UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ____________________  FORM 10-Q  (Mark One)  XQUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934  For quarterly period ended September 30, 2010  ___        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 000-28790   PHYTOMEDICAL TECHNOLOGIES, INC. (Exact name of registrant as specified in its charter)  Nevada
     87-0429962(State or other jurisdiction of
     (I.R.S. Employerincorporation or organization)
     Identification No.)100 Overlook Drive, 2nd FloorPrinceton, New Jersey
     08540(Address of principal executive offices)
     (Zip Code)
  (800) 611-3388 (Registrants telephone number, including area code)  Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports),and (2) has been subject to such filing requirements for the past 90 days.  YesTNoo. Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes    No  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 the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.  Large accelerated filer
     
     
     Accelerated filer
     Non-accelerated filer (Do not check if a smaller reporting company)
     
     
     Smaller reporting company
     x


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Indicate by check mark whether the registrant is a shell company (as defined in 12b-2 of the Exchange Act.)  YesTNo . Indicate the number of shares outstanding of each of the issuers classes of common stock, as of the latest practicable date: On October 20, 2010 there were 241,487,995 shares of common stock, par value $0.00001 outstanding.


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PHYTOMEDICAL TECHNOLOGIES, INC. FORM 10-Q  For the Quarterly Period Ended September 30, 2010  Table of Contents    PART I    FINANCIAL INFORMATION  Item 1. Consolidated Financial Statements (Unaudited)Consolidated Balance Sheets (Unaudited)
     3Consolidated Statements of Operations (Unaudited)
     4Consolidated Statements of Stockholders Equity (Deficit) (Unaudited)
     5Consolidated Statements of Cash Flows (Unaudited)
     6Notes to Consolidated Financial Statements (Unaudited)
     7Item 2.
     Management's Discussion and Analysis of Financial Condition and Results of Operations
     20Item 4.
     Controls and Procedures
     32PART II OTHER INFORMATIONItem 1.
     Legal Proceedings
     33Item 2.
     Unregistered Sales of Equity Securities and Use of Proceeds
     33Item 3.
     Defaults Upon Senior Securities
     33Item 4.
     Submission of Matters to a Vote of Security Holders
     33Item 5.
     Other Information
     33Item 6.
     Exhibits
     33SignaturesCertifications
  
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PART IFINANCIAL INFORMATION  Item 1. Consolidated Financial Statements (Unaudited)  PHYTOMEDICAL TECHNOLOGIES, INC.CONSOLIDATED BALANCE SHEETSSEPTEMBER 30, 2010 AND DECEMBER 31, 2009(Expressed in U.S. Dollars)(Unaudited)September 30,
     
     Decenber 31,2010
     
     2009ASSETSCurrent assetsCash and cash equivalents
     $
     151,074
     $
     75,291Note receivable
     
     30,000
     
     -Prepaid expenses and other current assets
     
     6,854
     
     278Total current assets
     
     187,928
     
     75,569Intangible assets - license fees
     
     -
     
     15,000Total assets
     $
     187,928
     $
     90,569LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)Current liabilitiesAccounts payable
     $
     77,237
     $
     19,112Interest payable
     
     1,975
     
     307,223Notes payable
     
     -
     
     750,000Convertible note payable, net of unamortized discount of $37,173 and $0
     
     2,827
     
     -Accrued payroll liabilities
     
     30,277
     
     -Total current liabilities
     
     112,316
     
     1,076,335Long term liabilitiesConvertible note payable, net of unamortized discount of $1,067,496 and $0
     
     31
     
     -Interest payable
     
     52,952
     
     -Total long term liabilities
     
     52,983
     
     -Total liabilities
     
     165,299
     
     1,076,335Commitments and ContingenciesStockholders' equity (deficit)Preferred stock: $0.25 par value; 1,000,000 authorized, no shares issued and 
outstanding at September 30, 2010 and December 31, 2009
     
     -
     
     -Common stock: $0.00001 par value; 2,000,000,000 authorized, 
241,487,995 and 201,487,995 shares issued and outstanding at September 30, 2010 and December 31, 2009, respectively
     
     2,415
     
     2,015Additional paid-in capital
     
     23,998,218
     
     25,152,591Accumulated deficit
     
     (23,978,004)
     
