SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                   FORM 10-K/A

                                   (Mark one)
   |X| ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
                                     OF 1934

                  FOR THE FISCAL YEAR ENDED: DECEMBER 31, 2004
     |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
                              EXCHANGE ACT OF 1934

             For the transition period from _________ to ___________

                        Commission file number 001-32325

                         CALLISTO PHARMACEUTICALS, INC.
             (Exact Name of Registrant as Specified in its Charter)

            Delaware                                    13-3894575
(State or Other Jurisdiction of             (I.R.S. Employer Identification No.)
 Incorporation or Organization)


           420 Lexington Avenue, Suite 1609, New York, New York 10170
           ----------------------------------------------------------
               (Address of Principal Executive Offices) (Zip Code)

                                 (212) 297-0010
                (Issuer's telephone number, including area code)

      Securities registered pursuant to Section 12(b) of the Exchange Act:


       Title of each class       Name of each exchange on which registered
       -------------------------------------------------------------------
       Common Stock, $.0001 par value              American Stock Exchange

         Securities registered under Section 12(g) of the Exchange Act:


                                 Title of class
                                 --------------
                                      None

Indicate  by check  mark  whether  the  registrant:  (1) has filed  all  reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days.

                                 |X| Yes |_| No

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-K is not contained  herein,  and will not be contained,  to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |X|

Indicate  by check mark  whether  the  registrant  is an  accelerated  filer (as
defined in Exchange Act Rule 12b-2). | | Yes |X| No

The aggregate  market value of the voting and  non-voting  common equity held by
non-affiliates  of the registrant as of June 30, 2004, based on the closing sale
price on such date, was $45,660,790.

As of March 24, 2005 the registrant  had a total of 31,228,893  shares of Common
Stock outstanding.

                                EXPLANATORY NOTE

This Form 10-K/A to our Annual Report on Form 10-KSB for the year ended December
31, 2004 is being filed for the purposes of responding to comments received by
us from the Staff of the Securities and Exchange Commission. This Amendment
speaks as of the original filing date of our Annual Report on Form 10-KSB and
has not been updated to reflect events occurring subsequent to the original
filing date.

<PAGE>


                         CALLISTO PHARMACEUTICALS, INC.

                                    FORM 10-K

                                      INDEX

PART I                                                                      PAGE
                                                                            ----

Item 1.           Business                                                    3

Item 2.           Properties                                                 18

Item 3.           Legal Proceedings                                          18

Item 4.           Submission of Matters to a Vote of                         18
                  Security Holders

PART II

Item 5.           Market for Common Equity and Related                       18
                  Stockholder Matters

Item 6.           Selected Financial Data                                    19

Item 7.           Management's Discussion and Analysis
                  of Financial Condition and Results of Operations           19

Item 7A.          Quantitative and Qualitative Disclosures About
                  Market Risk                                                25

Item 8.           Financial Statements                                       25

Item 9.           Changes in and Disagreements with Accountants
                  On Accounting and Financial Disclosure                     25

Item 9A.          Controls and Procedures                                    25

PART III

Item 10.          Directors and Executive Officers of
                  the Registrant                                             26

Item 11.          Executive Compensation                                     30

Item 12.          Security Ownership of Certain
                  Beneficial Owners and Management                           33

Item 13.          Certain Relationships and Related Transactions             34

Item 14.          Principal Accountant Fees and Services                     35

PART IV

Item 15.          Exhibits                                                   35

                  Signatures                                                 38


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                                     PART I

This Form 10-K/A  contains  forward-looking  statements  that involve  risks and
uncertainties.  Such  forward-looking  statements are characterized by future or
conditional verbs and include,  but are not limited to, statements regarding the
results of product  development  efforts,  clinical trials and  applications for
marketing  approval  of  pharmaceutical  products,  and the scope and success of
future  operations.  Such statements are only predictions and our actual results
may  differ   materially  from  those   anticipated  in  these   forward-looking
statements. Factors that may cause such differences include, but are not limited
to, those  discussed  under "Risk Factors" and elsewhere in this Form 10-K/A for
the year ended  December 31,  2004,  as filed with the  Securities  and Exchange
Commission, including the uncertainties associated with product development, the
risk that  products  that  appeared  promising in early  clinical  trials do not
demonstrate efficacy in larger-scale  clinical trials, the risk that we will not
obtain  approval to market our products,  the risks  associated  with dependence
upon key personnel and the need for additional  financing.  We do not assume any
obligation to update forward-looking statements as circumstances change.

ITEM 1.  BUSINESS.

Callisto  Pharmaceuticals,  Inc.  is  referred  to  throughout  this  report  as
"Callisto," "we" or "us."

We are a biopharmaceutical  company focused on the development of drugs to treat
relapsed  (failure  of prior  therapy)  acute  leukemia,  multiple  myeloma  (an
incurable  blood cancer that invades and  proliferates  in bone  marrow),  other
cancers and osteolytic  bone disease (bone disease caused by white blood cells).
Our  lead  drug  candidate,  Annamycin,  a drug  from the  anthracycline  family
(chemotherapy drugs which are also antibiotics), earlier completed a Phase I/IIa
trial in leukemia  patients with residual  leukemic cells  (refractory) in their
bodies. Annamycin, originally developed by scientists at The University of Texas
M.D. Anderson Cancer Center to address the clinical limitations  associated with
anthracycline drugs such as Adriamycin (doxorubicin) to treat cancer, is planned
to begin a trial at The University of Texas M.D. Anderson Cancer Center in adult
relapsed  acute  lymphocytic  leukemia  (ALL)  patients in  mid-2005  which will
include an initial  evaluation of a small number of patients (2 cohorts totaling
approximately  6  patients)  in a Phase  I/IIa  trial that will be rolled into a
larger  Phase IIb trial.  We also expect to commence  two  additional  trials of
Annamycin in 2005,  a single agent trial in pediatric  relapsed ALL patients and
in  combination  with Ara-C  (cytosine  arabinoside)  in relapsed  acute myeloid
leukemia (AML) patients.

Our  second  drug  candidate,  Atiprimod,  is  an  orally  available  drug  with
antiproliferative and antiangiogenic activity. Atiprimod commenced a Phase I/IIa
clinical trial in relapsed  multiple myeloma patients on May 26, 2004. These are
patients that no longer respond to  chemotherapy,  and are in advanced stages of
the disease.  The Phase I/IIa clinical trial is currently being enrolled at four
sites, The University of Texas M.D.  Anderson Cancer Center  (Houston,  TX), the
Dana-Farber  Cancer  Institute  (Boston,  MA), the St.  Vincent's  Comprehensive
Cancer  Center (New York,  NY) and the Roswell Park Cancer  Institute  (Buffalo,
NY).

On January 6, 2004, we announced that the Office of Orphan Products  Development
of the United  States Food and Drug  Administration  (FDA)  granted  orphan drug
designation to Atiprimod for the treatment of multiple myeloma.

RECENT DEVELOPMENTS

On  March  9,  2005 we sold and  issued  in a  private  placement  an  aggregate
1,985,791  shares of common stock at a per share price of $1.52,  for  aggregate
gross proceeds of  approximately  $3.02 million.  Because this  transaction  was
completed with certain existing  institutional  shareholders and certain members
of our  management  we paid no fees to selling  agents and have agreed to file a
registration  statement  covering  resale  of the  shares  within 30 days of the
closing.

On March 15, 2005 we announced a second Phase I/IIa  clinical trial of Atiprimod
in advanced cancer patients.  The new trial is entitled: "An Open Label Study of
the Safety and  Efficacy of  Atiprimod  Treatment  for  Patients  with  Advanced
Cancer".  An open label trial is a trial where the  physicians  and patients are
aware of the amount of drug each patient  receives.  The trial protocol received
institutional  review  board,  or IRB,  approval  on  February  22,  2005 at The
University of Texas M.D.  Anderson Cancer Center.  Site initiation was completed
on March 3, 2005,  and patient  screening and dosing is  anticipated to begin in
April, 2005.

HISTORY

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 at 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 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  ("Callisto  Research") 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.

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<PAGE>


ANNAMYCIN TO TREAT RELAPSED LEUKEMIA

On August 12, 2004 we entered into a worldwide  exclusive license agreement with
The University of Texas M.D.  Anderson Cancer Center to develop and commercially
exploit the  Annamycin  patent  rights.  Annamycin,  an  anthracycline  drug for
leukemia therapy,  has a novel therapeutic  profile,  including activity against
drug resistant tumors and significantly reduced toxicity.

PRECLINICAL STUDIES

Nonclinical   studies  have  shown  that  Annamycin   encapsulated  in  a  lipid
preparation  (liposomal) is effective  against  several  different in vivo tumor
models (animal experiments), including human tumors which are resistant to other
chemotherapy drugs,  grafted into animals.  Additionally,  results from in vitro
studies (cell culture  experiments)  indicate that  liposomal  Annmycin and free
Annamycin were able to partially overcome tumor resistance to chemotherapy drugs
in  several  tumor  cell  lines,  that were  resistant  to other  drugs  such as
doxorubicin. In nonclinical toxicity studies, myelosuppression or suppression of
the body's immune  response,  was noted in mice at a single  intravenous dose of
15.7 mg/kg  liposomal  Annamycin.  With  weekly  intravenous  doses of 5.2 mg/kg
liposomal Annamycin for 6 weeks, or 3.1 and 4.2 mg/kg liposomal Annamycin for 10
weeks in mice,  the  cardiotoxicity  (toxicity  to heart  tissue)  of  liposomal
Annamycin was  substantially  less than an equivalent  dose of  doxorubicin.  In
dogs,  a single  15-minute  intravenous  infusion of up to 1.42 mg/kg  liposomal
Annamycin was well tolerated,  with no clinically  significant  adverse effects,
hematological or chemical changes, or pathological changes.

COMPLETED CLINICAL STUDIES

Annamycin was evaluated previously by Aronex Pharmaceuticals, Inc. in 3 clinical
trials:  1) a Phase I clinical  trial in 36 patients with relapsed solid tumors,
2) a Phase II clinical  trial in 13 patients with  doxorubicin-resistant  breast
cancer, and 3) a Phase I/IIa trial in 20 patients with  relapsed/refractory  AML
and ALL. In the initial Phase I study, liposomal Annamycin was administered by a
single 1- to 2-h intravenous  infusion at 3-week intervals.  Thirty-six patients
with  relapsed  solid  tumors  were  treated  and  109  treatment  courses  were
administered at doses ranging from 3 to 240 mg/m2. No cardiotoxicity was seen on
biopsy of heart tissue of four  patients  studied.  The maximum  tolerated  dose
(MTD) for liposomal Annamycin in solid tumor patients was found to be 190 mg/m2.
A second Phase II study of liposomal  Annamycin  was  performed in 13 women with
doxorubicin-resistant  breast  cancer.  The median number of prior  chemotherapy
regimes was two, and six  patients  had two or more organ sites of  involvement.
Liposomal  Annamycin was administered at 190-250 mg/m2 as a single i.v. infusion
over 1-2 h every 3 weeks. Of the 13 patients, 12 had clear deterioration and new
tumor growth after one or two courses.

The  potential of a less  cardiotoxic  drug that was active  against  multi-drug
resistant  tumors led to a third trial in relapsed  leukemia  patients (both AML
and ALL). The trial involved 20 patients with  relapsed/refractory AML (n=17) or
ALL (n=3).  Annamycin  was infused at a starting  dose of 190 mg/m2/day x 3 days
with  escalation to 230, 280, and 350 mg/m2/day x 3 days.  Notably,  this dosing
regime gave  cumulative  dosages that were 4 to 5-fold greater than was achieved
in solid tumor patients. Annamycin was generally well tolerated with no observed
cardiotoxicity.  The MTD was determined at 280 mg/m2/day x 3 days with grade 3/4
hepatotoxicity, or liver toxicity, and mucositis, or inflammation and lesions of
the  oral  mucosa,  observed  at the  highest  dose  levels.  Of the 20  treated
patients,  two achieved complete  remission (1 AML at 280 mg/m2/day x 3 days who
had  failed  prior  induction  therapy,  and 1 ALL at 350  mg/m2/day  x 3 days).
Importantly,  fifty percent of all patients  cleared their  immature white blood
cells, or blasts circulating in their blood stream and 43% cleared the blasts in
their bone  marrow.  The  conclusions  drawn from the trial were that  liposomal
Annamycin was safe, well tolerated and showed clinical activity in patients with
acute  leukemias,  and that further  evaluation of this novel  anthracycline  in
patients with hematopoietic, or blood borne, malignancies was clearly warranted.

DEVELOPMENT STRATEGY

We expect to  commence a trial of  liposomal  Annamycin  in adult  relapsed  ALL
patients at The  University  of Texas M.D.  Anderson  Cancer  Center in mid-2005
which will  include an  initial  evaluation  of a small  number of  patients  (2
cohorts  totaling  approximately 6 patients) in a Phase I/IIa trial that will be
rolled into a larger Phase IIb trial.  The clinical trial protocol was submitted
to the institutional  review board for approval in February 2005. We also expect
to commence two  additional  trials with  liposomal  Annamycin in 2005, a single
agent trial of liposomal  Annamycin in pediatric  relapsed ALL  patients,  and a
combination  trial of  liposomal  Annamycin in  combination  with Ara-C in adult
relapsed AML patients.

MANUFACTURING

An  improved   manufacturing   method  for  Annamycin  has  been   developed  at
Antibioticos  S.p.A.,  our  commercial  supplier  of  GMP  ("Good  Manufacturing
Practice")  drug  substance.   GMP  material  is  currently  being  produced  in
sufficient quantity for all three anticipated trials outlined in the development
strategy  section.   The  analytical  methods  developed  previously  have  been
successfully  transferred,  and  are  in  the  process  of  being  validated  by
Quantitative Technologies,  Inc., our analytical contract research organization,
or CRO, for Annamycin  development  work. The final  lyophilized  GMP formulated
drug  product  is being  manufactured  by  Pharmaceutical  Services,  Inc.,  who
previously  produced final product for the earlier clinical  trials.  Currently,
Antibioticos  S.p.A. is our sole supplier of Annamycin for our clinical  trials.
Our agreement  with  Antibioticos  provides that  Antibioticos  will provide 400
grams  of GMP  drug  substance  for our  Annamycin  clinical  trials.  Upon  the
conclusion of our Phase IIb clinical  trials,  the  agreement  provides that the
parties will negotiate in good faith towards a commercial  supply  agreement for
Annamycin.

ATIPRIMOD TO TREAT MULTIPLE MYELOMA

On August  28,  2002,  our  wholly-owned  subsidiary,  Synergy,  entered  into a
worldwide   license  agreement  with  AnorMED  Inc.   ("AnorMED"),   a  Canadian
corporation,  to research,  develop, sell and commercially exploit the Atiprimod
(SKF 106615) patent rights.

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

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<PAGE>


partnership  between  AnorMED and  SmithKline  Beecham  ("SKB")  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 ability to lower the level of key growth factors,  known to
play an important role in the development of multiple myeloma,  is the basis for
its  potential use as a drug to treat this  disease.  Atiprimod  was  previously
shown to inhibit  the  production  of the  pro-inflammatory  mediators  IL-6 and
TNF(alpha) in a number of animal models of inflammation and autoimmune  disease.
Atiprimod was also demonstrated using in vitro models of chemical cell signaling
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  (blood  vessel
related)  growth  factor  VEGF. A separate  set of  experiments  also suggest an
additional   explanation  for  the   disease-modifying   activity  of  Atiprimod
originally  observed in  chemically-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 (bone degradation  experiment) to measure
the  effect  of  drug  on   osteoclast-mediated   bone   resorption,   Atiprimod
demonstrated a profound effect on osteoclast, or white blood cell, function. The
drug appears to be  selectively  toxic for activated  osteoclasts,  displaying a
negligible effect on bone marrow stromal cells.

