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**UNITED      STATES**

**SECURITIES      AND EXCHANGE COMMISSION **

**FORM      10-Q **

**x      QUARTERLY REPORT      PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES **

**EXCHANGE      ACT OF 1934 **

**FOR      THE QUARTERLY PERIOD ENDED: SEPTEMBER 30, 2005 **

**o      TRANSITION REPORT      PURSUANT TO SECTION 13 OR 15(D) OF THE **

**SECURITIES      EXCHANGE ACT OF 1934 **

*COMMISSION      FILE NUMBER: 001-32325 *

**CALLISTO      PHARMACEUTICALS, INC. **

|   | 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                  |   |
|--------|--------------------------------------------------|--------|
|   | (Registrant's                  telephone number) |   |

|   | x   | o  |   |
|--------|-----|----|--------|
|   | Yes | No |   |

|        | o   | x  |   |
|--------|-----|----|--------|
|   | Yes | No |   |

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**CALLISTO      PHARMACEUTICALS, INC. **

**FORM      10-Q **

**CONTENTS      **

**PART      I – FINANCIAL INFORMATION**

|                                                        |                                                                                                                | Page   |
|-------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------|--------|
|                                                        |                                                                                                                |   |
| Item                1.                                 | Condensed                Consolidated Financial                Statements                                           |   |
|                                                        |                                                                                                                |   |
|                                                        | Condensed                Consolidated Balance Sheets                                                                | 1      |
|                                                        | as                of September 30, 2005 (unaudited) and December 31,                2004                       |   |
|                                                        |                                                                                                                |   |
|                                                        | Condensed                Consolidated Statements of Operations                                                      | 2      |
|                                                        | for                the Three and Nine Months Ended September 30,                2005 and 2004 (unaudited) |   |
|                                                        | and                the period June 5, 1996 (Inception) to September 30,                2005 (unaudited)        |   |
|                                                        |                                                                                                                |   |
|                                                        | Condensed                Consolidated Statements of Changes in                Stockholders' Equity                  | 3      |
|                                                        | for                the period June 5, 1996 (Inception) to September                30, 2005 (unaudited)        |   |
|                                                        |                                                                                                                |   |
|                                                        | Condensed                Consolidated Statements of Cash Flows                                                      | 8      |
|                                                        | for                the Nine Months Ended September 30, 2005                and 2004 (unaudited)           |   |
|                                                        | and                for the period June 5, 1996 (Inception)                to September 30, 2005 (unaudited)    |   |
|                                                        |                                                                                                                |   |
|                                                        | Notes                to Condensed Consolidated Financial Statements                (unaudited)                      | 9      |
|                                                        |                                                                                                                |   |
| Item                2.                                 | Management's                Discussion and Analysis of Financial                Condition                           | 14     |
|                                                        | and                Results of Operations                                                                            |   |
|                                                        |                                                                                                                |   |
| Item                3.                                      | Quantitative                and Qualitative Disclosure About Market                Risk                             | 25     |
|                                                        |                                                                                                                |   |
| Item                4.                                 | Controls                and Procedures                                                                              | 26     |
|                                                        |                                                                                                                |   |
| PART                II – OTHER INFORMATION  |                                                                                                                |
|                                                        |                                                                                                                |   |
| Item 4.                                                     | Submission              of Matters to a Vote of Security              Holders                                       | 27     |
|                                                        |                                                                                                                |   |
| Item                6.                                 | Exhibits                                                                                                            | 28     |
|                                                        |                                                                                                                |   |
| Signatures                                             |                                                                                                                |

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**INTRODUCTORY      NOTE **

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**PART        I - FINANCIAL INFORMATION**

**ITEM        1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**CALLISTO        PHARMACEUTICALS, INC****.**

**CONDENSED        CONSOLIDATED BALANCE SHEETS **

|                                                                                                                                                 |   | **September                  30,****2005** |        | **December                  31,****2004** |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------------|-------------|-------------------------------------------|--------|
|                                                                                                                                                 |   | (UNAUDITED)                                |        |                                      |   |
|  **ASSETS**                                                                                                                                     |
| Current                  assets:                                                                                                                     |   |                                       |        |                                      |   |
| Cash                  and cash equivalents                                                                                                           |   | $                                          | 3,541,265   |                                      | $      | 5,323,384 |   |
| Prepaid                  expenses                                                                                                                    |   |                                       | 89,472      |                                      |   | 45,231 |   |
|                                                                                                                                                 |   |                                       | 3,630,737   |                                      |   | 5,368,615 |   |
|                                                                                                                                                 |   |                                       |             |                                      |   |  |   |
| Property                  and equipment - net                                                                                                        |   |                                       | 3,640       |                                      |   | 18,856 |   |
| Rent                  deposits                                                                                                                       |   |                                       | 82,196      |                                      |   | 82,196 |   |
|                                                                                                                                                 |   | $                                          | 3,716,573   |                                      | $      | 5,469,667 |   |
|                                                                                                                                                 |   |                                       |             |                                      |   |  |   |
| **LIABILITIES                  AND STOCKHOLDERS' EQUITY**                                                                                            |
| Current                  liabilities:                                                                                                                |   |                                       |             |                                      |   |  |   |
| Accounts                  payable                                                                                                                    |   | $                                          | 1,360,609   |                                      | $      | 984,486 |   |
| Accrued                  expenses                                                                                                                    |   |                                       | 318,941     |                                      |   | 235,803 |   |
|                                                                                                                                                 |   |                                       | 1,679,550   |                                      |   | 1,220,289 |   |
| Stockholders'                  equity:                                                                                                               |   |                                       |             |                                      |   |  |   |
| Common                  stock, par value $.0001, 75,000,000 shares authorized, 33,108,096                                                            |   |                                       |             |                                      |   |  |   |
| and                  29,219,102 outstanding at September 30, 2005 and December 31, 2004,                                                             |   |                                       |             |                                      |   |  |   |
| respectively                                                                                                                                         |   |                                       | 3,310       |                                      |   | 2,922 |   |
| Additional                  paid-in capital                                                                                                          |   |                                       | 46,332,577  |                                      |   | 39,910,187 |   |
| Unamortized                  deferred stock based compensation                                                                                       |   |                                       | (2,412,290  | )                                         |   | (2,302,534 | ) |
| Deficit                  accumulated during development stage                                                                                        |   |                                       | (41,886,574 | )                                         |   | (33,361,197 | ) |
|                                                                                                                                                 |   |                                       | 2,037,023   |                                      |   | 4,249,378 |   |
|                                                                                                                                                 |   | $                                          | 3,716,573   |                                      | $      | 5,469,667 |   |
|                                                                                                                                                 |   |                                       |        |                                      |   |   |   |
|                                                                                                                                                 |   |                                       |        |                                      |   |   |   |
| The                  accompanying notes are an integral part of                  these condensed consolidated financial                  statements. |