     (26,140,372)Total stockholders' equity (deficit)
     
     22,629
     
     (985,766)Total liabilities and stockholders' equity (deficit)
     $
     187,928
     $
     90,569(The accompanying notes are an integral part of these consolidated financial statements)
  
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PHYTOMEDICAL TECHNOLOGIES, INC.CONSOLIDATED STATEMENTS OF OPERATIONSFOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2010 AND 2009(Expressed in U.S. Dollars)(Unaudited)Three Months Ended
     
     Nine Months EndedSeptember 30,
     
     September 30,2010
     
     2009
     
     2010
     
     2009Revenue
     $
     -
     $
     -
     $
     -
     $
     -Operating expense (income)Director and management fees - related party
     
     18,000
     
     1,900
     
     32,950
     
     5,100Investor relations and marketing
     
     8,425
     
     1,125
     
     16,187
     
     2,533Wages and benefits
     
     -
     
     63,806
     
     (2,566,368)
     
     198,487Research and development
     
     4,964
     
     60,110
     
     8,764
     
     92,849Professional fees
     
     66,662
     
     34,643
     
     226,992
     
     107,974Impairment of license fee
     
     15,000
     
     -
     
     15,000
     
     -Other operating expenses
     
     (125)
     
     29,918
     
     36,268
     
     34,630Total operating expense (income)
     
     112,926
     
     191,502
     
     (2,230,207)
     
     441,573Income (loss) from operations
     
     (112,926)
     
     (191,502)
     
     2,230,207
     
     (441,573)Other income (expense)Interest expense
     
     (26,379)
     
     (16,068)
     
     (68,090)
     
     (47,682)Interest income
     
     251
     
     -
     
     251
     
     -Change in fair value of warrant liability
     
     -
     
     6,744
     
     -
     
     (93,910)Gain on extinguishment of warrant liability
     
     -
     
     52,631
     
     -
     
     52,631Loss on dissolution of foreign subsidiary
     
     -
     
     -
     
     -
     
     (523)Total other income (expense)
     
     (26,128)
     
     43,307
     
     (67,839)
     
     (89,484)Net income (loss)
     $
     (139,054)
     $
     (148,195)
     $
     2,162,368
     $
     (531,057)Net income (loss) per share - basic
     $
     (0.00)
     $
     (0.00)
     $
     0.01
     $
     (0.00)Net income (loss) per share - diluted
     $
     (0.00)
     $
     (0.00)
     $
     0.01
     $
     (0.00)Weighted average number of common shares outstandingBasic
     
     241,487,995
     
     200,410,135
     
     221,121,695
     
     200,402,282Dilutive
     
     241,487,995
     
     200,410,135
     
     334,443,763
     
     200,402,282(The accompanying notes are an integral part of these consolidated financial statements)
  
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PHYTOMEDICAL TECHNOLOGIES, INC.CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2010 AND THE YEAR ENDED DECEMBER 31, 2009(Expressed in U.S. Dollars)(Unaudited)Accumulated Other
     
     
     
     
     
     TotalCommon Stock
     
     Additional
     
     Comprehensive
     
     Accumulated
     
     Comprehensive
     
     Stockholders'Shares
     
     Amount
     
     Paid-in Capital
     
     Income (Loss)
     
     Deficit
     
     Income (Loss)
     
     Equity (Deficit)Balance, December 31, 2008
     200,398,290
     
     $ 2,004
     
     $ 26,285,899
     
     $ (523)
     
     $  (26,621,157)
     
     $ -
     
     $ (333,777)Cumulative adjustment upon adoption of ASC 815-40
     -
     
     -
     
     (1,198,679)
     
     -
     
     1,174,576
     
     -
     
     (24,103)Extinguishment of warrant liability
     1,089,705
     
     11
     
     65,371
     
     -
     
     -
     
     -
     
     65,382Comprehensive income (loss)Loss on dissolution of foreign subsidiary
     -
     
     -
     
     -
     
     523
     
     -
     
     523
     
     523Net loss, year ended December 31, 2009
     -
     
     -
     
     -
     
     -
     
     (693,791)
     
