10-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

(Mark one)
ý	ANNUAL REPORT under SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED: DECEMBER 31, 2008
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                             to

Commission File Number: 001-32325

CALLISTO PHARMACEUTICALS, INC.

(Exact name of registrant as specified in its charter)

Delaware
(State or Other Jurisdiction of
Incorporation or Organization) 12-3894575
(I.R.S. Employer
Identification No.)

420 Lexington Avenue, Suite 1609, New York, New York 10170
(Address of principal executive offices) (Zip Code)

(212) 297-0010
(Registrant's telephone number)

(Former Name, Former Address and Former Fiscal Year, if changed since last report)

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

Title of each class	Name of each exchange on which registered
None

Securities registered pursuant to section 12(g) of the Act:

Title of class: Common stock, $0.0001 par value

        Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o    No ý

        Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o    No ý

        Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 (the "Exchange Act") during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý    No o

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

        Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of "large accelerated filer," "accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):

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

        Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o    No ý

        The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant was $11,804,540 on June 30, 2008 (based on $0.25 per share, the closing price on the American Stock Exchange that day).

        As of April 14, 2009 the registrant had a total of 50,747,661 shares of Common Stock outstanding.

CALLISTO PHARMACEUTICALS, INC.
(A Development Stage Company)
FORM 10-K
TABLE OF CONTENTS

PART I
	Item 1.	Business	3
	Item 1A.	Risk Factors	18
	Item 1B.	Unresolved Staff Comments	33
	Item 2.	Properties	33
	Item 3.	Legal Proceedings	33
	Item 4.	Submission of Matters to a Vote of Securities Holders	33
PART II
	Item 5.	Market for the Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	34
	Item 7.	Management's Discussion and Analysis of Financial Condition and Results of Operations	35
	Item 7A.	Quantitative and Qualitative Disclosures about Market Risk	46
	Item 8.	Financial Statements and Supplementary Data	46
	Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosures	46
	Item 9A(T)	Controls and Procedures	47
	Item 9B.	Other Information	48
PART III
	Item 10.	Directors, Executive Officers and Corporate Governance	49
	Item 11.	Executive Compensation	54
	Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	60
	Item 13.	Certain Relationships and Related Transactions, and Director Independence	61
	Item 14.	Principal Accountant Fees and Services	62
PART IV
	Item 15.	Exhibits and Financial Statement Schedules	62
		Signatures	66

2

PART I

        This Report on Form 10-K for Callisto Pharmaceuticals, Inc. may contain forward-looking statements. Forward-looking statements are characterized by future or conditional verbs such as "may," "will," "expect," "intend," "anticipate," believe," "estimate" and "continue" or similar words. You should read statements that contain these words carefully because they discuss future expectations and plans, which contain projections of future results of operations or financial condition or state other forward-looking information. Such statements are only predictions and our actual results may differ materially from those anticipated in these forward-looking statements. We believe that it is important to communicate future expectations to investors. However, there may be events in the future that we are not able to accurately predict or control. Factors that may cause such differences include, but are not limited to, those discussed under "Item 1A. Risk Factors" and elsewhere in this annual report on Form 10-K for the year ended December 31, 2008, as filed with the Securities and Exchange Commission, including the uncertainties associated with product development, the risk that products that appeared promising in early clinical trials do not demonstrate efficacy in larger-scale clinical trials, the risk that we will not obtain approval to market our products, the risks associated with dependence upon key personnel and the need for additional financing. We do not assume any obligation to update forward-looking statements as circumstances change.

ITEM 1.    BUSINESS.

GENERAL

        Callisto Pharmaceuticals, Inc. (which may be referred to as "Callisto", "the Company", "we" or "us") was incorporated under the laws of the State of Delaware in May 2003. We operate through two subsidiary companies: Synergy Pharmaceuticals Inc. and Callisto Research Labs, LLC, and we own two inactive subsidiaries, IgX, Ltd (Ireland) and Callisto Pharma, GmbH (Germany). Our principal offices are located at 420 Lexington Avenue, Suite 1609, New York, NY 10170.

        We are a development stage biopharmaceutical company focused primarily on the development of drugs to treat gastrointestinal ("GI") disorders and diseases, rheumatoid arthritis (RA), neuroendocrine cancer (including advanced carcinoid cancer),and acute leukemia. Our lead drug candidates are as follows:

(1)

SP-304, a guanylyl cyclase C ("GC-C") receptor agonist, to treat GI disorders, primarily chronic constipation ("CC") and constipation-predominant irritable bowel syndrome ("IBS-C"), currently being developed by our majority-owned subsidiary, Synergy Pharmaceuticals, Inc. ("Synergy").



(2)

Atiprimod, an orally administered drug with antiproliferative, anti-inflammatory and antiangiogenic activity.



(3)

L-Annamycin, a novel compound from the anthracycline family of proven anti-cancer drugs, which has a novel therapeutic profile, including activity against drug resistant tumors and significantly reduced cardiotoxicity, or damage to the heart.

HISTORY

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

        On April 30, 2003, pursuant to an Agreement and Plan of Merger dated March 10, 2003, as amended April 4, 2003, Synergy Acquisition Corp., a wholly-owned subsidiary of Webtronics merged

3

into Synergy Pharmaceuticals, Inc. ("Synergy-DE") and Callisto Acquisition Corp., a wholly-owned subsidiary of Webtronics merged into Old Callisto (collectively, the "Merger"). As a result of the Merger, Old Callisto and Synergy-DE became wholly-owned subsidiaries of Webtronics. In connection with the Merger, Webtronics issued 17,318,994 shares of its common stock in exchange for outstanding Old Callisto common stock and an additional 4,395,684 shares in exchange for outstanding Synergy-DE common stock. In May 2003, Old Callisto changed its name to Callisto Research Labs, LLC ("Callisto Research") and Webtronics changed its name to Callisto Pharmaceuticals, Inc. and changed its state of incorporation from Florida to Delaware. Subsequently, 171,818 shares of common stock issued to former Synergy-DE shareholders were returned to us under the terms of certain indemnification agreements.

        From inception through December 31, 2008, we have sustained cumulative net losses available to common stockholders of $90,987,267. Our losses have resulted primarily from expenditures incurred in connection with research and development activities, application and filing for regulatory approval of proposed products, stock-based compensation expense, patent filing and maintenance expenses, purchase of in-process research and development, outside accounting and legal services and regulatory, scientific and financial consulting fees, as well as deemed dividends attributable to the beneficial conversion rights of convertible preferred stock at issuance. From inception through December 31, 2008, we have not generated any revenue from operations, expect to incur additional losses to perform further research and development activities and do not currently have any commercial biopharmaceutical products, and do not expect to have such for several years, if at all.

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

Recent Developments

        On January 27, 2009, we announced that we were focusing all further development of Atiprimod towards the treatment of RA. We recognized that although the ongoing Phase II clinical trial of Atiprimod in advanced carcinoid cancer gave encouraging results, the data were not sufficiently demonstrative to warrant further development of Atiprimod in this indication. We announced, instead, our intention that based on Atiprimod's demonstrated favorable clinical safety profile, robustly supported by earlier studies of Atiprimod in RA patients, as well as by the recent oncology trials in advanced carcinoid cancer patients, where the drug was dosed at levels and frequencies considerably higher than anticipated for use in RA, we believe that Atiprimod holds significant promise as a new class of orally-administered, disease-modifying agent in RA.

        On July 14, 2008, we entered into an Exchange Agreement dated July 11, 2008 ("Exchange Agreement"), as amended and effective on July 14, 2008, with Pawfect Foods, Inc. ("Pawfect"), Synergy-DE and other holders of Synergy-DE common stock. According to the terms of the Exchange Agreement, Pawfect acquired 100% of the common stock of Synergy-DE, from us and the other holders of Synergy-DE, in exchange for 45,464,760 shares of Pawfect's common stock representing approximately 70% of Pawfect's outstanding common stock (the "Exchange Transaction"). We received 44,590,000 of the 45,464,760 shares of Pawfect's common stock exchanged for our ownership of Synergy-DE, and we are now the holder of 68% of Pawfect's outstanding common stock. The remaining 874,760 shares of Pawfect common stock exchanged for ownership of Synergy-DE were issued to certain executive officers of Synergy-DE who received their shares pursuant to a Repurchase Agreement with Synergy-DE dated July 3, 2008 and assumed by Pawfect. The fair value of each of the 874,760 shares was estimated on the grant date to be $0.60, which was based on the price paid by

4

shareholders participating in Synergy's July 14, 2008 private placement. In connection with the Exchange Transaction Pawfect received $3,025,000 less transaction costs of $73,087, yielding net proceeds of $2,951,913 from two private placements, which we have recorded as an increase in additional paid-in capital.

        Pawfect was a development stage company selling pet food products utilizing the internet, with immaterial operations at the date of the Exchange Agreement. On July 14, 2008, Pawfect discontinued its pet food business to focus all resources on continuing the development of drugs to treat GI disorders and diseases acquired in connection with the Exchange Agreement. On July 21, 2008 Pawfect, amended its articles of incorporation, in the state of Florida, to effect the actions necessary to complete the transactions contemplated by the Exchange Agreement and changed its name to Synergy Pharmaceuticals, Inc. ("Synergy"). Synergy is now traded on the Over The Counter Bulletin Board under the symbol SGYP.OB.

        On April 7, 2008, we received notice from the staff of the American Stock Exchange ("AMEX") of its intent to strike our common stock from the AMEX by filing a delisting application with the SEC for failure to regain compliance with Sections 1003(a)(i) and 1003(a)(ii) of the Company Guide and falling out of compliance with Section 1003(a)(iii) of the Company Guide with shareholders' equity of less than $6,000,000 and losses from continuing operations and/or net losses in four of our five most recent fiscal years. On July 14, 2008, our common stock was delisted from the AMEX and currently trades on the Over the Counter Bulletin Board under the symbol CLSP.OB.

PRODUCTS

SP-304 TO TREAT GI DISORDERS

        SP-304 is a new member of a novel class of non-systemic drugs for treatment of chronic constipation (CC), irritable bowel syndrome with constipation (IBS-C) and other GI disorders and diseases. SP-304 was developed by Synergy scientists based on structure-function studies performed in-house. A patent covering composition of matter and therapeutic applications of SP-304 was granted by the U.S. Patent and Trademark Office on May 9, 2006. SP-304 is a synthetic analog of uroguanylin, a natural peptide hormone produced in the gut that is a key regulator of intestinal function. Uroguanylin works by activating the GC-C receptor on intestinal cells which promotes fluid and ion transport in the GI tract. Under normal conditions, this receptor is activated by the natural hormone uroguanylin and/or by a similar natural hormone guanylin. Orally administered SP-304 acts in an identical fashion, binding to and activating GC-C expressed on the epithelial cells lining the GI mucosa, resulting in activation of the cystic fibrosis transmembrane conductance regulator (CFTR), and leading to an augmented flow of chloride and water into the lumen of the gut to facilitate bowel movement. In animal models, oral administration of SP-304 promotes intestinal secretion of fluid, thereby softening stool, and producing other pharmacologic effects that could potentially benefit patients with CC and IBS-C.

        On April 2, 2008, we filed an investigational new drug ("IND") application with the United States Food and Drug Administration ("FDA") on SP-304 to treat GI disorders and diseases. On May 2, 2008, we received notice from the FDA that the proposed first study in the clinic, a single-dose trial in human volunteers, was deemed safe to proceed.

Preclinical Studies on SP-304

        SP-304 has been demonstrated to be superior to uroguanylin in its biological activity, protease stability and pH characteristics. SP-304 acts in an identical manner as the natural hormone—as an agonist (i.e. activator) of the GC-C receptor found on the epithelial cells of the colon. Upon activation, the GC-C receptor promotes intracellular synthesis, which in turn eventually activates the CFTR within the epithelial cells. Activation of CFTR leads to secretion of salts and water into the intestine, resulting

5

in a liquid and watery intestine content that is more easily transported through the bowel. Recent animal studies performed with SP-304 have demonstrated the drugs potential to enhance intestinal motility.

Clinical Studies of SP-304

        On June 4, 2008, Synergy initiated a Phase I clinical trial of SP-304 in volunteers. The purpose of the initial Phase I trial was to establish the safety of the drug. This first trial was a single-dose, dose-escalation, placebo-controlled trial in volunteers.

        On December 9, 2008, Synergy announced the completion of the Phase I clinical trial of SP-304 in healthy volunteers that was initiated in June, 2008. This first study was a double-blind, placebo-controlled, randomized single, oral, ascending dose trial performed in 71 healthy male and female volunteers. The primary objective of the Phase I clinical trial with SP-304 was to characterize the safety, tolerability, pharmacokinetic and pharmacodynamic effects of the drug in healthy volunteers. The data from the trial were included in an abstract accepted for presentation at the Digestive Disease Week conference that meets in Chicago in June 2009. The data are under embargo until release at the conference. Synergy plans to initiate a repeated-oral-dose trial of SP-304 in chronic constipation patients in late 2009 or early 2010.

SP-333 TO TREAT ULCERATIVE COLITIS

        SP-304 previously was evaluated in animal studies as a treatment for GI inflammation in a collaborative study involving clinical gastroenterologist Dr. Scott Plevy of the University of North Carolina, Chapel Hill, NC. Results from his laboratory showed that SP-304 was efficacious in animal models of ulcerative colitis ("UC"). A second generation GC-C receptor agonist SP-333 with improved stability properties is now in pre-clinical development and Synergy plans to file an IND on SP-333 to treat UC patients, and initiate a Phase I clinical trial in volunteers in late 2009 or early 2010.

Development Plan

        Synergy's plan of operations for the next twelve months is to focus primarily on the Phase Ib clinical trial development of SP-304 to treat GI disorders and diseases. During 2008, as discussed above, Synergy completed a Phase I clinical trial in volunteers for SP-304. Synergy is now planning to open a Phase Ib repeated-dose trial of SP-304 for CC patients during in late 2009 or early 2010. Synergy also plans to file an IND on SP-333 to treat ulcerative colitis in 2009.

Manufacturing of SP-304 and SP-333

        A practical, efficient and cost effective method for producing both SP-304 and SP-333 at commercial scale is currently being developed by two contract research organizations. At present Synergy has multiple 100 gram-scale lots of SP-304 and SP-333, produced under current good manufacturing practices ("cGMP") and good laboratory practices ("GLP"), that are being used for non-clinical work to support further human studies.

About Chronic Constipation

        Chronic constipation is a very common GI disorder. According to recent studies, by groups such as Giles and Associates and the Mayo Clinic, it is estimated that up to 26 million Americans suffer from the disorder, and of this population about 5 million have a severe condition necessitating relief. The prevalence of the disorder is similar in other developed countries. Patients with chronic constipation often experience hard stools, straining during bowel movements and not enough bowel movements during the week. People with chronic constipation can experience serious discomfort which adversely affects their ability to work and their quality of life.

6

About Irritable Bowel Syndrome

        Up to one sixth of adults experience irritable bowel syndrome (IBS), a condition marked by disturbed bowel function and abdominal pain. IBS patients can have three different sets of symptoms; diarrhea-predominant (IBS-D), constipation-predominant (IBS-C) and mixed or alternating disorder (IBS-M). The split in prevalence between the forms is about one third each. In addition, most patients suffering from the mixed form of IBS (IBS-M) are believed to mainly have constipation. An estimated 10 million people in the United States and an additional 10 million people in the European Union suffer from IBS-C. IBS (all forms) accounts for 12% of adult visits to primary care physicians in the United States.

ATIPRIMOD

        On August 28, 2002, and as amended on May 23, 2003, Synergy entered into a worldwide license agreement (the "Original License") with AnorMED Inc. ("AnorMED") to research, develop, sell and commercially exploit the Atiprimod patent rights. The Original License provided for aggregate milestone payments of up to $14 million based upon achieving certain regulatory submissions and approvals for an initial indication, and additional payments of up to $16 million for each additional indication based on achieving certain regulatory submissions and approvals. Commencing on January 1, 2004 and on January 1 of each subsequent year Synergy was obligated to pay AnorMED a maintenance fee of $200,000 until the first commercial sale of the product. These annual maintenance fee payments under the Original License were made in January 2004, 2005, 2006 and 2007 and recorded as research and development expense.

        On December 31, 2007, we and Synergy entered into an Amended and Restated License Agreement with AnorMED Corporation ("AnorMED"), a wholly-owned subsidiary of Genzyme Corporation ("Genzyme"), pursuant to which the parties amended the Original License agreement for Atiprimod to eliminate all future maintenance fees and milestone payments and reduce future royalties. In return for the reduced future payments to Genzyme, we agreed to pay upfront fees which were recorded as a liability and expensed on December 31, 2007. As of December 18, 2008, $650,000 of these upfront fees remained due and payable.

        On December 19, 2008, we entered into a Technology Assignment Agreement (the "Agreement") with AnorMED pursuant to which AnorMED transferred and assigned to us all of AnorMED's right, title and interest in and to all patents and patent applications with respect to Atiprimod in addition to all trade secrets, technical reports and data concerning Atiprimod and any analogs or derivatives in return for a cash payment of $650,000, which payment settled the upfront fees owed from December 31, 2007 Amended and Restated License Agreement. In addition the Agreement specified that the Amended and Restated License Agreement between us and AnorMED dated December 31, 2007, with respect to which AnorMED licensed to us certain patent rights and technology related to Atiprimod, was terminated with no additional amounts due.

        Atiprimod is one of a class of compounds known as azaspiranes and was originally developed as a potential treatment for RA based on encouraging data from a number of animal models of arthritis and autoimmune indications. The development of this drug originated with a partnership between AnorMED and Smith Kline Beecham ("SKB") that led to the successful filing of an IND, and completion of three Phase I clinical trials involving a total of 63 patients. The drug successfully completed both single and multiple dose Phase I clinical trials in patients with RA. Both trials evaluated the safety and pharmacokinetics (how the body takes up and eliminates drugs) of Atiprimod and showed that the drug is well tolerated. In the third Phase I clinical trial, the drug was found to be well tolerated in an open label extension study performed with 43 patients from the second two studies, with patients on the drug for as long as one year.

7

Preclinical Studies

        Atiprimod's specific ability to lower the level of key cell growth factors, known to play an important role in the development of multiple myeloma, is the basis for its potential use as a drug to treat this disease. Atiprimod was previously shown to inhibit the production of the pro-inflammatory mediators IL-6 and TNF (alpha) in a number of animal models of inflammation and autoimmune disease. Atiprimod was also demonstrated using in vitro models of tumor cell growth to inhibit proliferation of a number of human multiple myeloma cell lines. Characterization of the mechanism of Atiprimod's antiproliferative activity in a series of experiments showed that the drug works by inducing apoptosis (programmed cell death) in myeloma cells. In a second series of experiments performed with Atiprimod on co-cultures composed of multiple myeloma cells plus bone marrow stromal cells (used to simulate the human disease), the drug was found to have a profound effect on secretion of the angiogenic (blood vessel related) growth factor VEGF. A separate set of experiments also suggest an additional explanation for the disease-modifying activity of Atiprimod originally observed in chemically-induced arthritic-rat animal studies, and provide a further rationale for the application of this drug to treat multiple myeloma. Using a bone resorption assay (bone degradation experiment) to measure the effect of drug on osteoclast-mediated bone resorption, Atiprimod demonstrated a profound effect on osteoclast, or cells that break down bone, function. The drug appears to be selectively toxic for activated osteoclasts, displaying a negligible effect on bone marrow stromal cells.

Completed Clinical Studies

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

Development Strategy

        On May 26, 2004, Atiprimod commenced a Phase I/IIa clinical trial in relapsed or refractory multiple myeloma patients. These are patients that have a re-occurrence of active disease, and no longer respond to approved therapies. The Phase I/IIa clinical trial is an open label study, with the primary objective of assessing safety of drug and identifying the maximum tolerated dose. The secondary objectives are to measure the pharmacokinetics, evaluate the response in patients with refractory disease and to identify possible surrogate responses to the drug to better determine the mechanism of drug action. In December 2005, we announced interim results from this trial performed in relapsed or refractory multiple myeloma patients which consisted of 15 patients treated with Atiprimod, including 3 patients at the highest dose level of 180 mg/day. In 2006, we amended this protocol to continue the trial at higher dose levels. The amended trial included the combination of Atiprimod with a drug called ursodiol to enable patients to be dosed at levels of Atiprimod higher than 180 mg/day. In October, 2007 we met the primary objective and reached the MTD in the

8

Atiprimod + ursodiol arm. However, we do not intend to pursue Atiprimod as a single agent in multiple myeloma.

        On March 15, 2005, we announced a second Phase I/IIa clinical trial of Atiprimod in advanced cancer patients. The trial is entitled: "An Open Label Study of the Safety and Efficacy of Atiprimod Treatment for Patients with Advanced Cancer". The primary objective is to assess the safety and determine the maximum tolerated dose of Atiprimod in advanced cancer patients. The secondary objectives are to measure the pharmacokinetics of Atiprimod and evaluate the response in a variety of relapsed solid tumors and hematological malignancies. This study was conducted at the University of Texas M.D. Anderson Cancer Center, and was closed to enrollment in November, 2006. This trial established the potential of Atiprimod to treat advanced carcinoid cancer patients based on encouraging clinical results in a cohort of 5 advanced carcinoid cancer patients within this study.

        On November 7, 2006, we announced the initiation of a multi-center open-label Phase II clinical trial of Atiprimod for low-to-intermediate grade neuroendocrine cancers, primarily in advanced carcinoid cancer patients. This trial is based on earlier encouraging clinical results from a Phase I trial of Atiprimod in advanced cancer patients that showed stable disease and disease-related symptom relief in patients with advanced carcinoid cancer. On September 20, 2007, we announced that we had completed enrollment of the 40-patient Phase II clinical trial, and that patients had been on drug as along as 11 months.

        In October 2007, we announced the opening of a Phase II extension trial to permit those patients who had successfully completed a full year in the Phase II advanced carcinoid cancer trial, which only permitted dosing for up to one year, to continue to receive Atiprimod therapy. We also have indicated that we are no longer dosing patients in the Phase I clinical trial of Atiprimod in relapsed or refractory multiple myeloma and have no plans at present to continue evaluating the drug in this disease indication, instead focusing on the clinical development of Atiprimod to treat advanced carcinoid cancer.

        On April 14, 2008, we announced that interim data from the company's ongoing open-label Phase II clinical trial of Atiprimod in advanced carcinoid cancer was to be presented at the 44^th annual meeting of the American Society of Clinical Oncology (ASCO), which was held in Chicago May 30-June 3, 2008. The study was an open-label Phase II trial designed to evaluate the anti-tumor efficacy, effect on symptoms, and safety and tolerability of Atiprimod in patients with low to intermediate grade neuroendocrine carcinoma (also called carcinoid cancer) who have metastatic or unresectable cancer and who have progression of their disease despite standard therapy (octreotide and others). Forty-six patients had been enrolled in the study at the time of the announcement, all of whom had progressing disease in the six months preceding enrollment.

        On May 16, 2008, we announced interim data from the company's ongoing open-label Phase II clinical trial of Atiprimod to treat low to intermediate grade neuroendocrine carcinoma (advanced carcinoid cancer). Overall, the interim results suggested that Atiprimod is an active and well tolerated drug in the treatment of carcinoid cancer. In this interim analysis, 25 of 46 enrolled patients had sufficient data available for evaluation. The median follow up of the patients was 6 months (range 2 to over 12 months). All patients enrolled in this study had evidence of progressing disease in the 6 months preceding enrollment. Of the evaluable patients, 92% had stable disease as best response per standard RECIST criteria, with a median duration of 6 months. Actuarial progression free survival at 6 months was 76% and at 12 months it was 50%. There were no objective RECIST responses for tumor regression in the analyzed cohort. At the time of the announcement, 7 patients had completed all 12 planned cycles of Atiprimod therapy with stable disease and had entered an extension trial to continue treatment. In this slow growing cancer, Atiprimod appeared to show an ability to stabilize disease progression and to reduce the symptoms of this disease, with a side effect profile that was generally well tolerated, with reversible increases in liver transaminases as the most notable adverse event.

9

        On January 27, 2009, we announced that we were focusing all further development of Atiprimod towards the treatment of RA. We recognized that although the ongoing Phase II clinical trial of Atiprimod in advanced carcinoid cancer gave encouraging results, the data were not sufficiently demonstrative to warrant further development of Atiprimod in this indication. We announced, instead, our intention that based on Atiprimod's demonstrated favorable clinical safety profile, robustly supported by earlier studies of Atiprimod in RA patients, as well as by the recent oncology trials in advanced carcinoid cancer patients, where the drug was dosed at levels and frequencies considerably higher than anticipated for use in RA, we believe that Atiprimod holds significant promise as a new class of orally-administered, disease-modifying agent in RA.

Manufacturing of Atiprimod

        A practical, efficient and cost effective method for producing Atiprimod on a commercial scale was originally developed by SKB. In the course of this work, a new dimaleate salt form was developed. A portion of the 7 kilos of Atiprimod drug substance, available from SKB, was used as the source for generating the Atiprimod dimaleate drug product presently being used in the Phase I/IIa clinical study. Several lots of drug substance were re-qualified to meet current FDA approved release specifications. The full package of fully validated analytical methods developed by SKB was transferred to a contract research organization used by us to perform all analytical tests. One large-scale GMP production run of Atiprimod dimaleate led to the successful release of 10 Kg of material available for future Phase II clinical studies.

Orphan Drug Status of Atiprimod

        On January 6, 2004, we announced that the Office of Orphan Products Development of the FDA granted orphan drug designation to Atiprimod for the treatment of multiple myeloma. On September 26, 2006, we announced that the Office of Orphan Products Development of the FDA granted orphan drug designation to Atiprimod for the treatment of carcinoid tumors. The FDA grants orphan drug status for drug candidates that are intended to treat rare life-threatening diseases that, at the time of application, affect no more than 200,000 patients in the United States. The drug must have the ability to provide significant patient benefit over currently available treatment or fill an unmet medical need. Orphan drug designation entitles us to seven years of market exclusivity in the United States of America, and ten years of market exclusivity in Europe, upon FDA marketing approval, provided that we continue to meet certain conditions established by the FDA. Once the FDA grants marketing approval of a new drug, the FDA will not accept or approve other applications to market the same medicinal product for the same therapeutic indication. Other incentives provided by orphan status include certain tax benefits, eligibility for research grants and protocol assistance. Protocol assistance includes regulatory assistance and possible exemptions or reductions of certain regulatory fees.

L-ANNAMYCIN

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

Preclinical Studies

        Nonclinical studies have shown that Annamycin delivered as a liposomal preparation (L-Annamycin) is effective against several different in vivo tumor models (animal experiments), including human tumors which are resistant to other chemotherapy drugs, grafted into animals. Additionally, results from in vitro studies (cell culture experiments) indicate that L-Annamycin and free

10

Annamycin were able to partially overcome tumor resistance to chemotherapy drugs in several tumor cell lines that were resistant to other drugs such as doxorubicin. In nonclinical toxicity studies, myelosuppression (suppression of the body's immune response) was noted in mice at a single intravenous dose of 15.7 mg/kg L-Annamycin. With weekly intravenous doses of 5.2 mg/kg L-Annamycin for 6 weeks, or 3.1 and 4.2 mg/kg L-Annamycin for 10 weeks in mice, the cardiotoxicity (toxicity to heart tissue) of L-Annamycin was substantially less than an equivalent dose of doxorubicin. In dogs, a single 15-minute intravenous infusion of up to 1.42 mg/kg L-Annamycin was well tolerated, with no clinically significant adverse effects, hematological or chemical changes, or pathological changes.

Completed Clinical Studies

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

        The potential of a less cardiotoxic drug that was active against multi-drug resistant tumors led to a third trial in relapsed leukemia patients (both AML and ALL). The trial involved 20 patients with relapsed/refractory AML (n=17) or ALL (n=3). The conclusions drawn from the trial were that L-Annamycin was safe, well tolerated and showed potential clinical activity in patients with acute leukemias, and that further evaluation of this novel anthracycline in patients with hematopoietic, or blood borne, malignancies was clearly warranted.

Development Strategy

        We began a Phase I clinical trial at The University of Texas M.D. Anderson Cancer Center in adult relapsed or refractory ALL patients on December 1, 2005. Additional sites enrolled in this study include the Roswell Park Cancer Institute (Buffalo, NY) and the Montefiore Medical Center (New York, NY). The single-arm, open-label L-Annamycin trial was designed to enroll patients in a dose escalation Phase I portion followed by 10 patients at a final fixed dose in the Phase II portion once the maximum tolerated dose (MTD) was determined. A major goal of the trial was to confirm the MTD reported from the previous sponsor for use in adult ALL patients. The clinical data from our studies indicated that the MTD reported by the previous sponsor—which indicated that patients could be dosed as high as 280 mg/m2/day for 3 consecutive days—in ALL patients was too high. We utilized a uniform validated reconstitution method that we believe delivers a more uniform liposomal drug product when infused into patients. This infusion methodology was utilized across all study sites. We established an MTD of 150 mg/m2/day, given for 3 consecutive days, in the adult trial and finished dosing of 10 patients at this MTD value. The clinical data on these patients, however, did not support further clinical evaluation of L-Annamycin as a single agent to treat relapsed or refractory adult acute leukemia patients, and we do not plan any further trial with L-Annamycin.

        In February, 2007, we opened a Phase I trial of L-Annamycin in pediatric relapsed or refractory ALL or AML patients. Based on the information from the ongoing adult trial, we initiated this trial at

11

130 mg/m2/day given for three consecutive days. The trial was a multi-center, open-label, single-agent, dose-escalation study that utilized four clinical sites in the U.S. Due to the low number of patients with this disease, we were only able to enroll 3 patients in total, all at 130 mg/m2/day, and never achieved an MTD in children. Due to poor enrollment plus the decision to suspend further development of L-Annamycin in adults, we have suspended any further work on L-Annamycin in acute leukemia at this time.

Manufacturing of Annamycin

        An improved manufacturing method for Annamycin was developed at Antibioticos S.p.A., our sole commercial supplier of GMP ("Good Manufacturing Practice") drug substance. Our agreement with Antibioticos S.p.A provided us access to up to 400 grams of GMP drug substance (Annamycin) for our L-Annamycin clinical trials.

Orphan Drug Status of L-Annamycin

        On June 24, 2005, we announced that the Office of Orphan Products Development of the FDA granted orphan drug designation to L-Annamycin for the treatment of acute lymphoblastic leukemia. On June 28, 2005, we announced that the Office of Orphan Products Development of the FDA granted orphan drug designation to L-Annamycin for the treatment of acute myeloid leukemia.

DEGRASYNS

        On January 10, 2006, we entered into a license agreement with the University of Texas M.D. Anderson Cancer Center whereby we were granted the exclusive right to manufacture, have manufactured, use, import, offer to sell and/or sell anti-cancer compounds called tyrphostins (renamed Degrasyns). Degrasyns are a second-generation class of tyrphostins developed by scientists at the University of Texas M.D. Anderson Cancer Center that have a novel anti-cancer mechanism-of-action that centers on their ability to selectively degrade key proteins that are involved in tumor cell proliferation and survival. The intention was to work with key scientists at the University of Texas M.D. Anderson Cancer Center to bring forward a pre-clinical candidate for development in the clinic. All in-house work on this program has now been discontinued.

SUPERANTIGEN-BASED BIOTERORRISM DEFENSE

        On August 20, 1996, we entered into a license agreement to research, develop, sell and commercially exploit certain Rockefeller University ("Rockefeller") licensed patents covering peptides and antibodies useful in treating toxic shock syndrome and septic shock. In addition, on July 2, 2001, we entered into a license agreement for two additional patents related to the regulation of exoproteins in staphylococcus aureus. On November 14, 2007, we gave 90-day notice to Rockefeller University of termination of the August, 1996 and July, 2001 license agreements, terminating these agreements effective February 14, 2008.

        On April 1, 2005 we were awarded a two-year $885,641 biodefense partnership grant from the National Institute of Allergy and Infectious Diseases ("NIAID") to develop a monoclonal antibody and vaccine against bacterial superantigen toxins. Funding for this program has been extended through March 31, 2008 and as of December 31, 2007 and 2008 we had approximately $34,000 and $0 of funding remaining, respectively. Because the bioterrorism program is not a core activity of ours, we terminated in-house work on this program upon expiration of the research grant funding on March 31, 2008.

        We will require additional capital to execute our plan. Worldwide economic conditions and the international equity and credit markets have significantly deteriorated and may remain depressed for the foreseeable future. These developments will make it more difficult for us to obtain additional

12

equity or credit financing, when needed. We cannot be certain that funding will be available on acceptable terms, or at all. If we are unable to raise additional capital when required or on acceptable terms, we may have to (i) significantly delay, scale back or discontinue the development and/or commercialization of one or more of our product candidates, (ii) seek collaborators for our product candidates at an earlier stage than otherwise would be desirable and on terms that are less favorable than might otherwise be available and/or (iii) relinquish or otherwise dispose of rights to technologies, product candidates or products that we would otherwise seek to develop or commercialize ourselves on unfavorable terms.

GOVERNMENT REGULATION

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

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

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

        If the product is approved for sale, FDA regulations govern the production process and marketing activities, and a post-marketing testing and surveillance program may be required to monitor continuously a product's usage and effects. Product approvals may be withdrawn if compliance with

13

regulatory standards is not maintained, and other countries, in which any products developed by us are marketed, may impose a similar regulatory process.

COMPETITION

        The biopharmaceutical industry is characterized by rapidly evolving technology and intense competition. Our competitors focusing on GI include major pharmaceutical and biotechnology companies such as Ironwood (Microbia), Sucampo/Takeda and Novartis. Our competitors focusing on hematological oncology include major pharmaceutical and biotechnology companies such as Microbia Inc., Hana Biosciences Inc., SGX Pharmaceuticals, Inc., Sunesis Pharmaceuticals, Inc. and Vion Pharmaceuticals, Inc. Most of our competitors have financial, technical and marketing resources significantly greater than our resources. Academic institutions, governmental agencies and other public and private research organizations are also conducting research activities and seeking patent protection and may commercialize products on their own or through joint venture. We are aware of certain development projects for products to prevent or treat certain diseases targeted by us. The existence of these potential products or other products or treatments of which we are not aware, or products or treatments that may be developed in the future, may adversely affect our ability to market the products we develop.

RESEARCH AND DEVELOPMENT EXPENSES

        Research and development expenses consist primarily of costs associated with (i) clinical development team salaries and staff costs, (ii) application and filing for regulatory approval of our proposed products, (iii) regulatory and scientific consulting fees, (iv) clinical and patient costs for product candidates in on-going trials, (v) sponsored pre-clinical research, (vi) royalty and license fee payments, (vii) legal and professional fees associated with filing and maintaining our patent and license rights to our proposed products, (viii) clinical drug substance and (ix) acquired in-process research and development. We expense all research and development costs as they are incurred and we expect our research and development expenses to increase significantly in the future as we develop our product candidates. Research and development expenses were $5,449,721 for the twelve months ended December 31, 2008, compared to $6,507,978 and $6,134,704 for the twelve months ended December 31, 2007 and 2006, respectively.

        On April 1, 2005 we were awarded an $885,641 biodefense partnership grant from the NIAID to develop a monoclonal antibody and vaccine against bacterial superantigen toxins over a two year period. During the twelve months ended December 31, 2008, 2007 and 2006 we received $30,000, $260,853 and $352,649, respectively, which has been reported on our Consolidated Statements of Operations as a separate line item entitled "Government Grant". Funding for this program had been extended through April 2008 and as of December 31, 2008 we had zero funding remaining. Because the bioterrorism program is not a core activity of ours, we terminated in-house work on this program upon expiration of the research grant in April 2008.

PROPRIETARY RIGHTS

        We are able to protect our technology from unauthorized use by third parties only to the extent that it is covered by valid and enforceable patents or is effectively maintained as a trade secret. Accordingly, patents or other proprietary rights are an essential element of our business. We have obtained licenses from various parties that give us rights to technologies that we deem to be necessary or desirable for our research and development. These licenses (both exclusive and non-exclusive) may require us to pay royalties to the parties in addition to upfront or milestone payments, and to expend certain minimum resources to develop these technologies. Patents extend for varying periods according to the date of patent filing or grant and the legal term of patents in the various countries where patent protection is obtained. The actual protection afforded by a patent, which can vary from country to

14

country, depends on the type of patent, the scope of its coverage and the availability of legal remedies in the country.

        As of December 31, 2008, we are the assignee or exclusive licensee of 7 pending patent applications and 15 issued patents in the United States, and currently we have approximately 150 issued or pending foreign patent applications. We seek patent protection of inventions originating from our ongoing research and development activities that are commercially important to our business. Our composition-of-matter and use patent on SP-304 issued on May 9, 2006 expires in 2023. Our composition-of-matter patents for L-Annamycin and Atiprimod expire in 2017 and 2016, respectively. Our formulation patents for L-Annamycin and Atiprimod dimaleate salt both expire in 2016.

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

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

15

LICENSE AGREEMENTS

        On January 10, 2006, we entered into a Patent and Technology License Agreement with The University of Texas M.D. Anderson Cancer Center. Pursuant to the license agreement, we were granted the exclusive right to manufacture, have manufactured, use, import, offer to sell and/or sell anti-cancer compounds called tyrphostins (renamed Degrasyns). We paid a nonrefundable license fee of $200,000 upon execution of this agreement and we are obligated to pay annual license maintenance fees to The University of Texas M.D. Anderson Cancer Center. We are also obligated under this agreement to pay for legal fees and expenses associated with establishing and protecting the patent rights worldwide.

        We also agreed to pay The University of Texas M.D. Anderson Cancer Center royalties based on net sales from any licensed products, plus aggregate milestone payments of up to $1,750,000 based upon achieving certain regulatory submissions and approvals. The term of the agreement is from January 10, 2006 until the end of the term for which the patent rights associated with the licensed technology have expired. If the first pending patent is issued, the agreement is projected to expire in 2024. In addition, at any time after January 10, 2008, The University of Texas M.D. Anderson Cancer Center has the right to terminate the license if we fail to provide evidence within 90 days of written notice that we have commercialized or are actively and effectively attempting to commercialize the licensed technology.

        On August 12, 2004, we entered into a world-wide license agreement with The University of Texas M.D. Anderson Cancer Center to research, develop, sell and commercially exploit the patent rights for L-Annamycin. Consideration paid for this license amounted to $31,497 for reimbursement of out-of-pocket costs for filing, enforcing and maintaining the L-Annamycin patent rights and a $100,000 initial license fee. We also agreed to pay The University of Texas M. D. Anderson Cancer Center royalties based on net sales from any licensed products, plus aggregate milestone payments of up to $750,000 based upon achieving certain regulatory submissions and approvals. The term of the agreement is from August 12, 2004 until November 2, 2019. Under the terms of the license agreement, we are required to make certain good faith expenditures towards the clinical development of at least one licensed product within the two year period after March 2005. In addition, at any time after August 12, 2009, The University of Texas M.D. Anderson Cancer Center has the right to terminate the license if we fail to provide evidence within 90 days of written notice that we have commercialized or we are actively and effectively attempting to commercialize L-Annamycin.

        On August 28, 2002, and as amended on May 23, 2003, Synergy entered into a worldwide license agreement (the "Original License") with AnorMED Inc. ("AnorMED") to research, develop, sell and commercially exploit the Atiprimod (SKF 106615) patent rights. The Original License provided for aggregate milestone payments of up to $14 million based upon achieving certain regulatory submissions and approvals for an initial indication, and additional payments of up to $16 million for each additional indication based on achieving certain regulatory submissions and approvals. Commencing on January 1, 2004 and on January 1 of each subsequent year Synergy was obligated to pay AnorMED a maintenance fee of $200,000 until the first commercial sale of the product. These annual maintenance fee payments under the Original License were made in January 2004, 2005, 2006 and 2007 and recorded as research and development expense.

        On December 31, 2007, we and Synergy entered into an Amended and Restated License Agreement with AnorMED Corporation ("AnorMED"), a wholly-owned subsidiary of Genzyme Corporation ("Genzyme"), pursuant to which the parties amended the Original License agreement for Atiprimod to eliminate all future maintenance fees and milestone payments and reduce future royalties to single digits. In return for the reduced future payments to Genzyme, we agreed to pay upfront fees which were recorded as a liability and expensed on December 31, 2007. As of December 18, 2008 $650,000 of these upfront fees remained due and payable.

16

        On December 19, 2008, we entered into a Technology Assignment Agreement (the "Agreement") with AnorMED pursuant to which AnorMED transferred and assigned to us all of AnorMED's right, title and interest in and to all patents and patent applications with respect to Atiprimod in addition to all trade secrets, technical reports and data concerning Atiprimod and any analogs or derivatives in return for a cash payment of $650,000, which payment settled the upfront fees owed from the December 31, 2007 Amended and Restated License Agreement. In addition the Agreement specified that the Amended and Restated License Agreement between us and AnorMED dated December 31, 2007, with respect to which AnorMED licensed to us certain patent rights and technology related to Atiprimod, was terminated with no additional payments due.

        On August 20, 1996, we entered into a license agreement to research, develop, sell and commercially exploit certain Rockefeller University licensed patents covering peptides and antibodies useful in treating toxic shock syndrome and septic shock. We agreed to work toward commercialization of products related to these patents as evidenced by a minimum expenditure of approximately $210,000 per year, plus milestone payments and royalties of between 2% and 3% of annual net sales and will pay Rockefeller 30% of any sublicense fee paid by sublicenses. The licensed patents under this agreement are the subject of research that was funded by the NIAID grant awarded to us on April 1, 2005 for $885,641over two years. In addition, on July 2, 2001, we entered into a license agreement for two additional patents related to the regulation of exoproteins in staphylococcus aureus. On February 14, 2008, we terminated both the August 1996 and July 2001 license agreements.

EMPLOYEES

        As of April 14, 2009, we had 9 full-time employees. We believe our employee relations are satisfactory.

CALLISTO WEBSITE

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

17

ITEM 1A.    RISK FACTORS.

        You should carefully consider the following risk factors and the other information included in this annual report as well as the information included in other periodic reports and filings made with the SEC before investing in our common stock. If any of the following risks actually occurs, our business, financial condition or results of operations could be harmed. The trading price of our common stock could decline due to any of these risks, and you may lose part or all of your investment.

RISK RELATED TO OUR BUSINESS

OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM HAS EXPRESSED DOUBT ABOUT OUR ABILITY TO CONTINUE AS A GOING CONCERN, WHICH MAY HINDER OUR ABILITY TO OBTAIN FUTURE FINANCING

        Our consolidated financial statements as of December 31, 2008 were prepared under the assumption that we will continue as a going concern for the next twelve months. Our independent registered public accounting firm has issued a report that included an explanatory paragraph referring to our recurring losses from operations and net capital deficiency and expressing substantial doubt in our ability to continue as a going concern without additional capital becoming available. Our ability to continue as a going concern is dependent upon our ability to obtain additional equity or debt financing, attain further operating efficiencies, reduce expenditures, and, ultimately, to generate revenue. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

WE ARE AT AN EARLY STAGE OF DEVELOPMENT AS A COMPANY, CURRENTLY HAVE NO SOURCE OF REVENUE AND MAY NEVER BECOME PROFITABLE.

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

•

demonstration in clinical trials that our product candidates, Atiprimod for the treatment of advanced carcinoid cancer, L-Annamycin for the treatment of relapsed acute leukemia, and SP-304 for the treatment of GI disorders, are safe and effective;

•

the successful development of our other product candidates;

•

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

•

the successful commercialization of our product candidates; and

•

market acceptance of our products.

        All of our existing product candidates will require extensive additional clinical evaluation, regulatory review, significant marketing efforts and substantial investment before they could provide us with any revenue. We do not anticipate that we will generate revenue for several years, at the earliest, or that we will achieve profitability for at least several years after generating material revenue, if at all. If we are unable to generate revenue, we will not become profitable, and we may be unable to continue our operations.

WE HAVE INCURRED SIGNIFICANT LOSSES SINCE INCEPTION AND ANTICIPATE THAT WE WILL INCUR CONTINUED LOSSES FOR THE FORESEEABLE FUTURE.

        As of December 31, 2008, we had an accumulated deficit of $90,987,267. We have incurred losses in each year since our inception in 1996. We incurred net losses available to common stockholders of

18

$9,655,471, $20,887,428 and $15,303,714 for the twelve months ended December 31, 2008, 2007 and 2006, respectively. These losses have had and will continue to have an adverse effect on our stockholders' equity and working capital. We expect to incur significant and increasing operating losses for the next several years as we expand our research and development, continue the clinical trials of our active drug candidates, acquire or license new technologies, advance our other product candidates into clinical development, seek regulatory approval and, if we receive FDA approval, commercialize our products. Because of the numerous risks and uncertainties associated with our product development efforts, we are unable to predict the extent of any future losses or when we will become profitable, if at all. If we are unable to achieve and then maintain profitability, the market value of our common stock will likely decline.

WE WILL NEED TO RAISE SUBSTANTIAL ADDITIONAL CAPITAL WITHIN THE NEXT YEAR TO FUND OUR OPERATIONS, AND OUR FAILURE TO OBTAIN FUNDING WHEN NEEDED MAY FORCE US TO DELAY, REDUCE OR ELIMINATE OUR PRODUCT DEVELOPMENT PROGRAMS OR COLLABORATION EFFORTS.

        Our operations have consumed substantial amounts of cash since inception and we expect to continue to require substantial amounts to:

•

complete the clinical development of our two cancer product candidates, Atiprimod for the treatment of advanced carcinoid cancer and L-Annamycin for the treatment of acute leukemia;

•

continue clinical development of SP-304 to treat GI disorders;

•

continue development of our other product candidates and our SP-304 backup and second-generation program;

•

finance our general and administrative expenses;

•

prepare regulatory approval applications and seek approvals for SP-304 and our other product candidates;

•

license or acquire additional technologies;

•

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

•

develop and implement sales, marketing and distribution capabilities.

        We expect that our cash used in operating activities will increase significantly for the next several years. For the years ended December 31, 2008, 2007 and 2006 we used approximately $8.9 million, $8.4 million and $8.3 million in operating activities, respectively.

        We will be required to raise additional capital within the next year to complete the development and commercialization of our current product candidates and to continue to fund operations at the current cash expenditure levels. Our future funding requirements will depend on many factors, including, but not limited to:

•

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

•

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

•

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

•

the costs and timing of regulatory approval;

•

the costs of establishing sales, marketing and distribution capabilities;

19

•

the effect of competing technological and market developments;

•

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

•

general market conditions for offerings from biopharmaceutical companies.

        To date, our sources of cash have been primarily limited to the sale of our equity securities. Net cash provided by financing activities for the twelve months ended December 31, 2008, 2007 and 2006 was approximately $3.0 million, $10.8 million and $10.8 million, respectively. We cannot be certain that additional funding will be available on acceptable terms, or at all. To the extent that we raise additional funds by issuing equity securities, our stockholders may experience significant dilution. Any debt financing, if available, may involve restrictive covenants that impact our ability to conduct our business. If we are unable to raise additional capital when required or on acceptable terms, we may have to significantly delay, scale back or discontinue the development and/or commercialization of one or more of our product candidates. We also may be required to:

•

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

•

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

IF OUR AGREEMENT WITH THE UNIVERSITY OF TEXAS M.D. ANDERSON CANCER CENTER TERMINATES, OUR BUSINESS WOULD BE ADVERSELY AFFECTED.

        Our business is partially dependent on rights we have licensed from The University of Texas M.D. Anderson Cancer Center. Under the terms of The University of Texas M.D. Anderson Cancer Center license agreement for L-Annamycin, at any time after August 12, 2009, The University of Texas M.D. Anderson Cancer Center has the right to terminate the license if we fail to provide evidence within 90 days of written notice that we have commercialized or we are actively and effectively attempting to commercialize L-Annamycin. If we fail to fulfill these obligations or other material obligations, The University of Texas M.D. Anderson Cancer Center license agreement may be terminated and our business would be adversely affected.

CLINICAL TRIALS INVOLVE A LENGTHY AND EXPENSIVE PROCESS WITH AN UNCERTAIN OUTCOME, AND RESULTS OF EARLIER STUDIES AND TRIALS MAY NOT BE PREDICTIVE OF FUTURE TRIAL RESULTS.

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

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

20

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

        While to date there has been no delays in our clinical trials, enrollment in our Atiprimod Phase I/IIa trial in multiple myeloma was slower than anticipated due to limited availability of relapsed multiple myeloma patients. In the future, we may experience delays in clinical testing of our product candidates. We do not know whether planned clinical trials will begin on time, will need to be redesigned or will be completed on schedule, if at all. Clinical trials can be delayed for a variety of reasons, including delays in obtaining regulatory approval to commence a trial, in reaching agreement on acceptable clinical trial terms with prospective sites, in obtaining institutional review board approval to conduct a trial at a prospective site, in recruiting patients to participate in a trial or in obtaining sufficient supplies of clinical trial materials. Many factors affect patient enrollment, including the size of the patient population, the proximity of patients to clinical sites, the eligibility criteria for the trial, competing clinical trials and new drugs approved for the conditions we are investigating. Prescribing physicians will also have to decide to use our product candidates over existing drugs that have established safety and efficacy profiles. Any delays in completing our clinical trials will increase our costs, slow down our product development and approval process and delay our ability to generate revenue.

WE MAY BE REQUIRED TO SUSPEND OR DISCONTINUE CLINICAL TRIALS DUE TO UNEXPECTED SIDE EFFECTS OR OTHER SAFETY RISKS THAT COULD PRECLUDE APPROVAL OF OUR PRODUCT CANDIDATES.

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

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

IF WE ARE UNABLE TO SATISFY REGULATORY REQUIREMENTS, WE MAY NOT BE ABLE TO COMMERCIALIZE OUR PRODUCT CANDIDATES.

        We need FDA approval prior to marketing our product candidates in the United States of America. If we fail to obtain FDA approval to market our product candidates, we will be unable to sell our product candidates in the United States of America and we will not generate any revenue.

        This regulatory review and approval process, which includes evaluation of preclinical studies and clinical trials of a product candidate as well as the evaluation of our manufacturing process and our contract manufacturers' facilities, is lengthy, expensive and uncertain. To receive approval, we must, among other things, demonstrate with substantial evidence from well-controlled clinical trials that the product candidate is both safe and effective for each indication where approval is sought. Satisfaction of these requirements typically takes several years and the time needed to satisfy them may vary substantially, based on the type, complexity and novelty of the pharmaceutical product. We cannot predict if or when we might submit for regulatory review any of our product candidates currently under

21

development. Any approvals we may obtain may not cover all of the clinical indications for which we are seeking approval. Also, an approval might contain significant limitations in the form of narrow indications, warnings, precautions, or contra-indications with respect to conditions of use.

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

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

IF OUR PRODUCT CANDIDATES ARE UNABLE TO COMPETE EFFECTIVELY WITH MARKETED DRUGS TARGETING SIMILAR INDICATIONS AS OUR PRODUCT CANDIDATES, OUR COMMERCIAL OPPORTUNITY WILL BE REDUCED OR ELIMINATED.

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

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

•

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

•

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

•

attract and retain key personnel;

•

develop relationships with physicians prescribing these products; and

•

build adequate sales, marketing and distribution infrastructure for our product candidates.

22

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

        Numerous pharmaceutical and biotechnology companies have developed anthracycline drugs used to treat acute leukemias similar to our compound, L-Annamycin. These compounds include Adriamycin® and Ellence® which are marketed by Pfizer; and Cerubidine® which is marketed by Boehringer Ingelheim. These drugs have been approved by the FDA and are currently being marketed as opposed to L-Annamycin which is in clinical development. Atiprimod, our drug candidate for advanced carcinoid cancer, works through a different mechanism of action than Velcade® which is currently marketed by Millenium Pharmaceuticals and other approved drugs, such as Celgene Corporation's Revlimid®. SP-304 is our drug candidate being developed by Synergy to treat GI disorders, such as chronic constipation and irritable bowel syndrome ("IBS-C"). Only one drug, Amitiza® (lubriprostone) from Sucampo/Takeda, to the best of our knowledge, is presently approved in the U.S. to treat those indications.

WE CURRENTLY HAVE NO SALES AND MARKETING ORGANIZATION. IF WE ARE UNABLE TO ESTABLISH A DIRECT SALES FORCE IN THE UNITED STATES TO PROMOTE OUR PRODUCTS, THE COMMERCIAL OPPORTUNITY FOR OUR PRODUCTS MAY BE DIMINISHED.

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

WE MAY NEED OTHERS TO MARKET AND COMMERCIALIZE OUR PRODUCT CANDIDATES IN INTERNATIONAL MARKETS.

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

23

IF OUR RELATIONSHIP WITH OUR CONTRACT MANUFACTURER FOR L-ANNAMYCIN TERMINATES, OR THEIR FACILITIES ARE DAMAGED OR DESTROYED, WE MAY BE UNABLE TO DEVELOP OR COMMERCIALIZE L-ANNAMYCIN.

        Currently, Antibioticos S.p.A. is our sole supplier of Annamycin (drug substance that is the active component of the final formulated L-Annamycin drug product). If our relationship with this contract manufacturer, or any other contract manufacturer we might use, terminates or if any of their facilities are damaged for any reason, including fire, flood, earthquake or other similar event, we may be unable to obtain supply of Annamycin. The number of contract manufacturers with the expertise, required regulatory approvals and facilities to manufacture Annamycin on a commercial scale is extremely limited, and it would take a significant amount of time to arrange for alternative manufacturers. If we need to change to other commercial manufacturers, the FDA and comparable foreign regulators must approve these manufacturers' facilities and processes prior to our use, which would require new testing and compliance inspections. In addition, we may not have the intellectual property rights, or may have to share intellectual property rights, to any improvements in the current manufacturing processes or any new manufacturing processes for Annamycin.

IF THE FDA DOES NOT APPROVE OUR CONTRACT MANUFACTURERS' FACILITIES, WE MAY BE UNABLE TO DEVELOP OR COMMERCIALIZE OUR PRODUCT CANDIDATES.

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

IF PRODUCT LIABILITY LAWSUITS ARE SUCCESSFULLY BROUGHT AGAINST US, WE MAY INCUR SUBSTANTIAL LIABILITIES AND MAY BE REQUIRED TO LIMIT COMMERCIALIZATION OF OUR PRODUCT CANDIDATES.

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

•

decreased demand for our product candidates;

24

•

injury to our reputation;

•

withdrawal of clinical trial participants;

•

costs of related litigation;

•

substantial monetary awards to patients;

•

product recalls;

•

loss of revenue; and

•

the inability to commercialize our product candidates.

        We have clinical trial liability insurance with a $5,000,000 annual aggregate limit for up to 75 patients participating at the same time in our Atiprimod, L-Annamycin and SP-304 clinical trials. We intend to expand our insurance coverage to include the sale of commercial products if marketing approval is obtained for our product candidates. Our current insurance coverage may prove insufficient to cover any liability claims brought against us. In addition, because of the increasing costs of insurance coverage, we may not be able to maintain insurance coverage at a reasonable cost or obtain insurance coverage that will be adequate to satisfy any liability that may arise.

EVEN IF WE RECEIVE REGULATORY APPROVAL FOR OUR PRODUCT CANDIDATES, WE WILL BE SUBJECT TO ONGOING SIGNIFICANT REGULATORY OBLIGATIONS AND OVERSIGHT.

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

WE RELY ON THIRD PARTIES TO CONDUCT OUR CLINICAL TRIALS. IF THESE THIRD PARTIES DO NOT SUCCESSFULLY CARRY OUT THEIR CONTRACTUAL DUTIES OR MEET EXPECTED DEADLINES, WE MAY NOT BE ABLE TO SEEK OR OBTAIN REGULATORY APPROVAL FOR OR COMMERCIALIZE OUR PRODUCT CANDIDATES.

        We have agreements with third-party contract research organizations, ("CRO" or "CROs"), to provide the full spectrum of clinical trial services for our clinical programs. We and our CROs are required to comply with current Good Clinical Practices, ("GCP" or "GCPs"), regulations and guidelines enforced by the FDA for all of our products in clinical development. The FDA enforces GCPs through periodic inspections of CROs, trial sponsors, principal investigators and trial sites. In the future, if we or our CROs fail to comply with applicable GCPs, the clinical data generated in our clinical trials may be deemed unreliable and the FDA may require us to perform additional clinical

25

trials before approving our marketing applications. We cannot assure you that, upon inspection, the FDA will determine that any of our clinical trials for products in clinical development comply with GCPs. In addition, our clinical trials must be conducted with product produced under cGMP regulations, and will require a large number of test subjects. Our failure to comply with these regulations may require us to repeat clinical trials, which would delay the regulatory approval process.

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

IF WE FAIL TO ATTRACT AND KEEP SENIOR MANAGEMENT AND KEY SCIENTIFIC PERSONNEL, WE MAY BE UNABLE TO SUCCESSFULLY DEVELOP OUR PRODUCT CANDIDATES, CONDUCT OUR CLINICAL TRIALS AND COMMERCIALIZE OUR PRODUCT CANDIDATES.

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

        The competition for qualified personnel in the biotechnology and pharmaceuticals field is intense. We will need to hire additional personnel as we expand our clinical development and commercial activities. We may not be able to attract and retain quality personnel on acceptable terms given the competition for such personnel among biotechnology, pharmaceutical and other companies. We do not carry "key person" insurance covering any members of our senior management other than $1,000,000 for Dr. Jacob.

IF WE FAIL TO ACQUIRE AND DEVELOP OTHER PRODUCTS OR PRODUCT CANDIDATES, WE MAY BE UNABLE TO GROW OUR BUSINESS.

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

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

26

assure you that any products that we license or acquire that are approved, can be manufactured or produced economically, successfully commercialized or widely accepted in the marketplace.

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

WE MAY UNDERTAKE ACQUISITIONS IN THE FUTURE, AND ANY DIFFICULTIES FROM INTEGRATING THESE ACQUISITIONS COULD DAMAGE OUR ABILITIES TO ATTAIN OR MAINTAIN PROFITABILITY.

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

WE WILL NEED TO INCREASE THE SIZE OF OUR ORGANIZATION, AND WE MAY EXPERIENCE DIFFICULTIES IN MANAGING GROWTH.

        We are a small company with 9 full-time employees as of April 14, 2009. To continue our clinical trials and commercialize our product candidates, we will need to expand our employee base for managerial, operational, financial and other resources. Future growth will impose significant added responsibilities on members of management, including the need to identify, recruit, maintain and integrate additional employees. Over the next 12 months depending on the progress of our planned clinical trials, we plan to add additional employees to assist us with our clinical programs. Our future financial performance and our ability to commercialize our product candidates and to compete effectively will depend, in part, on our ability to manage any future growth effectively. To that end, we must be able to:

•

manage our development efforts effectively;

•

manage our clinical trials effectively;

•

integrate additional research, development, management, administrative, manufacturing and sales and marketing personnel;

•

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

•

hire and train additional qualified personnel.

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

REIMBURSEMENT MAY NOT BE AVAILABLE FOR OUR PRODUCT CANDIDATES, WHICH COULD IMPEDE ANY POTENTIAL SALES.

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

27

reimbursement amounts will not reduce the demand for, or the price of, our products. We have not commenced efforts to have our product candidates reimbursed by government or third party payors. If reimbursement is not available or is available only to limited levels, we may not be able to commercialize our products.

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

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

LEGISLATIVE OR REGULATORY REFORM OF THE HEALTHCARE SYSTEM MAY AFFECT OUR ABILITY TO SELL OUR PRODUCTS PROFITABLY.

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

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

RISKS RELATED TO OUR INTELLECTUAL PROPERTY

IT IS DIFFICULT AND COSTLY TO PROTECT OUR PROPRIETARY RIGHTS, AND WE MAY NOT BE ABLE TO ENSURE THEIR PROTECTION.

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

28

        As of December 31, 2008, we are the assignee or exclusive licensee of 7 pending patent applications and 15 issued patents in the United States, and currently we have approximately 150 issued or pending foreign patent applications. We seek patent protection of inventions originating from our ongoing research and development activities that are commercially important to our business. Our composition-of-matter and use patent on SP-304 issued on May 9, 2006 expires in 2023. Our composition-of-matter patents for L-Annamycin and Atiprimod expire in 2017 and 2016, respectively. Our formulation patents for L-Annamycin and Atiprimod dimaleate salt both expire in 2016.

