics, merged
into Old Callisto (collectively, the "Merger"). As a result of the Merger, Old
Callisto and Synergy became wholly-owned subsidiaries of Webtronics. In
connection with the Merger, Webtronics issued 17,318,994 shares of its common
stock in exchange for outstanding Old Callisto common stock and an additional
4,395,684 shares in exchange for outstanding Synergy common stock. The Merger
was accounted for as a recapitalization of Old Callisto by an exchange of
Webtronics common stock for the net assets of Old Callisto consisting primarily
of cash and fixed assets. Old Callisto then changed its name to Callisto
Research Labs, LLC and Webtronics changed its name to Callisto Pharmaceuticals,
Inc. and changed its state of incorporation from Florida to Delaware. Callisto
remains the continuing legal entity and registrant for Securities and Exchange
Commission reporting purposes. Subsequently, 171,818 shares of common stock
issued to former Synergy shareholders were returned to Callisto under the terms
of certain indemnification agreements through June 30, 2004.

F-12

The merged companies are considered to be in the development stage. No revenues
have been realized since inception and all activities have been concentrated in
research and development of biopharmaceutical products not yet approved by the
Food and Drug Administration. The fair value of the net shares issued to former
Synergy shareholders in the Merger totaled $6,335,799 through June 30, 2004. The
fair value per share of $1.50, used to determine this amount, was the value per
share Callisto sold common stock in a private placement. The total consideration
was allocated in full to the Synergy research and development projects which had
not yet reached technological feasibility and having no alternative use was
charged to purchased in-process research and development expense.

The results of operations of Synergy for the period May 1, 2003 through December
31, 2003 are included in the Consolidated Statement of Operations for the year
ended December 31, 2003 and for the period from June 5, 1996 (inception) to
December 31, 2003. The Statement of Operations for the year ended December 31,
2002 includes only the results of Old Callisto.

The following combined pro forma results of operations for the years ended
December 31, 2003 and 2002 have been prepared as if the merger with Synergy had
occurred at January 1, 2002.

2003 2002
---- ----

Revenues $ - $ -
Net loss (13,513,820) (2,559,554)
Net loss per common share - basic and diluted $(0.58) $(0.11)
(23,296,920 and 23,217,578 common shares in
2003 and 2002, respectively)

In addition, Callisto assumed liabilities in excess of Synergy assets acquired
at April 30, 2003 as follows:

Cash $9,501
Accounts receivable 258,928
Rent deposit 44,746
Fixed assets 38,343
------

Total assets acquired 351,518
Accounts payable and other liabilities assumed (591,446)
---------

Net liabilities assumed in excess of assets acquired (239,928)
Fair value of shares issued to Synergy shareholders (6,494,890)
-----------

Total consideration paid by Callisto to acquire Synergy $(6,734,818)
============

F-13

5. Property and equipment:

Equipment consists of laboratory, testing and computer equipment, stated at
cost, with useful lives ranging from 2-4 years, depreciated on a straight line
basis. Furniture and fixtures are stated at cost, with a useful life of 3 years,
depreciated on a straight line basis. Depreciation expense for the years ended
December 31, 2003 and 2002 and from June 5, 1996 (inception) to December 31,
2003 was $27,755, $6,778 and $38,149, respectively.

December 31,
2003 2002
---- ----

Equipment $46,294 $30,175
Furniture and fixtures 38,343 -
Less - Accumulated depreciation (38,149) (10,394)
-------- -------

Property and equipment, net $46,488 $19,781
======= =======

6. Stock option plan:

In 1996, Callisto adopted an incentive and non-qualified stock option plan (the
"Plan") for employees, consultants and outside directors to purchase up to
2,000,000 shares of common stock. The Plan was amended in December 2002 to
increase the number of shares authorized under the Plan to 10,000,000. The
option term for options granted under the Plan is ten years from date of grant
and there were 7,916,944 option shares available for future grants as of
December 31, 2003.

Callisto recognizes deferred compensation expense for the intrinsic value of
stock options granted to employees. Deferred stock-based compensation is
amortized to stock-based compensation expense over the vesting period of the
stock option. During the twelve months ended December 31, 2003, 2002 and for the
period from June 5, 1996 (inception) to June 30, 2004 Callisto recognized
$3,833,946, $332 and $10,284,096, respectively, as stock-based compensation
expense related to issuance of stock and stock options. At December 31, 2003 and
June 30, 2004 there was $5,480,007 and $4,162,080, respectively, remaining in
unamortized deferred compensation.

F-14

The following represent options outstanding for the years since June 5, 1996
(inception) through December 31, 2003.

Number Exercise Price Weighted Average
of Shares Per Share Exercise Price
--------- --------- --------------

Balance, June 5, 1996 (inception) 0 $ 0.00 $ 0.00

1996: Granted 66,668 $ 0.75 $ 0.75
----------

Balance, December 31, 1996 66,668 $ 0.75 $ 0.75

1997: Granted 166,668 $ 0.75 $ 0.75
----------

Balance, December 31, 1997 233,336 $ 0.75 $ 0.75

1998: Granted 264,169 $ 0.75 $ 0.75
----------

Balance, December 31, 1998 497,505 $ 0.75 $ 0.75

1999: Granted 633,334 $0.75 - $4.90 $ 1.92
----------

Balance, December 31, 1999 1,130,839 $0.75 - $4.90 $ 1.41

2000: Granted 815,666 $2.85 - $6.75 $ 3.83
Forfeitures (15,000) $ 0.75 $ 0.75
----------