COMPLETED CLINICAL STUDIES

Atiprimod  successfully  completed  single  and  multiple  dose Phase I clinical
trials in patients with rheumatoid arthritis (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,  or the  concentration of drug in the body, 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 May 26, 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). On January 31, 2005, we announced the opening of two additional sites
for the Phase  I/IIa  clinical  trial of  Atiprimod,  the  Roswell  Park  Cancer
Institute  in Buffalo,  New York,  and the St.  Vincent's  Comprehensive  Cancer
Center in New York, New York.  The clinical  trial is an open label study,  with
the primary  objective of 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 the drug to better  determine the mechanism of
drug action. The duration of this clinical study depends on the enrollment rate,
how well the drug is  tolerated,  and on drug  response,  with final results not
anticipated until the end of 2005. If Atiprimod produces positive responses,  we
intend to initiate a Phase IIb trial in relapsed  multiple  myeloma  patients in
2006.

On March 15, 2005 we announced a second Phase I/IIa  clinical trial of Atiprimod
in advanced cancer patients.  The new trial is entitled: "An Open Label Study of
the Safety and  Efficacy of  Atiprimod  Treatment  for  Patients  with  Advanced
Cancer." The primary objective is to assess the safety and determine the maximum
tolerated  dose  of  Atiprimod  in  advanced  cancer  patients.   The  secondary
objectives  are to measure the  pharmacokinetics  of Atiprimod  and evaluate the
response in a variety of relapsed solid tumors and  hematological  malignancies.
The trial protocol  received IRB approval on February 22, 2005 at The University
of Texas M.D.  Anderson Cancer Center with Dr. Razelle Kurzrock as the Principal
Investigator.  Site  initiation  was  completed  on March 3, 2005,  and  patient
screening and dosing is  anticipated  to begin in April,  2005.  The duration of
this study is expected to depend on the  enrollment  rate,  how well the drug is
tolerated and on drug response.

MANUFACTURING

A practical,  efficient and cost effective  method for producing  Atiprimod on a
commercial scale was originally  developed by SKB. In the course of this work, a
new  dimaleate  salt form was  developed.  A portion of the 7 kilos of Atiprimod
drug  substance,  available  from SKB, was used as the source for generating the
Atiprimod  dimaleate  drug  product  presently  being  used in the  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.  One  large-scale GMP
production run of Atiprimod  dimaleate led to the successful release of 10 Kg of
material available for future Phase II clinical studies. We plan to enter into a
supply contract for Atiprimod with a commercial supplier by the end of 2005.

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

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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 of  America,  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.

SITE DIRECTED INTERCALATION TECHNOLOGY

On February 24, 2004, we entered into an agreement with Houston Pharmaceuticals,
Inc.  ("HPI") to  sublicense  the rights to a key patent  covering a  technology
platform for  site-directed  DNA  intercalation  and we acquired the rights to a
patent covering new anthracycline analogs.

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, or a compound's ability
to insert  between the base pairs in DNA. 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,  WP760, for melanoma that shows remarkable  selectivity for
human  melanoma  cancer  cell lines.  WP760 is  presently  being  pre-clinically
evaluated as a potential drug to treat melanoma.

GUANYLYL CYCLASE RECEPTOR AGONIST TECHNOLOGY

Our guanylyl  cyclase  receptor agonist (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 by 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
gastrointestinal   (GI)  tract.   Production  of  uroguanylin  is   dramatically
suppressed  in colon cancer  patients,  and there is  increasing  evidence  that
uroguanylin may have GI antiinflammatory properties.

Our GCRA  program  has  resulted in the  development  of SP304,  a  biologically
functional  analog  of  uroguanylin  that has  demonstrated  superior  activity,
enhanced  temperature  and protease  stability  and superior pH  characteristics
relative  to human  uroguanylin.  SP304  is  currently  undergoing  pre-clinical
evaluation as a treatment for GI inflammation in a collaborative study involving
clinical gastroenterologist Dr. Scott Plevy of the University of Pittsburgh.

SUPERANTIGEN-BASED BIOTERORRISM DEFENSE

On July 25, 2001, we entered into a license agreement to research, develop, sell
and commercially exploit certain Rockefeller University ("Rockefeller") licensed
patents covering peptides and antibodies useful in treating toxic shock syndrome
and septic shock.

We have  designed  both a  monoclonal  antibody  and a peptide  that prevent the
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  pyogenes.
These  bacteria  provide a  potential  opportunity  for  bioterrorists,  and, in
particular,  the toxin from  staphylococcus  aureus-b  is listed as a Category B
bioagent by the national  bioterrorism  defense  program.  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 an animal  model in which  toxic  shock is
induced by an  aerosolized  superantigen  toxin.  The research  work  involves a
collaboration  with Dr. Sina Bavari,  U.S.  Army Medical  Research  Institute of
Infectious  Diseases,   Fort  Detrick,  MD.  We  are  also  exploring  strategic
alternatives   regarding  further  development  of  the  superantigen   program,
including spin-off or strategic partnership.

GOVERNMENT REGULATION

Regulation by governmental authorities in the United States of America 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
in clinical  trials,  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.

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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.

If 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,  and other countries,  in which any products developed by us are
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 our ability to market the products
we develop.

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 $2,817,387 for
the year ended  December 31,  2004,  compared to  $1,369,985  for the year ended
December 31, 2003 and $491,430 for the year ended  December 31, 2002.  We expect
our research and  development  expenses to increase in 2005 as our products move
into more expensive later stages of development.

On October 7, 2003 we were awarded a $265,697 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 and were completed in November 2004, utilized
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.  Funding for the total amount
of this grant was received  during 2004 as expenses  were  incurred and $265,697
has been  reported on our  Consolidated  Statements  of Operations as a separate
line item entitled "Government Grant".

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 three 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.  Our composition of matter patents
for liposomal Annamycin and Atiprimod expire in 2008 and 2009, respectively. Our
formulation  patents for liposomal  Annamycin  and Atiprimod  expire in 2019 and
2018, respectively.

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,  and
to expend certain minimum resources to develop these technologies.

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

                                       7
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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.

LICENSE AGREEMENTS

On August 12,  2004,  we entered into a world-wide  license  agreement  with The
University of Texas M. D. Anderson Cancer Center to research,  develop, sell and
commercially  exploit the patent rights for  Annamycin.  Consideration  paid for
this license amounted to $31,497 for  reimbursement  of out-of-pocket  costs for
filing,  enforcing and  maintaining  the Annamycin  patent rights and a $100,000
initial  license  fee.  We also  agreed  to pay The  University  of  Texas M. D.
Anderson Cancer Center royalties based on net sales from any licensed  products,
plus aggregate milestone payments of up to $750,000 based upon achieving certain
regulatory  submissions and approvals.  The term of the agreement is from August
12, 2004 until November 2, 2019.  Under the terms of the license  agreement,  we
are  required to make  certain  good faith  expenditures  towards  the  clinical
development  of at least one licensed  product  within the two year period after
March 2005.  In addition,  at any time after 5 years from August 12,  2004,  The
University of Texas M.D.  Anderson  Cancer Center has the right to terminate the
license if we fail to provide  evidence within 90 days of written notice that we
have   commercialized   or  we  are  actively  and  effectively   attempting  to
commercialize Annamycin.

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 of up to
$14 million based upon achieving  certain  regulatory  submissions and approvals
for an initial indication, and additional payments of up to $16 million for each
additional  indication  based on achieving  certain  regulatory  submissions and
approvals.  In addition the agreement  requires Synergy to pay AnorMED royalties
on net sales.  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.  Pursuant to the
license  agreement,  failure to pay the  maintenance fee is a material breach of
the license agreement. The license agreement will terminate in 2018.

On February 24, 2004, we entered into an agreement  with HPI to  sublicense  the
rights to a key patent  covering a  technology  platform for  site-directed  DNA
intercalation  and we acquired the rights to a patent covering new anthracycline
analogs.  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.  In  addition,  we granted to HPI  1,170,000  performance  based stock
options,  exercisable  at $3.50 per share,  which vest upon the  achievement  of
certain milestones.  We also agreed to pay HPI royalties of 2% on net sales from
any products resulting from commercializing the site-directed DNA intercalation.
Pursuant  to the  sublicense  agreement,  in the event  our  Board of  Directors
determines to abandon its development and commercialization of the site-directed
DNA  intercalation,  HPI  shall  have the  right  to  terminate  the  sublicense
agreement.

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,  plus  royalties of 2% and 0.75% of net
sales of product  depending  on whether  the product is covered by a claim under
the licensed patents or derived from a claim under the licensed patents and will
pay  Rockefeller 15% of any sublicense fee paid by  sublicensees.  The agreement
will terminate on July 25, 2021. Rockefeller may terminate the license agreement
if we are more than 30 days late in paying Rockefeller any amounts due under the
license agreement or if we breach the license agreement.

EMPLOYEES

As of March 24, 2005, we had 4 full-time and 2 part-time  employees.  We believe
our employee relations are satisfactory.

AVAILABLE INFORMATION

We operate two wholly owned subsidiary  companies  Callisto  Research Labs, LLC.
and  Synergy   Pharmaceuticals  Inc.  ("Synergy");   and  we  own  two  inactive
subsidiaries,  IgX, Ltd (Ireland) and Callisto Pharma,  GmbH (Germany),  We were
incorporated  in  Delaware  in May 2003  and our  principal  offices  are at 420
Lexington Avenue, Suite 1609, New York, NY 10170.

We  maintain  a site on the  world  wide  web at  http://www.callistopharma.com;
however,  information found on our website is not incorporated by reference into
this report. We make available free of charge through our website our Securities
and Exchange  Commission,  or SEC, filings,  including our annual report on Form
10-K/A,  quarterly  reports  on Form  10-Q,  current  reports  on  Form  8-K and
amendments  to those  reports  filed or furnished  pursuant to Section  13(a) or
15(d)  of  the  Exchange  Act  as  soon  as  reasonably   practicable  after  we
electronically file such material with, or furnish it to, the SEC.

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                                  RISK FACTORS

YOU  SHOULD  CAREFULLY  CONSIDER  THE  FOLLOWING  RISK  FACTORS  AND  THE  OTHER
INFORMATION INCLUDED HEREIN AS WELL AS THE INFORMATION INCLUDED IN OTHER REPORTS
AND FILINGS MADE WITH THE SEC BEFORE  INVESTING IN OUR COMMON  STOCK.  IF ANY OF
THE  FOLLOWING  RISKS  ACTUALLY  OCCURS,  OUR BUSINESS,  FINANCIAL  CONDITION OR
RESULTS OF  OPERATIONS  COULD BE HARMED.  THE TRADING  PRICE OF OUR COMMON STOCK
COULD  DECLINE DUE TO ANY OF THESE  RISKS,  AND YOU MAY LOSE PART OR ALL OF YOUR
INVESTMENT.

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 and Phase IIb  clinical  trials that
              our  two  product  candidates,  Atiprimod  for  the  treatment  of
              relapsed  multiple  myeloma and  Annamycin  for the  treatment  of
              relapsed acute leukemia, respectively, are 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 Annamycin for the treatment of acute leukemia is
expected to enter clinical trials in mid-2005.  Our other product candidates are
in preclinical  development.  As a result, if we do not successfully develop and
commercialize  Atiprimod or Annamycin, 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 December 31, 2004, we had an accumulated  deficit of $33,361,197.  We have
incurred losses in each year since our inception in 1996. We incurred a net loss
of $7,543,467, $13,106,247 and $1,684,965 for the years ended December 31, 2004,
2003 and 2002, 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,  continue our
clinical trials of Atiprimod for the treatment of multiple myeloma, initiate our
clinical  trials of Annamycin for the treatment of acute  leukemias,  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  two  lead  product
              candidates,  Atiprimod for the  treatment of multiple  myeloma and
              Annamycin for the treatment of acute leukemias;

           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 and Annamycin and our other product candidates;

           o  license or acquire additional technologies;

                                       9
<PAGE>


           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 2004, our cash used in operations  increased  significantly  over 2003 and we
expect that our cash used in operations will increase significantly for the next
several years. Over the past 12 months, we have spent approximately $4.7 million
or  approximately  $400,000  per  month.  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  AGREEMENTS  WITH ANORMED INC. OR THE  UNIVERSITY OF TEXAS M.D.  ANDERSON
CANCER CENTER TERMINATE, OUR BUSINESS WOULD BE ADVERSELY AFFECTED.

Our business is dependent on rights we have  licensed  from AnorMED Inc. and The
University of Texas M.D. Anderson Cancer Center.  Under the terms of the AnorMED
license  agreement,  we are  obligated  to make a  maintenance  fee  payment  of
$200,000  on  January  1 of each  year  for the term of the  license  agreement.
Pursuant  to the  license  agreement,  failure to pay the  maintenance  fee is a
material  breach  of the  agreement.  We do not  anticipate  failing  to pay the
maintenance fee, however in the event we cannot pay the maintenance fee, AnorMED
may terminate the license  agreement and we would not be able to further develop
and commercialize  Atiprimod which would have an adverse effect on our business.
Under the terms of the The  University  of Texas  M.D.  Anderson  Cancer  Center
license  agreement,  we are  required to make  certain  good faith  expenditures
towards the clinical development of at least one licensed product within the two
year period after March 2005. In addition, at any time after 5 years from August
12, 2004, The University of Texas M.D.  Anderson  Cancer Center has the right to
terminate the license if we fail to provide  evidence  within 90 days of written
notice that we have commercialized or we are actively and effectively attempting
to  commercialize  Annamycin.  If we fail to fulfill these  obligations or other
material  obligations,  The  University  of Texas M.D.  Anderson  Cancer  Center
license  agreement  may be  terminated  and  our  business  would  be  adversely
affected.

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.

                                       10
<PAGE>


DELAYS IN CLINICAL  TESTING COULD RESULT IN INCREASED  COSTS TO US AND DELAY OUR
ABILITY TO GENERATE REVENUE.

While to date there have no delays in our  clinical  trials,  enrollment  in our
Atiprimod Phase I/IIa trial in multiple  myeloma was slower than anticipated due
to limited availability of relapsed multiple myeloma patients. In the future, 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 of America. We commenced in May 2004 a Phase I/IIa trial of Atiprimod for
the  treatment of multiple  myeloma.  We expect to commence a Phase IIb clinical
trial of Annamycin  for the  treatment  of acute  leukemias in the first half of
2005.  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 of America
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.

IF OUR PRODUCT CANDIDATES ARE UNABLE TO COMPETE EFFECTIVELY WITH MARKETED CANCER
DRUGS TARGETING SIMILAR  INDICATIONS AS OUR PRODUCT  CANDIDATES,  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,

                                       11
<PAGE>


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.

Numerous pharmaceutical and biotechnology companies have developed anthracycline
drugs used to treat acute leukemias  similar to our compound,  Annamycin.  These
compounds include  Adriamycin(R) and Ellence(R) which are marketed by Pfizer and
Cerubidine(R) which is marketed by Boehringer  Ingelheim.  These drugs have been
approved by the FDA and are  currently  being  marketed as opposed to  Annamycin
which is in clinical  development.  Atiprimod,  our drug  candidate for relapsed
multiple  myeloma,  works  through a different  mechanism of action than Velcade
which is  currently  marketed by  Millenium  Pharmaceuticals  and other drugs in
development, such as Celgene Corporation's Revlimid.

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 of America  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.
Currently, we do not have any plans to enter international markets. 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 OUR RELATIONSHIPS WITH OUR CONTRACT MANUFACTURER FOR ANNAMYCIN TERMINATES, OR
THEIR  FACILITIES  ARE  DAMAGED  OR  DESTROYED,  WE MAY BE UNABLE TO  DEVELOP OR
COMMERCIALIZE ANNAMYCIN.