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

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

•

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

•

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

•

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

•

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

•

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

•

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

•

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

•

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

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

WE MAY INCUR SUBSTANTIAL COSTS AS A RESULT OF LITIGATION OR OTHER PROCEEDINGS RELATING TO PATENT AND OTHER INTELLECTUAL PROPERTY RIGHTS AND WE MAY BE UNABLE TO PROTECT OUR RIGHTS TO, OR USE, OUR TECHNOLOGY.

        If we choose to go to court to stop someone else from using the inventions claimed in our licensed patents, that individual or company has the right to ask the court to rule that these patents are invalid

29

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

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

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

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

30

RISKS RELATED TO OUR COMMON STOCK

MARKET VOLATILITY MAY AFFECT OUR STOCK PRICE AND THE VALUE OF YOUR INVESTMENT.

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

•

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

•

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

•

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

•

regulatory developments in the United States of America and foreign countries;

•

the success of our development efforts and clinical trials;

•

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

•

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

•

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

•

actual or anticipated fluctuations in our operating results;

•

changes in financial estimates or recommendations by securities analysts;

•

sales of large blocks of our common stock;

•

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

•

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

•

the potentially dilutive effect of all outstanding dilutive instruments as follows:

The following table sets forth the potentially dilutive effect of all outstanding dilutive instruments as of December 31, 2008:

Common Shares Outstanding		49,556,661
Potentially Dilutive Common Shares Issuable upon:
	Exercise of Warrants	55,773,331
	Exercise of Stock Options	7,938,538
	Conversion of Series A Preferred Stock	1,960,000
	Conversion of Series B Preferred Stock	22,741,000
Common Shares Outstanding—Fully Diluted		137,969,530

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

31

WE HAVE IDENTIFIED MATERIAL WEAKNESSES IN OUR DISCLOSURE CONTROLS AND PROCEDURES AND HAVE CONCLUDED THAT INTERNAL CONTROL OVER FINANCIAL REPORTING IS NOT EFFECTIVE AS OF DECEMBER 31, 2008. IN ADDITION, WE MAY EXPERIENCE ADDITIONAL MATERIAL WEAKNESSES IN THE FUTURE. ANY MATERIAL WEAKNESSES IN OUR DISCLOSURE CONTROLS AND PROCEDURES OR OUR FAILURE TO REMEDIATE SUCH MATERIAL WEAKNESSES COULD RESULT IN A MATERIAL MISSTATEMENT IN OUR FINANCIAL STATEMENTS NOT BEING PREVENTED OR DETECTED AND COULD AFFECT INVESTOR CONFIDENCE IN THE ACCURACY AND COMPLETENESS OF OUR FINANCIAL STATEMENTS, AS WELL AS OUR STOCK PRICE.

        We have identified material weaknesses in our disclosure controls and procedures relating to our lack of sufficient internal accounting personnel and segregation of duties necessary to ensure that adequate review of our financial statements and notes thereto is performed and have concluded that our internal control over financial reporting is not effective as of December 31, 2008. These material weaknesses and our remediation plans are described further in ITEM 9A(T). "CONTROLS AND PROCEDURES" of this report. Material weaknesses in our disclosure controls and procedures could result in material misstatements in our financial statements not being prevented or detected. We may experience difficulties or delays in completing remediation or may not be able to successfully remediate material weaknesses at all. Any material weakness or unsuccessful remediation could affect investor confidence in the accuracy and completeness of our financial statements, which in turn could harm our business and have an adverse effect on our stock price and our ability to raise additional funds.

WE ARE AT RISK OF SECURITIES CLASS ACTION LITIGATION.

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

WE HAVE NOT PAID CASH DIVIDENDS IN THE PAST AND DO NOT EXPECT TO PAY CASH DIVIDENDS IN THE FUTURE. ANY RETURN ON INVESTMENT MAY BE LIMITED TO THE VALUE OF OUR STOCK.

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

IF WE FAIL TO COMPLY WITH THE RULES UNDER THE SARBANES-OXLEY ACT OF 2002 RELATED TO ACCOUNTING CONTROLS AND PROCEDURES, OR, IF MATERIAL WEAKNESSES OR OTHER DEFICIENCIES ARE DISCOVERED IN OUR INTERNAL CONTROLS OVER FINANCIAL REPORTING, OUR STOCK PRICE COULD DECLINE SIGNIFICANTLY AND RAISING CAPITAL COULD BE MORE DIFFICULT.

        If we fail to comply with the rules under the Sarbanes-Oxley Act of 2002 related to accounting controls and procedures, or, if material weaknesses or other deficiencies are discovered in our internal controls over financial reporting, our stock price could decline significantly and raising capital could be more difficult. Section 404 of the Sarbanes-Oxley Act of 2002 requires annual management assessments of the effectiveness of our internal controls over financial reporting. We have documented and tested our internal control procedures, and have identified material weaknesses in our internal control over financial reporting and other deficiencies. These material weaknesses and deficiencies could cause

32

investors to lose confidence in our Company and result in a decline in our stock price and consequently affect our financial condition. In addition, if we fail to achieve and maintain the adequacy of our internal controls, we may not be able to ensure that we can conclude on an ongoing basis that we have effective internal controls over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act of 2002. Moreover, effective internal controls are necessary for us to produce reliable financial reports and are important to helping prevent financial fraud. If we cannot provide reliable financial reports or prevent fraud, our business and operating results could be harmed, investors could lose confidence in our reported financial information, and the trading price of our Common Stock could drop significantly. In addition, we cannot be certain that additional material weaknesses or significant deficiencies in our internal controls will not be discovered in the future. See ITEM 9A.(T) of this annual report for a more detailed discussion our internal control weaknesses and deficiencies.

ITEM 1B.    UNRESOLVED STAFF COMMENTS.

        None

ITEM 2.    PROPERTIES.

        We currently lease 3,886 square feet of office space located at 420 Lexington Avenue, Suite 1609, New York, New York through June 30, 2011. This facility contains our clinical management, executive and administrative offices.

        We also maintain a small research laboratory and several development offices totaling approximately 700 square feet in the Bucks County Biotechnology Center, Doylestown, Pennsylvania, under a license agreement expiring on October 31, 2010.

        We believe our existing facilities are well maintained, in good operating condition, and that our existing and planned facilities will be adequate to support our operations for the foreseeable future.

ITEM 3.    LEGAL PROCEEDINGS.

        On December 21, 2006, we filed a complaint against Tapestry Pharmaceuticals, Inc.("Tapestry"), Leonard P. Shaykin and Kai P. Larson in the Supreme Court of the State of New York alleging that Tapestry used information they obtained pursuant to a confidential disclosure agreement between us and Tapestry to cause Donald Picker, Ph.D., our former Executive Vice President, Research & Development, to resign and accept a position with Tapestry. In addition, we are alleging that Tapestry fraudulently entered into the confidential disclosure agreement with us and intentionally interfered with Dr. Picker's employment agreement with us. We are seeking actual and punitive damages. During the year ended December 31, 2008 Callisto settled with Tapestry Pharmaceuticals, Inc. for $100,000 which was used to pay for our legal fees.

        In June 2007, we filed a complaint against Donald Picker in the Supreme Court of the State of New York alleging breach of his employment agreement, fraud, conversion and related claims. We were seeking $80 million in damages from Dr. Picker. During 2008 Picker moved for a summary judgment and that motion is still pending.

        We are not a party to any other pending legal proceedings.

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

        No matters were submitted to a vote of our security holders during the fourth quarter of 2008.

33

PART II

ITEM 5.    MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUERS PURCHASES OF EQUITY SECURITIES.

MARKET PRICES

        Our common stock had been quoted on the American Stock Exchange ("AMEX") under the symbol "KAL" since October 25, 2004. On April 7, 2008, we received notice from the staff of the AMEX of its intent to strike our common stock from the AMEX by filing a delisting application with the Securities Exchange Commission for failure to regain compliance with Sections 1003(a)(i) and 1003(a)(ii) of the Company Guide and falling out of compliance with Section 1003(a)(iii) of the Company Guide with shareholders' equity of less than $6,000,000 and losses from continuing operations and/or net losses in four of our five most recent fiscal years. On July 14, 2008, our common stock was delisted from the AMEX and currently trades on the Over the Counter Bulletin Board under the symbol "CLSP.OB".

        The following table shows the reported high and low closing prices per share for our common stock as reported on the AMEX prior to July 14, 2008 and as reported on the Over the Counter Bulletin Board subsequent to July 14, 2008.

	2008				2007
	High		Low		High		Low
First Quarter	$	0.62	$	0.36	$	0.97	$	0.71
Second Quarter		0.40		0.24		0.77		0.64
Third Quarter		0.24		0.05		0.72		0.47
Fourth Quarter		0.14		0.03		0.54		0.33

HOLDERS OF COMMON STOCK

        As of April 15, 2009, we had 397 holders of record of our common stock.

DIVIDENDS

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

EQUITY COMPENSATION INFORMATION

        The following table summarizes information about our equity compensation plans as of December 31, 2008.

Plan Category	Number of Shares of Common Stock to be Issued upon Exercise of Outstanding Options and Warrants (a)		Weighted-Average Exercise Price of Outstanding Options and Warrants		Number of Options Remaining Available for Future Issuance Under Equity Compensation Plans (excluding securities reflected in column (a))
Equity Compensation Plans Approved by Stockholders		5,586,205	$	1.73		4,298,000
Equity Compensation Plans Not Approved by Stockholders(1)		58,125,664		0.48		0
Total		63,711,869	$	0.59		4,298,000

(1)

Consists of 2,352,333 stock options not subject to any of our stock option plans and 55,773,331 warrants. These non-plan stock options and warrants have been primarily issued in conjunction with our private placements of common stock and consulting services agreements.

34

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

The following discussion should be read in conjunction with our consolidated financial statements and other financial information appearing elsewhere in this Annual Report on Form 10-K. In addition to historical information, the following discussion and other parts of this Annual Report contain forward-looking information that involves risks and uncertainties.

BUSINESS OVERVIEW

        Callisto Pharmaceuticals, Inc. (which may be referred to as "Callisto", "the Company", "we" or "us") was incorporated under the laws of the State of Delaware in May 2003. We operate through two subsidiary companies: Synergy Pharmaceuticals Inc. and Callisto Research Labs, LLC, and we own two inactive subsidiaries, IgX, Ltd (Ireland) and Callisto Pharma, GmbH (Germany). Our principal offices are located at 420 Lexington Avenue, Suite 1609, New York, NY 10170.

        We are a development stage biopharmaceutical company focused primarily on the development of drugs to treat neuroendocrine cancer (including advanced carcinoid cancer), rheumatoid arthritis ("RA"), acute leukemia and gastrointestinal ("GI") disorders and diseases. Our lead drug candidates are as follows:

1.

SP-304, a guanylyl cyclase C ("GC-C") receptor agonist, to treat GI disorders, primarily chronic constipation ("CC") and constipation-predominant irritable bowel syndrome ("IBS-C"), currently being developed by our majority-owned subsidiary, Synergy Pharmaceuticals, Inc. ("Synergy").



2.

Atiprimod, an orally administered drug with antiproliferative and antiangiogenic activity.



3.

L-Annamycin, a novel compound from the anthracycline family of proven anti-cancer drugs, which has a novel therapeutic profile, including activity against drug resistant tumors and significantly reduced cardiotoxicity, or damage to the heart.

HISTORY

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

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

        From inception through December 31, 2008, we have sustained cumulative net losses available to common stockholders of $90,987,267. Our losses have resulted primarily from expenditures incurred in connection with research and development activities, application and filing for regulatory approval of

35

proposed products, stock-based compensation expense, patent filing and maintenance expenses, purchase of in-process research and development, outside accounting and legal services and regulatory, scientific and financial consulting fees, as well as deemed dividends attributable to the beneficial conversion rights of convertible preferred stock at issuance. From inception through December 31, 2008, we have not generated any revenue from operations, expect to incur additional losses to perform further research and development activities and do not currently have any commercial biopharmaceutical products, and do not expect to have such for several years, if at all.

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

Recent Developments

        On January 27, 2009, we announced that we were focusing all further development of Atiprimod towards the treatment of RA. We recognized that although the ongoing Phase II clinical trial of Atiprimod in advanced carcinoid cancer gave encouraging results, the data were not sufficiently demonstrative to warrant further development of Atiprimod in this indication. We announced, instead, our intention that based on Atiprimod's demonstrated favorable clinical safety profile, robustly supported by earlier studies of Atiprimod in RA patients, as well as by the recent oncology trials in advanced carcinoid cancer patients, where the drug was dosed at levels and frequencies considerably higher than anticipated for use in RA, we believe that Atiprimod holds significant promise as a new class of orally-administered, disease-modifying agent in RA.

        On December 19, 2008, we entered into a Technology Assignment Agreement (the "Agreement") with AnorMED pursuant to which AnorMED transferred and assigned to us all of AnorMED's right, title and interest in and to all patents and patent applications with respect to Atiprimod in addition to all trade secrets, technical reports and data concerning Atiprimod and any analogs or derivatives in return for a cash payment of $650,000, which payment settled the upfront fees owed from December 31, 2007 Amended and Restated License Agreement. In addition the Agreement specified that the Amended and Restated License Agreement between us and AnorMED dated December 31, 2007, with respect to which AnorMED licensed to us certain patent rights and technology related to Atiprimod, was terminated with no additional amounts due.

        On December 9, 2008, Synergy announced the completion of the Phase I clinical trial of SP-304 in healthy volunteers that was initiated in June, 2008. This first study was a double-blind, placebo-controlled, randomized single, oral, ascending dose trial performed in 71 healthy male and female volunteers. The primary objective of the Phase I clinical trial with SP-304 was to characterize the safety, tolerability, pharmacokinetic and pharmacodynamic effects of the drug in healthy volunteers. The data from the trial were included in an abstract accepted for presentation at the Digestive Disease Week conference that meets in Chicago in June, 2009. We plan to initiate a repeated-oral-dose trial of SP-304 in chronic constipation patients in late 2009 or early 2010.

        On July 14, 2008, we entered into an Exchange Agreement dated July 11, 2008 ("Exchange Agreement"), as amended and effective on July 14, 2008, with Pawfect Foods, Inc. ("Pawfect"), Synergy Pharmaceuticals, Inc. ("Synergy-DE"), a majority-owned subsidiary of ours, and other holders of Synergy-DE common stock. According to the terms of the Exchange Agreement, Pawfect acquired 100% of the common stock of Synergy-DE, from us and the other holders of Synergy-DE, in exchange for 45,464,760 shares of Pawfect's common stock representing approximately 70% of Pawfect's

36

outstanding common stock (the "Exchange Transaction"). We received 44,590,000 of the 45,464,760 shares of Pawfect's common stock exchanged for our ownership of Synergy-DE, and we are now the holder of 68% of Pawfect's outstanding common stock. The remaining 874,760 shares of Pawfect common stock exchanged for ownership of Synergy-DE were issued to certain executive officers of Synergy-DE who received their shares pursuant to a Repurchase Agreement with Synergy-DE dated July 3, 2008 and assumed by Pawfect. The fair value of each of the 874,760 shares was estimated on the grant date to be $0.60, which was based on the price paid by shareholders participating in Synergy's July 14, 2008 private placement. Stock based compensation expense of $524,856 related to these shares is being amortized over the vesting period of 2 years. In connection with the Exchange Transaction Pawfect received $3,025,000 less transaction costs of $73,087, yielding net proceeds of $2,951,913 from two private placements, which we have recorded as an increase in additional paid-in capital.

        Pawfect was a development stage company selling pet food products utilizing the internet, with immaterial operations to date. On July 14, 2008, Pawfect discontinued its pet food business to focus all resources on continuing the development of drugs to treat GI disorders and diseases acquired in connection with the Exchange Agreement.

        On July 21, 2008 Pawfect, amended its articles of incorporation, in the state of Florida, to effect the actions necessary to complete the transactions contemplated by the Exchange Agreement and changed its name to Synergy Pharmaceuticals, Inc. ("Synergy"). Synergy is now traded on the Over The Counter Bulletin Board under the symbol SGYP.OB.

        On April 2, 2008, we filed an investigational new drug ("IND") application with the United States Food and Drug Administration ("FDA") relating to SP-304. On May 2, 2008, we received notice from the FDA that the proposed study was deemed safe to proceed and we initiated a Phase I clinical trial in volunteers on June 4, 2008.

        On April 7, 2008, we received notice from the staff of the American Stock Exchange ("AMEX") of its intent to strike our common stock from the AMEX by filing a delisting application with the SEC for failure to regain compliance with Sections 1003(a)(i) and 1003(a)(ii) of the Company Guide and falling out of compliance with Section 1003(a)(iii) of the Company Guide with shareholders' equity of less than $6,000,000 and losses from continuing operations and/or net losses in four of our five most recent fiscal years. On July 14, 2008, our common stock was delisted from the AMEX and currently trades on the Over The Counter Bulletin Board under the symbol CLSP.OB.

        SP-304 was developed by Synergy scientists based on structure-function studies performed in-house. A patent covering composition of matter and therapeutic applications of SP-304 was granted by the U.S. Patent and Trademark Office on May 9, 2006. SP-304 is an analog of uroguanylin, a natural GI hormone produced in the gut that is a key regulator of intestinal function. Uroguanylin works by activating the GC-C receptor on intestinal cells. The GC-C receptor, promotes fluid and ion transport in the GI tract. Under normal conditions, the receptor is activated by the natural hormones uroguanylin and guanylin. Activation of the receptor leads to the transport of chloride and bicarbonate into the intestine, and water is carried with these ions into the lumen of the intestine, thereby softening stool, and producing other pharmacologic effects that could potentially benefit patients with chronic constipation and IBS-C.

        A practical, efficient and cost effective method for producing SP-304 on a commercial scale is currently being developed by two contract research organizations. At present we have multiple 100 gram-scale lots of SP-304, produced under current good manufacturing practices ("cGMP"), which are being used for non-clinical work to support further human studies.

        SP-304 has also undergone pre-clinical animal studies as a treatment for GI inflammation in a collaborative study involving clinical gastroenterologist Dr. Scott Plevy of the University of North Carolina, Chapel Hill, NC. Recent results from his laboratory also showed that SP-304 was efficacious

37

in animal models of ulcerative colitis ("UC"). A second generation GC-C receptor SP-333 is now in pre-clinical development and Synergy plans to file an IND and initiate a Phase I clinical trial in volunteers in 2010.

        On November 7, 2006, we announced the initiation of a multi-center open-label Phase II clinical trial of Atiprimod for low-to-intermediate grade neuroendocrine cancers, primarily in advanced carcinoid cancer patients. On September 20, 2007, we announced that we had completed enrollment of the 40-patient Phase II clinical trial, and that patients had been on drug as along as 11 months. In October 2007, we announced the opening of a Phase II extension trial to permit those patients who had successfully completed a full year in the Phase II advanced carcinoid cancer trial to continue to receive Atiprimod therapy. We also indicated that we are no longer dosing patients in relapsed or refractory multiple myeloma and have no plans at present to continue evaluating the drug in this disease indication, instead focusing on the clinical development of Atiprimod to treat advanced carcinoid cancer. On May 16, 2008, we announced interim data from the company's ongoing open-label Phase II clinical trial of Atiprimod to treat low to intermediate grade neuroendocrine carcinoma (advanced carcinoid cancer). On January 27, 2009, we announced that we were focusing all further development of Atiprimod towards the treatment of rheumatoid RA. We recognized that although the ongoing Phase II clinical trial of Atiprimod in advanced carcinoid cancer gave encouraging results, the data were not sufficiently demonstrative to warrant further development of Atiprimod in this indication. We announced our belief that Atiprimod holds significant promise as a new class of orally-administered, disease-modifying agent in RA.

        L-Annamycin was evaluated in two clinical trials: 1) a Phase I/IIa clinical trial in adult relapsed acute myelogenous leukemia ("AML") or refractory acute lymphocytic leukemia ("ALL") patients at three clinical sites in the U.S.; and 2) a Phase I clinical trial in children and young adults with relapsed or refractory ALL or AML. We established an MTD of 150 mg/m2/day given for 3 consecutive days in the adult trial and finished dosing of 10 patients at this MTD value. The clinical data, however, did not warrant further clinical evaluation of L-Annamycin as a single agent to treat relapsed or refractory adult acute leukemia patients. The Phase I trial of L-Annamycin in pediatric relapsed or refractory ALL or AML patients was initiated at a dose of 130 mg/m2/day. Due to the low number of patients with this disease, we were only able to enroll 3 patients in total, all at 130 mg/m2/day, and never achieved an MTD in children. Due to this poor enrollment plus the decision to suspend further development of L-Annamycin in adults, we have suspended any further work on L-Annamycin in acute leukemia at this time.

        We will require additional capital to execute our plan. Worldwide economic conditions and the international equity and credit markets have significantly deteriorated and may remain depressed for the foreseeable future. These developments will make it more difficult for us to obtain additional equity or credit financing, when needed. We cannot be certain that funding will be available on acceptable terms, or at all. If we are unable to raise additional capital when required or on acceptable terms, we may have to (i) significantly delay, scale back or discontinue the development and/or commercialization of one or more of our product candidates, (ii) seek collaborators for our product candidates at an earlier stage than otherwise would be desirable and on terms that are less favorable than might otherwise be available and/or (iii) relinquish or otherwise dispose of rights to technologies, product candidates or products that we would otherwise seek to develop or commercialize ourselves on unfavorable terms.

CRITICAL ACCOUNTING POLICIES

        We prepare our financial statements in conformity with accounting principles generally accepted in the U.S. The preparation of financial statements in conformity with U.S. generally accepted accounting principles ("GAAP") requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities, including disclosure of contingent assets and contingent liabilities, at the date of

38

the financial statements and the reported amounts of revenue and expenses during the reporting period. Because of the uncertainty of factors surrounding the estimates or assumptions used in the preparation of the consolidated financial statements, actual results may vary from these estimates.

Share-Based Payments

        We rely heavily on incentive compensation in the form of stock options to recruit, retain and motivate directors, executive officers, employees and consultants. Incentive compensation in the form of stock options is designed to provide long-term incentives, develop and maintain an ownership stake and conserve cash during our development stage. Since inception through December 31, 2008 stock-based compensation expense has totaled $17,734,869 or 19% of our total accumulated deficit of $90,987,267.

        In December 2004, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standard ("SFAS") No. 123 (Revised 2004), Share-Based Payments ("SFAS No. 123R"). SFAS No. 123R requires a public entity to measure the cost of employee services received in exchange for the award of equity instruments based on the fair value of the award at the date of grant. The expense is to be recognized over the period during which an employee is required to provide services in exchange for the award. SFAS No. 123R is effective as of the beginning of the first interim or annual reporting period that begins after December 15, 2005 and accordingly we adopted SFAS No. 123R on January 1, 2006.

        SFAS No. 123R did not change the way we account for non-employee stock-based compensation. We continue to account for shares of common stock, stock options and warrants issued to non-employees based on the fair value of the stock, stock option or warrant, if that value is more reliably measurable than the fair value of the consideration or services received. Stock-based compensation expense associated with these most of our non-employee option grants is being recorded in accordance with EITF 96-18 and accordingly (i) the measurement date will be when "performance commitment is completed" and accordingly the fair value of these options is being "marked to market" quarterly until the measurement date is determined.

        Upon adoption of SFAS No. 123R, we selected the Black-Scholes option pricing model as the most appropriate model for determining the estimated fair value for stock-based awards. Use of a valuation model requires management to make certain assumptions with respect to selected model inputs. Expected volatility was calculated based on our historical volatility. Our stock price has fluctuated from $3.95 per share as of December 31, 2003 to $0.09 per share as of December 31, 2008. The expected term was determined based on the simplified method provided in Staff Accounting Bulletin ("SAB") No. 107, Share-Based Payment, ("SAB No. 107"). The risk-free interest rate is based on observed interest rate appropriate for the expected term of our stock options. Forfeitures are estimated, based on our historical experience, at the time of grant.

Research and Development

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

39

RESULTS OF OPERATIONS

YEARS ENDED DECEMBER 31, 2008 AND DECEMBER 31, 2007

        We had no revenues during the 12 months ended December 31, 2008 and 2007 because we do not have any commercial biopharmaceutical products and we do not expect to have such products for several years, if at all.

        Research and development expenses decreased $1,058,257 or 16%, to $5,449,721 for the 12 months ended December 31, 2008 from $6,507,978 for the 12 months ended December 31, 2007. This decrease in research and development expense was attributable to a decrease in Atiprimod and Annamycin clinical program expenses partially offset by an increase in SP-304 clinical program expenses. Expenses incurred on our Atiprimod program decreased $1,586,000 or 74% to $561,000 for the 12 months ended December 31, 2008 from $2,147,000 during the 12 months ended December 31, 2007. Clinical expenses incurred on our Annamycin program decreased $366,000 or 56% to $292,000 for the 12 months ended December 31, 2008 from $658,000 during the 12 months ended December 31, 2007. Our SP-304 program expenses incurred by our majority-owned subsidiary Synergy increased $1,730,000 or 76% to $4,018,000 for the 12 months ended December 31, 2008 from $2,288,000 during the 12 months ended December 31, 2007. Research and development expenses for non-clinical overhead, not allocated to specific programs, totaled $562,000 and $1,400,000 during the 12 months ended December 31, 2008 and 2007, respectively, a decrease of $838,000 or 60%, as we focused more of our research and development resources on established clinical programs and curtailed our non-clinical laboratory supplies and sponsored outside research. As a percent of our total research and development costs, these non-program specific non-clinical overhead expenses decreased to 10% from 22% of total research and development expenses during the 12 months ended December 31, 2008 and 2007, respectively.

        General and administrative expenses for the 12 months ended December 31, 2008 were essentially unchanged at $4,311,767 from $4,317,288 for the 12 months ended December 31, 2007. Increased accounting, consulting and advisory expenses as a result of having two public reporting entities (Callisto and Synergy) during 2008, were offset by a decrease in legal and public relations expenses.

        Net loss from operations was $9,731,488 for the 12 months ended December 31, 2008 which was $832,925 or 8% lower than the $10,564,413 reported in the comparable period of 2007. This decrease was attributable to lower research and development expenses discussed above combined with lower government grants income of $30,000 during the 12 months ended December 31, 2008 as compared to $260,853 received during the 12 months ended December 31, 2007. On April 1, 2005 we were awarded a biodefense partnership grant from the National Institute of Allergy and Infectious Diseases to develop a monoclonal antibody and vaccine against bacterial superantigen toxins over a two year period. Funding for this program was extended one year through April 2008. Because the bioterrorism program is not a core activity, we terminated in-house work on this program upon expiration of the research grant in April 2008

        We record adjustments to the minority interests in Synergy for the allocable portion (32%) of losses to which the minority interest holders are entitled. The minority interest in Synergy as of the date of acquisition, July 14, 2008, was $663,765 after reflecting the net proceeds from the private placement. 32% of Synergy's net loss subsequent to the date of acquisition through December 31, 2008 was $1,151,577, excluding Synergy's charge for purchased in process research and development eliminated in consolidation. We suspended allocation of losses to the minority interest holders when the minority interest balance was reduced to zero. Any excess Synergy loss ($487,812) above the minority interest holder's balance was not charged to minority interests as the Synergy minority interest holders have no obligation to fund such losses.

40

        Net loss available to common stockholders for the 12 months ended December 31, 2008 was $9,655,471 compared to a net loss of $20,887,428 incurred for the 12 months ended December 31, 2007. The decreased net loss is the result of (i) lower operating expenses discussed above, (ii) the beneficial conversion feature discount related to the Series A and B preferred stock accreted as a dividend of $13,000,163 in the 12 months ended December 31, 2007 and (iii) a benefit in the 12 months ended December 31, 2007 relating to a change in the fair value of the Series B warrants of $2,591,005. We had no such items (ii) and (iii) during 2008.

YEARS ENDED DECEMBER 31, 2007 AND DECEMBER 31, 2006

        We had no revenues during the 12 months ended December 31, 2007 and 2006 because we do not have any commercial biopharmaceutical products and we do not expect to have such products for several years, if at all.

        Research and development expenses increased $373,274, or 6%, to $6,507,978 for the 12 months ended December 31, 2007 from $6,134,704 for the 12 months ended December 31, 2006. This increase in research and development expense was attributable to significantly higher SP-304 and Atiprimod program expenses. Program expenses incurred with outside contract research organizations ("CROs"), include pre-clinical animal testing, drug formulation, tableting, hospital patient costs, blood testing, data collection, clinical monitoring and FDA consultants. Our SP-304 program expenses increased approximately $1,700,000, or 300%, to approximately $2,300,000 for the 12 months ended December 31, 2007 from approximately $600,000 during the 12 months ended December 31, 2006. Atiprimod program costs increased approximately $400,000, or 27%, to approximately $2,100,000 during the 12 months ended December 31, 2007 from $1,700,000 during the 12 months ended December 31, 2006. Partially offsetting these increased research expenditure were lower Annamycin program expenses of approximately $650,000 during the 12 months ended December 31, 2007, which was a 50% decrease from approximately $1,300,000 expensed during the 12 months ended December 31, 2006. During the 12 months ended December 31, 2006 we purchased and expensed a supply of Annamycin drug substance which was used in both our 2006 and 2007 clinical trials. Our Degrasyns program was also curtailed during the 12 months ended December 31, 2007, during which time we incurred only $12,593 on this pre-clinical program, as compared to $690,226 during the 12 months ended December 31, 2006.

        Research and development in-house overhead, not allocated to specific programs, totaled approximately $1,400,000 and $1,700,000, during the 12 months ended December 31, 2007 and 2006, respectively, a decrease of approximately $300,000, or 19%. As a percent of our total costs these non program specific overhead research and development expenses represented 22% and 29% of total R&D during the 12 months ended December 31, 2007 and 2006, respectively. This decrease was attributable to lower stock-based compensation expense which totaled $86,048 and $523,434 during the 12 months ended December 31, 2007 and 2006, respectively. This decrease of approximately $440,000 or 84% was primarily attributable to warrants we issued to certain scientific advisors (including Dr. Moshe Talpaz) and fully expensed during the 12 months ended December 31, 2006. Partially offsetting this decrease were approximately $200,000 in higher scientific advisory fees and consulting services incurred primarily to replace our Executive Vice President of R&D, Donald Picker, who resigned December 15, 2006.

        On April 1, 2006 we received an $885,641 biodefense partnership grant from the NIAID to develop a monoclonal antibody and vaccine against bacterial superantigen toxins over the next two years. Government grant funding for the 12 months ended December 31, 2007 and 2006 was $260,853 and $352,649, respectively. This grant terminated April 1, 2008 and we had approximately $34,000 remaining unused as of December 31, 2007.

        General and administrative expenses for the 12 months ended December 31, 2007 decreased $2,066,828, or 32%, to $4,317,288 during the 12 months ended December 31, 2007 from $6,384,116 for

41

the 12 months ended December 31, 2006. This was primarily due to lower stock-based compensation expense recorded during the 12 months ended December 31, 2007 which totaled $542,312 as compared to $2,223,044 recorded during the 12 months ended December 31, 2006. This decrease of approximately $1,700,000 or 76% was primarily attributable to warrants we issued to certain investor relations consultants and fully expensed during the 12 months ended December 31, 2006. Also contributing to reduced general and administrative expenses was a decrease of approximately $400,000 in investor relations costs during the 12 months ended December 31, 2007.

        Net loss for the 12 months ended December 31, 2007 was $7,887,265 compared to a net loss of $12,919,229 incurred for the 12 months ended December 31, 2006. The decreased net loss is the result of lower general and administrative expenses, partially offset by higher research and development expenses, both of which are discussed above. In addition, (i) other expense for the 12 months ended December 31, 2006 was $801,690 due to liquidated damages incurred for failure to register shares of our common stock sold in a private placement in February and April 2006. There were no such expense during the 12 months ended December 31, 2007, and (ii) we recorded a $2,591,005 gain on the change in the fair value of the warrants issued to our Lead Investors in the Series B Preferred Stock private placement, from the date of issue through September 30, 2007, the expiration date of the Put Option. The Put Option permitted warrant holders to redeem the warrants if certain triggering events occurred prior to the Put Option expiration date. Accordingly, the warrants were classified as liabilities and marked to market each period, with changes in fair value recorded in earnings through the Put Option expiration date. Upon expiration of the Put options, the warrants were reclassified to equity.

        During the 12 months ended December 31, 2007 we accreted a beneficial conversion dividend to the Series B Preferred stockholders of $10,495,688 and we also accreted a beneficial conversion dividend to the Series A preferred stockholders of $2,504,475, resulting in a net loss available to common stockholders of $20,887,428. During the 12 months ended December 31, 2006 we accreted a beneficial conversion dividend to the Series A preferred stockholders of $2,384,485 resulting in a net loss available to common stockholders of $15,303,714.

LIQUIDITY AND CAPITAL RESOURCES

        As of December 31, 2008 we had $301,323 in cash and cash equivalents, compared to $3,269,341 as of December 31, 2007. Net cash used in operating activities was $8,902,376 and $8,448,543 for the 12 months ended December 31, 2008 and 2007 respectively. As of December 31, 2007, we also had $2,967,690 invested in U.S. Treasury bills classified as short-term investments on our balance sheet. These investments were liquidated into cash during the 12 months ended December 31, 2008. As of December 31, 2008 we had a working capital deficit of $4,260,826.

        On December 30, 2008, we entered into a securities purchase and exchange agreement ("Purchase Agreement") with several investors, each of whom were holders of record as of November 4, 2008 of outstanding warrants to purchase shares of our common stock, exercisable at $0.50 or $0.70 per share until August 2, 2010 ("Series B Warrants"). The Series B Warrants were issued in connection with the private placement of the Company's Series B Preferred Shares on August 2, 2007. Pursuant to the Purchase Agreements we issued $201,905 of an authorized $500,000 11% Secured Notes due April 15, 2010 ("11% Notes") with no discount. Interest on the 11% Notes is due on maturity, whether on April 15, 2010 or by acceleration and payment of the 11% Notes is secured by a pledge of up to 1,900,000 shares (if all $500,000 principal amount of the 11% Notes is sold) of the common stock of Synergy Pharmaceuticals, Inc. owned by us. (See note 5 to our consolidated financial statements)

        Pursuant to the Purchase Agreement, Callisto issued, to the December 30, 2008 purchasers of the 11% Notes, 23,219,104 common stock purchase warrants ("New Warrants") in exchange for the surrender and cancellation of 11,298,134 outstanding Series B Warrants. The New Warrants have an

42

exercise price, subject to certain anti-dilution adjustments, of $0.02 per share and are exercisable at any time on or prior to December 31, 2016.

        On February 3, 2009 we issued an additional $53,161 of the authorized $500,000 11% Secured Notes bringing the aggregate proceeds from issuance of 11% Notes since inception to $255,066. On February 13, 2009 Synergy sold 285,714 shares of unregistered common stock at $0.70 per share to a private investor for aggregate proceeds of $200,000. On April 2, 2009 Synergy sold 100,000 shares of unregistered common stock at $0.70 per share to a private investor for aggregate proceeds of $70,000. On April 13, 2009 Synergy sold 180,000 shares of unregistered common stock at $0.70 per share to a private investor for aggregate proceeds of $126,000. On April 15, 2009 Synergy sold 1,045,714 shares of unregistered common stock at $0.70 per share to a private investor for aggregate proceeds of $732,000. As of April 15, 2009 the Company had approximately $600,000 cash on hand which, at its current reduced cash expenditure rate of approximately $100,000 per month, allow it to continue its efforts to raise additional financing for approximately six months.

        Worldwide economic conditions and the international equity and credit markets have significantly deteriorated and may remain depressed for the foreseeable future. These developments will make it more difficult for us to obtain additional equity or credit financing, when needed. We have accordingly taken steps to conserve our cash which include extending payment terms to our vendors and suppliers as well as management and staff salary cuts and deferrals. These actions may not be sufficient to allow the Company time to raise additional capital.

        Our working capital requirements will depend upon numerous factors including but not limited to the nature, cost and timing of pharmaceutical research and development programs. We will be required to raise additional capital within the next twelve months to complete the development and commercialization of current product candidates, to fund the existing working capital deficit and to continue to fund operations at our current cash expenditure levels. To date, our sources of cash have been primarily limited to the sale of equity securities. We cannot be certain that additional funding will be available on acceptable terms, or at all. To the extent that we raise additional funds by issuing equity securities, our stockholders may experience significant dilution. Any debt financing, if available, may involve restrictive covenants that impact our ability to conduct business. If we are unable to raise additional capital when required or on acceptable terms, we may have to (i) significantly delay, scale back or discontinue the development and/or commercialization of one or more of product candidates; (ii) seek collaborators for product candidates at an earlier stage than otherwise would be desirable and on terms that are less favorable than might otherwise be available; or (iii) relinquish license or otherwise dispose of rights to technologies, product candidates or products that we would otherwise seek to develop or commercialize ourselves on unfavorable terms.

        On July 14, 2008, we entered into an Exchange Agreement dated July 11, 2008 ("Exchange Agreement"), as amended and effective on July 14, 2008, with Pawfect Foods, Inc. ("Pawfect"), Synergy Pharmaceuticals, Inc. ("Synergy-DE"), our majority-owned subsidiary, and other holders of Synergy-DE common stock. According to the terms of the Exchange Agreement, Pawfect acquired 100% of the common stock of Synergy-DE, from us and the other holders of Synergy-DE, in exchange for 45,464,760 shares of Pawfect's common stock representing approximately 70% of Pawfect's outstanding common stock (the "Exchange Transaction"). We received 44,590,000 of the 45,464,760 shares of Pawfect's common stock exchanged for its ownership of Synergy-DE, and we are now the holder of 68% of Pawfect's outstanding common stock. The remaining 874,760 shares of Pawfect common stock exchanged for ownership of Synergy-DE were issued to certain executive officers of Synergy-DE who received their shares pursuant to a Repurchase Agreement with Synergy-DE dated July 3, 2008 and assumed by Pawfect. The fair value of each of the 874,760 shares was estimated on the grant date to be $0.60, which was based on the price paid by shareholders participating in Synergy's July 14, 2008 private placement. Stock based compensation expense of $524,856 related to these shares is being amortized over the vesting period of 2 years. In connection with the Exchange Transaction Pawfect

43

received $3,025,000 less transaction costs of $73,087, yielding net proceeds of $2,951,913 from two private placements, which we have recorded as an increase in additional paid-in capital.

        Our consolidated financial statements as of December 31, 2008 and December 31, 2007 have been prepared under the assumption that we will continue as a going concern for the twelve months ending December 31, 2008. Our independent registered public accounting firm has issued a report dated April 15, 2009 that included an explanatory paragraph referring to our recurring losses from operations and net capital deficiency and expressing substantial doubt in our ability to continue as a going concern without additional capital becoming available. Our ability to continue as a going concern is dependent upon our ability to obtain additional equity or debt financing, attain further operating efficiencies and, ultimately, to generate revenue. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

CONTRACTUAL OBLIGATIONS AND COMMITMENTS

        The following is a summary of our significant contractual cash obligations for the periods indicated that existed as of December 31, 2008, and is based on information appearing in the Notes to Consolidated Financial Statements.

	Total		Less than 1 Year		1-2 Years		3-5 Years		More than 5 Years
Long term debt obligations	$	201,908	$	—	$	201,908	$	—	$	—
Operating leases		448,309		184,046		264,263		—		—
Purchase obligations—principally consulting services		2,877,500		932,500		1,865,000		80,000		—
Lease royalty payments		120,000		40,000		40,000		40,000		—	(1)
Total obligations	$	3,647,617	$	1,156,546	$	2,371,171	$	120,000	$	—

(1)

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

OFF-BALANCE SHEET ARRANGEMENTS

        We had no off-balance sheet arrangements as of December 31, 2008.

RECENT ACCOUNTING PRONOUNCEMENTS

        In October 2008, the FASB issued FASB Staff Position ("FSP") No. 157-3, Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active ("FSP No. 157-3"). This FSP applies to financial assets within the scope of accounting pronouncements that require or permit fair value measurements in accordance with SFAS No. 157. This FSP clarifies the application of SFAS No. 157 in determining the fair values of assets or liabilities in a market that is not active. This FSP is effective upon issuance, including prior periods for which financial statements have not been issued. The adoption of this FSP did not have a material impact on our consolidated financial statements.

        In June 2008, the FASB ratified the consensus reached on Emerging Issues Task Force ("EITF") Issue No. 07-05, Determining Whether an Instrument (or Embedded Feature) Is Indexed to an Entity's Own Stock ("EITF No. 07-05"). EITF No. 07-05 clarifies the determination of whether an instrument (or an embedded feature) is indexed to an entity's own stock, which would qualify as a scope exception under SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. EITF No. 07-05 is effective for financial statements issued for fiscal years beginning after December 15, 2008. Early

44

adoption for an existing instrument is not permitted. We are currently evaluating the impact of the pending adoption of EITF No. 07-05 on our consolidated financial statements.

        In March 2008, the FASB issued Statement of Financial Accounting Standards ("SFAS") No. 161, Disclosures about Derivative Instruments and Hedging Activities—an amendment of FASB Statement No. 133 ("SFAS No. 161"). SFAS No. 161 changes the disclosure requirements for derivative instruments and hedging activities. Entities are required to provide enhanced disclosures about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under Statement 133 and its related interpretations, and (c) how derivative instruments and related hedged items affect an entity's financial position, financial performance, and cash flows. The guidance in SFAS No. 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. This Statement encourages, but does not require, comparative disclosures for earlier periods at initial adoption. We are currently assessing the impact of SFAS No. 161 on our consolidated financial statements.

        In February 2008, the FASB issued FSP No. FAS No. 157-2, Partial Deferral of the Effective Date of Statement 157 ("FSP No. 157-2"). FSP No. 157-2 delays the effective date of SFAS No. 157, Fair Value Measurements ("SFAS No. 157") for all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually) to fiscal years beginning after November 15, 2008. We are currently evaluating the impact of SFAS No. 157 on nonfinancial assets and nonfinancial liabilities, but do not expect the adoption to have a material impact on our consolidated financial position, results of operations or cash flows.

        In December 2007, the FASB ratified EITF Issue No. 07-1, Accounting for Collaborative Arrangements Related to the Development and Commercialization of Intellectual Property ("EITF No. 07-1"), which provides guidance on how the parties to a collaborative agreement should account for costs incurred and revenue generated on sales to third parties, how sharing payments pursuant to a collaboration agreement should be presented in the income statement and certain related disclosure requirements.. EITF No. 07-1 is effective for fiscal years beginning after December 15, 2008. We are continuing to evaluate the impact of adopting the provisions EITF No. 07-1; however, we do not anticipate that the adoption will have a material effect on our consolidated financial position, results of operations or cash flows.

        In December 2007, the FASB issued SFAS No. 141(R), a revised version of SFAS No. 141, Business Combinations. The revision is intended to simplify existing guidance and converge rulemaking under U.S. GAAP with international accounting rules. This statement applies prospectively to business combinations where the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008, and may affect the release of our valuation allowance against prior acquisition intangibles. An entity may not apply it before that date. We are continuing to evaluate the impact of adopting the provisions SFAS No.141(R); however, we do not expect that the adoption of this Statement will have a material effect on our consolidated financial position, results of operations or cash flows.

        In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements—an amendment of ARB No. 51 ("SFAS No. 160"). SFAS No. 160 requires all entities to report noncontrolling (minority) interests in subsidiaries as equity in the consolidated financial statements. Its intention is to eliminate the diversity in practice regarding the accounting for transactions between an entity and noncontrolling interests. This Statement is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. Earlier adoption is prohibited. We are continuing to evaluate the impact of adopting the provisions SFAS No.160 on our consolidated financial position, results of operations or cash flows.

45

        In June 2007, the EITF of the FASB reached a consensus on Issue No. 07-3, Accounting for Nonrefundable Advance Payments for Goods or Services Received for Use in Future Research and Development Activities ("EITF No. 07-3"). EITF No. 07-3 requires that non-refundable advance payments for goods or services that will be used or rendered for future research and development activities should be deferred and capitalized. As the related goods are delivered or the services are performed, or when the goods or services are no longer expected to be provided, the deferred amounts would be recognized as an expense. We adopted EITF No. 07-3 on January 1, 2008 and the adoption did not have a material effect on our consolidated financial position, results of operations or cash flows.

        In February 2007, the FASB issued Statement of Financial Accounting Standards No.159, The Fair Value Option for Financial Assets and Financial Liabilities, including an Amendment to SFAS 115 ("SFAS No. 159"). The fair value option established by SFAS No. 159 permits all entities to measure all eligible items at fair value at specified election dates. A business entity shall report all unrealized gains and losses on items for which the fair value option has been elected, in earnings at each subsequent reporting date. The provisions of SFAS No. 159 are effective for fiscal years beginning after November 15, 2007. We adopted SFAS No. 159 on January 1, 2008 and the adoption did not have a material effect on our consolidated financial position, results of operations or cash flows as we did not elect this fair value option on any financial assets or liabilities.

        In September 2006, the FASB issued SFAS No.157. SFAS No. 157 defines fair value, establishes a framework for measuring fair value in accordance with GAAP and expands disclosures about fair value measurements. SFAS No. 157 does not require any new fair value measurements. SFAS No. 157 emphasizes a "market-based" as opposed to an "entity-specific" measurement perspective, establishes a hierarchy of fair value measurement methods and expands disclosure requirements about fair value measurements including methods and assumptions and the impact on earnings. This Statement is effective for fiscal years beginning after November 15, 2007. The Company adopted SFAS No. 157 with respect to its financial assets and financial liabilities on January 1, 2008 and such adoption did not did not have a material effect on its consolidated financial position, results of operations or cash flows.

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

        At December 31, 2008 and 2007, a substantial portion of our cash and cash equivalents consists of short term, highly liquid investments in money market funds managed by money center banks (JPMorganChase, HSBC and TD Bank). Original maturities of temporary investments are all less than three months as of December 31, 2007.

ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

        The full text of our audited consolidated financial statements as of December 31, 2008 and 2007 and for the fiscal years ended December 31, 2008, 2007 and 2006 and for the period from June 5, 1996 (inception) to December 31, 2008, begins on page F-1 of this Annual Report on Form 10-K.

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

        None.

46

ITEM 9A(T).    CONTROLS AND PROCEDURES.

        Evaluation of disclosure controls and procedures.    Based on an evaluation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended) required by paragraph (b) of Rule 13a-15 or Rule 15d-15, as of December 31, 2008, our Chief Executive Officer and Principal Financial Officer have concluded that, due to the material weaknesses in our internal control over financial reporting noted below, our disclosure controls and procedures were not effective.

        Management's annual report on internal control over financial reporting.    We are responsible for establishing and maintaining adequate internal control over our financial reporting. As defined by the Securities and Exchange Commission, internal control over financial reporting is a process designed by, or under the supervision of our principal executive and principal financial officers and effected by our Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the financial statements in accordance with accounting principles generally accepted in the United States of America. Our internal control over financial reporting includes those policies and procedures that:

(1)

pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect our transactions and dispositions of our assets;



(2)

provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and board of directors; and



(3)

provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on the financial statements.

        Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

        In connection with the preparation of our annual financial statements, we have assessed the effectiveness of internal control over financial reporting as of December 31, 2008, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission, or the COSO Framework. Management's assessment included an evaluation of the design of our internal control over financial reporting and testing of the operational effectiveness of those controls. Based on this evaluation, management has determined that as of December 31, 2008, there were material weaknesses in our internal control over financial reporting. The material weaknesses identified during management's assessment were (i) a lack of sufficient internal accounting expertise to provide reasonable assurance that our financial statements and notes thereto, are prepared in accordance with generally accepted accounting principles (GAAP) and (ii) a lack of segregation of duties to ensure adequate review of financial statement preparation. In light of these material weaknesses, management has concluded that, as of December 31, 2008, we did not maintain effective internal control over financial reporting. As defined by Regulation S-X 1-02(a)(4), a material weakness is a deficiency or a combination of deficiencies, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis. In order to ensure the effectiveness of our disclosure controls in the future we plan to add financial staff resources to our accounting and finance department.

47

        This report does not include an attestation report of our registered public accounting firm regarding our internal controls over financial reporting. The disclosure contained under this Item 9A(T) was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the SEC that permit us to provide only the disclosure under this Item 9A(T) in this annual report.

        Changes in internal control over financial reporting.    There were no changes in our internal controls over financial reporting during the fourth quarter of the year ended December 31, 2008 that have materially affected or are reasonably likely to materially affect our internal controls over financial reporting.

ITEM 9B.    OTHER INFORMATION.

        None.

48

PART III

ITEM 10.    DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.

        The following table sets forth certain information regarding the directors and executive officers of Callisto Pharmaceuticals, Inc. as of April 15, 2009:

Name	Age	Position
Gabriele M Cerrone	37	Chairman of the Board
Gary S. Jacob	62	Chief Executive Officer, Chief Scientific Officer and Director
Bernard F. Denoyer	61	Senior Vice President, Finance and Secretary
John P. Brancaccio	61	Director
Christoph Bruening	41	Director
Riccardo Dalla-Favera	56	Director
Randall Johnson	62	Director

        Gabriele M. Cerrone has served as our Chairman of the Board of Directors since May 2003 and as a consultant since January 2005. From March 1999 to January 2005 Mr. Cerrone served as a Senior Vice President of Investments of Oppenheimer & Co. Inc., a financial services firm. Prior to such affiliation, Mr. Cerrone held the position of Managing Director of Investments at Barrington Capital, L.P., a merchant bank, between March 1998 and March 1999. Between May 2001 and May 2003, Mr. Cerrone served on the board of directors of SIGA Technologies, Inc. Mr. Cerrone currently serves as Chairman of the Board and a consultant to Synergy and a director of Inhibitex, Inc., a biotechnology company. Mr. Cerrone is the managing partner of Panetta Partners Ltd., a Colorado limited partnership, that is a private investor in real estate and public and private companies engaged in biotechnology and other areas.

        Gary S. Jacob, Ph.D. has served as our Chief Executive Officer as well as Chief Scientific Officer since May 2003 and a Director since October 2004. Dr. Jacob has also served as President, Acting Chief Executive Officer and a Director of Synergy Pharmaceuticals, Inc. since July 2008, Chairman of Synergy-DE from October 2003 until July 2008 and Chief Scientific Officer of Synergy DE from 1999 to 2003. Dr. Jacob has over twenty-five years of experience in the pharmaceutical and biotechnology industries across multiple disciplines including research & development, operations and business development. Prior to 1999, Dr. Jacob served as a Monsanto Science Fellow, specializing in the field of glycobiology, and from 1997 to 1998 was Director of Functional Genomics, Corporate Science & Technology, at Monsanto Company. Dr. Jacob also served from 1990 to 1997 as Director of Glycobiology at G.D. Searle Pharmaceuticals Inc. During the period of 1986 to 1990, he was Manager of the G.D. Searle Glycobiology Group at Oxford University, England.

        Bernard F. Denoyer, CPA has served as our Senior Vice President, Finance since December 2007 and from January 2004 to November 2007 served as our Vice President, Finance and Secretary. Since July 2008 Mr. Denoyer has also served as Senior Vice President,, Finance and Secretary of Synergy. From October 2000 to December 2003, Mr. Denoyer was an independent consultant providing interim CFO and other services to emerging technology companies, including Callisto and certain portfolio companies of Marsh & McLennan Capital, LLC. From October 1994 until September 2000, Mr. Denoyer served as Chief Financial Officer and Senior Vice President at META Group, Inc., a public information technology research company, where he was instrumental in their 1995 IPO. From 1990 to 1993 he served as Vice President Finance of Environetics, Inc., a pharmaceutical water diagnostic business until acquired by IDEXX Laboratories, Inc..

        John P. Brancaccio, a retired CPA, has served as a Director of our company since April 2004. Since April 2004, Mr. Brancaccio has been the Chief Financial Officer of Accelerated Technologies, Inc., an incubator for medical device companies. From May 2002 until March 2004,

49

Mr. Brancaccio was the Chief Financial Officer of Memory Pharmaceuticals Corp., a biotechnology company. From 2000 to 2002, Mr. Brancaccio was the Chief Financial Officer/Chief Operating Officer of Eline Group, an entertainment and media company. Mr. Brancaccio is currently a director of Alfacell Corporation, Synergy as well as a director of Xenomics, Inc.

        Christoph Bruening has served as a Director of our company since May 2003. Mr. Bruening organized Value Relations GmbH, a full service investor relations firm operating in Frankfurt, Germany in 1999 and currently serves as its Managing Partner. From 1998 to 1999, Mr. Bruening served as a funds manager and Director of Asset Management for Value Management and Research AG, a private investment fund and funds manager in Germany. From 1997 to 1998, Mr. Bruening was a financial analyst and Head of Research for Value Research GmbH. Mr. Bruening is currently a member of the advisory board of Clarity AG.

        Riccardo Dalla-Favera, M.D has served as a Director of our company since June 2005. Dr. Dalla-Favera has been Director of the Herbert Irving Comprehensive Cancer Center at Columbia University since early 2005, Director for the Institute for Cancer Genetics at Columbia University since 1999 and Professor in the Department of Genetics & Development at Columbia University since 1992. Dr. Dalla-Favera was formerly Deputy Director of Columbia-Presbyterian Cancer Center from 1992 to 1998.

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

COMPENSATION OF DIRECTORS

        Under the 2005 Directors' Stock Option Plan, upon election to the Board, each non-employee and non-consultant director receives a grant of 45,000 stock options vesting over three years and having an exercise price equal to the fair market value of the common stock on the date of grant. Upon re-election to the Board, each of our non-employee and non-consultant directors receive an annual grant of 6,000 options vesting over three years having an exercise price equal to the fair market value of the common stock on the date of grant. In addition, non-employee and non-consultant directors will receive an annual grant of options with an exercise price equal to the fair market value of the common stock on the date of grant for serving on Board committees which will vest in one year. Chairpersons of each of the Audit Committee, Compensation Committee and Corporate Governance/Nominating Committee receive 5,000, 3,500 and 2,000 stock options, respectively, and members of such committees receive 3,000, 2,000 and 1,000 stock options, respectively.

        Non-employee and non-consultant directors also receive an annual cash fee of $15,000 as well as cash compensation for serving on board committees. Chairpersons of each of the Audit Committee, Compensation Committee and Corporate Governance/Nominating Committee receive $10,000, $7,000 and $4,000, respectively, and members of such committees receive $6,000, $4,000 and $2,500, respectively.

AUDIT COMMITTEE

        The Audit Committee's responsibilities include: (i) reviewing the independence, qualifications, services, fees, and performance of the independent registered public accountants, (ii) appointing, replacing and discharging the independent auditors, (iii) pre-approving the professional services provided by the independent auditors, (iv) reviewing the scope of the annual audit and reports and recommendations submitted by the independent auditors, and (v) reviewing our financial reporting and accounting policies, including any significant changes, with management and the independent auditors.

50

The Audit Committee also prepares the Audit Committee report that is required pursuant to the rules of the Securities Exchange Committee ("SEC").

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

COMPENSATION COMMITTEE

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

        The Compensation Committee currently consists of Randall Johnson, chairman of the Compensation Committee and John Brancaccio. The Board of Directors has determined that all of the members are "independent" under the current listing standards of NASDAQ. The Board of Directors has adopted a written charter setting forth the authority and responsibilities of the Compensation Committee. A copy of this charter is available at our web site www.callistopharma.com.

Compensation Committee Interlocks and Insider Participation

        None of the members of our compensation committee is an officer or employee of our company. None of our executive officers currently serves, or in the past year has served, as a member of the board of directors or compensation committee of any entity that has one or more executive officers serving on our board of directors or compensation committee, except for Gabriele M. Cerrone and Gary S. Jacob.

CORPORATE GOVERNANCE/NOMINATING COMMITTEE

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

        The Corporate Governance/Nominating Committee currently consists of Christoph Bruening, chairman of the Corporate Governance/Nominating Committee, and John Brancaccio. The Board of Directors has determined that all of the members are "independent" under the current listing standards of NASDAQ. The Board of Directors has adopted a written charter setting forth the authority and responsibilities of the Corporate Governance/Nominating Committee. A copy of this charter is available at our web site www.callistopharma.com.

51

CLINICAL AND SCIENTIFIC ADVISORY BOARD

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

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

        Douglas A. Drossman, M.D. is Professor of Medicine and Psychiatry, University of North Carolina School of Medicine, Division of Gastroenterology & Heptalogy, and Co-Director of the Center for Functional GI & Motility Disorders. He has had a long-standing interest in the research and evaluation of difficult to diagnose and treat GI disorders. Dr. Drossman has published more that 400 books, articles and abstracts relating to epidemiology, psychosocial and quality of life assessment, design of treatment trials, and outcomes of research in GI disorders. He serves on six editorial boards in medicine, gastroenterology and psychosomatic medicine, and is currently editor of Digestive Health Matters. Dr. Drossman is a Fellow of the American College of Physicians and a Master of the American College of Gastroenterology. He is President of the Rome Foundation and Scientific Director and member of the Board of the International Foundation for Functional GI Disorders.

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

COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT

        Section 16(a) of the Securities Exchange Act of 1934 requires our officers and directors, and persons who own more than ten percent of a registered class of our equity securities, to file reports of ownership and changes in ownership with the Securities and Exchange Commission and American

52

Stock Exchange. Officers, directors and greater than ten percent stockholders are required by SEC regulation to furnish us with copies of all Section 16(a) forms they file.

        Based on a review of the copies of such forms received, we believe that during 2008, all filing requirements applicable to our officers, directors and greater than ten percent beneficial owners were complied with.

CODE OF BUSINESS CONDUCT AND ETHICS

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

53

ITEM 11.    EXECUTIVE COMPENSATION.

SUMMARY COMPENSATION TABLE

        The following table provides certain summary information concerning compensation awarded to, earned by or paid to our Chief Executive Officer, Principal Financial Officer and two other highest paid executive officers whose total annual salary and bonus exceeded $100,000 (collectively, the "named executive officers") for fiscal year 2008.

Name & Principal Position		Year		Salary		Bonus		Option Awards(1)		Total
Gabriele M Cerrone(2)			2008	$	296,917	$	61,875	$	83,358	$	442,150
	Chairman of the Board		2007		252,083		84,147		130,793		467,023
			2006		213,542		125,855		—		339,397
Gary S. Jacob			2008		300,000		11,250		211,961		523,211
	Chief Executive Officer and		2007		300,000		78,750		109,323		488,073
	Chief Scientific Officer		2006		287,500		48,125		82,147		417,772
Bernard F. Denoyer			2008		174,832		26,500		28,398		229,730
	Senior Vice President, Finance		2007		123,500		12,000		29,862		165,362
	and Principal Financial Officer		2006		111,576		10,461		—		122,037

(1)

Amounts represent Callisto and Synergy combined stock-based compensation expense for fiscal year 2008, 2007 and 2006 for stock options vesting in 2008, 2007 and 2006 in accordance with fair value measurement guidelines of SFAS 123R and discussed in Note 6 Accounting for Share-Based Payments of the Notes to our Consolidated Financial Statements included elsewhere in this report.

(2)

Mr. Cerrone is being paid pursuant to a consulting agreement with us.

54

OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END

        The following table sets forth information for the named executive officers regarding the number of shares subject to both exercisable and unexercisable Callisto stock options, as well as the exercise prices and expiration dates thereof, as of December 31, 2008.

Name	Number of Securities Underlying Unexercised Options Exercisable		Number of Securities Underlying Unexercised Options Unexercisable			Option Exercise Price		Option Expiration Date
Gary S. Jacob		500,000		—		$	1.50		June 13, 2013
		112,500		162,500	(1)		3.00		June 29, 2014
		200,000		—			1.01		July 6, 2015
		50,000		50,000	(2)		1.64		March 17, 2016
		75,000		75,000	(3)		0.81		February 16, 2017
Bernard F. Denoyer		100,000		—			3.60		January 15, 2014
		50,000		—			1.38		July 29, 2015
		75,000		50,000	(4)		0.66		April 12, 2017
Gabriele M Cerrone		27,778		—			0.75		October 1, 2009
		200,000		—			1.25		January 18, 2011
		333,055		—			1.30		April 22, 2013
		75,000		—			1.50		June 13, 2013
		100,000		—			3.20		April 26, 2014
		375,000		—			1.70		January 10, 2015
		225,000		75,000	(7)		0.96		January 25, 2017

(1)

The remaining 162,500 options vest upon certain drug development or licensing benchmarks.

(2)

The remaining 50,000 options vest on March 17, 2009.