     (693,791)
     
     (693,791)Total comprehensive loss
     
     
     
     
     
     
     
     
     
     
     (693,268)Balance, December 31, 2009
     201,487,995
     
     2,015
     
     25,152,591
     
     -
     
     (26,140,372)
     
     
     
     (985,766)Stock based compensation expense
     -
     
     -
     
     12,768
     
     -
     
     -
     
     -
     
     12,768Reversal of stock based compensation due to forfeiture of
 stock options
     -
     
     -
     
     (2,674,268)
     
     -
     
     -
     
     -
     
     (2,674,268)Beneficial conversion feature on convertible notes payable
     -
     
     -
     
     1,107,527
     
     -
     
     -
     
     -
     
     1,107,527Issuance of common stock related to the 2010 Offering
     40,000,000
     
     400
     
     399,600
     
     -
     
     -
     
     -
     
     400,000Net income, nine months ended September 30, 2010
     -
     
     -
     
     -
     
     -
     
     2,162,368
     
     2,162,368
     
     2,162,368Total comprehensive income
     
     
     
     
     
     
     
     
     
     
     $ 2,162,368Balance, September 30, 2010
     241,487,995
     
     $  2,415
     
     $  23,998,218
     
     $ -
     
     $  (23,978,004)
     
     
     
     $  22,629(The accompanying notes are an integral part of these consolidated financial statements)
  
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PHYTOMEDICAL TECHNOLOGIES, INC.CONSOLIDATED STATEMENTS OF CASH FLOWSFOR THE NINE MONTHS ENDED SEPTEMBER 30, 2010 AND 2009(Expressed in U.S. Dollars)(Unaudited)Nine Months EndedSeptember 30,2010
     
     2009Cash flows from operating activitiesNet income (loss)
     $
     2,162,368
     $
     (531,057)Adjustments to reconcile net income (loss) to net cash used in operating activitiesAccreted discount on convertible debt
     
     2,858
     
     -Change in fair value of warrant liability
     
     -
     
     93,910Gain on extinguishment of warrant liability
     
     -
     
     (52,631)Impairment of license fee
     
     15,000
     
     -Stock based compensation
     
     12,768
     
     -Reversal of stock based compensation due to forfeiture of stock options
     
     (2,674,268)
     
     -Loss on dissolution of foreign subsidiary
     
     -
     
     523Changes in operating assets and liabilities:(Increase) decrease in prepaid expenses and other current assets
     
     (6,576)
     
     1,585Increase in accounts payable
     
     58,125
     
     5,137Increase in interest payable
     
     65,231
     
     47,681Increase in accrued payroll liabilities
     
     30,277
     
     -Net cash used in operating activities
     
     (334,217)
     
     (434,852)Cash flows from investing activitiesPayment pursuant to the issuance of note receivable
     
     (30,000)
     
     -Net cash used in investing activities
     
     (30,000)
     
     -Cash flows from financing activitiesProceeds from convertible note payable to stockholder
     
     40,000
     
     -Allocated proceeds from issuance of common stock
     
     289,856
     
     -Allocated proceeds from issuance of warrants attached to issuance of common stock
     
     110,144
     
     -Net cash provided by financing activities
     
     440,000
     
     -Increase (decrease) in cash and cash equivalents
     
     75,783
     
     (434,852)Cash and cash equivalents at beginning of period
     
     75,291
     
     665,833Cash and cash equivalents at end of period
     $
     151,074
     $
     230,981Supplemental disclosure of cash flow information:Interest paid in cash
     $
     -
     $
     -Income tax paid in cash
     $
     -
     $
     -Notes payable and accrued interest converted to convertible note payable
     $
     1,067,527
     $
     -Debt discount recorded for beneficial conversion feature
     $
     1,107,527
     $
     -Issuance of 1,089,705 shares of common stock to extinguish warrant liability of $118,013during the nine months ended September 30, 2009
     $
     -
     $
     118,013(The accompanying notes are an integral part of these consolidated financial statements)
  