Balance, December 31, 2000 1,931,505 $0.75 - $6.75 $ 2.44

2001: Granted 730,000 $1.25 - $6.50 $ 2.77
----------

Balance, December 31, 2001 2,661,505 $0.75 - $6.75 $ 2.53

2002: Granted 330,000 $4.50 - $6.50 $ 5.50
----------

Balance, December 31, 2002 2,991,505 $0.75 - $6.75 $ 2.86

2003: Granted 3,013,555 $1.10 - $2.50 $ 1.48
Forfeitures (1,151,500) $2.85 - $6.75 $ 4.51
----------

Balance, December 31, 2003 4,853,560 $0.75 - $6.75 $ 1.61
==========

Included in the balance at December 31, 2003 were 2,770,504 non-Plan options, of
which 2,092,504 were exercisable.

F-15

Options are exercisable as follows at December 31, 2003:

Options Outstanding Options Exercisable
------------------------------------------------- ---------------------------------
Number Weighted Average Weighted Average Number Weighted Average
Exercise Price of Shares Remaining Life Exercise Price of Shares Exercise Price
-------------- --------- -------------- -------------- --------- -----------------

$0.75 - $1.10 1,115,839 6.3 years $0.91 1,115,839 $0.91
$1.25 - $1.75 2,683,555 9.1 years $1.44 1,015,555 $1.33
$1.95 - $2.85 892,500 6.9 years $2.33 807,500 $2.31
$4.90 - $6.75 161,666 6.4 years $5.32 61,666 $6.00
All options:
$0.75 - $6.75 4,853,560 8.0 years $1.61 3,000,560 $1.53

During the six months ended June 30, 2004 Callisto granted 1,895,000 options
(net of cancellations) at exercise prices ranging from $1.50 to $3.60 per share
and issued 758,995 immediately exercisable common stock warrants at exercise
prices ranging from $1.50 to $2.48 per share.

As of June 30, 2004 and 2003, Callisto had 6,748,560 and 5,030,227 stock options
outstanding, respectively. In addition Callisto had 758,995 common stock
warrants outstanding as of June 30, 2004 and none as of December 31, 2003. (see
notes 8 and 9)

7. Income taxes:

At December 31, 2003, Callisto had available Federal net operating tax loss
carry forwards of approximately $14,000,000 expiring through 2022 to offset
future taxable income. The net deferred tax asset has been fully offset by a
valuation allowance due to uncertainties regarding realization of benefits from
these future tax deductions. As a result of the change in control provisions of
Internal Revenue Code Section 382, a significant portion of these net operating
loss carry forwards may be subject to limitation on future utilization.

On December 15, 2003 Synergy sold certain New Jersey State tax loss carry
forwards under a state economic development program for cash of approximately
$222,000, the proceeds of which have been and will be used to support research
and development activities in New Jersey. This state tax benefit was recorded as
Other Income during the fourth quarter ended December 31, 2003.

8. Commitments and contingencies:

License agreements:

On February 24, 2004, Callisto entered into an agreement with Houston
Pharmaceuticals, Inc. ("HPI"), a privately held company, to acquire the rights
to two key patents covering a novel cancer platform technology. Callisto issued
to HPI 25,000 shares of common stock at a fair value of $56,250 and reimbursed
HPI approximately $103,500 for various costs and expenses. The total
consideration of $159,750 was allocated in full to the HPI patent rights, which
have not yet reached technological feasibility, and having no alternative use,
was accounted for as purchased in-process research and development expense
during the quarter ended March 31, 2004. The fair value of the common stock
issued to HPI was $2.25, based on the price per share paid in the April 2004
private placement, which closed on April 19, 2004. (See note 9)

In addition, Callisto granted to HPI 1,170,000 performance based stock options,
exercisable at $3.50 per share, which vest upon the achievement of certain
milestones. If the milestones are achieved, Callisto will record additional
purchased in-process research and development expense based upon the fair value
of the options at that time. Callisto also agreed to pay HPI a royalty of 2% of
net sales from any products resulting from commercializing the patents.

On August 28, 2002, Synergy entered into a worldwide license agreement with
AnorMED, Inc. ("AnorMED") to research, develop, sell and commercially exploit
the Atiprimod patent rights. The license agreement provides for aggregate
milestone payments by Synergy of up to $14 million based on achieving regulatory
submissions and approvals for an initial indication and additional payments of
$16 million for each additional indication based on achieving regulatory
submissions and approvals. In addition, the license agreement requires Synergy
to pay royalties based on net sales to AnorMED. Commencing on January 1, 2004
and on January 1 of each subsequent year Synergy is obligated to pay AnorMED a
maintenance fee of $200,000 until the first commercial sale of the product. The
first of these annual maintenance fee payments made on January 22, 2004 was
reported as research and development expense in the quarter ended March 31,
2004. The agreement will terminate upon expiration of the last to expire of any
patents included in the licensed patents as defined in the agreement.

F-16

On July 25, 2001, Callisto entered into a license agreement to research,
develop, sell and commercially exploit certain Rockefeller University licensed
patents covering peptides and antibodies useful in treating toxic shock syndrome
and septic shock. Callisto will pay Rockefeller a $7,500 annual maintenance fee
until the first commercial sale of the product. Callisto will pay royalties of
2% and 0.75% of net sales of product as defined in the agreement and will pay
Rockefeller 15% of any sublicense fee paid by sublicensees. The agreement will
terminate upon the later of (a) expiration of the last to expire or become
abandoned patent right or (b) 20 years after the effective date of the
agreement. During the twelve months ended December 31, 2003 and 2002, Callisto
paid Rockefeller University $0 and $7,500, respectively.