Currently,  Antibioticos  S.p.A.  is our  sole  supplier  of  Annamycin  for our
clinical trials.  If our relationship  with this contract  manufacturer,  or any
other  contract  manufacturer  we  might  use,  terminates  or if any  of  their
facilities  are damaged for any reason,  including  fire,  flood,  earthquake or
other similar event,  we may be unable to obtain supply of Annamycin.  If any of
these events were to occur,  we may need to find  alternative  manufacturers  or
manufacturing  facilities.   The  number  of  contract  manufacturers  with  the
expertise, required regulatory approvals and facilities to manufacture Annamycin
on a commercial  scale is  extremely  limited,  and it would take a  significant
amount of time to arrange for alternative manufacturers. If we need to change to
other commercial  manufacturers,  the FDA and comparable foreign regulators must
approve these  manufacturers'  facilities and processes  prior to our use, which
would require new testing and compliance  inspections.  In addition,  we may not
have  the  intellectual  property  rights,  or may  have to  share  intellectual
property rights, to any improvements in the current  manufacturing  processes or
any new manufacturing processes for Annamycin.  Any of these factors could cause
us to  delay  or  suspend  clinical  trials,  regulatory  submissions,  required
approvals or

                                       12
<PAGE>


commercialization  of Annamycin,  entail  higher costs,  and could result in our
being  unable  to  commercialize  Annamycin  successfully.  Furthermore,  if our
contract  manufacturers  fail to deliver the required  commercial  quantities of
bulk drug  substance or finished  product on a timely basis and at  commercially
reasonable  prices,  and  we  were  unable  to  find  one  or  more  replacement
manufacturers  capable of  production  at a  substantially  equivalent  cost, in
substantially  equivalent  volumes and quality,  and on a timely basis, we would
likely  be unable to meet  demand  for  Annamycin  and we would  lose  potential
revenue.

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  and  prospective
Annamycin 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

                                       13
<PAGE>


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,  in  addition  to  developing  our
current product candidates,  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.  We currently
do not have any intentions to acquire another company.

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.

                                       14
<PAGE>


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 4 full-time  and 2 part-time  employees as of March
24,  2005.  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. Over the next
12 months depending on the progress of our planned  clinical trials,  we plan to
add  approximately  four  employees who we expect to assist us with our clinical
programs.  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 payers 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   payers  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.

                                       15
<PAGE>


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 March 24, 2005, 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 issued United States patents we own and
license  primarily are composition of matter and formulation  patents related to
Atiprimod  and  liposomal  Annamycin.  Our  composition  of matter  patents  for
liposomal  Annamycin and Atiprimod  expire in 2008 and 2009,  respectively.  Our
formulation  patents for liposomal  Annamycin  and Atiprimod  expire in 2019 and
2018, respectively.

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

                                       16
<PAGE>


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  of  America  may be
maintained in secrecy until the patents are issued,  because patent applications
in the United States of America 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  of  America  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.

                                       17
<PAGE>


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.

ITEM 2.  PROPERTIES.

We currently  lease 3,886 square feet of office space  located at 420  Lexington
Avenue,  Suite 1609,  New York,  New York through June 30, 2011.  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.

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.

ITEM 3.  LEGAL PROCEEDINGS.

We are not a party to any pending legal proceedings.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

There were no matters  submitted to a vote of security  holders during the three
months ended December 31, 2004.

PART II

ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

MARKET INFORMATION

Our common stock has been quoted on the American Stock Exchange under the symbol
"KAL" since October 25, 2004.  From May 21, 2003 to October 22, 2004, our common
stock was quoted on the OTC Bulletin Board under the symbol  "CLSP.OB." 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  prices  per  share for our  common  stock as  reported  on the
American  Stock  Exchange  and the OTC Bulletin  Board.  With respect to the OTC
Bulletin Board quotes,  these quotations reflect  inter-dealer  prices,  without
markup,  markdown  or  commissions  and may  not  necessarily  represent  actual
transactions or a liquid trading market.

2004                                  HIGH                       LOW
                                      ----                       ---

Fourth Quarter                        $2.08                     $1.50

Third Quarter                          2.01                      1.15

Second Quarter                         3.70                      1.95

First Quarter                          4.25                      3.25

2003                                   HIGH                      LOW
                                       ----                      ---

Fourth Quarter                        $4.05                     $3.95

Third Quarter                          5.30                      3.00

Second Quarter                         5.80                      4.50
(beginning May 21, 2003)

NUMBER OF STOCKHOLDERS

As of March 24, 2005, there were 195 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 the  operation and expansion of
our business.

                                       18
<PAGE>


ITEM 6.   SELECTED FINANCIAL DATA

          The following selected consolidated financial data should be read in
conjunction with our consolidated financial statements and related notes and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this Annual Report on Form 10-K/A. The
statements of operations data for the years ended December 31, 2004, 2003 and
2002 and the balance sheet data at December 31, 2004 and 2003 are derived from
our audited financial statements which are included elsewhere in this Form
10-K/A. The statement of operations data for the year ended December 31, 2001
and the balance sheet data at December 31, 2002 and 2001 are derived from our
audited financial statements which are not included in this Form 10-K/A. The
statement of operations data for the year ended December 31, 2000 and the
balance sheet data at December 31, 2000 are derived from our unaudited financial
statements not included in this Form 10-K/A. The historical results are not
necessarily indicative of results to be expected for future periods. The
following information is presented in thousands, except per share data.

<TABLE>
<CAPTION>
                                                                               FOR THE YEAR ENDING  DECEMBER 31,

                                                               2004           2003           2002           2001           2000
<S>                                                      <C>            <C>            <C>            <C>            <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:

Revenues                                                 $      -0-     $      -0-     $      -0-     $      -0-     $      -0-
Operating expenses:
Research and development                                      2,817          1,370            491            653            897
Government grant                                               (266)            --             --             --             --
Purchased in process research and development                   210          6,735             --             --             --
Stock-based compensation - research and development           1,508            434             --             --             --
General and administrative                                    2,363          1,398          1,228            939            857
Stock-based compensation - general and administrative         1,224          3,400             --             22          1,054
Loss from operations                                         (7,857)       (13,337)        (1,719)        (1,614)        (2,809)
Other income                                                    229            222             --             --             --
Interest income                                                  84              9             34            182            192
Net loss                                                 $   (7,544)    $  (13,106)    $   (1,685)    $   (1,432)    $   (2,616)
Net loss per common share -- basic and diluted           $    (0.26)    $    (0.61)    $    (0.10)    $    (0.08)    $    (0.15)
Weighted average number of common shares
outstanding -- basic and diluted                             28,485         21,358         17,319         17,319         17,319


                                                                                     AS OF DECEMBER 31,

                                                               2004           2003           2002           2001           2000
CONSOLIDATED BALANCE SHEET DATA:

Cash and cash equivalents                                $    5,323     $    3,956     $    2,223     $    3,627     $    4,948
Total assets                                                  5,470          4,119          2,272          3,651          4,955
Total current liabilities                                     1,220          1,264            440            138             31
Accumulated deficit during development stage                (33,361)       (25,818)       (12,711)       (11,027)        (9,594)
Total stockholders' equity                               $    4,249     $    2,855     $    1,829     $    3,513     $    4,923
</TABLE>

ITEM 7.   MANAGEMENT'S  DISCUSSION  AND  ANALYSIS  OF  FINANCIAL  CONDITION  AND
          RESULTS OF OPERATIONS

The  following  discussion  should  be read in  conjunction  with our  financial
statements and other financial  information  appearing  elsewhere in this Annual
Report.  In addition to historical  information,  the following  discussion  and
other parts of this  Annual  Report  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 December 31, 2004, we have sustained  cumulative net losses of
$33,361,197.  Our losses have resulted  primarily from expenditures  incurred in
connection  with  clinical  development  of licensed  products,  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 December 31, 2004 we have not generated any revenue from
operations.  We expect to incur  substantial and increasing  losses for the next
several  years  as we  develop  our  product  candidates,  expand  our  clinical
development  team  and  prepare  for  the  commercial   launch  of  our  product
candidates. We do not currently have any commercial  biopharmaceutical products,
and do not expect to have such for several years, if at all.

                                       19
<PAGE>


To date,  our  sources  of cash have been  primarily  limited to the sale of our
equity  securities.  On March 9, 2005,  we  completed a private  placement of an
aggregate  1,985,791  shares of our common  stock at a per share price of $1.52,
for net  proceeds  of  $2,993,402.  The  financing  was led by  certain  current
institutional  shareholders and included  certain members of our management.  We
have devoted  substantially all of our capital resources to the in-licensing and
development of our product candidates.

Our research and development expenses consist primarily of costs associated with
an in-house research and development laboratory, salaries and staff, 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.  We expense
all research and development costs as they are incurred.  We expect our research
and development  expenses to increase  significantly in the future as we develop
our product candidates.

Our general and administrative  expenses primarily include personnel and related
costs,   rent  and  professional   service  fees.  We  expect  our  general  and
administrative  expenses to increase significantly over the next few years as we
continue to build our  operations  to support our product  candidates  and as we
incur costs associated with being a publicly traded company.

HISTORY

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

PLAN OF OPERATIONS

Our plan of operations  for the next twelve months is to focus  primarily on the
development  of two drugs to treat  leukemia and multiple  myeloma (an incurable
blood cancer that invades and  proliferates  in bone  marrow).  Our lead drug in
development for leukemia,  Annamycin,  earlier  completed a Phase I/IIa trial in
refractory  leukemia  patients.  We plan to initiate clinical trials in relapsed
(failure of prior therapy) leukemia patients in 2005. Our second drug candidate,
Atiprimod,  is presently  in a Phase I/IIa  clinical  trial in multiple  myeloma
patients,   and  is  an  orally  available  drug  with   antiproliferative   and
antiangiogenic  activity.  We also have three drugs in preclinical  development,
WP760, for melanoma, SP304 for gastrointestinal  inflammation,  and a monoclonal
antibody that is being explored as a biodefensive  agent against  staphylococcal
and streptococcal bioweapons.

ANNAMYCIN

On August 12,  2004,  we entered into a world-wide  license  agreement  with The
University of Texas M.D. Anderson Cancer Center to research,  develop,  sell and
commercially  exploit the patent rights for Annamycin,  an  anthacycline  cancer
drug for  leukemia  therapy.  Consideration  paid for this  license  amounted to
$31,497 for  reimbursement  of  out-of-pocket  costs for filing,  enforcing  and
maintaining the Annamycin  patent rights and a $100,000  initial license fee. We
also agreed to pay The University of Texas M.D. Anderson Cancer Center royalties
based on net sales from any licensed products, plus aggregate milestone payments
of up to  $750,000  based upon  achieving  certain  regulatory  submissions  and
approvals.  The term of the agreement is from August 12, 2004 until  November 2,
2019. Under the terms of the license agreement,  we are required to make certain
good  faith  expenditures  towards  the  clinical  development  of at least  one
licensed  product  within the two year period after March 2005. In addition,  at
any time  after 5 years from  August  12,  2004,  The  University  of Texas M.D.
Anderson  Cancer  Center has the right to  terminate  the  license if we fail to
provide evidence within 90 days of written notice that we have commercialized or
we are actively and effectively attempting to commercialize Annamycin.

Annamycin was discovered by scientists at The University of Texas M.D.  Anderson
Cancer Center and initially evaluated in a Phase I clinical trial in 36 patients
with  relapsed  solid  tumors,  a Phase II clinical  trial in 13  patients  with
doxorubicin-resistant breast cancer, and a Phase I/IIa trial in 20 patients with
relapsed/refractory  acute  myeloid  leukemia,  or  AML  and  acute  lymphocytic
leukemia,  or ALL. We expect to commence a trial of Annamycin in adult  relapsed
ALL patients at The University of Texas M.D.  Anderson Cancer Center in mid-2005
which will  include an  initial  evaluation  of a small  number of  patients  (2
cohorts  totaling  approximately 6 patients) in a Phase I/IIa trial that will be
rolled into a larger Phase IIb trial.  The clinical trial protocol was submitted
to the institutional  review board for approval in February 2005. We also expect
to commence two  additional  trials with Annamycin in 2005, a single agent trial
of Annamycin in pediatric  relapsed ALL  patients,  and a  combination  trial of
Annamycin in combination with Ara-C in adult relapsed AML patients.

ATIPRIMOD

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 of up to
$14 million based upon achieving  certain  regulatory  submissions and approvals
for an initial indication, and additional payments of up to $16 million for each
additional  indication  based on achieving  certain  regulatory  submissions and
approvals.  In addition the agreement  requires Synergy to pay AnorMED royalties
on net sales.  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,

                                       20
<PAGE>


2004. Pursuant to the license agreement, failure to pay the maintenance fee is a
material breach of the license  agreement.  The license agreement will terminate
in 2018.

On May 26,  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). On January 31, 2005, we announced the opening of two additional sites
for the Phase  I/IIa  clinical  trial of  Atiprimod,  the  Roswell  Park  Cancer
Institute  in Buffalo,  New York,  and the St.  Vincent's  Comprehensive  Cancer
Center in New York,  NY. The  clinical  trial is an open label  study,  with the
primary  objective  of  assessing  the  safety of the 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  depends on the
enrollment  rate,  how well the drug is tolerated,  and on drug  response,  with
final  results not  anticipated  until the end of 2005.  If  Atiprimod  produces
positive responses, we intend to initiate a Phase IIb trial in relapsed multiple
myeloma patients in 2006.

On March 15, 2005 we announced a second Phase I/IIa  clinical trial of Atiprimod
in advanced cancer patients.  The new trial is entitled: "An Open Label Study of
the Safety and  Efficacy of  Atiprimod  Treatment  for  Patients  with  Advanced
Cancer". The primary objective is to assess the safety and determine the maximum
tolerated  dose (MTD) of Atiprimod in advanced  cancer  patients.  The secondary
objectives  are to measure the  pharmacokinetics  of Atiprimod  and evaluate the
response in a variety of relapsed solid tumors and hematologic malignancies. The
trial protocol  received  institutional  review board (IRB) approval on February
22, 2005 at The University of Texas M.D. Anderson Cancer Center with Dr. Razelle
Kurzrock as the Principal  Investigator.  Site initiation was completed on March
3, 2005, and patient screening and dosing began in April,  2005. The duration of
this study will depend on the  enrollment  rate,  how well the drug is tolerated
and on drug response.

SITE DIRECTED INTERCALATION TECHNOLOGY

On February 24, 2004, we entered into an agreement  with HPI to  sublicense  the
rights to a key patent  covering a  technology  platform for  site-directed  DNA
intercalation  and we acquired the rights to a patent covering new anthracycline
analogs.  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  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.

In  addition,  we 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, we will record additional purchased
in-process  research and  development  expense  based upon the fair value of the
options at that time.  We also  agreed to pay HPI  royalties  of 2% on net sales
from  any  products  resulting  from   commercializing   the  site-directed  DNA
intercalation.  Pursuant to the sublicense agreement,  in the event our Board of
Directors  determines to abandon its  development and  commercialization  of the
site-directed  DNA  intercalation,  HPI shall  have the right to  terminate  the
sublicense   agreement.   The   technology   platform  for   site-directed   DNA
intercalation  is exemplified by the  identification  of a lead drug  candidate,
WP760, for melanoma that shows remarkable  selectivity for human melanoma cancer
cell lines.  We are  presently  evaluating  this drug  pre-clinically  in animal
models of human melanoma,  and based on these results plan to make a decision in
2005 on further development of WP760.

GUANYLYL CYCLASE RECEPTOR AGONIST TECHNOLOGY

Our GCRA  program  has  resulted in the  development  of SP304,  a  biologically
functional analog that has demonstrated  superior biological activity,  enhanced
temperature and protease stability and superior pH  characteristics  relative to
human uroguanylin.  SP304 is currently undergoing  pre-clinical  evaluation as a
treatment  for GI  inflammation  in a  collaborative  study  involving  clinical
gastroenterologist  Dr. Scott Plevy of the  University of  Pittsburgh.  Based on
these  animal  studies,  we plan in 2005 to make a decision  on moving this drug
forward into the clinic.

SUPERANTIGEN-BASED BIOTERORRISM DEFENSE

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,  plus  royalties of 2% and 0.75% of net
sales of product  depending  on whether  the product is covered by a claim under
the licensed patents or derived from a claim under the licensed patents and will
pay  Rockefeller 15% of any sublicense fee paid by  sublicensees.  The agreement
will terminate on July 25, 2021. Rockefeller may terminate the license agreement
if we are more than 30 days late in paying Rockefeller any amounts due under the
license agreement or if we breach the license agreement.

We are exploring the development of a 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 an animal model in which toxic
shock is  induced  by an  aerosolized  superantigen  toxin.  The  research  work
involves a  collaboration  with Dr. Sina  Bavari,  U.S.  Army  Medical  Research
Institute  of  Infectious  Diseases,  Fort  Detrick,  MD. We are also  exploring
strategic   alternatives  regarding  further  development  of  the  superantigen
program, including spin-off or strategic partnership.