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PHYTOMEDICAL TECHNOLOGIES, INC.  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  September 30, 2010 (Expressed in U.S. Dollars) (Unaudited)  Note 1.  Organization and Description of Business  PhytoMedical Technologies, Inc. (the Company) was incorporated in the State of Nevada on July 25, 2001. The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries PhytoMedical Technologies Corporation (PhytoMedical Corp.),PolyPhenol Technologies Corporation(PolyPhenol) and PhytoMedical Technologies Ltd. (PhytoMedical Ltd.).  PhytoMedical Corp. was incorporated on March 10, 2004 in the State of Nevada and has no assets and liabilities.  PolyPhenol was incorporated on August 24, 2004 in the State of Nevada and has no assets and liabilities.  PhytoMedical Ltd. was incorporated on April 11, 2007 in the Province of British Columbia, Canada for providing administrative services to the Companys Canada office.The Company ceased to conduct business in Canada on August 31, 2008 and closed this office. As a result,the Company dissolved PhytoMedical Ltd. and eliminated all intercompany balances, effective January 1, 2009.  Since its incorporation, the Company focused its efforts on the development of new technologies (in particular pharmaceutical technologies and products) and, where warranted, the acquisition of rights to obtain licenses to technologies and products that are being developed by third parties, primarily universities and government agencies, through sponsored research and development agreements.  The Company has an exclusive license, granted pursuant to a license agreement dated September 1, 2008 (the Dartmouth License Agreement), between the Company and the Trustees of Dartmouth College (the Dartmouth Trustees), to develop, market and distribute a novel class of synthesized compounds known as bis-intercalators. The Company commenced its research and development activities relating to D11B through a Sponsored Research Agreement (the Sponsored Research Agreement) with Dartmouth College (Dartmouth).  On May 31, 2010 the Companys President and Chief Executive Officer, James Lynch, resigned both as an officer and as a director, and Mr. Amit S. Dang was appointed in his place. On June 3, 2010, Mr. Jeet Sidhu was appointed to the Companys Board of Directors.  In June 2010 Messrs. Gary Branning, Greg Wujek, and Raymond Krauss resigned as directors.  Mr. Krauss also resigned as the Companys Chief Financial Officer, a position currently held by Mr. Dang.  Following the recent management changes which occurred in June 2010, the Companys Board of Directors determined that it is in its shareholders best interest to refocus its business in activities in a manner which may more fully enhance shareholder value.   As a result, on August 25, 2010, the Company entered into a non-binding Memorandum of Intent (the MOI) with Standard Gold Corp., a Nevada corporation (SGC), relating to continuing discussions and the negotiation of a definitive agreement regarding its possible acquisition of all of the issued and outstanding shares of SGC (the SGC Acquisition). The MOI terminates if a definitive agreement is not entered into by December 31, 2010.  Pursuant to the MOI, the Company loaned SGC $30,000 (the SGC Loan) so that it could maintain its mineral claims, in good standing, pending on-going negotiations.  The SGC Loan bears interest at an annual rate of 8.5%.  Both the principal and the accrued interest on the SGC Loan are due and payable on December 31, 2010.  SGC is a natural resource exploration company engaged in the exploration of precious metals in the western United States on properties that may contain economic concentrations of mineralization.  As of the date of this report, none of SGCs properties are known to contain any reserves. SGCs strategy is to acquire properties that are prospective
  