On April 11, 2001, Callisto entered into a license agreement with Dartmouth
College to research, develop, manufacture and sell certain Dartmouth patent
rights covering a method to enhance antibiotics against Staphylococcus and other
bacteria. Callisto was obligated to pay to Dartmouth a minimum annual license
fee of $10,000 for 2002; $15,000 for 2003 and $25,000 per annum from 2004 and
thereafter. During the twelve months ended December 31, 2003 and 2002 Callisto
paid Dartmouth $42,868 and $265,261, respectively, under this agreement.
Callisto and Dartmouth entered into a settlement and general release agreement
which terminated this license in August 2003. Pursuant to the settlement and
general release agreement, Callisto paid $42,868 to Dartmouth.

On July 7, 1998 Callisto entered into a Patent License Agreement with the United
States Public Health Service ("PHS"), under which Callisto had an exclusive
license to make, use, sell, lease, import and export and to otherwise
commercially exploit certain licensed patents covering a diagnostic method for
detecting obsessive compulsive disorder. Callisto paid an initial license issue
royalty fee in the amount of $50,000 in 1998 and minimum annual royalty fees of
$10,000 in each year through December 31, 2003. Callisto terminated this
agreement by mutual consent in January 2004.

Employment Agreements:

On June 13, 2003, Callisto entered into an employment agreement with Gary S.
Jacob, Ph.D., to serve as our Chief Executive Officer and Chief Scientific
Officer. Dr. Jacob's employment agreement is for a term of 18 months beginning
June 13, 2003 and is automatically renewable for successive one year periods at
the end of the term. Dr. Jacob's salary is $225,000 per year and he is eligible
to receive a cash bonus of up to 15% of his salary per year. In connection with
his employment agreement, Dr. Jacob received a grant of 500,000 stock options
which vest over a three year period and are exercisable at $1.50 per share.

On June 13, 2003, Callisto entered into an employment agreement with Kunwar
Shailubhai, Ph.D. to serve as Executive Vice President and Head of Research and
Development for a term of 18 months beginning June 13, 2003 and is automatically
renewable for successive one year periods at the end of the term. Dr.
Shailubhai's salary is $170,000 per year and he is eligible to receive a cash
bonus of up to 15% of his salary per year. In connection with his employment
agreement, Dr. Shailubhai received a grant of 25,000 stock options which are
fully vested and have an exercise price of $1.50 per share. Dr. Shailubhai also
received a grant of 325,000 stock options which vest over a three year period
and are exercisable at $1.50 per share.

F-17

On April 6, 2004, Dr. Shailubhai's employment agreement was terminated and he
entered into an employment agreement with Synergy in which he agreed to serve as
Senior Vice President, Drug Discovery. Dr. Shailubhai's employment agreement is
for a term of 12 months beginning April 6, 2004 and is automatically renewable
for successive one year periods at the end of the term. Dr. Shailubhai's salary
is $150,000 per year and he is eligible to receive a cash bonus of up to 15% of
his salary per year. His unvested options for 325,000 shares granted June 13,
2003 were cancelled and Dr. Shailubhai received a new grant of 100,000 stock
options which are exercisable at $1.50 per share. 50,000 of such stock options
vest in June 2004 and the remainder vest in December 2004.

The unamortized deferred compensation cost associated with the 225,000 cancelled
options of $706,813 as of the date of cancellation, was charged to stock-based
compensation expense during the quarter ended June 30, 2004. The remaining
deferred balance of $314,139, based on the original intrinsic value, associated
with the remaining 100,000 options , will be expensed over the vesting period of
the new grant (e.g. April 7, 2004 through December 31, 2004).

On September 23, 2003, Callisto entered into an employment agreement with Donald
H. Picker, Ph.D., to serve as Vice President, Drug Development. The employment
agreement is for a term of 18 months beginning September 23, 2003 and is
automatically renewable for successive one year periods at the end of the term.
Dr. Picker's salary is $175,000 per year and he is eligible to receive a cash
bonus of up to $45,000 per year upon the achievement of certain performance
milestones. During the twelve months ended December 31, 2004, Dr. Picker was
paid $10,000 of this bonus and earned an additional $10,000 which was accrued as
of December 31, 2003 and paid in early January 2004. In connection with his
employment agreement, Dr. Picker received a grant of 325,000 stock options which
vest over a three year period and are exercisable at $1.50 per share. (see Note
10)

On January 15, 2004, Callisto entered into an employment agreement with Bernard
Denoyer, its Vice President, Finance. Mr. Denoyer's employment agreement is for
a term of 12 months beginning January 15, 2004 and is automatically renewable
for successive one year periods at the end of the term. Mr. Denoyer's salary is
$90,000 per year and he is eligible to receive a cash bonus of up to 10% of his
salary per year. Mr. Denoyer received a grant of 100,000 stock options which
vest over a three year period and are exercisable at $3.60 per share.