(3)

The remaining 75,000 options vest on December 31, 2009.

(4)

25,000 options vest on each of April 12, 2009 and 2010.

(7)

The remaining 75,000 options vest on December 31, 2009.

DIRECTOR COMPENSATION

        The following table sets forth summary information concerning the total compensation paid to our non-employee directors in 2008 for services to our company.

Name	Fees Earned		Option Awards(1)		Total
John P. Brancaccio(2)	$	31,500	$	3,875	$	35,375
Randall Johnson(3)	$	28,000	$	5,155	$	31,155
Riccardo Dalla-Favera(4)	$	15,000	$	9,097	$	24,097
Christoph Bruening(5)	$	11,750	$	3,467	$	15,217
Stephen K. Carter(6)	$	11,500	$	2,721	$	14,221

(1)

Amounts represent Callisto and Synergy combined stock-based compensation expense for fiscal year 2008for stock options vesting in 2008 in accordance with fair value measurement guidelines of SFAS 123R and discussed in Note 6 Accounting for Share-Based Payments of the Notes to our Consolidated Financial Statements included elsewhere in this report.

55

(2)

Stock options for the purchase of an aggregate of 148,123 shares were outstanding as of December 31, 2008, with a grant date fair value of $229,095.

(3)

Stock options for the purchase of an aggregate of 128,000 shares were outstanding as of December 31, 2008, with a grant date fair value of $113,535.

(4)

Stock options for the purchase of an aggregate of 101,000 shares were outstanding as of December 31, 2008, with a grant date fair value of $65,989.

(5)

Stock options for the purchase of an aggregate of 148,000 shares were outstanding as of December 31, 2008, with a grant date fair value of $437,792.

(6)

Stock options for the purchase of an aggregate of 84,861 shares were outstanding as of December 31, 2008, with a grant date fair value of $108,674. Dr. Carter resigned effective 7/1/08.

EMPLOYMENT AGREEMENTS AND CHANGE IN CONTROL AGREEMENTS

        On March 11, 2009, Dr. Gary Jacob entered into an amended and restated employment agreement with us in which he agreed to serve as Chief Executive Officer. The term of the agreement was effective as of August 1, 2008 and continues until December 31, 2011 and is automatically renewed for successive one year periods at the end of each term. Dr. Jacob's salary is $300,000 per year of which 25% is to be allocated to Callisto and 75% is to be allocated to our majority owned subsidiary, Synergy, where Dr. Jacob serves as President and Acting Chief Executive Officer. Dr. Jacob is eligible to receive a cash bonus of up to 50% of his base salary per year based on meeting certain performance objectives and bonus criteria. Dr. Jacob is also eligible to receive a realization bonus in the event that we enter into an out-license agreement for our technology or engage in a merger or sale of substantially all our assets where the enterprise value equals or exceeds a minimum of $150 million, $200 million and $250 million in the first, second or third years of the term of the agreement or any years beyond the third term of the agreement, respectively, or the license fees we contract to receive equals or exceeds $50 million. The realization bonus will be equal to the enterprise value in the case of a merger or sale or the sum of the license fees actually received multiplied by 0.5%.

        If the employment agreement is terminated by us other than for cause or as a result of Dr. Jacob's death or permanent disability or if Dr. Jacob terminates his employment for good reason which includes a change of control, Dr. Jacob shall receive (i) a severance payment equal to the higher of the aggregate amount of his base salary for the then remaining term of the agreement or twelve times the average monthly base salary paid or accrued during the three full calendar months preceding the termination, (ii) expense compensation in an amount equal to twelve times the sum of his average base salary during the three full months preceding the termination, (iii) immediate vesting of all unvested stock options and the extension of the exercise period of such options to the later of the longest period permitted by our stock option plans or ten years following the termination date, (iv) payment in respect of compensation earned but not yet paid and (v) payment of the cost of medical insurance for a period of twelve months following termination.

        Had a "Change of Control" occurred on December 31, 2008 and the executive had been terminated on that date, Dr. Jacob would have been eligible for total compensation (salary and bonus) for the term of his employment under his employment agreement for the time remaining of such employment term, of $1,350,000.

        As of December 31, 2008, the unrecognized fair value of all Dr. Jacob's unvested options was $468,255.

        We are party to an employment agreement with Bernard Denoyer, dated January 15, 2004, as amended September 1, 2006, to serve as our Vice President, Finance. On December 10, 2007 we entered into an amended and restated employment agreement with Bernard Denoyer pursuant to

56

which Mr. Denoyer serves as our Senior Vice President, Finance and Secretary. Mr. Denoyer's amended and restated employment agreement is for a term of 12 months beginning December 1, 2007 and is automatically renewable for successive one year periods at the end of the term. Mr. Denoyer's base salary was $162,000 per year and he may earn a performance bonus of 15% of his base salary per year at the discretion of the Compensation Committee of the Board of Directors. Effective July 14, 2008, upon Synergy becoming a publicly traded company, Mr. Denoyer's base salary was increased to $190,000 per annum and we have since that time apportioned his compensation 50% to Synergy where Mr. Denoyer also serves as Senior Vice President, Finance.

CONSULTING AGREEMENTS

        On March 11, 2009, Gabriele M. Cerrone, our Chairman of the Board, entered into an amended and restated consulting agreement with us. The term of the agreement was effective as of August 1, 2008 and continues until December 31, 2011 and is automatically renewed for successive one year periods at the end of each term. Pursuant to the agreement, Mr. Cerrone's compensation is $295,000 per year of which 25% is to be allocated to Callisto and 75% is to be allocated to our majority owned subsidiary, Synergy, where Mr. Cerrone also serves as a consultant. Mr. Cerrone is eligible to receive a cash bonus of up to 50% of his base compensation per year based on meeting certain performance objectives and bonus criteria. Mr. Cerrone is also eligible to receive a realization bonus in the event that we enter into an out-license agreement for our technology or engage in a merger or sale of substantially all our assets where the enterprise value equals or exceeds a minimum of $150 million, $200 million and $250 million in the first, second or third years of the term of the agreement or any years beyond the third term of the agreement, respectively, and in the case of a financing transaction, we receive not less than $20 million of gross proceeds; or the license fees we contract to receive equals or exceeds $50 million. The realization bonus will be equal to the enterprise value in the case of a merger, sale or financing or the sum of the license fees actually received multiplied by 0.5%.

        If the consulting agreement is terminated by us other than for cause or as a result of Mr. Cerrone's death or permanent disability or if Mr. Cerrone terminates the agreement for good reason which includes a change of control, Mr. Cerrone shall receive (i) a severance payment equal to the higher of the aggregate amount of his base compensation for the then remaining term of the agreement or twelve times the average monthly base compensation paid or accrued during the three full calendar months preceding the termination, (ii) expense compensation in an amount equal to twelve times the sum of his average base compensation during the three full months preceding the termination, (iii) immediate vesting of all unvested stock options and the extension of the exercise period of such options to the later of the longest period permitted by our stock option plans or ten years following the termination date, (iv) payment in respect of compensation earned but not yet paid and (v) payment of the cost of medical insurance for a period of twelve months following termination. Had Mr. Cerrone been terminated without cause or good reason on December 31, 2008, he would have been eligible for total compensation of $1,327,500 for the time remaining under the amended and restated consulting agreement.

        As of December 31, 2008, the unrecognized fair value of all Mr. Cerrone's unvested options was $422,788.

        On December 18, 2007 we entered into a consulting agreement with Dr. Douglas A. Drossman to become a member of our Clinical and Scientific Advisory Board and to provide consulting services related to our SP-304 clinical development program. Under the agreement Dr. Drossman is paid $4,000 per day or $400 per hour, whichever is less for the consulting period, and reimbursed for expenses. The term of the agreement is twelve months, is automatically renewable for successive one year periods at the end of the term and can be terminated by us at our discretion, at any time.

57

        On February 26, 2006 we entered into a consulting agreement with Dr. Arthur Sytkowski to be our medical monitor for clinical trials. Under the agreement Dr. Sytkowski is paid $250 per hour and reimbursed for expenses. The term of the agreement is twelve months, is automatically renewable for successive one year periods at the end of the term and can be terminated by him or us with 90 days advance notice.

        On January 31, 2006 we entered into a consulting agreement with Dr. Moshe Talpaz, whereby Dr. Talpaz will provide consulting services for our Degrasyns program. Under the agreement Dr. Talpaz will be paid $10,000 per year and was granted 575,000 10-year options to purchase our common stock at $1.60 per share. Such options vest based on milestones related to the Degrasyns compounds being developed towards FDA approval. In addition, pursuant to the agreement we agreed to issue 75,000 restricted shares of common stock to Dr. Talpaz subject to stockholder approval. The term of the agreement is for the length of time we are developing the Degrasyns platform of compounds in all indications.

        On August 12, 2004, in connection with our L-Annamycin license, we entered into a consulting agreement with Roman Perez-Soler, M.D., for a term concurrent with the L-Annamycin license agreement. In connection therewith Dr. Perez-Soler agreed to be appointed to our Scientific Advisory Board. As consideration for consulting and advisory services Dr. Perez-Soler shall receive a $30,000 per year consulting fee and 44,000 shares of restricted common stock. In addition, we granted to Dr. Perez-Soler an option to purchase 468,500 shares of common stock at an exercise price of $3.00 per share.

        On August 21, 2008, the Board of Directors of Synergy (the "Board") appointed Melvin K. Spigelman, M.D. as a Director of Synergy. In addition, the Board of Directors appointed Dr. Spigelman Chairman of Synergy's Clinical Oversight Committee as well as a member of the Synergy Compensation and Audit Committees ("the Committees"). In connection therewith, the Board approved the payment of an annual fee of $90,000 to Dr. Spigelman for his service on the Board and the Committees. Additionally, the Board approved a grant of 300,000 stock options to Dr. Spigelman, to purchase Synergy common stock, with an exercise price of $0.60 per share. Such options vest in 100,000 increments over a period of 3 years. The fair value of the 300,000 options on the date of grant was $135,655, of which $12,265 was recorded as stock-based compensation expense during the twelve months ended December 31, 2008.

STOCK OPTION PLANS

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

Callisto Pharmaceuticals, Inc. Stock Option plans

        In 1996, Callisto adopted the 1996 Incentive and Non-Qualified Stock Option Plan (the "Plan") for employees, consultants and outside directors to purchase up to 2,000,000 shares of common stock. This Plan was amended in December 2002 to increase the number of shares authorized under the Plan to 10,000,000. The option term for the 3,884,205 options outstanding as of December 31, 2008 under the Plan is ten years from date of grant. The Plan terminated on January 1, 2006 under its original terms and no further options will be granted under the Plan.

        On October 20, 2005, our stockholders approved the 2005 Equity Compensation Incentive Plan. The maximum number of shares of common stock with respect to which awards may be granted under the 2005 Equity Plan is 5,000,000. The option term for options granted under the 2005 Equity Plan is

58

ten years from date of grant and there were 3,468,000 options available for future grants as of December 31, 2008.

        On October 20, 2005, our stockholders approved our 2005 Directors' Stock Option Plan. The maximum number of shares of common stock with respect to which awards may be granted under the 2005 Directors' Plan is 1,000,000. The option term for options granted under the 2005 Directors' Plan is ten years from date of grant and there are 830,000 option shares available for future grants as of December 31, 2008.

        Our 2005 Equity Compensation Incentive Plan authorizes the grant of stock options to directors (excluding outside directors), eligible employees, including executive officers and consultants. The value realizable from exercisable options is dependent upon the extent to which our performance is reflected in the value of our common stock at any particular point in time. Equity compensation in the form of stock options is designed to provide long-term incentives to directors, executive officers and other employees. We approve the granting of options in order to motivate these employees to maximize stockholder value. Generally, vesting for options granted under the stock option plan is determined at the time of grant, and options expire after a 10-year period. Options are generally granted at an exercise price not less than the fair market value at the date of grant. As a result of this policy, directors, executives, employees and consultants are rewarded economically only to the extent that the stockholders also benefit through appreciation in the market. Options granted to employees are based on such factors as individual initiative, achievement and performance. In administering grants to executives, the Compensation Committee of the Board of Directors evaluates each executive's total equity compensation package. The compensation committee generally reviews the option holdings of each of the executive officers, including vesting and exercise price and the then current value of such unvested options. We consider equity compensation to be an integral part of a competitive executive compensation package and an important mechanism to align the interests of management with those of our stockholders.

        The options we grant under the 2005 Equity Plan may be either "incentive stock options" within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), or non-statutory stock options at the discretion of the Board of Directors and as reflected in the terms of the written option agreement. None of our stock option plans are qualified deferred compensation plans under Section 401(a) of the Code, and are not subject to the provisions of the Employee Retirement Income Security Act of 1974, as amended (ERISA). As of December 31, 2008, we have 2,352,333 stock options outstanding not subject to our stock option plans.

Synergy Pharmaceuticals, Inc. Stock Option Plan

        During 2008, Synergy adopted The 2008 Equity Compensation Incentive Plan (the "Plan") which is intended to promote the best interests of its stockholders by (i) assisting Synergy and its Subsidiaries in the recruitment and retention of persons with ability and initiative, (ii) providing an incentive to such persons to contribute to the growth and success of Synergy's businesses by affording such persons equity participation in Synergy and (iii) associating the interests of such persons with those of Synergy and its Subsidiaries and stockholders. Stock options granted under the Plan, typically vest after three years of continuous service from the grant date and have a contractual term of ten years. The maximum aggregate number of shares of Synergy common stock that may be (i) issued under the Plan pursuant to the exercise of options and (ii) issued pursuant to Restricted Stock Awards is 6,500,000 shares of Synergy common stock. As of December 31, 2008 there were 4,080,016 stock options outstanding under the Plan and 874,760 Restricted Stock Awards issued and outstanding, leaving 1,545,224 shares available for future issuances.

59

ITEM 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.

        The following table sets forth certain information regarding beneficial ownership of shares of our common stock as of April 14, 2009 by (i) each person know to beneficially own more than 5% of the outstanding common stock, (ii) each of our directors, (iii) the Named Executive Officers and (iv) all directors and executive officers as a group. Except as otherwise indicated, the persons named in the table have sole voting and investment power with respect to all shares beneficially owned, subject to community property laws, where applicable. Unless otherwise indicated, the address of each beneficial owner listed below is c/o Callisto Pharmaceuticals, Inc., 420 Lexington Avenue, Suite 1609, New York, N.Y. 10170.

		Shares of Common Stock Beneficially Owned(1)
Name and Address of Beneficial Owner		Number of Shares			Percentage and Class
Gabriele M. Cerrone			3,462,570	(2)		6.7	%
	Chairman of the Board
Gary S. Jacob			1,249,745	(3)		2.4	%
	Chief Executive Officer, Chief Scientific Officer and Director
Bernard Denoyer			225,000	(4)		*
	Senior Vice President, Finance and Secretary
Riccardo Dalla-Favera			89,000	(5)		*
	Director
Christoph Bruening			605,699	(6)		1.2	%
	Director
John Brancaccio			128,123	(7)		*
	Director
Randall K. Johnson			109,500	(8)		*
	Director
All Directors and Executive Officers as a group (7 persons)			5,869,637	(9)		10.9	%

*

less than 1%

(1)

Applicable percentage ownership as of April 14, 2009 is based upon 50,747,661 shares of common stock outstanding.

(2)

Includes 1,260,833 shares of common stock issuable upon exercise of stock options held by Mr. Cerrone and 30,000 shares of common stock issuable upon exercise of warrants, held by Panetta Partners, Ltd. Mr. Cerrone is the sole managing partner of Panetta and in such capacity only exercises voting and dispositive control over securities owned by Panetta, despite him having only a small pecuniary interest in such securities.

(3)

Includes 1,112,500 shares of common stock issuable upon exercise of stock options.

(4)

Consists of 225,000 shares of common stock issuable upon exercise of stock options.

(5)

Consists 89,000 shares of common stock issuable upon exercise of stock options.

(6)

Includes 130,000 shares of common stock issuable upon exercise of stock options.

(7)

Consists of 128,123 shares of common stock issuable upon exercise of stock options.

60

(8)

Consists of 109,500 shares of common stock issuable upon exercise of stock options.

(9)

Includes 3,054,956 shares of common stock issuable upon exercise of stock options and 30,000 shares of common stock issuable upon exercise of the warrants.

        Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission and generally includes voting and investment power with respect to securities. Beneficial ownership determined in this manner may not constitute ownership of such securities for other purposes or indicate that such person has an economic interest in such securities.

ITEM 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

        On March 11, 2009, Gabriele M. Cerrone, our Chairman of the Board, entered into an amended and restated consulting agreement with us. The term of the agreement was effective as of August 1, 2008 and continues until December 31, 2011 and is automatically renewed for successive one year periods at the end of each term. Pursuant to the agreement, Mr. Cerrone's compensation is $295,000 per year of which 25% is to be allocated to Callisto and 75% is to be allocated to Synergy. Mr. Cerrone is eligible to receive a cash bonus of up to 50% of his base compensation per year based on meeting certain performance objectives and bonus criteria. Such performance objectives and bonus criteria have not been determined as of December 31, 2008 and therefore have not been met or earned. Mr. Cerrone is also eligible to receive a realization bonus in the event that we enter into an out-license agreement for our technology or engage in a merger or sale of substantially all our assets where the enterprise value equals or exceeds a minimum of $150 million, $200 million and $250 million in the first, second or third years of the term of the agreement or any years beyond the third term of the agreement, respectively, and in the case of a financing transaction, we receive not less than $20 million of gross proceeds; or the license fees we contract to receive equals or exceeds $50 million. The realization bonus will be equal to the enterprise value in the case of a merger, sale or financing or the sum of the license fees actually received multiplied by 0.5%.

        The agreement, the amendment and their respective terms were approved by our Compensation Committee, which consists solely of independent members of the Board. Additional information concerning the terms of the consulting agreement are set forth in Items 8 and 11 of this annual report.

CONFLICTS OF INTEREST

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

        Any future transactions with officers, directors or 5% stockholders will be on terms no less favorable to us than could be obtained from independent parties. Any affiliated transactions must be approved by a majority of our independent and disinterested directors who have access to our counsel or independent legal counsel at our expense.

61

ITEM 14.    PRINCIPAL ACCOUNTANT FEES AND SERVICES.

AUDIT FEES

        The aggregate fees billed and unbilled for the fiscal year ended December 31, 2008 for professional services rendered by our principal accountants for the audits of our annual financial statements, the review of our financial statements included in our quarterly reports on Form 10-Q and consultations and consents were approximately $297,926. The aggregate fees billed and unbilled for the fiscal year ended December 31, 2007 for professional services rendered by our principal accountants for the audits of our annual financial statements, the review of our financial statements included in our quarterly reports on Form 10-Q and consultations and consents were approximately $131,000.

AUDIT-RELATED FEES

        There were no aggregate fees billed for the fiscal year ended December 31, 2008 and 2007 for assurance and related services rendered by our principal accountants related to the performance of the audit or review of our financial statements, specifically accounting research.

TAX AND OTHER FEES

        The aggregate fees billed and unbilled for the fiscal year ended December 31, 2008 for professional services rendered by our principal accountants for Tax Advisory services was $15,000 in connection with a review of the tax consequences of the Exchange Transaction dated July 14, 2008 . There were no aggregate fees billed for the fiscal years ended December 31, 2007 as there was no tax related or other services rendered by our principal accountants in connection with the preparation of our federal and state tax returns.

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

ITEM 15.    EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(a)

List of Documents Filed as a Part of This Report:

Index to Consolidated Financial Statements	F-1
Report of Independent Registered Public Accounting Firm	F-2
Consolidated Balance Sheets as of December 31, 2008 and 2007	F-3
Consolidated Statement of Operations for each of the three years ended December 31, 2008, 2007 and 2006 and for the period June 5, 1996 (inception) to December 31, 2008	F-4
Consolidated Statement of Changes in Stockholder's Equity (Deficit) for the period June 5, 1996 (inception) to December 31, 2008	F-5
Consolidated Statements of Cash Flows for each of the three years ended December 31, 2008, 2007 and 2006 and for the period June 5, 1996 (inception) to December 31, 2008	F-9
Notes to Consolidated Financial Statements	F-10

(2)

Index to Financial Statement Schedules:

        All schedules have been omitted because the required information is included in the consolidated financial statements or the notes thereto, or is not applicable or required.

62

(3)

Index to Exhibits

Exhibit Index

        The Exhibits listed below are identified by numbers corresponding to the Exhibit Table of Item 601 of Regulation S-K. The Exhibits designated by an asterisk (*) are management contracts or compensatory plans or arrangements required to be filed pursuant to Item 15. Two asterisks (**) indicate confidential treatment requested with respect to deleted portions of this agreement.

Exhibit No.		Description
	3.1	Certificate of Incorporation, as amended (Incorporated by reference to Exhibit 2.1 filed with the Company's Annual Report on Form 10-K filed on March 28, 2008)
	3.2	Certificate of Designations, Number, Voting Powers, Preferences and Rights of Series A Convertible Preferred Stock of Callisto Pharmaceuticals, Inc. (Incorporated by reference to Exhibit 3.1 filed with the Company's Current Report on Form 8-K filed on October 27, 2006)
	3.3	Certificate of Amendment to Certificate of Designations, Number, Voting Powers, Preferences and Rights of Series A Convertible Preferred Stock of Callisto Pharmaceuticals, Inc. (Incorporated by reference to Exhibit 3.2 filed with the Company's Current Report on Form 8-K filed on December 27, 2006)
	3.4	Certificate of Amendment to Certificate of Designations, Number, Voting Powers, Preferences and Rights of Series A Convertible Preferred Stock of Callisto Pharmaceuticals, Inc. (Incorporated by reference to Exhibit 3.2 filed with the Company's Current Report on Form 8-K filed on August 7, 2007)
	3.5	Certificate of Designations, Number, Voting Powers, Preferences and Rights of Series B Convertible Preferred Stock of Callisto Pharmaceuticals, Inc. (Incorporated by reference to Exhibit 3.1 filed with the Company's Current Report on Form 8-K filed on August 7, 2007)
	3.6	Bylaws, as amended (Incorporated by reference to Exhibit 3.1 filed with the Company's Current Report on Form 8-K filed on June 4, 2007)
	4.1	1996 Incentive and Non-Qualified Stock Option Plan (Incorporated by reference to Exhibit 4.1 filed with the Company's Current Report on Form 8-K filed on May 15, 2003)
	4.2	Form of Warrant to purchase shares of common stock issued in connection with the sale of common stock (Incorporated by reference to Exhibit 4.1 filed with the Company's Current Report on Form 8-K filed on January 28, 2004)
	4.4	2005 Equity Compensation Incentive Plan (Incorporated by reference to Appendix B filed with the Company's Definitive Proxy Statement on Schedule 14A filed on August 31, 2005)
	4.5	2005 Directors' Stock Option Plan (Incorporated by reference to Appendix C filed with the Company's Definitive Proxy Statement on Schedule 14A filed on August 31, 2005)
	4.6	Form of Warrant to purchase Common Stock issued in connection with the sale of Common Stock (Incorporated by reference to Exhibit 4.1 filed with the Company's Current Report on Form 8-K filed on February 9, 2006)
	4.7	Form of Warrant to purchase Common Stock issued to certain selling agents in connection with the sale of Common Stock (Incorporated by reference to Exhibit 4.2 filed with the Company's Current Report on Form 8-K filed on February 9, 2006)
	4.8	Form of Warrant issued pursuant to the Letter Agreement dated September 8, 2006 between Callisto Pharmaceuticals, Inc. and certain investors (Incorporated by reference to Exhibit 4.1 filed with the Company's Current Report on Form 8-K filed on September 14, 2006)

63

Exhibit No.		Description
	4.9	Form of Warrant to purchase shares of Common Stock issued in connection with the sale of the Series A Convertible Preferred Stock (Incorporated by reference to Exhibit 4.1 filed with the Company's Current Report on Form 8-K filed on October 27, 2006)
	4.10	Form of Warrant to purchase shares of Common Stock issued in connection with the sale of the Series B Convertible Preferred Stock (Incorporated by reference to Exhibit 4.1 filed with the Company's Current Report on Form 8-K filed on August 7, 2007)
	10.1	Employment Agreement dated April 6, 2004 by and between Synergy Pharmaceuticals Inc. and Kunwar Shailubhai (Incorporated by reference to Exhibit 10.2 filed with the Company's Annual Report on Form 10-KSB on April 14, 2004)*
	10.2	Amended and Restated License Agreement dated as of December 31, 2007 by and between Callisto Pharmaceuticals, Inc. and AnorMED Corporation, as successor in interest to AnorMED, Inc. (Incorporated by reference to Exhibit 10.3 filed with the Company's Annual Report on Form 10-K on March 28, 2008)**
	10.3	Patent and Technology License Agreement dated August 12, 2004 by and between The Board of Regents of the University of Texas System, on behalf of The University of Texas M.D. Anderson Cancer Center and Callisto Pharmaceuticals, Inc. (Incorporated by reference to Exhibit 10.1 filed with the Company's Current Report on Form 8-K filed on September 7, 2004)**
	10.4	Amendment dated October 19, 2005 to the Employment Agreement dated as of April 6, 2004 by and between Synergy Pharmaceuticals Inc. and Kunwar Shailubhai (Incorporated by reference to Exhibit 10.5 filed with the Company's Current Report on Form 8-K filed on October 21, 2005)*
	10.5	Patent and Technology License Agreement dated January 10, 2006 between The University of Texas M.D. Anderson Cancer Center and Callisto Pharmaceuticals, Inc. (Incorporated by reference to Exhibit 10.22 filed with the Company's Annual Report on Form 10-K filed on March 31, 2006)**
	10.6	Form of Letter Agreement dated September 8, 2006 between Callisto Pharmaceuticals, Inc. and certain investors (Incorporated by reference to Exhibit 10.1 filed with the Company's Current Report on Form 8-K filed on September 14, 2006)
	10.17	Form of Amendment Agreement dated as of September 8, 2006 between Callisto Pharmaceuticals, Inc. and certain investors (Incorporated by reference to Exhibit 10.2 filed with the Company's Current Report on Form 8-K filed on September 14, 2006)
	10.8	Form of Securities Purchase Agreement dated August 2, 2007 by and among Callisto Pharmaceuticals, Inc. and the purchasers set forth on the signature page thereto (Incorporated by reference to Exhibit 10.1 filed with the Company's Current Report on Form 8-K filed on August 7, 2007)
	10.9	Form of Registration Rights Agreement dated August 2, 2007 by and among Callisto Pharmaceuticals, Inc. and the purchaser's signatory thereto (Incorporated by reference to Exhibit 10.2 filed with the Company's Current Report on Form 8-K filed on August 7, 2007)
	10.10	Amended and Restated Employment Agreement dated December 10, 2007 by and between Callisto Pharmaceuticals, Inc and Bernard Denoyer (Incorporated by reference to Exhibit 10.26 filed with the Company's Annual Report on Form 10-K on March 28, 2008)*

64

Exhibit No.		Description
	10.11	Exchange Agreement dated July 14, 2008 among Callisto Pharmaceuticals, Inc. Synergy Pharmaceuticals, Inc. the individuals named on the signature pages thereto and Pawfect Foods, Inc. (incorporated by reference to Exhibit 10.1 filed with the Company's Current Report on Form 8-K filed on July 18, 2008)
	10.12	Amendment to Exchange Agreement dated July 14, 2008 among Callisto Pharmaceuticals, Inc. Synergy Pharmaceuticals, Inc. the individuals named on the signature pages thereto and Pawfect Foods, Inc. (incorporated by reference to Exhibit 10.2 filed with the Company's Current Report on Form 8-K filed on July 18, 2008)
	10.13	Technology Assignment Agreement between Callisto Pharmaceuticals, Inc. and AnorMED Corporation, a wholly owned subsidiary of Genzyme Corporation, dated December 19, 2008.
	10.14	Form of Securities Purchase Agreement by and between Callisto Pharmaceuticals, Inc. and the several investors party thereto.
	10.15	Form of Security Agreement made by Callisto Pharmaceuticals, Inc and Sommer and Schneider, LLP.
	10.16	Form of Common Stock Purchase Warrant.
	10.17	Form of Secured Promissory Note.
	10.18	Amended and Restated Executive Employment Agreement by and between Callisto Pharmaceuticals, Inc. and Gary S. Jacob dated March 11, 2009.*
	10.19	Amended and Restated Consulting Agreement by and between Callisto Pharmaceuticals, Inc. and Gabriele M. Cerrone dated March 11, 2009.*
	14	Code of Business Conduct and Ethics (Incorporated by reference to Exhibit 14 filed with the Company's Annual Report on Form 10-KSB filed on April 14, 2004)
	21	List of Subsidiaries
	23	Consent of BDO Seidman, LLP
	31.1	Certification of Chief Executive Officer required under Rule 13a-14(a)/15d-14(a) under the Exchange Act
	31.2	Certification of Principal Financial Officer required under Rule 13a-14(a)/15d-14(a) under the Exchange Act
	32.1	Certification of Chief Executive Officer pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
	32.2	Certification of Principal Financial Officer pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

65

SIGNATURES

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

	CALLISTO PHARMACEUTICALS, INC. (Registrant)
Date: April 15, 2009	By:	/s/ GARY S. JACOB Gary S. Jacob, Chief Executive Officer

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

SIGNATURE	TITLE	DATE
/s/ GARY S. JACOB Gary S. Jacob	Chief Executive Officer and Director (Principal Executive Officer)	April 15, 2009
/s/ BERNARD F. DENOYER Bernard F. Denoyer	Senior Vice President, Finance (Principal Financial and Accounting Officer)	April 15, 2009
/s/ GABRIELE M. CERRONE Gabriele M. Cerrone	Chairman of the Board	April 15, 2009
/s/ RICCARDO DALLA-FAVERA Riccardo Dalla-Favera	Director	April 15, 2009
/s/ JOHN P. BRANCACCIO John P. Brancaccio	Director	April 15, 2009
/s/ CHRISTOPH BRUENING Christoph Bruening	Director	April 15, 2009
/s/ RANDALL K. JOHNSON Randall K. Johnson	Director	April 15, 2009

66

CALLISTO PHARMACEUTICALS, INC.
(A Development Stage Company)

Index to the Consolidated Financial Statements

Report of Independent Registered Public Accounting Firm	F-2
Consolidated Balance Sheets as of December 31, 2008 and 2007	F-3
Consolidated Statements of Operations for the three years ended December 31, 2008, 2007 and 2006 and June 5, 1996 (inception) to December 31, 2008	F-4
Consolidated Statements of Changes in Stockholders' Equity (Deficit) for the period June 5, 1996 (Inception) to December 31, 2008	F-5
Consolidated Statements of Cash Flows for the three years ended December 31, 2008, 2007 and 2006 and for the period June 5, 1996 (Inception) to December 31, 2008	F-11
Notes to the Consolidated Financial Statements	F-12

F-1

Report of Independent Registered Public Accounting Firm

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

        We have audited the accompanying consolidated balance sheets of Callisto Pharmaceuticals, Inc. and Subsidiaries (a development stage company) (the "Company") as of December 31, 2008 and 2007, the related consolidated statements of operations and cash flows for each of the three years in the period ended December 31, 2008 and for the period from June 5, 1996 (inception) to December 31, 2008 and the related consolidated statement of stockholders' equity (deficit) for the period from June 5, 1996 (inception) to December 31, 2008. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

        We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

        In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Callisto Pharmaceuticals, Inc. and Subsidiaries as of December 31, 2008 and 2007, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2008 and for the period from June 5, 1996 (inception) to December 31, 2008, in conformity with accounting principles generally accepted in the United States of America.

        The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has suffered recurring losses from operations and has a net capital deficiency that raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/ BDO SEIDMAN, LLP
BDO Seidman, LLP
New York, New York
April 15, 2009

F-2

CALLISTO PHARMACEUTICALS, INC.
(A Development Stage Company)

CONSOLIDATED BALANCE SHEETS

				December 31, 2008			December 31, 2007
ASSETS
Current Assets:
	Cash and cash equivalents			$	301,323		$	3,269,341
	Short term investments				—			2,967,690
	Cash in escrow				201,908			—
	Prepaid expenses and other				59,756			88,820
		Total Current Assets			562,987			6,325,851
Property and equipment, net					20,649			15,108
Security deposits					78,116			73,716
		Total Assets		$	661,752		$	6,414,675
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
	Accounts payable			$	3,687,549		$	3,254,992
	Accrued expenses				1,136,264			1,366,333
		Total Current Liabilities			4,823,813			4,621,325
Notes payable					20,176			—
Commitments and contingencies
Stockholders' Equity (Deficit):
	Series A convertible preferred stock, par value $0.0001, 700,000 shares authorized, 98,000 shares outstanding at December 31, 2008 with a liquidation preference of $980,000 and 218,675 shares outstanding at December 31, 2007 with a liquidation preference of $2,186,750				10			22
	Series B convertible preferred stock, par value $0.0001, 2,500,000 shares authorized, 1,137,050 shares outstanding at December 31, 2008 with a liquidation preference of $11,370,500 and 1,147,050 shares outstanding at December 31, 2007 with a liquidation preference of $11,470,500				114			115
	Common stock, par value of $.0001 per share: Authorized 225,000,000 shares at December 31, 2008 and December 31, 2007; 49,556,661 and 46,943,161 shares outstanding at December 31, 2008 and December 31, 2007, respectively				4,955			4,694
Additional paid-in capital					86,799,951			83,120,315
Deficit accumulated during development stage					(90,987,267	)		(81,331,796	)
			Total Stockholders' Equity (Deficit)		(4,182,237	)		1,793,350
			Total Liabilities and Stockholders' Equity (Deficit)	$	661,752		$	6,414,675

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

F-3

CALLISTO PHARMACEUTICALS, INC.
(A Development Stage Company)

CONSOLIDATED STATEMENTS OF OPERATIONS

		Year ended December 31,									For the period June 5, 1996 (inception) to December 31, 2008
		2008			2007			2006
Revenues		$	—		$	—		$	—		$	—
Costs and Expenses:
	Research and development		5,449,721			6,507,978			6,134,704			34,098,264
	Government grants		(30,000	)		(260,853	)		(352,649	)		(1,135,318	)
	Purchased in-process research and development		—			—			—			6,944,553
	General and administrative		4,311,767			4,317,288			6,384,116			38,978,606
Loss from Operations			(9,731,488	)		(10,564,413	)		(12,166,171	)		(78,886,105	)
	Interest and investment income		76,017			84,694			48,632			864,327
	Other income/(expense), net		—			1,449			(801,690	)		(171,846	)
	Change in fair value of Series B Preferred investor warrants from date of issuance to expiration of put option		—			2,591,005			—			2,591,005
Net Loss			(9,655,471	)		(7,887,265	)		(12,919,229	)		(75,602,619	)
	Series A Preferred stock beneficial conversion feature accreted as a dividend		—			(2,504,475	)		(2,384,485	)		(4,888,960	)
	Series B Preferred stock beneficial conversion feature accreted as a dividend		—			(10,495,688	)		—			(10,495,688	)
Net loss available to common stockholders		$	(9,655,471	)	$	(20,887,428	)	$	(15,303,714	)	$	(90,987,267	)
Weighted Average Common Shares Outstanding
Basic and Diluted			47,357,254			41,770,669			37,941,267
Net Loss per Common Share
Basic and Diluted		$	(0.20	)	$	(0.50	)	$	(0.40	)

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

F-4

CALLISTO PHARMACEUTICALS, INC.
(A development stage company)

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)

	Preferred Shares		Preferred Stock, Par Value		Common Shares			Common Stock, Par Value			Additional Paid in Capital
Balance at inception, June 5, 1996		—	$	—		—		$	—		$	—
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

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

F-5

	Unamortized Deferred Stock-Based Compensation			Deficit Accumulated during the Development Stage			Total Stockholders' Equity
Balance at inception, June 5, 1996	$	—		$	—		$	—
Issuance of founder shares		—			(404,005	)		(403,213	)
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 via private placement		—			—			1,062,500
Common stock issued for services		—			—			591,667
Common stock repurchased and cancelled		—			—			(97,000	)
Balance, December 31, 1998		—			(2,782,948	)		935,196
Net loss for the year		—			(4,195,263	)		(4,195,263	)
Deferred compensation—stock options		(9,946	)		—			—
Amortization of stock-based compensation		3,262			—			3,262
Common stock issued for services		—			—			3,168,832
Common stock issued via private placement		—			—			260,000
Balance, December 31, 1999		(6,684	)		(6,978,211	)		172,027
Net loss for the year		—			(2,616,261	)		(2,616,261	)
Amortization of stock-based compensation		4,197			—			4,197
Common stock issued		—			—			251,344
Other		—			—			432
Preferred 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

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

F-6

	Preferred Shares			Preferred Stock, Par Value			Common Shares			Common Stock, Par Value			Additional Paid in Capital
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
Net loss for the year		—			—			—			—			—
Conversion of preferred stock in connection with the merger		(4,235,299	)		(423	)		4,235,299			423			—
Common stock issued to former Synergy stockholders		—			—			4,329,927			432			6,494,458
Common stock issued in exchange for Webtronics common stock		—			—			1,503,173			150			(150	)
Deferred compensation—stock options		—			—			—			—			9,313,953
Amortization of stock-based compensation		—			—			—			—			—
Private placement of common stock, net		—			—			2,776,666			278			3,803,096
Balance, December 31, 2003		—			—			25,928,760			2,590			34,149,975
Net loss for the year		—			—			—			—			—
Common stock issued via private placements, net		—			—			3,311,342			331			6,098,681
Warrant and stock-based compensation for services in connection with the merger		—			—			—			—			269,826
Common stock returned from former Synergy stockholders		—			—			(90,000	)		(9	)		(159,083	)
Stock issued for patent rights		—			—			25,000			3			56,247
Common stock issued for services		—			—			44,000			7			70,833
Variable account for stock options		—			—			—			—			(816,865	)
Amortization of stock-based compensation		—			—			—			—			—
Stock-based compensation		—			—			—			—			240,572
Balance, December 31, 2004		—		$	—			29,219,102		$	2,922		$	39,910,186

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

F-7

	Unamortized Deferred Stock-Based Compensation			Deficit Accumulated during the Development Stage			Total Stockholders' Equity
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
Net loss for the year		—			(13,106,247	)		(13,106,247	)
Conversion of preferred stock in connection with the merger		—			—			—
Common stock issued to former Synergy stockholders		—			—			6,494,890
Common stock issued in exchange for Webtronics common stock		—			—			—
Deferred compensation—stock options		(9,313,953	)		—			—
Amortization of stock-based compensation		3,833,946			—			3,833,946
Private placement of common stock, net		—			—			3,803,374
Balance, December 31, 2003		(5,480,007	)		(25,817,730	)		2,854,828
Net loss for the year		—			(7,543,467	)		(7,543,467	)
Common stock issued via private placements, net		—			—			6,099,012
Warrant and stock-based compensation for services in connection with the merger		—			—			269,826
Common stock returned from former Synergy stockholders		—			—			(159,092	)
Stock issued for patent rights		—			—			56,250
Common stock issued for services		—			—			70,840
Variable account for stock options		—			—			(816,865	)
Amortization of stock-based compensation		3,084,473			—			3,084,473
Stock-based compensation		93,000			—			333,572
Balance, December 31, 2004	$	(2,302,534	)	$	(33,361,197	)	$	4,249,377

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

F-8

	Series A Convertible Preferred Shares		Series A Convertible Preferred Stock, Par Value		Common Shares		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	$	39,910,186		$	(2,302,534	)	$	(33,361,197	)	$	4,249,377
Net loss for the year		—		—		—		—		—			—			(11,779,457	)		(11,779,457	)
Deferred stock-based compensation—new grants		—		—		—		—		1,571,772			(1,571,772	)		—			—
Amortization of stock-based compensation		—		—		—		—		—			2,290,843			—			2,290,843
Variable accounting for stock options		—		—		—		—		75,109			—			—			75,109
Common stock issued via private placement— March 2005		—		—		1,985,791		198		3,018,203			—			—			3,018,401
Common stock issued via private placement— August 2005		—		—		1,869,203		187		1,812,940			—			—			1,813,127
Finders fees and expenses		—		—		—		—		(176,249	)		—			—			(176,249	)
Exercise of common stock warrant		—		—		125,000		13		128,737			—			—			128,750
Common stock issued for services		—		—		34,000		3		47,177			—			—			47,180
Balance, December 31, 2005		—		—		33,233,096		3,323		46,387,875			(1,583,463	)		(45,140,654	)		(332,919	)
Net loss for the year		—		—		—		—		—			—			(12,919,229	)		(12,919,229	)
Amortization of stock-based compensation		—		—		—		—		2,579,431			—			—			2,579,431
Reclassification of deferred unamortized stock-based compensation upon adoption of SFAS No. 123R		—		—		—		—		(1,583,463	)		1,583,463			—			—
Common stock issued via private placement— February 2006		—		—		4,283,668		428		5,139,782			—			—			5,140,210
Common stock issued via private placement— April 2006		—		—		666,667		67		799,933			—			—			800,000
Finders fees and expenses		11,775		1		—		—		(1,051,717	)		—			—			(1,051,716	)
Waiver and lock-up agreement		—		—		740,065		74		579,622			—			—			579,696
Common stock issued for services		—		—		87,000		9		121,101			—			—			121,110
Exercise of common stock warrants		—		—		184,500		18		190,017			—			—			190,035
Series A convertible preferred stock issued via private placement		574,350		57		—		—		5,743,443			—			—			5,743,500
Detachable warrants		—		—		—		—		2,384,485			—			—			2,384,485
Beneficial conversion feature accreted as a dividend		—		—		—		—		—			—			(2,384,485	)		(2,384,485	)
Balance, December 31, 2006		586,125	$	58		39,194,996	$	3,919	$	61,290,509		$	—		$	(60,444,368	)	$	850,118

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

F-9

	Series A Convertible Preferred Shares			Series A Convertible Preferred Stock, Par Value			Series B Convertible Preferred Shares			Series B Convertible Preferred Stock, Par Value			Common Shares		Common Stock, Par Value		Additional Paid in Capital			Deficit Accumulated during the Development Stage			Total Stockholders' Equity
Balance, December 31, 2006		586,125		$	58			—		$	—			39,194,996	$	3,919	$	61,290,509		$	(60,444,368	)	$	850,118
Net loss for the year		—			—			—			—			—		—		—			(7,887,265	)		(7,887,265	)
Stock-based compensation expense		—			—			—			—			—		—		591,561			—			591,561
Common stock issued for services		—			—			—			—			80,000		8		36,792			—			36,800
Series A convertible preferred stock, issued via private placement		28,000			4			—			—			—		—		279,997			—			280,001
Finders fees and expenses, Series A private placement		—			—			—			—			—		—		(36,400	)		—			(36,400	)
Conversion of Series A preferred stock to common stock		(395,450	)		(40	)		—			—			7,668,165		767		(727	)		—			—
Beneficial conversion feature accreted as a dividend to Series A convertible preferred stock		—			—			—			—			—		—		2,504,475			(2,504,475	)		—
Series B convertible preferred stock, issued via private placement		—			—			1,147,050			115			—		—		11,470,385			—			11,470,500
Finders fees and expenses, Series B private placement		—			—			—			—			—		—		(920,960	)		—			(920,960	)
Beneficial conversion feature accreted as a dividend to Series B convertible preferred stock		—			—			—			—			—		—		10,495,688			(10,495,688	)		—
Change in fair value of Series B warrants from date of issuance to expiration of put option		—			—			—			—			—		—		(2,591,005	)		—			(2,591,005	)
Balance, December 31, 2007		218,675			22			1,147,050			115			46,943,161		4,694		83,120,315			(81,331,796	)		1,793,350
Net loss for the year		—			—			—			—			—		—		—			(9,655,471	)		(9,655,471	)
Recapitalization of majority owned subsidiary via private placements of common stock		—			—			—			—			—		—		2,951,913			—			2,951,913
Minority interest in equity of subsidiary acquired		—			—			—			—			—		—		(42,824	)		—			(42,824	)
Stock-based compensation expense		—			—			—			—			—		—		589,063			—			589,063
Proceeds from issuance of 11% Notes attributable to detachable warrants		—			—			—			—			—		—		181,732			—			181,732
Conversion of Series A preferred stock to common stock		(120,675	)		(12	)		—			—			2,413,500		241		(229	)		—			—
Conversion of Series B preferred stock to common stock		—			—			(10,000	)		(1	)		200,000		20		(19	)		—			—
Balance, December 31, 2008		98,000		$	10			1,137,050		$	114			49,556,661	$	4,955	$	86,799,951		$	(90,987,267	)	$	(4,182,237	)

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

F-10

CALLISTO PHARMACEUTICALS, INC.
(A Development Stage Company)

CONSOLIDATED STATEMENTS OF CASH FLOWS

		Year ended December 31,
											Period from June 5, 1996 (Inception) to December 31, 2008
		2008			2007			2006
Cash Flows From Operating Activities:
Net loss		$	(9,655,471	)	$	(7,887,265	)	$	(12,919,229	)	$	(75,602,619	)
Adjustments to reconcile net loss to net cash used in operating activities:
	Depreciation		6,654			3,142			2,151			96,584
	Stock-based compensation expense		589,063			628,361			2,746,478			17,734,869
	Purchased in-process research and development		—			—			—			6,841,053
	Purchase discount accreted as interest income on U.S. Treasury bills		(26,950	)		—			—			(26,950	)
	Stock-based liquidated damages		—			—			579,696			579,696
	Change in fair value of Series B preferred warrants from date of issuance to expiration of put options		—			(2,591,005	)		—			(2,591,005	)
	Minority interest in net losses of majority owned subsidiary		(42,824	)		—			—			(335,252	)
Changes in operating assets and liabilities:
	Prepaid expenses		29,064			(22,079	)		114,543			(59,756	)
	Security deposit		(4,400	)		—			8,480			(78,116	)
	Accounts payable and accrued expenses		202,489			1,420,303			1,138,176			4,823,814
Total Adjustments			753,096			(561,278	)		4,589,524			26,984,937
Net Cash Used in Operating Activities			(8,902,375	)		(8,448,543	)		(8,329,705	)		(48,617,682	)
Cash Flows From Investing Activities:
	Short-term investments—purchased		—			(5,921,825	)		—			(5,921,825	)
	Short-term investments—liquidated		2,994,640			2,954,135			—			5,948,775
	Additions to property and equipment		(12,196	)		(11,798	)		(8,602	)		(117,233	)
Net Cash Provided by (Used in) Investing Activities			2,982,444			(2,979,488	)		(8,602	)		(90,283	)
Cash Flows From Financing Activities:
	Issuance of common and preferred stock		—			11,750,500			11,683,710			48,719,673
	Finders fees and expenses		—			(957,360	)		(1,051,716	)		(2,981,083	)
	Proceeds of private placement of majority owned subsidiary's common stock, net of fees and expenses		2,951,913			—			—			2,951,913
	Exercise of common stock warrants		—			—			190,035			318,785
Net Cash Provided by Financing Activities			2,951,913			10,793,140			10,822,029			49,009,288
Net (decrease) increase in cash and cash equivalents			(2,968,018	)		(634,891	)		2,483,722			301,323
Cash and cash equivalents at beginning of period			3,269,341			3,904,232			1,420,510			—
Cash and cash equivalents at end of period		$	301,323		$	3,269,341		$	3,904,232		$	301,323
Supplementary disclosure of cash flow information:
	Cash paid for taxes	$	33,370		$	4,868		$	13,880		$	161,725
	Cash paid for interest	$	—		$	—		$	—		$	—
Supplementary disclosure of non-cash investing and financing activities:
	Series A Preferred stock beneficial conversion feature accreted as a dividend	$	—		$	2,504,475		$	2,384,485		$	4,888,960
	Series B Preferred stock beneficial conversion feature accreted as a dividend	$	—		$	10,495,688		$	—		$	10,495,688
	Issuance of 11% Notes payable, cash held on escrow	$	201,908		$	—		$	—		$	—

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

F-11

CALLISTO PHARMACEUTICALS, INC.
(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.    Business overview

        Callisto Pharmaceuticals, Inc. ("Callisto" or the "Company") is a development stage biopharmaceutical company, whose primary focus has been on the development of drugs to treat neuroendocrine cancer (including advanced carcinoid cancer), acute leukemia and gastrointestinal ("GI") disorders and diseases. Callisto was incorporated in the state of Delaware on June 5, 1996 (inception). Since inception, Callisto's efforts have been principally devoted to research and development, securing and protecting patents and raising capital.

        From inception through December 31, 2008, Callisto has sustained cumulative net losses available to common stockholders of $90,987,267. Callisto's losses have resulted primarily from expenditures incurred in connection with research and development activities, application and filing for regulatory approval of proposed products, stock-based compensation expense, patent filing and maintenance expenses, purchase of in-process research and development, outside accounting and legal services and regulatory, scientific and financial consulting fees, as well as deemed dividends attributable to the beneficial conversion rights of convertible preferred stock at issuance. From inception through December 31, 2008, Callisto has not generated any revenue from operations, expects to incur additional losses to perform further research and development activities and does not currently have any commercial biopharmaceutical products, and does not expect to have such for several years, if at all.

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

        On July 14, 2008, Callisto entered into an Exchange Agreement dated July 11, 2008 ("Exchange Agreement"), as amended and effective on July 14, 2008, with Pawfect Foods, Inc. ("Pawfect"), Synergy Pharmaceuticals, Inc. ("Synergy-DE"), a majority-owned subsidiary of Callisto, and other holders of Synergy-DE common stock. According to the terms of the Exchange Agreement, Pawfect acquired 100% of the common stock of Synergy-DE, from Callisto and the other holders of Synergy-DE, in exchange for 45,464,760 shares of Pawfect's common stock representing approximately 70% of Pawfect's outstanding common stock (the "Exchange Transaction"). Callisto received 44,590,000 of the 45,464,760 shares of Pawfect's common stock exchanged for its ownership of Synergy-DE, and Callisto is now the holder of 68% of Pawfect's outstanding common stock. The remaining 874,760 shares of Pawfect common stock exchanged for ownership of Synergy-DE were issued to certain executive officers of Synergy-DE who received their shares pursuant to a Repurchase Agreement with Synergy-DE dated July 3, 2008 and assumed by Pawfect. The fair value of each of the 874,760 shares was estimated on the grant date to be $0.60, which was based on the price paid by shareholders participating in Synergy's July 14, 2008 private placement. Stock based compensation expense of $524,856 related to these shares is being amortized over the vesting period of 2 years. In connection with the Exchange Transaction Pawfect received $3,025,000 less transaction costs of $73,087, yielding net proceeds of $2,951,913 from two private placements, which the Company has recorded as an increase in additional paid-in capital.

        Pawfect was a development stage company selling pet food products utilizing the World Wide Web, with immaterial operations to date. On July 14, 2008, Pawfect discontinued its pet food business to focus all resources on continuing the development of drugs to treat GI disorders and diseases acquired in connection with the Exchange Agreement. On July 21, 2008 Pawfect, amended its articles of

F-12

incorporation, in the state of Florida, to effect the actions necessary to complete the transactions contemplated by the Exchange Agreement and changed its name to Synergy Pharmaceuticals, Inc. ("Synergy"). Synergy is now traded on the Over The Counter Bulletin Board under the symbol SGYP.OB.

2.    Basis of presentation and going concern

        All intercompany balances and transactions have been eliminated. These consolidated financial statements include Callisto and subsidiaries: (1) Callisto Research Labs, LLC (including its wholly-owned subsidiary, Callisto Pharma, GmbH (Germany—inactive)), and (2) Synergy (including Synergy's wholly-owned subsidiaries, Synergy-DE, Synergy Advanced Pharmaceuticals, Inc. and IgX, Ltd (Ireland—inactive)). These consolidated financial statements have been prepared following the requirements of the Securities and Exchange Commission ("SEC") and United States generally accepted accounting principles ("GAAP").

        The Company records adjustments to the minority interests in Synergy for the allocable portion of losses to which the minority interest holders are entitled. The Company suspended allocation of losses to minority interest holders when the minority interest balance was reduced to zero during the Quarter ended December 31, 2008. Any excess loss above the minority interest holder's balance is not charged to minority interests as the minority interest holders have no obligation to fund such losses.

        Since Synergy has incurred losses during the period July 14, 2008 to December 31, 2008, Callisto reduced its minority interest for 32% of Synergy's losses, or $1,151,577, which excludes Synergy's charge for purchased in process research and development eliminated in consolidation. Consequently, Callisto has effectively recorded 100% of the net losses of Synergy in the accompanying consolidated statements of operations and the minority interest in equity of majority owned subsidiary is zero on the accompanying balance sheet as of December 31, 2008.

        As of December 31, 2008, Callisto had an accumulated deficit during development stage of $90,987,267. Callisto expects to incur significant and increasing operating losses for the next several years as Callisto expands its research and development, continues clinical trials of SP-304 for the treatment of GI disorders, acquires or licenses technologies, advances other product candidates into clinical development, seeks regulatory approval and, if FDA approval is received, commercializes products. Because of the numerous risks and uncertainties associated with product development efforts, Callisto is unable to predict the extent of any future losses or when Callisto will become profitable, if at all.

        Net cash used in operating activities was $8,902,375, $8,448,543 and $8,329,705 for the twelve months ended December 31, 2008, 2007 and 2006, respectively, and $48,617,682 for the period from June 5, 1996 (inception) to December 31, 2008. As of December 31, 2008 and 2007, Callisto had $301,323 and $3,269,341 respectively, of cash and cash equivalents. As of December 31, 2007 Callisto also had $2,967,690 of temporary investments which were liquidated in full during the twelve months ended December 31, 2008 and used in operations.

        During the twelve months ended December 31, 2008, 2007 and 2006, Callisto incurred net losses from operations of $9,731,488, $10,564,413 and $12,166,171, respectively and $78,886,105 for the period June 5, 1996 (inception) to December 31, 2008. To date, Callisto's sources of cash have been primarily limited to sale of equity securities. Net cash provided by financing activities for the twelve months ended December 31, 2008, 2007 and 2006 was $2,951,913, $10,793,140, and $10,822,029, respectively, and $49,009,288 for the period June 5, 1996 (inception) to December 31, 2008. As of December 31, 2008 Callisto had a working capital deficit of $4,260,826.

        On December 30, 2008, Callisto entered into a securities purchase and exchange agreement ("Purchase Agreement") with several investors, each of whom were holders of record as of

F-13

November 4, 2008 of outstanding warrants to purchase shares of the Company's common stock, exercisable at $0.50 or $0.70 per share until August 2, 2010 ("Series B Warrants"). The Series B Warrants were issued in connection with the private placement of the Company's Series B Preferred Shares on August 2, 2007. Pursuant to the Purchase Agreements Callisto issued $201,905 of an authorized $500,000 of 11% Secured Notes due April 15, 2010 ("11% Notes") with no discount. Interest on the 11% Notes is due on maturity, whether on April 15, 2010 or by acceleration. Payment of the 11% Notes is secured by a pledge of up to 1,900,000 shares (if all $500,000 principal amount of the 11% Notes were to be sold) of the common stock of Synergy Pharmaceuticals, Inc. owned by the Company. As of December 31, 2008, the $201,905 was held in escrow in the Company's name and received subsequent to year end. (See Note 5.)

        On February 3, 2009 we issued an additional $53,161 of the authorized $500,000 11% Secured Notes bringing the aggregate proceeds from issuance of 11% Notes since inception to $255,066. On February 13, 2009 Synergy sold 285,714 shares of unregistered common stock at $0.70 per share to a private investor for aggregate proceeds of $200,000. On April 2, 2009 Synergy sold 100,000 shares of unregistered common stock at $0.70 per share to a private investor for aggregate proceeds of $70,000. On April 13, 2009 Synergy sold 180,000 shares of unregistered common stock at $0.70 per share to a private investor for aggregate proceeds of $126,000. On April 15, 2009 Synergy sold 1,045,714 shares of unregistered common stock at $0.70 per share to a private investor for aggregate proceeds of $732,000. As of April 15, 2009 the Company had approximately $600,000 cash on hand which, at its current reduced cash expenditure rate of approximately $100,000 per month, allow it to continue its efforts to raise additional financing for approximately six months

        Worldwide economic conditions and the international equity and credit markets have significantly deteriorated and may remain depressed for the foreseeable future. These developments will make it more difficult for us to obtain additional equity or credit financing, when needed. Callisto has accordingly taken steps to conserve our cash which include extending payment terms to our vendors and suppliers as well as management and staff salary cuts and deferrals. These actions may not be sufficient to allow the Company time to raise additional capital.

        These consolidated financial statements have been prepared under the assumption that Callisto will continue as a going concern for the next twelve months. Callisto's ability to continue as a going concern is dependent upon its ability to obtain additional equity or debt financing, attain further operating efficiencies and, ultimately, to generate revenue. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

        Callisto will be required to raise additional capital within the next year to complete the development and commercialization of current product candidates and to continue to fund operations at the current cash expenditure levels. Callisto cannot be certain that additional funding will be available on acceptable terms, or at all. To the extent that Callisto raises additional funds by issuing equity securities, Callisto's stockholders may experience significant dilution. Any debt financing, if available, may involve restrictive covenants that impact Callisto's ability to conduct business. If Callisto is unable to raise additional capital when required or on acceptable terms, Callisto may have to (i) significantly delay, scale back or discontinue the development and/or commercialization of one or more product candidates; (ii) seek collaborators for product candidates at an earlier stage than otherwise would be desirable and on terms that are less favorable than might otherwise be available; or (iii) relinquish or otherwise dispose of rights to technologies, product candidates or products that Callisto would otherwise seek to develop or commercialize ourselves on unfavorable terms.

F-14

3.    Summary of significant accounting policies and new accounting pronouncements

Use of Estimates

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

Cash and Cash Equivalents

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

Short-term Investments

        Short-term investments are considered held-to-maturity securities at December 31, 2007 and consist of $2,967,690 million in United States Treasury Bills maturing in January and April 2008. The Company had no such investments at December 31, 2008. Held-to-maturity securities are those securities which Callisto has the ability and intent to hold until maturity and are recorded at amortized cost adjusted for the amortization or accretion of premiums or discounts. Premiums and discounts are amortized or accreted over the life of the related held-to-maturity security as an adjustment to yield using the effective interest method.

Fair Value of Financial Instruments

        Financial instruments consist of cash and accounts payable. These financial instruments are stated at their respective historical carrying amounts which are equivalent to fair value due to their short term nature.

Property and Equipment

        Expenditures for additions, renewals and improvements are capitalized at cost. Depreciation is generally computed on a straight-line method based on the estimated useful lives of the related assets. The estimated useful lives of the major classes of depreciable assets are 2 to 5 years for equipment, furniture and fixtures. Callisto periodically evaluates whether current events or circumstances indicate that the carrying value of its depreciable assets may not be recoverable.

Income Taxes

        Income taxes have been determined using the asset and liability approach of accounting for income taxes. Under this approach, deferred taxes represent the future tax consequences expected to occur when the reported amounts of assets and liabilities are recovered or paid. Deferred taxes result from differences between the financial and tax bases of Callisto's assets and liabilities and are adjusted for changes in tax rates and tax laws when changes are enacted. Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not that a tax benefit will not be realized. The assessment of whether or not a valuation allowance is required often requires significant judgments. (See Note 7.)

Contingencies

        In the normal course of business, Callisto is subject to loss contingencies, such as legal proceedings and claims arising out of its business, that cover a wide range of matters, including, among others, government investigations, shareholder lawsuits, product and environmental liability, and tax matters. In accordance with Statement of Financial Accounting Standards ("SFAS") No. 5, Accounting for

F-15

Contingencies, ("SFAS No. 5"), Callisto records accruals for such loss contingencies when it is probable that a liability will be incurred and the amount of loss can be reasonably estimated. Callisto, in accordance with SFAS No. 5, does not recognize gain contingencies until realized. For a discussion of contingencies, see Note 8. Commitments and Contingencies below.

Business Concentrations and Credit Risks

        All of Callisto's cash and cash equivalents as of December 31, 2008 and 2007 are on deposit with commercial financial institution. Deposits at any point in time may exceed federally insured limits.

Research and Development

        Callisto has never had any commercial biopharmaceutical products, and does not expect to have such for several years, if at all. Therefore, because the future benefits of current research and development expenditures are highly uncertain, research and development costs are expensed as incurred. These costs include expenditures in connection with an in-house research and development laboratory, salaries and staff costs, application and filing for regulatory approval of proposed products, patent filing and maintenance expenses, purchased in-process research and development, regulatory and scientific consulting fees, as well as contract research, patient costs, drug formulation and tableting, data collection, monitoring, insurance and FDA consultants.