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**CALLISTO        PHARMACEUTICALS, INC.**

**CONDENSED        CONSOLIDATED STATEMENTS OF OPERATIONS **

|                                                                                                                                                |   |                                                              |       |                                                             |   |                                                                               |   |     |       |     |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------------------------------------------------|------------|------------------------------------------------------------------|--------|------------------------------------------------------------------------------------|--------|----------|------------|----------|--------|
|                                                                                                                                                |   | **Three                  Months Ended September 30,  ** |       | **Nine                  Months Ended September 30,  ** |   | **June                  5, 1996****(Inception)                  to September 30,** |   |
|                                                                                                                                                |   | **2005**                                                          |       | **2004**                                                         |   | **2005**                                                                           |   | **2004** |       | **2005** |   |
| Revenues                                                                                                                                            |   | $                                                                 | —    |                                                             | $      | —                                                                            |   | $        | —    |     | $      | — |   | $ | — |   |
|                                                                                                                                                |   |                                                              |            |                                                             |   |                                                                                    |   |     |            |     |   |  |   |   |  |   |
| Costs                  and expenses:                                                                                                                |   |                                                              |            |                                                             |   |                                                                                    |   |     |            |     |   |  |   |   |  |   |
|                                                                                                                                                |   |                                                              |       |                                                             |   |                                                                                    |   |     |            |     |   |  |   |   |  |   |
| Research                  and development                                                                                                           |   |                                                              | 1,718,893  |                                                             |   | 851,410                                                                            |   |     | 4,739,336  |     |   | 1,777,062 |   |   | 12,459,083 |   |
|                                                                                                                                                |   |                                                              |            |                                                             |   |                                                                                    |   |     |            |     |   |  |   |   |  |   |
| Government                  grant                                                                                                                   |   |                                                              | (152,866   | )                                                                |   | (87,880                                                                            | )      |     | (152,866   | )        |   | (188,100 | ) |   | (418,563 | ) |
|                                                                                                                                                |   |                                                              |            |                                                             |   |                                                                                    |   |     |            |     |   |  |   |   |  |   |
| Purchased                  in process research and development                                                                                      |   |                                                              | —    |                                                             |   | —                                                                            |   |     | —    |     |   | 209,735 |   |   | 6,944,553 |   |
|                                                                                                                                                |   |                                                              |            |                                                             |   |                                                                                    |   |     |            |     |   |  |   |   |  |   |
| Stock-based                  compensation (research and development)                                                                                |   |                                                              | 69,063     |                                                             |   | 248,106                                                                            |   |     | 207,189    |     |   | 1,314,998 |   |   | 2,149,964 |   |
|                                                                                                                                                |   |                                                              |            |                                                             |   |                                                                                    |   |     |            |     |   |  |   |   |  |   |
| General                  and administrative                                                                                                         |   |                                                              | 898,939    |                                                             |   | 572,440                                                                            |   |     | 2,372,235  |     |   | 1,646,673 |   |   | 10,984,481 |   |
|                                                                                                                                                |   |                                                              |            |                                                             |   |                                                                                    |   |     |            |     |   |  |   |   |  |   |
| Stock-based                  compensation (general and administrative)                                                                              |   |                                                              | 819,740    |                                                             |   | 39,245                                                                             |   |     | 1,450,554  |     |   | 637,947 |   |   | 10,859,052 |   |
|                                                                                                                                                |   |                                                              |            |                                                             |   |                                                                                    |   |     |            |     |   |  |   |   |  |   |
| Loss                  from operations                                                                                                               |   |                                                              | (3,353,769 | )                                                                |   | (1,623,321                                                                         | )      |     | (8,616,448 | )        |   | (5,398,315 | ) |   | (42,978,570 | ) |
|                                                                                                                                                |   |                                                              |            |                                                             |   |                                                                                    |   |     |            |     |   |  |   |   |  |   |
| Interest                  and investment income                                                                                                     |   |                                                              | 33,200     |                                                             |   | 17,635                                                                             |   |     | 91,071     |     |   | 54,919 |   |   | 640,752 |   |
| Other                  income                                                                                                                       |   |                                                              | —    |                                                             |   | —                                                                            |   |     | —    |     |   | — |   |   | 451,244 |   |
|                                                                                                                                                |   |                                                              |            |                                                             |   |                                                                                    |   |     |            |     |   |  |   |   |  |   |
| Net                  loss                                                                                                                           |   | $                                                                 | (3,320,569 | )                                                                | $      | (1,605,686                                                                         | )      | $        | (8,525,377 | )        | $      | (5,343,396 | ) | $ | (41,886,574 | ) |
|                                                                                                                                                |   |                                                              |            |                                                             |   |                                                                                    |   |     |            |     |   |  |   |   |  |   |
| Weighted                  average shares outstanding:                                                                                               |   |                                                              |            |                                                             |   |                                                                                    |   |     |            |     |   |  |   |   |  |   |
| basic                  and diluted                                                                                                                  |   |                                                              | 31,867,103 |                                                             |   | 29,175,102                                                                         |   |     | 30,954,422 |     |   | 28,239,940 |   |   | — |   |
|                                                                                                                                                |   |                                                              |            |                                                             |   |                                                                                    |   |     |            |     |   |  |   |   |  |   |
| Net                  loss per common share:                                                                                                         |   |                                                              |            |                                                             |   |                                                                                    |   |     |            |     |   |  |   |   |  |   |
| basic                  and diluted                                                                                                                  |   | $                                                                 | (0.10      | )                                                                | $      | (0.06                                                                              | )      | $        | (0.28      | )        | $      | (0.19 | ) |   | — |   |
|                                                                                                                                                |   |                                                              |       |                                                             |   |                                                                               |   |     |       |     |   |   |   |   |   |   |
|                                                                                                                                                |   |                                                              |       |                                                             |   |                                                                               |   |     |       |     |   |   |   |   |   |   |
| The                  accompanying notes are an integral part of                  these condensed consolidated financial                  statements |