Lease agreements:

On August 20, 2003 Callisto entered into a five year lease for its corporate
headquarters in New York City with an approximate rent of $100,000 annually
through August 2008. On November 4, 2003, Synergy entered a two year lease for
laboratory space in New Jersey, principally to support combined Callisto and
Synergy research efforts, with an approximate rent of $50,000 annually through
November 2005. During the years ended December 31, 2003 and 2002 and for the
period from June 5, 1996 (inception) to December 31, 2003, total rent expense
was $67,261, $51,856 and $187,083, respectively. Total annual commitments under
these leases for each of the twelve months ended December 31, are as follows:

2004 $150,895
2005 149,927
2006 104,055
2007 106,138
2008 71,695
--------

Total $582,710
========

On June 7, 2004, Callisto extended its lease for its corporate headquarters in
New York City for two additional years through August 2010, and increased its
space by approximately 60%. This increases average annual rent by approximately
$50,000 to $150,000. Laboratory space in New Jersey, principally to support
combined Callisto and Synergy research efforts, with an approximate rent of
$50,000 annually through November 2005 was unchanged in the six months ended
June 30, 2004.

F-18

Other:

In April 2003 Callisto settled legal fees totaling approximately $352,000,
accrued as of December 31, 2002, for approximately $100,000. The balance was
reversed into general and administrative expense in the second quarter of 2003.

On October 7, 2003, Callisto was awarded a $265,697 Small Business Technology
Transfer Research Grant from the National Institutes of Health for studies on
Atiprimod. No funding was received during 2003. During the six months ended June
30, 2004, Callisto received $100,220 of grant funding, as reimbursement of
expenses incurred and recorded the receipt as an offset to research and
development expenses. As of June 30, 2004 Callisto had unused grant funding
available of $165,477. Approximately $25,000 of this grant will defray certain
salary and wages of in-house scientists, the balance of which will reimburse
incremental supplies and sub-contractors.

9. Stockholders' equity:

During the three months ended June 30, 2004:

On June 29, 2004, Callisto's Compensation Committee recommended and the Board of
Directors approved the grant of 275,000 stock options to Gary Jacob, Chief
Executive Officer, as additional compensation. The stock options are exercisable
at $3.00 per share. 25,000 options vest on each of June 1, 2005 and June 1, 2006
and 50,000 options vest on June 1, 2007. The remaining 175,000 options vest upon
the achievement of performance milestones associated with the successful
in-licensing, advancement and development of certain drug candidates. If the
milestones are achieved, Callisto will record stock-based compensation expense
based on the intrinsic value of the options at that time.

On June 29, 2004, Callisto's Compensation Committee recommended and the Board of
Directors approved the grant of 400,000 stock options to Donald Picker,
Executive Vice President, R&D as additional compensation. The stock options are
exercisable at $3.00 per share. 50,000 options vest on each of June 1, 2005 and
June 1, 2006 and 75,000 options vest on June 1, 2007. The remaining 225,000
options vest upon the achievement of performance milestones associated with the
successful advancement and development of our drug candidates through various
stages of clinical trials. If the milestones are achieved Callisto will record
stock-based compensation expense based on the intrinsic value of the options at
that time.

On April 26, 2004, Callisto's Board of Directors granted 100,000 stock options
to Gabriele M. Cerrone, Chairman of the Board, in recognition of his efforts
during the past year on behalf of the company. The stock options are immediately
exercisable at $3.20 per share and stock-based compensation expense of $286,918
was recorded in connection with the grant, based on a Black-Scholes fair value
of $2.87 per share.

On April 19, 2004, Callisto sold and issued 2,151,109 shares of common stock at
an issue price of $2.25 per share for aggregate gross proceeds of $4,839,995 and
incurred fees and expenses aggregating $294,241 to various selling agents. In
addition, Callisto issued an aggregate 124,711 warrants to purchase common stock
to such selling agents. The warrants are immediately exercisable at $2.48 per
share and will expire five years after issuance.

During the three months ended March 31, 2004:

a.) Callisto issued to HPI 25,000 shares of common stock at a fair value of
$56,250 in connection with the acquisition of certain patent rights, which cost
was charged to purchased in-process research and development expense (see note
8);

b.) 90,000 shares of common stock issued to former Synergy shareholders were
returned to Callisto and purchased in process research and development expense
was decreased by $159,092;

c.) Callisto recorded $209,076 of purchased in process research and development
as a result of the issuance of 263,741 warrants to two Callisto shareholders,
which warrants are immediately exercisable at $1.50 per share and will expire
ten years after issuance; and $60,750 of stock-based compensation expense
associated with shares of common stock issued to a shareholder for services
performed.

From November 2003 through January 2004, Callisto sold and issued 3,905,432
shares of common stock at an issue price of $1.50 for aggregate gross proceeds
of $5,858,148. Callisto incurred an aggregate of $508,615 in fees to various
selling agents and issued 31,467 shares of common stock and an aggregate 370,543
warrants to purchase common stock to such selling agents. The warrants are
immediately exercisable at $1.90 per share and will expire five years after
issuance. As of December 31, 2003, Callisto had closed on a portion of this
transaction, specifically 2,776,666 shares of common stock at a price of $1.50
per share for aggregate gross proceeds of $4,164,999, less $361,625 incurred in
fees to various selling agents.

During 2000, the Board of Directors approved an increase in the authorized
common shares from 35,000,000 shares to 60,000,000 shares and a one-for-three
reverse split of the common stock. All share and per share information has been
adjusted to reflect the stock split as if it had occurred at the beginning of
the earliest period presented. In May 2003, as part of the Merger, the
authorized common shares were increased to 75,000,000 shares and the authorized
preferred shares were increased to 20,000,000 shares.