Loss Per Share

        Basic and diluted net loss per share is presented in conformity with SFAS No. 128, Earnings per Share, ("SFAS No. 128") for all periods presented. In accordance with SFAS No. 128, basic and diluted net loss per common share was determined by dividing net loss applicable to common stockholders by the weighted-average common shares outstanding during the period. Diluted weighted-average shares are the same as basic weighted-average shares because shares issuable pursuant to the exercise of stock options would have been antidilutive. (See Note 9)

Government Grants

        On October 7, 2003 Callisto was awarded a $265,697 Small Business Technology Transfer Research grant from the National Institutes of Health ("NIH") for studies on Atiprimod. The Principal and Co-Principal Investigators of the grant entitled "Atiprimod to Treat Multiple Myeloma and Bone Resorption" are Dr. Gary S. Jacob, Chief Executive Officer of Callisto, and Dr. Kenneth C. Anderson, Director of the Jerome Lipper Multiple Myeloma Center of the Dana-Farber Cancer Institute, respectively. Funding for the total amount of this grant was received during the twelve months ended December 31, 2004 and $265,697 was reported on our Consolidated Statements of Operations as a separate line item entitled "Government Grant".

        On April 1, 2005 Callisto was awarded an $885,641 biodefense partnership grant from the National Institute of Allergy and Infectious Diseases ("NIAID") to develop a monoclonal antibody and vaccine against bacterial superantigen toxins over a two year period. Callisto receives cash funding under approved grants and records the receipt as an offset to research and development expense only when the expense is incurred. Funds received as an offset to research and development expenses incurred totaled $30,000, $260,853 and $352,649 during the twelve months ended December 31, 2008, 2007 and 2006, respectively and has been reported on our Consolidated Statements of Operations as a separate line item entitled "Government Grants". Funding for this program was extended one year through April 2008. Because the bioterrorism program is not a core activity, Callisto terminated in-house work on this program upon expiration of the research grant in April 2008.

F-16

Recent Accounting Pronouncements

        In October 2008, the Financial Accounting Standards Board ("FASB") issued FASB Staff Position ("FSP") No. 157-3, Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active ("FSP No. 157-3"). This FSP applies to financial assets within the scope of accounting pronouncements that require or permit fair value measurements in accordance with SFAS No. 157. This FSP clarifies the application of SFAS No. 157 in determining the fair values of assets or liabilities in a market that is not active. This FSP is effective upon issuance, including prior periods for which financial statements have not been issued. The adoption of this FSP did not have a material impact on the Company's consolidated financial statements.

        In June 2008, the FASB ratified the consensus reached on Emerging Issues Task Force ("EITF") Issue No. 07-05, Determining Whether an Instrument (or Embedded Feature) Is Indexed to an Entity's Own Stock ("EITF No. 07-05"). EITF No. 07-05 clarifies the determination of whether an instrument (or an embedded feature) is indexed to an entity's own stock, which would qualify as a scope exception under SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. EITF No. 07-05 is effective for financial statements issued for fiscal years beginning after December 15, 2008. Early adoption for an existing instrument is not permitted. The Company is currently evaluating the impact of the pending adoption of EITF No. 07-05 on its consolidated financial statements.

        In March 2008, the FASB issued Statement of Financial Accounting Standards ("SFAS") No. 161, Disclosures about Derivative Instruments and Hedging Activities—an amendment of FASB Statement No. 133 ("SFAS No. 161"). SFAS No. 161 changes the disclosure requirements for derivative instruments and hedging activities. Entities are required to provide enhanced disclosures about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under Statement 133 and its related interpretations, and (c) how derivative instruments and related hedged items affect an entity's financial position, financial performance, and cash flows. The guidance in SFAS No. 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. This Statement encourages, but does not require, comparative disclosures for earlier periods at initial adoption. The Company is currently assessing the impact of SFAS No. 161 on its consolidated financial statements.

        In February 2008, the FASB issued FSP No. FAS No. 157-2, Partial Deferral of the Effective Date of Statement 157 ("FSP No. 157-2"). FSP No. 157-2 delays the effective date of SFAS No. 157, Fair Value Measurements ("SFAS No. 157") for all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually) to fiscal years beginning after November 15, 2008. The Company is currently evaluating the impact of SFAS No. 157 on nonfinancial assets and nonfinancial liabilities, but does not expect the adoption to have a material impact on its consolidated financial position, results of operations or cash flows.

        In December 2007, the FASB ratified EITF Issue No. 07-1, Accounting for Collaborative Arrangements Related to the Development and Commercialization of Intellectual Property ("EITF No. 07-1"), which provides guidance on how the parties to a collaborative agreement should account for costs incurred and revenue generated on sales to third parties, how sharing payments pursuant to a collaboration agreement should be presented in the income statement and certain related disclosure requirements. EITF No. 07-1 is effective for fiscal years beginning after December 15, 2008, and is to be applied retrospectively to all periods presented for all collaborative arrangements existing as of the effective date. The Company is continuing to evaluate the impact of adopting the provisions of EITF No. 07-1; however, it does not anticipate that the adoption will have a material effect on its consolidated financial position, results of operations or cash flows.

F-17

        In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements—an amendment of ARB No. 51 ("SFAS No. 160"). SFAS No. 160 establishes accounting and reporting standards that require the ownership interests in subsidiaries held by parties other than the parent to be clearly identified, labeled and presented in the consolidated statement of financial position within equity, but separate from the parent's equity. This statement also requires the amount of consolidated net income attributable to the parent and to the noncontrolling interest to be clearly identified and presented on the face of the consolidated statement of income. Its intention is to eliminate the diversity in practice regarding the accounting for transactions between an entity and noncontrolling interests. This Statement is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. Earlier adoption is prohibited. The Company is currently assessing the impact of adopting the provisions of SFAS No. 160 on its consolidated financial position, results of operations or cash flows.

        In December 2007, the FASB issued SFAS No. 141(R), a revised version of SFAS No. 141, Business Combinations ("SFAS No. 141(R)"). The revision is intended to simplify existing guidance and converge rulemaking under GAAP with international accounting rules. This statement applies prospectively to business combinations where the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. An entity may not apply it before that date. The Company is continuing to evaluate the impact of adopting the provisions of SFAS No. 141 (R) and does not anticipate that the adoption of this Statement will have a material effect on its consolidated financial position, results of operations or cash flows.

        In June 2007, the EITF of the FASB reached a consensus on Issue No. 07-3, Accounting for Nonrefundable Advance Payments for Goods or Services Received for Use in Future Research and Development Activities ("EITF No. 07-3"). EITF No. 07-3 requires that non-refundable advance payments for goods or services that will be used or rendered for future research and development activities should be deferred and capitalized. As the related goods are delivered or the services are performed, or when the goods or services are no longer expected to be provided, the deferred amounts would be recognized as an expense. Callisto adopted EITF No. 07-3 on January 1, 2008 and the adoption did not have a material effect on its consolidated financial position, results of operations or cash flows.

        In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities, including an Amendment to SFAS No. 115 ("SFAS No. 159"). The fair value option established by SFAS No. 159 permits all entities to measure all eligible items at fair value at specified election dates. A business entity shall report all unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting date. The provisions of SFAS No. 159 are effective for fiscal years beginning after November 15, 2007. The Company adopted SFAS No. 159 on January 1, 2008 and such adoption did not have a material effect on Callisto's financial statements, as Callisto did not elect this fair value option on any financial assets or liabilities.

        In September 2006, the FASB issued SFAS No.157. SFAS No. 157 defines fair value, establishes a framework for measuring fair value in accordance with GAAP and expands disclosures about fair value measurements. SFAS No. 157 does not require any new fair value measurements. SFAS No. 157 emphasizes a "market-based" as opposed to an "entity-specific" measurement perspective, establishes a hierarchy of fair value measurement methods and expands disclosure requirements about fair value measurements including methods and assumptions and the impact on earnings. This Statement is effective for fiscal years beginning after November 15, 2007. The Company adopted SFAS No. 157 on January 1, 2008 with respect to its financial assets and financial liabilities and such adoption did not have a material effect on its consolidated financial position, results of operations or cash flows.

F-18

4.     Merger and consolidation

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

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

        The merged companies are considered to be in the development stage. No revenues have been realized since inception and all activities have been concentrated in research and development of biopharmaceutical products not yet approved by the Food and Drug Administration. The fair value of the net shares issued to former Synergy shareholders in the Merger totaled $6,335,799 through December 31, 2005. The fair value per share of $1.50, used to determine this amount, was the value per share Callisto sold common stock in a private placement. The total consideration was allocated in full to the Synergy research and development projects which had not yet reached technological feasibility and having no alternative use was charged to purchased in-process research and development expense during the year ended December 31, 2003.

5.     Stockholders' equity (deficit)

        On December 30, 2008, Callisto entered into a securities purchase and exchange agreement ("Purchase Agreement") with several investors, each of whom were holders of record as of November 4, 2008 of outstanding warrants to purchase shares of the Company's common stock, exercisable at $0.50 or $0.70 per share until August 2, 2010 ("Series B Warrants"). The Series B Warrants were issued in connection with the private placement of the Company's Series B Preferred Shares on August 2, 2007. Pursuant to the Purchase Agreements Callisto issued $201,905 of an authorized $500,000 of 11% Secured Notes due April 15, 2010 ("11% Notes") with no discount. Interest on the 11% Notes is due on maturity, whether on April 15, 2010 or by acceleration. Payment of the 11% Notes is secured by a pledge of up to 1,900,000 shares (if all $500,000 principal amount of the 11% Notes were to be sold) of the common stock of Synergy Pharmaceuticals, Inc. owned by the Company. As of December 31, 2008, the $201,905 was held in escrow in the Company's name and received subsequent to year end.

        Pursuant to the Purchase Agreement, Callisto issued, to the December 30, 2008 purchasers of the 11% Notes, 23,219,104 common stock purchase warrants ("New Warrants") in exchange for the surrender and cancellation of 11,298,134 outstanding Series B Warrants. The New Warrants have an

F-19

exercise price, subject to certain anti-dilution adjustments, of $0.02 per share and are exercisable at any time on or prior to December 31, 2016.

        The proceeds from the issuance of these instruments were allocated to the notes and warrants based upon the relative fair value amounts of the fair value of the notes and the estimated fair value of the warrants. The New Warrants had a fair value of approximately $1,900,000, measured utilizing the Black Scholes fair value methodology using assumptions of 8 years for expected term, volatility of 200%, no dividends and a risk free interest rate of 0.76%, as of December 30, 2008. This resulted in a debt discount of approximately $182,000. The debt discount will be amortized to interest expense over the life of the 11% Notes. Interest expense relating to these warrants was immaterial for the year ended December 31, 2008. The 11% Notes are shown, net of the unamortized debt discount in the accompanying balance sheet.

        On July 14, 2008, Callisto entered into an Exchange Agreement dated July 11, 2008 ("Exchange Agreement"), as amended and effective on July 14, 2008, with Pawfect Foods, Inc. ("Pawfect"), Synergy Pharmaceuticals, Inc. ("Synergy-DE"), a majority-owned subsidiary of Callisto, and other holders of Synergy-DE common stock. According to the terms of the Exchange Agreement, Pawfect acquired 100% of the common stock of Synergy-DE, from Callisto and the other holders of Synergy-DE, in exchange for 45,464,760 shares of Pawfect's common stock representing approximately 70% of Pawfect's outstanding common stock (the "Exchange Transaction"). Callisto received 44,590,000 of the 45,464,760 shares of Pawfect's common stock exchanged for its ownership of Synergy-DE, and Callisto is now the holder of 68% of Pawfect's outstanding common stock. The remaining 874,760 shares of Pawfect common stock exchanged for ownership of Synergy-DE were issued to certain executive officers of Synergy-DE who received their shares pursuant to a Repurchase Agreement with Synergy-DE dated July 3, 2008 and assumed by Pawfect. The fair value of each of the 874,760 shares was estimated on the grant date to be $0.60, which was based on the price paid by shareholders participating in Synergy's July 14, 2008 private placement. Stock based compensation expense of $524,856 related to these shares is being amortized over the vesting period of 2 years. In connection with the Exchange Transaction Pawfect received $3,025,000 less transaction costs of $73,087, yielding net proceeds of $2,951,913 from two private placements, which the Company has recorded as an increase in additional paid-in capital.

        On April 7, 2008, Callisto received notice from the staff of the American Stock Exchange ("AMEX") of its intent to strike Callisto's common stock from the AMEX by filing a delisting application with the SEC for failure to regain compliance with Sections 1003(a)(i) and 1003(a)(ii) of the Company Guide and falling out of compliance with Section 1003(a)(iii) of the Company Guide with shareholders' equity of less than $6,000,000 and losses from continuing operations and/or net losses in four of our five most recent fiscal years. On July 14, 2008, Callisto's common stock was delisted from the AMEX and currently trades on the Over The Counter Bulletin Board under the Symbol CLSP.OB.

        On January 31, 2008, the Board of Directors approved a reassignment, as well as, a decrease in the exercise price, of the 1,323,822 warrants, previously assigned from Trilogy Capital Partners LLC to two unaffiliated entities, from $1.03 per share to $0.70 per share. The decrease in the exercise price was effective immediately and the reassignment will be effective at management's discretion. Callisto has determined that the price modifications was compensatory in accordance with SFAS 123R and the associated stock-based compensation expense of $45,086 was recorded during the quarter ended March 31, 2008. As of December 31, 2008, Callisto had not reassigned the warrants any further.

        On September 27, 2007, Callisto filed a Certificate of Amendment to its Certificate of Incorporation increasing its authorized number of shares of common stock from 150,000,000 to 225,000,000. The Certificate of Amendment was approved by Callisto's stockholders at its annual meeting on September 26, 2007. On March 2, 2007, at a Special Meeting of Stockholders of the Corporation, the stockholders voted to amend the Callisto's Certificate of Incorporation, as amended, to increase the number of authorized shares of common stock, par value $.0001 per share, from 100,000,000 shares to 150,000,000 shares.

F-20

        During August 2007, Callisto closed a private placement of 1,147,050 shares of Series B Preferred Stock and 22,941,000 Warrants to certain Investors for aggregate gross proceeds of $11,470,500 pursuant to a Securities Purchase Agreement dated as of August 2, 2007. Each share of Series B Preferred Stock was immediately convertible into that number of shares of common stock determined by dividing the stated value of $10.00 of such share of Series B Preferred Stock by $0.50, at the option of the holder, at any time and from time to time. The Warrants are immediately exercisable at $0.70 per share at any time within three years from the date of issuance. In connection with this transaction, Callisto paid aggregate fees and expenses of $920,960 and issued warrants to purchase 2,518,900 shares of common stock exercisable at $0.50 per share at any time within three years from the date of issuance and 2,518,900 shares of common stock exercisable at $0.70 per share at any time within four years from the date of issuance to certain selling agents. The fair value of the selling agent warrants on the date of grant was $1,839,962 using Black Scholes assumptions of 60% volatility, a risk free interest rate of 4.57% to 4.31%, no dividend, an expected life of 4 years and a stock price on the dates of grant ranging from $0.66 to $0.68 per share. This fair value was accounted for as a cost of capital.

        During the twelve months ended December 31, 2008, 10,000 shares of Series B Convertible Preferred Stock were converted to 200,000 shares of common stock at a conversion price of $0.50 per share. There were no conversions of the Series B Convertible Preferred Stock during the twelve months ended December 31, 2007.

        Other than pursuant to certain issuances, for the twelve month period beginning on the effective date of the Registration Statement registering the resale of the shares of Common Stock underlying the Warrants by the Holder, if the Company at any time while the Warrants are outstanding, shall sell or grant any option to acquire shares of Common Stock, at an effective price lower than the then exercise price then, the exercise price shall be reduced to such lower price.

        Subsequent to closing, $8,480,000 of the net proceeds were placed into escrow at the request of RAB Special Situations (Master) Fund Limited and Absolute Octane Master Fund Limited (collectively, the "Lead Investors"), each of which invested $5,000,000 in the private placement. Pursuant to a Put Option Agreement, the Lead Investors had the right until October 30, 2007 to require redemption by the Company of all of the Series B Convertible Preferred Stock and 85% of the Warrants purchased by them only upon the occurrence of any of the following events:

(i)

The Company shall have not received the approval of its common stockholders of the issuance of shares of Common Stock issuable upon the conversion of the Series B Convertible Preferred Stock or the exercise of the Warrants (the "Underlying Shares") by 5:00 pm New York time on September 30, 2007. Such approval was obtained at a meeting of stockholders held on September 26, 2007.

or

(ii)

The American Stock Exchange shall not have approved the Listing of Additional Securities application filed by the Company relating to the Underlying Shares by 5:00 pm New York time on September 30, 2007 (for a reason other than the Lead Investors failing to timely provide American Stock Exchange with information reasonably requested by Amex Listing Qualification as part of their review of the application); The American Stock Exchange approved the Company's Listing of Additional Securities on September 26, 2007.

or

(iii)

The American Stock Exchange or the Company delists the Common Stock on or before 5:00 pm New York time on September 30, 2007. As of September 30, 2007 Callisto stock continued to be listed on the American Stock Exchange.

        Having satisfied these conditions of the Put Option the escrow was released on October 1, 2007.

F-21

        The Investors also are parties to a Registration Rights Agreement, dated as of August 2, 2007 pursuant to which the Company agreed to file, within 45 days of closing, a registration statement covering the resale of the shares of common stock underlying the Series B Preferred Stock and Warrants issued to the Investors. Failure to file a registration statement and maintain its effectiveness as agreed will result in the Company being required to pay liquidated damages equal to 1% per month of the aggregate purchase price paid by the Investors, not to exceed an aggregate of 18%. The Company filed a Form S-3 Registration Statement covering the sale of the common shares underlying the conversion of the Series B Preferred Stock and the Warrants on September 11, 2007 and this Form S-3 was declared effective by the SEC on September 27, 2007.

        Material terms of the Series B Preferred Stock are:

        Use of Proceeds.    At least 50% of the net proceeds from the sale of the Series B Preferred Stock to the Lead Investors shall be dedicated to the development and clinical trials of SP-304 and the remaining net proceeds shall be used for working capital purposes.

        Voting Rights.    The Series B Preferred Stock shall have no voting rights. However, so long as any shares of Series B Preferred Stock are outstanding, the Company shall not, without the affirmative vote of the holders of the shares of the Series B Preferred Stock then outstanding, (a) alter or change adversely the powers, preferences or rights given to the Series B Preferred Stock or alter or amend the Certificate of Designation (whether by merger, consolidation or otherwise), (b) authorize or create any class of stock ranking as to dividends, redemption or distribution of assets upon a Liquidation senior to or otherwise pari passu with the Series B Preferred Stock, (c) amend its certificate of incorporation or other charter documents so as to affect adversely any rights of the holders, (d) increase the authorized number of shares of Series B Preferred Stock, or (e) enter into any agreement with respect to the foregoing.

        Liquidation.    Upon any liquidation, dissolution or winding-up of the Company, whether voluntary or involuntary, the holders shall be entitled to receive out of the assets of the Company, whether such assets are capital or surplus, for each share of Series B Preferred Stock an amount equal to the stated value of $10.00 per share, plus any accrued and unpaid dividends thereon and any other fees or liquidated damages owing thereon before any distribution or payment shall be made to the holders of any junior securities, and if the assets of the Company shall be insufficient to pay in full such amounts, then the entire assets to be distributed to the Holders shall be distributed among the holders ratably in accordance with the respective amounts that would be payable on such shares if all amounts payable thereon were paid in full.

        Conversions at Option of Holder.    Each share of Series B Preferred Stock shall be convertible into that number of shares of common stock determined by dividing the stated value of $10.00 of such share of Series B Preferred Stock by $0.50 (the "Conversion Price"), at the option of the holder, at any time and from time to time.

        Conversion at the Option of the Company.    Beginning August 2, 2008, provided certain conditions are satisfied, if the volume weighted average price of the Company's common stock equals $1.00 per share for the 20 consecutive trading days and the average daily volume of the common stock is at least 0.5% of the shares that are being converted, the Company shall have the right to convert any portion of the Series B Preferred Stock into shares of common stock at the then-effective Conversion Price.

        Subsequent Equity Sales.    For the twelve (12) month period beginning on the effective date of the registration statement registering the resale of the shares of common stock underlying the Series B Preferred Stock by the holder, if the Company at any time while Series B Preferred Stock is outstanding, shall sell or grant any option to purchase or otherwise dispose of or issue any common stock or common stock equivalents entitling any Person to acquire shares of Common Stock, at an

F-22

effective price per share less than the then Conversion Price (the "Base Conversion Price"), then, the Conversion Price shall be reduced to an amount equal to the Base Conversion Price.

        As per FASB Statement of Financial Accounting Standards No. 150: Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity, the Company determined the balance sheet classification of the Series B Preferred Stock to be equity given that the mandatory redemption option had expired as of September 30, 2007. The escrow was released on October 1, 2007 with no further claims or restrictions on the cash.

        As per Emerging Issues Task Force ("EITF") Issue 00-19, "Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, Company Stock", ("EITF 00-19") Callisto has determined that the fair value of the Series B Warrants issued to the Lead Investors should be treated as a liability upon issuance and reclassified to permanent equity based on the fair value upon expiration of the Put Option. The change in fair value of the Series B Lead Investor warrant from the date of issuance through the expiration of the Put Option was recorded as other income totaling $2,591,005 during the three and nine months ended September 30, 2007. Callisto has determined that the warrants issued to other than Lead Investors should be treated as "permanent equity".

        As per FSP No. 00-19-2 "Accounting for Registration Payment Arrangements" ("FSP 00-19-2"), issued in December 2006, which specifies that contingent obligations under a registration payment arrangement should be separately recognized and measured in accordance with FASB Statement No.5 "Accounting for Contingencies". Callisto has determined that no liability needed to be recorded because the Company filed a timely registration statement covering the sale of the common shares underlying the conversion of the Series B Preferred Stock and the Warrants on September 11, 2007.

        As per EITF 00-27, "Application of Issue 98-5 to Certain Convertible Instruments" ("EITF 00-27") Callisto evaluated the Series B Preferred Stock transaction and accordingly found that there was an embedded beneficial conversion feature. The fair value of the detachable warrants on the date of grant was $6,677,513 using Black Scholes assumptions of 60% volatility, a risk free interest rate of 4.57% to 4.31%, no dividend, an expected life of 3 years and a stock price on that dates of grant ranging from $0.66 to $0.68 per share. The conversion rights of the Series B Preferred Stock contained an embedded beneficial conversion feature totaling $10,495,688 that was immediately accreted to the Series B Convertible Preferred Stock as a dividend because the preferred stock could be converted immediately upon issuance.

        From October 23, 2006 until January 10, 2007, Callisto placed 602,350 shares of Series A Convertible Preferred Stock and 8,031,333 warrants to certain investors for aggregate gross proceeds of $6,023,500. As of December 31, 2006 Callisto had closed on 574,350 shares of such Series A Convertible Preferred Stock for aggregate gross proceeds of $5,743,500. The final tranche of this financing closed January 10, 2007 when Callisto placed 28,000 shares of such Series A Convertible Preferred Stock for aggregate gross proceeds of $280,000. The shares of Series A Convertible Preferred Stock are convertible into shares of common stock at a conversion price of $0.75 per share. The investors also are parties to a Registration Rights Agreement, dated as of October 23, 2006 pursuant to which Callisto agreed to file, within 60 days of closing, a registration statement with the SEC covering the resale of the shares of common stock underlying the Series A Convertible Preferred Stock and the warrants issued to the investors. The warrants are immediately exercisable at $0.75 per share, will expire five years from the date of issuance, and have certain anti-dilution rights for the twelve month period beginning on the effective date of the registration statement registering the shares of common stock underlying the warrants. Callisto (i) paid aggregate fees and expenses of $485,308 ($448,908 prior to December 31, 2006) in cash and (ii) issued an aggregate 11,775 shares of Series A Convertible Preferred Stock and 1,228,761 warrants to purchase common stock, to certain selling agents. The warrants are immediately exercisable at $0.75 per share, will expire five years after issuance and have the same anti-dilutive rights as the investor warrants. The fair value of the selling agent warrants on the date of grant was $640,481 using Black Scholes assumptions of 60% volatility, a risk free interest rate

F-23

of 4.60%, no dividend, an expected life of 5 years and a stock price on the dates of grant of $0.88 per share. This fair value was accounted for as a cost of capital.

        The material terms of the Series A Preferred Stock consist of:

        Dividends.    Holders of the Series A Convertible Preferred Stock shall not be entitled to receive dividends except as and if declared at Callisto's sole election.

        Voting Rights.    Shares of the Series A Convertible Preferred Stock shall have no voting rights. However, so long as any shares of Series A Convertible Preferred Stock are outstanding, Callisto shall not, without the affirmative vote of a majority in interest of the shares of Series A Convertible Preferred Stock then outstanding, (a) alter or change adversely the powers, preferences or rights given to the Series A Convertible Preferred Stock, (b) authorize or create any class of stock senior or equal to the Series A Convertible Preferred Stock, (c) amend its articles of incorporation or other charter documents, so as to affect adversely any rights of the holders of Series A Convertible Preferred Stock or (d) increase the authorized number of shares of Series A Convertible Preferred Stock.

        Liquidation.    Subject to the rights of the holders of the Series B Convertible Preferred Stock, upon any liquidation, dissolution or winding-up of Callisto, the holders of the Series A Convertible Preferred Stock shall be entitled to receive an amount equal to the Stated Value per share, which is $10 per share plus any accrued and unpaid dividends.

        Conversion Rights.    Each share of Series A Convertible Preferred Stock shall be convertible into that number of shares of common stock determined by dividing the Stated Value, currently $10 per share, by the conversion price, currently $0.75 per share. The conversion price is subject to adjustment for dilutive issuances.

        Automatic Conversion.    Beginning October 24, 2007, if the price of the common stock equals $1.50 per share for 20 consecutive trading days, and an average of 50,000 shares of common stock per day shall have been traded during the 20 trading days, Callisto shall have the right to deliver a notice to the holders of the Series A Convertible Preferred Stock, to convert any portion of the shares of Series A Convertible Preferred Stock into shares of Common Stock at the conversion price.

        As per EITF 00-19, Callisto has determined that the warrants should be treated as "permanent equity".

        As per FSP No. 00-19-2 which specifies that contingent obligations under a registration payment arrangement should be separately recognized and measured in accordance with FASB Statement No.5 "Accounting for Contingencies", Callisto has determined that no liability needed to be recorded. On January 12, 2007 Callisto filed a registration statement on Form S-3 registering the common stock issuable upon (i) the conversion of the all Series A Convertible Preferred Stock, (ii) the exercise of all related investor warrants and (iii) the exercise of all selling agent warrants. On February 15, 2007 Amendment No.1 to this registration statement was declared effective by the SEC.

        As per EITF 00-27, Callisto evaluated the Series A Convertible Preferred Stock transaction and accordingly found that there was an embedded beneficial conversion feature. The fair value of the detachable warrants on the date of grant was $3,557,872 using Black Scholes assumptions of 60% volatility, a risk free interest rate of 4.57% to 4.84%, no dividend, an expected life of 5 years and a stock price on that dates of grant ranging from $0.88 to $0.75 per share. The conversion rights of the Series A Convertible Preferred Stock issued during the twelve months ended December 31, 2006 contained a beneficial conversion feature totaling $2,384,485. This beneficial conversion feature was immediately accreted to the Series A Convertible Preferred Stock as a dividend because the preferred stock could be converted immediately upon issuance. The beneficial conversion feature associated with final tranche of 28,000 shares of Series A Convertible Preferred Stock placed on January 10, 2007 amounted to $119,685 and was recorded as a beneficial conversion feature accreted as a dividend in the quarter ended March 31, 2007.

F-24

        The Series A Preferred Stock and Warrants issued from October 23, 2006 through January 10, 2007 have certain anti-dilution rights. As a result of the August 2, 2007 Series B Preferred Stock financing the conversion price of the then remaining Series A Preferred Stock and the exercise price of the then remaining Series A Warrants was reset from $0.75 per share to $0.50 per share. This modification resulted in $2,384,790 of additional beneficial conversion accreted as a dividend during the quarter ended September 30, 2007. The total beneficial conversion feature accreted as a dividend for the twelve months ended December 31, 2007 and 2006 was $2,504,475 and $2,384,485, respectively.

        During the twelve months ended December 31, 2007, 36,125 shares of Series A Convertible Preferred Stock were converted to 481,666 shares of common stock prior to August 2, 2007 at a conversion price of $0.75 per share and 359,325 shares of Series A Convertible Preferred Stock were converted to 7,186,500 shares of common stock subsequent to August 2, 2007, at a conversion price of $0.50 per share. During the twelve months ended December 31, 2008, 120,675 shares of Series A Convertible Preferred Stock were converted to 2,413,500 shares of common stock at a conversion price of $0.50 per share.

        On September 8, 2006 Callisto entered into a Letter Agreement with certain investors (the "Investors") who participated in a private placement of our common stock and warrants in February and April 2006 (the "Prior Placement" see below). Pursuant to this Letter Agreement, the Investors agreed to amend (the "Amendment") the securities purchase agreement (the "Securities Purchase Agreement"), entered into in connection with the Prior Placement, to (i) delete the mandatory registration rights set forth in the Securities Purchase Agreement and add piggyback registration rights and (ii) waive any unpaid penalties pursuant to the liquidated damages provisions contained in the Securities Purchase Agreement. In addition, the Investors agreed to enter into a lock-up agreement (the "Lock-up Agreement") pursuant to which they agreed not to sell or transfer the shares of common stock and warrants acquired in the Prior Placement for a period of nine months beginning September 1, 2006. In exchange for the Investors entering into the Amendment and the Lock-Up Agreement, Callisto agreed to issue to each Investor one share of common stock and 2.35 five year warrants exercisable at $1.00 per share (the "New Warrants") for every five shares of common stock they purchased in the Prior Placement. In addition, Callisto agreed in the Letter Agreement to amend the warrants (the "Old Warrants") issued in the Prior Placement to the Investors to (i) extend the expiration date of the Old Warrants by 42 months thereby making them 5 year warrants and (ii) eliminate the provision in the Old Warrants by which Callisto can force exercise of the unexercised warrants. During October and November 2006 Callisto entered into the Amendment and Lock-up Agreements with each Investor pursuant to which Callisto issued 740,065 shares of common stock and 2,086,988 New Warrants. $153,797 in cash liquidated damages, payable to these Investors as of September 30, 2006, was concurrently waived.

        The fair value of the shares issued to the Investors was $643,858 using the stock price on September 8, 2006 of $0.87 per share. The fair value of the New Warrants was $934,928 using Black Scholes assumptions of 60% volatility, a risk free interest rate of 4.25%, no dividend, an expected life of 5 years and a stock price on that date of $0.87 per share, resulting in a total consideration associated with this transaction of $1,578,786. $425,899 of this fair value was allocated to additional stock-based liquidated damages expense during the quarter ended December 31, 2006 which, when combined with $153,797 of accrued liquidated damages waived as of September 30, 2006, resulted in total non-cash share based liquidated damages of $579,696 for the twelve months ended December 31, 2006. The balance of the total consideration, $999,090, was charged to additional paid in capital as a cost of placing the Series A Convertible Preferred Stock discussed above.

        On February 3, 2006, Callisto closed a private placement of 4,283,668 shares of common stock and 1,070,917 common stock purchase warrants to certain accredited investors. The warrants are exercisable for 18 months from closing at an exercise price of $1.60 per share. The securities were sold at a price of $1.20 per share for aggregate proceeds of $5,140,210 and Callisto paid an aggregate transaction

F-25

related fees and expenses of $561,808, yielding net proceeds of $4,578,402. In addition Callisto issued an aggregate 390,284 warrants to certain selling agents, which are exercisable at $1.25 per share and will expire three years after closing.

        On April 7, 2006 Callisto had a second closing of the financing described above, in which Callisto sold an additional 666,667 shares of common stock and issued 166,667 common stock purchase warrants at the same terms, for gross proceeds of $800,000, bringing the total gross proceeds of the financing to $5.94 million and net proceeds to $5.34 million. Transaction related fees and expenses of $41,000 were paid on this second closing and three year warrants to purchase a total of 66,667 common shares at a per share price of $1.25 were issued to certain selling agents.

        Callisto agreed to file, within 60 days after the closing, a registration statement covering the resale of the shares of common stock and the shares underlying the warrants or pay financial liquidated damages to the investors up to a maximum of 8% of the gross proceeds. As of December 31, 2006 Callisto had incurred $801,690 in liquidated damages related to the registration rights agreement which have been classified as other expense on our consolidated statement of operations. On January 12, 2007 Callisto filed a registration statement on Form S-3 registering the common stock issued (i) on February 3, 2006, (ii) on April 7, 2006 and (iii) the common stock underlying the selling agent warrants. On February 15, 2007 Amendment No.1 to this registration statement was declared effective by the SEC.

        As provided for by EITF Issue 00-19, "Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company's Own Stock" the warrants were classified as permanent equity. The fair value of the investor warrants on the dates of grant was $1,269,978 using Black Scholes assumptions of 79% volatility, a risk free interest rate of 4.25%, no dividend, an expected life of 5 years and a stock price on that date of $1.59 per share. This fair value allocated to the investor warrants was recorded as additional paid in capital during the year ended December 31, 2006.

        On October 20, 2005, at the Annual Meeting of Stockholders, Callisto stockholders voted to amend Callisto's certificate of incorporation to increase the authorized number of shares of common stock from 75,000,000 shares to 100,000,000 shares. In addition the stockholders voted to adopt the Callisto 2005 Equity Compensation Incentive Plan and the Callisto 2005 Directors' Stock Option Plan. (Note 6) The details of these stockholder resolutions are included in Callisto's Proxy Statement (Schedule 14A Information) filed September 1, 2005 with the Securities and Exchange Commission.

        On August 22, 2005, Callisto sold and issued in a private placement an aggregate 1,869,203 shares of common stock at a price of $0.97 per share for aggregate proceeds of $1,813,127 and paid an aggregate $151,250 to certain selling agents.

        On March 9, 2005, Callisto sold and issued in a private placement 1,985,791 shares of common stock at a per share price of $1.52, for aggregate gross proceeds of $3,018,401 and net proceeds of $2,993,401. Because this transaction was completed with certain existing institutional shareholders and certain members of management, Callisto paid no selling agent fees and legal fees were $25,000.

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

        In January 2004 Callisto recorded $209,076 of purchased in process research and development as a result of the issuance of 263,741 warrants to two Callisto shareholders, which warrants are immediately exercisable at $1.50 per share and will expire ten years after issuance; and $60,750 of stock-based compensation expense associated with shares of common stock issued to a shareholder for services performed.

F-26

        From November 2003 through January 2004, Callisto sold and issued 3,905,432 shares of common stock at an issue price of $1.50 for aggregate gross proceeds of $5,858,148. Callisto incurred an aggregate of $501,516 in fees to various selling agents. In addition Callisto issued 31,467 shares of common stock and 370,543 warrants to purchase common stock to such selling agents. The warrants are immediately exercisable at $1.90 per share and will expire five years after issuance.

        As of December 31, 2003 Callisto had closed on a portion of this transaction, specifically 2,776,666 shares of common stock at a price of $1.50 per share for aggregate gross proceeds of $4,164,999, less $361,625 incurred in fees to various selling agents. During January 2004, Callisto completed this private placement begun in late 2003 and issued 1,128,766 shares of common stock at an issue price of $1.50 for aggregate proceeds of $1,693,149, less $139,891 in fees to various selling agents.

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

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

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

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

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

	Shares		Price Per Share		Gross Proceeds
December 1996		1,366,667	$	0.75	$	1,025,000
December 1997		1,442,667	$	0.75		1,081,999
October 1998		1,416,667	$	0.75		1,062,500
January 1999		146,667	$	0.75		110,000
December 1999		200,000	$	0.75		150,000
Total		4,572,668			$	3,429,499

F-27

        As of December 31, 2008 and 2007 Callisto had 55,773,331 and 45,162,920 warrants outstanding to investors, selling agents and advisors with a weighted average exercise price of $0.43 and $0.71 per share, of which 55,773,331 and 44,012,920 warrants were fully vested with an average exercise price of $0.43 and $0.72 per share, respectively.

6.     Shared-based payments

Callisto Pharmaceuticals, Inc. Stock Option Plans

        In 1996, Callisto adopted the 1996 Incentive and Non-Qualified Stock Option Plan (the "Plan") for employees, consultants and outside directors to purchase up to 2,000,000 shares of common stock. This Plan was amended in December 2002 to increase the number of shares authorized under the Plan to 10,000,000. The option term for the 3,884,205 options outstanding as of December 31, 2008 under the Plan is ten years from date of grant. The Plan terminated on January 1, 2006 under its original terms and no further options will be granted under the Plan.

        On October 20, 2005, Callisto stockholders approved the 2005 Equity Compensation Incentive Plan. The maximum number of shares of common stock with respect to which awards may be granted under the 2005 Equity Plan is 5,000,000. The option term for options granted under the 2005 Equity Plan is ten years from date of grant and there were 3,468,000 options available for future grants as of December 31, 2008.

        On October 20, 2005, Callisto stockholders approved our 2005 Directors' Stock Option Plan. The maximum number of shares of common stock with respect to which awards may be granted under the 2005 Directors' Plan is 1,000,000. The option term for options granted under the 2005 Directors' Plan is ten years from date of grant and there are 830,000 option shares available for future grants as of December 31, 2008.

        The options Callisto grant under the 2005 Equity Plan may be either "incentive stock options" within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), or non-statutory stock options at the discretion of the Board of Directors and as reflected in the terms of the written option agreement. None of our stock option plans are qualified deferred compensation plans under Section 401(a) of the Code, and are not subject to the provisions of the Employee Retirement Income Security Act of 1974, as amended (ERISA). As of December 31, 2008, Callisto has 2,352,333 stock options outstanding not subject to our stock option plans.

Stock Option Accounting

        In December 2004, the FASB issued SFAS No. 123 (Revised 2004), Share-Based Payments ("SFAS No. 123R"). SFAS No. 123R requires companies to measure the cost of employee services received in exchange for the award of equity instruments based on the estimated fair value of the award at the date of grant. The expense is to be recognized over the period during which an employee is required to provide services in exchange for the award. SFAS No. 123R was effective as of January 1, 2006.

        SFAS No. 123R did not change the way Callisto account for non-employee stock-based compensation. Callisto continues to account for shares of common stock, stock options and warrants issued to non-employees based on the fair value of the stock, stock option or warrant, if that value is more reliably measurable than the fair value of the consideration or services received. Stock-based compensation expense associated with these most of our non-employee option grants is being recorded in accordance with EITF 96-18 and accordingly (i) the measurement date will be when "performance commitment is completed" and accordingly the fair value of these options is being "marked to market" quarterly until the measurement date is determined.

        FASB No. 123R requires that cash flows resulting from tax deductions in excess of the cumulative compensation cost recognized for options exercised (excess tax benefits) be classified as cash inflows

F-28

from financing activities and cash outflows from operating activities. Due to Callisto's accumulated deficit position, no tax benefits have been recognized in the cash flow statement.

        Prior to January 1, 2006, Callisto had adopted SFAS No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"). As provided for by SFAS 123, Callisto had elected to continue to account for stock-based compensation according to the provisions of Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25"). Accordingly, compensation expense had been recognized to the extent of employee or director services rendered based on the intrinsic value of stock options granted under the plan.

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

Callisto Share-Based Compensation

        Stock options issued by Callisto typically vest after three years of continuous service from the grant date and have a contractual term of ten years. The fair values are amortized to share-based compensation pro-rata over the vesting term.

        Share-based payments have been recognized in operating results as follow:

	Year Ended December 31,							Period from June 5, 1996 (Inception) to December 31, 2008
	2008			2007		2006
Employees—included in research and development	$	40,608		$	68,734	$	420,683	$	2,661,885
Employees—included in general and administrative		162,262			321,350		951,804		4,749,953
Subtotal employee stock option grants		202,870			390,084		1,372,487		7,411,838
Non-employee—included in research and development		(17,314	)		17,314		102,750		102,750
Non-employee—included in general and administrative		23,624			220,963		1,271,241		9,840,398
Subtotal non-employee stock option grants		6,310			238,277		1,373,991		9,943,398
Total stock-based compensation expense	$	209,180		$	628,361	$	2,746,478	$	17,354,986

        The estimated fair value of each employee and non-employee stock option award was determined on the date of grant using the Black-Scholes option valuation model with the following weighted-average assumptions during the twelve months ended December 31, 2008, 2007 and 2006.

	Year End December 31,
	2008		2007		2006
Risk-free interest rate		1.55%		3.55%		4.25 - 4.57%
Dividend yield		—		—		—
Expected volatility		200%		60%		60% - 79%
Expected term (in years)		5.0 yrs		5.0 yrs		3.0 - 7.0 yrs

        Risk-free interest rate—Based upon observed interest rates appropriate for the expected term of Callisto's employee stock options.

F-29

        Dividend yield—Callisto has not paid any dividends on common stock since its inception and does not anticipate paying dividends on its common stock in the foreseeable future.

        Expected volatility—Based on the historical volatility of Callisto's stock.

        Expected term—Callisto has had no stock options exercised since inception. The expected option term represents the period that stock-based awards are expected to be outstanding based on the simplified method provided in Staff Accounting Bulletin No. 107, Share-Based Payment, ("SAB No. 107"), which averages an award's weighted-average vesting period and expected term for "plain vanilla" share options. Under SAB No. 107, options are considered to be "plain vanilla" if they have the following basic characteristics: (i) granted "at-the-money"; (ii) exercisability is conditioned upon service through the vesting date; (iii) termination of service prior to vesting results in forfeiture; (iv) limited exercise period following termination of service; and (v) options are non-transferable and non-hedgeable.

        In December 2007, the SEC issued SAB No. 110, Share-Based Payment, ("SAB No. 110"). SAB No. 110 was effective January 1, 2008 and expresses the views of the Staff of the SEC with respect to extending the use of the simplified method, as discussed in SAB No. 107, in developing an estimate of the expected term of "plain vanilla" share options in accordance with SFAS No. 123R. The Company will continue to use the simplified method until it has the historical data necessary to provide a reasonable estimate of expected life in accordance with SAB No. 107, as amended by SAB No. 110. For the expected term, the Company has "plain-vanilla" stock options, and therefore used a simple average of the vesting period and the contractual term for options granted subsequent to January 1, 2006 as permitted by SAB No. 107.

        Forfeitures—SFAS 123R requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Callisto estimated future unvested option forfeitures based on historical Company experience and has incorporated this rate in determining the fair value of employee option grants.

        The weighted-average fair value of all options granted under Callisto's Plans during the twelve months ended December 31, 2008, 2007 and 2006, estimated as of the grant date using the Black-Scholes option valuation model, was $0.04. $0.42 and $0.91 per share, respectively.

        The unrecognized compensation cost related to Callisto's non-vested employee stock options outstanding at December 31, 2008 and 2007 was $83,455 and $285,885, respectively, to be recognized over a weighted-average vesting period of approximately 6 months and 1 year, respectively. The weighted-average remaining term of all options outstanding at December 31, 2008 was 5.1 years as compared to 5.9 years at December 31, 2007.

F-30

        A summary of stock option activity and of changes in stock options outstanding under Callisto's plans is presented below:

		Number of Options			Exercise Price Per Share		Weighted Average Exercise Price Per Share		Aggregate Intrinsic Value
Balance outstanding, December 31, 2006			8,053,375		$	0.75 - 6.75	$	1.75	$	—
	Granted		784,500		$	0.47 - 0.96	$	0.78
	Exercised		—			—		—
	Forfeited		(596,668	)	$	0.75 - 1.60	$	1.24
Balance outstanding, December 31, 2007			8,241,207		$	0.47 - 6.75	$	1.70	$	—
	Granted		41,500		$	0.08	$	0.08
	Exercised		—			—		—
	Forfeited		(344,169	)	$	0.47 - 1.45	$	0.85
Balance outstanding, December 31, 2008			7,938,538		$	0.47 - 6.75	$	1.72	$	—
Exercisable, December 31, 2008			5,980,205		$	0.47 - 6.75	$	1.75	$	—

        SFAS No. 123R requires that cash flows resulting from tax deductions in excess of the cumulative compensation cost recognized for options exercised (excess tax benefits) be classified as cash inflows from financing activities and cash outflows from operating activities. Due to the Company's accumulated deficit position, no tax benefits have been recognized in the cash flow statement.

Synergy Pharmaceuticals, Inc. Stock Option Plan

        During 2008, Synergy adopted The 2008 Equity Compensation Incentive Plan (the "Plan") which is intended to promote the best interests of Synergy stockholders by (i) assisting Synergy and its Subsidiaries in the recruitment and retention of persons with ability and initiative, (ii) providing an incentive to such persons to contribute to the growth and success of Synergy by affording such persons equity participation in the Company and (iii) associating the interests of such persons with those of Synergy and its Subsidiaries and stockholders. Stock options granted under the Plan, typically vest after three years of continuous service from the grant date and have a contractual term of ten years. In connection with the Exchange Transaction, all outstanding options of Synergy-DE were assumed by Synergy and continued to have the same terms and conditions as they did prior to the Exchange Transaction. Synergy did not issue stock options until 2008.

F-31

Synergy Stock Option Accounting

        Stock-based compensation, including all options and restricted stock units, has been recognized in operating results as follow:

	Year Ended December 31,
							November 15, 2005 (inception) to December 31, 2008
	2008		2007		2006
Employees—included in research and development	$	79,530	$	—	$	—	$	79,530
Employees—included in general and administrative		112,728		—		—		112,728
Subtotal employee stock based compensation		192,258		—		—		192,258
Non-employee stock based compensation—included in general and administrative		187,625		—		—		187,625
Total stock-based compensation expense	$	379,883	$	—	$	—	$	379,883

        The estimated fair value of stock option awards was determined on the date of grant using the Black-Scholes option valuation model with the following weighted-average assumptions during the year ended December 31, 2008.

	Year Ended December 31,
	2008		2007	2006
Risk-free interest rate		2.67% - 3.28%	N/A	N/A
Dividend yield		—	N/A	N/A
Expected volatility		90%	N/A	N/A
Expected term (in years)		6.0 yrs	N/A	N/A

        Risk-free interest rate—Based upon observed interest rates appropriate for the expected term of Synergy's employee stock options.

        Dividend yield—Synergy has not paid any dividends on common stock since its inception and does not anticipate paying dividends on its common stock in the foreseeable future.

        Expected volatility—Based on the historical volatility of comparable publicly traded stocks.

        Expected term—Synergy has had no stock options exercised since inception. The expected option term represents the period that stock-based awards are expected to be outstanding based on the simplified method provided in Staff Accounting Bulletin No. 107, Share-Based Payment ("SAB No. 107"), which averages an award's weighted-average vesting period and expected term for "plain vanilla" share options. Under SAB No. 107, options are considered to be "plain vanilla" if they have the following basic characteristics: (i) granted "at-the-money"; (ii) exercisability is conditioned upon service through the vesting date; (iii) termination of service prior to vesting results in forfeiture; (iv) limited exercise period following termination of service; and (v) options are non-transferable and non-hedgeable.

        In December 2007, the SEC issued SAB No. 110, Share-Based Payment ("SAB No. 110"). SAB No. 110 was effective January 1, 2008 and expresses the views of the Staff of the SEC with respect to extending the use of the simplified method, as discussed in SAB No. 107, in developing an estimate of the expected term of "plain vanilla" share options in accordance with SFAS No. 123R. The Company will continue to use the simplified method until it has the historical data necessary to provide a reasonable estimate of expected life in accordance with SAB No. 107, as amended by SAB No. 110. For the expected term, the Company has "plain-vanilla" stock options, and therefore used a simple average

F-32

of the vesting period and the contractual term for options granted subsequent to January 1, 2006 as permitted by SAB No. 107.

        Forfeitures—SFAS No. 123R requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Synergy estimated future unvested option forfeitures based on historical experience of its majority-owned shareholder, Callisto.

        The weighted-average fair value per share of all options granted during the twelve months ended December 31, 2008 estimated as of the grant date using the Black-Scholes option valuation model was $0.50 per share.

        The unrecognized compensation cost related to non-vested employee stock options outstanding at December 31, 2008 was $1,290,122, to be recognized over a weighted-average remaining vesting period of approximately 2.5 years. The weighted-average remaining term of all options outstanding at December 31, 2008 was 9.5 years. There were no options outstanding at December 31, 2007 and 2006.

        A summary of Synergy stock option activity and of changes in stock options outstanding under Synergy's plans is presented below:

		Number of Options			Exercise Price Per Share		Weighted Average Exercise Price Per Share		Aggregate Intrinsic Value
Balance outstanding, December 31, 2007			—			—		—
	Granted		4,084,988		$	0.25 - 0.95	$	0.29
	Exercised		—			—		—
	Forfeited		(4,972	)	$	0.25	$	0.25
Balance outstanding, December 31, 2008			4,080,016		$	0.25 - 0.95	$	0.29	$	8,933,935
Exercisable at December 31, 2008			74,871		$	0.25	$	0.25	$	166,962

        SFAS No. 123R requires that cash flows resulting from tax deductions in excess of the cumulative compensation cost recognized for options exercised (excess tax benefits) be classified as cash inflows from financing activities and cash outflows from operating activities. Due to Synergy's accumulated deficit position, no tax benefits have been recognized in the cash flow statement.

Synergy Restricted Stock Units

        Restricted Stock Units, which entitle the holder to receive, at the end of a vesting term, a specified number of shares of Synergy common stock are accounted for as stock based compensation in accordance with SFAS No. 123R in the same manner as stock options using fair value at the date of grant. Subject to a repurchase agreement assumed by Synergy pursuant to the Exchange Transaction, 50% of the units vest after 1 year of continuous service and the remaining 50% vest after 2 years of continuous service from the grant date. The total fair value is being expensed ratably by month over the 2 year service period.

        On July 3, 2008, 874,760 restricted stock units were granted by Synergy-DE and assumed by Synergy as part of the Exchange Transaction and are subject to a repurchase agreement, as defined. These restricted stock units were issued to certain officers and a consultant of Synergy. The fair value of each Synergy restricted stock unit is estimated on the grant date based on the price paid by shareholders participating in Synergy's July 14, 2008 private placement. Accordingly, the weighted-average grant date fair value per share of the 874,760 shares of Synergy common stock issued during the twelve months ended December 31, 2008 was determined to be $0.60. As of December 31, 2008 there were 874,760 Synergy restricted stock units outstanding. The fair value of the 874,760 Synergy restricted stock units on the date of grant was $524,856 of which $97,602 was recorded as stock-based compensation expense during the twelve months ended December 31, 2008.

F-33

7.     Income taxes

        At December 31, 2008, Callisto has net operating loss carryforwards ("NOLs") aggregating approximately $38,000,000, which, if not used, begin expiring 2011 through 2028. The utilization of these NOLs is subject to limitations based on past and future changes in ownership of Callisto pursuant to Internal Revenue Code Section 382. The Company has determined that an ownership change had occurred as of April 30, 2003 and Callisto believes that such change in ownership to date will restrict its ability to use pre-merger Synergy NOLs within the carryforward period. The Company has no other material deferred tax items.

        Callisto records a valuation allowance against deferred tax assets to the extent that it is more likely than not that some portion, or all of, the deferred tax assets will not be realized. Due to the significant doubt related Callisto's ability to continue as a going concern and utilize its deferred tax assets, a valuation allowance for the full amount of the deferred tax assets has been established at December 31, 2008. As a result of this valuation allowance there are no income tax benefits reflected in the accompanying consolidated statements of operations to offset pre tax losses.

        The provisions of FIN No. 48 were adopted by Callisto on January 1, 2007 and had no effect on Callisto's financial position, cash flows or results of operations upon adoption, as Callisto did not have any unrecognized tax benefits or liabilities. Callisto also evaluated its tax positions as of December 31, 2008 and reached the same conclusion. Callisto does not currently expect any significant changes to unrecognized tax benefits during the fiscal year ended December 31, 2009. Callisto's practice is to recognize interest and/or penalties related to income tax matters in income tax expense. As of December 31, 2008 and December 31, 2007, Callisto had no accrued interest or penalties.

        Callisto has no uncertain tax positions subject to examination by the relevant tax authorities as of December 31, 2008. Callisto files U.S. and state income tax returns in jurisdictions with varying statutes of limitations. The 2005 through 2008 tax years generally remain subject to examination by federal and most state tax authorities.

        On July 14, 2008, Callisto engaged in a tax-free reorganization pursuant to the Internal Revenue Code Section 368(a)(1)(B) where Pawfect, a Florida corporation, acquired 100% of shares in Synergy-DE, a Delaware corporation, from Callisto, a Delaware corporation, and other restricted holders of Synergy-DE shares, and Callisto received in exchange 45,464,760 shares of the Pawfect's common stock (or approximately 70% of the Pawfect's outstanding common stock). The transaction was characterized as a tax-fee type "B" reorganization resulting in no gain or loss recognition to Callisto, for federal tax purposes.

8.     Commitments and contingencies

Employment and Consulting Agreements

Gabriele M. Cerrone

        On December 27, 2004, Callisto entered into a consulting agreement (the "Agreement") with Gabriele M. Cerrone, Callisto's Chairman of the Board (the "Consultant"). The duties of the Consultant and the obligations of Callisto to pay compensation commenced on January 10, 2005 (the "Start Date"). The duties of the Consultant pursuant to the Agreement will consist of strategic planning and capital markets consulting advice. The term of the Agreement will commence upon the Start Date and continue until December 31, 2006 with automatic renewal for successive one year periods unless either party gives notice to the other not to renew the Agreement. Callisto will pay Consultant the annual sum of $205,000 (the "Base Compensation") at the rate of $17,083.33 per month commencing on the Start Date. During the twelve months ended December 31, 2006 and 2005, Mr. Cerrone earned bonuses totaling $125,855 and $30,750, respectively under this Agreement.

F-34

        In conjunction with the Agreement, Consultant was granted 375,000 ten year non-qualified stock options at an exercise price of $1.70 per share. One half of such options vested on each of the first two anniversaries of the Agreement, December 27, 2005 and 2006. Stock-based compensation expense associated with these option grants was recorded in accordance with EITF 96-18 and accordingly (i) the measurement date will be the earliest of December 27, 2006 when "performance commitment" was completed and (ii) the fair value of these options was "marked to market" quarterly until the measurement date was determined. Accordingly stock-based compensation expense recorded during the twelve months ended December 31, 2005 was $212,619, of which $53,217 was reversed during the twelve months ended December 31, 2006 as a result of a decline in the price of Callisto's stock from $1.38 to $0.86 per share from December 31, 2005 to December 31, 2006. There was no stock-based compensation recorded for these options during the twelve months ended December 31, 2007 because the performance commitment under the Agreement was completed on December 31, 2006.

        On January 25, 2007, Callisto entered into an Extension and Amendment Agreement with Mr. Cerrone. The agreement extends the term of the consulting agreement between us and Mr. Cerrone, dated as of December 27, 2004, to December 31, 2009. Among other things, the agreement increases Mr. Cerrone's compensation from $205,000 to $275,000 per year. Additionally, pursuant to the agreement, in recognition of the services beyond that required by Mr. Cerrone during 2006, Mr. Cerrone earned a bonus of $125,855, Under the Extension and Amendment Agreement, Mr. Cerrone may earn a performance bonus of 22.5% of his base compensation, for each twelve month period during the term of the Extension and Amendment Agreement, based on meeting performance objectives and bonus criteria to be mutually identified by Mr. Cerrone and the Compensation Committee of our Board of Directors. During 2008 and 2007, Mr. Cerrone exceeded his performance objectives and earned a performance bonus of $61,875 and $84,147, respectively, under the Extension and Amendment Agreement.

        In conjunction with the Extension and Amendment Agreement, Mr. Cerrone was granted 225,000 ten year non-qualified stock options at an exercise price of $0.96 per share of which 75,000 vest on each of December 31, 2007, 2008 and 2009. Stock-based compensation expense associated with these option grants is being recorded in accordance with EITF 96-18 and accordingly (i) the measurement date will be the earliest of December 31, 2009 (when "performance commitment is completed") or the accelerated vesting date if Mr. Cerrone is terminated without cause or good reason prior to December 31, 2009 and (ii) the fair value of these options is being "marked to market" quarterly until the measurement date is determined. Stock-based compensation expense associated with these options reversed during the twelve months ended December 31, 2008 was $17,073 As of December 31, 2008, there was no unrecognized fair value associated with Mr. Cerrone's unvested options.

        On March 11, 2009, Gabriele M. Cerrone, our Chairman of the Board, entered into an amended and restated consulting agreement with us. The term of the agreement was effective as of August 1, 2008 and continues until December 31, 2011 and is automatically renewed for successive one year periods at the end of each term. Pursuant to the agreement, Mr. Cerrone's compensation is $295,000 per year of which 25% is to be allocated to Callisto and 75% is to be allocated to Synergy. Mr. Cerrone is eligible to receive a cash bonus of up to 50% of his base compensation per year based on meeting certain performance objectives and bonus criteria. Such performance objectives and bonus criteria had not been established as of December 31, 2008 and therefore not met or earned. Mr. Cerrone is also eligible to receive a realization bonus in the event that we enter into an out-license agreement for our technology or engage in a merger or sale of substantially all our assets where the enterprise value equals or exceeds a minimum of $150 million, $200 million and $250 million in the first, second or third years of the term of the agreement or any years beyond the third term of the agreement, respectively, and in the case of a financing transaction, we receive not less than $20 million of gross proceeds; or the license fees we contract to receive equals or exceeds $50 million. The

F-35

realization bonus will be equal to the enterprise value in the case of a merger, sale or financing or the sum of the license fees actually received multiplied by 0.5%.

        If the consulting agreement is terminated by us other than for cause or as a result of Mr. Cerrone's death or permanent disability or if Mr. Cerrone terminates the agreement for good reason which includes a change of control, Mr. Cerrone shall receive (i) a severance payment equal to the higher of the aggregate amount of his base compensation for the then remaining term of the agreement or twelve times the average monthly base compensation paid or accrued during the three full calendar months preceding the termination, (ii) expense compensation in an amount equal to twelve times the sum of his average base compensation during the three full months preceding the termination, (iii) immediate vesting of all unvested stock options and the extension of the exercise period of such options to the later of the longest period permitted by our stock option plans or ten years following the termination date, (iv) payment in respect of compensation earned but not yet paid and (v) payment of the cost of medical insurance for a period of twelve months following termination. Had Mr. Cerrone been terminated without cause or good reason on December 31, 2008, he would have been eligible for total compensation of $1,327,500 for the time remaining under the amended and restated consulting agreement.

Gary S. Jacob, Ph.D

        On June 13, 2003, Callisto entered into an employment agreement with Gary S. Jacob, Ph.D., to serve as Chief Executive Officer and Chief Scientific Officer. Dr. Jacob's employment agreement is for a term of 18 months beginning June 13, 2003 and was automatically renewable for successive one year periods at the end of the term. In connection with his employment agreement, Dr. Jacob received a grant of 500,000 stock options which vested over a three year period through June 13, 2006 and are exercisable at $1.50 per share. On March 17, 2006, pursuant to Compensation Committee approval, Dr. Jacob's salary was increased to $300,000 per year; he became eligible to receive a cash bonus of up to 15% of his salary per year and received a grant of 150,000 stock options which vest over a three year period which are exercisable at $1.64 per share. During the years ended December 31, 2008, 2007 and 2006, Dr. Jacob earned a bonus of $11,250, $78,750 and $48,125, respectively.

        On February 16, 2007, Dr. Jacob entered into an Extension and Amendment Agreement with Callisto as approved by the Compensation Committee which extended the term under his employment agreement to June 30, 2009. In addition, pursuant to the Extension and Amendment Agreement, Dr. Jacob was granted 225,000 ten year stock options exercisable at $0.81 per share of which 75,000 vest on each of December 31, 2007, 2008 and 2009. His salary and other compensation were unchanged. As of December 31, 2008, the unrecognized fair value of all Dr. Jacob's unvested options was $37,516.