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**CALLISTO        PHARMACEUTICALS, INC. **

**CONDENSED        CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY**

|                                                                                                                                                |   |                    |      |                                                  |   |                 |   |                                               |       |                                                  |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------|-----------|-------------------------------------------------------|--------|----------------------|--------|----------------------------------------------------|------------|-------------------------------------------------------|--------|
|                                                                                                                                                |   | **Preferred****Shares** |      | **Preferred****Stock,                  Par****Value** |   | **Common****Shares** |   | **Common****Stock,                  Par****Value** |       | **Additional****Paid                  in****Capital** |   |
| Balance                  at inception, June 5, 1996                                                                                                 |   |                    | —   |                                                  |   | —              |   |                                               | —    |                                                  |   | — |   |   | — |   |
| Net                  loss for the period                                                                                                            |   |                    |           |                                                  |   |                      |   |                                               |            |                                                  |   |  |   |   |  |   |
| Issuance                  of founder shares                                                                                                         |   |                    | —   |                                                  |   | —              |   |                                               | 2,642,500  |                                                  |   | 264 |   |   | 528 |   |
| Common                  stock issued                                                                                                                |   |                    | —   |                                                  |   | —              |   |                                               | 1,356,194  |                                                  |   | 136 |   |   | 272 |   |
| Common                  stock issued via private placement                                                                                          |   |                    | —   |                                                  |   | —              |   |                                               | 1,366,667  |                                                  |   | 137 |   |   | 1,024,863 |   |
| Balance,                  December 31, 1996                                                                                                         |   |                    | —   |                                                  |   | —              |   |                                               | 5,365,361  |                                                  |   | 537 |   |   | 1,025,663 |   |
| Net                  loss for the year                                                                                                              |   |                    | —   |                                                  |   | —              |   |                                               | —    |                                                  |   | — |   |   | — |   |
| Common                  stock issued via private placement                                                                                          |   |                    | —   |                                                  |   | —              |   |                                               | 1,442,666  |                                                  |   | 144 |   |   | 1,081,855 |   |
| Balance,                  December 31, 1997                                                                                                         |   |                    | —   |                                                  |   | —              |   |                                               | 6,808,027  |                                                  |   | 681 |   |   | 2,107,518 |   |
| Net                  loss for the year                                                                                                              |   |                    | —   |                                                  |   | —              |   |                                               | —    |                                                  |   | — |   |   | — |   |
| Amortization                  of Stock based Compensation                                                                                           |   |                    | —   |                                                  |   | —              |   |                                               | —    |                                                  |   | — |   |   | 52,778 |   |
| Common                  stock issued via private placement                                                                                          |   |                    | —   |                                                  |   | —              |   |                                               | 1,416,667  |                                                  |   | 142 |   |   | 1,062,358 |   |
| Common                  stock issued for services                                                                                                   |   |                    | —   |                                                  |   | —              |   |                                               | 788,889    |                                                  |   | 79 |   |   | 591,588 |   |
| Common                  stock repurchased and cancelled                                                                                             |   |                    | —   |                                                  |   | —              |   |                                               | (836,792   | )                                                     |   | (84 | ) |   | (96,916 | ) |
| Balance,                  December 31, 1998                                                                                                         |   |                    | —   |                                                  |   | —              |   |                                               | 8,176,791  |                                                  |   | 818 |   |   | 3,717,326 |   |
| Net                  loss for the year                                                                                                              |   |                    | —   |                                                  |   | —              |   |                                               | —    |                                                  |   | — |   |   | — |   |
| Deferred                  Compensation - stock options                                                                                              |   |                    | —   |                                                  |   | —              |   |                                               | —    |                                                  |   | — |   |   | 9,946 |   |
| Amortization                  of Stock based Compensation                                                                                           |   |                    | —   |                                                  |   | —              |   |                                               | —    |                                                  |   | — |   |   | — |   |
| Common                  stock issued for services                                                                                                   |   |                    | —   |                                                  |   | —              |   |                                               | —    |                                                  |   | — |   |   | 3,168,832 |   |
| Common                  stock issued via private placement                                                                                          |   |                    | —   |                                                  |   | —              |   |                                               | 346,667    |                                                  |   | 34 |   |   | 259,966 |   |
| Balance,                  December 31, 1999                                                                                                         |   |                    | —   |                                                  |   | —              |   |                                               | 8,523,458  |                                                  |   | 852 |   |   | 7,156,070 |   |
| Net                  loss for the year                                                                                                              |   |                    | —   |                                                  |   | —              |   |                                               | —    |                                                  |   | — |   |   | — |   |
| Amortization                  of Stock based Compensation                                                                                           |   |                    | —   |                                                  |   | —              |   |                                               | —    |                                                  |   | — |   |   | — |   |
| Common                  stock issued                                                                                                                |   |                    | —   |                                                  |   | —              |   |                                               | 4,560,237  |                                                  |   | 455 |   |   | 250,889 |   |
| Other                                                                                                                                               |   |                    | —   |                                                  |   | —              |   |                                               | —    |                                                  |   | — |   |   | 432 |   |
| Preferred                  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 |   |
|                                                                                                                                                |   |                    |      |                                                  |   |                 |   |                                               |       |                                                  |   |   |   |   |   |   |
|                                                                                                                                                |   |                    |      |                                                  |   |                 |   |                                               |       |                                                  |   |   |   |   |   |   |
| The                  accompanying notes are an integral part of                  these condensed consolidated financial                  statements |