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for mineral exploration and may have undergone some degree of mineral exploration and exploitation.  To date, SGC has acquired interests in gross acres of State Leases and Federal lode claims in the State of Nevada.  Upon consummation of the SGC Acquisition, the Companys intention is to terminate the Dartmouth License Agreement and pursue the exploration and development of the mineral claims currently held by SGC.  Note 2.  Going Concern Uncertainties  The Companyhas not generated any revenues,has an accumulated deficit of $23,978,004 as of September 30, 2010 and does not have positive cash flows from operating activities.The accompanying consolidated financial statements have been prepared in conformity with generally accepted accounting principles in the United States of America, which contemplates continuation of the Company as a going concern, which is dependent upon the Companys ability to establish itself as a profitable business.  The Company has expended a significant amount of cash in developing its technologyand expects to incur additional losses as it continues to develop its technologies.  To date, the Companys cash flow requirements have primarily been met by proceeds of $400,000 received pursuant to the 2010 Offering (as that term is defined in Note 13. 2010 Offering below) and net proceeds of $3,109,500received pursuant to the 2007 Private Placement (as that term is defined in Note 15. Warrants below) which was completed by the Company in September 2007.Management recognizes that in order to meet the Companys capital requirements, and continue to operate, regardless of whether it continues to research and develop the D11B compound or elects to pursue other business opportunities, including the contemplated acquisition of SGC, additional financing will be necessary.The Company expects to raise additional funds through private or public equity investments in order to support existing operations and expand the range and scope of its business operations. The Company will seek access to private or public equity but there is no assurance that such additional funds will be available for the Company to finance its operations on acceptable terms, if at all.  Furthermore, there is no assurance that the net proceeds received from any successful financing arrangement will be sufficient to cover cash requirements during the initial stages of the Companys operations.If the Company is unable to raise additional capital or generate positive cash flow, it is unlikely that the Company will be able to continue as a going concern.  In view of these conditions, the ability of the Company to continue as a going concern is in substantial doubt and dependent upon achieving a profitable level of operations and on the ability of the Company to obtain necessary financing to fund ongoing operations. These consolidated financial statements do not give effect to any adjustments which will be necessary should the Company be unable to continue as a going concern and therefore be required to realize its assets and discharge its liabilities in other than the normal course of business and at amounts different from those reflected in the accompanying consolidated financial statements.  Note 3.  Presentation of Interim Information  The accompanying unaudited interim consolidated financial statements have been prepared in accordance with accounting principles accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X.  Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements.  In the opinion of management, all adjustments (of a normal recurring nature) considered necessary for a fair presentation of the financial statements have been included. Operating results for the three and nine months ended September 30, 2010 are not necessarily indicative of the results that may be expected for the year ended December 31, 2010 or any other interim period.  For further information, refer to the financial statements and notes thereto included in the Companys 2009 Annual Report on Form 10-K for the year ended December 31, 2009 filed with the Securities and Exchange Commission.
  
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Note 4.  Summary of Significant Accounting Policies Estimates The preparation of the Companys consolidated financial statements requires management to make estimates and use assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses.  These estimates and assumptions are affected by managements application of accounting policies.   Critical accounting policies for the Company include accounting for research and development costs and accounting for stock-based compensation. On an on-going basis, the Company evaluates its estimates.  Actual results and outcomes may differ materially from these estimates and assumptions. Research and Development Research and development costs represent costs incurredto develop the Companys technology, includingsalaries and benefits for research and development personnel, allocated overhead and facility occupancy costs, supplies, equipment purchase and repair and other costs.Research and development costs are expensed when incurred,except for nonrefundable advance payments for future research and development activities which are capitalized and recognized as expense as the related services are performed. During the three months ended September 30, 2010 and 2009, the Company incurred $4,964 and $60,110 on research and development activities.  During the nine months ended September 30, 2010 and 2009, the Company incurred $8,764 and $92,849 on research and development activities. Fair Value  The Company measures fair value as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the reporting date. The Company utilizes a three-tier hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value:  Level 1. Valuations based on quoted prices in active markets for identical assets or liabilities that an entity has the ability to access.  The Company has no assets or liabilities valued with Level 1 inputs.  Level 2. Valuations based on quoted prices for similar assets or liabilities, quoted prices for identical assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable data for substantially the full term of the assets or liabilities.The Company has no assets or liabilities valued with Level 2 inputs.  Level 3. Valuations based on inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Liabilities valued with Level 3 inputs are described below in Note 12.  Notes Payable and Convertible Notes Payable and Note 15. Warrants. Stock-Based Compensation  The Company measures all employee stock-based compensation awards using a fair value method on the date of grant and recognizes such expense in its consolidated financial statements over the requisite service period.The Company uses the Black-Scholes pricing model to determine the fair value of stock-based compensation awards on the date of grant.  The Black-Scholes pricing model requires management to make assumptionsregarding the warrant and option lives, expected volatility, and risk free interest rates. See Note 14. Stock Options and Note 15. Warrants for additional information on the Companys stock-based compensation plans.
  