F-19

During 2000, Callisto sold 2,252,441 shares of Series A convertible preferred
stock at $1.70 per share and 1,232,858 shares of Series B convertible preferred
stock at $1.75 per share. In addition the Board of Directors authorized the
issuance of 750,000 shares of Series C convertible preferred stock at $0.10 per
share to an executive officer of Callisto. The net proceeds from the sale of
these 4,235,299 shares of convertible preferred stock totaled $6,061,650. The
holders of the convertible preferred stock had equal voting rights with the
common stockholders, had certain liquidation preferences and were convertible at
any time into shares of common stock at a ratio of one share of common stock for
each share of convertible preferred stock at the election of the holder.
Callisto recorded compensation expenses of approximately $1,050,000 related to
the shares sold to the executive officer. During the second quarter of 2003 all
of the convertible preferred stockholders converted their shares of preferred
stock to common stock in connection with the Merger.

During 2000, Callisto also sold 4,526,903 shares of common stock at a purchase
price of $0.05 per share to certain officers and directors of the company for
services performed in the year 1999. Based on the most recent private placement
of common stock during the fourth quarter of 1999, the value of these shares was
determined to be $0.70 per share and Callisto recorded $3,168,832 as stock based
compensation expense for the twelve months ended December 31, 1999.

During 1998, as part of a settlement agreement between the founding partners of
CSO Ventures, Inc. and Callisto, one of the founders of CSO sold 836,792 shares
of common stock back to Callisto at a price of approximately $0.12 per share,
for $97,000. Concurrently Callisto entered into a stock purchase agreement with
a private investor to sell him 766,667 shares of common stock at a price of
$92,000 or $0.12 per share. The fair value of the common stock issued was
determined to $0.75 per share and Callisto recorded $483,000 of stock based
compensation expense.

During the period from December 1996 to December 1999, Callisto completed the
following private placements of its common stock:

Shares Price per share Gross proceeds
------ --------------- --------------

December 1996 1,366,667 $0.75 $1,025,000
December 1997 1,442,667 $0.75 1,081,999
October 1998 1,416,667 $0.75 1,062,500
January 1999 146,667 $0.75 110,000
December 1999 200,000 $0.75 150,000
--------- ----------

Total 4,572,668 $3,429,499
========= ==========

10. Subsequent events:

On July 22, 2004, the employment agreement of Donald H. Picker, Callisto's
Executive Vice President, R&D was amended. Dr., Picker's salary was increased
from $175,000 to $200,000 per year and certain milestones were added upon which
achievement cash bonuses of up to $92,500 over a 12 month period may be paid.

F-20

PART II

INFORMATION NOT REQUIRED IN THE PROSPECTUS

ITEM 24. INDEMNIFICATION OF OFFICERS AND DIRECTORS

Callisto Pharmaceuticals, Inc.'s Certificate of Incorporation provides
that to the fullest extent permitted by the Delaware General Corporation Law, a
director of the company shall not be personally liable to the company or its
stockholders for monetary damages for breach of fiduciary duty as a director.
Under current Delaware law, liability of a director may not be limited (i) for
any breach of the director's duty of loyalty to the company or its stockholders,
(ii) for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law, and (iii) for any transaction from
which the director derives an improper personal benefit. The effect of the
provision of the company's Certificate of Incorporation is to eliminate the
rights of the company and its stockholders (through stockholders' derivative
suits on behalf of the company) to recover monetary damages against a director
for breach of the fiduciary duty of care as a director (including breaches
resulting from negligent or grossly negligent behavior) except in the situations
described in clauses (i) through (iii) above. This provision does not limit or
eliminate the rights of the company or any stockholder to seek nonmonetary
relief such as an injunction or rescission in the event of a breach of a
director's duty of care. In addition, the company's Certificate of Incorporation
provides that the company shall indemnify to the fullest extent permitted by law
its directors, officers and employees and any other persons to which Delaware
law permits a corporation to provide indemnification against losses incurred by
any such person by reason of the fact that such person was acting in such
capacity.

Our officers and directors are also indemnified pursuant to the
Registration Rights Agreement entered into as of January 21, 2004 and the Common
Stock Purchase Agreement dated as of April 19, 2004. This agreement provides for
indemnification of officers and directors for losses, claims, damages or
liabilities incurred by these people arising out of his services as an officer
or director.

We have an insurance policy that insures our directors and officers,
within the limits and subject to the limitations of the policy, against certain
expenses in connection with the defense of actions, suits or proceedings, and
certain liabilities that might be imposed as a result of such actions, suits or
proceedings, to which they are parties by reason of being or having been
directors or officers.

ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The following table sets forth an estimate of the costs and expenses
payable by Callisto Pharmaceuticals, Inc. in connection with the offering
described in this registration statement. All of the amounts shown are estimates
except the Securities and Exchange Commission ("SEC") registration fee:

Securities and Exchange Commission Registration Fee $1,730
Printing and Engraving Expenses 2,500
Accounting Fees and Expenses 15,000
Legal Fees and Expenses 30,000
Blue Sky Fees 15,000
Miscellaneous 5,770
-------

Total $70,000

ITEM 6. RECENT SALES OF UNREGISTERED SECURITIES

On April 30, 2003, pursuant to an Agreement and Plan of Merger dated
March 10, 2003, as amended April 4, 2003, Synergy Acquisition Corp., a
wholly-owned subsidiary of Webtronics, Inc., or Webtronics, merged into Synergy
Pharmaceuticals Inc., or Synergy, and Callisto Acquisition Corp., a wholly-owned
subsidiary of Webtronics merged into Callisto Pharmaceuticals, Inc., or Old
Callisto (collectively, the "Merger"). As a result of the Merger, Old Callisto
and Synergy became wholly-owned subsidiaries of Webtronics. In the Merger,
Webtronics issued 17,318,994 shares of its common stock in exchange for
outstanding Old Callisto common stock and an additional 4,395,684 shares in
exchange for outstanding Synergy common stock. Old Callisto changed its name to
Callisto Research Labs, LLC and Webtronics changed its name to Callisto
Pharmaceuticals, Inc. and changed its state of incorporation from Florida to
Delaware. The issuance of shares was done in accordance with Regulation D under
the Securities Act of 1933, as amended. In connection therewith, a filing on
Form D with the Securities and Exchange Commission was made on May 15, 2003.
Subsequently, 171,818 shares of common stock issued to former Synergy
shareholders were returned to Callisto under the terms of certain
indemnification agreements.

In September 2003, Callisto issued 15,000 shares of common stock to The
Research Works, Inc. pursuant to a contract with Callisto to provide equity
research services. This issuance was done in accordance with Section 4(2) of the
Securities Act of 1933.

From November 2003 through January 2004, Callisto sold and issued
3,905,432 shares of common stock at an issue price of $1.50 for aggregate gross
proceeds of $5,858,148. The issuance of shares was done in accordance with
Regulation D under the Securities Act of 1933, as amended. In connection
therewith, a filing on Form D with the Securities and Exchange Commission was
made on November 21, 2003. Callisto incurred fees aggregating $508,615 to
various selling agents. In addition, Callisto issued 31,467 shares of common
stock and an aggregate 370,543 warrants to purchase common stock to such selling
agents. The warrants are immediately exercisable at $1.90 per share and will
expire five years after issuance.

On January 21, 2004, Callisto issued 263,741 warrants to purchase
common stock to two persons. This issuance was done in accordance with Section
4(2) of the Securities Act of 1933. The warrants are exercisable at $1.50 per
share and expire ten years after issuance.

II-1

On February 24, 2004, Callisto entered into an agreement with Houston
Pharmaceuticals, Inc. ("HPI") to acquire the rights to a novel site-directed DNA
intercalation cancer platform technology. Callisto issued to HPI 25,000 shares
of common stock and reimbursed HPI approximately $100,000 for various costs and
expenses. This issuance was done in accordance with Section 4(2) of the
Securities Act of 1933. In addition Callisto granted HPI 1,170,000 performance
based stock options exercisable at $3.50 per share which vest upon the
achievement of certain milestones.

On April 19, 2004, Callisto sold and issued 2,151,109 shares of common
stock at an issue price of $2.25 per share for aggregate gross proceeds of
$4,840,000. The issuance of shares was done in accordance with Regulation D
under the Securities Act of 1933, as amended. In connection therewith, a filing
on Form D with the Securities and Exchange Commission was made on April 27,
2004. Callisto incurred fees and expenses aggregating $280,600 to various
selling agents including Punk, Ziegel & Company who managed the private
placement. In addition, Callisto issued an aggregate 124,711 warrants to
purchase common stock to such selling agents. The warrants are immediately
exercisable at $2.48 per share and will expire five years after issuance.

ITEM 27. EXHIBITS

Exhibit Description
------- -----------

2.1 Agreement and Plan of Merger by and among Callisto Pharmaceuticals,
Inc., Webtronics, Inc., Callisto Acquisition Corp., Synergy
Pharmaceuticals Inc. and Synergy Acquisition Corp. dated as of March
10, 2003 (1)

2.2 Amendment to Agreement and Plan of Merger dated as of April 4, 2003 (2)

3.1 Certificate of Incorporation (3)

3.2 Bylaws (4)

4.1 1996 Incentive and Non-Qualified Stock Option Plan (5)

4.2 Form of Warrant to purchase shares of common stock issued in connection
with the sale of common stock (6)

5.1 Opinion of Sills Cummis Epstein & Gross, P.C.*

10.1 Employment Agreement dated June 13, 2003 by and between Callisto
Pharmaceuticals, Inc. and Gary S. Jacob (7)

10.2 Employment Agreement dated April 6, 2004 by and between Synergy
Pharmaceuticals Inc. and Kunwar Shailubhai (8)

10.3 Employment Agreement dated June 13, 2003 by and between Callisto
Pharmaceuticals, Inc. and Donald H. Picker (9)

10.4 Amendment to Employment Agreement dated April 6, 2004 by and between
Callisto Pharmaceuticals, Inc. and Donald H. Picker (10)

10.5 License Agreement dated as of August 28, 2002 by and between Synergy
Pharmaceuticals Inc. and AnorMED Inc. (11) **

10.6 Employment Agreement dated January 15, 2004 by and between Callisto
Pharmaceuticals, Inc. and Bernard Denoyer (12)

10.7 Form of Registration Rights Agreement dated as of January 21, 2004 by
and among the Registrant and the Purchasers set forth on the signature
page thereto (13)

10.8 Common Stock Purchase Agreement dated as of April 19, 2004 by and among
the Registrant and the purchasers set forth on Exhibit A thereto (14)

10.9 Amendment No. 1 to License Agreement dated as of May 23, 2003 by and
between Synergy Pharmaceuticals Inc. and AnorMED Inc.(15)

10.10 Amendment No. 2 to License Agreement dated as of July 8, 2004 by and
between Synergy Pharmaceuticals Inc., Callisto Pharmaceuticals, Inc.
and AnorMED, Inc. **

10.11 Amendment No. 2 to Employment Agreement dated July 22, 2004 by and
between Callisto Pharmaceuticals, Inc. and Donald H. Picker(16).