MANUFACTURING

An  improved   manufacturing   method  for  Annamycin  has  been   developed  at
Antibioticos S.p.A., our commercial supplier of Good Manufacturing  Practice, or
GMP,  drug  substance.  GMP material is currently  being  produced in sufficient
quantity  for all three  anticipated  Phase II trials.  Currently,  Antibioticos
S.p.A. is our sole supplier of Annamycin for our clinical trials.  Our agreement
with Antibioticos  provides that  Antibioticos  S.p.A. will provide 400 grams of
GMP drug substance for our Annamycin clinical trials. Upon the conclusion of our
Phase IIb clinical trials, the agreement

                                       21
<PAGE>


provides  that the parties  will  negotiate  in good faith  towards a commercial
supply  agreement  for  Annamycin.   If  our  relationship  with  this  contract
manufacturer,  or any other contract manufacturer we might use, terminates or if
any of their  facilities  are  damaged for any reason,  including  fire,  flood,
earthquake  or other  similar  event,  we may be  unable  to  obtain  supply  of
Annamycin. If any of these events were to occur, we may need to find alternative
manufacturers or manufacturing facilities.  The number of contract manufacturers
with the expertise,  required regulatory approvals and facilities to manufacture
Annamycin  on a  commercial  scale is  extremely  limited,  and it would  take a
significant amount of time to arrange for alternative manufacturers.  If we need
to change to other  commercial  manufacturers,  the FDA and  comparable  foreign
regulators must approve these  manufacturers'  facilities and processes prior to
our use,  which  would  require  new  testing  and  compliance  inspections.  In
addition, we may not have the intellectual property rights, or may have to share
intellectual  property rights, to any improvements in the current  manufacturing
processes or any new manufacturing processes for Annamycin. Any of these factors
could  cause us to delay or suspend  clinical  trials,  regulatory  submissions,
required approvals or commercialization  of Annamycin,  entail higher costs, and
could result in our being unable to commercialize Annamycin successfully.

One large-scale GMP production run of Atiprimod  dimaleate led to the successful
release of 10 Kg of material available for future Phase II clinical studies.  We
plan to enter into a supply contract for Atiprimod with a commercial supplier by
the end of 2005.

EMPLOYEES

Our  plan is to use  contract  research  organizations  (CROs)  for  most of our
development  efforts,  including  monitoring  of clinical  trial  results,  thus
minimizing the need to hire full time employees. As of March, 24, 2005, we had 4
full-time and 2 part-time employees.


OFF-BALANCE SHEET ARRANGEMENTS

We had no off-balance sheet arrangements as of December 31, 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 Annual Report on
Form  10-K/A  for the  fiscal  year  ended  December  31,  2004.  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.  Other stock based compensation associated with grants to
non-employees,  as well as Directors who perform services outside of their Board
duties,  is measured  using the fair value method.  We rely heavily on incentive
compensation  in the form of stock  options  to  recruit,  retain  and  motivate
directors, executive officers, employees and consultants. Incentive compensation
in the form of stock  options  is  designed  to  provide  long-term  incentives,
develop and maintain an ownership stake and conserve cash during our development
stage.  Since  inception  through  December  31, 2004 stock  based  compensation
expense  totaled  $11,351,272,  or  approximately  one third of our  accumulated
deficit.

We account for stock options and warrants granted to non-employees  based on the
fair value of the stock option or warrant using the Black-Scholes option-pricing
model based on assumptions for expected stock price volatility, expected term of
the option,  risk-free  interest rate and expected  dividend  yield at the grant
date.

The single most significant  factor impacting our operating results is the price
of our  stock  which  is used in the  computation  of  stock-based  compensation
expense,  particularly  for variable  options.  Our stock price  fluctuated from
$3.95 per share as of December  31,  2003 to $1.98 per share as of December  31,
2004.  As of December 31, 2004,  428,500 of our  non-employee  options  required
variable  accounting  treatment in accordance  with FASB  Interpretation  No. 44
"Accounting  for  Certain   Transactions   Involving  Stock   Compensation,   an
Interpretation  of APB Opinion No. 25" ("FIN 44"). Our stock-based  compensation
expense  associated with these  non-employee  variable options during the twelve
months ended December 31, 2003 was $1,108,817,  whereas we reversed  $816,865 of
this expense  during the twelve  months ended  December 31, 2004 due entirely to
the fluctuation in our stock price.

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.

                                       22
<PAGE>


RESULTS OF OPERATIONS

YEARS ENDED DECEMBER 31, 2004 AND DECEMBER 31, 2003.

The results of operations of Synergy are included in the consolidated statements
of operations since the Merger on April 30, 2003.

We had no revenues  during the twelve  months  ended  December 31, 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  $1,447,402,  or 106%,
to $2,817,387 for the twelve months ended December 31, 2004 from  $1,369,985 for
the twelve months ended  December 31, 2003. The single most  significant  factor
contributing  to  this  increase  in  research  and   development   expense  was
approximately  $500,000 in higher costs  associated with the commencement of our
Phase I/IIa  clinical  trials of Atiprimod in May of 2004.  These clinical trial
expenses   included  patient  costs,   drug  formulation  and  tableting,   data
collection,  monitoring, insurance, and FDA consultants. During the twelve month
period ended December 31, 2003 our Atiprimod  project expenses were pre-clinical
in nature,  associated with preparing our IND application.  Also contributing to
this  increase in research and  development  expense in the twelve  months ended
December 31, 2004 were our payments of the first annual $200,000 maintenance fee
to AnorMED, Inc. for the Atiprimod license In addition personnel costs increased
approximately  $300,000 as we retained two Synergy  executive staff  scientists,
Drs. Picker and Shailubhai, subsequent to the Merger and we incurred $137,000 of
costs to develop a new GMP certified  commercial  production capacity for future
trials of Atiprimod. The remainder of the increase was primarily attributable to
$160,000 of higher expenses paid to outside collaborating institutions under our
government research grant for Atiprimod.

Our  Annamycin  project,  which  started  in the latter  part of 2004,  incurred
expenses  primarily  limited to a $100,000  initial  license  fee and $31,000 in
patent  related legal fees paid to The  University  of Texas MD Anderson  Cancer
Center.  Until the latter part of 2004 our lead drug candidate was Atiprimod and
almost all of our resources were devoted to that project.  Concurrently with the
license of Annamycin we began  implementing  a project  cost  management  system
which became effective  January 1, 2005. This system captures all of our outside
variable project cost (e.g. patient costs, drug formulation and tableting,  data
collection,  monitoring,  insurance,  and FDA  consultants)  associated with the
clinical  development  of  each  of our  drug  candidates.  With  regard  to our
relatively  fixed  and  smaller  research  and  development  overhead  expenses,
principally  salaries  and  facilities,  we  are  not  able  to  accurately  and
meaningfully  determine project  allocations at this time. We do believe however
that these internal fixed  resources are expended on projects  approximately  in
proportion to our outside variable costs.

Stock-based  compensation -- research and development recorded during the twelve
months  ended  December  31, 2004,  totaled  $1,508,588  as compared to $434,187
recorded  during the twelve  months ended  December 31, 2003.  This increase was
primarily  attributable to restructuring of Dr. Kunwar M. Shalubhai's employment
agreement,  which resulted in deferred compensation cost associated with 225,000
cancelled  options of $706,813 as of the date of  cancellation  being charged to
stock-based  compensation  expense  during the year ended December 31, 2004 (see
Footnote  8  to  our  Consolidated  Financial   Statements).   In  addition  our
stock-based  compensation - research and development  recorded during the twelve
months ended December 31, 2004 reflects a full year of expense  attributable  to
options  granted to our  scientific  staff at mid-year  2003  subsequent  to the
Merger with Synergy in April 2003.

Government  grant  funding for the twelve  months  ended  December  31, 2004 was
$265,697 as compared to $0 for the twelve  months ended  December  31, 2003.  We
request  grant  funding  to  reimburse  research  and  development  expenses  as
incurred.

General and  administrative  expenses for the twelve  months ended  December 31,
2004 were  $2,362,773,  an increase of $964,683 or 69%, from  $1,398,090 for the
twelve  months  ended  December 31,  2003.  The  increase  was due  primarily to
approximately (i) $300,000 of increased  personnel costs principally as a result
of the Merger and recruitment costs related to hiring  personnel,  (ii) $220,000
in  higher  facilities  and  office  overhead  related  to the move into our new
corporate  headquarters  in New York City during the quarter ended  December 31,
2003, (iii) $340,000 in higher outside  services  associated with being a public
company including outside directors,  transfer agent fees and investor relations
and (iv)  $80,000 in higher  business  travel  principally  attending  investor,
professional and medical  conferences in the United States,  England,  Italy and
Germany.

Stock-based  compensation  -- general  and  administrative  recorded  during the
twelve  months  ended  December  31,  2004,  totaled  $1,224,182  as compared to
$3,399,759  recorded  during the twelve  months ended  December  31, 2003.  This
decrease was primarily  attributable to a decrease in our stock price from $3.95
as of December 31, 2003 to $1.98 per share as of December  31, 2004.  This share
price decrease resulted in the recapture during 2004 of stock based compensation
recorded on certain variable  options granted to non-employees  during 2003. The
stock-based  compensation  expense associated with these variable options during
the twelve months ended  December 31, 2003 was  $1,108,817,  whereas we reversed
$816,865 of this expense during the twelve months ended December 31, 2004.

Purchased in-process research and development was $209,735 for the twelve months
ended December 31, 2004,  primarily in connection with the acquisition of rights
to two key patents  covering a novel  cancer  platform  technology  from Houston
Pharmaceuticals,  Inc.  During the twelve  months  ended  December  31,  2003 we
recorded $6,734,818 of purchased  in-process research and development expense in
connection with the Merger.

During  December  2004 and 2003,  Synergy sold certain New Jersey State tax loss
carry  forwards  under  a  state  economic   development  program  for  cash  of
approximately  $233,000 and $222,000  respectively  , the proceeds of which were
used to support  research and development  activities in New Jersey.  This state
tax  benefit was  recorded  as Other  Income  during the fourth  quarters  ended
December 31, 2004 and 2003.

Net loss for the twelve months ended December 31, 2004 was  $7,543,467  compared
to a net loss of  $13,106,247  incurred for the twelve months ended December 31,
2003.  The  decreased  net loss is primarily  the result of the lower  purchased
in-process  research  and  development  expenses,  partially  offset  by  higher
research,  development,  general and administrative expenses discussed above. In
addition we recorded lower stock based compensation expense of $2,732,770 during
the twelve months ended  December 31, 2004,  as compared to $3,833,946  recorded
during the same period ended December 31, 2003.

YEARS 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 did not have any commercial biopharmaceutical products.

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
application for

                                       23
<PAGE>


Atiprimod in September of 2003.  These IND  application  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 application 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  Merger.  No such  expenses  were  incurred  in 2002.  Our
research and development  expenses were primarily incurred negotiating and doing
due  diligence  in  anticipation  of the Merger  and  maintaining  our  existing
superantigen-based   bioterrorism  defense  patents  licensed  from  Rockefeller
University.

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 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 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 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
$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 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 December 31, 2004 we had $5,323,384 in cash and cash equivalents, compared
to  $3,956,486  as of December 31,  2003.  This  increase in cash of  $1,366,898
during the twelve months ended December 31, 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
$4,732,114  during the twelve  months  ended  December  31,  2004.  Cash used in
operating  activities was primarily for research and development and general and
administrative  expenses discussed above totaling  $5,180,160,  less $265,697 in
government  grant funding and $233,382 in cash received from the sale of certain
New Jersey  State tax loss carry  forwards  under a state  economic  development
program.

On  March  9,  2005 we sold and  issued  in a  private  placement  an  aggregate
1,985,791  shares of common stock at a per share price of $1.52,  for  aggregate
gross proceeds of  approximately  $3.02 million.  Because this  transaction  was
completed with certain existing  institutional  shareholders and certain members
of our  management  we paid no fees to selling  agents and have agreed to file a
registration statement covering resale of the shares within 30 days of closing.

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.

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  for  aggregate
proceeds of  $1,693,149,  less $139,891 in fees to various  selling  agents.  In
addition,  we incurred 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.

On October 7, 2003 we were awarded a $265,697 Small Business Technology Transfer
Research grant from the National  Institutes of Health for studies on Atiprimod.
The studies began in early 2004 and were completed in November 2004. Funding for
the total amount of this grant was received during 2004 and has been reported on
our  Consolidated  Statements  of  Operations  as a separate  line item entitled
"Government Grant".

Our capital resources will be focused primarily on the clinical  development and
regulatory  approval of Annamycin for acute  leukemia and Atiprimod for multiple
myeloma  and bone  resorption  disease,  a major  complication  associated  with
multiple  myeloma  disease.  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 may take
several  years to achieve.  We will need  additional  funding to complete  these
activities. 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.

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. Any debt financing, if available,  may
involve restrictive covenants that impact our ability to conduct our

                                       24
<PAGE>


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 expect that our existing  capital  resources  will be  sufficient to fund our
operations for at least the next 12 months.

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,  2004,  and is based on
information appearing in the Notes to Consolidated Financial Statements.

<TABLE>
<CAPTION>
                                                 Less than         1-2           3-5       More than
                                     Total         1 Year         Years         Years       5 Years
                                   ----------    ----------    ----------    ----------    ---------
<S>                                <C>           <C>           <C>           <C>           <C>

Operating leases - facilities      $1,048,092    $  193,552    $  300,077    $  312,200    $242,263
Minimum spending obligations(1)     5,045,000     1,009,000     2,018,000     2,018,000          (3)
License royalty payments (2)        1,037,500       207,500       415,000       415,000          (3)
                                   ----------    ----------    ----------    ----------    --------

Total obligations                  $7,130,592    $1,410,052    $2,733,077    $2,745,200    $242,263
                                   ==========    ==========    ==========    ==========    ========
</TABLE>

(1) We have licensed patents from other companies and institutions under certain
license  agreements.  This line item represents our minimum obligations to spend
monies  for  product  development  and  commercialization  as set  forth in each
license.

(2) This line item represents our minimum annual royalty payments of $200,000 to
AnorMED, Inc. for our Atiprimod license and $7,500 to Rockefeller University for
our   superantigen-based   bioterrorism  defense  patents.  Our  patent  license
agreements also include  milestone  royalty payments to be paid in cash upon the
achievement of certain regulatory approval and product  commercialization goals.
These  milestone  payments have not been  estimated  because of the  uncertainty
surrounding  the duration of on-going early stage clinical trials and the extent
of regulatory approval and review cycles. Since inception we have never achieved
regulatory approval of any of our proposed products and we do not currently have
any commercial  biopharmaceutical  products,  and do not expect to have such for
several years.

(3) 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

RECENT ACCOUNTING PRONOUNCEMENTS:

In December  2004,  the  Financial  Accounting  Standards  Board  (FASB)  issued
Statement  of Financial  Accounting  Standard  ("SFAS") No. 123 (Revised  2004),
"Share-Based  Payment." SFAS No 123R is a revision of SFAS No. 123,  "Accounting
for Stock-Based  Compensation" and supersedes  Accounting Principles Board (APB)
Opinion  No. 25,  "Accounting  for Stock  Issued to  Employees"  and its related
implementation  guidance.  SFAS No. 123R  focuses  primarily on  accounting  for
transactions in which an entity obtains employee  services  through  share-based
payment transactions.  SFAS No 123R requires a public entity to measure the cost
of employee  services  received in exchange for the award of equity  instruments
based on the fair  value of the  award at the date of  grant.  The cost  will be
recognized  over the period  during  which an  employee  is  required to provide
services  in  exchange  for the  award.  SFAS No.  123R is  effective  as of the
beginning  of the first  interim or annual  reporting  period that begins  after
December 15, 2005. While we cannot precisely determine the impact on net loss as
a result of the adoption of SFAS No 123R, estimated compensation expense related
to  prior  periods  can be  found  in  footnote  3 to our  audited  consolidated
financial statements.