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Recently Adopted Accounting Pronouncements The Company reviews new accounting standards as issued.  Although some of these accounting standards issued or effective after the end of the Companys previous fiscal year may be applicable to the Company, it has not identified any standards that it believes merit further discussion.  The Company believes that none of the new standards will have a significant impact on its consolidated financial statements.  Note 5.  Net Income (Loss) per Share  Basic net income (loss) per share is computed by dividing the net income (loss) by the weighted average number of common shares outstanding during the period.  Diluted net income (loss) per share is computed by dividing the net income (loss) by the weighted average number of common and dilutive common equivalent shares outstanding during the period.  During the three months ended September 30, 2010 and 2009 and the nine months ended September 30, 2009, the Company recorded a net loss.  Therefore, the issuance of shares of common stock from the exercise of stock options or warrants would be anti-dilutive.  Excluded from the computation of diluted net loss per share for the three months ended September 30, 2010 because their effect would be anti-dilutive, are stock options and warrants to acquire 20,200,000 shares of common stock with a weighted-average exercise price of $0.03 per share and convertible notes payable and accrued interest to acquire 113,872,608 shares of common stock with a conversion price of $0.01 per share.  See Note 12. Notes Payable and Convertible Notes Payable below.Excluded from the computation of diluted net loss per share for the three and nine months ended September 30, 2009 because their effect would be anti-dilutive, are stock options and warrants to acquire 12,897,081 shares of common stock with a weighted-average exercise price of $0.42 per share.  There are no securities outstanding at September 30, 2010 that are excluded from the computation of diluted net income per share for the nine months ended September 30, 2010.  For purposes of earnings per share computations, shares of common stock that are issuable at the end of a reporting period are included as outstanding.  Following is the computation of basic and diluted net income (loss) per share for the three and nine months ended September 30, 2010 and 2009:
  
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Three Months Ended
     
     Nine Months EndedSeptember 30,
     
     September 30,2010
     
     2009
     
     2010
     
     2009Basic Net Income (Loss) Per Share ComputationNumerator: net income (loss)
     
     $      (139,054)
     
     $      (148,195)
     
     $     2,162,368
     
     $      (531,057)Denominator:Weighted average number of common shares outstanding
     
     241,487,995
     
     200,410,135
     
     221,121,695
     
     200,402,282Basic net income (loss) per share
     
     $           (0.00)
     
     $           (0.00)
     
     $            0.01
     
     $           (0.00)Dilutive Net Income (Loss) Per Share ComputationNumerator: net income (loss)
     
     $      (139,054)
     
     $      (148,195)
     
     $     2,162,368
     
     $      (531,057)Add: convertible notes payable interest expense and accreted discount
     -
     
     -
     
     57,785
     
     -Adjusted net income (loss)
     
     $      (139,054)
     
     $      (148,195)
     
     $     2,220,153
     
     $      (531,057)Denominator:Weighted average number of common shares outstanding
     
     241,487,995
     
     200,410,135
     
     221,121,695
     
     200,402,282Effect of dilutive securities:Warrants
     
     -
     
     -
     
     1,271,765
     
     -Assumed conversion of convertible notes payable
     
     -
     
     -
     
     112,050,303
     
     -Total shares
     
     241,487,995
     
     200,410,135
     
     334,443,763
     
     200,402,282Diluted net income (loss) per share
     
     $           (0.00)
     
     $           (0.00)
     