16 Letter of Changes in Registrant's Certifying Accountants (17)

21 List of Subsidiaries*

23.1 Consent of Sills Cummis Epstein & Gross, P.C. (included in Exhibit
5.1)*

23.2 Consent of BDO Seidman, LLP

24.1 Power of Attorney (Included on Page II-5)*

II-2

*Previously filed.

**Confidential treatment has been requested as to certain portions of this
exhibit which portions have been omitted and filed separately with the
Securities and Exchange Commission.

(1) Incorporated by reference to Exhibit 2.1 filed with the Company's
Current Report on Form 8-K filed on March 19, 2003.

(2) Incorporated by reference to Exhibit 2.2 filed with the Company's
Current Report on Form 8-K filed on April 30, 2003.

(3) Incorporated by reference to Exhibit 99.1 filed with the
Company's Current Report on Form 8-K filed on May 28, 2003.

(4) Incorporated by reference to Exhibit 99.2 filed with the
Company's Current Report on Form 8-K filed on May 28, 2003.

(5) Incorporated by reference to Exhibit 4.1 filed with the Company's
Current Report on Form 8-K filed on April 30, 2003.

(6) Incorporated by reference to Exhibit 10.1 filed with the
Company/s Current Report on Form 8-K filed on January 28, 2004.

(7) Incorporated by reference to Exhibit 10.1 filed with the
Company's Current Report on Form 10-QSB filed on August 20, 2003.

(8) Incorporated by reference to Exhibit 10.2 filed with the
Company's Annual Report on Form 10-KSB filed on April 14, 2004.

(9) Incorporated by reference to Exhibit 10.3 filed with the
Company's Current Report on Form 10-QSB filed on November 14,
2003.

(10) Incorporated by reference to Exhibit 10.4 filed with the
Company's Annual Report on Form 10-KSB filed on April 14, 2004.

(11) Incorporated by reference to Exhibit 10.4 filed with the
Company's Current Report on Form 10-QSB filed on November 14,
2003.

(12) Incorporated by reference to Exhibit 10.6 filed with the
Company's Annual Report on Form 10-KSB filed on April 14, 2004.

(13) Incorporated by reference to Exhibit 4.1 filed with the Company's
Current Report on Form 8-K filed on January 28, 2004.

(14) Incorporated by reference to Exhibit 10.1 filed with the
Company's Current Report on Form 8-K filed on April 19, 2004.

(15) Incorporated by reference to Exhibit 10.2 filed with the
Company's Current Report on Form 10-QSB on July 27, 2004.

(16) Incorporated by reference to Exhibit 10.1 filed with the
Company's Current Report on Form 10-QSB on July 27, 2004.

(17) Incorporated by reference to Exhibit 16 filed with the Company's
Current Report on Form 8-K filed on August 1, 2003.

ITEM 28. UNDERTAKINGS

(a) The undersigned Registrant hereby undertakes:

(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:

(i) To include any prospectus required by Section 10(a)(3)
of the Securities Act of 1933;

(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration
statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate,
represent a fundamental change in the information set
forth in the registration statement. Notwithstanding the
foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of
securities offered would not exceed that which was
registered) and any deviation from the low or high end of
the estimated maximum offering range may be reflected in
the form of prospectus filed with the Commission pursuant
to Rule 424(b) if, in the aggregate, the changes in volume
and price represent no more than 20 percent change in the
maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective
registration statement;

(iii) To include any material information with respect to
the plan of distribution not previously disclosed in the
registration statement or any material change to such
information in the registration statement;

(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall
be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering
thereof.

(3) To remove from registration by means of post-effective
amendment any of the securities being registered which remain
unsold at the termination of the offering.

II-3

(c) Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the Company pursuant to the foregoing provisions, or otherwise, the
Company has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Company of expenses
incurred or paid by a director, officer or controlling person of the Company in
the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.

II-4

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
the requirements for filing on Form SB-2 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of New York, State of New York, on this 5th day of
August, 2004.

CALLISTO PHARMACEUTICALS, INC.

By: /s/ Gary S. Jacob
-------------------------------
Gary S. Jacob
Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.