In December 2004, the FASB issued SFAS 153, "Exchanges of Nonmonetary Assets",
which is effective for fiscal years beginning after June 15, 2005. SFAS 153
amends APB 29, "Accounting for Nonmonetary Transactions", which is based on the
principle that exchanges of nonmonetary assets should be measured based on the
fair value of the assets exchanged. The guidance in APB 29 included certain
exceptions to that principle. SFAS 153 amends APB 29 to eliminate the exception
for nonmonetary exchanges of similar productive assets and replaces it with a
general exception for exchanges of nonmonetary assets that do not have
commercial substance. A nonmonetary exchange has commercial substance if the
future cash flows of the entity are expected to change significantly as a result
of the exchange. The adoption of this statement is not expected to have a
material effect on our financial position or results of operations.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

At  December  31,  2004 and 2003,  a  substantial  portion  of our cash and cash
equivalents  consists of short term, highly liquid investments in a money market
fund managed by a large money center bank  (JPMorganChase).  Maturities  of fund
investments are all less than three months.

ITEM 8. FINANCIAL STATEMENTS.

The full text of our audited  consolidated  financial  statements as of December
31, 2004 and 2003 and for the fiscal years ended  December  31,  2004,  2003 and
2002 begins on page F-1 of this Annual Report on Form 10-K/A.

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

Not applicable

                                       25
<PAGE>


ITEM 9A. CONTROLS AND PROCEDURES.

Our Chief Executive Officer and Principal Financial Officer, based on evaluation
of our disclosure  controls and  procedures  (as defined in Rules  13a-15(e) and
15d-15(e)  of the  Securities  Exchange  Act of 1934,  as  amended)  required by
paragraph  (b) of Rule 13a-15 or Rule  15d-15,  as of December  31,  2004,  have
concluded that our disclosure  controls and procedures  were effective to ensure
the timely collection,  evaluation and disclosure of information relating to our
company that would  potentially  be subject to disclosure  under the  Securities
Exchange  Act of 1934,  as amended,  and the rules and  regulations  promulgated
there under.

There  were no  significant  change  in our  internal  controls  over  financial
reporting  that could  significantly  affect  internal  controls over  financial
reporting during the quarter ended December 31, 2004.

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

The following table sets forth certain  information  regarding the directors and
executive officers of Callisto Pharmaceuticals, Inc. as of March 24, 2005:

Name                       AGE         POSITIONS
                           ---         ---------

Gabriele M. Cerrone         33         Chairman of the Board
Gary S. Jacob               58         Chief Executive Officer, Chief Scientific
                                       Officer and Director; Chairman of Synergy
                                       Pharmaceuticals Inc.

Donald H. Picker            59         Executive Vice President, R&D
Bernard F. Denoyer          57         Vice President, Finance
Kunwar Shailubhai           47         Senior Vice President, Drug Discovery of
                                       Synergy Pharmaceuticals Inc.

Christoph Bruening          37         Director
Iain G. Ross                51         Director
Edwin Snape                 65         Director
John P. Brancaccio          57         Director
Stephen K. Carter           66         Director
Randall Johnson             58         Director


Gabriele M. Cerrone has served as our  Chairman of the Board of Directors  since
May 2003 and as a consultant since January 2005. From March 1999 to January 2005
Mr.  Cerrone  served as a Senior Vice  President of Investments of Oppenheimer &
Co. Inc., a financial services firm. 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 a Director since October,  2004. Dr. Jacob
has also served as 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  September  1999 to April 2003.  From February 1997 to September  1999, Dr.
Picker was President and Chief Operating Officer of LXR  Biotechnology  Inc., an
apoptosis  drug  development  company.  From 1991 to 1997,  he was  Senior  Vice
President  of  Research  and  Development  at  Genta  Inc.,  an  antisense  drug
development company.  Dr. Picker is also a director of Xenomics,  Inc., a public
medical diagnostics 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.  Mr. Denoyer is also Vice President,
Controller of Xenomics, Inc., a public medical diagnostics company.

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

                                       26
<PAGE>


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. Mr. Bruening is
currently  a member of the  advisory  board of Clarity  AG and is a director  of
Xenomics, Inc., a public medical diagnostics company.

Iain G. Ross has served as a Director of our company  since June 2003.  Mr. Ross
has been Chairman of Biomer  Technology Ltd., SR Pharma plc and Ozone Industries
Ltd since January 2003, July 2004 and March 2005, respectively,  and serves as a
director of a number of healthcare  technology  companies  including  Angle plc,
Eden Biopharm  Group,  Swedish DIA (Sweden) AB and Procognia 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 since
1999.  Previously,  he was  Managing  General  Partner  of the Vista  Group,  an
international  private equity firm.  Dr. Snape is Chairman of Memry  Corporation
and a director of Deltex Medical Holdings, Inc. and Diomed, Inc.

John P. Brancaccio, a retired CPA, 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.

Stephen K.  Carter,  M.D.  has served as a Director of our company  since August
2004.  Since 2000,  Dr. Carter has been employed as an  independent  consultant.
From 1998 to 2000, Dr. Carter was senior vice president, clinical and regulatory
affairs of SUGEN, Inc. (subsequently acquired by Pharmacia & Upjohn, Inc.). From
1995 to 1996,  Dr. Carter was senior vice  president,  research and  development
with  Boehringer  Ingelheim  Pharmaceuticals,  Inc.  and from  1982 to 1995 held
various  positions with  Bristol-Myers  Squibb  Company,  including  senior vice
president, worldwide clinical research and development. Dr. Carter is a director
of Vion  Pharmaceuticals,  Inc.,  Cytogen Corp.,  Emisphere  Technologies  Inc.,
Alfacell Corp. and Tapestry Pharmaceuticals Inc. (each a biotechnology company).

Randall  Johnson,  Ph.D.  has served as a Director of our company since February
2005.  Since  February  2002,  Dr.  Johnson has been serving as a consultant  to
various venture capital,  biotechnology and pharmaceutical companies focusing on
oncology.  From October 1982 to February 2002, Dr. Johnson served in a number of
capacities  at  GlaxoSmithKline  PLC/SmithKline  Beecham  Pharmaceuticals,  most
recently as a Group Director in the Department of Oncology Research.

COMPENSATION OF DIRECTORS

Each of our  directors  is  entitled  to  receive a cash  payment  of $5,750 per
calendar quarter.  Messrs.  Cerrone,  Snape and Jacob have waived their right to
such payments.  Upon their  appointment  to the Board of Directors,  each of our
directors  received a grant of 75,000  stock  options to purchase  common  stock
which vest over a period of three years from the date of grant.

AUDIT COMMITTEE

The Audit Committee currently consists of John Brancaccio, chairman of the Audit
Committee,  and Christoph  Bruening.  Our board of directors has determined that
each of Mr. Bruening and Mr. Brancaccio is "independent" as that term is defined
under  applicable  SEC  rules and under the  current  listing  standards  of the
American Stock Exchange. Mr. Brancaccio is our audit committee financial expert.
The Audit Committee met four times in 2004. The Board of Directors has adopted a
written  charter setting forth the authority and  responsibilities  of the Audit
Committee.  A copy of this  charter  is  available  at the  Company's  web  site
www.callistopharma.com

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 also prepares the Audit Committee
report that is required pursuant to the rules of the SEC.

COMPENSATION COMMITTEE

We  have a  Compensation  Committee  currently  consisting  of Iain  Ross,  John
Brancaccio and Christoph  Bruening.  The Board of Directors has determined  that
all of the members are "independent"  under the current listing standards of the
American Stock Exchange. The Compensation Committee met three times in 2004. The
Board of Directors has adopted a written charter setting forth the authority and
responsibilities  of the  Compensation  Committee.  A copy  of this  charter  is
available at the Company's web site www.callistopharma.com.

The  Compensation  Committee  has  responsibility  for  assisting  the  Board of
Directors  in,  among  other  things,   evaluating  and  making  recommendations
regarding  the  compensation  of the  executive  officers  and  directors of the
Company;  assuring that the executive officers are compensated  effectively in a
manner  consistent  with  the  stated  compensation  strategy  of  the  Company;
producing an annual  report on executive  compensation  in  accordance  with the
rules and regulations  promulgated by the SEC; periodically evaluating the terms
and  administration  of the Company's  incentive plans and benefit  programs and
monitoring of compliance  with the legal  prohibition  on loans to directors and
executive officers of the Company.

                                       27
<PAGE>


CORPORATE GOVERNANCE/NOMINATING COMMITTEE

We have a Corporate  Governance/Nominating  Committee  currently  consisting  of
Stephen Carter, John Brancaccio and Christoph  Bruening.  The Board of Directors
has  determined  that all of the  members  are  "independent"  under the current
listing  standards of the American  Stock  Exchange.  The Corporate  Governance/
Nominating  Committee  was  designated by the Board of Directors in January 2005
and did not meet in 2004.  The Board of Directors has adopted a written  charter
setting   forth   the   authority   and   responsibilities   of  the   Corporate
Governance/Nominating  Committee.  A copy of this  charter is  available  at the
Company's web site www.callistopharma.com.

As set  forth in the  Corporate  Governance/Nominating  Committee  charter,  the
Corporate  Governance/Nominating  Committee has responsibility for assisting the
Board in, among other  things,  effecting  Board  organization,  membership  and
function  including   identifying   qualified  Board  nominees;   effecting  the
organization,  membership and function of Board committees including composition
and  recommendation  of qualified  candidates;  establishment  of and subsequent
periodic  evaluation of successor  planning for the chief executive  officer and
other  executive  officers;  development  and  evaluation  of criteria for Board
membership  such  as  overall  qualifications,   term  limits,  age  limits  and
independence;   and  oversight  of  compliance  with  the  Corporate  Governance
Guidelines.  The Corporate  Governance/Nominating  Committee  shall identify and
evaluate the  qualifications  of all  candidates  for nomination for election as
directors.

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.

Roman  Perez-Soler,  M.D.  Dr.  Perez-Soler  is  currently  Gutman  Professor of
Oncology and Chairman of the Department of Oncology at Montefiore Medical Center
as well as Associate Director of Clinical Research at the Albert Einstein Cancer
Center and Chief of the  Division  of Medical  Oncology  at the Albert  Einstein
College of Medicine.  Dr.  Perez-Soler  was  formerly  Professor of Medicine and
Deputy Chairman of the Department of Thoracic/Head  and Neck Medical Oncology at
The University of Texas M.D.  Anderson Cancer Center and Associate  Director for
Clinical  and  Translational  Research at the Kaplan  Cancer  Center at New York
University.  Dr.  Perez-Soler  is  a  nationally  and  internationally  renowned
clinical   translational   researcher  in  the  areas  of  new  anticancer  drug
development,   with  a  strong  emphasis  in  liposome   delivery  and  thoracic
malignancies.

COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.

Section 16(a) of the  Securities  Exchange Act of 1934 requires our officers and
directors,  and persons who own more than ten percent of a  registered  class of
our equity  securities,  to file reports of  ownership  and changes in ownership
with the  Securities  and  Exchange  Commission  and  American  Stock  Exchange.
Officers,  directors and greater than ten percent  stockholders  are required by
SEC regulation to furnish us with copies of all Section 16(a) forms they file.

Based on a review of the copies of such forms  received,  we believe that during
2004, all filing requirements applicable to our officers,  directors and greater
than ten percent beneficial owners were complied with.

CODE OF BUSINESS CONDUCT AND ETHICS

We have adopted a formal Code of Business  Conduct and Ethics  applicable to all
Board members, executive officers and employees. A copy of this Code of Business
Conduct  and Ethics is filed as an  exhibit to this  report and is posted on our
website at www.callistopharma.com.

                                       28
<PAGE>


ITEM 11.  EXECUTIVE COMPENSATION.

                           SUMMARY COMPENSATION TABLE

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 as of December 31, 2004.

                                                                   Long Term
                                   Annual Compensation           Compensation
                                   -------------------         -----------------

Name and Principal              Year     Salary      Bonus     Securities Under-
Position                                   ($)        ($)      lying Options (#)

Gary S. Jacob                   2004    $225,000    $33,750    275,000
Chief Executive Officer and     2003    $144,792    $0         500,000
Chief Scientific Officer

Donald H. Picker                2004    $191,875    $37,500    400,000
Executive Vice President, R&D   2003    $126,661    $10,000    325,000

Kunwar Shailubhai               2004    $155,333    $0         100,000(1)
Senior Vice President,          2003    $110,833    $0         350,000(2)
Drug Discovery of Synergy
Pharmaceuticals, Inc.

(1) On April 6, 2004, Dr. Shailubhai entered int o 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.

(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 325,000  unvested  stock options were
canceled.

OPTION GRANTS IN FISCAL YEAR 2004

The following table sets forth certain  information  concerning  grants of stock
options to the Named  Executive  Officers  during the fiscal year ended December
31, 2004.

<TABLE>
<CAPTION>
                                                                                                              Potential Realizable
                                                                                                                Value at Assumed
                                                                                                              Annual Rates of Stock
                                                                                                               Price Appreciation
                                 Number of Shares      Percent of Total                                         For Option Term
                                    Underlying        Options Granted to     Exercise Price   Expiration     -----------------------
Name                              Options Granted      Employees in 2004        Per Share        Date            5%($)      10%($)
                                  ---------------     -----------------      --------------   ----------     ----------   ----------
<S>                                 <C>                     <C>                  <C>           <C>            <C>          <C>
Gary S. Jacob                       275,000 (1)             29.4%                $3.00         6/29/2014       $70,882     $601,558
Chief Executive Officer and
Chief Scientific Officer

Donald H. Picker                    400,000 (2)             42.8%                $3.00         6/29/2014      $103,116     $874,244
Executive Vice President, R&D

Kunwar Shailubhai                   100,000 (3)             10.7%                $1.50         4/6/2014       $405,824     $731,871
Senior Vice President,
Drug Discovery of Synergy
Pharmaceuticals, Inc.
</TABLE>

(1) 25,000 options vest on 6/1/2005;  25,000 options vest on 6/1/2006 and 50,000
options  vest on  6/1/2007.  The  remaining  175,000  options  vest based on the
achievement of certain performance milestones.

(2) 50,000 options vest on 6/1/2005;  50,000 options vest on 6/1/2006 and 75,000
options  vest on  6/1/2007.  The  remaining  225,000  options  vest based on the
achievement of certain performance milestones.

(3) 50,000 of such stock options vested in June 2004 and the remainder vested in
December 2004.

On April 26, 2004,  we 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.

                                       29
<PAGE>


AGGREGATED OPTION EXERCISES IN 2004 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, 2004 and the value of unexercised stock options held as
of such date.

<TABLE>
<CAPTION>
                                       Number of Shares            Value of  Unexercised
                                     Underlying Options at        In the Money Options at
                                       December 31, 2004            December 31, 2004(1)
                                  -----------  -------------    -----------  -------------

Name                              Exercisable  Unexercisable    Exercisable  Unexercisable
                                  -----------  -------------    -----------  -------------
<S>                                 <C>           <C>             <C>           <C>
Gary S. Jacob                       150,000       625,000         $72,000       $168,000
Chief Executive Officer and
Chief Scientific Officer

Donald H. Picker                     83,333       641,667         $40,000       $116,000
Executive Vice President, R&D

Kunwar Shailubhai                   125,000             0         $60,000             --
Senior Vice President,
Drug Discovery of Synergy
Pharmaceuticals, Inc.
</TABLE>

During the fiscal year ended December 31, 2004, 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 sale price on the
American Stock Exchange of $1.98 per share on December 31, 2004.

MANAGEMENT  AGREEMENTS

On June 13, 2003,  we 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 September 23, 2003, we 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.  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.  On April 6,  2004,  Dr.  Picker's  employment
agreement was amended to change his title to Executive Vice  President,  R&D and
his salary was increased to $200,000 per year and certain  milestones were added
upon which cash  bonuses  of up to $92,500  over a 12 month  period may be paid.
During the twelve  months ended  December 31, 2004,  Dr. Picker was paid a bonus
$37,500 based on certain  milestones he achieved during 2004. The balance of the
annual  bonus Dr.  Picked is eligible  to receive  will be paid only if and when
certain other milestones are reached.

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.