        On March 11, 2009, Dr. Gary Jacob entered into an amended and restated employment agreement with us in which he agreed to serve as Chief Executive Officer. The term of the agreement was effective as of August 1, 2008 and continues until December 31, 2011 and is automatically renewed for successive one year periods at the end of each term. Dr. Jacob's salary is $300,000 per year of which 25% is to be allocated to Callisto and 75% is to be allocated to Synergy. Dr. Jacob is eligible to receive a cash bonus of up to 50% of his base salary per year based on meeting certain performance objectives and bonus criteria. Such performance objectives and bonus criteria had not been established as of December 31, 2008 and therefore not met or earned Dr. Jacob is also eligible to receive a realization bonus in the event that we enter into an out-license agreement for our technology or engage in a merger or sale of substantially all our assets where the enterprise value equals or exceeds a minimum of $150 million, $200 million and $250 million in the first, second or third years of the term of the agreement or any years beyond the third term of the agreement, respectively, or the license fees we contract to receive equals or exceeds $50 million. The realization bonus will be equal to the enterprise

F-36

value in the case of a merger or sale or the sum of the license fees actually received multiplied by 0.5%.

        If the employment agreement is terminated by us other than for cause or as a result of Dr. Jacob's death or permanent disability or if Dr. Jacob terminates his employment for good reason which includes a change of control, Dr. Jacob shall receive (i) a severance payment equal to the higher of the aggregate amount of his base salary for the then remaining term of the agreement or twelve times the average monthly base salary paid or accrued during the three full calendar months preceding the termination, (ii) expense compensation in an amount equal to twelve times the sum of his average base salary during the three full months preceding the termination, (iii) immediate vesting of all unvested stock options and the extension of the exercise period of such options to the later of the longest period permitted by our stock option plans or ten years following the termination date, (iv) payment in respect of compensation earned but not yet paid and (v) payment of the cost of medical insurance for a period of twelve months following termination. Had a "Change of Control" occurred on December 31, 2008 and the executive had been terminated on that date, Dr. Jacob would have been eligible for total compensation (salary and bonus) for the term of his employment under his employment agreement for the time remaining of such employment term, of $1,350,000.

Melvin K. Spigelman

        On August 21, 2008, the Board of Directors ("the Board") of Synergy appointed Melvin K. Spigelman, M.D. as a Director of Synergy. In addition, the Board of Directors appointed Dr. Spigelman Chairman of Synergy's Clinical Oversight Committee as well as a member of the Synergy Compensation and Audit Committees ("the Committees"). In connection therewith, the Board approved the payment of an annual fee of $90,000 to Dr. Spigelman for his service on the Board and the Committees. Additionally, the Board approved a grant of 300,000 stock options to Dr. Spigelman, to purchase Synergy common stock, with an exercise price of $0.60 per share. Such options vest in 100,000 increments over a period of 3 years. The fair value of the 300,000 options on the date of grant was $135,655, of which $12,265 was recorded as stock-based compensation expense during the twelve months ended December 31, 2008.

Kunwar Shailubhai, Ph.D

        On April 6, 2004, Kunwar Shailubhai, Ph.D. entered into an employment agreement with Synergy in which he agreed to serve as Senior Vice President, Drug Discovery. Dr. Shailubhai's employment agreement was for a term of 12 months beginning April 6, 2004 and was automatically renewed for successive one year periods at the end of each term. On July 9, 2008, Dr. Shailubhai was appointed to the position of Chief Scientific Officer of Synergy, his base salary was increased to $190,000 per year and he is eligible to receive a cash bonus of up to 15% of his salary per year. Dr. Shailubhai received a grant of 100,000 Callisto stock options which are exercisable at $1.50 per share. 50,000 of such stock options vested in June 2004 and 50,000 options vested in December 2004.

        Callisto previously had an employment agreement dated June 13, 2003 with Kunwar Shailubhai, Ph.D. to serve as Executive Vice President and Head of Research and Development for a term of 18 months beginning June 13, 2003. Dr. Shailubhai's salary was $170,000 per year and he was eligible to receive a cash bonus of up to 15% of his salary per year. In connection with his employment agreement, Dr. Shailubhai received a grant of 25,000 stock options which were fully vested and have an exercise price of $1.50 per share. Dr. Shailubhai also received a grant of 325,000 stock options which were to have vested over a three year period and were exercisable at $1.50 per share. This employment agreement was terminated on April 6, 2004 and all unvested options were forfeited.

        The new grant of 100,000 options was not subject to variable accounting under FIN 44 because it was deemed that Dr. Shailubhai continued as an employee within a consolidated group and there were

F-37

no change in the exercise price. The unamortized deferred compensation cost associated with the 225,000 cancelled options of $706,813 as of the date of cancellation, was charged to stock-based compensation expense during the quarter ended June 30, 2004. The remaining deferred balance, based on the original intrinsic value, associated with the remaining 100,000 options of $314,139, was expensed over the vesting period of the new grant (e.g. April 7, 2004 through December 31, 2004). On April 12, 2007, Dr. Shailubhai was granted 125,000 ten year incentive stock options exercisable at $0.66 per share of which 41,667 vest on each of April 12, 2008 and 2009 and 41,666 vest on April 12, 2010.

Bernard F. Denoyer

        On January 15, 2004, Callisto entered into an employment agreement with Bernard Denoyer, to serve as Vice President, Finance. Mr. Denoyer's employment agreement was for a term of 12 months beginning January 15, 2004 and was automatically renewable for successive one year periods at the end of the term. Mr. Denoyer's salary was $90,000 per year and he was eligible to receive a cash bonus of up to 10% of his salary per year. Mr. Denoyer received a grant of 100,000 stock options which vest over a three year period and are exercisable at $3.60 per share. On July 29, 2005 Mr. Denoyer was granted an additional 75,000 stock options which vest over three years and are exercisable at $1.38 per share. On September 1, 2006 Mr. Denoyer's salary was increased to $120,000 per year.

        On December 10, 2007, Callisto entered into an Amended and Restated Employment Agreement (the "Amendment Agreement") with Mr. Denoyer which extends the term of the employment agreement between the Company and the Executive dated as of January 15, 2004, as amended October 19, 2005, to December 1, 2008. Among other things, the Amendment Agreement increases the Executive's salary from $120,000 to $162,000 per year (the "Base Salary"), he was promoted to Senior Vice President and he shall be eligible to earn a cash bonus of up to 15% of the Base Salary for each twelve month period during the term of the Amendment Agreement at the discretion of the Compensation Committee of the Company's Board of Directors.

        During the years ended December 31, 2008, 2007 and 2006, Mr. Denoyer earned a bonus of $26,500, $12,000 and $10,461, respectively. On April 12, 2007, Mr. Denoyer was granted 75,000 ten year incentive stock options exercisable at $0.66 per share of which 25,000 vest on each of April 12, 2008, 2009 and 2010.

        Effective July 14, 2008, upon Synergy becoming a publicly traded company, Mr. Denoyer's base salary was increased to $190,000 per annum and since that time his compensation has been apportioned 50% to Callisto and 50% to Synergy, where Mr. Denoyer also serves as Senior Vice President, Finance.

Capebio, LLC

        On September 25, 2007, Synergy entered into a Service Agreement with Capebio, LLC ("Capebio") to provide research and development services for the commercialization of non-oncology related gastrointestinal pharmaceutical products under the SP-304 patent. The Service Agreement is for a minimum term of eleven months starting October 1, 2007 during which period Synergy paid an initial fee of $55,000 and is obligated to pay $26,000 per month through August 31, 2008. In addition Capebio will be eligible for a bonus of $58,000 if certain performance milestones are achieved by December 31, 2008 and Synergy is required to establish an escrow of $250,000 in favor of Capebio to guarantee specific performance under the Service Agreement. This Service Agreement was terminated on July 2, 2008 and all amounts due there-under were paid.

        In connection with this agreement Callisto issued a warrant to purchase 1,150,000 shares of its common stock at an exercise price of $0.47 per share to a consultant for services to be rendered to the Company's newly formed subsidiary, Synergy Advanced Pharmaceuticals, Inc. ("Synergy Advanced"), in connection with the development of SP-304, Callisto's proprietary compound to treat GI disorders such as chronic constipation and irritable bowel syndrome. So long as the consultant continues to provide

F-38

services in some capacity to the Company or any of its subsidiaries, the warrant will vest in installments of 225,000 warrant shares on each of the first four anniversaries of the initial exercise date. The remaining 250,000 warrant shares will vest immediately prior to the consummation of a sale or merger of Synergy Advanced, provided that such transaction occurs on or prior to October 1, 2009 and Synergy Advanced is valued at no less than $250,000,000. In the event there is a change of control of Callisto, all unvested warrant shares will immediately vest. All of the warrants expire on September 25, 2014. With the termination of the service agreement, the warrants were forfeited on July 2, 2008 and no stock-based compensation expense was recognized during the term of the service agreement through July 2, 2008 because none on the warrants vested prior to termination.

Dr. Moshe Talpaz

        On January 31, 2006, Callisto entered into a consulting agreement with Dr. Moshe Talpaz, whereby Dr. Talpaz will provide consulting services for Callisto's Degrasyns program. Under the agreement Dr. Talpaz will be paid $10,000 per year and was granted 575,000 10-year options to purchase Callisto common stock at $1.60 per share. Such options vest based on milestones related to the Degrasyns compounds being developed towards FDA approval. The term of the agreement is for the length of time Callisto is developing the Degrasyns platform of compounds in all indications. As of December 31, 2008, none of the milestones related to the Degrasyns compounds has been achieved and no stock-based compensation has been recorded in connection with Dr. Talpaz's options.

Roman Perez-Soler, M.D.

        On August 12, 2004, in connection with the L-Annamycin license, Callisto entered into a consulting agreement with Roman Perez-Soler, M.D., for a term concurrent with the L-Annamycin license agreement. In connection therewith Dr. Perez-Soler agreed to be appointed to Callisto's Scientific Advisory Board. As consideration for consulting and advisory services Dr. Perez-Soler has earned a $30,000 per year consulting fee and received 44,000 shares of restricted common stock. These shares were recorded as stock-based compensation expense during the 12 months ended December 31, 2004 for a total expense of $70,840 based on the closing stock price of $1.61 on August 23, 2004. In addition, Callisto granted to Dr. Perez-Soler an option to purchase 468,500 shares of common stock at an exercise price of $3.00 per share. The option shares vest upon achievement of specific milestones related to future development of L-Annamycin, at which time stock-based compensation expense will be recorded based upon the fair value of the options at that time. As of December 31, 2008, none of the milestones related to future development of L-Annamycin has been achieved and no stock-based compensation has been recorded in connection with Dr. Perez-Soler's options.

Other Employees and Consultants (inactive)

Barretto Pacific Corporation

        On April 24, 2007, Callisto entered into a services agreement with Barretto Pacific Corporation ("Barretto") to provide, beginning May 1, 2007, investor relations services. Callisto agreed to pay Barretto a fee of $120,000 over a seven month period and issue 80,000 shares of restricted common stock. On August 2, 2007 Callisto and Barretto entered into a Termination and Release Agreement canceling any further obligations and Barretto returned the 80,000 shares of common stock. During the twelve months ended December 31, 2007 Callisto incurred $40,000 in cash consulting fees and $36,800 of stock based expense associated with this agreement.

Trilogy Capital Partners, Inc.

        On July 18, 2005, Callisto entered into a letter of engagement (the "Agreement") with Trilogy Capital Partners, Inc. ("Trilogy"). The term of the Agreement is for one year beginning on July 18,

F-39

2005 and terminable thereafter by either party upon 30 days' prior written notice. Pursuant to the Agreement, Trilogy will provide marketing and financial public relations services to Callisto and will assume the responsibilities of an investor relations officer for Callisto. Callisto will pay Trilogy $12,500 per month under the Agreement.

        Pursuant to the Agreement, Callisto issued warrants to Trilogy to purchase 1,793,322 shares of Common Stock of Callisto at an exercise price of $1.03 per share (the "Warrants"). The Warrants issued to Trilogy are exercisable upon issuance and would have expired on July 18, 2008. The fair value of the Warrants using the Black-Scholes methodology was $1,469,931 on the date of grant and was amortized to stock-based compensation expense over the term of the Agreement. Stock-based compensation expense associated with these warrants was $735,236 and $734,695 during the twelve months ended December 31, 2006 and 2005, respectively. During the twelve months ended December 31, 2006 Trilogy exercised 184,500 common stock warrants for cash totaling $190,035 and during the twelve months ended December 31, 2005 Trilogy exercised 125,000 common stock warrants for cash totaling $128,750.

        On November 2, 2006, Trilogy Capital Partners, Inc. filed suit against Callisto in Superior Court of the State of California, County of Los Angeles, Central District, alleging that Callisto breached a Letter of Engagement dated July 18, 2005 between Callisto and Trilogy by failing to pay certain fees. Additionally, Trilogy alleged that Callisto breached a consulting agreement dated January 1, 2006 between Callisto and MBA Holdings, LLC (later assigned to Trilogy) by failing to pay certain consulting fees. Trilogy is seeking payment in the aggregate amount of $94,027.55 plus interest and attorney's fees. On December 27, 2006, Callisto filed an answer to the Trilogy complaint denying the allegations in the Trilogy complaint and on the same date, Callisto filed a cross-complaint against Trilogy in Superior Court of the State of California, County of Los Angeles, Central District, alleging, among other things, that Trilogy breached the Letter of Engagement with Callisto by failing to provide the agreed-upon services and fraudulently induced Callisto to enter into the Letter of Engagement by misrepresenting its capabilities. Callisto asked for unspecified damages plus attorneys' fees. On January 23, 2007, Trilogy answered Callisto's cross-complaint denying all of the allegations. The court ordered the parties to mediation to be completed by November 20, 2007.

        On July 31, 2007 Callisto entered in a Mutual Release and Settlement Agreement with Trilogy Capital Partners, Inc. ("Trilogy") wherein the parties settled their dispute and pending litigation. Callisto paid Trilogy $47,000 which amount was accrued for during the year ended December 31, 2006.

        In connection with the Settlement, Trilogy agreed to have its remaining unexercised warrants assigned. Accordingly Trilogy assigned 1,323,822 of the unexercised Trilogy warrants to two unaffiliated entities. This assignment was deemed compensatory in that this transaction was equivalent to a cancellation and re-issuance of the warrants in question. The fair value of the warrants thus re-issued on that date was $105,819 using the Black Scholes valuation methodology assumptions of 1 year expected term, no dividend, stock price of $0.69 per share, and a risk free interest rate of 4.85%. At that date there was no change in terms and conditions, the only change was in certificate holder.

        On December 5, 2007 the Company extended the termination date of the "Trilogy Warrants" to July 18, 2011. This modification was determined to be compensatory resulting in an incremental compensation cost of $164,152 using the Black Scholes fair value methodology assumptions of .62 and 3.62 years expected term, no dividend, stock price of $0.41 and $0.49 per share and risk free interest rates of 3.22% and 2.91% immediately before and after the modification.

Donald H. Picker, Ph.D

        On September 23, 2003, Callisto entered into an employment agreement with Donald H. Picker, Ph.D., to serve as Vice President, Drug Development. The employment agreement was for a term of 18 months beginning September 23, 2003 and was automatically renewable for successive one year

F-40

periods at the end of the term. Dr. Picker's salary was initially $175,000 per year and he was eligible to receive a cash bonus of up to $45,000 per year upon the achievement of certain performance milestones. In connection with his employment agreement, Dr. Picker received a grant of 325,000 stock options which vest over a three year period and are exercisable at $1.50 per share. On April 6, 2004 the employment agreement of Donald H. Picker, Callisto's Executive Vice President, R&D was amended. Dr. Picker's salary was increased from $175,000 to $200,000 per year and certain milestones were added upon which cash bonuses of up to $92,500 over a 12 month period may be paid. During the year ended December 31, 2006, Dr. Picker earned a bonus of $20,000 based on achievement of certain milestones. Dr. Picker resigned his position on December 19, 2006 and earned no bonus that year.

        On December 21, 2006, Callisto filed a complaint against Tapestry Pharmaceuticals, Inc., Leonard P. Shaykin and Kai P. Larson in the Supreme Court of the State of New York alleging that Tapestry used information they obtained pursuant to a confidential disclosure agreement between Callisto and Tapestry to cause Donald Picker, Ph.D., Callisto's former Executive Vice President, Research & Development, to resign and accept a position with Tapestry. In addition, Callisto is alleging that Tapestry fraudulently entered into the confidential disclosure agreement with Callisto and intentionally interfered with Dr. Picker's employment agreement with Callisto. Callisto is seeking actual and punitive damages. The defendants had filed a motion to dismiss the complaint against Messrs. Shaykin and Larsen. During the year ended December 31, 2008 Callisto settled this lawsuit with Tapestry Pharmaceuticals, Inc for $100,000 which covered Callisto's legal fees.

        On June 8, 2007 Callisto filed a complaint against Donald Picker, its former Executive Vice President, Research & Development in the Supreme Court of the State of New York alleging that (i) Dr. Picker breached his written employment agreement with Callisto by accepting employment with Tapestry Pharmaceuticals, Inc. a manner not in accordance with his agreement, (ii) Dr. Picker acted fraudulently by failing to reveal to Callisto that he was negotiating employment with Tapestry while purportedly representing Callisto in negotiations with Tapestry pursuant to a confidential disclosure agreement between Tapestry and Callisto and (iii) Dr. Picker misappropriated confidential files and materials from Callisto's offices. Callisto is seeking $80 million in damages from Dr. Picker. During 2008 Dr. Picker moved to dismiss our complaint and this motion is pending as of December 31, 2008.

License Agreements

        On August 28, 2002, and as amended on May 23, 2003, Synergy entered into a worldwide license agreement (the "Original License") with AnorMED to research, develop, sell and commercially exploit the Atiprimod patent rights. The Original License provided for aggregate milestone payments of up to $14 million based upon achieving certain regulatory submissions and approvals for an initial indication, and additional payments of up to $16 million for each additional indication based on achieving certain regulatory submissions and approvals. Commencing on January 1, 2004 and on January 1 of each subsequent year Synergy was obligated to pay AnorMED a maintenance fee of $200,000 until the first commercial sale of the product. These annual maintenance fee payments under the Original License were made in January 2004, 2005, 2006 and 2007 and recorded as research and development expense.

        On December 31, 2007, Callisto and Synergy entered into an Amended and Restated License Agreement with AnorMED Corporation ("AnorMED"), a wholly-owned subsidiary of Genzyme Corporation ("Genzyme"), pursuant to which Callisto and Genzyme amended the Original License agreement for Atiprimod to eliminate all future maintenance fees and milestone payments and reduce future royalties to single digits. In return for the reduced future payments to Genzyme, Callisto agreed to pay upfront fees which were recorded as a liability and expensed on December 31, 2007. As of December 18, 2008, $650,000 of these upfront fees remained due and payable.

        On December 19, 2008, we entered into a Technology Assignment Agreement (the "Agreement") with AnorMED pursuant to which AnorMED transferred and assigned to us all of AnorMED's right,

F-41

title and interest in and to all patents and patent applications with respect to Atiprimod in addition to all trade secrets, technical reports and data concerning Atiprimod and any analogs or derivatives in return for a cash payment of $650,000, which payment settled the upfront fees owed from the December 31, 2007 Amended and Restated License Agreement. In addition the Agreement specified that the Amended and Restated License Agreement between us and AnorMED dated December 31, 2007, with respect to which AnorMED licensed to us certain patent rights and technology related to Atiprimod, was terminated with no additional amounts due.

        On January 10, 2006, Callisto entered into a Patent and Technology License Agreement with The University of Texas M.D. Anderson Cancer Center. Pursuant to the license agreement, Callisto was granted the exclusive right to manufacture, have manufactured, use, import, offer to sell and/or sell anti-cancer compounds called tyrphostins (renamed Degrasyns). Callisto paid a nonrefundable fee of $200,000 upon execution of this agreement, expensed as research and development and is obligated to pay annual license maintenance fees to The University of Texas M.D. Anderson Cancer Center. Callisto is also obligated under this agreement to pay for the legal fees and expenses associated with establishing and protecting the patent rights worldwide. Callisto also agreed to pay The University of Texas M.D. Anderson Cancer Center royalties based on net sales from any licensed products, plus aggregate milestone payments of up to $1,750,000 based upon achieving certain regulatory submissions and approvals. The term of the agreement is from January 10, 2006 until the end of the term for which the patent rights associated with the licensed technology have expired. If the first pending patent is issued, the agreement is projected to expire in 2025. In addition, at any time after two years from January 10, 2006, The University of Texas M.D. Anderson Cancer Center has the right to terminate the license if Callisto fails to provide evidence within 90 days of written notice that it has commercialized or is actively and effectively attempting to commercialize the licensed technology.

        On March 23, 2006, Callisto entered into a 2-year sponsored laboratory study agreement with the University of Texas M. D. Anderson Cancer Center whereby Dr. Nicholas Donato, as principal investigator, will analyze the anti-tumor activity and mechanism of action of Callisto's WP1130 Degrasyn compound and analogs. The agreement calls for payment of $145,900 to M.D. Anderson in two installments of $72,950 with the first payment due within 30 days of the effective date of the agreement, and the second payment due within six months of execution. These research expenditures were expensed as incurred during the twelve months ended December 31, 2006 consistent with Callisto's application of SFAS No.2.

        On March 27, 2006, Callisto entered into a 2-year sponsored laboratory study agreement with the University of Texas M. D. Anderson Cancer Center whereby Dr. William Bornmann, as principal investigator, will perform molecular modeling and synthesize a library of compounds based on Callisto's Degrasyn platform technology. The agreement calls for payment of $127,144 to M.D. Anderson in two installments of $63,572 with the first payment due within 30 days of the effective date of the agreement, and the second payment due within six months of execution. These research expenditures were expensed as incurred during the twelve months ended December 31, 2006 consistent with Callisto's application of SFAS No.2.

        On August 12, 2004, Callisto entered into a world-wide license agreement with The University of Texas M. D. Anderson Cancer Center to research, develop, sell and commercially exploit the patent rights for L-Annamycin, an anthracycline cancer drug for leukemia therapy. Consideration paid for this license amounted to $31,497 for reimbursement of out-of-pocket costs for filing, enforcing and maintaining the L-Annamycin patent rights and a $100,000 initial license fee. L-Annamycin has not reached commercialization and therefore these costs were recorded as research and development expense. Callisto also agreed to pay The University of Texas M. D. Anderson Cancer Center royalties based on net sales from any licensed products, plus aggregate milestone payments of up to $750,000 based upon achieving certain regulatory submissions and approvals. The term of the agreement is from August 12, 2004 until November 2, 2019. Under the terms of the license agreement, Callisto is required

F-42

to make certain good faith expenditures towards the clinical development of at least one licensed product within the two year period after March 2005, which the Company believes it has. In addition, at any time after 5 years from August 12, 2004, The University of Texas M.D. Anderson Cancer Center has the right to terminate the license if Callisto fails to provide evidence within 90 days of written notice that it has commercialized or it is actively and effectively attempting to commercialize L-Annamycin.

        On February 24, 2004, Callisto entered into an agreement with Houston Pharmaceuticals, Inc. ("HPI") to sublicense the rights to a key patent covering a technology platform for site-directed DNA intercalation and Callisto acquired the rights to a patent covering new anthracycline analogs. Callisto issued to HPI 25,000 shares of common stock at a fair value of $56,250 and reimbursed HPI approximately $103,500 for various costs and expenses. The total consideration of $159,750 was allocated in full to the HPI patent rights, which have not yet reached technological feasibility, and having no alternative use, was accounted for as purchased in-process research and development expense during the quarter ended March 31, 2004. The fair value of the common stock issued to HPI was $2.25, based on the price per share paid in the April 2004 private placement, which closed on April 19, 2004. In addition, Callisto granted to HPI 1,170,000 performance based stock options, exercisable at $3.50 per share, which vest upon the achievement of certain milestones. Callisto also agreed to pay HPI royalties of 2% on net sales from any products resulting from commercializing the site-directed DNA intercalation. Pursuant to the sublicense agreement, in the event Callisto's Board of Directors determined to abandon its development and commercialization of the site-directed DNA intercalation, HPI had the right to terminate the sublicense agreement. On September 19, 2005, because data from in vivo pre-clinical studies did not meet Callisto's standards for clinical development, Callisto notified HPI of its decision to terminate the sublicense agreement. On September 28, 2005 Callisto agreed with HPI that HPI would repurchase certain patent rights in exchange for forfeiting the 1,170,000 performance based stock options. Accordingly the 1,170,000 options granted to HPI were cancelled.

        On August 20, 1996, Callisto entered into a license agreement to research, develop, sell and commercially exploit certain Rockefeller University licensed patents covering peptides and antibodies useful in treating toxic shock syndrome and septic shock. Callisto agreed to work toward commercialization of products related to these patents as evidenced by a minimum expenditure per year of approximately $210,000, plus milestone payments and royalties of between 2% and 3% of annual net sales and will pay Rockefeller 30% of any sublicense fee paid by sublicensees. In addition, on July 2, 2001, Callisto entered into a license agreement for two additional patents related to the regulation of exoproteins in staphylococcus aureus. The licensed patents under these agreements are the subject of research being funded by the NIAID grant awarded to Callisto on April 1, 2005 for $885,641 over two years. On November 14, 2007, Callisto gave 90-day notice to Rockefeller University of termination of the August, 1996 and July, 2001 license agreements, terminating these agreements effective February 14, 2008.

Lease Agreements

        On August 20, 2003, Callisto entered into a five year lease for its corporate headquarters in New York City with an approximate rent of $100,000 annually through August 2008. On June 7, 2004 Callisto extended its lease for its corporate headquarters in New York City three additional years through June 30, 2011, and increased its space to 3,886 rentable square feet. This increased average annual rent to approximately $150,000. On November 4, 2003, Synergy entered a two year lease for laboratory space in New Jersey, principally to support combined Callisto and Synergy research efforts, with an approximate rent of $50,000 annually through November 2005, at which time Callisto did not renew its lease, because its research group moved to laboratory and office space in Doylestown PA, funded in full by the NIAID biodefense grant.

F-43

        Synergy occupies a small laboratory and several offices in the Bucks County Biotechnology Center, in Doylestown, Pennsylvania at the rate of $2,200 per month under a lease which term is December 1, 2008 to September 30, 2010.

        During the twelve months ended December 31, 2008, 2007 and 2006, total rent expense was $280,612, $197,224, and $181,036, respectively. Total annual commitments under the remaining New York City lease for each of the years ended December 31, are as follows:

2009	$	184,046
2010		182,799
2011		81,464
Total	$	448,309

9.     Net loss per share

        Basic and diluted net loss per share is presented in conformity with SFAS No. 128, Earnings per Share ("SFAS No. 128"), for all periods presented. In accordance with SFAS No. 128, basic and diluted net loss per common share was determined by dividing net loss applicable to common stockholders by the weighted-average common shares outstanding during the period. The Company has a net loss for all periods presented. Accordingly, the inclusion of common stock options, warrants and the conversion of preferred sock would be anti-dilutive. Therefore, the weighted-average shares used to calculate both basic and diluted earnings per share are the same.

        The following table sets forth the potentially dilutive effect of all outstanding dilutive instruments which were not included in weighted-average common shares outstanding as of:

		December 31, 2008		December 31, 2007		December 31, 2006
Common Shares Outstanding (included in weighted-average shares)			49,556,661		46,943,161		39,194,996
Potentially Dilutive Common Shares Issuable (excluded from weighted-average shares)
	Exercise of Warrants		55,773,331		45,162,920		15,841,154
	Exercise of Stock Options		7,938,538		8,241,207		8,053,375
	Conversion of Series A Convertible Preferred Stock		1,960,000		4,373,500		7,658,000
	Conversion of Series B Convertible Preferred Stock		22,741,000		22,941,000		—
Common Shares Outstanding—Fully Diluted			137,969,530		127,661,788		70,747,525

10.   Property and equipment

        Equipment consists of laboratory, testing and computer equipment and furniture and fixtures consists of office furniture, both stated at cost, with useful lives ranging from 2-4 years, depreciated on

F-44

a straight line basis. Depreciation expense for the years ended December 31, 2008, 2007, 2006 and from June 5, 1996 (inception) to December 31, 2008 was $6,654, $3,142, $2,151, and $96,584, respectively.

	December 31,
	2008			2007
Equipment	$	67,091		$	54,896
Furniture and fixtures		38,343			38,343
Leasehold improvements		11,799			11,799
Less: accumulated depreciation		(96,584	)		(89,930	)
Property and equipment, net	$	20,649		$	15,108

11.   Subsequent events

        On February 3, 2009 we issued an additional $53,161 of the authorized $500,000 11% Secured Notes bringing the aggregate proceeds from issuance of 11% Notes since inception to $255,066. On February 13, 2009 Synergy sold 285,714 shares of unregistered common stock at $0.70 per share to a private investor for aggregate proceeds of $200,000. On April 2, 2009 Synergy sold 100,000 shares of unregistered common stock at $0.70 per share to a private investor for aggregate proceeds of $70,000. On April 13, 2009 Synergy sold 180,000 shares of unregistered common stock at $0.70 per share to a private investor for aggregate proceeds of $126,000. On April 15, 2009 Synergy sold 1,045,714 shares of unregistered common stock at $0.70 per share to a private investor for aggregate proceeds of $732,000. As of April 15, 2009 the Company had approximately $600,000 cash on hand which, at its current reduced cash expenditure rate of $100,000 per month, allow it to continue its efforts to raise additional financing for approximately six months.

F-45

Exhibit Index

        The Exhibits listed below are identified by numbers corresponding to the Exhibit Table of Item 601 of Regulation S-K. The Exhibits designated by an asterisk (*) are management contracts or compensatory plans or arrangements required to be filed pursuant to Item 15. Two asterisks (**) indicate confidential treatment requested with respect to deleted portions of this agreement.

Exhibit No.		Description
	3.1	Certificate of Incorporation, as amended (Incorporated by reference to Exhibit 2.1 filed with the Company's Annual Report on Form 10-K filed on March 28, 2008)
	3.2	Certificate of Designations, Number, Voting Powers, Preferences and Rights of Series A Convertible Preferred Stock of Callisto Pharmaceuticals, Inc. (Incorporated by reference to Exhibit 3.1 filed with the Company's Current Report on Form 8-K filed on October 27, 2006)
	3.3	Certificate of Amendment to Certificate of Designations, Number, Voting Powers, Preferences and Rights of Series A Convertible Preferred Stock of Callisto Pharmaceuticals, Inc. (Incorporated by reference to Exhibit 3.2 filed with the Company's Current Report on Form 8-K filed on December 27, 2006)
	3.4	Certificate of Amendment to Certificate of Designations, Number, Voting Powers, Preferences and Rights of Series A Convertible Preferred Stock of Callisto Pharmaceuticals, Inc. (Incorporated by reference to Exhibit 3.2 filed with the Company's Current Report on Form 8-K filed on August 7, 2007)
	3.5	Certificate of Designations, Number, Voting Powers, Preferences and Rights of Series B Convertible Preferred Stock of Callisto Pharmaceuticals, Inc. (Incorporated by reference to Exhibit 3.1 filed with the Company's Current Report on Form 8-K filed on August 7, 2007)
	3.6	Bylaws, as amended (Incorporated by reference to Exhibit 3.1 filed with the Company's Current Report on Form 8-K filed on June 4, 2007)
	4.1	1996 Incentive and Non-Qualified Stock Option Plan (Incorporated by reference to Exhibit 4.1 filed with the Company's Current Report on Form 8-K filed on May 15, 2003)
	4.2	Form of Warrant to purchase shares of common stock issued in connection with the sale of common stock (Incorporated by reference to Exhibit 4.1 filed with the Company's Current Report on Form 8-K filed on January 28, 2004)
	4.4	2005 Equity Compensation Incentive Plan (Incorporated by reference to Appendix B filed with the Company's Definitive Proxy Statement on Schedule 14A filed on August 31, 2005)
	4.5	2005 Directors' Stock Option Plan (Incorporated by reference to Appendix C filed with the Company's Definitive Proxy Statement on Schedule 14A filed on August 31, 2005)
	4.6	Form of Warrant to purchase Common Stock issued in connection with the sale of Common Stock (Incorporated by reference to Exhibit 4.1 filed with the Company's Current Report on Form 8-K filed on February 9, 2006)
	4.7	Form of Warrant to purchase Common Stock issued to certain selling agents in connection with the sale of Common Stock (Incorporated by reference to Exhibit 4.2 filed with the Company's Current Report on Form 8-K filed on February 9, 2006)
	4.8	Form of Warrant issued pursuant to the Letter Agreement dated September 8, 2006 between Callisto Pharmaceuticals, Inc. and certain investors (Incorporated by reference to Exhibit 4.1 filed with the Company's Current Report on Form 8-K filed on September 14, 2006)
	4.9	Form of Warrant to purchase shares of Common Stock issued in connection with the sale of the Series A Convertible Preferred Stock (Incorporated by reference to Exhibit 4.1 filed with the Company's Current Report on Form 8-K filed on October 27, 2006)

Exhibit No.		Description
	4.10	Form of Warrant to purchase shares of Common Stock issued in connection with the sale of the Series B Convertible Preferred Stock (Incorporated by reference to Exhibit 4.1 filed with the Company's Current Report on Form 8-K filed on August 7, 2007)
	10.1	Employment Agreement dated April 6, 2004 by and between Synergy Pharmaceuticals Inc. and Kunwar Shailubhai (Incorporated by reference to Exhibit 10.2 filed with the Company's Annual Report on Form 10-KSB on April 14, 2004)*
	10.2	Amended and Restated License Agreement dated as of December 31, 2007 by and between Callisto Pharmaceuticals, Inc. and AnorMED Corporation, as successor in interest to AnorMED, Inc. (Incorporated by reference to Exhibit 10.3 filed with the Company's Annual Report on Form 10-K on March 28, 2008)**
	10.3	Patent and Technology License Agreement dated August 12, 2004 by and between The Board of Regents of the University of Texas System, on behalf of The University of Texas M.D. Anderson Cancer Center and Callisto Pharmaceuticals, Inc. (Incorporated by reference to Exhibit 10.1 filed with the Company's Current Report on Form 8-K filed on September 7, 2004)**
	10.4	Amendment dated October 19, 2005 to the Employment Agreement dated as of April 6, 2004 by and between Synergy Pharmaceuticals Inc. and Kunwar Shailubhai (Incorporated by reference to Exhibit 10.5 filed with the Company's Current Report on Form 8-K filed on October 21, 2005)*
	10.5	Patent and Technology License Agreement dated January 10, 2006 between The University of Texas M.D. Anderson Cancer Center and Callisto Pharmaceuticals, Inc. (Incorporated by reference to Exhibit 10.22 filed with the Company's Annual Report on Form 10-K filed on March 31, 2006)**
	10.6	Form of Letter Agreement dated September 8, 2006 between Callisto Pharmaceuticals, Inc. and certain investors (Incorporated by reference to Exhibit 10.1 filed with the Company's Current Report on Form 8-K filed on September 14, 2006)
	10.17	Form of Amendment Agreement dated as of September 8, 2006 between Callisto Pharmaceuticals, Inc. and certain investors (Incorporated by reference to Exhibit 10.2 filed with the Company's Current Report on Form 8-K filed on September 14, 2006)
	10.8	Form of Securities Purchase Agreement dated August 2, 2007 by and among Callisto Pharmaceuticals, Inc. and the purchasers set forth on the signature page thereto (Incorporated by reference to Exhibit 10.1 filed with the Company's Current Report on Form 8-K filed on August 7, 2007)
	10.9	Form of Registration Rights Agreement dated August 2, 2007 by and among Callisto Pharmaceuticals, Inc. and the purchaser's signatory thereto (Incorporated by reference to Exhibit 10.2 filed with the Company's Current Report on Form 8-K filed on August 7, 2007)
	10.10	Amended and Restated Employment Agreement dated December 10, 2007 by and between Callisto Pharmaceuticals, Inc and Bernard Denoyer (Incorporated by reference to Exhibit 10.26 filed with the Company's Annual Report on Form 10-K on March 28, 2008)*
	10.11	Exchange Agreement dated July 14, 2008 among Callisto Pharmaceuticals, Inc. Synergy Pharmaceuticals, Inc. the individuals named on the signature pages thereto and Pawfect Foods, Inc. (incorporated by reference to Exhibit 10.1 filed with the Company's Current Report on Form 8-K filed on July 18, 2008)

Exhibit No.		Description
	10.12	Amendment to Exchange Agreement dated July 14, 2008 among Callisto Pharmaceuticals, Inc. Synergy Pharmaceuticals, Inc. the individuals named on the signature pages thereto and Pawfect Foods, Inc. (incorporated by reference to Exhibit 10.2 filed with the Company's Current Report on Form 8-K filed on July 18, 2008)
	10.13	Technology Assignment Agreement between Callisto Pharmaceuticals, Inc. and AnorMED Corporation, a wholly owned subsidiary of Genzyme Corporation, dated December 19, 2008.
	10.14	Form of Securities Purchase Agreement by and between Callisto Pharmaceuticals, Inc. and the several investors party thereto.
	10.15	Form of Security Agreement made by Callisto Pharmaceuticals, Inc and Sommer and Schneider, LLP.
	10.16	Form of Common Stock Purchase Warrant.
	10.17	Form of Secured Promissory Note.
	10.18	Amended and Restated Executive Employment Agreement by and between Callisto Pharmaceuticals, Inc. and Gary S. Jacob dated March 11, 2009.*
	10.19	Amended and Restated Consulting Agreement by and between Callisto Pharmaceuticals, Inc. and Gabriele M. Cerrone dated March 11, 2009.*
	14	Code of Business Conduct and Ethics (Incorporated by reference to Exhibit 14 filed with the Company's Annual Report on Form 10-KSB filed on April 14, 2004)
	21	List of Subsidiaries
	23	Consent of BDO Seidman, LLP
	31.1	Certification of Chief Executive Officer required under Rule 13a-14(a)/15d-14(a) under the Exchange Act
	31.2	Certification of Principal Financial Officer required under Rule 13a-14(a)/15d-14(a) under the Exchange Act
	32.1	Certification of Chief Executive Officer pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
	32.2	Certification of Principal Financial Officer pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

EX-10.13

Exhibit 10.13

TECHNOLOGY ASSIGNMENT

THIS TECHNOLOGY ASSIGNMENT (the “Agreement”) is effective only as of the Effective Time (as defined herein) and is made by and between AnorMED Corporation (as successor in interest to AnorMED, Inc.), a company incorporated in Canada (together with its Affiliates, “AnorMED”) and Callisto Pharmaceuticals, Inc., a company organized under the laws of Delaware (together with its Affiliates, “Callisto”).  Each of AnorMED and Callisto are a “Party” and, together the “Parties”.

RECITALS

A.Johnson Matthey Public Limited Company, an English corporation (“JM”), and SmithKline Beecham Corporation, a Pennsylvania corporation (“SKB”), entered into a Cooperative Research and Assignment Agreement, dated as of January 11, 1990 (the “Cooperative Agreement”) for a joint research program regarding the synthesis of certain non-metal compounds.

B.JM and AnorMED entered into an Asset Transfer Agreement, dated as of June 28, 1996, whereby JM assigned to AnorMED all of its right, title, and interest in the Cooperative Agreement, including valuable patent rights, technical data and information relating to the compound Atiprimod (a/k/a Azaspiranes).

C.By letter dated November 4, 1996, SKB terminated the Cooperative Agreement and assigned to AnorMED all of its right, title, and interest in the Cooperative Agreement, including valuable patent rights, technical data and information relating to the compound Atiprimod (a/k/a Azaspiranes).

D.Pursuant to a license agreement by and between AnorMED and Synergy Pharmaceuticals, Inc. (“Synergy”) dated as of August 28, 2002, as amended by Amendment No. 1 to License Agreement dated as of May 23, 2003 and Amendment No. 2 to License Agreement dated as of July 8, 2004 (the “Original License”), AnorMED licensed to Synergy certain patent rights related to Atiprimod (a/k/a Azaspiranes) and one patent application (the “Jointly owned patent application”).

E.Synergy is now a wholly-owned subsidiary of Callisto.

F.AnorMED is now a wholly-owned subsidiary of Genzyme Corporation.

G.As of December 31, 2007, Callisto and AnorMED entered into an Amended and Restated License Agreement (the “Amended License”) superceding and replacing in its entirety the Original License.

H.The Parties wish to terminate the Amended License and to transfer and assign to Callisto all right, title and interest in the patent rights, technical data and information relating to the compound Atiprimod (a/k/a Azaspiranes), on the terms and conditions set forth herein.

AGREEMENT

NOW, THEREFORE, the parties agree as follows:

1.Definitions.  As used herein:

“Affiliate” shall mean any company or other business entity controlled by, controlling or under common control with a party, control being presumed if there is direct or indirect ownership of at least thirty-three and one-third percent (33 1/3%) (or, if less, the maximum permitted by applicable law) of the voting stock, equity or income interest.

“Effective Time” shall mean the time at which Genzyme receives the full amount of the Payment in the account designated in Section 4 hereof.

“Patent Rights” shall mean AnorMED’s interest in all the patents and patent applications which disclose and claim Atiprimod, or an analog or derivative thereof, or methods of use or manufacture of any of the foregoing, together with all divisional, extensions, reissues, substitutions, renewals, continuations and foreign counterparts thereof (including European Supplementary Protection Certificates) and patents issuing thereon.  Exhibit A attached hereto is presumed by the Parties to be a complete and accurate list of the Patent Rights; provided that AnorMED may, within three (3) business days of the Effective Time, notify Callisto that a patent or patent application listed on Exhibit A is incorrectly included in the Patent Rights, and a patent or patent application will not be deemed excluded from the Patent Rights if it is inadvertently omitted from Exhibit A.

“Product” shall mean any product comprising or incorporating Atiprimod (a/k/a Azaspiranes) and any analogs or derivatives described in the Patent Rights ad used for the diagnosis, treatment or prevention of disease in humans

“Technical Information” shall mean all trade secrets, technical reports and data concerning Atiprimod (a/k/a Azaspiranes) and any analogs or derivatives described in the Patent Rights, or any pharmaceutical composition based on the foregoing, that are necessary to develop, manufacture, have manufactured, use or commercialize a Product, including, but not limited to, preclinical data, toxicological studies, methods of synthesis, assay information and clinical trial data.

“Technology” shall mean Patent Rights and Technical Information.

2.Assignment.

(a)Assignment.  At the Effective Time, and in return for six hundred fifty thousand dollars ($650,000.00) (the “Payment”) and other consideration the receipt and sufficiency of

which is hereby acknowledged, AnorMED does hereby transfer, assign, set over, and convey to Callisto, and Callisto’s successors and assigns, all of AnorMED’s right, title, and interest in and to (in the United States and all foreign countries) the Technology free and clear of all liens, mortgages, pledges, security interests, prior assignments and encumbrances of any kind whatsoever, including without limitation the rights, if any, to sue or bring other actions for past, present or future infringement thereof.  AnorMED acknowledges and agrees that the Technology and all proprietary rights to the Technology are the sole property of Callisto.  At Callisto’s request, AnorMED shall execute and deliver to Callisto one or more separate assignments evidencing the foregoing assignment, in form and substance reasonably satisfactory to Callisto, for filing with the United States Patent and Trademark Office and other patent authorities throughout the world, and perform such other acts as may be reasonably necessary to give effect to the foregoing assignment.

(b)Files and Records.  To the extent AnorMED, or its predecessor AnorMED, Inc., has not already done so, upon written request by Callisto, AnorMED shall use reasonably diligent efforts to search for (and provide to Callisto if found) any existing files and records pertaining to the Technology, including without limitation all office actions, drafts, receipts, drawings, correspondence, disclosures, copies, diagnostic reports, prior art and analyses.

(c)Patent Maintenance and Enforcement Responsibilities.  Following the Effective Date, Callisto shall assume and be responsible for maintaining and enforcing the Patent Rights, including, without limitation, the right to sue and taking responsibility for any action or proceeding involving the Patent Rights.  All costs and expenses relating to the maintenance and enforcement of the Patent Rights incurred on and after the Effective Date shall be borne solely by Callisto.  Notwithstanding the foregoing, Callisto may elect not to maintain and enforce the Patent Rights at any time after the Effective Date.

(d)Assignment Recordation.  The responsibility and cost of recording the assignment of Patent Rights shall be borne solely by Callisto.

3.Trademarks and Corporate Name.  All trademarks (except the “AnorMED” and “Genzyme” mark) to be utilized by Callisto with Product are and shall be shall be owned by Callisto.  To the extent any such trademark is owned by AnorMED, AnorMED agrees to assign and hereby assigns its entire right, title and interest in such trademark to Callisto, and further agrees to execute and deliver to Callisto one or more separate assignments evidencing the foregoing assignment, in form and substance reasonably satisfactory to Callisto and perform such other acts as may be reasonably necessary to give effect to the foregoing assignment. Callisto will not use or reference AnorMED’s, Genzyme’s or any of their Affiliates’ corporate name without the prior written consent of AnorMED, which such consent may be withheld for any reason in AnorMED’s sole discretion, unless required by law in which case the scope and content of such use or reference will be mutually agreed to by the parties.

4Payment. The Payment will be made by wire transfer on or before the close of business on December 19, 2008 to the following account:

Beneficiary:  Genzyme Corporation

Account Number : 037-8388

Swift Code:  MELNUS3P

ABA/Routing #:  043000261

Bank Name:  The Bank of New York Mellon

5.Warranties; Disclaimer.

(a)Representations and Warranties of the Parties.  Each party represents and warrants to the other party that (a) it has full right, power, and authority to enter into this Agreement and to carry out the provisions hereof and (b) it has all necessary corporate approvals for its execution, delivery and performance of this Agreement.

(b)Disclaimer.  EXCEPT FOR THE WARRANTIES SET FORTH IN SECTION 5(a), ANORMED MAKES NO OTHER REPRESENTATIONS OR WARRANTIES WITH RESPECT TO THE PATENT RIGHTS AND EXPRESSLY DISCLAIMS ANY OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION, WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, PATENTABILITY AND NONINFRINGEMENT OF INTELLECTUAL PROPERTY RIGHTS OF OTHER PARTIES.

6.Confidentiality.

(a) Confidential Information.  Except as otherwise provided in this Article 6, during the term of this Agreement and for a period of five (5) years thereafter, a party (the “Receiving Party”) shall keep confidential and not disclose or use (except as contemplated by this Agreement) any proprietary or confidential information received from the other party (the “Disclosing Party”), including any exchanged under the Original License and Amended License, provided that Technical Information conveyed to Callisto pursuant to this Agreement will be deemed confidential information owned and disclosed by Callisto irrespective of the manner of its disclosure.  This restriction shall not apply to any information of the Disclosing Party to the extent the Receiving Party can demonstrate such information (a) was already known to the Receiving Party at the time of disclosure (as may be verified by the recipient’s contemporaneous written records, and excepting Technical Information conveyed to Callisto), (b) is or becomes public knowledge through no fault of the Receiving Party, (c) is received without an obligation of confidentiality from a third party having the lawful right to disclose same, or (d) was independently developed or discovered by the Receiving Party without the use of the information disclosed by the Disclosing Party (as may be verified by the recipient’s contemporaneous written records, and excepting Technical Information).

(b) Authorized Disclosure.  A Receiving Party may disclose information received from the Disclosing Party to the extent such disclosure is (i) required by law, regulation or court order or (ii) reasonably necessary, in connection with submissions to regulatory authorities for purposes of this Agreement, filing or prosecuting patent applications contemplated under this Agreement, prosecuting or defending litigation, complying with applicable governmental regulations or conducting preclinical or clinical trials of Product; provided, however, that in the

event of any proposed disclosure, the Receiving Party will use its reasonable efforts to secure confidential treatment of the information to be disclosed.

(c) Injunctive Relief.  Receiving Party agrees that the confidential information of the Disclosing Party constitutes valuable trade secrets. Receiving Party further agrees that breaches of its confidentiality and non-disclosure obligations concerning the such confidential information of the Disclosing Party will create irreparable harm for which monetary damages would be an inadequate remedy, and that the Disclosing Party may seek and upon proper proof obtain (from a court with proper jurisdiction) an injunction (without the posting of a bond or other security) to prevent any actual or threatened breach of this Agreement, as well as damages for already caused harm in the event of breach of any obligations herein regarding confidentiality.

7.Indemnification.  Callisto or its Affiliates shall indemnify and defend and hold AnorMED, its Affiliates and their respective officers, directors, employees, agents, consultants and contractors and their respective successors, heirs and assigns (the “Indemnified Parties”) harmless from and against any claim, action, liability, damage, loss, cost or expense (including reasonable attorneys’ fees and expenses of litigation) (“Loss”) arising from or related to (a) Callisto’s activities, actions, or inactions under the Original License, the Amended License, this Agreement or any subsequent agreement between Callisto and any third party relating to the Technology, (b) any practice of the Patent Rights, (c) the development, testing, production, manufacture, supply, promotion, import, sale or use of any Product or Technology (or any component thereof) including, but not limited to, any personal injury or product liability matters, or (d) any material breach of this Agreement by Callisto, or (e) gross negligence or willful misconduct on the part of Callisto or any Affiliate or sublicensee or assignee.  AnorMED shall promptly notify Callisto of any such claim or action, allow Callisto to control the defense of such claim or action and render all reasonable assistance to Callisto in connection with defending such claim or action.  Callisto shall secure and maintain insurance commensurate with its obligations under this Section 7 and consistent with the reasonable standards of the industry with respect to the Product.  Callisto shall provide AnorMED with evidence of such insurance coverage within ten (10) business days after the date of this Agreement.

8.Effectiveness of the Agreement.  The Parties hereby acknowledge and agree that this Agreement is of no force and effect prior to the Effective Time.  Further, the Parties acknowledge and agree that, if the Effective Time does not occur on or prior to 4pm EST on December 19, 2008, this Agreement shall be null and void and of no force and effect unless otherwise agreed to by the Parties in a subsequent writing.

9.Miscellaneous.

(a) Entire Agreement; Modification.  This Agreement constitutes the entire understanding between the parties hereto with respect to the subject matter hereof and supersedes and cancels all prior understandings, obligations, promises and agreements, including under the Original License and the Amended License. Consistent with the foregoing sentence, notwithstanding anything in the Amended License to the contrary, AnorMED and Callisto hereby acknowledge and agree that the Amended License is hereby terminated as of the date hereof and is of no further force or effect and that all provisions of the Amended License, including those that

expressly or implicitly survive termination, are hereby superseded by this Agreement effective as of the date hereof.  No modification or amendment hereof shall be valid or binding on the parties unless made in writing and duly executed by the parties.

(b) Counterparts.  This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

(c)  Notices and Communications.  Any notice or any other communication required or permitted to be given to a party pursuant hereto shall be sufficiently given if delivered personally or by facsimile or express courier service (expenses prepaid) to the address set forth below:

AnorMED:	AnorMED Corporation
	c/o Genzyme Corporation
	500 Kendall Street, Cambridge, MA 02142
	Attn: General Counsel
Callisto:	Callisto Pharmaceuticals, Inc.
	420 Lexington Avenue, Suite # 1609
	New York, NY 10170
	Attn: CEO

or to such other address as the party shall designate by written notice given to the other party.  All notices, information, reports and other communications in connection with this Agreement shall be in English.

(d) Governing Law.  This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts, United States (regardless of its or any other state’s choice of law provisions).

(e) Jurisdiction and Venue.  To the fullest extent permitted by applicable law, any action or proceeding relating in any way to this Agreement may only be brought and enforced in the state or federal courts located in the City of Boston, State of Massachusetts, United States, to the extent subject matter jurisdiction exists therefore, and the Parties irrevocably submit to the jurisdiction of such courts in respect of any such action or proceeding.  The Parties irrevocably waive, to the fullest extent permitted by applicable law, any objection that they may now or hereafter have to the laying of venue of any such action or proceeding in such courts or any claim that any such action or proceeding brought in such court has been brought in any inconvenient forum.  Any judgment may be entered in any court having jurisdiction thereof.

(signature page to follow)

IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed on December 19, 2008.

ANORMED INC.
By:	/s/ Stephen Mahoney
Name:	Stephen Mahoney
Its:	Assistant Secretary
CALLISTO PHARMACEUTICALS INC.
By:	/s/ Gary S. Jacob
Name:	Gary S. Jacob
Its:	CEO

EXHIBIT A

PATENT RIGHTS

1.	Title:	Immunomodulatory Azaspiranes
		Priority Application:   USSN 712,325      7 June 1991

Reference No.	Territory	Application No.	Filing Date	Issue Date	Patent No. or Publication No.
20015.00 Abandoned	US	07/712,325	7-Jun-91
20015.01 Abandoned	US	07/981,147	24-Nov-92
20015.20	US	08/277,456	19-Jul-94	7-Jan-97	US 5,591,748
20015.40	PCT	PCT/US92/04834	5-Jun-92		WO 92/22294
20015.41	EPO	92914312.1	5-Jun-92
20015.42	Ireland	921,827	1-Jul-92
20015.43	Japan	500972/1993	5-Jun-92	2-Feb-01	3155277
20015.44	S. Korea	93-703765	5-Jun-92	13-Jan-00	251570
20015.45 Abandoned	Mexico	922713	5-Jun-92
20015.46 Abandoned	New Zealand	243,029	5-Jun-92	29-Nov-94	243029
20015.47	Portugal	100,566	4-Jun-92
20015.48 Abandoned	S. Africa	92/4107	5-Jun-92	28-Apr-93

2.	Title:	Cytokine Inhibitors
	Priority Application:   USSN 657,578      19 February 1991

Reference No.	Territory	Application No.	Filing Date	Issue Date	Patent No. or Publication No.
20019.00 Abandoned	US	07/657,578	19-Feb-91
20019.01 Con Abandoned	US	07/887,628	22-May-92
20019.02 Con 01	US	08/138,178	15-Oct-93	11-Feb-97	US 5,602,166
20019.03 Con 02	US	08/779,418	7-Jan-97	4-May-99	US 5,900,430
20019.20 CIP 02 Abandoned	US	08/469,415	6-Jun-95
20019.40	PCT	PCT/US92/01283	18-Feb-92		WO 02/14462
20019.41	Australia	1463392	18-Feb-92	11-Jul-95	657745
20019.42	Canada	2,104,214	18-Feb-92
20019.43	European Patent Office	929073625	18-Feb-92	17-Nov-99	572537B1
20019.44	Ireland	920508	18-Feb-92
20019.45	Japan	04-507323/1992	18-Feb-92	23-Feb-01	3162071
20019.46 Abandoned	S Korea	93-702468	18-Feb-92
20019.47	S Africa	92/1120	17-Feb-92	27-Jan-93	199201120

20019.48	Austria	92907362.5	18-Feb-92	17-Nov-99	572537
20019.49	Belgium	92907362.5	18-Feb-92	17-Nov-99	572537
20019.50	Switzerland/ Liechtenstein	92907362.5	18-Feb-92	17-Nov-99	572537
20019.51	Denmark	92907362.5	18-Feb-92	17-Nov-99	572537
20019.52	Spain	92907362.5	18-Feb-92	17-Nov-99	572537
20019.53	France	92907362.5	18-Feb-92	17-Nov-99	572537
20019.54	Great Britain	92907362.5	18-Feb-92	17-Nov-99	572537
20019.55	Greece	92907362.5	18-Feb-92	17-Nov-99	2000400311
20019.56	Italy	92907362.5	18-Feb-92	17-Nov-99	572537
20019.57	Luxembourg	92907362.5	18-Feb-92	17-Nov-99	572537
20019.58	Monaco	92907362.5	18-Feb-92	17-Nov-99	572537
20019.59	Netherlands	92907362.5	18-Feb-92	17-Nov-99	572537
20019.60	Sweden	92907362.5	18-Feb-92	17-Nov-99	572537
20019.61	Germany	92907362.5	18-Feb-92	17-Nov-99	P69230314
20019.62	Hong Kong	981133586.6

3.	Title:	2-[2-(Dimethylamino)ethyl]-8,8-dipropyl-2-azaspiro[4,5]decane dimaleate
	Priority Application:		U.S. Provisional 60/016/066	23 April 1996
			U.S. Provisional 60/001,134	13 July 1995

Reference	Territory	Application No.	Filing Date	Issue Date	Patent No.
20021.00 (US)		08/981,929	11-Jul-96	14-Sep-99	US 5,952,365

4.	Title:	N,N-dimethyl-B,B-dipropyl-2-azasprio [4,5]decane-2-propanamine dimalcare
	Priority Application		U.S. provisional 60/001,138	13 July 1995
	Priority Application		U.S. provisional 60/015,996	23 April 1996

Reference	Territory	Application No.	Filing Date	Issue Date	Patent No. or Publication No.
20024.00	US	08/981,928	12-Jul-96	17-Aug-99	US 5,939,450
20024.40	PCT	PCT/US96/11590	12-Jul-96		WO 97/02820
20024.41 Abandoned	S Africa	96/5883	11-Jul-96	28-May-97	96/5883
20024.42 Abandoned	EPO	969260769	12-Jul-96		837678
20024.43	Japan	09-505996	12-Jul-96	1 June 01	3195364

5.	Title:	N,N-diethyl-8,8-dipropyl-2-azaspiro [4,5] decane-2-propanamine
	Priority Application:		U.S. provisional 60/001,139	13 July 1995
			U.S. provisional 60/016,065	23 April 1996

Reference No.	Territory	Application No.	Filing Date	Issue Date	Patent No. or Publication No.
20029.00	US	08/679,480	12-Jul-96	28-Apr-98	US 5,744,495
20029.40 Abandoned	Algeria	11296	9-Jul-96
20029.41	Argentina	960103537	11-Jul-96
20029.42	Australia	5945596	11-Jul-96	8-Jun-00	716256
20029.43 Abandoned	Barbados	81402	12-Jul-96
20029.44	Brazil	96019093	3-Jul-96
20029.45	Bulgaria	100710	8-Jul-96	25-Feb-99	62359
20029.46	Canada	2,181,006	11-Jul-96
20029.47	Chile	123696	12-Jul-96	14-Aug-00	40.657
20029.48	China	961108207	12-Jul-96	1-Mar-01	96110820.7
20029.49 Abandoned	Colombia	96036764	12-Jul-96
20029.50	Czech Rep.	PV 203696	9-Jul-96
20029.51 Abandoned	Ecuador	SP 961818	11-Jul-96	21-May-98	P1-981368
20029.52 Abandoned	Egypt	66096	11-Jul-96
20029.53	Eurasia	199600048	12-Jul-96	3-Dec-97	0 00037
20029.54	European Patent Office	962019436	11-Jul-96	18-Mar-98	0 753512
20029.55	Hungary	P 9601918	12-Jul-96
20029.56	India	1557/DEL/96	12-Jul-96
20029.57	Indonesia	P 961950	8-Jul-96
20029.58 Abandoned	Israel	118815	8-Jul-96	29-Sep-00
20029.59	Japan	1830581996	12-Jul-96
20029.60	S Korea	280161996	11-Jul-96
20029.61	Malaysia	PI 9602865	11-Jul-96
20029.62	Mexico	962767	12-Jul-96	29-Sep-00	198843
20029.63	New Zealand	286951	8-Jul-96	15-Jun-98	286951
20029.64 Abandoned	Nigeria	15396	10-Jul-96	6-Dec-96	12578
20029.65	Norway	962931	12-Jul-96	6-Dec-99	306.672
20029.66 Abandoned	Pakistan	450/96	11-Jul-96	11-Nov-98	135353
20029.67 Abandoned	Peru	52596	12-Jul-96
20029.68	Philippines	53652	8-Jul-96
20029.69	Poland	315191	10-Jul-96
20029.70	Romania	9601426	11-Jul-96
20029.71	Saudi Arabia	96170188	30-Jul-96
20029.72 Abandoned	Singapore	96102355	8-Jul-96	22-Aug-00	43383
20029.73 Abandoned	Slovak Rep.	PV 0 88696	8-Jul-96	18-Jan-01
20029.74 Abandoned	S Africa	965883	11-Jul-96	26-Mar-97	965883

20029.75 Abandoned	Sri Lanka	11031
20029.76	Taiwan	85108324	10-Jul-96	21-Jan-01	126896
20029.77 Abandoned	Tangiers	1399	12-Jul-96
20029.78	Thailand	32280	9-Jul-96
20029.79	Turkey	9600579	12-Jul-96	22-Mar-99	TR 1996 00579 B
20029.80 Abandoned	United Arab Emirates	10796	13-Jul-96
20029.81 Abandoned	Ukraine	96072764	9-Jul-96
20029.82 Abandoned	Uruguay	24283	15-Jul-96
20029.83	Venezuela	126096	12-Jul-96
20029.84 Abandoned	Vietnam	SC 2696	12-Jul-96	29-Sep-00	1500
20029.85	Austria	962019436	11-Jul-96	18-Mar-98	0 753512
20029.86	Belgium	962019436	11-Jul-96	18-Mar-98	0 753512
20029.87	Denmark	962019436	11-Jul-96	18-Mar-98	0 753512
20029.88	Finland	962019436	11-Jul-96	18-Mar-98	0 753512
20029.89	France	962019436	11-Jul-96	18-Mar-98	0 753512
20029.90	Germany	962019436	11-Jul-96	18-Mar-98	0 753512
20029.91	Greece	962019436	11-Jul-96	18-Mar-98	3026998
20029.92	Netherlands	962019436	11-Jul-96	18-Mar-98	0 753512
20029.93	Ireland	962019436	11-Jul-96	18-Mar-98	0 753512
20029.94	Italy	962019436	11-Jul-96	18-Mar-98	0 753512
20029.95	Luxembourg	962019436	11-Jul-96	18-Mar-98	0 753512
20029.96 Abandoned	Morocco	24311	12-Jul-96
20029.97	Portugal	962019436	11-Jul-96	18-Mar-98	0 753512
20029.98	Spain	962019436	11-Jul-96	18-Mar-98	0 753512
20029.99	Sweden	962019436	11-Jul-96	18-Mar-98	0 753512
25029.40	Switzerland	962019436	11-Jul-96	18-Mar-98	0 753512
25029.41 Abandoned	Hong Kong	981107432	18-Sep-98	11-Jun-99	HK1010052
25029.42	Great Britain	962019436	11-Jul-96	18-Mar-98	753512

6.	Title       Immunomodulatory azaspiranes
	Priority Application:       USSN 101,704       28 September 1987

Reference No.	Territory	Application No.	Filing Date	Issue Date	Patent No. or Publication No.
20031.00 Abandoned	US	07/101,704	28-Sep-87
20031.20 CIP 20031.00	US	07/244,229	13-Sep-88	16-Oct-90	US 4,963,557
20031.40	PCT	PCT/US88/03323	27-Sep-88
20031.41 Abandoned	Bahamas	930	27-Sep-88	14-Apr-89	930
20031.42	Canada	578528	27-Sep-88	26-Apr—93	1313189
20031.43	China	881090328	27-Sep-88	21-Jan-96	881090328
20031.44	Cyprus	883089146	26-Sep-88	12-Sep-96	1955
20031.45	Czech Rep	PV 397091	20-Dec-01
20031.46	European Patent Office	883089146	26-Sep-88	30-Nov-94	0310321
20031.47	Ireland	292988	28-Sep-88	16-Apr-96	67891
20031.48 Abandoned	Israel	87908	25-Sep-88	21-Feb-93	87908
20031.49 Abandoned	Malaysia	8801078	27-Sep-88	30-Jul-94	104932
20031.50	Mexico	923765	29-Jun-92	10-May-94	174367
20031.51	New Zealand	226354	27-Sep-88	13-Jun-91	226354
20031.52 Abandoned	Pakistan	43988	28-Sep-88	26-Dec-90	131497
20031.53	Portugal	88603	27-Sep-88	25-Jun-92	88603
20031.54 Abandoned	Singapore	96914205	26-Sep-88	30-Nov-94	96914205
20031.55	Slovakia	397097	20-Dec-91
20031.56 Abandoned	S Africa	887266	28-Sep-88	27-Jan-93	887266
20031.57	Taiwan	77106657	24-Sep-88	26-Apr-91	43871
20031.58 Abandoned	Zimbabwe	12388	21-Sep-88	7-Apr-89	12388
20031.59	Australia	253388	27-Sep-88	1-Jun-92	619780
20031.60	Denmark	77090	27-Sep-88	8-May-95	170042
20031.61	Finland	901530	27-Sep-88	10-Feb-95	93006
20031.62 Abandoned	Hungary	588988	27-Sep-88	24-Sep-93	208809
20031.63	Japan	63508105	27-Sep-88	21-Nov-96	2582888
20031.64 Abandoned	S Korea	899-00907	27-Sep-88	22-Sep-98	166366
20031.65	Norway	901392	27-Sep-88	9-Feb-94	173824
20031.66	Philippines	37609	13-Sep-88	5-Nov-91	25812
20031.67 Abandoned	Hungary	P/P00121	1-Jul-95		211325
20031.68	Austria	883089146	26-Sep-88	30-Nov-94	0 310321
20031.69	Belgium	883089146	26-Sep-88	30-Nov-94	0 310321
20031.70	France	883089146	26-Sep-88	30-Nov-94	0 310321
20031.71	Germany	883089146	26-Sep-88	30-Nov-94	0 310321
20031.72	Great Britain	883089146	26-Sep-88	30-Nov-94	0 310321
20031.73	Greece	883089146	26-Sep-88	30-Nov-94	0 310321

20031.74	Italy	883089146	26-Sep-88	30-Nov-94	0 310321
20031.75	Luxembourg	883089146	26-Sep-88	30-Nov-94	0 310321
20031.76	Netherlands	883089146	26-Sep-88	30-Nov-94	0 310321
20031.77	Spain	883089146	26-Sep-88	30-Nov-94	0 310321
20031.78	Sweden	883089146	26-Sep-88	30-Nov-94	0 310321
20031.79 Abandoned	Hong Kong	98105430			HK 1006274

7.Psoriasis treatment using Azaspiranes and a method of immunosuppression, using Azaspiranes in combination with cyclosporine)

Patent No. US 5,981,538

Patent No. US 6,051,59

EX-10.14

Exhibit 10.14

SECURITIES PURCHASE AND EXCHANGE AGREEMENT

SECURITIES PURCHASE AGREEMENT (this “AGREEMENT,” “PURCHASE AGREEMENT,” or “SECURITIES PURCHASE AGREEMENT”), dated as of                                  , by and among CALLISTO PHARMACEUTICALS, INC., a Delaware corporation, (“COMPANY”), and                                                                                        (the “BUYER”).