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**CALLISTO        PHARMACEUTICALS, INC. **

**CONDENSED        CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY**

|                                                                                                                                                 |   |                                                                        |    |                                                                              |   |                                 |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------------------------------------|---------|-----------------------------------------------------------------------------------|--------|--------------------------------------|--------|
|                                                                                                                                                 |   | **Unamortized****Deferred****Stock                  Based****Compensation** |    | **Deficit****Accumulated****during                  the****Development****Stage** |   | **Total****Stockholders'****Equity** |   |
| Balance                  at inception, June 5, 1996                                                                                                  |   |                                                                        | — |                                                                              |   | —                              |   |   | — |   |
| Net                  loss for the year                                                                                                               |   |                                                                        |         |                                                                              |   | (404,005                             | )      |   | (404,005 | ) |
| Issuance                  of founder shares                                                                                                          |   |                                                                        | — |                                                                              |   | —                              |   |   | 792 |   |
| Common                  stock issued                                                                                                                 |   |                                                                        | — |                                                                              |   | —                              |   |   | 408 |   |
| Common                  stock issued via private placement                                                                                           |   |                                                                        | — |                                                                              |   | —                              |   |   | 1,025,000 |   |
|                                                                                                                                                 |   |                                                                        |    |                                                                              |   |                                 |   |   |   |   |
| Balance,                  December 31, 1996                                                                                                          |   |                                                                        | — |                                                                              |   | (404,005                             | )      |   | 622,195 |   |
| Net                  loss for the year                                                                                                               |   |                                                                        | — |                                                                              |   | (894,505                             | )      |   | (894,505 | ) |
| Common                  stock issued via private placement                                                                                           |   |                                                                        | — |                                                                              |   | —                              |   |   | 1,081,999 |   |
|                                                                                                                                                 |   |                                                                        |    |                                                                              |   |                                 |   |   |   |   |
| Balance,                  December 31, 1997                                                                                                          |   |                                                                        | — |                                                                              |   | (1,298,510                           | )      |   | 809,689 |   |
| Net                  loss for the year                                                                                                               |   |                                                                        | — |                                                                              |   | (1,484,438                           | )      |   | (1,484,438 | ) |
| Amortization                  of Stock based Compensation                                                                                            |   |                                                                        | — |                                                                              |   | —                              |   |   | 52,778 |   |
| Common                  stock issued                                                                                                                 |   |                                                                        |         |                                                                              |   |                                      |   |   | 1,062,500 |   |
| Common                  stock issued for services                                                                                                    |   |                                                                        | — |                                                                              |   | —                              |   |   | 591,667 |   |
| Common                  Stock repurchased and cancelled                                                                                              |   |                                                                        | — |                                                                              |   | —                              |   |   | (97,000 | ) |
|                                                                                                                                                 |   |                                                                        |    |                                                                              |   |                                 |   |   |   |   |
| Balance,                  December 31, 1998                                                                                                          |   |                                                                        | — |                                                                              |   | (2,782,948                           | )      |   | 935,196 |   |
| Net                  loss for the year                                                                                                               |   |                                                                        | — |                                                                              |   | (4,195,263                           | )      |   | (4,195,263 | ) |
| Deferred                  Compensation - stock options                                                                                               |   |                                                                        | (9,946  | )                                                                                 |   | —                              |   |   | — |   |
| Amortization                  of Stock based Compensation                                                                                            |   |                                                                        | 3,262   |                                                                              |   | —                              |   |   | 3,262 |   |
| Common                  stock issued for services                                                                                                    |   |                                                                        | — |                                                                              |   | —                              |   |   | 3,168,832 |   |
| Common                  stock issued via private placement                                                                                           |   |                                                                        | — |                                                                              |   | —                              |   |   | 260,000 |   |
|                                                                                                                                                 |   |                                                                        |    |                                                                              |   |                                 |   |   |   |   |
| Balance,                  December 31, 1999                                                                                                          |   |                                                                        | (6,684  | )                                                                                 |   | (6,978,211                           | )      |   | 172,027 |   |
| Net                  loss for the year                                                                                                               |   |                                                                        |         |                                                                              |   | (2,616,261                           | )      |   | (2,616,261 | ) |
| Amortization                  of Stock based Compensation                                                                                            |   |                                                                        | 4,197   |                                                                              |   |                                      |   |   | 4,197 |   |
| Common                  stock 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 |   |
|                                                                                                                                                 |   |                                                                        |    |                                                                              |   |                                 |   |   |   |   |
|                                                                                                                                                 |   |                                                                        |    |                                                                              |   |                                 |   |   |   |   |
| The                  accompanying notes are an integral part of                  these condensed consolidated financial                  statements. |