     $            0.01
     
     $           (0.00)
  Note 6.  Iowa State University Sponsored Research Agreement  On February 1, 2007, the Company, through its wholly owned subsidiary, PolyPhenol, entered into a Sponsored Research Agreement with Iowa State University (ISU). Under terms of the agreement, the Company continued to undertake its research at ISU for development of the Companys novel, synthesized type A-1 polyphenolic compounds.  On January 6, 2009, the Company provided written notice to ISU terminating the Sponsored Research Agreement between the Company and ISU. The termination was effective March 6, 2009.  Uponwritten notice of termination of the Sponsored Research Agreement to ISU on January 6, 2009, the Company was current with respect to all contractual obligations owed to ISU pursuant to the Sponsored Research Agreement.  As of September 30, 2010, the Company had paid a total of $114,972 pursuant to the terms of the ISU Sponsored Research Agreement and have reimbursed ISU $673 for other out-of-pocket costs, none of which is included in research and development expense for the either the three or nine month periods ended September 30, 2010 and 2009.  Note 7.  Iowa State University Research Foundation License Agreement  On June 12, 2006, the Company, through its wholly owned subsidiary, PolyPhenol, entered into an exclusive license agreement with Iowa State University Research Foundation Inc. (ISURF) to develop, market and distribute novel synthesized compounds derived from type A-1 polyphenols, which have been linked to insulin sensitivity by the USDA's Agricultural Research Service.On January 6, 2009, the Company gave written notice to ISURF, terminating the License Agreement between the Company and ISURF, effective April 6, 2009.  Uponwritten notice of termination of the license agreement to ISURF on January 6, 2009, the Company was current with respect to all contractual obligations owed to ISURF pursuant to the license agreement.
  
 11


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As of September 30, 2010, the Company had paid a total of $20,000 to ISURF for the license fee and $31,223 for reimbursement of patent costs and research expenses as per the agreement with ISURF, none of which is included in research and development expense for either the three or nine months ended September 30, 2010 and 2009.  Note 8.  Dartmouth Sponsored Research Agreement  On May 25, 2007, the Company entered into a Sponsored Research Agreement with Dartmouth College (Dartmouth), in the area of cancer research, specifically furthering research and development of anti-tumor bis-acridines. The Sponsored Research Agreement with Dartmouthwas amended on October 1, 2008 extending it to September 30, 2009.  As of September 30, 2009, Dartmouth had concluded their research and development and provided the Company with a key anti-cancer compound for glioblastoma.  The Company has entered into a fee-for-services agreement with Latitude Pharmaceuticals, Inc. (Latitude) to develop an intravenous (IV) formulation for its lead anti-cancer compound for glioblastoma (see Note 10. Latitude Agreement).  The Company is currently evaluating the advisability of continuing to independently pursue its research and development goals. If the SGC acquisition is consummated, the Company intends to discontinue the research and development of D11B.  Dartmouth granted the Company the option of a world-wide, royalty-bearing exclusive license to make, have made, use and sell in the field of oncology, the products embodying or produced through Dartmouths previous and future patents and through any joint-inventions related to the agreement, at reasonable terms and conditions as the parties may agree.  The Company will reimburse Dartmouth for all costs associated with obtaining and maintaining Dartmouths pre-existing patents related to the subject technology.  As of September 30, 2010, the Company has paid $220,260 pursuant to the Sponsored Research Agreement with Dartmouth and $10,017 for reimbursement of expenses.  Of the total $230,277 paid to Dartmouth, $4,964 and $8,764 is included in research and development expense for the three and nine month periods ended September 30, 2010 and $35,710 and $60,463 is included in research and development expense for the three and nine months ended September 30, 2009.  Note 9.  Dartmouth License Agreement  On September 1, 2008, the Company entered into the Dartmouth License Agreement pursuant to which the Company obtained the rights to develop, market and distribute a novel class of synthesized compounds known as bis-intercalators.  These anti-cancer agents which have a cytotoxic or poisonous affinity for cancer cells, are designed to bind tightly to cancer cell DNA (deoxyribonucleic acid), the blueprint of life for the cancer cell.  Under the terms of the Dartmouth License Agreement, the Company is obligated to pay annual license maintenance fees to the Dartmouth Trustees, in addition to an upfront payment of $15,000 within 30 days of execution of the agreement, with such payment already having been made.  Additionally, the Company is required to make milestone payments to the Dartmouth Trustees if, and only when, specific clinical and regulatory approval milestones are achieved.  Throughout the duration of the Dartmouth License Agreement, the Company is obligated to make royalty payments to the Dartmouth Trustees based on the net sales of products derived from the Dartmouth License Agreement, if any.  The Company is also obligated to reimburse the Dartmouth Trustees all costs incurred for filing, prosecuting and maintaining any licensed patents related to the Dartmouth License Agreement, throughout the duration of the agreement. The Company is required to undertake the development, regulatory approval, and commercialization, of products derived from the Dartmouth License Agreement, if any, and pursue collaborative commercial partnerships, if viable.  Pursuant to Rule 24b-2, the Company submitted a request for confidential treatment of certain portions of the Dartmouth License Agreement, relating to the payment terms and certain provisions under the Dartmouth License Agreement.  The Companys request was granted on March 9, 2009.  Accordingly, certain terms of the Dartmouth License Agreement do not need to be released to the public until August 5, 2013.
  