On April 6, 2004, Kunwar Shailubhai,  Ph.D. 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.  Dr.
Shailubhai  received a 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. We previously had an employment agreement dated
June 13, 2003 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.  Dr.  Shailubhai's  salary was  $170,000  per year and he was  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  were  fully  vested and have an  exercise  price of $1.50 per share.  Dr.
Shailubhai  also  received a grant of 325,000  stock  options which were to have
vested over a three year period and were  exercisable  at $1.50 per share.  This
employment  agreement was terminated on April 6, 2004 and unvested  options were
forfeited.  The new  grant  of  100,000  options  will be  subject  to  variable
accounting  because it was  deemed  that his  agreement  was a  continuation  of
employment with a wholly owned subsidiary of Callisto.

On December 27, 2004,  we entered into a consulting  agreement  with Gabriele M.
Cerrone,  our Chairman of the Board and a principal  stockholder.  The duties of
Mr.  Cerrone  pursuant to the  agreement  will consist of business  development,
strategic planning,  capital markets and corporate financing  consulting advice.
The term of the  agreement  commenced  on January 10, 2005 and  continues  until
December 31, 2006 with automatic  renewal for successive one year periods unless
either party gives notice to the other not to renew the agreement.

                                       30
<PAGE>


We will pay Mr.  Cerrone  an  annual  fee of  $205,000  on a monthly  basis.  In
addition,  Mr. Cerrone received a grant of 375,000 ten year non-qualified  stock
options  pursuant to our Stock  Option  Plan at an  exercise  price of $1.70 per
share. One half of such options will vest on each of the first two anniversaries
of the date of the agreement

In the event the agreement is terminated  without cause or for good reason,  Mr.
Cerrone will receive a cash payment equal to the aggregate  amount of his annual
fee for the then  remaining term of the Agreement and all unvested stock options
will  immediately  vest and the exercise period of such options will be extended
to the later of the longest  period  permitted  by our stock option plans or ten
years  following  termination.  In the event a change of control of the  Company
occurs,  Mr. Cerrone shall be entitled to such  compensation upon the subsequent
termination  of the agreement  within two years of the change in control  unless
such termination is the result of Mr. Cerrone's death,  disability or retirement
or his termination for cause

On  December  22,  2004 our  Board  of  Directors,  acting  upon  advice  of the
Compensation  Committee,  awarded  Mr.  Cerrone  a cash  bonus  of  $200,000  in
recognition  of his  contributions  to the  company  including  negotiation  and
acquisition of certain intellectual property licenses during 2004.

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 December 31, 2004, options for 3,177,222 shares were outstanding under our
stock option plan, and options for 6,822,778  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  (ERISA).  In
addition,  as of December 31, 2004, we have granted  4,144,838 stock options not
subject to the stock option plan.

The following table summarizes  information about our equity  compensation plans
as of December 31, 2004.

                      EQUITY COMPENSATION PLAN INFORMATION

<TABLE>
<CAPTION>
Plan Category                   Number of Shares of Common        Weighted-Average Exercise       Number of Options
-------------                   Stock to be Issued upon           Price of Outstanding            Remaining Available for
                                Exercise of Outstanding           Options                         Future Issuance Under
                                Options                                                           Equity Compensation Plans
                                                                                                  (excluding securities
                                                                                                  reflected in column (a))
<S>                             <C>                               <C>                             <C>
                                (a)                               (b)                             (c)

Equity Compensation Plans       3,177,222                         $2.27                           6,822,778
Approved by Stockholders

Equity Compensation Plans       4,144,838                         $2,14                            n/a
Not Approved by
Stockholders

              Total             7,322,060                         $2.19                           6,822,778
              =====             =========                         =====                           =========
</TABLE>


                                       31
<PAGE>


ITEM 12.  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 March 24, 2005 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.

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

                                        NUMBER OF SHARES   PERCENTAGE OF CLASS

Gabriele M. Cerrone                       2,976,237(2)            9.3%
Chairman of the Board

Gary S. Jacob                               274,745(3)              *
Chief Executive Officer, Chief
Scientific Officer and Director

Donald H. Picker                            172,037(4)              *
Executive Vice President, R&D

Kunwar Shailubhai                           125,000(5)              *
Senior Vice President, Drug Discovery
of Synergy Pharmaceuticals Inc.

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

Edwin Snape                                 939,402(7)            3.0%
Director

Stephen Carter                                    0
Director

Christoph Bruening                          460,699(8)            1.5%
Director

John Brancaccio
Director                                     25,000(9)              *

Randall K. Johnson                           10,000(10)             *
Director

All Directors and Executive Officers      5,038,120(11)          15.5%
as a group (11 persons)

Donald G. Drapkin                         1,766,059(12)           5.6%

Panetta Partners Ltd.                     2,101,237               6.7%

* less than 1%

                                       32
<PAGE>


(1)  Applicable  percentage  ownership  as of  March  24,  2005  is  based  upon
31,228,893  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 2,101,237 shares held by Panetta Partners,  Ltd.
Mr.  Cerrone is the sole general  partner of Panetta and in such  capacity  only
exercises voting and dispositive  control over securities  owned by Panetta.  As
such,  Mr.  Cerrone may be deemed,  solely for purposes of Section  13(d) of the
Securities  Exchange Act of 1934 as amended, to "beneficially" own securities in
which he has no pecuniary  interest and he therefore  disclaims such  beneficial
interest.

(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 125,000  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.  914,402  of such  shares  are held by NEGF II,  L.P.  and 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  25,000  shares of common  stock  issuable  upon  exercise of stock
options.

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

(10) Consists of 10,000  shares of common stock  issuable upon exercise of stock
options.

(11) Includes  1,373,333  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  916,059  shares of common  stock held by the
Drapkin Family Charitable Foundation.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

On December  27, 2004 we entered into a consulting  agreement  with  Gabriele M.
Cerrone,  our Chairman of the Board and a principal  shareholder.  The agreement
and its terms were approved by our Compensation Committee, which consists solely
of independent members of the Board. Additional information concerning the terms
of the consulting agreement are set forth in Item 9 of this report.

On March 9, 2005 certain  members of management,  in addition to certain current
institutional  investors,  purchased an aggregate 1,985,791 shares of our common
stock in a private placement. The shares were sold at a price of $1.52 per share
for aggregate proceeds of approximately $3.02 million. Panetta Partners, Ltd., a
principal shareholder and limited partnership,  of which Mr. Cerrone is the sole
managing  partner,  purchased  25,000 shares in the private  placement.  In such
capacity Mr. Cerrone exercises voting and dispositive  control over shares owned
by Panetta in which he has no pecuniary  interest.  In addition,  Gary S. Jacob,
our Chief Executive  Officer  purchased 16,448 shares in the private  placenment
and  Christoph  Bruening,  a director,  purchased  20,000  shares in the private
placement. Each did so at the specific request of the institutional investors.

In connection with the sale of our common stock to certain members of management
in the private placement,  our Audit Committee  determined that participation by
such members of  management in the private  placement  (i) did not  constitute a
conflict of interest under our Code of Business  Conduct and Ethics and (ii) was
on term no less favorable to the company than terms offered to third parties.

CONFLICTS OF INTEREST

Gabriele Cerrone and his affiliates are subject to certain  potential  conflicts
of interests.  His consulting agreement expressly recognizes that he may provide
consulting  services  to  others.  In  addition,  from  time to time,  he or his
affiliates may be presented with business  opportunities which could be suitable
for our business and Mr. Cerrone is not subject to any restrictions with respect
to other  business  activities,  except to the  extent  such  activities  are in
violation of our Code of Conduct and Ethics or violate  general  confidentiality
provisions of his consulting  agreement.  In instances  where there is potential
conflict of interest or  business  opportunity,  with  respect to any officer or
director,  including Mr. Cerrone, our Audit Committee has both the authority and
responsibility to review such matters and take appropriate actions.

                                       33
<PAGE>


ITEM 14.  PRINCIPAL ACCOUNTANT FEES AND SERVICES

AUDIT FEES.

The  aggregate  fees billed and unbilled for the fiscal year ended  December 31,
2004 for  professional  services  rendered by our principal  accountants for the
audits of our  annual  financial  statements  and the  review  of our  financial
statements  included in our quarterly  reports on Form 10-QSB were $95,000.  The
aggregate  fees billed and unbilled for the fiscal year ended  December 31, 2003
for professional services rendered by our principal accountants for the audit of
our annual  financial  statements,  the  reaudit of the 2002 and 2001  financial
statements, and the review of our financial statements included in our quarterly
reports on Form 10-QSB were $153,000.

AUDIT-RELATED FEES.

The aggregate  fees billed for the fiscal year ended  December 31, 2004 and 2003
for assurance and related services rendered by our principal accountants related
to  the  performance  of the  audit  or  review  of  our  financial  statements,
specifically accounting research, were $2,500 in each period.

TAX AND OTHER FEES.

There were no aggregate fees billed for the fiscal years ended December 31, 2004
and  2003 as  there  were no tax  related  or  other  services  rendered  by our
principal  accountants  in connection  with the  preparation  of our federal and
state tax returns.

Consistent with SEC policies and guidelines  regarding audit  independence,  the
Audit Committee is responsible for the pre-approval of all audit and permissible
non-audit  services  provided by our  principal  accountants  on a  case-by-case
basis.  Our Audit Committee has established a policy  regarding  approval of all
audit and permissible non-audit services provided by our principal  accountants.
Our Audit  Committee  pre-approves  these services by category and service.  Our
Audit Committee has pre-approved  all of the services  provided by our principal
accountants.

ITEM 15.  EXHIBITS.

(a)      Exhibits

         Exhibit
          Number                                 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)

          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 between Callisto  Pharmaceuticals,  Inc. and
                       the Purchasers set forth on Exhibit A thereto. (14)

                                       34
<PAGE>


         Exhibit
          Number                                 Description

          10.9         Patent and Technology  License Agreement dated August 12,
                       2004  by  and   between  The  Board  of  Regents  of  the
                       University of Texas System,  on behalf of The  University
                       of  Texas  M. D.  Anderson  Cancer  Center  and  Callisto
                       Pharmaceuticals, Inc. (15)**

          10.10        Consulting  Agreement  dated  as  of  December  27,  2004
                       between the Registrant and Gabriele M. Cerrone. *+

          10.11        Common Stock Purchase Agreement dated as of March 8, 2005
                       by and between  Callisto  Pharmaceuticals,  Inc.  and the
                       Purchasers set forth on Exhibit A thereto. (16)

          10.12        License Agreement between Callisto Pharmaceuticals,  Inc.
                       and The Rockefeller  University  effective as of July 25,
                       2001.

          10.13        Asset  Purchase  Agreement  dated as of February 24, 2004
                       between  Callisto   Pharmaceuticals,   Inc.  and  Houston
                       Pharmaceuticals, Inc.

          10.14        Sublicense  Agreement  dated  as  of  February  24,  2004
                       between  Callisto   Pharmaceuticals,   Inc.  and  Houston
                       Pharmaceuticals, Inc.

          10.15        Agreement  among  Davos  Chemical  Corporation,  Callisto
                       Pharmaceuticals,  Inc. and Antibioticos S.p.A. dated July
                       28, 2004.

          14           Code of Business Conduct and Ethics (17)

          21           List of Subsidiaries+

          23           Consent of BDO Seidman, LLP

          31.1         Certification  of Chief Executive  Officer required under
                       Rule 13a-14(a)/15d-14(a) under the Exchange Act

          31.2         Certification  of Principal  Financial  Officer  required
                       under Rule 13a-14(a)/15d-14(a) under the Exchange Act

          32.1         Certification  of Chief Executive  Officer pursuant to 18
                       U.S.C Section 1350, as adopted pursuant to Section 906 of
                       the Sarbanes-Oxley Act of 2002

          32.2         Certification of Principal  Financial Officer pursuant to
                       18 U.S.C Section 1350, as adopted pursuant to Section 906
                       of the Sarbanes-Oxley Act of 2002

          *  Management contract or compensatory plan or arrangement required to
             be  filed  as an  Exhibit  to  this  form  pursuant to  Item 601 of
             Regulation S-K.

          ** Confidential treatment has been  requested  with respect to deleted
             portions of this agreement.

          +  Previously filed.


(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 May 15, 2003.

(6)  Incorporated  by reference to Exhibit 4.1 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 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 10.6 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 on April 14, 2004.

                                       35
<PAGE>


(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 10.1 filed with the Company's Current
Report on Form 8-K filed on September 7, 2004.

(16)  Incorporated by reference to Exhibit 10.1 filed with the Company's Current
Report on Form 8-K filed on March 5, 2005.

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


                                       36
<PAGE>


                                   SIGNATURES

          Pursuant to the  requirements  of Section 13 or 15D of the  Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

Date:      June 6, 2005                 Callisto Pharmaceuticals, Inc.

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

          Pursuant to the  requirements of the Securities  Exchange Act of 1934,
this  report has been  signed  below by the  following  persons on behalf of the
registrant and in the capacities and on the dates indicated.

      SIGNATURE                            TITLE                        DATE

/s/ Gary S. Jacob           Chief Executive Officer and Director    June 6, 2005
----------------------      (Principal Executive Officer)
Gary S. Jacob

/s/ Bernard F. Denoyer      Vice President, Finance                 June 6, 2005
----------------------      (Principal Accounting Officer)
Bernard F. Denoyer

/s/ Gabriele M. Cerrone     Chairman of the Board                   June 6, 2005
----------------------
Gabriele M. Cerrone

/s/ Edwin Snape             Director                                June 6, 2005
----------------------
Edwin Snape

/s/ John P. Brancaccio      Director                                June 6, 2005
----------------------
John P. Brancaccio

/s/ Stephen K. Carter       Director                                June 6, 2005
----------------------
Stephen K. Carter

/s/ Christoph Bruening      Director                                June 6, 2005
----------------------
Christoph Bruening

/s/ Randall K. Johnson      Director                                June 6, 2005
----------------------
Randall K. Johnson


                                       37
<PAGE>


                         CALLISTO PHARMACEUTICALS, INC.
                          (A Development Stage Company)
                   Index to Consolidated Financial Statements

                                                                            PAGE

Report of Independent Registered Public Accounting Firm                      F-2

Consolidated Balance Sheets as of December 31, 2004 and 2003                 F-3

Consolidated Statements of Operations for the three years
in the period ended December 31, 2004 and for the period
from June 5, 1996 (inception) to December 31, 2004                           F-4

Consolidated Statement of Changes in Stockholders' Equity
for the period from June 5, 1996 (inception) to December 31, 2004            F-5

Consolidated Statements of Cash Flows for the three years
in the period ended December 31, 2004 and for the period from
June 5, 1996 (inception) to December 31, 2004                                F-6

Notes to Consolidated Financial Statements                                   F-7


                                       F-1
<PAGE>


             Report of Independent Registered Public Accounting Firm

Board of Directors and Stockholders Callisto Pharmaceuticals, Inc.
New York, New York

We have  audited  the  accompanying  consolidated  balance  sheets  of  Callisto
Pharmaceuticals,  Inc. and  Subsidiaries  (a  development  stage  company)  (the
"Company") as of December 31, 2004 and 2003, the related consolidated statements
of  operations  and cash flows for each of the three  years in the period  ended
December 31, 2004 and for the period from June 5, 1996  (inception)  to December
31, 2004 and the related consolidated  statement of stockholders' equity for the
period from June 5, 1996  (inception)  to December  31,  2004.  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  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.  The Company is not  required to
have,  nor were we engaged to perform,  an audit of its  internal  control  over
financial reporting.  Our audit included  consideration of internal control over
financial  reporting  as  a  basis  for  designing  audit  procedures  that  are
appropriate  in the  circumstances,  but not for the  purpose of  expressing  an
opinion on the  effectiveness  of the Company's  internal control over financial
reporting.  Accordingly,  we express  no such  opinion.  An audit also  includes
examining,  on a test basis,  evidence supporting the amounts and disclosures in
the  financial   statements,   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. and Subsidiaries as of December 31, 2004 and 2003, and the
results of their  operations and their cash flows for each of the three years in
the  period  ended  December  31,  2004 and for the  period  from  June 5,  1996
(inception)  to December 31, 2004,  in  conformity  with  accounting  principles
generally accepted in the United States.