WHEREAS:

  A.       The Company and the Buyer are executing and delivering this Agreement in reliance upon the exemption from securities registration afforded by Rule 506 under Regulation D (“REGULATION D”) as promulgated by the United States Securities and Exchange Commission (the “SEC”) under the Securities Act of 1933, as amended (the “1933 ACT” or the “Securities Act”);

  B.       Buyer and other buyers desire to purchase and the Company desires to issue and sell, upon the terms and conditions set forth in this Agreement, (i) secured 11% notes of the Company due April 15, 2010 (the “Notes”) and (ii) to issue Warrants (as defined in Section 1(b)(iv) in the form described in this Agreement, to purchase shares of Common Stock of the Company in exchange for certain outstanding warrants in a private offering.  This offering of the Notes to the Buyers shall be in the principal amount of up to five hundred thousand ($500,000) dollars (the “Offering”);

  C.       The terms of the Notes and Warrants are set forth in the Company’s Confidential Offering Summary dated December 12, 2008 (“Offering Summary”);

NOW THEREFORE, the Company and the Buyer hereby agree as follows:

1.       PURCHASE AND SALE OF NOTES AND WARRANTS.

(a) CERTAIN DEFINITIONS.  This Securities Purchase Agreement, the Note, the Security Agreement, the Warrants, and any other agreements delivered together with this Agreement or in connection herewith shall be referred to herein as the “Transaction Documents.”  The Company and the Buyer mutually agree to the terms of each of the Transaction Documents.  For purposes hereof:

“Buyers” means the Buyer, and other buyers of Notes and Warrants pursuant to the Offering.

“Common Stock Equivalents” means any securities of the Company or the Subsidiaries which would entitle the holder thereof to acquire, directly or indirectly, at any time Common Stock, including without limitation, any debt, preferred stock, rights, options, warrants or other instrument that is at any time convertible into or exercisable or exchangeable for, or otherwise entitles the holder thereof to receive, Common Stock.

“Person” shall mean an individual, a limited liability company, a partnership, a joint venture, an exempted company, a corporation, a trust, an unincorporated organization and a government or any department or agency thereof.

(b) PURCHASE OF NOTES AND WARRANTS.  Subject to the satisfaction or waiver of the terms and conditions of this Agreement, on the Closing Date (as defined below), the Company shall issue and sell to Buyer and Buyer agrees to purchase from the Company the Note in a principal amount equal to the Subscription Amount (as defined in Section 10) and that number of Warrants to purchase a number of shares determined by multiplying the Subscription Amount up to the Pro Rata Amount (set forth on Schedule A) of Buyer by 55.96, plus the number of Warrants to purchase the number of shares determined by multiplying the Subscription Amount accepted by the Company in excess of the Pro Rata amount by 90 (the “Warrant Amount”).  The Buyer acknowledges that the amount of Notes and Warrants purchased may be a llocated among the Buyers by the Company, in its sole discretion, in the manner set forth in the Offering Summary.

(i)   Form of Note.  The Note shall be in the form annexed hereto as EXHIBIT A.

(ii)  Form of Warrant  The Warrant shall be in the form annexed hereto as EXHIBIT B.

(iii) Form Of Payment.  On or before the Closing Date (as defined below), (i) Buyer shall pay the purchase price for the Note and the Warrants to be issued and sold to it at the Closing (as defined below) (the “PURCHASE PRICE”) by wire transfer of immediately available funds to the Company, in accordance with the Company’s written wiring instructions and shall deliver the outstanding warrants for exchange (“Exchanged Warrants”) duly endorsed for transfer (and cancellation by the Company) in accordance in the manner described in the Company’s Confidential Summary dated November 5, 2008 against delivery of duly executed certificates representing the Note (“Note Certificate”) having an aggregate initial principal amount (the “Original Principal Amount”) equal to the Purchase Price and the number of Warrants equal to the Warrant Amount, and (ii) the Company shall deliver such Note Certificates and Warrants duly executed on behalf of the Company, to such Buyer, against delivery of such Purchase Price.

(iii)  Closing Date.  Subject to the satisfaction or waiver of the terms and conditions of this Agreement, the “Closing” shall occur when subscriber funds representing the aggregate Original Principal Amount of the Note being purchased by the Buyer are transmitted by wire transfer of immediately available funds by Sommer & Schneider LLP, in its capacity as Subscription Agent on Buyer’s behalf to the Company, and the Company’s delivery of the Notes and Warrants to the Subscription Agent. The date of the Closing shall be referred to herein as the “Closing Date.”  The Closing contemplated by this Agreement shall occur on the applicable Closing Date at the offices of the Company, or at such other location as may be agreed to by the parties.  Following the Closing Date, the Subscription Agent will deliver the Notes and Warrants to the Buyer within the later of three business days after receipt of the Exchanged Warrants duly endorsed as aforesaid or the Closing Date.

(v)  Closing Deliveries. On the Closing Date, the Company will deliver certificates representing the applicable Note and Warrants to the Buyer and the Buyer will deliver the Purchase Price and the Exchanged Warrants to the Company.

2.       BUYER’S REPRESENTATIONS AND WARRANTIES. Buyer represents and warrants to the Company solely as to such Buyer that:

   (a)    INVESTMENT PURPOSE. As of the date hereof, the Buyer is purchasing the Note and the Warrants and the shares of Common Stock issuable upon exercise thereof (the “Warrant Shares” and, collectively with the Note and Warrants and Conversion Shares, the “Securities”) for its own account and not with a present view towards the public sale or distribution thereof, except pursuant to sales registered or exempted from registration under the 1933 Act; PROVIDED, HOWEVER, that by making the representations herein, the Buyer does not agree to hold any of the Securities for any minimum or other specific term and reserves the right to dispose of the Securities at any time in accordance with or pursuant to a registration statement or an exemption under the 1933 Act and applicable state securities laws.

   (b)ACCREDITED INVESTOR STATUS. The Buyer is an “accredited investor” as that term is defined in Rule 501(a) of Regulation D (an “Accredited Investor”).

(c)    RELIANCE ON EXEMPTIONS. The Buyer understands that the Securities are being offered and sold to it in reliance upon specific exemptions from the registration requirements of United States federal and state securities laws and that the Company is relying upon the truth and accuracy of, and the Buyer’s compliance with, the representations, warranties, agreements, acknowledgments and understandings of the Buyer set forth herein in order to determine the availability of such exemptions and the eligibility of the Buyer to acquire the Securities.

(d)    INFORMATION. The Buyer and its advisors, if any, have been furnished with all materials relating to the business, finances and operations of the Company and materials relating to the offer and sale of the Securities which have been requested by the Buyer or its advisors. The Buyer and its advisors, if any, have been afforded the opportunity to ask questions of the Company. Neither such inquiries nor any other due diligence investigation conducted by Buyer or any of its advisors or representatives shall modify, amend or affect Buyer’s right to rely on the Company’s representations and warranties contained in Section 3 below. The Buyer understands that its investment in the Securities involves a significant degree of risk.

(e)    GOVERNMENTAL REVIEW. The Buyer understands that no United States federal or state agency or any other government or governmental agency has passed upon or made any recommendation or endorsement of the Securities.

(f)    TRANSFER OR RE-SALE. The Buyer understands that (i) the sale or re-sale of the Securities has not been and is not being registered under the 1933 Act or any applicable state securities laws, and the Securities may not be transferred or resold unless (a) the Securities are sold pursuant to an effective registration statement under the 1933 Act, (b) the Buyer shall

have delivered to the Company an opinion of counsel (which opinion shall be in form, substance and scope reasonably satisfactory to counsel to the Company) to the effect that the Securities to be sold or transferred may be sold or transferred pursuant to an exemption from such registration, (c) the Securities are sold or transferred to an “affiliate” (as defined in Rule 144 promulgated under the 1933 Act (or a successor rule) (“RULE 144”) of the Buyer who agrees to sell or otherwise transfer the Securities only in accordance with this Section 2(f) and who is an Accredited Investor, or (d) the Securities are sold pursuant to Rule 144 or Rule 144(k); and (ii) any sale of such Securities made in reliance on Rule 144 or Rule 144(k) may be made only in accordance with the terms of said Rule. Notwithstanding the foregoing or anything else contained herein to the contrary, the Securities may be pledged as collateral in connection with a BONA FIDE margin account or other lending arrangement.

(g)    ORGANIZATION; AUTHORIZATION; ENFORCEMENT. Buyer is a [natural person / (corporation, limited liability company, trust duly organized, validly existing and in good standing under the laws of the jurisdiction in which it is organized].  Buyer has all requisite power and authority to enter into and perform this Agreement and the Security Agreement and to consummate the transactions contemplated hereby and thereby in accordance with the terms hereof and thereof.  The execution and delivery of this Agreement has been duly and validly authorized and no further consent or authorization of Buyer, or any governing body or security holder of the Buyer, if the Buyer is not a natural person. This Agreement has been duly executed and delivered on behalf of the Buyer, and this Agreement constitutes, and upon execution of the Security Agreement, such agreement will constitute, the legal, valid and binding agreements of the Buyer enforceable in accordance with their terms.

(h)    KNOWLEDGE AND EXPERIENCE.  Buyer has such knowledge and experience in financial and business matters that it is capable of evaluating the merits and risks of the investment in the Securities.

(i)    CERTAIN TRADING ACTIVITIES. As of the Closing Date the Buyer and its Affiliates have not entered into or effected any “short sales” (as such term is defined in Rule 3b-3 of the 1934 Act) of the Common Stock or hedging transaction which established a net short position with respect to the Common Stock.  For the purposes of this Agreement, an “Affiliate” of any person or entity means any other person or entity directly or indirectly controlling, controlled by or under direct or indirect common control with such person or entity. Affiliate includes each subsidiary of the Company.

(j)    OWNERSHIP OF EXCHANGED WARRANTS.  As of the Closing Date the Buyer has the complete and absolute right to transfer the Exchanged Warrants to the Company for cancellation, free and clear of any, liens, encumbrances or restrictions on transfer (except restrictions under applicable state and federal securities law) and all necessary action, corporate or otherwise, has been taken to transfer good title to the Exchanged Warrants to the Company for cancellation.

3.            REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents and warrants to Buyer that, except as set forth on the Company’s disclosure schedules or any update thereto prior to the Closing Date:

(a)      ORGANIZATION AND QUALIFICATION. The Company and each of its Subsidiaries (as defined below), if any, is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of their respective incorporation, with full power and authority (corporate and other) to own, lease, use and operate its properties and to carry on its business as and where now owned, leased, used, operated and conducted. SCHEDULE 3(A) sets forth a list of all of the Subsidiaries of the Company and the jurisdiction in which each is incorporated. The Company and each of its Subsidiaries is duly qualified as a foreign corporation to do business and is in good standing in every jurisdiction in which its ownership or use of property or the nature of the business conducted by it makes such qualification necessary except where the failure to be so qualified or in good standing would not have a Material Adverse Effect. “Material Adverse Effect” means any material adverse effect on (i) the Securities, (ii) the business, operations, assets, financial condition or prospects of the Company and its Subsidiaries, if any, taken as a whole, (iii) on the transactions contemplated hereby or by the agreements or instruments to be entered into in connection herewith or (iv) the authority or the ability of the Company to perform its obligation under this Agreement, the Security Agreement, the Note or the Warrants. “Subsidiaries” means any corporation or other organization, whether incorporated or unincorporated, in which the Company owns, directly or indirectly, any equity or other ownership interest.

(b)      AUTHORIZATION; ENFORCEMENT. (i) The Company has all requisite corporate power and authority to enter into and perform this Agreement, the Security Agreement, the Note and the Warrants and to consummate the transactions contemplated hereby and thereby and to issue the Securities, in accordance with the terms hereof and thereof, (ii) the execution and delivery of this Agreement, the Security Agreement, the Note and the Warrants by the Company and the consummation by it of the transactions contemplated hereby and thereby (including without limitation, the issuance of the Note and the Warrants and the issuance and reservation for issuance of the Warrant Shares issuable upon exercise of or otherwise pursuant to the Warrants) have been duly authorized by the Company’s Board of Directors and no further consent or authorization of the Company, its Board of Directors, or its stockholders is required, (iii) this Agreement has been duly executed and delivered by the Company, and (iv) this Agreement constitutes, and upon execution and delivery by the Company of the Security Agreement, the Note and the Warrants, each of such agreements and instruments will constitute, a legal, valid and binding obligation of the Company enforceable against the Company in accordance with their respective terms.

(c)      CAPITALIZATION. The capitalization of the Company is as described in the Company’s most recent report filed with the Commission.  Except as set forth on SCHEDULE 3(c), the Company has not issued any capital stock since such filing other than pursuant to the employee stock option plan.  Except as disclosed in the Company’s reports filed with the Commission, issued pursuant to the Company’s stock incentive plan or as a result of the purchase and sale of the Securities, there are no outstanding options, warrants, script rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities, rights or obligations convertible into or exchangeable for, or giving any Person any right to subscribe for or acquire, any shares of Common Stock, or contracts, commitments, understandings or arrangements by which the Company or any Subsidiary is or may become bound to issue

additional shares of Common Stock, or securities or rights convertible or exchangeable into shares of Common Stock.  All of the outstanding shares of capital stock of the Company are validly issued, fully paid and non-assessable, have been issued in compliance with all federal and state securities laws, and none of such outstanding shares was issued in violation of any preemptive rights or similar rights to subscribe for or purchase securities.

No shares of capital stock of the Company are subject to preemptive rights or any other similar rights of the stockholders of the Company or any liens or encumbrances imposed through the actions or failure to act of the Company. Upon request, the Company has furnished to the Buyer true and correct copies of the Company’s Certificate of Incorporation as in effect on the date hereof (“Certificate Of Incorporation”), the Company’s By-laws, as in effect on the date hereof (the “By-Laws”), and the terms of all securities convertible into or exercisable for Common Stock of the Company and the material rights of the holders thereof in respect thereto. The issuance and sale of the Securities will not obligate the Company to issue shares of Common Stock or other securities to any Person (other than the Buyers) and will not result in a right of any holder of Company securities to adjust the exercise, conversion, exchange or reset price under any of such securities.  No further approval or authorization of any stockholder, the Board of Directors of the Company or others is required for the issuance and sale of the Securities.  There are no stockholders agreements, voting agreements or other similar agreements with respect to the Company’s capital stock to which the Company is a party or, to the knowledge of the Company, between or among any of the Company’s stockholders.

(d)      ISSUANCE OF SHARES. Upon exercise of the Warrants in accordance with their respective terms, and receipt of the exercise price therefor, the Warrant Shares, along with any other shares issued pursuant to the terms of the Transaction Documents, will be validly issued, fully paid and non-assessable, and free from all taxes, liens, claims and encumbrances and shall not be subject to preemptive rights or other similar rights of stockholders of the Company and will not impose personal liability upon the holder thereof.

(e)      ACKNOWLEDGMENT OF DILUTION. The Company understands and acknowledges the potentially dilutive effect to the Common Stock upon the issuance of the Warrant Shares upon exercise of or otherwise pursuant to the Warrants. The Company’s directors and executive officers have studied and fully understand the nature of the Securities being sold hereunder. The Company further acknowledges that its obligation to issue Warrant Shares upon exercise of or otherwise pursuant to the Warrants in accordance with this Agreement and the Warrants is absolute and unconditional regardless of the dilutive effect that such issuance may have on the ownership interests of other stockholders of the Company. Taking the foregoing into account, the Company’s Board of Directors has determined, in its good faith business judgment, that the issuance of the Securities hereunder and under the Warrants and the consummation of the transactions contemplated hereby and thereby are in the best interest of the Company and its stockholders.

(f)      NO CONFLICTS. The execution, delivery and performance of each of the Transaction Documents by the Company and the consummation by the Company of the transactions contemplated hereby and thereby (including, without limitation, the issuance and reservation for issuance of the Warrant Shares) will not (i) conflict with or result in a violation of

any provision of the Certificate of Incorporation or By-laws, (ii) trigger any resets of conversion or exercise prices in other outstanding convertible securities, warrants or options of the Company, (iii) trigger the issuance of securities by the Company to any third party, (iv) violate or conflict with, or result in a breach of any provision of, or constitute a default (or an event which with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, any agreement, indenture, patent, patent license or instrument to which the Company or any of its Subsidiaries is a party, or (v) result in a violation of any law, rule, regulation, order, judgment or decree (including federal and state securities laws and regulations and regulations of any self-regulatory organizations to which the Company or its securities are subject) applicable to the Company or any of its Subsidiaries or by which any property or asset of the Company or any of its Subsidiaries is bound or affected (except, in the case of clauses (i), (iv) and (v) above, for such conflicts, defaults, terminations, amendments, accelerations, cancellations and violations as would not, individually or in the aggregate, have a Material Adverse Effect). Neither the Company nor any of its Subsidiaries is in violation of its Certificate of Incorporation, By-laws or other organizational documents and neither the Company nor any of its Subsidiaries is in default (and no event has occurred which with notice or lapse of time or both could put the Company or any of its Subsidiaries in default) under, and neither the Company nor any of its Subsidiaries has taken any action or failed to take any action that would give to others any rights of termination, amendment, acceleration or cancellation of, any agreement, indenture or instrument to which the Company or any of its Subsidiaries is a party or by which any property or assets of the Company or any of its Subsidiaries is bound or affected, except for possible defaults as would not, individually or in the aggregate, have a Material Adverse Effect. The businesses of the Company and its Subsidiaries, if any, are not being conducted, and shall not be conducted so long as a Buyer owns any of the Securities, in violation of any law, ordinance or regulation of any governmental entity the violation of which would have a Material Adverse Effect. Except as specifically contemplated by this Agreement or as required under the 1933 Act and any applicable state securities laws, the Company is not required to obtain any consent, authorization or order of, or make any filing or registration with, any court, governmental agency, regulatory agency, self regulatory organization or stock market or any third party in order for it to execute, deliver or perform any of its obligations under this Agreement, the Note or the Warrants in accordance with the terms hereof or thereof or to issue and sell the Note and Warrants in accordance with the terms hereof and to issue Warrant Shares upon exercise of or otherwise pursuant to the Warrants.  All consents, authorizations, orders, filings and registrations which the Company is required to obtain pursuant to the preceding sentence have been obtained or effected on or prior to the date hereof. The Company and its Subsidiaries are unaware of any facts or circumstances which might give rise to any of the foregoing.

(g)      SEC DOCUMENTS; FINANCIAL STATEMENTS.  The Company has timely filed all reports, schedules, forms, statements and other documents required to be filed by it with the SEC pursuant to the reporting requirements of the Securities Exchange Act of 1934, as amended (the “1934 Act”) and all exhibits included therein and financial statements and schedules thereto and documents (other than exhibits to such documents) incorporated by reference therein, being hereinafter referred to herein as the “SEC Documents”). For purposes of this agreement, “timely filed” shall mean that the applicable document was filed (i) by its original due date under the 1934 Act, or, if a request for an extension was timely filed, (ii) by

such extended due date.  The Company has delivered, by reference to the SEC’s website and EDGAR thereunder (www.sec.gov), or made available to Buyer true and complete copies of the SEC Documents.  As of their respective dates, the SEC Documents complied in all material respects with the requirements of the 1934 Act and the rules and regulations of the SEC promulgated thereunder applicable to the SEC Documents, and none of the SEC Documents, at the time they were filed with the SEC, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. None of the statements made in any such SEC Documents is, or has been, required to be amended or updated under applicable law (except for such statements as have been amended or updated in subsequent filings prior to the date hereof). As of their respective dates, the financial statements of the Company included in the SEC Documents complied as to form in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto. Such financial statements have been prepared in accordance with United States generally accepted accounting principles, consistently applied, during the periods involved (except (i) as may be otherwise indicated in such financial statements or the notes thereto, or (ii) in the case of unaudited interim statements, to the extent they may not include footnotes or may be condensed or summary statements) and fairly present in all material respects the consolidated financial position of the Company and its consolidated Subsidiaries as of the dates thereof and the consolidated results of their operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to normal year-end audit adjustments). Except as set forth in the financial statements of the Company included in the SEC Documents, the Company has no liabilities, contingent or otherwise, other than (i) liabilities incurred in the ordinary course of business subsequent to the date of the Company’s most recent 10-Q or 10-K and (ii) obligations under contracts and commitments incurred in the ordinary course of business and not required under generally accepted accounting principles to be reflected in such financial statements, which, individually or in the aggregate, are not material to the financial condition or operating results of the Company.

(h)      ABSENCE OF CERTAIN CHANGES. Except for losses incurred in the ordinary course of business that have been publicly disclosed prior to the date hereof or as set forth on SCHEDULE 3(H) hereof, since the date of the Company’s most recent 10-Q, there has been no material adverse change and no material adverse development in the assets, liabilities, business, properties, operations, financial condition, results of operations or prospects of the Company or any of its Subsidiaries. For purposes of this Section 3(h), the terms “material adverse change” and “material adverse development” shall exclude continuing losses that are consistent with the Company’s historical losses.

(i)      ABSENCE OF LITIGATION.  Except as disclosed in SCHEDULE 3(I), to the knowledge of the Company or any of its Subsidiaries, there is no action, suit, claim, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the Company or any of its Subsidiaries, threatened against or affecting the Company or any of its Subsidiaries, or their officers or directors in their capacity as such. SCHEDULE 3(I) contains a complete list and summary description of any known pending or threatened proceeding against or affecting the Company or any of its Subsidiaries, without regard to whether it, if adversely decided, would

have a Material Adverse Effect. The Company and its Subsidiaries are unaware of any facts or circumstances which might give rise to any of the foregoing.

(j)      PATENTS, COPYRIGHTS, ETC.  The Company and each of its Subsidiaries owns or possesses the requisite licenses or rights to use all Intellectual Property necessary to enable it to conduct its business as now operated, including but not limited to its intellectual property and to the best of the Company’s knowledge, as presently contemplated to be operated in the future), except for such licenses or rights the failure of which to own or possess would not, individually or in the aggregate, have a Material Adverse Effect; there is no claim or action by any person pertaining to, or proceeding pending, or to the Company’s knowledge threatened, which challenges the right of the Company or of a Subsidiary with respect to any Intellectual Property necessary to enable it to conduct its business as now operated (and, except as otherwise set forth in SCHEDULE 3(J) hereof, to the best of the Company’s knowledge, as presently contemplated to be operated in the future), except for actions or claims which, if adversely decided, would not have a Material Adverse Effect; to the best of the Company’s knowledge, the Company’s or its Subsidiaries’ current and intended products, services and processes do not infringe on any Intellectual Property or other rights held by any person, and the Company is unaware of any facts or circumstances which might give rise to any of the foregoing. The Company and each of its Subsidiaries have taken reasonable security measures to protect the secrecy, confidentiality and value of their Intellectual Property.  The Company has Existing Liens on its Intellectual Property as detailed in SCHEDULE 3(J) hereof.

(k)      NO MATERIALLY ADVERSE CONTRACTS, ETC. Neither the Company nor any of its Subsidiaries is subject to any charter, corporate or other legal restriction, or any judgment, decree, order, rule or regulation which in the judgment of the Company’s officers has or is reasonably likely in the future to have a Material Adverse Effect that has not been disclosed in the SEC Documents. Neither the Company nor any of its Subsidiaries is a party to any contract or agreement which in the judgment of the Company’s officers has or is reasonably likely to have a Material Adverse Effect that has not been disclosed in the SEC Documents.

(l)      TAX STATUS. Except as set forth on SCHEDULE 3(L), the Company and each of its Subsidiaries has made or filed all federal, state and foreign income and all other tax returns, reports and declarations required by any jurisdiction to which it is subject (unless and only to the extent that the Company and each of its Subsidiaries has set aside on its books provisions reasonably adequate for the payment of all unpaid and unreported taxes) and has paid all taxes and other governmental assessments and charges that are material in amount, shown or determined to be due on such returns, reports and declarations, except those being contested in good faith and has set aside on its books provisions reasonably adequate for the payment of all taxes for periods subsequent to the periods to which such returns, reports or declarations apply. There are no unpaid taxes in any material amount claimed to be due by the taxing authority of any jurisdiction, and the officers of the Company know of no basis for any such claim. The Company has not executed a waiver with respect to the statute of limitations relating to the assessment or collection of any foreign, federal, state or local tax. Except as set forth on SCHEDULE 3(L), none of the Company’s tax returns is presently being audited by any taxing authority.

(m)      DISCLOSURE. To the best of the Company’s knowledge, all information relating to or concerning the Company or any of its Subsidiaries set forth in this Agreement and provided to the Buyer pursuant to Section 2(d) hereof and otherwise in connection with the transactions contemplated hereby is true and correct in all material respects and the Company has not omitted to state any material fact necessary in order to make the statements made herein or therein, in light of the circumstances under which they were made, not misleading. No event or circumstance has occurred or exists with respect to the Company or any of its Subsidiaries or its or their business, properties, prospects, operations or financial conditions, which has not been publicly announced or disclosed but under applicable law, rule or regulation, requires public disclosure or announcement by the Company (assuming for this purpose that the Company’s reports filed under the 1934 Act are being incorporated into an effective registration statement filed by the Company under the 1933 Act).

(n)      ACKNOWLEDGMENT REGARDING BUYER’S PURCHASE OF SECURITIES. The Company acknowledges and agrees that the Buyer is acting solely in the capacity of arm’s length purchaser with respect to this Agreement and the transactions contemplated hereby. The Company further acknowledges that Buyer is not acting as a financial advisor or fiduciary of the Company (or in any similar capacity) with respect to this Agreement and the transactions contemplated hereby and that any statement made by Buyer or any of its respective representatives or agents in connection with this Agreement and the transactions contemplated hereby is not advice or a recommendation and is merely incidental to the Buyer’s purchase of the Securities and has not been relied upon by the Company, its officers or directors in any way. The Company further represents to Buyer that the Company’s decision to enter into this Agreement has been based solely on the independent evaluation of the Company and its representatives.

(o)      NO INTEGRATED OFFERING. Neither the Company, nor any of its affiliates, nor any person acting on its or their behalf, has directly or indirectly made any offers or sales of any security or solicited any offers to buy any security under circumstances that would require registration under the 1933 Act of the issuance of the Securities to the Buyer. The issuance of the Securities to the Buyer will not be integrated with any other issuance of the Company’s securities (past, current or future) for purposes of any stockholder approval provisions applicable to the Company or its securities.

(p)      NO BROKERS.  Other than as set forth on SCHEDULE 3(P), the Company has taken no action which would give rise to any claim by any person for brokerage commissions, finder’s fees or similar payments relating to this Agreement or the transactions contemplated hereby.  The Company shall indemnify and hold harmless each of Buyer, its employees, officers, directors, agents, and partners, and their respective Affiliates, from and against all claims, losses, damages, costs (including the costs of preparation and attorney’s fees) and expenses suffered in respect of any such claimed or existing fees.

(q)      PERMITS; COMPLIANCE. The Company and each of its Subsidiaries is in possession of all franchises, grants, authorizations, licenses, permits, easements, variances, exemptions, consents, certificates, approvals and orders necessary to own, lease and operate its properties and to carry on its business as it is now being conducted (collectively, the “Company

Permits”), except where the failure to so possess any such Company Permits would not have a Material Adverse Effect, and there is no action pending or, to the knowledge of the Company, threatened regarding suspension or cancellation of any of the Company Permits. To the best of the Company’s knowledge, neither the Company nor any of its Subsidiaries is in conflict with, or in default or violation of, any of the Company Permits, except for any such conflicts, defaults or violations which, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect.  Since December 31, 2007, neither the Company nor any of its Subsidiaries has received any notification with respect to possible conflicts, defaults or violations of applicable laws, except for notices relating to possible conflicts, defaults or violations, which conflicts, defaults or violations would not have a Material Adverse Effect.

(r)         ENVIRONMENTAL MATTERS.

(i)     Except as set forth in SCHEDULE 3(r), there are, to the Company’s knowledge, with respect to the Company or any of its Subsidiaries or any predecessor of the Company, no past or present violations of Environmental Laws (as defined below), releases of any material into the environment, actions, activities, circumstances, conditions, events, incidents, or contractual obligations which may give rise to any common law environmental liability or any liability under the Comprehensive Environmental Response, Compensation and Liability Act of 1980 or similar federal, state, local or foreign laws and neither the Company nor any of its Subsidiaries has received any notice with respect to any of the foregoing, nor is any action pending or, to the Company’s knowledge, threatened in connection with any of the foregoing. The term “Environmental Laws” means all federal, state, local or foreign laws relating to pollution or protection of human health or the environment (including, without limitation, ambient air, surface water, groundwater, land surface or subsurface strata), including, without limitation, laws relating to emissions, discharges, releases or threatened releases of chemicals, pollutants contaminants, or toxic or hazardous substances or wastes (collectively, “Hazardous Materials”) into the environment, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Hazardous Materials, as well as all authorizations, codes, decrees, demands or demand letters, injunctions, judgments, licenses, notices or notice letters, orders, permits, plans or regulations issued, entered, promulgated or approved thereunder.

(ii)     Other than those that are or were stored, used or disposed of in compliance with applicable law, no Hazardous Materials are contained on or about any real property currently owned, leased or used by the Company or any of its Subsidiaries, and no Hazardous Materials were released on or about any real property previously owned, leased or used by the Company or any of its Subsidiaries during the period the property was owned, leased or used by the Company or any of its Subsidiaries, except in the normal course of the Company’s or any of its Subsidiaries’ business.

(iii)     There are no underground storage tanks on or under any real property owned, leased or used by the Company or any of its Subsidiaries that are not in compliance with applicable law.

(s)TITLE TO PROPERTY. Any real property and facilities held under lease by the Company and its Subsidiaries are held by them under valid, subsisting and enforceable leases with such exceptions as would not have a Material Adverse Effect.

(t)INSURANCE. The Company and each of its Subsidiaries are insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as management of the Company believes to be prudent and customary in the businesses in which the Company and its Subsidiaries are engaged. Neither the Company nor any such Subsidiary has any reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business at a cost that would not have a Material Adverse Effect.

(u)INTERNAL ACCOUNTING CONTROLS. The Company and each of its Subsidiaries maintain a system of internal accounting controls sufficient, in the judgment of the Company’s board of directors, to provide reasonable assurance that (i) transactions are executed in accordance with management’s general or specific authorizations, (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain asset accountability, (iii) access to assets is permitted only in accordance with management’s general or specific authorization and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences.

(v)FOREIGN CORRUPT PRACTICES. Neither the Company, nor any of its Subsidiaries, nor any director, officer, agent, employee or other person acting on behalf of the Company or any Subsidiary has, in the course of his actions for, or on behalf of, the Company, used any corporate funds for any unlawful contribution, gift, entertainment or other unlawful expenses relating to political activity; made any direct or indirect unlawful payment to any foreign or domestic government official or employee from corporate funds; violated or is in violation of any provision of the U.S. Foreign Corrupt Practices Act of 1977; or made any bribe, rebate, payoff, influence payment, kickback or other unlawful payment to any foreign or domestic government official or employee.

(v)NO INVESTMENT COMPANY. The Company is not, and upon the issuance and sale of the Securities as contemplated by this Agreement will not be an “investment company” required to be registered under the Investment Company Act of 1940 (an “INVESTMENT COMPANY”). The Company is not controlled by an Investment Company.

(w)NO MARKET MANIPULATION. The Company has not taken, and will not take, directly or indirectly, any action designed to, or that might reasonably be expected to, cause or result in stabilization or manipulation of the price of the Common Stock of the Company to facilitate the sale or resale of the Securities or affect the price at which the Securities may be issued or resold.

(y)STOP TRANSFER.  The Securities, when issued, will be restricted securities. The Company will not issue any stop transfer order or other order impeding the sale,

resale or delivery of any of the Securities, except as may be required by any applicable federal or state securities laws and unless contemporaneous notice of such instruction is given to the Buyer.

(z)NO UNDISCLOSED LIABILITIES. The Company has no liabilities or obligations which are material, individually or in the aggregate, other than those incurred in the ordinary course of the Company’s businesses which have been disclosed in the Company’s public filings and which, individually or in the aggregate, would reasonably be expected to have a Material Adverse Effect.

(aa)NO UNDISCLOSED EVENTS OR CIRCUMSTANCES.  Other than events or circumstances which have been disclosed in the Company’s public filings made no less that 48 hours immediately preceding the Closing, no event or circumstance has occurred or exists with respect to the Company or its businesses, properties, operations or financial condition, that, under applicable law, rule or regulation, requires public disclosure or announcement prior to the date hereof by the Company but which has not been so publicly announced or disclosed in the Reports.

(bb)NO DISAGREEMENTS WITH ACCOUNTANTS AND LAWYERS. There are no disagreements of any kind presently existing, or reasonably anticipated by the Company to arise, between the Company and the accountants and lawyers former ly or presently employed by the Company, including but not limited to disputes or conflicts over payment owed to such accountants and lawyers.

(cc)TRANSACTIONS WITH AFFILIATES.  Except as set forth in the SEC Documents filed at least 48 hours prior to the Closing Date and other than the grant of stock options, none of the officers, directors or employees of the Company or any of its Subsidiaries is presently a party to any transaction with the Company or any of its Subsidiaries (other than for ordinary course services as employees, officers or directors), including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from, or otherwise requiring payments to or from any such officer, director or employee or, to the knowledge of the Company or any of its Subsidiaries, any corporation, partnership, trust or other entity in which any such officer, director, or employee has a substantial interest or is an officer, director, trustee or partner.

4.COVENANTS.

(a)BEST EFFORTS. The parties shall use their best efforts to satisfy timely each of the conditions described in Sections 7 and 8 of this Agreement.

(b)FORM D; BLUE SKY LAWS. The Company agrees to file a Form D with respect to the Securities as required under Regulation D and to provide a copy thereof to Buyer promptly after such filing. The Company shall, on or before the Closing Date, take such action as the Company shall reasonably determine is necessary to qualify the Securities for sale to the Buyer at the Closing pursuant to this Agreement under applicable securities or “blue sky”

laws of the states of the United States (or to obtain an exemption from such qualification), and shall provide evidence of any such action so taken to Buyer on or prior to the Closing Date.

(c)REPORTING STATUS. The Company’s Common Stock is registered under Section 12(g) of the 1934 Act. So long as any Buyer beneficially owns any of the Securities, the Company shall timely file all reports required to be filed with the SEC pursuant to the 1934 Act (“1934 Act Filings”), and the Company shall not terminate its status as an issuer required to file reports under the 1934 Act even if the 1934 Act or the rules and regulations thereunder would permit such termination.

(d)USE OF PROCEEDS. The Company shall use the proceeds from the sale of the Note and the Warrants for general corporate purposes.

(e)SECURITIES LAWS DISCLOSURE; PUBLICITY.  The Company shall, by 5:30 p.m. New York Time on the fourth business day following the Closing Date, issue a Current Report on Form 8-K, disclosing the material terms of the transactions contemplated hereby and including the Transaction Documents as exhibits thereto.  No Buyer shall issue any such press release or otherwise make any such public statement without the prior consent of the Company, which consent shall not unreasonably be withheld or delayed, except if such disclosure is required by law, in which case the disclosing party shall promptly provide the other party with prior notice of such public statement or communication.  Notwithstanding the foregoing, the Company shall not publicly disclose the name of any Buyer, or include the name of any Buyer in any filing with the Commission or any regulatory agency or any market or exchange, without the prior written consent of such Buyer, except (i) as required by federal securities law in connection with (A) any registration statement contemplated by the Registration Rights Agreement and (B) the filing of final Transaction Documents (including signature pages thereto) with the SEC and (ii) to the extent such disclosure is required by law or regulations of the Principal Market, in which case the Company shall provide the Buyers with prior notice of such disclosure permitted under this subclause (ii).

(g)FINANCIAL INFORMATION. The Company agrees to send, or make available via public filings on the internet, the following reports to Buyer until Buyer transfers, assigns, or sells all of the Securities: (i) within ten (10) days after the filing with the SEC, a copy of its Annual Report on Form 10-K, its Quarterly Reports on Form 10-Q and any Current Reports on Form 8-K; (ii) within one (1) day after release, copies of all press releases issued by the Company or any of its Subsidiaries; and (iii) contemporaneously with the making available or giving to the stockholders of the Company, copies of any notices or other information the Company makes available or gives to such stockholders.

(h)CORPORATE EXISTENCE. So long as a Buyer beneficially owns any portion of the Note or Warrants, the Company shall maintain its corporate existence in good standing and remain a “Reporting Issuer” (defined as a Company which files periodic reports under the Exchange Act)..

(i)NO INTEGRATION. The Company shall not make any offers or sales of any security (other than the Securities) under circumstances that would require registration of the

Securities being offered or sold hereunder under the 1933 Act or cause the offering of the Securities to be integrated with any other offering of securities by the Company for the purpose of any stockholder approval provision applicable to the Company or its securities.

(j)EQUAL TREATMENT OF BUYERS.  No consideration shall be offered or paid to any person to amend or consent to a waiver or modification of any provision of any of the Transaction Agreements unless the same consideration is also offered to all of the parties to the Transaction Agreements.

5.  SECURED DEBT.  The Borrower hereby represents that there are no liens or encumbrances on the Collateral (as defined in the Security Agreement).  The Company agrees that from the Issue Date of the Notes through the date that all of the Notes have been paid in full or converted in full (the “Covered Period”), the Company shall not enter into, create, incur, assume or suffer to exist any mortgage, lien, pledge, charge, security interest or other encumbrance (collectively, “Liens”) upon the Collateral other than the Liens contemplated by the Security Agreement.  Before entering into any future debt with a third party, the Company shall first obtain a subordination agreement, satisfactory to Buyer, from the proposed debt holder.

6.  LEGENDS.

(a)  The Warrant Shares, together with any other shares of Common Stock that are issued or issuable pursuant to the Transaction Documents shall be referred to herein as the “Issued Common Shares.”  Certificates evidencing the Issued Common Shares shall not contain any legend restricting the transfer thereof (including the legend set forth in Section 2(e) of the Note): (i) while a registration statement (including the Registration Statement) covering the resale of such security is effective under the Securities Act, or (ii) following any sale of such Issued Common Shares pursuant to Rule 144, or (iii) if such Issued Common Shares are eligible for sale under Rule 144(b)(1)(i), or (iv) if such legend is not required under applicable requirements of the Securities Act (including judicial interpretations and pronouncements issued by the staff of the Commission) (collectively, the “Unrestricted Conditions”).. If the Unrestricted Conditions are met at the time of issuance of Issued Common Shares, then such Issued Common Shares shall be issued free of all legends.  The Company agrees that following such time as the Unrestricted Conditions are met or such legend is otherwise no longer required under this Section 6(b), it will, no later than three Trading Days following the delivery by a Buyer to the Company or the Company’s transfer agent of a certificate representing Issued Common Shares, as applicable, issued with a restrictive legend (such third Trading Day, the “Legend Removal Date”), deliver or cause to be delivered to such Buyer a certificate representing such shares that is free from all restrictive and other legends.

(b)  Each Buyer, severally and not jointly with the other Buyers, agrees that the removal of the restrictive legend from certificates representing Securities as set forth in this Section 6 is predicated upon the Company’s reliance that the Buyer will sell any Securities pursuant to either the registration requirements of the Securities Act, including any applicable prospectus delivery requirements, or an exemption therefrom, and that if Securities are sold

pursuant to a Registration Statement, they will be sold in compliance with the plan of distribution set forth therein.

7.CONDITIONS TO THE COMPANY’S OBLIGATION TO SELL. The obligation of the Company hereunder to issue and sell the Note and Warrants to a Buyer at the Closing is subject to the satisfaction, at or before the Closing Date, of each of the following conditions thereto, provided that these conditions are for the Company’s sole benefit and may be waived by the Company at any time in its sole discretion:

(a)     The Buyer shall have executed each of the Transaction Documents, and delivered the same to the Company.

(b)     The Buyer shall have delivered the applicable Purchase Price in accordance with Section 1(b) above.

(c)     The Buyer shall have delivered the original Series B Warrants to the Company.

(d)     The representations and warranties of the Buyer shall be true and correct in all material respects as of the date when made and as of the applicable Closing Date as though made at that time (except for representations and warranties that speak as of a specific date, which representations and warranties shall be true and correct as of such date), and the Buyer shall have performed, satisfied and complied in all material respects with the covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by the Buyer at or prior to the Closing Date.

(e)     No litigation, statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed by or in any court or governmental authority of competent jurisdiction or any self-regulatory organization having authority over the matters contemplated hereby which prohibits the consummation of any of the transactions contemplated by this Agreement.

8.CONDITIONS TO BUYER’S OBLIGATION TO PURCHASE. The obligation of Buyer hereunder to purchase the Note and Warrants at each Closing is subject to the satisfaction, at or before the Closing Date, of each of the following conditions, provided that these conditions are for such Buyer’s sole benefit and may be waived by such Buyer at any time in its sole discretion:

(a)     The Company shall have executed this Agreement and the Security Agreement, and delivered the same to the Buyer.

(b)     The Company shall have delivered to such Buyer the duly executed Note and Warrants in accordance with Section 1 above.

(c)     The representations and warranties of the Company contained in this Agreement, as modified by the Exhibits and Schedules hereto, shall be true and correct in all material respects as of the date when made and as of the Closing Date as though made at such

time (except for representations and warranties that speak as of a specific date, which representations and warranties shall be true and correct as of such date) and the Company shall have performed, satisfied and complied in all material respects with the covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by the Company at or prior to the Closing Date.

(d)     No litigation, statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed by or in any court or governmental authority of competent jurisdiction or any self-regulatory organization having authority over the matters contemplated hereby which prohibits the consummation of any of the transactions contemplated by this Agreement.

9.GOVERNING LAW; MISCELLANEOUS.

(a)     GOVERNING LAW.  The interpretation and construction of this Agreement, and all matters relating hereto, shall be governed by the laws of the State of New York applicable to agreements executed and to be performed solely within such State without regard to conflicts of laws.

(b)     JURISDICTION.  Any judicial proceeding brought against any of the parties to this Agreement on any dispute arising out of this Agreement or any matter related hereto may be brought in the courts of the State of New York, New York County, or in the United States District Court for the Southern District of New York, and, by execution and delivery of this Agreement, each of the parties to this Agreement accepts the exclusive jurisdiction of such courts, and irrevocably agrees to be bound by any judgment rendered thereby in connection with this Agreement.  The prevailing party or parties in any such litigation shall be entitled to receive from the losing party or parties all costs and expenses, including reasonable counsel fees, incurred by the prevailing party or parties.

(c)     COUNTERPARTS; SIGNATURES BY FACSIMILE. This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party. This Agreement, once executed by a party, may be delivered to the other party hereto by facsimile transmission of a copy of this Agreement bearing the signature of the party so delivering this Agreement.

(d)     HEADINGS. The headings of this Agreement are for convenience of reference and shall not form part of, or affect the interpretation of, this Agreement.

(e)     SEVERABILITY. If any provision of this Agreement shall be invalid or unenforceable in any jurisdiction, such invalidity or unenforceability shall not affect the validity or enforceability of the remainder of this Agreement or the validity or enforceability of this Agreement in any other jurisdiction.

(f)     ENTIRE AGREEMENT; AMENDMENTS. This Agreement and the instruments referenced herein contain the entire understanding of the parties with respect to the matters covered herein and therein and supersede all previous communication, representation, or Agreements whether oral or written, between the parties with respect to the matters covered herein. Except as specifically set forth herein or therein, neither the Company nor the Buyer makes any representation, warranty, covenant or undertaking with respect to such matters.  The Agreement may not be orally modified. Only a modification in writing, signed authorized representatives of both parties will be enforceable.  The parties waive the right to rely on any oral representations made by the other party, whether in the past or in the future, regarding the subject matter of the Agreement, the instruments referenced herein or any other dealings between the parties related to investments or potential investments into the Company or any securities transactions or potential securities transactions with the Company.

(g)     INDEPENDENT NATURE OF BUYERS’ OBLIGATIONS AND RIGHTS.  The obligations of each Buyer under any Transaction Document are several and not joint with the obligations of any other Buyer, and no Buyer shall be responsible in any way for the performance of the obligations of any other Buyer under any Transaction Document.  Nothing contained herein or in any Transaction Document, and no action taken by any Buyer pursuant thereto, shall be deemed to constitute the Buyers as a partnership, an association, a joint venture or any other kind of entity, or create a presumption that the Buyers are in any way acting in concert or as a group with respect to such obligations or the transactions contemplated by the Transaction Documents.  Each Buyer shall be entitled to independently protect and enforce its rights, including without limitation, the rights arising out of this Agreement or out of the other Transaction Documents, and it shall not be necessary for any other Buyer to be joined as an additional party in any proceeding for such purpose.  Each Buyer has been represented by its own separate legal counsel in their review and negotiation of the Transaction Documents.

(h)     NOTICES. Any and all notices or other communications or deliveries required or permitted to be provided hereunder shall be in writing and shall be deemed given and effective on the earliest of (a) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number set forth on the signature pages attached hereto prior to 5:30 p.m. (New York City time) on a Trading Day, (b) the next Trading Day after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number set forth on the signature pages attached hereto on a day that is not a Trading Day or later than 5:30 p.m. (New York City time) on any Trading Day, (c) the second Trading Day following the date of mailing, if sent by U.S. nationally recognized overnight courier service, or (d) upon actual receipt by the party to whom such notice is required to be given.  The address for such notices and communications shall be as set forth on the signature pages attached hereto.

(i)     SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure to the benefit of the parties and their successors and assigns. Neither the Company nor any Buyer shall assign this Agreement or any rights or obligations hereunder without the prior written consent of the other. Notwithstanding the foregoing, subject to Section 2(f), Buyer may assign its rights hereunder to any person that purchases Securities in a private transaction from a Buyer or to any of its “affiliates,” as that term is defined under the 1934 Act, without the consent of the Company.

(j)     THIRD PARTY BENEFICIARIES. This Agreement is intended for the benefit of the parties hereto and their respective permitted successors and assigns, and is not for the benefit of, nor may any provision hereof be enforced by, any other person.

(k)     SURVIVAL. The representations and warranties of the parties hereto contained in this Agreement shall survive the Closing hereunder for a period of one (1) year after each Closing contemplated by this Agreement notwithstanding any due diligence investigation conducted by or on behalf of the Buyer.

(l)     INDEMNIFICATION.  The Company (the “INDEMNIFYING PARTY”) agrees to indemnify and hold harmless the Buyer and all its officers, directors, employees, agents, members and managers (the “INDEMNIFIED PARTY”) for loss or damage arising as a result of or related to any breach or alleged breach by the Company of any of its representations, warranties and covenants set forth in Sections 3 and 4 hereof or any of its covenants and obligations under this Agreement, including advancement of expenses as they are incurred with respect to claims by third parties.

Promptly after receipt of notice of the commencement of any action against an Indemnified Party, such Indemnified Party shall notify the Indemnifying Party in writing of the commencement thereof and the basis hereunder upon which a claim for indemnification is asserted, but the failure to do so shall not relieve the Indemnifying Party of its obligations hereunder except to the extent the Indemnifying Party is materially prejudiced by such failure. In the event of the commencement of any such action, the Indemnifying Party shall be entitled to participate therein and to assume the defense thereof with counsel satisfactory to the Indemnified Party, and, after notice from the Indemnifying Party to the Indemnified Party of its election so to assume the defense thereof, the Indemnifying Party shall not be liable to the Indemnified Party hereunder for any legal expenses (including attorneys’ fees) subsequently incurred by such Indemnified Party in connection with the defense thereof other than reasonable costs of investigation and of liaison with counsel so selected, provided, however, that, if the defendants in any such action include both the Indemnified Party and the Indemnifying Party and the Indemnified Party shall have reasonably concluded that there may be reasonable defenses available to it which are different from or additional to those available to the Indemnifying Party or if the interests of the Indemnified Party reasonably may be deemed to conflict with the interests of the Indemnifying Party, the Indemnified Party shall have the right to select one separate counsel and to assume such legal defenses and otherwise to participate in the defense of such action, with the reasonable expenses and fees of such separate counsel and other expenses related to such participation to be reimbursed by the Indemnifying Party as incurred.

As to cases in which the Indemnifying Party has assumed and is providing the defense for the Indemnified Party, the control of such defense shall be vested in the Indemnifying Party; provided that the consent of the Indemnified Party shall be required prior to any settlement of such case or action, which consent shall not be unreasonably withheld. As to any action, the party which is controlling such action shall provide to the other party reasonable information (including reasonable advance notice of all proceedings and depositions in respect thereto) regarding the conduct of the action and the right to attend all proceedings and

depositions in respect thereto through its agents and attorneys, and the right to discuss the action with counsel for the party controlling such action.

(m)     FURTHER ASSURANCES. Each party shall do and perform, or cause to be done and performed, all such further acts and things, and shall execute and deliver all such other agreements, certificates, instruments and documents, as the other party may reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby.

(n)     NO STRICT CONSTRUCTION. The language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent, and no rules of strict construction will be applied against any party.

(o)     REMEDIES. The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to Buyer, by vitiating the intent and purpose of the transactions contemplated hereby. Accordingly, the Company acknowledges that the remedy at law for a breach of its obligations under this Agreement will be inadequate and agrees, in the event of a breach or threatened breach by the Company of the provisions of this Agreement, that Buyer shall be entitled, in addition to all other available remedies in law or in equity, to an injunction or injunctions to prevent or cure any breaches of the provisions of this Agreement and to enforce specifically the terms and provisions of this Agreement, without the necessity of showing economic loss and without any bond or other security being required.

[SIGNATURE PAGES FOLLOW]

10.PRINCIPAL AMOUNT AND PURCHASE PRICE.  Buyer subscribes for a Note in the Original Principal Amount of $         (1) (“Subscription Amount”) against payment by wire transfer in the amount of the Subscription Amount.

The undersigned acknowledges that this Agreement and the subscription represented hereby shall not be effective unless accepted by the Company as indicated below.

IN WITNESS WHEREOF, the undersigned Buyer does represent and certify under penalty of perjury that the foregoing statements are true and correct and that Buyer by the following signature(s) executed this Agreement.

Dated this       day of                           ,             .

Your Signature	PRINT EXACT NAME IN WHICH YOU WANT THE SECURITIES TO BE REGISTERED
	DELIVERY INSTRUCTIONS:
Name: Please Print	Please type or print address where your securities are to be delivered
	ATTN.:
Title/Representative Capacity (if applicable)
Name of Company You Represent (if applicable)	Street Address
Place of Execution of this Agreement	City, State or Province, Country, Offshore Postal Code

Phone Number (For Federal Express) and Fax Number (re: Notice)

WITH A COPY TO :

Please type or print address where copies are to be delivered

ATTN.:

Street Address

City, State or Province, Country, Offshore Postal Code

Phone Number (For Federal Express) and Fax Number (re: Notice)

(1) Or such lesser amount as determined in accordance with the Confidential Offering Summary dated December 12, 2008.

THIS AGREEMENT IS ACCEPTED BY THE COMPANY IN THE AMOUNT OF $              ON THE        DAY OF                      ,            .

CALLISTO PHARMACEUTICALS, INC.
By:
Print Name:	Gary S. Jacob
Title:	Chief Executive Office

EX-10.15

Exhibit 10.15

SECURITY AGREEMENT

THIS SECURITY AGREEMENT, dated as of                     , 2008, is made by Callisto Pharmaceuticals, Inc., a Delaware corporation (the “Pledgor”) and Sommer & Schneider, LLP (the “Escrow Agent”) for the benefit of the parties set forth on the signature page hereto (the “Lenders”).

RECITALS

A.In order to induce the Lenders to make a loan to Pledgor pursuant to a Securities Purchase Agreement of even date herewith (the “Securities Purchase Agreement”) in the aggregate principal amount of $500,000 made concurrently with the execution of this Security Agreement and evidenced by a series of 11% Secured Promissory Notes due April 15, 2010 (the “Notes”) of even date herewith, the Pledgor has agreed to pledge 1,900,000 shares of the Common Stock (the “Pledged Securities”) of Synergy Pharmaceuticals, Inc., a Florida corporation (“SGYP”) as security for the full payment and performance of Pledgor’s obligation under the Notes.

B.The Lenders have agreed to accept the Pledged Securities as security for such obligations.

NOW, THEREFORE, it is agreed as follows:

1.Pledge.  As collateral security for the payment, performance and observance of the terms of the Notes, the Pledgor herewith pledges, assigns, transfers, hypothecates, and grants to the Lenders, a security interest in the Pledged Securities and the certificate(s) evidencing the same and such additional property at any time and from time to time receivable by the Pledgor as a dividend or in respect of or in exchange for any or all such shares, the Pledgor herewith pledges, together with any and all products and proceeds of any of the foregoing in whatever form (the Pledged Securities and the products and proceeds thereof may be referred to collectively as the “Pledged Collateral”).

2.Delivery to Agent for Lender.  Concurrently with the execution of this Security Agreement, the Pledgor shall deliver the certificates representing the Pledged Securities to the Escrow Agent, acting as agent for the Lender solely for the purposes of perfecting the security interest granted hereby.  Acting in such capacity, the Escrow Agent shall maintain possession of the Pledged Securities until they are required to be released to either the Pledgor or the Lender pursuant to the provisions of this Agreement. The Pledgor has deposited with the Escrow Agent stock powers duly executed in blank with signatures guaranteed by a Medallion Participant.

3.Title.  The Pledgor agrees to use reasonable efforts to defend the Lender’s right, title, lien and security interest in and to the Pledged Collateral against the claims and demands of all persons whomsoever. The Pledgor also represents and warrants to the Lender that it has good title to all of the Pledged Collateral, free and clear of all claims, mortgages, pledges, liens, encumbrances and security interests of every nature whatsoever (“Liens”) except those

granted to the Lender herein and that no consent or approval of any governmental or regulatory authority, or of any securities exchange is required to be obtained by the Pledgor in connection herewith.

4.Delivery of the Pledged Securities by Escrow Agent.  Upon the failure of the Pledgor to pay the interest or principal on the Note when due in accordance with the terms thereof or occurrence of an Event of Default defined in the Note (an “Event of Default”) and upon five business days written notice given by each Lender on its own behalf to the Escrow Agent and the Pledgor, the Escrow Agent shall deliver the Pro Rata portion of the Pledged Securities and additional collateral held pursuant to Section 5 hereof or otherwise to the Lender giving such notice. For the purposes of this agreement, “Pro Rata” means that fraction determined by dividing the amount of the principal amount of the Notes held by the Lender to the total principal amount of the Notes outstanding as shown on the books of the Pledgor, and multiplying that fraction by the number of Pledged Securities or other Pledged Collateral, as the case may be. Upon payment in full of the Note (and if in default, such penalties and reimbursable expenses as are set forth in the Note) and upon one business day notice given by the Pledgor to the Escrow Agent and all the Lenders, the Escrow Agent shall deliver the certificate(s) for the Pledged Securities and additional collateral held pursuant to Section 5 hereof or otherwise to the Pledgor and the Pledged Collateral shall no longer be subject to the security interest granted hereby.