----

**CALLISTO        PHARMACEUTICALS, INC. **

**CONDENSED        CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY        (CONTINUED) **

|                                                                                                                                                 |   |                   |       |                                   |   |                |   |                                |       |                                                  |   |                                                                        |   |                                                                              |       |                                 |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------|------------|----------------------------------------|--------|---------------------|--------|-------------------------------------|------------|-------------------------------------------------------|--------|-----------------------------------------------------------------------------|--------|-----------------------------------------------------------------------------------|------------|--------------------------------------|--------|
|                                                                                                                                                 |   | **Preferred****Stock** |       | **Preferred****Stock****Par****Value** |   | **Common****Stock** |   | **Common****Stock****Par****Value** |       | **Additional****Paid                  in****Capital** |   | **Unamortized****Deferred****Stock                  Based****Compensation** |   | **Deficit****Accumulated****during                  the****Development****Stage** |       | **Total****Stockholders'****Equity** |   |
| 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 |   |
|                                                                                                                                                 |   |                   |            |                                   |   |                     |   |                                |            |                                                  |   |                                                                             |   |                                                                              |            |                                 |   |  |   |   |  |   |   |  |   |
|                                                                                                                                                 |   |                   |       |                                   |   |                |   |                                |       |                                                  |   |                                                                        |   |                                                                              |       |                                 |   |   |   |   |   |   |   |   |   |
| The                  accompanying notes are an integral part of                  these condensed consolidated financial                  statements. |

----

**CALLISTO        PHARMACEUTICALS, INC. **

**CONDENSED        CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY        (CONTINUED) **

|                                                                                                                                                 |   |                   |    |                                   |   |                |   |                                |       |                                                  |   |                                                                        |   |                                                                              |       |                                 |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------|---------|----------------------------------------|--------|---------------------|--------|-------------------------------------|------------|-------------------------------------------------------|--------|-----------------------------------------------------------------------------|--------|-----------------------------------------------------------------------------------|------------|--------------------------------------|--------|
|                                                                                                                                                 |   | **Preferred****Stock** |    | **Preferred****Stock****Par****Value** |   | **Common****Stock** |   | **Common****Stock****Par****Value** |       | **Additional****Paid                  in****Capital** |   | **Unamortized****Deferred****Stock                  Based****Compensation** |   | **Deficit****Accumulated****during                  the****Development****Stage** |       | **Total****Stockholders'****Equity** |   |
| 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 | ) |
|                                                                                                                                                 |   |                   |         |                                   |   |                     |   |                                |            |                                                  |   |                                                                             |   |                                                                              |            |                                 |   |  |   |   |  |   |   |  |   |
| 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 |   |
|                                                                                                                                                 |   |                   |    |                                   |   |                |   |                                |       |                                                  |   |                                                                        |   |                                                                              |       |                                 |   |   |   |   |   |   |   |   |   |
|                                                                                                                                                 |   |                   |    |                                   |   |                |   |                                |       |                                                  |   |                                                                        |   |                                                                              |       |                                 |   |   |   |   |   |   |   |   |   |
| The                  accompanying notes are an integral part of                  these condensed consolidated financial                  statements. |