/s/ BDO Seidman, LLP

New York, New York
March 14, 2005

                                       F-2
<PAGE>


                         CALLISTO PHARMACEUTICALS, INC.
                          (A Development Stage Company)

                           CONSOLIDATED BALANCE SHEETS



                                AS OF DECEMBER 31

                                                              AS OF DECEMBER 31,

                                                           2004            2003
Current Assets:
Cash and cash equivalents                           $ 5,323,384     $ 3,956,486
Prepaid expenses                                         45,231          52,644
                                                    -----------     -----------

                                                      5,368,615       4,009,130

Property and equipment, net                              18,856          46,488
Security deposits                                        82,196          62,980
                                                    -----------     -----------

                                                    $ 5,469,667     $ 4,118,598
                                                    ===========     ===========

                      LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:
Accounts payable                                    $   984,486     $   842,520
Accrued expenses                                        235,803          79,625
Selling agent fees payable related to
private placement                                            --         341,625
                                                    -----------     -----------

                                                      1,220,289       1,263,770


Stockholders' equity:
Common stock, $.0001 par value, authorized
75,000,000 shares, 29,219,102 and
25,928,760 outstanding at December 31, 2004
and December 31, 2003, respectively                       2,922           2,590
Additional paid-in-capital                           39,910,187      34,149,975
Unamortized deferred stock based compensation        (2,302,534)     (5,480,007)
Deficit accumulated during the development stage    (33,361,197)    (25,817,730)
                                                    -----------     -----------

                                                      4,249,378       2,854,828
                                                    -----------     -----------

                                                    $ 5,469,667     $ 4,118,598
                                                    ===========     ===========


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

                                       F-3
<PAGE>


                         CALLISTO PHARMACEUTICALS, INC.

                          (A Development Stage Company)

                      CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                                                               For the
                                                                                                             Period from
                                                                                                            June 5, 1996
                                                                For the years ended December 31,           (Inception) to
                                                         ----------------------------------------------     December 31,
                                                             2004             2003             2002             2004
                                                         ------------     ------------     ------------     ------------
<S>                                                      <C>              <C>              <C>              <C>
Revenues                                                 $         --     $         --     $         --     $         --

Costs and Expenses:
Research and development                                    2,817,387        1,369,985          491,430        7,719,748
Government grant                                             (265,697)              --               --         (265,697)
Purchased in-process research and development                 209,735        6,734,818               --        6,944,553
Stock-based compensation - research and development         1,508,588          434,187               --        1,942,775
General and administrative                                  2,362,773        1,398,090        1,227,699        8,612,246
Stock-based compensation - general and administrative       1,224,182        3,399,759              332        9,408,497
                                                         ------------     ------------     ------------     ------------

Loss from operations                                       (7,856,968)     (13,336,839)      (1,719,461)     (34,362,122)

Interest income                                                84,081            8,768           34,496          549,681
Other income                                                  229,420          221,824               --          451,244
                                                         ------------     ------------     ------------     ------------

Net loss                                                 $ (7,543,467)    $(13,106,247)    $ (1,684,965)    $(33,361,197)
                                                         ============     ============     ============     ============

Weighted average shares outstanding:
Basic and diluted                                          28,485,227       21,357,659       17,318,994

Net loss per common share: basic and diluted                  $ (0.26)         $ (0.61)         $ (0.10)
</TABLE>


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

                                       F-4
<PAGE>



                         CALLISTO PHARMACEUTICALS, INC.
                          (A Development Stage Company)

           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                                             Preferred                       Common        Additional
                                              Preferred     Stock, Par       Common        Stock, Par        Paid in
                                               Shares          Value         Shares           Value          Capital
                                             -----------    -----------    -----------     -----------     -----------
<S>                                             <C>                 <C>      <C>                 <C>        <C>
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 shares 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
</TABLE>

                                      F-5a
<PAGE>


                         CALLISTO PHARMACEUTICALS, INC.
                          (A Development Stage Company)

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (CONTINUED)

<TABLE>
<CAPTION>
                                                                 Deficit
                                              Unamortized      Accumulated
                                               Deferred        during the          Total
                                              Stock Based      Development     Stockholders'
                                             Compensation         Stage           Equity
                                             ------------     ------------     ------------
<S>                                               <C>          <C>               <C>
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 issue                                     --               --          251,344
Other                                                  --               --              432
Preferred shares 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
</TABLE>


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

                                      F-5b
<PAGE>


                         CALLISTO PHARMACEUTICALS, INC.
                          (A Development Stage Company)

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (CONTINUED)

<TABLE>
<CAPTION>
                                                                                                            Deficit
                                            Preferred               Common                 Unamortized    Accumulated
                                              Stock                  Stock    Additional     Deferred     during the      Total
                                 Preferred     Par      Common        Par      Paid in     Stock Based    Development  Stockholders'
                                   Stock      Value      Stock       Value     Capital     Compensation     Stage         Equity
                                 ---------  ---------  ----------  ---------  -----------  ------------  ------------  ------------
<S>                              <C>            <C>    <C>            <C>     <C>            <C>         <C>             <C>
Balance December 31, 2002        4,235,299      $423   13,083,695     $1,307  $14,538,618            --  ($12,711,483)   $1,828,865

Net loss for the year                   --        --           --         --           --            --   (13,106,247)  (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            --            --     6,494,890

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 deferred
Stock based Compensation                --                     --         --           --     3,833,946            --     3,833,946

Private placement of
common stock, net                       --        --    2,776,666        278    3,803,096            --            --     3,803,374
                                 ---------  --------   ----------  ---------  -----------  ------------  ------------  ------------

Balance, December 31, 2003              --        --   25,928,760      2,590   34,149,975    (5,480,007)  (25,817,730)    2,854,828

Net loss for the period                 --        --           --         --           --            --    (7,543,467)   (7,543,467)

Amortization of deferred
Stock-based compensation expense        --        --           --         --           --     3,084,473            --     3,084,473

Variable accounting for
stock options                           --        --           --         --     (816,865)           --            --      (816,865)

Stock-based compensation net
of forfeitures                          --        --           --         --      240,572        93,000            --       333,572

Common stock issued via
private placements, net                 --        --    3,311,342        331    6,098,681            --            --     6,099,012

Warrant and stock-based
compensation for
services in connection
with the Merger                         --        --           --         --      269,826            --            --       269,826

Common stock returned from
former Synergy stockholders             --        --      (90,000)        (9)    (159,083)           --            --      (159,092)

Common stock issued for
patent rights                           --        --       25,000          3       56,247            --            --        56,250

Common stock issued for services        --        --       44,000          7       70,833            --            --        70,840
                                 ---------  --------   ----------  ---------  -----------  ------------  ------------  ------------

Balance, December 31, 2004              --  $     --   29,219,102     $2,922  $39,910,187   ($2,302,534) ($33,361,197)   $4,249,378
                                 =========  ========   ==========  =========  ===========  ============  ============  ============
</TABLE>

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

                                      F-5c
<PAGE>


                         CALLISTO PHARMACEUTICALS, INC.
                          (A Development Stage Company)
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                                                 For the
                                                                                                             Period from
                                                                                                            June 5, 1996
                                                                For the years ended December 31,          (Inception) to
                                                         ----------------------------------------------     December 31,
                                                                 2004             2003             2002             2004
                                                         ------------     ------------     ------------     ------------
<S>                                                       <C>             <C>               <C>             <C>
Cash flows from operating activities:
Net loss                                                  $(7,543,467)    $(13,106,247)     $(1,684,965)    $(33,361,197)
Adjustments to reconcile net loss to net cash used in
operating activities:
     Depreciation                                              27,632           27,755            6,778           65,781
     Stock based compensation expense                       2,732,770        3,833,946              332       11,351,272
     Purchased in-process research and
        development (non-cash portion)                        106,235        6,734,818               --        6,841,053
Changes in operating assets and liabilities:

     Prepaid expenses                                           7,413          (24,188)          (8,796)         (45,231)
     Security deposit                                         (19,216)         (62,980)              --          (82,196)
     Accounts payable and accrued expenses                    (43,481)         581,008          304,663          980,361
                                                         ------------     ------------     ------------     ------------

          Total adjustments                                 2,811,353       11,090,359          302,977       19,111,040
                                                         ------------     ------------     ------------     ------------

     Net cash used in operating activities                 (4,732,114)      (2,015,888)      (1,381,988)     (14,250,157)
                                                         ------------     ------------     ------------     ------------


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

Net cash used in investing activities                              --          (54,462)         (22,029)         (84,637)
                                                         ------------     ------------     ------------     ------------

Cash flows from financing activities:
Net proceeds from issuance of common and
preferred stock, net of repurchases                         6,099,012        3,803,374               --       19,658,178
                                                         ------------     ------------     ------------     ------------

Net cash provided by financing activities                   6,099,012        3,803,374               --       19,658,178
                                                         ------------     ------------     ------------     ------------

Net increase (decrease) in cash and cash equivalents        1,366,898        1,733,024       (1,404,017)       5,323,384

Cash and cash equivalents at beginning of year              3,956,486        2,223,462        3,627,479               --
                                                                                                            ------------

Cash and cash equivalents at end of year                   $5,323,384       $3,956,486       $2,223,462       $5,323,384
                                                         ============     ============     ============     ============

Supplementary disclosure of cash flow information:
Cash paid for taxes                                            $2,921          $23,834          $13,487          $62,963
                                                         ============     ============     ============     ============
</TABLE>

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

                                       F-6
<PAGE>


                         CALLISTO PHARMACEUTICALS, INC.
                          (A Development Stage Company)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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  Merger  and
consolidation. 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  December  31,  2004,  Callisto  has
sustained cumulative net losses of $33,361,197.  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 December 31, 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 which include its
wholly owned subsidiaries: (1) Callisto Research Labs, LLC.(including its wholly
owned but inactive subsidiary,  Callisto Pharma, GmbH (Germany)) and (2) Synergy
Pharmaceuticals  Inc.  ("Synergy"  ,  including  its wholly  owned but  inactive
subsidiary IgX, Ltd (Ireland)), have been prepared in accordance with accounting
principles  generally  accepted in the United  States of America  ("GAAP").  The
results of operations of Synergy are included in the  consolidated  statement of
operations  for the twelve months ended  December 31, 2004 and since May 1, 2003
in the period from June 5, 1996  (inception)  to  December  31, 2004 and for the
twelve months ended December 31, 2003. All significant intercompany balances and
transactions have been eliminated (see footnote 4).

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  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, 2004 and 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.

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-7
<PAGE>


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:

<TABLE>
<CAPTION>
                                                                Years Ended December 31,
                                                    ----------------------------------------------
                                                              2004              2003          2002
                                                    --------------    --------------   -----------
<S>                                                 <C>                <C>             <C>
Net loss, as reported                                  $(7,543,467)     $(13,106,247)  $(1,684,965)

Add: Stock-based employee compensation expense
recorded under APB No. 25 intrinsic method               1,317,108         1,996,890            --

Deduct: Stock-based employee compensation
expense determined under Fair Value based method
for all employee awards                                 (2,916,720)       (2,510,721)           --
                                                    --------------    --------------   -----------

Pro forma net loss                                     $(9,143,079)     $(13,620,078)  $(1,684,965)
                                                    ==============    ==============   ===========

Net loss per share:
Basic and diluted -as reported                              $(0.26)           $(0.61)       $(0.10)
                                                    ==============    ==============   ===========

Basic and diluted -pro forma                                $(0.32)           $(0.64)       $(0.10)
                                                    ==============    ==============   ===========

Range of Fair Value per share for
options granted to employees                        $1.35 to $3.15    $0.58 to $5.50   $0.00 to $5.53

Black-Scholes Methodology Assumptions:

Dividend yield                                                   0%                0%              0%
Risk free interest rate                               2.87% to 4.0%     2.87% to 4.5%   2.87% to 4.5%
Expected lives of options                             7 to 10 years     7 to 10 years   7 to 10 years
</TABLE>


Volatility of 0% was used until Callisto's  common stock began to trade publicly
on June 16,  2003.  Since June 13, 2003 through  December 31, 2004  Callisto has
used 100% volatility to determine Fair Value of options granted to employees.

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 and
warrants, would have been antidilutive.  As of December 31, 2004, 2003 and 2002,
Callisto had  7,322,060,  4,853,560  and 2,991,505  stock  options  outstanding,
respectively. In addition Callisto had 758,995 common stock warrants outstanding
as of December 31, 2004 and none as of December 31, 2003.

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
licensors,  patient costs,  drug  formulation  and tableting,  data  collection,
monitoring, insurance, and FDA consultants.

Government  Grants - Callisto  requests  cash funding under  approved  grants as
expenses are  incurred  (not in advance) and records the receipt as an offset to
research and development expense. During 2004 Callisto had a research grant from
the National Institutes of Health for studies on Atiprimod.  This amount totaled
$265,697  during the year ended  December 31, 2004 and has been  reported on our
Consolidated   Statements  of  Operations  as  a  separate  line  item  entitled
"Government Grant".

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. F-8

                                      F-8
<PAGE>


RECENT ACCOUNTING PRONOUNCEMENTS:

In December  2004,  the  Financial  Accounting  Standards  Board  (FASB)  issued
Statement  of Financial  Accounting  Standard  ("SFAS") No. 123 (Revised  2004),
"Share-Based  Payment." SFAS No 123R is a revision of SFAS No. 123,  "Accounting
for Stock-Based  Compensation" and supersedes  Accounting Principles Board (APB)
Opinion  No. 25,  "Accounting  for Stock  Issued to  Employees"  and its related
implementation  guidance.  SFAS No. 123R  focuses  primarily on  accounting  for
transactions in which an entity obtains employee  services  through  share-based
payment transactions.  SFAS No 123R requires a public entity to measure the cost
of employee  services  received in exchange for the award of equity  instruments
based on the fair  value of the  award at the date of  grant.  The cost  will be
recognized  over the period  during  which an  employee  is  required to provide
services  in  exchange  for the  award.  SFAS No.  123R is  effective  as of the
beginning  of the first  interim or annual  reporting  period that begins  after
December 15, 2005. While Callisto cannot  precisely  determine the impact on net
loss as a result of the adoption of SFAS No 123R, estimated compensation expense
related to prior periods can be found above in this footnote.

In December 2004, the FASB issued SFAS 153,  "Exchanges of Nonmonetary  Assets",
which is effective  for fiscal  years  beginning  after June 15, 2005.  SFAS 153
amends APB 29, "Accounting for Nonmonetary Transactions",  which is based on the
principle that  exchanges of nonmonetary  assets should be measured based on the
fair value of the assets  exchanged.  The  guidance in APB 29  included  certain
exceptions to that principle.  SFAS 153 amends APB 29 to eliminate the exception
for nonmonetary  exchanges of similar  productive  assets and replaces it with a
general  exception  for  exchanges  of  nonmonetary  assets  that  do  not  have
commercial  substance.  A nonmonetary  exchange has commercial  substance if the
future cash flows of the entity are expected to change significantly as a result
of the  exchange.  The  adoption  of this  statement  is not  expected to have a
material effect on our financial position or results of operations.

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. Subsequently,
171,818  shares of common  stock  issued to  former  Synergy  shareholders  were
returned to Callisto under the terms of certain indemnification  agreements. 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.

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 December 31, 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 during the year ended December 31, 2003.

The results of operations of Synergy are included in the consolidated  statement
of  operations  for the twelve  months ended  December 31, 2004 and since May 1,
2003 in the period from June 5, 1996  (inception)  to December  31, 2004 and for
the twelve  months ended  December 31, 2003.  The  following  combined pro forma
results of operations for the year ended December 31, 2003 have been prepared as
if the merger with Synergy had occurred at January 1, 2003.

Revenues                                                                    $--
Net loss                                                           ($13,513,820)
Net loss per common share - basic and diluted                             (0.58)
(23,296,920 common shares in 2003)

                                       F-9
<PAGE>


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                  (6,335,799)
                                                                    -----------

Total consideration paid by Callisto to acquire Synergy             $(6,575,727)
                                                                    ===========

5.   Stockholders' equity:

On April 19, 2004, Callisto 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.

In January 2004 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 $501,516 in fees to various
selling  agents.  In addition  Callisto issued 31,467 shares of common stock and
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 January 2004,  Callisto  completed this private
placement begun in late 2003 and issued  1,128,766  shares of common stock at an
issue price of $1.50 for aggregate proceeds of $1,693,149, less $139,891 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.

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.

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 be $0.75 per share and Callisto  recorded  $483,000 of stock based
compensation expense.