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

/s/ Gary S. Jacob Chief Executive Officer August 5, 2004
----------------- (Principal Executive Officer)
Gary S. Jacob

* Vice President, Finance August 5, 2004
-------------- (Principal Financial Officer)
Bernard F. Denoyer

* Chairman of the Board August 5, 2004
---------------
Gabriele M. Cerrone

* August 5, 2004
---------------
Iain G. Ross Director

* August 5, 2004
------------------
Edwin Snape Director

_________________ Director ___________ __, 2004
Albert J. Henry

* Director August 5, 2004
-----------------
Michael J. Zelefsky

_________________ Director ___________ __, 2004
Christoph Bruening

* Director August 5, 2004
----------------
John P. Brancaccio

* By: /s/ Gary S. Jacob
-----------------
Gary S. Jacob
Attorney-in-Fact

II-5

INDEX TO EXHIBITS

Exhibit Description
------- -----------

2.1 Agreement and Plan of Merger by and among Callisto
Pharmaceuticals,Inc., Webtronics, Inc., Callisto Acquisition
Corp., Synergy Pharmaceuticals Inc. and Synergy Acquisition Corp.
dated as of March 10, 2003 (1)

2.2 Amendment to Agreement and Plan of Merger dated as of April 4,
2003 (2)

3.1 Certificate of Incorporation (3)

3.2 Bylaws (4)

4.1 1996 Incentive and Non-Qualified Stock Option Plan (5)

4.2 Form of Warrant to purchase shares of common stock issued in
connection with the sale of common stock (6)

5.1 Opinion of Sills Cummis Epstein & Gross, P.C.*

10.1 Employment Agreement dated June 13, 2003 by and between Callisto
Pharmaceuticals, Inc. and Gary S. Jacob (7)

10.2 Employment Agreement dated April 6, 2004 by and between Synergy
Pharmaceuticals Inc. and Kunwar Shailubhai (8)

10.3 Employment Agreement dated June 13, 2003 by and between Callisto
Pharmaceuticals, Inc. and Donald H. Picker (9)

10.4 Amendment to Employment Agreement dated April 6, 2004 by and
between Callisto Pharmaceuticals, Inc. and Donald H. Picker (10)

10.5 License Agreement dated as of August 28, 2002 by and between
Synergy Pharmaceuticals Inc. and AnorMED Inc. (11) **

10.7 Employment Agreement dated January 15, 2004 by and between
Callisto Pharmaceuticals, Inc. and Bernard Denoyer (12)

10.7 Form of Registration Rights Agreement dated as of January 21, 2004
by and among the Registrant and the Purchasers set forth on the
signature page thereto (13)

10.8 Common Stock Purchase Agreement dated as of April 19, 2004 by and
among the Registrant and the purchasers set forth on Exhibit A
thereto (14)

10.9 Amendment No. 1 to License Agreement dated as of May 23, 2003 by
and between Synergy Pharmaceuticals Inc. and AnorMED Inc.(15)

10.10 Amendment No. 2 to License Agreement dated as of July 8, 2004 by
and between Synergy Pharmaceuticals Inc., Callisto
Pharmaceuticals, Inc. and AnorMED, Inc. **

10.11 Amendment No. 2 to Employment Agreement dated July 22, 2004 by and
between Callisto Pharmaceuticals, Inc. and Donald H. Picker(16).

16 Letter of Changes in Registrant's Certifying Accountants (17)

21 List of Subsidiaries*

23.1 Consent of Sills Cummis Epstein & Gross, P.C. (included in Exhibit
5.1)*

23.2 Consent of BDO Seidman, LLP

24.1 Power of Attorney (Included on Page II-5)*

** Confidential treatment has been requested as to certain portions of this
exhibit which portions have been omitted and filed separately with the
Securities and Exchange Commission.

(1) Incorporated by reference to Exhibit 2.1 filed with the Company's Current
Report on Form 8-K filed on March 19, 2003.

(2) Incorporated by reference to Exhibit 2.2 filed with the Company's Current
Report on Form 8-K filed on April 30, 2003.

(3) Incorporated by reference to Exhibit 99.1 filed with the Company's
Current Report on Form 8-K filed on May 28, 2003.

(4) Incorporated by reference to Exhibit 99.2 filed with the Company's
Current Report on Form 8-K filed on May 28, 2003.

(5) Incorporated by reference to Exhibit 4.1 filed with the Company's Current
Report on Form 8-K filed on April 30, 2003.

II-6

(6) Incorporated by reference to Exhibit 10.1 filed with the Company/s
Current Report on Form 8-K filed on January 28, 2004.

(7) Incorporated by reference to Exhibit 10.1 filed with the Company's
Current Report on Form 10-QSB filed on August 20, 2003.

(8) Incorporated by reference to Exhibit 10.2 filed with the Company's Annual
Report on Form 10-KSB filed on April 14, 2004.

(9) Incorporated by reference to Exhibit 10.3 filed with the Company's
Current Report on Form 10-QSB filed on November 14, 2003.

(10) Incorporated by reference to Exhibit 10.4 filed with the Company's Annual
Report on Form 10-KSB filed on April 14, 2004.

(11) Incorporated by reference to Exhibit 10.4 filed with the Company's
Current Report on Form 10-QSB filed on November 14, 2003.

(12) Incorporated by reference to Exhibit 10.6 filed with the Company's Annual
Report on Form 10-KSB filed on April 14, 2004.

(13) Incorporated by reference to Exhibit 4.1 filed with the Company's Current
Report on Form 8-K filed on January 28, 2004.

(14) Incorporated by reference to Exhibit 10.1 filed with the Company's
Current Report on Form 8-K filed on April 19, 2004.

(15) Incorporated by reference to Exhibit 10.2 filed with the Company's
Current Report on Form 10-QSB on July 27, 2004.

(16) Incorporated by reference to Exhibit 10.1 filed with the Company's
Current Report on Form 10-QSB on July 27, 2004.

(17) Incorporated by reference to Exhibit 16 filed with the Company's Current
Report on Form 8-K filed on August 1, 2003.

II-7