----

**CALLISTO        PHARMACEUTICALS, INC. **

**CONDENSED        CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY        (CONTINUED)**

|                                                                                                                                |   |                   |    |                                   |   |                |   |                                |       |                                                  |   |                                                                        |   |                                                                              |       |                                 |   |
|-------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------|---------|----------------------------------------|--------|---------------------|--------|-------------------------------------|------------|-------------------------------------------------------|--------|-----------------------------------------------------------------------------|--------|-----------------------------------------------------------------------------------|------------|--------------------------------------|--------|
|                                                                                                                                |   | **Preferred****Stock** |    | **Preferred****Stock****Par****Value** |   | **Common****Stock** |   | **Common****Stock****Par****Value** |       | **Additional****Paid                  in****Capital** |   | **Unamortized****Deferred****Stock                  Based****Compensation** |   | **Deficit****Accumulated****during                  the****Development****Stage** |       | **Total****Stockholders'****Equity** |   |
|                                                                                                                                |   |                   |    |                                   |   |                |   |                                |       |                                                  |   |                                                                        |   |                                                                              |       |                                 |   |
| Balance,                  December 31, 2004                                                                                         |   |                   | — |                                   |   | —             |   |                                | 29,219,102 |                                                  |   | 2,922                                                                       |   |                                                                              | 39,910,187 |                                 |   | (2,302,534 | ) |   | (33,361,197 | ) |   | 4,249,378 |   |
| Net                  loss for the period                                                                                            |   |                   | — |                                   |   | —             |   |                                | —    |                                                  |   | —                                                                     |   |                                                                              | —    |                                 |   | — |   |   | (8,525,377 | ) |   | (8,525,377 | ) |
|                                                                                                                                |   |                   |         |                                   |   |                     |   |                                |            |                                                  |   |                                                                             |   |                                                                              |            |                                 |   |  |   |   |  |   |   |  |   |
| Amortization                  of deferred stock-based                                                                               |   |                   |         |                                   |   |                     |   |                                |            |                                                  |   |                                                                             |   |                                                                              |            |                                 |   |  |   |   |  |   |   |  |   |
| compensation                                                                                                                        |   |                   | — |                                   |   | —             |   |                                | —    |                                                  |   | —                                                                     |   |                                                                              | —    |                                 |   | 1,567,001 |   |   | — |   |   | 1,567,001 |   |
|                                                                                                                                |   |                   |         |                                   |   |                     |   |                                |            |                                                  |   |                                                                             |   |                                                                              |            |                                 |   |  |   |   |  |   |   |  |   |
| Variable                  accounting                                                                                                |   |                   |         |                                   |   |                     |   |                                |            |                                                  |   |                                                                             |   |                                                                              |            |                                 |   |  |   |   |  |   |   |  |   |
| for                  stock options                                                                                                  |   |                   | — |                                   |   | —             |   |                                | —    |                                                  |   | —                                                                     |   |                                                                              | 43,563     |                                 |   | — |   |   | — |   |   | 43,563 |   |
|                                                                                                                                |   |                   |         |                                   |   |                     |   |                                |            |                                                  |   |                                                                             |   |                                                                              |            |                                 |   |  |   |   |  |   |   |  |   |
| Deferred                  stock-based compensation - new                                                                            |   |                   |         |                                   |   |                     |   |                                |            |                                                  |   |                                                                             |   |                                                                              |            |                                 |   |  |   |   |  |   |   |  |   |
| grants                                                                                                                              |   |                   | — |                                   |   | —             |   |                                | —    |                                                  |   | —                                                                     |   |                                                                              | 1,676,757  |                                 |   | (1,676,757 | ) |   | — |   |   | — |   |
|                                                                                                                                |   |                   |         |                                   |   |                     |   |                                |            |                                                  |   |                                                                             |   |                                                                              |            |                                 |   |  |   |   |  |   |   |  |   |
| Common                  stock issued via                                                                                            |   |                   |         |                                   |   |                     |   |                                |            |                                                  |   |                                                                             |   |                                                                              |            |                                 |   |  |   |   |  |   |   |  |   |
| private                  placement, net                                                                                             |   |                   | — |                                   |   | —             |   |                                | 3,854,994  |                                                  |   | 386                                                                         |   |                                                                              | 4,654,892  |                                 |   | — |   |   | — |   |   | 4,655,278 |   |
|                                                                                                                                |   |                   |         |                                   |   |                     |   |                                |            |                                                  |   |                                                                             |   |                                                                              |            |                                 |   |  |   |   |  |   |   |  |   |
| Common                  stock issued for services                                                                                   |   |                   | — |                                   |   | —             |   |                                | 34,000     |                                                  |   | 2                                                                           |   |                                                                              | 47,178     |                                 |   | — |   |   | — |   |   | 47,180 |   |
| Balance,                  September 30, 2005                                                                                        |   |                   | — |                                   | $      | —             |   |                                | 33,108,096 |                                                  | $      | 3,310                                                                       |   | $                                                                                 | 46,332,577 |                                 |   | ($2,412,290 | ) |   | ($41,886,574 | ) | $ | 2,037,023 |   |
|                                                                                                                                |   |                   |    |                                   |   |                |   |                                |       |                                                  |   |                                                                        |   |                                                                              |       |                                 |   |   |   |   |   |   |   |   |   |
|                                                                                                                                |   |                   |    |                                   |   |                |   |                                |       |                                                  |   |                                                                        |   |                                                                              |       |                                 |   |   |   |   |   |   |   |   |   |
| The                  accompanying notes are an integral part of                  these condensed consolidated financial statements. |