5.Dividends.  If, upon the dissolution or liquidation (in whole or in part) of the Lender, any sum shall be paid as a liquidating dividend or otherwise upon or with respect to any of the Pledged Securities, and if any other dividends of any kind shall be otherwise paid upon or with respect to any of the Pledged Securities under any other circumstances, such sum shall be paid over to the Escrow Agent, to be held as additional collateral hereunder. In case any stock or other dividend shall be declared on any of the Pledged Securities, or any shares of stock or fractions thereof shall be issued pursuant to any stock split involving any of the Pledged Securities, or any shares shall be distributed upon or with respect to the Pledged Securities pursuant to a recapitalization or reclassification of the capital of the Lender, or pursuant to the dissolution, liquidation (in whole or in part), bankruptcy or reorganization of the Lender, or to the merger or consolidation of the Lender with or into another Lender, the shares, obligations or other property so distributed shall be delivered to the Escrow Agent (together with stock powers executed in blank by the Pledgor, where appropriate), to be held by it as additional collateral hereunder, and all of the same shall constitute Pledged Collateral for all purposes hereof.

6.Voting.

(a)  Until there is an Event of Default, the Pledgor shall have the sole and absolute right to exercise all voting power with respect to the Pledged Securities.  The voting rights granted to Pledgor shall survive the retention or purchase of the Pledged Securities by Lender and are coupled with an interest in the surplus which may be recouped by Pledgor in the event of the Pledged Securities are sold in part.  In such event the Lenders hereby appoint the Pledgor as the Lenders’ true and lawful proxy to vote such shares in any manner which the Pledgor deems advisable for or against all matters which may be submitted to a vote of such stockholders.

(b)  If an Event of Default occurs and is continuing, the Lenders shall have the sole and absolute right, in addition to any other rights granted herein, to exercise any and all voting power with respect to their Pro Rata share of the Pledged Securities until such Default has been cured. The voting rights granted to Lenders are coupled with an interest.  In such event the Pledgor hereby appoints the Lenders as the Pledgors’ true and lawful proxy to vote their respective Pro Rata portion of the Pledged Securities in any manner which each Lender deems advisable for or against all matters which may be submitted to a vote of such stockholders.

7.Rights of Secured Party.  The Pledgor agrees that, upon an Event of Default, the Lenders shall have the rights and remedies provided in the Uniform Commercial Code in force in the State of New York at the date of this agreement and in this connection, the Lender may upon five days’ notice to the Pledgor, sent by registered mail, and without liability for any diminution in price which may have occurred, sell all the Pledged Collateral in such manner and for such price as the Lender may determine or propose to retain the Pledged Collateral in lieu of repayment of the Loan (including any penalties and expenses due thereon).  At any bona fide public sale the Lender shall be free to purchase all or any part of the Pledged Securities.  Out of the proceeds of any sale the Lender may retain an amount equal to the principal and interest (including penalty interest) then due on the Loan, plus the amount of the expenses of the sale.  Lender agrees that, upon an Event of Default, it shall look first to the sale or retention of the Pledged Collateral for satisfaction of any unpaid obligations of the Pledgor under the terms of the Loan; provided, however, that the foregoing shall in no way limit the rights and remedies of the Lender provided in the Uniform Commercial Code in force in the State of New York at the date of this Agreement.

8.Endorsement.  Upon an Event of Default in respect of the Note, the Lender shall have the right, for and in the name, place and stead of the Pledgor, to execute endorsements, assignments or other instruments of conveyance or transfer with respect to their Pro Rata share of the Pledged Collateral and each Lender hereby appoints the Escrow Agent their attorney-in-fact to complete the stock powers and other instruments of transfer delivered to the Escrow Agent in order to deliver the Pledged Securities in accordance with Section 4 of this Agreement.

9.Indemnification and Costs.

(a)The Pledgor and the Lenders release the Escrow Agent from any claims, causes of action and demands at any time arising out of or with respect to this Agreement, the Pledged Collateral and/or any actions, taken or omitted to be taken by the Escrow Agent with respect thereto, and the Pledgor and the Lenders hereby agree to hold the Escrow Agent harmless from and with respect to any and all such claims, causes of action and demands other than those resulting from the gross negligence or willful misconduct of the Escrow Agent.

(b)The Pledgor shall be exclusively responsible for all costs and expenses (if any) incidental to the performance by the Escrow Agent of its duties as agent hereunder.

(c)The Lenders acknowledge that the Escrow Agent is acting in solely a ministerial capacity with respect to the release of Pledged Collateral and that such Pledged Collateral may be commingled with additional collateral pledged by the Pledgor to secure additional obligations, including secured promissory notes of like tenor to the Note in the aggregate principal amount of $500,000.  The Lenders will not seek to hold the Escrow Agent for following directions of other parties with respect to the Pledged Collateral, in good faith in order received, by batch or any other administratively convenient order.

10.Rights Duties and Immunities.

(a)The duties and obligations of the Escrow Agent shall be determined solely by the express provisions of this Agreement.  The Escrow Agent shall not be liable except for the performance of such duties and obligations as are specifically set out in this Agreement and the Escrow Agent shall not be deemed to have any knowledge of, or responsibility for, the terms of any other agreement, instrument or document.

(b)The Escrow Agent shall not be responsible in any manner whatsoever for any failure or inability of any party hereto, or of any one else, to deliver documents to the Escrow Agent or otherwise to honor any of the provisions of this Agreement.

(c)The Escrow Agent shall be entitled to rely upon any judgment, certification, demand, notice, instrument or other writing delivered to it hereunder without being required to determine the authenticity of the correctness of any fact stated therein or the propriety or validity or the service thereof.  The Escrow Agent shall be fully protected in acting on and relying upon any written notice, direction, request, waiver, consent, receipt or other paper or document which the Escrow Agent believes to be genuine.  The Escrow Agent may act in reliance upon any instrument or signature it reasonably believes to be genuine and the Escrow Agent may assume that any person purporting to give any advice or make any statement in connection with the provisions hereof has been duly authorized to do so.

(d)The Escrow Agent shall not be liable for any error of judgment, or for any act done or step taken or omitted by it in good faith, or for any mistake of fact or law, or for anything which it may do or refrain from doing in connection herewith, except its own bad faith, willful misconduct or gross negligence.

(e)The Escrow Agent may seek the advice of legal counsel as to any question arising from or relating to the construction of any of the provisions of this Agreement or its duties or obligations hereunder or otherwise, and it shall incur no liability and shall be fully protected in respect of any action taken, omitted or suffered by it in good faith in accordance with the advice of such counsel.

(f)The Escrow Agent does not make and will not be required or deemed to make any representation as to the validity or genuineness of any agreement, document or other instrument held by or delivered to it.

(g)If a dispute arises between one or more of the parties hereto, or between

any of the parties hereto and any person not a party hereto, as to whether or not or to whom the Escrow Agent shall deliver any of the Pledged Securities or as to any other matter arising from or relating to this Agreement or any related agreement, the Escrow Agent shall not be required to determine such dispute and need not make any delivery of any of the Pledged Securities, but will retain the same until the rights of the parties to the dispute shall have finally been determined by written agreement among the parties to the dispute or by final non-appealable order of a court of competent jurisdiction.  In the event that the Escrow Agent has received notice of such order or any such agreement, the Escrow Agent shall cause the Pledged Securities to be released and delivered in accordance with such agreement or order.

(h)The Escrow Agent shall be entitled to assume that no dispute of the type referred to in Section 10(g) has arisen unless it has received a written notice that such a dispute has arisen, which written notice refers specifically to this Agreement and identifies by name and address the adverse claimants in such dispute.  Any party delivering written notice of a dispute pursuant to this Section 10(h) shall simultaneously therewith deliver a copy of such notice to all parties.  For purposes of this Section 10(h), the Escrow Agent shall not be deemed to have received a written notice until all parties to this Agreement have received such written notice.  If a dispute of the type referred to in Section 10(g) arises, the Escrow Agent may, in its sole discretion (but shall not be obligated to), commence interpleader or similar actions or proceedings for determination of such dispute.

11.Successor Escrow Agent.

(a)The Escrow Agent may, at any time, resign as such with or without the prior written consent of all the parties hereto, in which case the Escrow Agent (and any successor escrow agent) shall deliver the Pledged Securities, a copy of this Agreement and any other documents delivered to it hereunder to any successor escrow agent jointly designated by the Lenders holding not less than 70% of the outstanding principal of the Notes (the “Requisite Amount”) and Pledgor in writing, or to any court of competent jurisdiction, whereupon the Escrow Agent shall be discharged of and from any and all further duties and obligations arising in connection with this Agreement.  The resignation of the Escrow Agent shall take effect on the earlier of (i) the appointment of a successor escrow agent, or (ii) the day which is two business days after the date of the delivery of the Pledged Securities, a copy of this Agreement and any other documents delivered to the Escrow Agent hereunder to any court of competent jurisdiction.  In the event that a successor escrow agent has not been appointed at the expiration of such two-day period, the Escrow Agent’s sole responsibilities hereunder shall be: (i) to maintain the safekeeping of the Pledged Securities and any other documents delivered to it hereunder, if any, and (ii) to release and deliver the Pledged Securities and any such documents in accordance with Section 4 of this Agreement.

(b)If the Escrow Agent receives a written notice signed by the Lenders which hold the Requisite Amount of the Notes and Pledgor stating that they have selected a successor escrow agent, the Escrow Agent shall deliver the Pledged Securities (and any other documents then held by it hereunder, if any) to the successor escrow agent named in the aforesaid notice within 15 days after receipt of such written notice.

12.Power of Attorney.  Upon an Event of Default which is continuing, the Pledgor hereby appoints the Lender or Lender’s designees, successors or assigns as the Pledgor’s attorney-in-fact for the purpose of carrying out the provisions of this Agreement and taking any action and executing any instrument which the Lender may deem necessary or advisable to accomplish the purposes hereof. Without limiting the generality of the foregoing, the Lender shall have the right and power to receive, endorse and collect all checks and other orders for the payment of money made payable to the Pledgor representing any interest or dividend or other distribution payable in respect of the Pledged Collateral which the Lender is entitled to receive hereunder or any part thereof and to give full discharge for the same.

13.Notices.  Any notice or demand upon the Pledgor shall be deemed to have been sufficiently given for all purposes thereof if mailed, postage prepaid, by registered or certified mail, return receipt requested, or if delivered, to the addresses set out below or at such other address as the parties hereto may heretofore have designated in writing:

If to the Pledgor:

Callisto Pharmaceutical, Inc.

420 Lexington Avenue, Suite 1609

New York, New York 10710

Facsimile: 212 297-0020

with a copy to:

Jeffrey Fessler, Esq.

Sichenzia Ross Friedman Ference LLP

61 Broadway

New York, NY 10006

Facsimile: 212 930-9725

If to the Lender at the address set forth on the signature page hereto.

If to the Escrow Agent:

Herbert H. Sommer, Esq.

Sommer & Schneider LLP

595 Stewart Avenue, Suite 710

Garden City, NY 11530

Facsimile No.: (516) 908-4000

14.Choice of Law.  THIS AGREEMENT AND THE NOTES SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY, THE LAW OF THE STATE OF NEW YORK EXCLUDING CHOICE-OF-LAW PRINCIPLES OF THE LAW OF SUCH STATE THAT WOULD REQUIRE THE APPLICATION OF THE LAWS OF A JURISDICTION OTHER THAN SUCH STATE.

15.Jurisdiction.  Each of the parties hereto hereby irrevocably and unconditionally consents to submit to the exclusive jurisdiction of the courts of the State of New York and of the United States of America, in each case located in New York County, for any action, proceeding or investigation in any court or before any governmental authority (“Litigation”) arising out of or relating to the Transaction Documents and the transactions contemplated thereby (and agrees not to commence any Litigation relating thereto except in such courts), and further agrees that service of any process, summons, notice or document by U.S. registered mail to its respective address set forth in this Agreement shall be effective service of process of any Litigation brought against it in any such court.  Each of the parties hereto hereby irrevocably and unconditionally waives any objection to the laying of venue of any Litigation arising out of this Agreement or the transactions contemplated hereby in the courts of the State of New York or the Untied States of America, in each case located in New York County, and hereby further irrevocably and unconditionally waives and agrees not to plead or claim in any court that any such Litigation brought in any such court has been brought in an inconvenient forum.

16.Counterparts; Signatures By Facsimile. This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party. This Agreement, once executed by a party, may be delivered to the other party hereto by facsimile transmission of a copy of this Agreement bearing the signature of the party so delivering this Agreement.

17.Headings. The headings of this Agreement are for convenience of reference and shall not form part of, or affect the interpretation of, this Agreement.

18.Severability. If any provision of this Agreement shall be invalid or unenforceable in any jurisdiction, such invalidity or unenforceability shall not affect the validity or enforceability of the remainder of this Agreement or the validity or enforceability of this Agreement in any other jurisdiction.

19.Entire Agreement; Amendments. This Agreement and the instruments referenced herein contain the entire understanding of the parties with respect to the matters covered herein and therein and supersede all previous communication, representation, or Agreements whether oral or written, between the parties with respect to the matters covered herein. Except as specifically set forth herein or therein, neither the Company nor the Buyer makes any representation, warranty, covenant or undertaking with respect to such matters.  The Agreement may not be orally modified. Only a modification in writing, signed authorized representatives of the Pledgor, the Escrow Agent and the Lenders then holding the Requisite Amount of the Notes.

20.Successors And Assigns. This Agreement shall be binding upon and inure to the benefit of the parties and their successors and assigns. Neither the Pledgor nor any Lender shall assign this Agreement or any rights or obligations hereunder without the prior written consent of the other. Notwithstanding the foregoing, each Lender may assign its rights hereunder

to any person that purchases the Notes in a private transaction from such Lender or an assignment by Lender to any of its “affiliates,” as that term is defined under the 1934 Act, without the consent of the Pledgor.

21.Third Party Beneficiaries. This Agreement is intended for the benefit of the parties hereto and their respective permitted successors and assigns, and is not for the benefit of, nor may any provision hereof be enforced by, any other person.

22.Further Assurances. Each party shall do and perform, or cause to be done and performed, all such further acts and things, and shall execute and deliver all such other agreements, certificates, instruments and documents, as other parties may reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby.

23.No Strict Construction. The language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent, and no rules of strict construction will be applied against any party.

[SIGNATURE PAGE FOLLOWS]

IN WITNESS WHEREOF, the Pledgor has executed this Agreement as of the day and year first above.

“PLEDGOR”

CALLISTO PHARMACEUTICALS, INC.

By:

Gary S. Jacob, President and CEO

Accepted and Agreed this

           day of                   , 2008.

“ESCROW AGENT”

SOMMER & SCHNEIDER LLP

By:
	Name:	Herbert H. Sommer
	Title:	Partner

LENDERS SIGNATURE PAGES FOLLOW

CALLISTO PHARMACEUTICALS, INC.

Lender’s Execution of Security Agreement

Accepted and Agreed this

           day of                     , 2008.

Your Signature	PRINT EXACT NAME OF LENDER
	DELIVERY INSTRUCTIONS:
Name: Please Print	Please type or print address where your securities are to be delivered
	ATTN.:
Title/Representative Capacity (if applicable)
Name of Company You Represent (if applicable)	Street Address
Place of Execution of this Agreement	City, State or Province, Country, Offshore Postal Code
	Phone Number (For Federal Express)
Fax Number (re: Notice)

Exhibit A

CERTIFICATE

Reference is made to a Security Agreement between the undersigned lender (“Lender”) and Callisto Pharmaceuticals, Inc. (“Pledgor”).

The undersigned, either as Lender or as the duly appointed agent of Lender, certifies and instructs the Escrow Agent as follows:

1.The Pledgor has defaulted in the payment or other obligation of Pledgor, giving the Lender the rights set forth in the Security Agreement (“Pledge”).

2.Lender hereby demands delivery of                  shares of the Pledged Collateral as follows:

Account No.

3.The Lender certifies:

(a)The sum of (1) the number of shares of common stock beneficially owned by Lender and Lender’s affiliates (other than shares of common stock which may be deemed beneficially owned through the Pledge) and (ii) the number of shares of common stock to which the determination in this paragraph is being made, would result in beneficial ownership by Lender of more than 4.99% of the outstanding shares of common stock of the issuer of the Pledged Collateral.  For purposes of the immediately preceding sentence, beneficial ownership shall be determined in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended, and Regulation 13D-G thereunder, except as otherwise provided in the parenthetical set forth in clause (i) of the immediately preceding sentence.

(b)The Lender is not, and has not for at least the 90 days preceding the date of this certificate, been an affiliate of the issuer of the Pledged Collateral.

Dated:
	Lender or Agent
	Print Name

EX-10.16

Exhibit 10.16

NEITHER THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS EXERCISABLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY.

                , 2008WG-

COMMON STOCK PURCHASE WARRANT

To Purchase                    Shares of Common Stock of

CALLISTO PHARMACEUTICALS, INC.

THIS COMMON STOCK PURCHASE WARRANT (the “Warrant”) certifies that, for value received,                          (the “Holder”), is entitled, upon the terms and subject to the limitations on exercise and the conditions hereinafter set forth, at any time on or after the date hereof (the “Initial Exercise Date”) and on or prior to the close of business on December 31, 2016 (the “Termination Date”) but not thereafter, to subscribe for and purchase from Callisto Pharmaceuticals, Inc., a Delaware corporation (the “Company”), up to                    shares (the “Warrant Shares”) of Common Stock, par value $.0001 per share, of the Company (the “Common Stock”).  The purchase price of one share of Common Stock under this Warrant shall be equal to the Exercise Price, as defined in Section 2(b).  This Warrant is part of an authorized class of up to 57,500,000 warrants of like tenor.

Section 1.Definitions.  Capitalized terms used and not otherwise defined herein shall have the meanings set forth in that certain Securities Purchase and Exchange Agreement (the “Purchase Agreement”), dated December 30, 2008, among the Company and the purchasers signatory thereto.

Section 2.Exercise.

a)Exercise of Warrant.  Exercise of the purchase rights represented by this Warrant may be made at any time or times on or after the Initial Exercise Date and on or before the Termination Date by delivery to the Company of a duly executed facsimile copy of the Notice of Exercise Form annexed hereto (or such other office or agency of the Company as it may designate by notice in writing to the registered Holder at the address of such Holder appearing on the books of the Company);  provided, however, within 5 Trading Days of the date said Notice of Exercise is delivered to the Company,

the Holder shall have surrendered this Warrant to the Company and the Company shall have received payment of the aggregate Exercise Price of the shares thereby purchased by wire transfer or cashier’s check drawn on a United States bank.

b)Exercise Price.  The exercise price of the Common Stock under this Warrant shall be $0.02, subject to adjustment hereunder (the “Exercise Price”).

c)Net Exercise.  If at any time there is no effective Registration Statement registering, or no current prospectus available for, the resale of the Warrant Shares by the Holder, then this Warrant may also be exercised at such time by means of a “cashless exercise” in which the Holder shall be entitled to receive a certificate for the number of Warrant Shares equal to the quotient obtained by dividing [(A-B) (X)] by (A), where:

(A) = the volume weighted average trading price of the Common Stock on the principal the principal market in upon which the Common Stock may be listed or is traded (the “Trading Market”) over the twenty (20) consecutive Trading Days immediately preceding the date of such election (“VWAP”);

(B) =  the Exercise Price of this Warrant, as adjusted; and

(X) = the number of Warrant Shares issuable upon exercise of this Warrant in accordance with the terms of this Warrant by means of a cash exercise rather than a cashless exercise.

d)Exercise Limitations.

The Holder shall not have the right to exercise any portion of this Warrant, pursuant to Section 2(c) or otherwise, to the extent that after giving effect to such issuance after exercise, the Holder (together with the Holder’s affiliates), as set forth on the applicable Notice of Exercise, would beneficially own in excess of 4.99% of the number of shares of the Common Stock outstanding immediately after giving effect to such issuance.  For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by the Holder and its affiliates shall include the number of shares of Common Stock issuable upon exercise of this Warrant and any other security of the Company convertible into Common Stock with respect to which the determination of such sentence is being made.  Except as set forth in the preceding sentence, for purposes of this Section 2(d), beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act, it being acknowledged by Holder that the Company is not representing to Holder that such calculation is in compliance with Section 13(d) of the Exchange Act and Holder is solely responsible for any schedules required to be filed in accordance therewith.  To the extent that the limitation contained in this Section 2(d) applies, the determination of whether this Warrant is exercisable (in relation to other securities owned by the Holder) and of which portion of this Warrant is exercisable shall be in the sole discretion of such Holder, and the

submission of a Notice of Exercise shall be deemed to be such Holder’s determination of whether this Warrant is exercisable (in relation to other securities owned by such Holder) and of which portion of this Warrant is exercisable, in each case subject to such aggregate percentage limitation, and the Company shall have no obligation to verify or confirm the accuracy of such determination.  For purposes of this Section 2(d), in determining the number of outstanding shares of Common Stock, the Holder may rely on the number of outstanding shares of Common Stock as reflected in (x) the Company’s most recent Form 10-Q or Form 10-K, as the case may be, (y) a more recent public announcement by the Company or (z) any other notice by the Company or the Company’s Transfer Agent setting forth the number of shares of Common Stock outstanding.  Upon the written or oral request of the Holder, the Company shall within two Trading Days confirm orally and in writing to the Holder the number of shares of Common Stock then outstanding.  In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to the conversion or exercise of securities of the Company, including this Warrant, by the Holder or its affiliates since the date as of which such number of outstanding shares of Common Stock was reported.  The provisions of this Section 2(d) may be waived by the Holder upon, at the election of the Holder, not less than 61 days’ prior notice to the Company, and the provisions of this Section 2(d) shall continue to apply until such 61st day (or such later date, as determined by the Holder, as may be specified in such notice of waiver).

e)Mechanics of Exercise.

i.Authorization of Warrant Shares.  The Company covenants that all Warrant Shares which may be issued upon the exercise of the purchase rights represented by this Warrant will, upon exercise of the purchase rights represented by this Warrant, be duly authorized, validly issued, fully paid and nonassessable and free from all taxes, liens and charges in respect of the issue thereof (other than taxes in respect of any transfer occurring contemporaneously with such issue).  The Company covenants that during the period the Warrant is outstanding, it will reserve from its authorized and unissued Common Stock a sufficient number of shares to provide for the issuance of the Warrant Shares upon the exercise of any purchase rights under this Warrant.  The Company further covenants that its issuance of this Warrant shall constitute full authority to its officers who are charged with the duty of executing stock certificates to execute and issue the necessary certificates for the Warrant Shares upon the exercise of the purchase rights under this Warrant.  The Company will take all such reasonable action as may be necessary to assure that such Warrant Shares may be issued as provided herein without violation of any applicable law or regulation, or of any requirements of the Trading Market upon which the Common Stock may be listed.

ii.Delivery of Certificates Upon Exercise.  Certificates for shares purchased hereunder shall be transmitted by the transfer agent of the Company to the Holder by crediting the account of the Holder’s prime broker with the Depository Trust Company through its Deposit Withdrawal Agent Commission (“DWAC”) system if the Company is a participant in such system, and otherwise by physical delivery to the address specified by the Holder in the Notice of Exercise within 3 Trading Days from the delivery to the Company of the Notice of Exercise Form, surrender of this Warrant and payment of the aggregate Exercise Price as set forth above (“Warrant Share Delivery Date”).  This Warrant shall be deemed to have been exercised on the date the Exercise Price is received by the Company.  The Warrant Shares shall be deemed to have been issued, and Holder or any other person so designated to be named therein shall be deemed to have become a holder of record of such shares for all purposes, as of the date the Warrant has been exercised by payment to the Company of the Exercise Price and all taxes required to be paid by the Holder, if any, prior to the issuance of such shares, have been paid.

iii.Delivery of New Warrants Upon Exercise.  If this Warrant shall have been exercised in part, the Company shall, at the time of delivery of the certificate or certificates representing Warrant Shares, deliver to Holder a new Warrant evidencing the rights of Holder to purchase the unpurchased Warrant Shares called for by this Warrant, which new Warrant shall in all other respects be identical with this Warrant.

iv.No Fractional Shares or Scrip.  No fractional shares or scrip representing fractional shares shall be issued upon the exercise of this Warrant.  As to any fraction of a share which Holder would otherwise be entitled to purchase upon such exercise, the Company shall pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by the Exercise Price.

v.Charges, Taxes and Expenses.  Issuance of certificates for Warrant Shares shall be made without charge to the Holder for any issue or transfer tax or other incidental expense in respect of the issuance of such certificate, all of which taxes and expenses shall be paid by the Company, and such certificates shall be issued in the name of the Holder or in such name or names as may be directed by the Holder;  provided, however, that in the event certificates for Warrant Shares are to be issued in a name other than the name of the Holder, this Warrant when surrendered for exercise shall be accompanied by the Assignment Form attached hereto duly executed by the Holder; and the Company may require, as a condition thereto, the payment of a sum sufficient to reimburse it for any transfer tax incidental thereto.

vi.Closing of Books.  The Company will not close its stockholder books or records in any manner which prevents the timely exercise of this Warrant, pursuant to the terms hereof.

Section 3.Certain Adjustments.

a)Stock Dividends and Splits. If the Company, at any time while this Warrant is outstanding: (i) pays a stock dividend or otherwise makes a distribution or distributions on shares of its Common Stock or any other equity or equity equivalent securities payable in shares of Common Stock (which, for avoidance of doubt, shall not include any shares of Common Stock issued by the Company pursuant to this Warrant), (ii) subdivides outstanding shares of Common Stock into a larger number of shares, (iii) combines (including by way of reverse stock split) outstanding shares of Common Stock into a smaller number of shares, or (iv) issues by reclassification of shares of the Common Stock any shares of capital stock of the Company, then in each case the Exercise Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding treasury shares, if any) outstanding before such event and of which the denominator shall be the number of shares of Common Stock outstanding after such event and the number of shares issuable upon exercise of this Warrant shall be proportionately adjusted.  Notwithstanding the forgoing, in the event an adjustment under paragraphs 3(a)(iii) or (iv) would result in an Exercise Price greater than $0.02, following the calculation of the number of shares issuable as adjusted, the Exercise Price shall thereafter be fixed at $0.04.  Any adjustment made pursuant to this Section 3(a) shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or re-classification.

b)Redemption.  Beginning twelve (12) months after the Initial Exercise Date, provided the Equity Conditions, defined below, are satisfied, if the daily closing price of the Common Stock equals $1.00 or more (subject to adjustment for stock splits, reclassifications, combinations and similar adjustments) per share for the 20 consecutive Trading Days (such calculation to occur no earlier than twelve (12) months after the Initial Exercise Date) immediately prior to the Redemption Notice Date (as defined below), and average daily dollar volume of the Common Stock on the Trading Market is at least $1,000,000, unless the Holder is prohibited from exercising the Warrants pursuant to Section 1(d)(i) hereof, the Company shall have the right, on twenty (20) business days’ notice to the Holder (an “Redemption Notice” and the date such notice is received by the Holder, the “Redemption Notice Date”), to redeem any portion of the Warrants then held by the Holder for $0.001 per Warrant. To effect a Redemption hereunder, the Holder shall not be required to physically surrender the Warrant certificate to the Company.  “Equity Conditions” shall mean, during the period in question, (i) the Company

shall have duly honored all Warrant exercises scheduled to occur or occurring by virtue of one or more Notices of Exercise, if any, (ii) there is an effective Registration Statement pursuant to which the Holder is permitted to utilize the prospectus thereunder to resell all of the shares issuable pursuant to the Transaction Documents (and the Company believes, in good faith, that such effectiveness will continue uninterrupted for the foreseeable future), (iii) the Common Stock is trading on the Trading Market and all of the shares issuable pursuant to the Transaction Documents are listed for trading on a Trading Market (and the Company believes, in good faith, that trading of the Common Stock on a Trading Market will continue uninterrupted for the foreseeable future), (iv) there is a sufficient number of authorized but unissued and otherwise unreserved shares of Common Stock for the issuance of all of the shares issuable pursuant to the Transaction Documents, and (v) no public announcement of a pending or proposed Fundamental Transaction, Change of Control Transaction or acquisition transaction has occurred that has not been consummated.

c)Subsequent Equity Sales. Other than pursuant to an Exempt Issuance, for the period commencing on the date this warrant is originally issued until June 30, 2010, if the Company shall sell or grant any option to purchase or otherwise dispose of or issue any Common Stock or Common Stock Equivalents entitling any Person to acquire shares of Common Stock, at an effective price per share less than the then Exercise Price (such lower price, the “Base Share Price” and such issuances collectively, a “Dilutive Issuance”), as adjusted hereunder (if the holder of the Common Stock or Common Stock Equivalents so issued shall at any time, whether by operation of purchase price adjustments, reset provisions, floating conversion, exercise or exchange prices or otherwise, or due to warrants, options or rights per share which is issued in connection with such issuance, be entitled to receive shares of Common Stock at an effective price per share which is less than the Exercise Price, such issuance shall be deemed to have occurred for less than the Exercise Price), then, the Exercise Price shall be reduced then to an amount equal to the Base Share Price. Such adjustment shall be made whenever such Common Stock or Common Stock Equivalents are issued.  The Company shall notify the Holder in writing, no later than the Trading Day following the issuance of any Common Stock or Common Stock Equivalents subject to this section, indicating therein the applicable issuance price, or of applicable reset price, exchange price, conversion price and other pricing terms (such notice the “Dilutive Issuance Notice”).  For purposes of clarification, whether or not the Company provides a Dilutive Issuance Notice pursuant to this Section 3(b), upon the occurrence of any Dilutive Issuance, after the date of such Dilutive Issuance the Holder is entitled to purchase number of Warrant Shares determined by dividing the product of the Exercise Price and the number of Warrant Shares which could be obtained upon the exercise of the Warrants prior to such adjustment by the Base Share Price regardless of whether the Holder accurately refers to the Base Share Price in the Notice of Exercise.

d)Pro Rata Distributions.  If the Company, at any time prior to the Termination Date, shall distribute to all holders of Common Stock (and not to Holders of the Warrants) evidences of its indebtedness or assets or rights or warrants to subscribe for or purchase any security other than the Common Stock, then in each such case the Exercise Price shall be adjusted by multiplying the Exercise Price in effect immediately prior to the record date fixed for determination of stockholders entitled to receive such distribution by a fraction of which the denominator shall be the VWAP determined as of the record date mentioned above, and of which the numerator shall be such VWAP on such record date less the then per share fair market value at such record date of the portion of such assets or evidence of indebtedness so distributed applicable to one outstanding share of the Common Stock as determined by the Board of Directors in good faith.  In either case the adjustments shall be described in a statement provided to the Holders of the portion of assets or evidences of indebtedness so distributed or such subscription rights applicable to one share of Common Stock.  Such adjustment shall be made whenever any such distribution is made and shall become effective immediately after the record date mentioned above.

e)Calculations. All calculations under this Section 3 shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be. The number of shares of Common Stock outstanding at any given time shall not includes shares of Common Stock owned or held by or for the account of the Company, and the description of any such shares of Common Stock shall be considered on issue or sale of Common Stock.  For purposes of this Section 3, the number of shares of Common Stock deemed to be issued and outstanding as of a given date shall be the sum of the number of shares of Common Stock (excluding treasury shares, if any) issued and outstanding.

f)Notice to Holders.

i.Adjustment to Exercise Price. Whenever the Exercise Price is adjusted pursuant to this Section 3, the Company shall promptly mail to each Holder a notice setting forth the Exercise Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment.

ii.Notice to Allow Exercise by Holder. If (A) the Company shall declare a dividend (or any other distribution) on the Common Stock; (B) the Company shall declare a special nonrecurring cash dividend on or a redemption of the Common Stock; (C) the Company shall authorize the granting to all holders of the Common Stock rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any rights; (D) the approval of any stockholders of the Company shall be required in connection with any reclassification of the Common Stock, any consolidation or merger to which the Company is a party, any sale or transfer of all or substantially all of the assets of the Company, of any compulsory share exchange whereby the Common Stock is converted into

other securities, cash or property; (E) the Company shall authorize the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Company; then, in each case, the Company shall cause to be mailed to the Holder at its last addresses as it shall appear upon the Warrant Register of the Company, at least 10 calendar days prior to the applicable record or effective date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of the Common Stock of record to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined or (y) the date on which such reclassification, consolidation, merger, sale, transfer or share exchange is expected to become effective or close, and the date as of which it is expected that holders of the Common Stock of record shall be entitled to exchange their shares of the Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or share exchange;  provided, that the failure to mail such notice or any defect therein or in the mailing thereof shall not affect the validity of the corporate action required to be specified in such notice.  The Holder is entitled to exercise this Warrant during the 10-day period commencing the date of such notice to the effective date of the event triggering such notice.

g)Reorganizations, Etc.  In case, at any time during the Exercise Period, of any capital reorganization, of any reclassification of the stock of the Company (other than a change in par value or from par value to no par value or from no par value to par value or as a result of a stock dividend or subdivision, split-up or combination of shares), or the consolidation or merger of the Company with or into another corporation (other than a consolidation or merger in which the Company is the continuing operation and which does not result in any change or reclassification in the Warrant Shares) or of the sale of all or substantially all the properties and assets of the Company as an entirety to any other corporation, the Company, at its sole discretion, shall have the right and option to (A) provide 30 days prior written notice of such event to the Holder and this Warrant shall terminate and be of no further force and effect on and after the effective date of such capital reorganization or reclassification or the consummation of such consolidation, sale or merger; or (B) provide that this Warrant shall, after such reorganization, reclassification, consolidation, merger or sale, be exercisable for the kind and number of shares of stock or other securities or property of the Company or of the corporation resulting from such consolidation or surviving such merger or to which such properties and assets shall have been sold to which such holder would have been entitled if he, she or it had held the Warrant Shares issuable upon the exercise hereof immediately prior to such reorganization, reclassification, consolidation, merger or sale.

h)Exempt Issuance. “‘Exempt Issuance’ means the issuance of (i) shares of Common Stock or options to employees, officers, directors or bona fide consultants of the Company (including shares of Common Stock issued pursuant to the exercise of such options) pursuant to any stock or option plan duly adopted by a majority of the non-employee members of the Board of Directors of the Company or a majority of the members of a committee of non-employee directors established for such purpose, (ii) securities issued upon the exercise or exchange of or conversion of any Securities issued hereunder and/or securities exercisable or exchangeable for or convertible into shares of Common Stock issued and outstanding on the date of this Warrant was originally issued, provided that such securities have not been amended since the date this Warrant was originally issued to increase the number of such securities or to decrease the exercise, exchange or conversion price of any such securities, (c) securities issued in lieu of cash payments for bona fide license fees or royalties,  (d) securities issued in a single financing transaction for cash in an amount less than $100,000  or in a series of financing transaction occurring over a period of 60 consecutive day in an amount less than $100,000, and (e) securities issued pursuant to acquisitions or strategic transactions approved by a majority of the disinterested directors, provided any such issuance shall only be to a Person which is, itself or through its subsidiaries, an operating company in a business synergistic with the business of the Company and in which the Company receives benefits in addition to the investment of funds, but shall not include a transaction in which the Company is issuing securities primarily for the purpose of raising capital or to an entity whose primary business is investing in securities,

i)Voluntary Adjustment By Company. The Company may at any time during the term of this Warrant reduce the then current Exercise Price to any amount and for any period of time deemed appropriate by the Board of Directors of the Company.

Section 4.               Transfer of Warrant.

a)Transferability.  Subject to compliance with any applicable securities laws and the conditions set forth in Sections 5(a) and 4(d) hereof and to the provisions of Section 4.1 of the Purchase Agreement, this Warrant and all rights hereunder are transferable, in whole or in part, upon surrender of this Warrant at the principal office of the Company, together with a written assignment of this Warrant substantially in the form attached hereto duly executed by the Holder or its agent or attorney and funds sufficient to pay any transfer taxes payable upon the making of such transfer.  Upon such surrender and, if required, such payment, the Company shall execute and deliver a new Warrant or Warrants in the name of the assignee or assignees and in the denomination or denominations specified in such instrument of assignment, and shall issue to the assignor a new Warrant evidencing the portion of this Warrant not so assigned, and this Warrant shall promptly be cancelled.  A

Warrant, if properly assigned, may be exercised by a new holder for the purchase of Warrant Shares without having a new Warrant issued.

b)New Warrants. This Warrant may be divided or combined with other Warrants upon presentation hereof at the aforesaid office of the Company, together with a written notice specifying the names and denominations in which new Warrants are to be issued, signed by the Holder or its agent or attorney.  Subject to compliance with Section 4(a), as to any transfer which may be involved in such division or combination, the Company shall execute and deliver a new Warrant or Warrants in exchange for the Warrant or Warrants to be divided or combined in accordance with such notice.

c)Warrant Register. The Company shall register this Warrant, upon records to be maintained by the Company for that purpose (the “Warrant Register”), in the name of the record Holder hereof from time to time.  The Company may deem and treat the registered Holder of this Warrant as the absolute owner hereof for the purpose of any exercise hereof or any distribution to the Holder, and for all other purposes, absent actual notice to the contrary.

d)Transfer Restrictions. If, at the time of the surrender of this Warrant in connection with any transfer of this Warrant, the transfer of this Warrant shall not be registered pursuant to an effective registration statement under the Securities Act and under applicable state securities or blue sky laws, the Company may require, as a condition of allowing such transfer (i) that the Holder or transferee of this Warrant, as the case may be, furnish to the Company a written opinion of counsel (which opinion shall be in form, substance and scope customary for opinions of counsel in comparable transactions) to the effect that such transfer may be made without registration under the Securities Act and under applicable state securities or blue sky laws, (ii) that the holder or transferee execute and deliver to the Company an investment letter in form and substance acceptable to the Company and (iii) that the transferee be an “accredited investor” as defined in Rule 501(a)(1), (a)(2), (a)(3), (a)(7), or (a)(8) promulgated under the Securities Act or a qualified institutional buyer as defined in Rule 144A(a) under the Securities Act.

Section 5.               Registration Rights.

a)             Joining other Registration Statements.            If at any time or times, the Company proposes to file one or more Registration Statements on Form S-1 or S-3 or other appropriate form for the registration of its Common Stock or other equity securities under the Securities Act for a public offering, whether or not underwritten (excluding the issuance of shares pursuant to employees’ options, incentive or similar plans, or in connection with an acquisition, merger or exchange of securities which involves no distribution for cash), it shall give a Notice of Registration to the Holder and shall include in each Registration Statement referred to in such notice all such Warrant Shares with respect to which the Holder shall have delivered to the Company a Notice of

Intent to Sell within 20 days after the Company has given its Notice of Registration.   Such Notice of Registration shall be given not later than ten (10) days prior to the filing of any such Registration Statement.   All expenses incurred by the Company in complying with the foregoing registration requirements (except fees and disbursements of counsel for the Holder; registration fees of the Commission for registration of the Securities, underwriting discounts, commissions or similar expenses to be incurred in connection with the sale of securities to be registered for the Holder) shall be borne by the Company.  The Company shall have no obligation to register any Securities under this Section 5(a) unless the Holder agrees to join in the underwriting arrangements,  if any, proposed for the other securities being registered on the same terms as other participants in the distribution, unless such underwriters decline to include the Warrant Shares therein in which event the Company may delay the delivery of prospectuses to the Holder for a period not in excess of 45 days from the effective date of such Registration Statement.  The foregoing rights of registration shall be applicable on one, and only one occasion, regardless of the number of shares included therein, provided that the Registration statement shall have become effective and shall remain effective and in compliance with the Securities Act, subject to the limitations of Section 5(b)   The Holder’s rights pursuant to this Section 5(a)  shall expire on December 31, 2011.

b)            Notice of Intent to Sell and Notice of Registration.  “Notice of Intent to Sell” shall mean a written notice signed by the Holder (i) setting forth the number of units of Warrant Shares which the Holder desires to have registered for sale, (ii) representing that the Holder has a present intention to sell the same, (iii) setting forth (if delivered pursuant to Section 5(a)) the intended method by which such sale will be effected and the names of the underwriters, if any; whose services are intended to be used to effect such sale, and (iv) agreeing to execute all consents, powers of attorneys, registration statements, and other documents required in order to permit such Registration Statement to be made effective and carry out the distribution.  “Notice of Registration” shall mean a written notice signed by an officer of the Company and setting forth the approximate date on which it intends to file a Registration Statement on Form, S-1 or S-3 or other appropriate form for the registration of its Common Stock pursuant to the Securities Act, and the approximate date on which it contemplates such Registration Statement will become effective whether the Registration Statement is being filed pursuant to Section 5(a) of this Warrant.

c)             Indemnification.  The obligation of the Company to register Warrant Shares for the Holder pursuant to this Agreement shall be subject to the receipt by the Company of an agreement from the Holder and each underwriter of any securities registered for the Holder, in form and substance satisfactory to the Company,  indemnifying the Company against liability arising out of or based upon any untrue statement or alleged untrue statement of a material fact in the Registration statement or the omission or alleged omission to state therein any material fact required to be stated therein or necessary in order to make the statements therein not misleading, if such statement or omission was made by the Company in reliance upon and in conformity with written information furnished to the Company specifically. for use in such Registration Statement by or on behalf of the Holder with respect to the Holder or any underwriter of any securities registered for the Holder.  In connection with registration under the

Securities Act of securities owned by the Holder,  the Company hereby agrees to indemnify the Holder and each underwriter of any securities registered for the Holder against liability arising out of or based upon any untrue statement or alleged untrue statement of a material fact in a Registration statement filed by the Company pursuant hereto, or the omission or alleged omission to state in such Registration Statement any material fact required to be stated therein or necessary in order to make the statement therein not misleading, other than any such statement included in, or omission from, such Registration Statement by the Company in reliance upon and in conformity with written information furnished to the Company,  specifically for use therein by or on behalf of the Holder with respect to the Holder or by any underwriter of the securities included therein and to join in an underwriting agreement having usual and customary terms, including customary representations warranties and agreements (in addition to the indemnification agreements provided by this Section 5(c)).

d)            Certain Terms and Conditions.          The following provisions shall be applicable to all registration rights granted in this Section 5:

i.the Company shall have the right to require any registration required under Section 5(a) to contemplate offerings in the same manner as other shares registered therein, provided they are offerings by way of either (i) firm underwritings, (ii)  exchange distributions or (iii) “shelf” registration statements;

ii.the Company shall not be required to maintain any Registration Statement under Section 5(a) in effect for a period of more than six months; provided, however,  that this period shall be extended at the request of the Holder to no more than nine months to meet the requirements of underwriters of such securities pursuant to the terms of an underwriting agreement;

iii.the Company need not include any Warrants or shares owned by the Holder in any Registration Statement provided for under Sections 5(a) if in the opinion of counsel for the Company satisfactory to counsel for the Holder, registration of such shares under the Securities Act is not necessary for the Holder to dispose of such shares in a public offering and distribution in the open market in compliance with the Securities Act; provided, in such case the opinion of such counsel shall be in writing addressed to the Holder and shall be rendered within twenty (20) days after the Notice of Intent to Sell is received by the Company.

Section 6.               Miscellaneous.

a)Title to Warrant.  Prior to the Termination Date and subject to compliance with applicable laws and Section 4 of this Warrant, this Warrant and all rights hereunder are transferable, in whole or in part, at the office or agency of the Company by the Holder in person or by duly authorized attorney, upon surrender of this Warrant together with the Assignment Form annexed hereto

properly endorsed.  The transferee shall sign an investment letter in form and substance reasonably satisfactory to the Company.

b)No Rights as Shareholder Until Exercise.  This Warrant does not entitle the Holder to any voting rights or other rights as a shareholder of the Company prior to the exercise hereof.  Upon the surrender of this Warrant and the payment of the aggregate Exercise Price (or by means of a cashless exercise), the Warrant Shares so purchased shall be and be deemed to be issued to such Holder as the record owner of such shares as of the close of business on the later of the date of such surrender or payment.

c)Loss, Theft, Destruction or Mutilation of Warrant. The Company covenants that upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Warrant or any stock certificate relating to the Warrant Shares, and in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to it (which, in the case of the Warrant, shall not include the posting of any bond), and upon surrender and cancellation of such Warrant or stock certificate, if mutilated, the Company will make and deliver a new Warrant or stock certificate of like tenor and dated as of such cancellation, in lieu of such Warrant or stock certificate.

d)Saturdays, Sundays, Holidays, etc.  If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall be a Saturday, Sunday or a legal holiday, then such action may be taken or such right may be exercised on the next succeeding day not a Saturday, Sunday or legal holiday.

e)Authorized Shares.

The Company covenants that during the period the Warrant is outstanding, it will reserve from its authorized and unissued Common Stock a sufficient number of shares to provide for the issuance of the Warrant Shares upon the exercise of any purchase rights under this Warrant.  The Company further covenants that its issuance of this Warrant shall constitute full authority to its officers who are charged with the duty of executing stock certificates to execute and issue the necessary certificates for the Warrant Shares upon the exercise of the purchase rights under this Warrant.  The Company will take all such reasonable action as may be necessary to assure that such Warrant Shares may be issued as provided herein without violation of any applicable law or regulation, or of any requirements of the Trading Market.

Except and to the extent as waived or consented to by the Holder, the Company shall not by any action, including, without limitation, amending its certificate of incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the

carrying out of all such terms and in the taking of all such actions as may be necessary or appropriate to protect the rights of Holder as set forth in this Warrant against impairment.  Without limiting the generality of the foregoing, the Company will (a) not increase the par value of any Warrant Shares above the amount payable therefor upon such exercise immediately prior to such increase in par value, (b) take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable Warrant Shares upon the exercise of this Warrant, and (c) use commercially reasonable efforts to obtain all such authorizations, exemptions or consents from any public regulatory body having jurisdiction thereof as may be necessary to enable the Company to perform its obligations under this Warrant.

Before taking any action which would result in an adjustment in the number of Warrant Shares for which this Warrant is exercisable or in the Exercise Price, the Company shall obtain all such authorizations or exemptions thereof, or consents thereto, as may be necessary from any public regulatory body or bodies having jurisdiction thereof.

f)Jurisdiction. All questions concerning the construction, validity, enforcement and interpretation of this Warrant shall be determined in accordance with the provisions of the Purchase Agreement.

g)Restrictions.  The Holder acknowledges that the Warrant Shares acquired upon the exercise of this Warrant, if not registered, will have restrictions upon resale imposed by state and federal securities laws.

h)Nonwaiver and Expenses.  No course of dealing or any delay or failure to exercise any right hereunder on the part of Holder shall operate as a waiver of such right or otherwise prejudice Holder’s rights, powers or remedies, notwithstanding the fact that all rights hereunder terminate on the Termination Date.  If the Company willfully and knowingly fails to comply with any provision of this Warrant, which results in any material damages to the Holder, the Company shall pay to Holder such amounts as shall be sufficient to cover any costs and expenses including, but not limited to, reasonable attorneys’ fees, including those of appellate proceedings, incurred by Holder in collecting any amounts due pursuant hereto or in otherwise enforcing any of its rights, powers or remedies hereunder.

i)Notices.  Any notice, request or other document required or permitted to be given or delivered to the Holder by the Company shall be delivered in accordance with the notice provisions of the Purchase Agreement.

j)Limitation of Liability.  No provision hereof, in the absence of any affirmative action by Holder to exercise this Warrant or purchase Warrant Shares, and no enumeration herein of the rights or privileges of Holder, shall give rise to any liability of Holder for the purchase price of any Common Stock or as a

stockholder of the Company, whether such liability is asserted by the Company or by creditors of the Company.

k)Remedies.  Holder, in addition to being entitled to exercise all rights granted by law, including recovery of damages, will be entitled to specific performance of its rights under this Warrant.  The Company agrees that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of the provisions of this Warrant and hereby agrees to waive the defense in any action for specific performance that a remedy at law would be adequate.

l)Successors and Assigns.  Subject to applicable securities laws, this Warrant and the rights and obligations evidenced hereby shall inure to the benefit of and be binding upon the successors of the Company and the successors and permitted assigns of Holder.  The provisions of this Warrant are intended to be for the benefit of all Holders from time to time of this Warrant and shall be enforceable by any such Holder or holder of Warrant Shares.

m)Amendment.  This Warrant may be modified or amended or the provisions hereof waived with the written consent of the Company and the holders of not less than 70% of the Warrants of like tenor then outstanding as shown of the books and records of the Company.  In such event, the Company will promptly mail notice of any such modification or amendment to all holders of the Warrants that have not consented thereto.

n)Severability.  Wherever possible, each provision of this Warrant shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Warrant shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provisions or the remaining provisions of this Warrant.

o)Headings.  The headings used in this Warrant are for the convenience of reference only and shall not, for any purpose, be deemed a part of this Warrant.

********************

IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its officer thereunto duly authorized.

Dated:  December 30, 2008

CALLISTO PHARMACEUTICALS, INC.
By:
	Name:	Gary S. Jacob
	Title:	CEO

NOTICE OF EXERCISE

TO:         CALLISTO PHARMACEUTICALS, INC.

(1)  The undersigned hereby elects to purchase                  Warrant Shares of the Company pursuant to the terms of the attached Warrant (only if exercised in full), and tenders herewith payment of the exercise price in full, together with all applicable transfer taxes, if any.

(2)  Payment shall take the form of (check applicable box):

o in lawful money of the United States; or

o the cancellation of such number of Warrant Shares as is necessary, in accordance with the formula set forth in subsection 2(c), to exercise this Warrant with respect to the maximum number of Warrant Shares purchasable pursuant to the cashless exercise procedure set forth in subsection 2(c).

(3)  Please issue a certificate or certificates representing said Warrant Shares in the name of the undersigned or in such other name as is specified below:

The Warrant Shares shall be delivered to the following:

(4)  Accredited Investor.  The undersigned is an “accredited investor” as defined in Regulation D promulgated under the Securities Act of 1933, as amended.

[SIGNATURE OF HOLDER]

Name of Investing Entity:

Signature of Authorized Signatory of Investing Entity:

Name of Authorized Signatory:

Title of Authorized Signatory:

Date:

ASSIGNMENT FORM

(To assign the foregoing warrant, execute
this form and supply required information.
Do not use this form to exercise the warrant.)

FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced thereby are hereby assigned to

	whose address is
			.
Dated:		,

Holder’s Signature:

Holder’s Address:

Signature Guaranteed:

NOTE:  The signature to this Assignment Form must correspond with the name as it appears on the face of the Warrant, without alteration or enlargement or any change whatsoever, and must be guaranteed by a bank or trust company.  Officers of corporations and those acting in a fiduciary or other representative capacity should file proper evidence of authority to assign the foregoing Warrant.

EX-10.17

Exhibit 10.17

SECURED PROMISSORY NOTE

$ DATE:

FOR VALUE RECEIVED, the undersigned, CALLISTO PHARMACEUTICALS, INC.  (“Borrower”), promises to pay to                      (“Lender”), the principal sum of                                                        ($                  ); with interest at the annual rate of 11% on the unpaid principal amount from the date hereof until the said principal amount has been paid in full, whether at the Maturity Date (as hereinafter defined) or otherwise, all as more fully set forth herein.

This Note is given by Borrower to Lender pursuant to and is entitled to the benefits of the Securities Purchase Agreement between the parties hereto of even date herewith (the “Agreement”) and Security Agreement of even date herewith (together with the Agreement, the “Loan Documents”), to which reference is hereby made for a more complete statement of the terms and conditions under which the Loan evidenced hereby is made and is to be repaid.  Capitalized terms not defined herein shall have the meaning set forth in the Loan Documents.   This Note is secured by a security interest in certain of Borrower’s assets granted by Borrower to Lender, more fully described in the Security Agreement and is one of several Notes of like tenor aggregating $[500,000].

No reference herein to the Agreement and no provision of the Note or the Agreement shall alter or impair the obligation of the Borrower, which is absolute and unconditional, to pay the principal of and interest on this Note at the place, at the time and in the currency herein prescribed.

Interest for the full term of this Note from the date of issuance to the Maturity Date shall be due on the Maturity Date.  In the Event of Default, interest shall be 15% of the outstanding principal of the Note.

The “Maturity Date” shall be the date that is the earlier of April 15, 2010, or the date that the entire principal amount and interest on this Note shall become due and payable by reason of acceleration due to the occurrence of an Event of Default (as hereinafter defined) or otherwise.

EVENTS OF DEFAULT.     Each of the following specified events hereby constitutes and is herein referred to individually as an “Event of Default”:

(a)           Borrower’s failure to make or cause to be made any payments to Lender under this Note when the same are due; or

(b)           Default in the due and timely observance or performance of the covenants, conditions or agreements of Borrower contained in this Note or in any other of the Loan Documents relating to the Pledged Securities; or

(c)           If any financial statement or representation or warranty made by Borrower in connection with this transaction or in any document in connection with the instruments, documents and assignments to be executed by Borrower hereunder or pursuant hereto shall be untrue in any material respect on the date made; or

(d)           Default of any party thereto in the observance or performance by such party of any

material term, covenant, condition, warranty or representation made or agreed to in any of the Loan Documents; or

(e)If any warrant of attachment, execution of other writ shall be issued or levied upon the proceeds or amounts payable pursuant to the Loan Agreement and such attachment, execution or other writ shall not be either discharged or stayed for a period in excess of thirty (30) days; or

(f)If Borrower should become insolvent;  or should be unable to pay its debts as they mature (including failure to pay the Note); or should make an assignment for the benefit of creditors or to an agent authorized to liquidate any substantial amount of its properties or assets; or should file a voluntary petition in bankruptcy or to effect a plan or other arrangement with creditors; or should file an answer admitting the jurisdiction of any court and the material allegations of an involuntary petition filed pursuant to any legislation or governmental regulation relating to bankruptcy; or should join in any petition for an adjudication or for another arrangement; or should become or be adjudicated a bankrupt; or should apply for a consent to the appointment of or consent that an order be made appointing any receiver or trustee for itself or for any of its properties, assets or business; or if an order should be entered pursuant to any legislation or governmental rule relating to bankruptcy or reorganization; or if a receiver or a trustee should be appointed otherwise than upon its own application or consent for all or a substantial part of its properties, assets or business and any such receiver or trustee so appointed is not discharged within thirty (30) days after the date of such appointment.

Upon the occurrence of an Event of Default, the entire principal sum and accrued interest shall, upon written notice Lender to Borrower, thereupon become due and payable at the option of the Lender.  Such election may be withdrawn Failure to exercise this option shall not constitute a waiver of the right to exercise the same in the event of any subsequent default.  If a declaration is made in accordance with this paragraph, then and in every such case, the holder or holders of at least 70% in aggregate principal amount of outstanding Notes may, by an instrument delivered to the Borrower, annul such declaration and the consequences thereof, provided that at the time such declaration is annulled:

(i)no judgment or decree has been entered for the payment of any monies due on the Notes;

(ii)all arrears of interest on the Notes and all other sums payable on the Notes (except any principal of or interest or premium on the Notes which has become due and payable by reason of such declaration) shall have been duly paid; and

(iii)every other Event of Default shall have been duly waived or otherwise made good or cured;

provided, however, that no such annulment shall extend to or affect any subsequent Event of Default or impair any right consequent thereon.

Nothing herein will be deemed to limit or restrict any of Lender’s rights under the Loan Documents in the event of a default by Borrower thereunder, including, without limitation, Lender’s rights to deal with or realize upon the Pledged Securities as specified herein or therein.

All payments of principal and interest in respect of this Note shall be made in lawful money of the United States of America by, at the option of the Borrower, wire to the bank account of Lender or in same day funds at the office of Lender at the office set forth in the Loan Documents, or at such place as

shall be designated by Lender in writing pursuant to the Loan Agreement for such purpose.  Until notified in writing of the transfer of this Note, Borrower shall be entitled to deem Lender or such person who has been so identified by the transferor in writing to Borrower as the holder of this Note as the owner and holder of this Note. Each of Lender and any subsequent holder of this Note agrees that before disposing of this Note or any part hereof it will make a notation hereon of all principal and interest payments made hereunder.

Borrower may prepay this Note in whole or in part at any time without penalty.

All notices and other communications given hereunder shall be given as set forth in the Loan Documents.

Borrower consents to any extension of time of payment hereof, release of all or any part of the security, or release of any party liable for this obligation.  Any such extension or release may be made without notice to Borrower and without discharging its liability.

All parties to this Note, whether Borrower, principal, surety, guarantor or endorser, hereby waive presentment for payment, demand, protest, notice of protest, notice of dishonor and all other notices in connection with this Note, except Borrower does not waive notice as to any prejudgment attachment.

Borrower promises to pay all costs and expenses, including reasonable attorney’s fees, incurred in the collection and enforcement of this Note.  Borrower and endorsers of this Note hereby consent to renewals and extensions of time at or after the Maturity Date hereof, without notice, and hereby waive diligence, presentment, protest, demand and notice of every kind and, to the full extend permitted by law, the right to plead any statute of limitations as a defense to any demand hereunder.

No provision of this Note may be waived, modified, supplemented or amended except in a written instrument signed, in the case of an amendment, by the Borrower and the Lenders holding at least 70% of the principal amount outstanding of the Notes.  No waiver of any default with respect to any provision, condition or requirement of this Note shall be deemed to be a continuing waiver in the future or a waiver of any subsequent default or a waiver of any other provision, condition or requirement hereof, nor shall any delay or omission of either party to exercise any right hereunder in any manner impair the exercise of any such right.

This Note is being delivered and is intended to be performed in the State of New York and is governed by the laws of the State of New York excluding any laws relating to the conflict or choice of laws.

All agreements between the Borrower and the Lender are hereby expressly limited so that in no contingency or event whatsoever, whether by reason of acceleration of maturity of the indebtedness or otherwise, shall the amount paid or agreed to be paid to the holder hereof for the use, forbearance or detention of the indebtedness evidenced hereby exceed the maximum permissible amount paid or agreed to be paid to the Lender hereof under applicable law.  If, for any circumstances whatsoever, fulfillment of any provision hereof, at the time performance of such provision shall be due, shall involve transcending the limit of validity prescribed by law, then ipso facto the obligation to be fulfilled shall be reduced to the limit of such validity, and if from any circumstance the holder hereof should ever receive as interest an amount which would exceed the highest lawful rate, such amount which would be excessive interest shall be applied to the reduction of the payment of interest.  As used herein, the term

“applicable law” shall mean the law in effect as of the date hereof, provided, however, that in the event there is a change in the law which results in a higher permissible rate of interest, then this Note shall be governed by such new law as of its effective date.

IN WITNESS WHEREOF, Borrower has caused this Note to be executed and delivered as of the day and year and the place above written.

CALLISTO PHARMACEUTICALS, INC.
By:
	Gary S. Jacob, CEO

EX-10.18

Exhibit 10.18

AMENDED AND RESTATED EXECUTIVE EMPLOYMENT AGREEMENT

This AMENDED AND RESTATED EXECUTIVE EMPLOYMENT AGREEMENT (the “Agreement”) dated March 11, 2009 by and between Callisto Pharmaceuticals,, Inc., a company incorporated under the laws of Delaware (the “Company”), and Gary S. Jacob, Ph.D., an individual (the “Executive”) with reference to the following facts:

WHEREAS, the Company owns approximately 68% of the outstanding common stock of Synergy Pharmaceuticals, Inc. (“Synergy”) and the Executive serves as the CEO of the Company and President and Acting Chief Executive Officer of Synergy.

WHEREAS, both the Company and Synergy are engaged in the business of developing and marketing drug products.

WHEREAS, the Executive has previously entered into an employment agreement with the Company as of June 13, 2003, as amended October 19, 2005 and an extension and amendment agreement dated as of February 15, 2007 (collectively, the “Employment Agreement”);

WHEREAS, the parties wish to amend and restate the Employment Agreement between the Executive and the Company in its entirety, on the terms and conditions contained in this Agreement.