                                      F-10
<PAGE>


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
                              =========                               ==========

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  6,822,778  option  shares  available  for  future  grants as of
December 31, 2004.

The Company recognizes deferred  compensation expense for the intrinsic value of
unvested 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, 2004, 2003 and for the
period from June 5, 1996  (inception)  to December 31, 2004 Callisto  recognized
$2,732,770,   $3,833,946   and   $11,351,272,   respectively,   as   stock-based
compensation expense related to issuance of stock and stock options. At December
31, 2004, there was $2,302,534 remaining in unamortized deferred compensation.

The following  represent  options  outstanding  for the years since June 5, 1996
(inception) through December 31, 2004.

                                    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
                                  ==========    =============         =====

2004: Granted                      2,853,500    $1.50 - $3.60         $3.11
Forfeitures                         (385,000)   $1.50 - $2.50         $1.66
                                  ----------    -------------         -----

Balance, December 31, 2004         7,322,060    $0.75 - $6.75         $2.19
                                  ==========    =============         =====

Included in the balance at December 31, 2004 were 4,144,838 Non-Plan options, of
which 2,356,338 were exercisable.

                                      F-11
<PAGE>


Options are exercisable as follows at December 31, 2004:

<TABLE>
<CAPTION>
                                         Options Outstanding                                  Options Exercisable
                            --------------------------------------------------         --------------------------------
                             Number        Weighted Average   Weighted Average           Number        Weighted Average
Exercise Price              of Shares       Remaining Life     Exercise Price          of Shares        Exercise Price
                            ---------      ----------------   ----------------         ---------       ----------------
<C>                         <C>               <C>                   <C>                <C>                   <C>
$0.75 - $1.10               1,115,839         5.3 years             $0.91              1,115,839             $0.91
$1.25 - $1.75               2,603,555         8.2 years             $1.44              1,626,888             $1.40
$1.95 - $3.60               3,441,000         8.5 years             $3.03                957,500             $2.45
$4.90 - $6.75                 161,666         5.4 years             $5.32                 61,666             $6.00
All options:                ---------                                                  ---------                --
$0.75 - $6.75               7,322,060         7.8 years             $2.19              3,761,893             $1.60
                            =========         =========             =====              =========             =====
</TABLE>

6.   Stock option plan (continued):

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 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.

7.   Income taxes:

At December 31, 2004 and 2003,  Callisto had available Federal net operating tax
loss carry forwards of approximately $16,000,000 and $14,000,000,  respectively,
expiring  through 2024 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.

During the years ended  December 31, 2004,  2003 and 2002,  Synergy sold certain
New Jersey  State tax loss carry  forwards  under a state  economic  development
program for cash of approximately $233,000,  $222,000 and $0, respectively.  The
proceeds of economic development funds have 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, 2004 and 2003.

8.   Commitments and contingencies:

License agreements:

On August 12, 2004,  Callisto entered into a world-wide  license  agreement with
The University of Texas M. D. Anderson Cancer Center to research,  develop, sell
and  commercially  exploit the patent  rights for  Annamycin,  an  anthracycline
cancer drug for leukemia therapy.  Consideration  paid for this license amounted
to $31,497 for  reimbursement of out-of-pocket  costs for filing,  enforcing and
maintaining  the  Annamycin  patent rights and a $100,000  initial  license fee.
Annamycin has not reached  technological  feasibility  and having no alternative
use these costs were recorded as research and development expense. Callisto also
agreed to pay The  University  of Texas M. D. Anderson  Cancer Center  royalties
based on net sales from any licensed products, plus aggregate milestone payments
of up to  $750,000  based upon  achieving  certain  regulatory  submissions  and
approvals.  The term of the agreement is from August 12, 2004 until  November 2,
2019.  Under the terms of the  license  agreement,  Callisto is required to make
certain good faith expenditures towards the clinical development of at least one
licensed  product  within the two year period after March 2005. In addition,  at
any time  after 5 years from  August  12,  2004,  The  University  of Texas M.D.
Anderson  Cancer Center has the right to terminate the license if Callisto fails
to provide evidence within 90 days of written notice that it has  commercialized
or it is actively and effectively attempting to commercialize Annamycin.

On  February  24,  2004,   Callisto  entered  into  an  agreement  with  Houston
Pharmaceuticals,  Inc. ("HPI") to sublicense the rights to a key patent covering
a technology  platform for site-directed DNA intercalation and Callisto acquired
the rights to a patent covering new  anthracycline  analogs.  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.

                                      F-12
<PAGE>

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.  Callisto  also agreed to pay HPI  royalties of 2% on net sales from
any products resulting from commercializing the site-directed DNA intercalation.
Pursuant to the sublicense agreement, in the event Callisto's Board of Directors
determines to abandon its development and commercialization of the site-directed
DNA  intercalation,  HPI  shall  have the  right  to  terminate  the  sublicense
agreement.

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 of up to $14 million based upon achieving certain regulatory
submissions and approvals for an initial indication,  and additional payments of
up to $16 million for each  additional  indication  based on  achieving  certain
regulatory submissions and approvals. In addition the agreement requires Synergy
to pay  AnorMED  royalties  on net sales.  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 recorded as research and  development  expense in 2004.
Pursuant  to the  license  agreement,  failure to pay the  maintenance  fee is a
material breach of the license  agreement.  The license agreement will terminate
in 2018.

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,  plus royalties of 2% and 0.75%
of net sales of product  depending  on whether the product is covered by a claim
under the licensed  patents or derived  from a claim under the licensed  patents
and will pay  Rockefeller  15% of any sublicense fee paid by  sublicensees.  The
agreement  will  terminate  on July 25,  2021.  During the twelve  months  ended
December 31, 2004 and 2003, Callisto made no payments to Rockefeller University.
Prior to 2003,  $7,500  in total  payments  had been  made  under  this  license
agreement.  Rockefeller may terminate the license  agreement if Callisto is more
than 30 days late in  paying  Rockefeller  any  amounts  due  under the  license
agreement or if Callisto breachs the license agreement.

Employment and Consulting Agreements:

On  December  27,  2004,  Callisto  entered  into a  consulting  agreement  (the
"Agreement")  with  Gabriele M. Cerrone,  Callisto's  Chairman of the Board (the
"Consultant").  The duties of the Consultant and the  obligations of Callisto to
pay compensation commenced on January 10, 2005 (the "Start Date"). The duties of
the Consultant  pursuant to the Agreement will consist of business  development,
strategic planning,  capital markets and corporate financing  consulting advice.
The term of the Agreement  will commence upon the Start Date and continue  until
December 31, 2006 with automatic  renewal for successive one year periods unless
either  party  gives  notice  to  the  other  not to  renew  the  Agreement.  No
compensation expense was recorded during the year ended December 31, 2004.

Callisto   will  pay   Consultant   the  annual  sum  of  $205,000   (the  "Base
Compensation") at the rate of $17,083.33 per month commencing on the Start Date.
In addition, Consultant was granted 375,000 ten year non-qualified stock options
at an exercise  price of $1.70 per share.  One half of such options vest on each
of the  first  two  anniversaries  of the  date  of the  Agreement.  Stock-based
compensation  expense associated with these option grants will be recorded based
on an initial  Black-Scholes  Fair Value of $1.52 per share and marked to market
quarterly  from  January  10,  2005  until the  measurement  date is known.  The
measurement  date in this case will be the earlier of the second  anniversary of
the  agreement or the  accelerated  vesting date if Mr.  Cerrrone is  terminated
without cause or good reason.

In the event the Agreement is terminated  without cause or for good reason,  the
Consultant  will receive a cash payment  equal to the  aggregate  amount of Base
Compensation for the then remaining term of the Agreement and all unvested stock
options will  immediately  vest and the exercise  period of such options will be
extended to the later of the longest period permitted by Callisto's stock option
plans or ten years  following  termination.  In the event a change of control of
Callisto  occurs,  Consultant  shall be entitled to such  compensation  upon the
subsequent  termination  of the  Agreement  within  two  years of the  change in
control  unless  such  termination  is the  result  of the  Consultant's  death,
disability or retirement or the Consultant's termination for cause.

On December 22, 2004 the Board of  Directors of Callisto,  acting upon advice of
its  Compensation  Committee,  awarded  Mr.  Cerrone a cash bonus of $200,000 in
recognition  of his  contributions  to the  Company  including  negotiation  and
acquisition of certain intellectual  property licenses during 2004.  Accordingly
this bonus was charged to research and development expense during 2004.

On August 12, 2004, in connection with the Annamycin  license,  Callisto entered
into a consulting agreement with Roman Perez-Soler,  M.D., for a term concurrent
with the Annamycin license  agreement.  In connection  therewith Dr. Perez-Soler
agreed  to  be  appointed  to  the  Company's   Scientific  Advisory  Board.  As
consideration for consulting and advisory services Dr. Perez-Soler shall receive
a $30,000 per year consulting fee and, 44,000 shares of restricted common stock.
These shares were  recorded as stock based  compensation  expense  during the 12
months ended December 31, 2004 for a total of $70,840 based on the closing stock
price of $1.61  on  August  23,  2004.  In  addition,  Callisto  granted  to Dr.
Perez-Soler an option to purchase  468,500 shares of common stock at an exercise
price of $3.00 per share.  The option shares vest upon  achievement  of specific
milestones related to future development of Annamycin, at which time stock-based
compensation  expense will be recorded  based upon the fair value of the options
at that time.

On April 6, 2004, Kunwar Shailubhai,  Ph.D. 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.  Dr.
Shailubhai  received a 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.

                                      F-13
<PAGE>


Callisto previously had an employment  agreement dated June 13, 2003 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. Dr.  Shailubhai's
salary was  $170,000  per year and he was 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 were fully vested and
have an exercise price of $1.50 per share. Dr.  Shailubhai also received a grant
of 325,000  stock options which were to have vested over a three year period and
were exercisable at $1.50 per share. This employment agreement was terminated on
April 6, 2004 and unvested options were forfeited.

The new grant of 100,000 options will be subject to variable  accounting because
it was deemed that his agreement was a continuation  of employment with a wholly
owned  subsidiary  of  Callisto.  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,  based on the original
intrinsic value,  associated with the remaining 100,000 options of $314,139, was
expensed  over the vesting  period of the new grant (e.g.  April 7, 2004 through
December 31, 2004).

8.   Commitments and contingencies (Continued):

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.

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.  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.  On April 6, 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 cash  bonuses of up to $92,500 over a 12 month
period may be paid. During the twelve months ended December 31, 2004, Dr. Picker
was paid a bonus  $37,500 based on certain  milestones he achieved  during 2004.
The balance of the annual  bonus Dr.  Picked is eligible to receive will be paid
only if and when certain other milestones are reached.

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.

Calisto  has  various  consulting  agreements  with  members  of its  scientific
advisory  board to  provide  services.  Fees  are  based  and  paid on  services
provided.

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 June 7,  2004  Callisto  extended  its  lease for its
corporate  headquarters in New York City three additional years through June 30,
2011,  and  increased  its  space.   This  increased   average  annual  rent  to
approximately  $150,000.  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, 2004,  2003 and 2002 and for
the period  from June 5, 1996  (inception)  to  December  31,  2004,  total rent
expense was $217,297, $67,261, $51,856 and $404,579,  respectively. Total annual
commitments  under these leases for each of the twelve months ended December 31,
are as follows:

                          2005                     193,552
                          2006                     148,553
                          2007                     151,524
                          2008                     154,555
                          2009                     157,646
                          2010                     160,799
                          2011                      81,464
                                                ----------

                          Total                 $1,048,093
                                                ==========

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.

                                      F-14
<PAGE>


9.   Property and equipment:

Equipment  consists of laboratory,  testing and computer equipment and furniture
and  fixtures  consists of office  furniture,  both stated at cost,  with useful
lives ranging from 2-4 years, depreciated on a straight line basis. Depreciation
expense for the years ended  December 31,  2004,  2003 and 2002 and from June 5,
1996 (inception) to December 31, 2004 was $27,632,  $27,755, $6,778 and $65,781,
respectively.

                                                              December 31
                                                      -------------------------
                                                          2004             2003
                                                      --------         --------

Equipment                                              $46,294          $46,294
Furniture and fixtures                                  38,343           38,343
Less - Accumulated depreciation                        (65,781)         (38,149)
                                                      --------         --------


Property and equipment, net
                                                       $18,856          $46,488
                                                      ========         ========

10.  Subsequent event:

On  March 9,  2005  Callisto  completed  a  private  placement  of an  aggregate
1,985,791  shares  of its  common  stock  at a per  share  price of  $1.52,  for
aggregate gross proceeds of approximately  $3.02 million.  The financing was led
by certain current  institutional  shareholders  and included certain members of
the  Callisto's  management;  therefore  no selling  agent  fees were  incurred.
Callisto  has agreed to file a  registration  statement  covering  resale of the
shares within 30 days of closing.

Had this  private  placement  been  completed  on  December  31,  2004 pro forma
selected balance sheet items would have been as follows:

                                                     As reported       Pro forma
                                                        2004             2004
                                                     -----------      ----------

Cash and cash equivalents                             $5,323,384      $8,343,384

Stockholders' equity                                  $4,249,278      $7,269,278

Common shares outstanding                             29,219,102      31,218,102

                                      F-15
<PAGE>


                                Index to Exhibits

     Exhibit
     Number     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)

     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 fourth
                on the signature page thereto (13)

     10.8       Common Stock Purchase  Agreement  dated as of April 19, 2004, by
                and between  Callisto  Pharmaceuticals,  Inc. and the Purchasers
                set forth on Exhibit A thereto. (14)

     10.9       Patent and Technology License Agreement dated August 12, 2004 by
                and  between  The Board of  Regents of the  University  of Texas
                System,  on behalf  of The  University  of Texas M. D.  Anderson
                Cancer Center and Callisto Pharmaceuticals, Inc. (15)**

     10.10      Consulting  Agreement  dated as of December 27, 2004 between the
                Registrant and Gabriele M. Cerrone. *+

     10.11      Common Stock Purchase Agreement dated as of March 9, 2005 by and
                between  Callisto  Pharmaceuticals,  Inc. and the Purchasers set
                forth on Exhibit A thereto. (16)

     10.12      License Agreement between Callisto Pharmaceuticals, Inc. and The
                Rockefeller University effective as of July 25, 2001.

     10.13      Asset Purchase  Agreement  dated as of February 24, 2004 between
                Callisto Pharmaceuticals, Inc. and Houston Pharmaceuticals, Inc.

     10.14      Sublicense  Agreement  dated as of  February  24,  2004  between
                Callisto Pharmaceuticals, Inc. and Houston Pharmaceuticals, Inc.

     10.15      Agreement   among   Davos   Chemical    Corporation,    Callisto
                Pharmaceuticals,  Inc. and  Antibioticos  S.p.A.  dated July 28,
                2004.

     14         Code of Business Conduct and Ethics (17)

     22         List of Subsidiaries+

     23         Consent of BDO Seidman, LLP

                                       38
<PAGE>


     31.1       Certification  of Chief  Executive  Officer  required under Rule
                13a-14(a)/15d-14(a) under the Exchange Act

     31.2       Certification of Principal Financial Officer required under Rule
                13a-14(a)/15d-14(a) under the Exchange Act

     32.1       Certification  of Chief Executive  Officer  pursuant to 18 U.S.C
                Section  1350,  as  adopted  pursuant  to  Section  906  of  the
                Sarbanes-Oxley Act of 2002

     32.2       Certification  of  Principal  Financial  Officer  pursuant to 18
                U.S.C Section  1350,  as adopted  pursuant to Section 906 of the
                Sarbanes-Oxley Act of 2002


*    Management  contract or  compensatory  plan or  arrangement  required to be
     filed as an Exhibit to this form pursuant to Item 601 of Regulation S-K.

**   Confidential  treatment has been requested with respect to deleted portions
     of this agreement.

+    Previously filed.

(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 May 15, 2003.

(6)  Incorporated  by reference to Exhibit 4.1 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 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 10.6 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 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 10.1 filed with the Company's  Current
     Report on Form 8-K filed on September 7, 2004.

(16) Incorporated by reference to Exhibit 10.1 filed with the Company's  Current
     Report on Form 8-K filed on March 5, 2005.

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

                                       39