----

**CALLISTO        PHARMACEUTICALS, INC.**

**CONDENSED        CONSOLIDATED STATEMENTS **
**OF        CASH FLOWS **

|                                                                                                                                                 |   |                                                             |       |                                                                                                 |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------------------------------|------------|------------------------------------------------------------------------------------------------------|--------|
|                                                                                                                                                 |   | **Nine                  months ended September 30,  ** |       | **Period                  from****June                  5, 1996****(inception)                  to** |   |
| ** **                                                                                                                                           |   | **2005**                                                         |       | **2004**                                                                                             |   | **September                  30, 2005** |   |
|                                                                                                                                                 |   |                                                             |       |                                                                                                 |   |   |   |
| Cash                  flows from operating activities:                                                                                               |   |                                                             |       |                                                                                                 |   |   |   |
| Net                  loss                                                                                                                            |   | $                                                                | (8,525,377 | )                                                                                                    | $      | (5,343,396 | ) | $ | (41,886,574 | ) |
| Adjustments                  to reconcile net loss to net cash used in operating activities:                                                         |   |                                                             |            |                                                                                                 |   |  |   |   |  |   |
| Depreciation                                                                                                                                         |   |                                                             | 15,217     |                                                                                                 |   | 20,724 |   |   | 80,997 |   |
| Stock                  based compensation expense                                                                                                    |   |                                                             | 1,657,743  |                                                                                                 |   | 1,952,945 |   |   | 13,009,016 |   |
| Purchased                  in-process research and development (non-cash portion)                                                                    |   |                                                             | —    |                                                                                                 |   | 106,235 |   |   | 6,841,053 |   |
| Changes                  in operating assets and liabilities:                                                                                        |   |                                                             |            |                                                                                                 |   |  |   |   |  |   |
| Prepaid                  expenses                                                                                                                    |   |                                                             | (44,241    | )                                                                                                    |   | (19,917 | ) |   | (89,472 | ) |
| Security                  deposit                                                                                                                    |   |                                                             | —    |                                                                                                 |   | (19,216 | ) |   | (82,196 | ) |
| Accounts                  payable and accrued expenses                                                                                               |   |                                                             | 459,261    |                                                                                                 |   | (412,807 | )  |   | 1,439,622 |   |
| Total                  adjustments                                                                                                                   |   |                                                             | 2,087,980  |                                                                                                 |   | 1,627,964 |   |   | 21,199,020 |   |
| Net                  cash used in operating activities                                                                                               |   |                                                             | (6,437,397 | )                                                                                                    |   | (3,715,432 | ) |   | (20,687,554 | ) |
| Cash                  flows from investing activities:                                                                                               |   |                                                             |            |                                                                                                 |   |  |   |   |  |   |
| Acquisition                  of equipment                                                                                                            |   |                                                             | —    |                                                                                                 |   | — |   |   | (84,637 | ) |
| Net                  cash used in investing activities                                                                                               |   |                                                             | —    |                                                                                                 |   | — |   |   | (84,637 | ) |
| Cash                  flows from financing activities:                                                                                               |   |                                                             |            |                                                                                                 |   |  |   |   |  |   |
| Net                  proceed from issuance of common and preferred stock, net of repurchases                                                         |   |                                                             | 4,655,278  |                                                                                                 |   | 6,099,012 |   |   | 24,313,456 |   |
| Net                  cash provided by financing activities                                                                                           |   |                                                             | 4,655,278  |                                                                                                 |   | 6,099,012 |   |   | 24,313,456 |   |
| Net                  (decrease) increase in cash and cash equivalents                                                                                |   |                                                             | (1,782,119 | )                                                                                                    |   | 2,383,580 |   |   | 3,541,265 |   |
|                                                                                                                                                 |   |                                                             |       |                                                                                                 |   |   |   |   |   |   |
| Cash                  and cash equivalents at beginning of period                                                                                    |   |                                                             | 5,323,384  |                                                                                                 |   | 3,956,486 |   |   | — |   |
| Cash                  and cash equivalents at end of period                                                                                          |   | $                                                                | 3,541,265  |                                                                                                 | $      | 6,340,066 |   | $ | 3,541,265 |   |
| Supplementary                  disclosure of cash flow information:                                                                                  |   |                                                             |            |                                                                                                 |   |  |   |   |  |   |
| Cash                  paid for taxes                                                                                                                 |   | $                                                                | 43,043     |                                                                                                 | $      | 2,921 |   | $ | 106,005 |   |
| Cash                  paid for interest                                                                                                              |   | $                                                                | —    |                                                                                                 | $      | — |   | $ | — |   |
|                                                                                                                                                 |   |                                                             |       |                                                                                                 |   |   |   |   |   |   |
|                                                                                                                                                 |   |                                                             |       |                                                                                                 |   |   |   |   |   |   |
| The                  accompanying notes are an integral part of                  these condensed consolidated financial                  statements. |

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**CALLISTO        PHARMACEUTICALS, INC.**

**NOTES        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**Summary        of significant accounting policies**

**Basis        of Presentation:**

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|                                                                                                                                                  |   | **Three                  Months Ended September 30,  ** |                           | **Nine                  Months Ended September 30,** |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------------------------------------------------|--------------------------------|------------------------------------------------------|--------|
| ** **                                                                                                                                            |   | **2005**                                                          |                           | **2004**                                             |   | **2005** |   | **2004** |   |
| Net                  loss, as reported                                                                                                                |   | $                                                                 | (3,320,569                     | )                                                    | $      | (1,605,686 | ) | $ | (8,525,377 | ) | $ | (5,343,396 | ) |
| Add:                  Stock-based employee compensation expense                                                                                       |   |                                                              |                                |                                                 |   |  |   |   |  |   |   |  |   |
|                            recorded under APB No. 25 intrinsic value method                              |   |                                                              | 382,604                        |                                                 |   | 332,494 |   |   | 1,034,872 |   |   | 1,666,936 |   |
| Deduct:                  Stock-based employee compensation                                                                                            |   |                                                              |                                |                                                 |   |  |   |   |  |   |   |  |   |
|                expense                  determined under fair value method |   |                                                              | (672,488                       | )                                                    |   | (614,954 | ) |   | (1,857,890 | ) |   | (2,656,870 | ) |
|                                                                                                                                                  |   |                                                              |                                |                                                 |   |  |   |   |  |   |   |  |   |
| Pro                  forma net loss                                                                                                                   |   | $                                                                 | (3,610,452                     | )                                                    | $      | (1,888,146 | ) | $ | (9,348,395 | ) | $ | (6,333,330 | ) |
|                                                                                                                                                  |   |                                                              |                                |                                                 |   |  |   |   |  |   |   |  |   |
| Net                  loss per share:                                                                                                                  |   |                                                              |                                |                                                 |   |  |   |   |  |   |   |  |   |
| Basic                  and diluted -as reported                                                                                                       |   | $                                                                 | (0.10                          | )                                                    | $      | (0.06 | ) | $ | (0.28 | ) |   | ($0.19 | ) |
|                                                                                                                                                  |   |                                                              |                                |                                                 |   |  |   |   |  |   |   |  |   |
| Basic                  and diluted -pro forma                                                                                                         |   | $                                                                 | (0.11                          | )                                                    | $      | (0.06 | ) | $ | (0.30 | ) |   | ($0.22 | ) |
| Black-Scholes                  Methodology Assumptions:                                                                                               |   |                                                              |                                |                                                 |   |  |   |   |  |   |   |  |   |
| Dividend                  yield                                                                                                                       |   |                                                              | 0                              | %                                                    |   | 0 | % |   | 0 | % |   | 0 | % |
| Risk                  free interest rate                                                                                                              |   |                                                              | 4.25                           | %                                                    |   | 4.0 | % |   | 4.25 | % |   | 2.87%                  to 4.0 | % |
| Expected                  lives of options                                                                                                            |   |                                                              | 7                  to 10 years |                                                 |   | 7                  to 10 years |   |   | 7                  to 10 years |   |   | 7                  to 10 years |   |