NOW THEREFORE, in consideration of the foregoing facts and mutual agreements set forth below, the parties, intending to be legally bound, agree as follows:

1.Employment.    The Company hereby agrees to employ Executive, and Executive hereby accepts such employment and agrees to perform Executive’s duties and responsibilities in accordance with the terms and conditions hereinafter set forth.

1.1Duties and Responsibilities.    Executive shall serve as Chief Executive Officer. During the Employment Term, Executive shall perform all duties and accept all responsibilities incident to such positions and other appropriate duties as may be assigned to Executive by the Company’s Board of Directors from time to time, and by the Chief Executive Officer, when a Chief Executive Officer is appointed. Executive shall also serve as a director of the Company if requested by the Company’s Board of Directors, and as an officer of one or more of the Company’s subsidiaries without any additional compensation. The Company shall retain full direction and control of the manner, means and methods by which Executive performs the services for which he is employed hereunder and of the place or places at which such services shall be rendered. The Executive also agrees that in the absence of a Chief Accounting Officer, he will sign various federal and state securities filings as the Company’s principal accounting officer.

1.2Employment Term.    The term of Executive’s employment under this Agreement shall commence as of August 1, 2008 (the “Effective Date”) and shall continue

until December 31, 2011, unless earlier terminated in accordance with Section 4 hereof. The term of Executive’s employment shall be automatically renewed for successive one (1) year periods until the Executive or the Company delivers to the other party a written notice of their intent not to renew the “Employment Term,” such written notice to be delivered at least sixty (60) days prior to the expiration of the then-effective “Employment Term” as that term is defined below. The period commencing as of the Effective Date and ending December 31, 2011 or such later date to which the term of Executive’s employment under the Agreement shall have been extended Agreement is referred to herein as the “Employment Term” and the end of the Employment Term is referred to herein as the “Expiration Date.”

1.3Extent of Service.    Except for discharging his duties as Acting Chief Executive Officer and President of Synergy, the Company’s majority owned subsidiary, during the Employment Term, Executive agrees to use Executive’s best efforts to carry out the duties and responsibilities under Section 1.1 hereof and to devote substantially all Executive’s business time, attention and energy thereto. Executive further agrees not to work either on a part-time or independent contracting basis for any other business or enterprise during the Employment Term without the prior written consent of the Company’s Board of Directors (the “Board”), which consent shall not be unreasonably withheld.

1.4Base Salary.

(a)The Company shall pay Executive a base salary (the “Base Salary”) at the annual rate of $300,000 (U.S.) payable at such times as the Company customarily pays its other senior level executives (but in any event no less often than monthly). The Base Salary shall be subject to all state, federal, and local payroll tax withholding and any other withholdings required by law. The overall cap of $300,000 shall not be diminished by any bonus or accelerated payment benefit given to Executive by Synergy.  The Executive’s Base Salary may be increased, but not decreased by the Compensation Panel.  Once increased, such increased amount shall constitute the Executive’s Base Salary and shall not be decreased.

(b)It is expressly acknowledged that Executive’s Base Salary shall be allocated between the Company and Synergy, so that the aggregate Base Salary payable to the Executive during the Employment Term from the Company and Synergy will not exceed $300,000 (or such higher amount as is determined by the committee of the Company’s and/or Synergy’s Board of Directors empowered to fix or review compensation of the other executive officers of the Company (the “Compensation Panel”).  The current estimate of such allocation is that 75% of the Executive’s Base Salary shall be payable by Synergy and 25% of such Base Salary shall by payable by the Company, however such allocation may change, no more frequently than once each fiscal quarter as determined in good faith by Synergy’s Chief Financial Officer.  At any time if Synergy is not obligated

to or does not pay its allocated share of Executive’s Base Salary, the Company shall pay Executive’s Base Salary in full, irrespective of any accounting allocation.

(c)In the event Synergy is obligated to pay any item of compensation or reimburse expenses to Executive under this Agreement, Synergy fails to do so and the Company makes payment to the Executive pursuant to Section 1.4(b) of this Agreement, the Company shall be subrogated to all claims of the Executive against Synergy arising from Synergy’s failure to make payment to the extent of such payments made to the Executive.

1.5Incentive Compensation.

(a)Bonus. Executive shall be eligible to earn a cash bonus of up to 50% of his Base Salary per full calendar year during the Employment Term (and a pro rated bonus for the period from August 1, 2008 to December 31, 2008) based on meeting performance objectives and bonus criteria to be mutually identified by Executive and the Compensation Panel.  Bonuses, if any, shall be subject to all applicable tax and payroll withholdings.  The bonus shall be determined on or before March 1 of each year of the Employment Term commencing March 1, 2009 and paid on or before April 14 of each year.

(b)Realization Bonus.

(i)            In the event during the Term of this Agreement the Company enters into either a out-license agreement for any technology relating to cancer or rheumatoid arthritis that grants exclusive marketing rights to a third party, engages in a merger transaction or a sale of substantially all of the assets of the Company that relate to the treatment of cancer or rheumatoid arthritis or enters into a joint venture in which the Company contributes such rights to the joint venture, in each case where the Enterprise Value (defined below) equals or exceeds the minimum value of $150 million, $200 million and $250 million in the first, second, third years of the Term or any years beyond the third year of the Term, respectively, (each, a “ Realization Transaction”), or the license fees the Company contracts to receive (disregarding any contingencies to such payment) equals or exceeds $50 million, the Company shall accrue a bonus determined by multiplying the Enterprise Value (defined below) in the case of a merger, sale or the sum of the license fees actually received in the case of an out license, as the case may be, by 0.5% (one half percent).

(ii)           The accrued bonuses shall be payable to Executive (a) in cash in full 5 business days after the closing of any Realization Transaction involving a sale or merger, notwithstanding that the consideration for such merger or sale consists in whole or in part of securities of the acquiring company;  or (b) in cash 5 business days after the Company’s receipt of license fees at the rate of 0.5% of license fees actually received.  The expiration or termination of this Agreement shall not terminate or diminish

the Executive’s right to receive bonus payments with respect to out license fees collected after the termination or expiration of this Agreement.

(iii)          The “Enterprise Value” in the case of a Change in Control in which consideration is payable to the Company in respect of its assets or business, shall mean the total cash and non-cash (including, without limitation, the assumption of debt) consideration received by the Company or in the case of a Change in Control in which consideration is payable to the Company’s stockholders, the total cash and non-cash (including, without limitation, the assumption of debt) consideration payable to the Company’s stockholders. “Enterprise Value” shall also include, if applicable, any cash or non-cash consideration payable to the Company or to the Company’s stockholders on a contingent, earnout or deferred basis. To the extent that any consideration in a transaction is not received in cash upon the consummation of the Change in Control, the value of such non-cash consideration for purposes of calculating the Enterprise Value will be determined by the Board of Directors of the Company prior to the Change in Control in good faith. In the event that less than 100% of the stock or assets of the Company is purchased in the Change in Control transaction, the Enterprise Value shall be extrapolated from the percentage of the Company’s capital stock or assets impacted in such Change in Control transaction to determine if the $400 million threshold was exceeded, but the Transaction Fee shall be calculated based on the actual consideration received by the Company or shareholders, as the case may be. Section 4.2(b)(i), however, shall not apply to any event resulting in a Change in Control in which neither the Company nor its stockholders receives consideration either upon, or in connection with, the occurrence or consummation of the event resulting in a Change in Control.

(c)Options.       The Compensation Panel will consider grants of options to the Executive no less frequently than annually commencing March 1, 2010.

(d)Executive Benefits.       The Executive shall be entitled to participate in all executive benefit or incentive compensation plans now maintained or hereafter established by the Company for the purpose of providing compensation and/or benefits to executives of the Company and any supplemental retirement, salary continuation, stock option, deferred compensation, supplemental medical or life insurance or other bonus or incentive compensation plans. Unless otherwise provided herein, the Executive’s participation in such plans shall be on the same basis and terms as other similarly situated executives of the Company. No additional compensation provided under any of such plans shall be deemed to modify or otherwise affect the terms of this Agreement or any of the Executive’s entitlements hereunder.

1.6Other Benefits.       During the Employment Term, Executive shall be entitled to participate in all employee benefit plans and programs made available to the Company’s senior level executives as a group or to its employees generally, as such plans or programs may be in effect from time to time (the “Benefit Coverages”), including, without limitation, medical, dental, hospitalization,

short-term and long-term disability and life insurance plans, accidental death and dismemberment protection and travel accident insurance. Executive shall be provided office space and staff assistance appropriate for Executive’s position and adequate for the performance of his duties.

1.7Reimbursement of Expenses; Vacation; Sick Days and Personal Days.  Executive shall be provided with reimbursement of expenses related to Executive’s employment by the Company on a basis no less favorable than that which may be authorized from time to time by the Board, in its sole discretion, for senior level executives as a group. Executive shall be entitled to vacation and holidays in accordance with the Company’s normal personnel policies for senior level executives, but not less than three (3) weeks of vacation per calendar year, provided Executive shall not utilize more than ten (10) consecutive business days without the express consent of the Board of Directors. Unused vacation time will be forfeited as of December 31 of each calendar year of the Employment Term. Executive shall be entitled to no more than an aggregate of ten (10) sick days and personal days per calendar year.

1.8No Other Compensation.  Except as expressly provided in Sections 1.4 through 1.8, Executive shall not be entitled to any other compensation or benefits.

2.Confidential Information. Executive recognizes and acknowledges that by reason of Executive’s employment by and service to the Company before, during and, if applicable, after the Employment Term, Executive will have access to certain confidential and proprietary information relating to the Company’s business, which may include, but is not limited to, trade secrets, trade “know-how,” product development techniques and plans, formulas, customer lists and addresses, financing services, funding programs, cost and pricing information, marketing and sales techniques, strategy and programs, computer programs and software and financial information (collectively referred to as “Confidential Information”). Executive acknowledges that such Confidential Information is a valuable and unique asset of the Company and Executive covenants that he will not, unless expressly authorized in writing by the Company, at any time during the course of Executive’s employment use any Confidential Information or divulge or disclose any Confidential Information to any person, firm or corporation except in connection with the performance of Executive’s duties for the Company and in a manner consistent with the Company’s policies regarding Confidential Information. Executive also covenants that at any time after the termination of such employment, directly or indirectly, he will not use any Confidential Information or divulge or disclose any Confidential Information to any person, firm or corporation, unless such information is in the public domain through no fault of Executive or except when required to do so by a court of law, by any governmental agency having supervisory authority over the business of the Company or by any administrative or legislative body (including a committee thereof) with apparent jurisdiction to order Executive to divulge, disclose or make accessible such information. All written Confidential Information (including, without limitation, in any computer or other electronic format) which comes into Executive’s possession during the course of Executive’s employment shall remain the property of the Company. Except as required in the performance of Executive’s duties for the Company, or unless expressly authorized in writing by the Company, Executive shall not remove any written Confidential Information from the Company’s premises, except in connection with the performance of

Executive’s duties for the Company and in a manner consistent with the Company’s policies regarding Confidential Information. Upon termination of Executive’s employment, the Executive agrees to return immediately to the Company all written Confidential Information (including, without limitation, in any computer or other electronic format) in Executive’s possession. As a condition of Executive’s continued employment with the Company and in order to protect the Company’s interest in such proprietary information, the Company shall require Executive’s execution of a Confidentiality Agreement and Inventions Agreement in the form attached hereto as Exhibit “B”, and incorporated herein by this reference.

3.Non-Competition; Non-Solicitation.

3.5Non-Compete.       The Executive hereby covenants and agrees that during the term of this Agreement and for a period of one year following the end of the Employment Term, the Executive will not, without the prior written consent of the Company, directly or indirectly, on his own behalf or in the service or on behalf of others, whether or not for compensation, engage in any business activity, or have any interest in any person, firm, corporation or business, through a subsidiary or parent entity or other entity (whether as a shareholder, agent, joint venturer, security holder, trustee, partner, Executive, creditor lending credit or money for the purpose of establishing or operating any such business, partner or otherwise) with any Competing Business in the Covered Area. For the purpose of this Section 3.1, (i) “Competing Business” means any biotechnology or pharmaceutical company, any contract manufacturer, any research laboratory or other company or entity (whether or not organized for profit) that has, or is seeking to develop, one or more products or therapies that is related to azaspiranes and guanylyl cyclase receptor agonists and (ii) “Covered Area” means all geographical areas of the United States and foreign jurisdictions where the Company then has offices and/or sells its products directly or indirectly through distributors and/or other sales agents. Notwithstanding the foregoing, the Executive may own shares of companies whose securities are publicly trades, so long as such securities do not constitute more than one percent (1%) of the outstanding securities of any such company.

3.6Non-Solicitation. The Executive further agrees that as long as the Agreement remains in effect and for a period of one (1) year from its termination, the Executive will not divert any business of the Company and/or its affiliates or any customers or suppliers of the Company and/or the Company’s and/or its affiliates’ business to any other person, entity or competitor, or induce or attempt to induce, directly or indirectly, any person to leave his or her employment with the Company.

3.7Remedies. The Executive acknowledges and agrees that his obligations provided herein are necessary and reasonable in order to protect the Company and its affiliates and their respective business and the Executive expressly agrees that monetary damages would be inadequate to compensate the Company and/or its affiliates for any breach by the Executive of his covenants and agreements set forth herein. Accordingly, the Executive agrees and acknowledges that any such

violation or threatened violation of this Section 3 will cause irreparable injury to the Company and that, in addition to any other remedies that may be available, in law, in equity or otherwise, the Company and its affiliates shall be entitled to obtain injunctive relief against he threatened breach of this Section 3 or the continuation of any such breach by the Executive without the necessity of proving actual damages.

4.Termination.

4.5Termination Without Cause or for Good Reason.

(c)If this Agreement is terminated by the Company other than for Cause (as defined in Section 10.4 hereof) or as a result of Executive’s death or Permanent Disability (as defined in Section 4.2 hereof), or if Executive terminates his employment for Good Reason (as defined in Section 4.1(b) hereof) prior to the Expiration Date, Executive shall receive or commence receiving as soon as practicable in accordance with the terms of this Agreement:

(i)a severance payment (the “Severance Payment”), which amount shall be paid in a cash lump sum within ten (10) days of the date of termination, in an amount equal to the higher of the aggregate amount of the Executive’s Base Salary for the then remaining term of this Agreement or twelve times the average monthly Base Salary paid or accrued during the three full calendar months immediately preceding such termination;

(ii)expense compensation, which shall be paid in a lump sum payment within ten (10) days of the date of termination, in an amount equal to twelve times the sum of average Base Salary during the three full months immediately preceding such termination of providing the services to Executive set forth in Section 1.4 and Executive’s reimbursed expenses set forth in Section 1.7;

(iii)immediate vesting of all unvested stock options and the extension of the exercise period of such options to the later of the longest period permitted by the Company’s stock option plans or ten years following the Termination Date;

(iv)payment in respect of compensation earned but not yet paid (the “Compensation Payment”) which amount shall be paid in a cash lump sum within ten (10) days of the date of termination; and

(v)payment of the cost of comprehensive medical insurance for Executive for a period of twelve months following the termination.

(d)For purposes of this Agreement, “Good Reason” shall mean any of the following (without Executive’s express prior written consent):

(i)Any material breach by Company of any provision of this Agreement, including any material reduction by Company of Executive’s duties or responsibilities (except in connection with the termination of Executive’s employment for Cause, as a result of Permanent Disability, as a result of Executive’s death or by Executive other than for Good Reason);

(ii)A reduction by the Company in Executive’s Base Salary or any failure of the Company to reimburse Executive for material expenses described in Section 1.7;

(iii)The failure by the Company to obtain the specific assumption of this Agreement by any successor or assign of Company as provided for in Section 11 hereof;

(iv)Moving the principal offices of Company to a location outside of the Metropolitan New York Area; or

(v)Upon a Change of Control of Company (as such term is hereinafter defined).

(e)The following provisions shall apply in the event compensation provided in Section 4.1(a) becomes payable to the Executive:

(i)if the severance compensation provided for in subsection 4.1(a) above cannot be finally determined on or before the tenth day following such termination, the Company shall pay to the Executive on such day an estimate, as determined in good faith by the Company of the minimum amount of such compensation and shall pay the remainder of such compensation (together with interest at the Federal short-term rate provided in Section 1274(d)(7)(C)(1) of the Code) as soon as the amount thereof can be determined but in no event later than the thirtieth day after the Date of Termination. In the event the amount of the estimated payment exceeds the amount subsequently determined to have been due, such excess shall constitute a loan by the Company to the Executive payable on the fifth day after demand by the Company (together with interest at the Federal short-term rate provided in Section 1274(d)(7)(C)(1) of the Code).

(ii)If the payment of the Total Payments (as defined below) will be subject to the tax (the “Excise Tax”) imposed by Section 4999 of the Code, the Company shall pay the Executive on or before the tenth day following the Date of Termination, an additional amount (the “Gross-Up Payment”) such that the net amount retained by the

Executive, after deduction of any Excise Tax on Total Payments and any federal and state and local income tax and Excise Tax upon the payment provided for by this paragraph, shall be equal to the Total Payments. For purposes of determining whether any of the payments will be subject to the Excise Tax and the amount of such Excise Tax, (A) any payments or benefits received or to be received by the Executive in connection with a Change in Control of the Company or the Executive’s termination of employment, whether payable pursuant to the terms of Section 10 of this Agreement or any other plan, arrangement or agreement with the Company, its successors, any person whose actions result in a Change in Control of the Company or any corporation affiliated (or which, as a result of the completion of transaction causing such a Change in control, will become affiliated) with the Company within the meaning of Section 1504 of Code (the “Total Payments”) shall be treated as “parachute payments” within the meaning of Section 28OG(b)(2) of the Code, and all “excess parachute payments” within the meaning of Section 28OG(b)(1) shall be treated as subject to the Excise Tax, unless, in the opinion of tax counsel selected by the Company’s independent auditors and acceptable to the Executive, the Total Payments (in whole or in part) do not constitute parachute payments, or such excess parachute payments (in whole or in part) represent reasonable compensation for services actually rendered within the meaning of Section 28OG(b)(4) of the Code either in their entirety or in excess of the base amount within the meaning of Section 28OG(b)(3) of the Code, or are otherwise not subject to the Excise Tax, (B) the amount of the Total Payments that shall be treated as subject to the Excise Tax shall be equal to the lesser of (I) the total amount of the Total Payments or (II) the amount of excess parachute payments or benefit shall be determined by the Company’s independent auditors in accordance with the principles of Section 28OG(d)(3) and (4) of the Code. For purposes of determining the amount of the Gross-Up Payment, the Executive shall be deemed to pay federal income taxes at the highest marginal rate of federal income taxation in the calendar year in which the Gross-Up Payment is to be made and state and local income taxes at the highest marginal rate of taxation in the state and locality of the Executive’s residence an the Date of Termination, net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes. In the event the Excise Tax is subsequently determined to be less than the amount taken into account hereunder at the time of termination of the Executive’s employment, the Executive shall repay to the Company at the time the amount of such reduction in Excise Tax is finally determined the portion of the Gross-Up Payment that can be repaid such that

the Executive remains whole on an after-tax basis following such repayment (taking into account any reduction in income or excise taxes to the Executive from such repayment) plus interest on the amount of such repayment at the Federal short-term rate provided in Section 1274(d)(1)(C)(i) of the Code. In the event the Excise Tax is determined to exceed the amount taken into account hereunder at the time of the termination of the Executive’s employment (including by reason of any payment the existence or amount of which cannot be determined at the time of the Gross-Up Payment), the Company shall make an additional gross-up payment in respect of such excess (plus any interest payable with respect to such excess) at the time that the amount of such excess is finally determined.

4.6Permanent Disability.  If Executive becomes totally and permanently disabled (as defined in the Company’s disability benefit plan applicable to senior executive officers as in effect on the date thereof) (“Permanent Disability”), Company or Executive may terminate this Agreement on written notice thereof, and Executive shall receive or commence receiving, as soon as practicable:

(c)amounts payable pursuant to the terms of the disability insurance policy or similar arrangement which Company maintains for the Executive, if any, during the term hereof;

(d)the Compensation Payment which shall be paid to Executive as a cash lump sum within 30 days of such termination; and

(e)immediate vesting of all unvested stock options.

4.7Death.    In the event of Executive’s death during the term of his employment hereunder, Executive’s estate or designated beneficiaries shall receive or commence receiving, as soon as practicable in accordance with the terms of this Agreement:

(c)compensation equal to one year’s Base Salary (calculate by multiplying the average monthly Base Salary paid or accrued for the three full calendar months immediately such event, which shall be paid within 30 days of such termination;

(d)any death benefits provided under the Executive benefit programs, plans and practices in which the Executive has an interest, in accordance with their respective terms;

(e)the Compensation Payment which shall be paid to Executive’s estate as a cash lump sum within 30 days of such termination; and

(f)such other payments under applicable plans or programs to which Executive’s estate or designated beneficiaries are entitled pursuant to the terms of such plans or programs.

4.8Voluntary Termination by Executive: Discharge for Cause.The Company shall have the right to terminate this Agreement for Cause (as hereinafter defined). In the event that Executive’s employment is terminated by Company for Cause, as hereinafter defined, or by Executive other than for Good Reason or other than as a result of the Executive’s Permanent Disability or death, prior to the Termination Date, Executive shall be entitled only to receive, as a cash lump sum within 30 days of such termination, the Compensation Payment.  As used herein, the term “Cause” shall be limited to (a) willful malfeasance or willful misconduct by Executive in connection with the services to the Company in a matter of material importance to the conduct of the Company’s affairs which has a material adverse affect on the business of the Company, or (b) the conviction of Executive for commission of a felony.  For purposes of this subsection, no act or failure to act on the Executive’s part shall be considered “willful” unless done, or omitted to be done, by the Executive not in good faith and without reasonable belief that his action or omission was in the best interest of the Company.  Termination of this Agreement for Cause pursuant to this Section 4.4 shall be made by delivery to Executive of a copy of a resolution duly adopted by the affirmative vote of all of the members of the Board of Directors called and held for such purpose (after 30 days prior written notice to Executive and reasonable opportunity for Executive to be heard before the Board of Directors prior to such vote), finding that in the good faith business judgment of such Board of Directors, Executive was guilty of conduct set forth in any of clauses (a) through (b) above and specifying the particulars thereof.

5.Change In Control.

5.5Definition.       For purposes of this Agreement, a “Change in Control” shall be deemed to have occurred if (i) there shall be consummated (A) any consolidation or merger of the Company in which the Company is not the continuing or surviving corporation or pursuant to which shares of the Company’s Common Stock would be converted into cash, securities or other property, other than a merger of the Company in which the holders of the Company’s Common Stock immediately prior to the merger have substantially the same proportionate ownership of common stock of the surviving corporation immediately after the merger, or (B) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all or substantially all the assets of the Company, or (ii) the stockholders of the Company shall approve any plan or proposal for the liquidation or dissolution of the Company, or (iii) any person (as such term is used in Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934 (the “Exchange Act”)), other than the Company or any executive benefit plan sponsored by the Company, or such person on the Effective Date hereof is a 20% or more beneficial owner, shall become the beneficial owner (within the meaning of Rule 13d-3 under the Exchange Act) of securities of the Company representing

20% or more of the combined voting power of the Company’s then outstanding securities ordinarily (and apart from rights accruing in special circumstances) having the right to vote in the election of directors, as a result of a tender or exchange offer, open market purchases, privately negotiated purchases or otherwise, or (iv) at any time during a period of two consecutive years, individuals who at the beginning of such period, constituted the Board of Directors of the Company shall cease for any reason to constitute at least a majority thereof, unless the election or the nomination for election by the Company’s stockholders of each new director during such two-year period was approved by a vote of at least two-thirds of the directors then still in office, who were directors at the beginning of such two-year period.

5.6Rights and Obligations.            If a Change in Control of the Company shall have occurred while the Executive is director of the Company, the Executive shall be entitled to the compensation provided in Section 4.1 of this Agreement upon the subsequent termination of this Agreement by either the Company, or the Executive within two years of the date upon which the Change in Control shall have occurred, unless such termination is a result of (i) the Executive’s death; (ii) the Executive’s Disability; (iii) the Executive’s Retirement; or (iv) the Executive’s termination for Cause.

6.Assignment.       This Agreement shall be binding upon and inure to the benefit of the heirs and representatives of Executive and the assigns and successors of Company, but neither this Agreement nor any rights or obligations hereunder shall be assignable or otherwise subject to hypothecation by Executive (except by will or by operation of the laws of intestate succession or by Executive notifying the Company that cash payment be made to an affiliated investment partnership in which Executive is a control person) or by Company, except that Company may assign this Agreement to any successor (whether by merger, purchase or otherwise) to all or substantially all of the stock, assets or businesses of Company, if such successor expressly agrees to assume the obligations of Company hereunder.

7.Indemnification.

Executive, as such and as a Director of the Company, shall be indemnified by the Company against all liability incurred by the Executive in connection with any proceeding, including, but not necessarily limited to, the amount of any judgment obtained against Executive, the amount of any settlement entered into by the Executive and any claimant with the approval of the Company, attorneys’ fees, actually and necessarily incurred by him in connection with the defense of any action, suit, investigation or proceeding or similar legal activity, regardless of whether criminal, civil, administrative or investigative in nature (“Claim”), to which he is made a party or is otherwise subject to, by reason of his being or having been a director, officer, agent or employee of the Company, to the full extent permitted by applicable law and the Certificate of Incorporation of the Company..  Such right of indemnification will not be deemed exclusive of any other rights to which Executive may be entitled under Company’s Certificate of Incorporation or By-laws, as in effect from time to time, any agreement or otherwise.

8.General Provisions.

8.5Modification: No Waiver. No modification, amendment or discharge of this Agreement shall be valid unless the same is in writing and signed by all parties hereto. Failure of any party at any time to enforce any provisions of this Agreement or any rights or to exercise any elections hall in no way be considered to be a waiver of such provisions, rights or elections and shall in no way affect the validity of this Agreement. The exercise by any party of any of its rights or any of this elections under this Agreement shall not preclude or prejudice such party from exercising the same or any other right it may have under this Agreement irrespective of any previous action taken.

8.6Notices. All notices and other communications required or permitted hereunder or necessary or convenient in connection herewith shall be in writing and shall be deemed to have been given when hand delivered or mailed by registered or certified mail as follows (provided that notice of change of address shall be deemed given only when received):

If to the Company, to:

Callisto Pharmaceuticals, Inc.

420 Lexington Avenue, Suite 1609

New York, NY 10170

If to Executive, to:

Gary S. Jacob, Ph.D.

Or to such other names or addresses as the Company or Executive, as the case may be, shall designate by notice to each other person entitled to receive notices in the manner specified in this Section.

8.7Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York.

8.8Further Assurances. Each party to this Agreement shall execute all instruments and documents and take all actions as may be reasonably required to effectuate this Agreement.

8.9Severability. Should any one or more of the provisions of this Agreement or of any agreement entered into pursuant to this Agreement be determined to be illegal or unenforceable, then such illegal or unenforceable provision shall be modified by the proper court or arbitrator to the extent necessary and possible to make such provision enforceable, and such modified provision and all other provisions of this Agreement and of each other agreement entered into pursuant to this Agreement shall be given effect separately from the provisions or portion thereof determined to be illegal or unenforceable and shall not be affected thereby.

8.10Successors and Assigns. Executive may not assign this Agreement without the prior written consent of the Company. The Company may assign its rights without

the written consent of the executive, so long as the Company or its assignee complies with the other material terms of this Agreement. The rights and obligations of the Company under this Agreement shall inure to the benefit of and be binding upon the successors and permitted assigns of the Company, and the Executive’s rights under this Agreement shall inure to the benefit of and be binding upon his heirs and executors. The Company’s subsidiaries and controlled affiliates shall be express third party beneficiaries of this Agreement.

8.11Entire Agreement. This Agreement supersedes all prior agreements and understandings between the parties, oral or written. No modification, termination or attempted waiver shall be valid unless in writing, signed by the party against whom such modification, termination or waiver is sought to be enforced.

8.12Counterparts; Facsimile. This Agreement may be executed in one or more counterparts, each of which shall for all purposes be deemed to be an original, and all of which taken together shall constitute one and the same instrument. This Agreement may be executed by facsimile with original signatures to follow.

IN WITNESS WHEREOF, the undersigned, intending to be legally bound, have executed this Agreement as of the date first written above.

EXECUTIVE:	CALLISTO PHARMACEUTICALS, INC.
/s/ Gary S. Jacob	/s/ Bernard Denoyer
Gary S. Jacob, Ph.D.	Bernard Denoyer, Senior Vice President, Finance

EX-10.19

Exhibit 10.19

AMENDED AND RESTATED CONSULTING AGREEMENT

This AMENDED AND RESTATED CONSULTING AGREEMENT (the “Agreement”) is made and entered into as of the 11th day of March 2009 by and between Gabriele M. Cerrone (“Consultant”) and Callisto Pharmaceuticals, Inc., a Delaware corporation (the “Company”).

WHEREAS, the Consultant has and will continue to serve as a consultant and Chairman of the Board of Synergy Pharmaceuticals, Inc., a majority owned subsidiary of the Company (“Synergy”);

WHEREAS, the Consultant has previously entered into a consulting agreement with the Company as of December 27, 2004 and an extension and amendment agreement dated as of January 25, 2007 (collectively, the “Consulting Agreement”);

WHEREAS, the parties wish to amend and restate the Consulting Agreement between the Consultant and the Company in its entirety, on the terms and conditions contained in this Agreement;

NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

1.Purpose: The Company hereby engages Consultant for the term specified in Paragraph 2 hereof to render consulting advice to the Company relating to business development, corporate finance and capital markets matters upon the terms and conditions set forth herein.

2.Effective Date and Term:

2.1Effective Date.  This Agreement shall become effective as of August 1, 2008 (the “Effective Date”)

2.2Term.  Unless earlier terminated pursuant to Section 10 hereof, the term of this Agreement shall commence on the Effective Date and shall continue from the Effective Date to December 31, 2011 (the “Initial Term”).  This Agreement shall thereafter be automatically renewed for successive one year periods unless either party shall notify the other in writing of its intention not to renew this Agreement (a “Non-renewal Notice”), which notice shall be given at least 90 days prior to the end of the then current term (the “Expiration Date”).  The period from the Effective Date to the Expiration Date, including the Renewal Term, if any, is referred to herein as the “Term.”

3.Duties of Consultant:  During the term of this Agreement, the Consultant shall devote such portion of his business time and attention to affairs of the Company reasonably necessary to provide the Company with such regular and customary business development, strategic planning, capital markets and corporate finance consulting advice as is reasonably requested by the Company’s management and Board of Directors, provided that Consultant agress to spend at least 75% of his business time and attention to affairs of the Company and Synergy (such percentage to be measured over a rolling three (3) month period during the Term) and provided, further, Consultant shall not be required to undertake duties not reasonably within the scope of this Agreement.   So long as the Consultant serves as a member of the Company’s Board of Directors, Consultant shall serve as Chairman of the Board; provided, at the request of all of the members of the Board of Directors (not counting the Consultant), the Consultant will relinquish his title as Chairman to the Company’s duly appointed chief executive officer, and accept the title of Vice Chairman.

3.1.Permissible Services.      The Consultant’s services will include advising the Company’s Board of Directors and senior management on the following matters:

(i)in-licensing and out-licensing technologies and compounds;

(ii)capitalization and corporate organization of the Company;

(iii)structure and pricing of offerings of the Company’s securities in public and private transactions;

(iv)alternative uses of corporate assets;

(v)structure and use of debt;

(vi)application and maintenance of listing of the Company’s stock in securities exchanges and other appropriate markets;

(vii)strategic planning

(viii)management recruitment and compensation; and

(ix)presentations to institutional and professional individual investors in the U.S. and Europe.

3.2Prohibited Services.  The services to be rendered by the Consultant to the Corporation shall not (unless the Consultant is appropriately licensed, registered or there is an exemption available from such licensing or registration) include, directly or indirectly: any activities which require the Consultant to register as a broker-dealer under the Securities Exchange Act of 1934.

4.Compensation:  :

4.1.Base Compensation.

(a)           In consideration for the services rendered by Consultant to the Company pursuant to this Agreement, the Company agrees to pay Consultant the annual sum of $295,000 at the rate of $24,583.33 per month commencing on the Effective Date (“Base Compensation”). The Consultant’s Base Compensation may be increased, but not decreased by the Compensation Panel.  Once increased, such increased amount shall constitute the Consultant’s Base Compensation and shall not be decreased. The Company will include the shares of equity securities of the Company which may be issued upon the exercise of the options held by Consultant in any registration statement under the Securities Act of 1933 which includes securities issuable to any other executive officer of the Company.

(b)           It is expressly acknowledged that Consultant’s Base Compensation shall be allocated between the Company and Synergy, so that the aggregate Base Compensation payable to the Consultant during the Employment Term from the Company and Synergy will not exceed $295,000 (or such higher amount as is determined by the committee of Synergy’s and/or the Company’s Board of Directors empowered to fix or review compensation of the other executive officers of the Company (the “Compensation Panel”).  The current estimate of such allocation is that 75% of the Consultant’s Base Compensation shall be payable by Synergy and 25% of such Base Compensation shall be paid by the Company, however such allocation may change, no more frequently than once each fiscal quarter as determined in good faith by the Company’s Chief Financial Officer.  At any time if Synergy is not obligated to or does not pay its allocated share of Consultant’s Base Compensation, the Company shall pay Consultant’s Base Compensation in full, irrespective of any accounting allocation.   The overall cap of $295,000 shall not be diminished by any bonus or accelerated payment benefit given to Consultant by Synergy.

(c)           In the event Synergy is obligated to pay any item of compensation or reimburse expenses to Consultant under this Agreement, Synergy fails to do so and the Company makes payment to the Consultant pursuant to Section 4.1(b) of this Agreement, the Company shall be subrogated to all claims of the Consultant against Synergy arising from Synergy’s failure to make payment to the extent of such payments made to the Consultant.

4.2.Incentive Compensation.

(a)Annual Bonus.       Consultant shall be eligible to earn a cash bonus of up to 50% of his Base Compensation per full calendar year during the Term (and a pro rated bonus for the period from August 1, 2008 to December 31, 2008) based on meeting performance objectives and bonus criteria to be mutually identified by Consultant and the Compensation Panel.  Bonuses, if any, shall be subject to all applicable tax and payroll withholdings.

(b)Realization Bonus.

(i)            In the event during the Term of this Agreement the Company enters into either a out-license agreement for any technology relating to cancer or rheumatoid arthritis that grants exclusive marketing rights to a third party, engages in a merger transaction or a sale of substantially all of the assets of the Company that relate to the treatment of cancer or rheumatoid arthritis or enters into a joint venture in which the Company contributes such rights to the joint venture, in each case where the Enterprise Value (defined below) equals or exceeds the minimum value of $150 million, $200 million and $250 million in the first, second, third years of the Term or any years beyond the third year of the Term, respectively, (each, a “ Realization Transaction”) and, in the case of a financing transaction, the Company receives not less than $20 million of gross proceeds; or the license fees the Company contracts to receive (disregarding any contingencies to such payment) equal or exceeds $50 million, the Consultant shall accrue a bonus in an amount determined by multiplying the Enterprise Value (defined below) in the case of a merger, sale, or financing or the sum of the license fees actually received, in the case of an out-license, as the case may be, by 0.5% (one half percent).

(ii)           The accrued bonuses shall be payable to Consultant: (a) in cash in full 5 business days after the closing of any Realization Transaction involving a sale or merger or financing, notwithstanding that the consideration for such merger or sale consists in whole or in part of securities of the acquiring company; or (b) in cash 5 full business days after the Company’s receipt of license fees at the rate of 0.5% of license fees actually received.  The expiration or termination of this Agreement shall not terminate or diminish the Consultant’s right to receive bonus payments with respect to out licenses fees collected after the termination or expiration of this Agreement

(iii)          The “Enterprise Value” in the case of a Change in Control in which consideration is payable to the Company in respect of its assets or business, shall mean the total cash and non-cash (including, without limitation, the assumption of debt) consideration received by the Company or in the case of a Change in Control in which consideration is payable to the Company’s stockholders, the total cash and

non-cash (including, without limitation, the assumption of debt) consideration payable to the Company’s stockholders. “Enterprise Value” shall also include, if applicable, any cash or non-cash consideration payable to the Company or to the Company’s stockholders on a contingent, earnout or deferred basis. To the extent that any consideration in a transaction is not received in cash upon the consummation of the Change in Control, the value of such non-cash consideration for purposes of calculating the Enterprise Value will be determined by the Board of Directors of the Company prior to the Change in Control in good faith. In the event that less than 100% of the stock or assets of the Company is purchased in the Change in Control transaction, the Enterprise Value shall be extrapolated from the percentage of the Company’s capital stock or assets impacted in such Change in Control transaction to determine if the $400 million threshold was exceeded, but the Transaction Fee shall be calculated based on the actual consideration received by the Company or shareholders, as the case may be. Section 4.2(b)(i), however, shall not apply to any event resulting in a Change in Control in which neither the Company nor its stockholders receives consideration either upon, or in connection with, the occurrence or consummation of the event resulting in a Change in Control.

(iv)          The Enterprise Value in a financing transaction shall be determined on the basis of the pre-money valuation of the Company for financing purposes, provided the Realization Bonus shall accrue in full but only be payable to the extent of 3% of the gross proceeds received by the Company in the financing.

(c)Options.        The Compensation Panel will consider grants of options to the Consultant no less frequently than annually commencing February 1, 2010.

5.Expenses and Services:

5.1Consultant is authorized to incur reasonable expenses in carrying out his duties and responsibilities under this Agreement, including, without limitation, expenses for travel (at the fare class no less favorable than that of other executive officers of the Company), cellular telephone (including access charges and business calls), electronic market data services consisting of a full office-based and portable Bloomberg information services, the cost associated with accessing office facilities and administrative assistance outside of the Company’s principal executive offices at such times that the Consultant is attending to matters within the scope of this Agreement and business entertainment.  Additionally, the Consultant is authorized to incur reasonable expenses for the attendance of conferences in fields relate to technology of interest

to the Company, finance of biotechnology ventures, and similar events related to Consultant’s duties and responsibilities as Consultant deems necessary.  Company will reimburse Consultant for all such expenses upon presentation by Consultant of appropriately itemized accounts of such expenditures or the Company will pay such expenses directly.

5.2During the Term, the Company will at its sole expense provide the Consultant with computing hardware and software tools, office facilities and qualified, access to Company information and financial records and an experienced administrative assistant and such legal and accounting support services as is deemed appropriate by the Consultant.  Such services and facilities will not be diminished without the Consultant’s prior consent.

5.3In the event this Agreement is terminated other than for Cause or voluntarily by the Consultant, the Company, in addition to any other termination benefit, will make a lump sum payment to Consultant equal to the amount of reimbursable expenses accrued for the services and accommodations set forth in Sections 5.1 and 5.2 during the 12 full calendar months preceding the date of termination.  In the event 12 full calendar months of the Term shall not have elapsed as of the date of termination, the lump sum payment shall equal the average monthly expenses accrued for the full calendar months of the Term completed as of the date of termination times 12.  Such lump sum payments shall be made no later than 30 days after termination. In the event of a disagreement between the Company as to the amount of such lump sum payment, the Company shall pay the amount as to which there is no dispute, pending the settlement of any amounts as to which there is a dispute.

6.Liability of Consultant:  The Company acknowledges that all opinions and advice (written or oral) given by Consultant to the Company in connection with Consultant’s engagement are intended solely for the benefit and use of the Company in considering the transaction to which they relate, and the Company agrees that no person or entity other than the Company shall be entitled to make use of or rely upon the advice of Consultant to be given hereunder, and no such opinion or advice shall be used for any other purpose or reproduced, disseminated, quoted or referred to at any time, in any manner or for any purpose, nor may the Company make any public references to Consultant, or use Consultant’s name in any annual reports or any other reports or releases of the Company without Consultant’s prior written consent.  Consultant’s maximum liability shall not exceed the cash compensation received from the Company.

7.Consultant’s Services to Others:  The Company acknowledges that Consultant and its affiliates are in the business of investing and providing financial services and consulting advice to others.  Nothing herein contained shall be construed to limit or restrict Consultant in conducting such business with respect to others, or in rendering such advice to others.

8.Company Information:

a.             The Company recognizes and confirms that, in advising the Company and in fulfilling his engagement hereunder, Consultant will use and rely on data, material and other information furnished to Consultant by the Company.  The Company acknowledges and agrees that in performing his services under this engagement, Consultant may rely upon the data, material and other information supplied by the Company without independently verifying the accuracy, completeness or veracity of same.  The Company agrees to notify Consultant in writing via overnight courier, facsimile or e-mail of any material event and/or change with in twenty-four hours of its occurrence.

b.             Consultant recognizes and acknowledges that by reason of Consultant’s retention by and service to the Company before, during and, if applicable, after the Term, Consultant will have access to certain confidential and proprietary information relating to the Company’s business, which may include, but is not limited to, trade secrets, trade “know-how,” product development techniques and plans, formulas, customer lists and addresses, financing services, funding programs, cost and pricing information, marketing and sales techniques, strategy and programs, computer programs and software and financial information relating to the field of in which the Company is actually engaged in research, development, collaboration or sales at the time of such disclosure (collectively referred to as “Confidential Information”).  Consultant acknowledges that such Confidential Information is a valuable and unique asset of the Company and Consultant covenants that it will not, unless expressly authorized in writing by the Company, at any time during the Consulting Term use any Confidential Information or divulge or disclose any Confidential Information to any person, firm or corporation except in connection with the performance of Consultant’s duties for the Company and in a manner consistent with the Company’s policies regarding Confidential Information.  Consultant also covenants that at any time after the termination of this Agreement, directly or indirectly, it will not use any Confidential Information or divulge or disclose any Confidential Information to any person, firm or corporation, unless such information is in the public domain through no fault of Consultant or except when required to do so by a court of law, by any governmental agency having supervisory authority over the business of the Company or by any administrative or legislative body (including a committee thereof) with apparent jurisdiction to order Consultant to divulge, disclose or make accessible such information.  All written Confidential Information (including, without limitation, in any computer or other electronic format) which comes into Consultant’s possession during the Consulting Term shall remain the

property of the Company.  Except as required in the performance of Consultant’s duties for the Company, or unless expressly authorized in writing by the Company, Consultant shall not remove any written Confidential Information from the Company’s premises, except in connection with the performance of Consultant’s duties for the Company and in a manner consistent with the Company’s policies regarding Confidential Information.  Upon termination of this Agreement, the Consultant agrees to return immediately to the Company all written Confidential Information (including, without limitation, in any computer or other electronic format) in Consultant’s possession.

9.Consultant an Independent Contractor:  Consultant shall perform its services hereunder as an independent contractor and not as an employee of the Company or an affiliate thereof.  It is expressly understood and agreed to by the parties hereto that Consultant shall have no authority to act for, represent or bind the Company or any affiliate thereof in any manner, except as may be agreed to expressly by the Company in writing from time to time.

10.Termination:

10.1Termination Without Cause or for Good Reason.

(a)If this Agreement is terminated by the Company other than for Cause (as defined in Section 10.4 hereof) or as a result of Consultant’s death or Permanent Disability (as defined in Section 10.2 hereof), or if Consultant terminates his employment for Good Reason (as defined in Section 10.1 (b) hereof) prior to the Expiration Date, Consultant shall receive or commence receiving as soon as practicable in accordance with the terms of this Agreement:

(i)a severance payment (the “Severance Payment”), which amount shall be paid in a cash lump sum within ten (10) days of the date of termination, in an amount equal to the higher of the aggregate amount of the Consultant’s Base Compensation for the then remaining term of this Agreement or twelve times the average monthly Base Compensation paid or accrued during the three full months immediately preceding such termination;

(ii)expense compensation, which shall be paid in a lump sum payment within ten (10) days of the date of termination, in an amount equal to twelve times the sum of average monthly cost during the three full months immediately preceding such termination of providing the services to Consultant set forth in Section 5.1 and Consultant’s reimbursed expenses set forth in Section 5.2;

(ii)immediate vesting of all unvested stock options and the extension of the exercise period of such options to the later of the longest period permitted by the Company’s stock option plans or ten years following the Termination Date;

(iii)payment in respect of compensation earned but not yet paid (the “Compensation Payment”) which amount shall be paid in a cash lump sum within ten (10) days of the date of termination; and

(iv)payment of the cost of comprehensive medical insurance for consultant for a period of twelve months following the termination.

(b)For purposes of this Agreement, “Good Reason” shall mean any of the following (without Consultant’s express prior written consent):

(i)Any material breach by Company of any provision of this Agreement, including any material reduction by Company of Consultant’s duties or responsibilities (except in connection with the termination of Consultant’s employment for Cause, as a result of Permanent Disability, as a result of Consultant’s death or by Consultant other than for Good Reason);

(ii)A reduction by the Company in Consultant’s Base Compensation or any failure of the Company to reimburse Consultant for material expenses described in Section 5.1 or provide the services described in Section 5.2 of this Agreement;

(iii)The failure by the Company to obtain the specific assumption of this Agreement by any successor or assign of Company as provided for in Section 11 hereof;

(iv)Moving the principal offices of Company to a location outside of the Metropolitan New York Area; or

(v)Upon a Change of Control of Company (as such term is hereinafter defined).

(c)The following provisions shall apply in the event compensation provided in Section 10.1 (a) becomes payable to the Consultant:

(i)In the event the severance compensation provided for in subsection 10.1(a)  above cannot be finally determined on or before the tenth day following such termination, the

Company shall pay to the Consultant on such day an estimate, as determined in good faith by the Company of the minimum amount of such compensation and shall pay the remainder of such compensation (together with interest at the Federal short-term rate provided in Section 1274(d)(7)(C)(1) of the Code) as soon as the amount thereof can be determined but in no event later than the thirtieth day after the Date of Termination. In the event the amount of the estimated payment exceeds the amount subsequently determined to have been due, such excess shall constitute a loan by the Company to the Consultant payable on the fifth day after demand by the Company (together with interest at the Federal short-term rate provided in Section 1274(d)(7)(C)(1) of the Code).

(ii)If the payment of the Total Payments (as defined below) will be subject to the tax (the “Excise Tax”) imposed by Section 4999 of the Code, the Company shall pay the Consultant on or before the tenth day following the Date of Termination, an additional amount (the “Gross-Up Payment”) such that the net amount retained by the Consultant, after deduction of any Excise Tax on Total Payments and any federal and state and local income tax and Excise Tax upon the payment provided for by this paragraph, shall be equal to the Total Payments. For purposes of determining whether any of the payments will be subject to the Excise Tax and the amount of such Excise Tax, (A) any payments or benefits received or to be received by the Consultant in connection with a Change in Control of the Company or the Consultant’s termination of employment, whether payable pursuant to the terms of Section 10 of this Agreement or any other plan, arrangement or agreement with the Company, its successors, any person whose actions result in a Change in Control of the Company or any corporation affiliated (or which, as a result of the completion of transaction causing such a Change in control, will become affiliated) with the Company within the meaning of Section 1504 of Code (the “Total Payments”) shall be treated as “parachute payments” within the meaning of Section 28OG(b)(2) of the Code, and all “excess parachute payments” within the meaning of Section 28OG(b)(1) shall be treated as subject to the Excise Tax, unless, in the opinion of tax counsel selected by the Company’s independent auditors and acceptable to the Consultant, the Total Payments (in whole or in part) do not constitute parachute payments, or such excess parachute payments (in whole or in part) represent reasonable

compensation for services actually rendered within the meaning of Section 28OG(b)(4) of the Code either in their entirety or in excess of the base amount within the meaning of Section 28OG(b)(3) of the Code, or are otherwise not subject to the Excise Tax, (B) the amount of the Total Payments that shall be treated as subject to the Excise Tax shall be equal to the lesser of (I) the total amount of the Total Payments or (II) the amount of excess parachute payments or benefit shall be determined by the Company’s independent auditors in accordance with the principles of Section 28OG(d)(3) and (4) of the Code. For purposes of determining the amount of the Gross-Up Payment, the Consultant shall be deemed to pay federal income taxes at the highest marginal rate of federal income taxation in the calendar year in which the Gross-Up Payment is to be made and state and local income taxes at the highest marginal rate of taxation in the state and locality of the Consultant’s residence an the Date of Termination, net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes. In the event the Excise Tax is subsequently determined to be less than the amount taken into account hereunder at the time of termination of the Consultant’s employment, the Consultant shall repay to the Company at the time the amount of such reduction in Excise Tax is finally determined the portion of the Gross-Up Payment that can be repaid such that the Consultant remains whole on an after-tax basis following such repayment (taking into account any reduction in income or excise taxes to the Consultant from such repayment) plus interest on the amount of such repayment at the Federal short-term rate provided in Section 1274(d)(1)(C)(i) of the Code. In the event the Excise Tax is determined to exceed the amount taken into account hereunder at the time of the termination of the Consultant’s employment (including by reason of any payment the existence or amount of which cannot be determined at the time of the Gross-Up Payment), the Company shall make an additional gross-up payment in respect of such excess (plus any interest payable with respect to such excess) at the time that the amount of such excess is finally determined.

10.2Permanent Disability.If Consultant becomes totally and permanently disabled (as defined in the Company’s disability benefit plan applicable to senior executive officers as in effect on the date thereof) (“Permanent Disability”), Company or Consultant may terminate this Agreement

on written notice thereof, and Consultant shall receive or commence receiving, as soon as practicable:

(i)amounts payable pursuant to the terms of the disability insurance policy or similar arrangement which Company maintains for the Consultant, if any, during the term hereof;

(ii)the Compensation Payment which shall be paid to Consultant as a cash lump sum within 30 days of such termination; and

(iii)immediate vesting of all unvested stock options.

10.3Death.In the event of Consultant’s death during the term of his employment hereunder, Consultant’s estate or designated beneficiaries shall receive or commence receiving, as soon as practicable in accordance with the terms of this Agreement:

(i)compensation equal to one year’s Base Compensation which shall be paid within 30 days of such termination;

(ii)any death benefits provided under the Consultant benefit programs, plans and practices in which the Consultant has an interest, in accordance with their respective terms;

(iii)the Compensation Payment which shall be paid to Consultant’s estate as a cash lump sum within 30 days of such termination; and

(iv)such other payments under applicable plans or programs to which Consultant’s estate or designated beneficiaries are entitled pursuant to the terms of such plans or programs.

10.4Voluntary Termination by Consultant: Discharge for Cause.       The Company shall have the right to terminate this Agreement for Cause (as hereinafter defined). In the event that Consultant’s employment is terminated by Company for Cause, as hereinafter defined, or by Consultant other than for Good Reason or other than as a result of the Consultant’s Permanent Disability or death, prior to the Termination Date, Consultant shall be entitled only to receive, as a cash lump sum within 30 days of such termination, the Compensation Payment.  As used herein, the term “Cause” shall be limited to (i) willful malfeasance or willful misconduct by Consultant in connection with the services to the Company in a matter of material importance to the conduct of the Company’s affairs which has a material adverse affect on the business of the Company, or (ii) the conviction of Consultant for commission of a felony.  For purposes of this subsection, no act or failure to act on the Consultant’s part shall be considered “willful” unless done, or omitted to be done, by the Consultant not in good faith

and without reasonable belief that his action or omission was in the best interest of the Company.  Termination of this Agreement pursuant to this Section 10.4 shall be made by delivery to Consultant of a copy of a resolution duly adopted by the affirmative vote of all of the members of the Board of Directors called and held for such purpose (after 30 days prior written notice to Consultant and reasonable opportunity for Consultant to be heard before the Board of Directors prior to such vote), finding that in the good faith business judgment of such Board of Directors, Consultant was guilty of conduct set forth in any of clauses (i) through (ii) above and specifying the particulars thereof.

11.Assignment:

This Agreement shall be binding upon and inure to the benefit of the heirs and representatives of Consultant and the assigns and successors of Company, but neither this Agreement nor any rights or obligations hereunder shall be assignable or otherwise subject to hypothecation by Consultant (except by will or by operation of the laws of intestate succession or by Consultant notifying the Company that cash payment be made to an affiliated investment partnership in which Consultant is a control person) or by Company, except that Company may assign this Agreement to any successor (whether by merger, purchase or otherwise) to all or substantially all of the stock, assets or businesses of Company, if such successor expressly agrees to assume the obligations of Company hereunder.

12.Change In Control:

12.1Definition.For purposes of this Agreement, a “Change in Control” shall be deemed to have occurred if (i) there shall be consummated (A) any consolidation or merger of the Company in which the Company is not the continuing or surviving corporation or pursuant to which shares of the Company’s Common Stock would be converted into cash, securities or other property, other than a merger of the Company in which the holders of the Company’s Common Stock immediately prior to the merger have substantially the same proportionate ownership of common stock of the surviving corporation immediately after the merger, or (B) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all or substantially all the assets of the Company, or (ii) the stockholders of the Company shall approve any plan or proposal for the liquidation or dissolution of the Company, or (iii) any person (as such term is used in Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934 (the “Exchange Act”)), other than the Company or any Consultant benefit plan sponsored by the Company, or such person on the Effective Date hereof is a 20% or more beneficial owner, shall become the beneficial owner (within the meaning of Rule 13d-3 under the Exchange Act) of securities of the Company representing 20% or more of the combined voting power of the Company’s then outstanding securities ordinarily (and apart from rights accruing in special circumstances) having the right to vote in the election of directors, as a result of a tender or exchange offer, open market purchases, privately negotiated purchases or

otherwise, or (iv) at any time during a period of two consecutive years, individuals who at the beginning of such period, constituted the Board of Directors of the Company shall cease for any reason to constitute at least a majority thereof, unless the election or the nomination for election by the Company’s stockholders of each new director during such two-year period was approved by a vote of at least two-thirds of the directors then still in office, who were directors at the beginning of such two-year period.

12.2Rights and Obligations.If a Change in Control of the Company shall have occurred while the Consultant is director of the Company, the Consultant shall be entitled to the compensation provided in Section 10.1 of this Agreement upon the subsequent termination of this Agreement by either the Company, or the Consultant within two years of the date upon which the Change in Control shall have occurred, unless such termination is a result of (i) the Consultant’s death; (ii) the Consultant’s Disability; (iii) the Consultant’s Retirement; or (iv) the Consultant’s termination for Cause.

13.Indemnification:

Consultant, as such and as a Director of the Company, shall be indemnified by the Company against all liability incurred by the Consultant in connection with any proceeding, including, but not necessarily limited to, the amount of any judgment obtained against Consultant, the amount of any settlement entered into by the Consultant and any claimant with the approval of the Company, attorneys’ fees, actually and necessarily incurred by him in connection with the defense of any action, suit, investigation or proceeding or similar legal activity, regardless of whether criminal, civil, administrative or investigative in nature (“Claim”), to which he is made a party or is otherwise subject to, by reason of his being or having been a director, officer, agent or employee of the Company, to the full extent permitted by applicable law and the Certificate of Incorporation of the Company.  Such right of indemnification will not be deemed exclusive of any other rights to which Consultant may be entitled under Company’s Certificate of Incorporation or By-laws, as in effect from time to time, any agreement or otherwise.

14.Miscellaneous:

(a)This Agreement between the Company and Consultant constitutes the entire agreement and understanding of the parties hereto, and supersedes any and all previous agreements and understandings, whether oral or written, between the parties with respect to the matters set forth herein.

(b)Any notice or communication permitted or required hereunder shall be in writing and shall be deemed sufficiently given if hand-delivered or sent (i) postage prepaid by registered mail, return receipt requested, or (ii) by

facsimile, to the respective parties as set forth below, or to such other address as either party may notify the other in writing.

If to the Company, to:	Callisto Pharmaceuticals, Inc.
	420 Lexington Avenue, Suite 1609
	New York, New York 10170
	Attention: Gary S. Jacob, CEO
If to Consultant, to:	Gabriele M. Cerrone
	c/o Panetta Partners Ltd.
	1275 First Avenue, Suite 296
	New York, New York 10021
	Attention: Gabriele M. Cerrone, Managing Partner
	With a required copy to:
	Sommer & Schneider LLP
	595 Stewart Avenue, Suite 710
	Garden City, NY 11530
	Attention: Herb Sommer, Partner

(c)This Agreement may be executed in any number of counterparts, each of whom together shall constitute one and the same original document.

(d)This Agreement may not be changed orally, but only by an agreement in writing signed by the party against whom any waiver, change, amendment, modification or discharge is sought.

(e)The invalidity of all or any part of any provision of this Agreement shall not render invalid the remainder of this Agreement or the remainder of such provision.  If any provision of this Agreement is so broad as to be unenforceable, such provision shall be interpreted to be only so broad as is enforceable.

(f)This Agreement shall be governed by and construed in accordance with the law of the State of New York without giving effect to the principles of conflicts of law thereof.  The parties hereto each hereby submits herself or itself for the sole purpose of this Agreement and any controversy arising hereunder to the exclusive jurisdiction of the state courts in the State of New York.

(d)Any amounts due hereunder to Consultant which remain unpaid after their due date, shall bear interest from the due date until paid at a rate of the prime rate (in effect on the date thereof for Citibank).

(e)The Company’s obligations to make payments under Section 10 and 12 shall survive termination or expiration of this Agreement.

(f)Consultant shall not be required to mitigate damages or the amount of any payment provided for under this Agreement by seeking other employment or otherwise after the termination of this Agreement.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed, as of the date first above written.

CONSULTANT
/s/ Gabriele M. Cerrone
Gabriele M. Cerrone
CALLISTO PHARMACEUTICALS, INC.
By:	/s/ Gary S. Jacob
	Name: Gary S. Jacob
	Title: CEO

EX-21

Exhibit 21

Synergy Pharmaceuticals, Inc., a Florida corporation

Callisto Research Labs, LLC, a Delaware limited liability company

Callisto Pharma GmbH, a German corporation

IgX, Ltd., an Ireland corporation

EX-23

Exhibit 23

Consent of Independent Registered Public Accounting Firm

Callisto Pharmaceuticals, Inc.

New York, New York

We hereby consent to the incorporation by reference in the Registration Statements on Form S­8 (Nos. 333-119648 and 333-130716) of Callisto Pharmaceuticals, Inc. and Subsidiaries (a development stage company) of our report dated April 15, 2009, relating to the consolidated financial statements, which appear in this Form 10-K.  Our report contains an explanatory paragraph regarding the Company’s ability to continue as a going concern.

/s/BDO Seidman, LLP

New York, NY

April 15, 2009

EX-31.1

QuickLinks -- Click here to rapidly navigate through this document

EXHIBIT 31.1

CERTIFICATION

I, Gary S. Jacob, certify that:

1.

I have reviewed this annual report on Form 10-K of Callisto Pharmaceuticals, Inc. (the "Registrant");

2.

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

3.

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

4.

The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a.

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

b.

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c.

Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d.

Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.

The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a.

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial; and

b.

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

April 15, 2009 /s/ GARY S. JACOB
Gary S. Jacob
Chief Executive Officer

QuickLinks

EXHIBIT 31.1

CERTIFICATION

EX-31.2

QuickLinks -- Click here to rapidly navigate through this document

EXHIBIT 31.2

CERTIFICATION

I, Bernard Denoyer, certify that:

1.

I have reviewed this annual report on Form 10-K of Callisto Pharmaceuticals, Inc. (the "Registrant");

2.

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

3.

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

4.

The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a.

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

b.

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c.

Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d.

Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.

The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a.

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b.

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

April 15, 2009 /s/ BERNARD DENOYER
Bernard Denoyer
Senior Vice President, Finance

QuickLinks

EXHIBIT 31.2

CERTIFICATION

EX-32.1

QuickLinks -- Click here to rapidly navigate through this document

EXHIBIT 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

        In connection with the Annual Report of Callisto Pharmaceuticals, Inc. (the "Company") on Form 10-K for the year ended December 31, 2008 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Gary S. Jacob, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

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

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

April 15, 2009 /s/ GARY S. JACOB
Gary S. Jacob
Chief Executive Officer

QuickLinks

EXHIBIT 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

EX-32.2

QuickLinks -- Click here to rapidly navigate through this document

EXHIBIT 32.2

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

        In connection with the Annual Report of Callisto Pharmaceuticals, Inc. (the "Company") on Form 10-K for the year ended December 31, 2008 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Bernard Denoyer, Senior Vice President, Finance of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

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

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

April 15, 2009 /s/ BERNARD DENOYER
Bernard Denoyer
Senior Vice President, Finance

QuickLinks

EXHIBIT 32.2

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002