----

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**Employment        and consulting agreements:**

----

----

**ITEM        2. MANAGEMENT'S****DISCUSSION        AND ANALYSIS AND RESULTS OF OPERATIONS**

**OVERVIEW**

----

**HISTORY**

**PLAN        OF OPERATIONS**

**L-ANNAMYCIN**

----

**ATIPRIMOD**

**SITE        DIRECTED INTERCALATION TECHNOLOGY**

----

**GUANYLYL        CYCLASE RECEPTOR AGONIST TECHNOLOGY**

**SUPERANTIGEN-BASED        BIOTERORRISM DEFENSE**

**MANUFACTURING**

----

**EMPLOYEES**

**OFF-BALANCE        SHEET ARRANGEMENTS**

----

**RESULTS        OF OPERATIONS**

**THREE        MONTHS ENDED SEPTEMBER 30, 2005 AND SEPTEMBER 30, 2004**

----

**NINE        MONTHS ENDED SEPTEMBER 30, 2005 AND SEPTEMBER 30, 2004**

----

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**LIQUIDITY        AND CAPITAL RESOURCES**

----

**CRITICAL        ACCOUNTING POLICIES AND ESTIMATES**

----

**RECENT        ACCOUNTING PRONOUNCEMENTS**

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**ITEM        3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET        RISK**

----

**ITEM        4. CONTROLS AND PROCEDURES**

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**PART        II. OTHER INFORMATION**

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

| 1. | Proposal                  to elect seven directors to our Board of Directors to serve for                  the                  ensuing year or until their successors are duly elected and qualified                  or                  until their resignation or removal: |
|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                     |   | Votes  |       |
|------------------------------------------|--------|--------|------------|
| Nominee                                  |   | For    |       | Withheld |   |
| Gabriele                    M. Cerrone   |   |   | 15,605,146 |   |   | 713,118 |   |
| Gary                    S. Jacob         |   |   | 16,253,264 |   |   | 65,000 |   |
| Christoph                    Bruening    |   |   | 16,257,264 |   |   | 61,000 |   |
| John                    P. Brancaccio    |   |   | 16,257,264 |   |   | 61,000 |   |
| Stephen                    K. Carter     |   |   | 16,256,064 |   |   | 62,200 |   |
| Randall                    K. Johnson    |   |   | 16,257,264 |   |   | 61,000 |   |
| Riccardo                    Dalla-Favera |   |   | 16,257,014 |   |   | 61,000 |   |

| 2. | Proposal                  to amend our certificate of incorporation to increase the authorized                  number of shares of common stock from 75,000,000 shares to 100,000,000                  shares: |
|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| Votes      |
|------------|
| For        |   | Against |   | Abstain |
|       |   |   |   |   |
| 16,149,724 |   | 163,040 |   | 5,500 |

| 3. | Proposal                  to adopt our 2005 Equity Compensation Incentive                  Plan: |
|----|--------------------------------------------------------------------------------------------------|

| Votes      |
|------------|
| For        |   | Against |   | Abstain |
|       |   |   |   |   |
| 11,607,293 |   | 802,110 |   | 24,066 |

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**ITEM        4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS        (Continued)**

| 4. | Proposal                  to adopt our 2005 Directors’ Stock Option                  Plan: |
|----|--------------------------------------------------------------------------------------------------|

| Votes      |
|------------|
| For        |   | Against |   | Abstain |
|       |   |   |   |   |
| 11,601,626 |   | 825,176 |   | 6,667 |

| 5. | Proposal                  to ratify the appointment of BDO Seidman, LLP as our independent                  registered public accountants for the year ending December 31,                  2005. |
|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| Votes      |
|------------|
| For        |   | Against |   | Abstain |
|       |   |   |   |   |
| 16,299,064 |   | 11,500 |   | 7,700 |

**ITEM        6. EXHIBITS **

| 3.1    | Certificate                of Amendment to the Certificate of                Incorporation of Callisto Pharmaceuticals, Inc.                                                                         |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                 |
| 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.   |

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**SIGNATURES**

|                                      |                                                               |                           |
|-------------------------------------------|--------------------------------------------------------------------|--------------------------------|
|                                      | **CALLISTO                PHARMACEUTICALS, INC.**(Registrant)      |
|                                 |                                                          |                      |
| Date: November              14, 2005 | By:                                                      | /s/              Gary S. Jacob |
|                                      |                                                                    |
|                                      | Gary                S. JacobChief                Executive Officer |

|                                      |                                                                    |                                     |
|-------------------------------------------|-------------------------------------------------------------------------|------------------------------------------|
| Date: November              14, 2005 | By:                                                           | /s/ Bernard              F. Denoyer |
|                                      |                                                                         |
|                                      | Bernard                F. DenoyerVice                President, Finance |

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