 12


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Upon consummation of the SGC acquisition the Company intends to terminate the Dartmouth License Agreement and pursue the exploration and development of the mineral claims currently held by SGC.As a result of the potential termination of Dartmouth License Agreement, the Company recorded an impairment charge of $15,000 at September 30, 2010 to write-off the previously paid license fee.  Note 10. Latitude Agreement  On July 6, 2009, the Company entered into a fee-for-services agreement with Latitude, which was amended on October 23, 2009  (the Latitude Agreement), to develop an IV formulation of the Companys anti-cancercompound for glioblastoma, D11B, for use in ongoing and future testing to determine the compounds efficacy and toxicology, and if warranted, future early stage human clinical trials. As of September 30, 2010, the Company has paid $45,377 pursuant to the terms of the Latitude Agreement, none of which is included in research and development expense for the three and nine months ended September 30, 2010.  The Company recorded research and development expense of $23,400 during both of the three and nine months ended September 30, 2009 pursuant to the Latitude Agreement.  Note 11. Note Receivable  On August 25, 2010, the Company entered into the non-binding MOI with SGC, relating to the continuing discussions and the negotiation of a definitive agreement regarding its possible acquisition of all of the issued and outstanding shares of SGC.  Pursuant to the MOI, the Company funded the SGC Loan in the amount of $30,000 so that SGC could maintain its mineral claims, in good standing, pending on-going negotiations.  The SGC Loan bears interest at an annual rate of 8.5%.  Both the principal and the accrued interest on the SGC Loan are due and payable on December 31, 2010.  Note 12.  Notes Payable and Convertible Notes Payable  Convertible Note Payable  Current  On March 2, 2010 the Company issued a one year convertible promissory note in the amount of $40,000 to a non-affiliated third party.  The convertible note bears interest at the rate of 8.5% per annum, which interest is accrued and payable on the maturity date of the convertible promissory note.  As long as the convertible promissory note remains outstanding and not fully paid, the holder has the right, but not the obligation, to convert all or any portion of the aggregate outstanding principal amount of the convertible promissory note, together with all or any portion of the accrued and unpaid interest into that number of shares, subject to certain terms and conditions, of the Companys common stock equal to the amount of the converted indebtedness divided by $0.01 per share. In the event of default, as defined in the Convertible Promissory Note agreement, the annual interest rate increases to 10% and is due on demand. The Company may, in its discretion, redeem the convertible promissory note at any time prior to the maturity date of the convertible promissory note.  Certain events of default will result in all sums of principal and interest then remaining unpaid immediately due and payable, upon demand of the holder.  Since the book value of the convertible promissory note ($40,000) divided by the number of shares to which the debt can be converted (4,000,000 shares of common stock) is $0.01 per share, which was less than the fair value of the stock at the time the debt was issued ($0.03 per share), there was a beneficial conversion feature.  The beneficial conversion feature was recorded as a discount against the convertible promissory note, which reduced the book value of the convertible promissory note to not less than zero.  The Company amortizes the discount using the effective interest method over the one-year life of the convertible promissory note.  During the three and nine months ended September 30, 2010, the Company recorded interest expense of $857 and $1,975 payable to the holder of the convertible promissory note.  During the three and nine months ended September 30, 2010, the Company recorded interest expense related to the accretion of the discount on the convertible promissory note of $2,628 and $2,827.  At September 30, 2010, the carrying value of the convertible promissory note was $2,827, net of unamortized discount of $37,173. Due to the unique nature of the terms of the convertible promissory note, it is not practicable to determine its fair value at September 30, 2010.
  
 13


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Notes Payable and Convertible Note Payable  Long Term  The Company had arranged with Mr. Harmel S. Rayat, former Chief Financial Officer, Director, and majority shareholder of the Company, a loan amount up to $2,500,000 that may be drawn down on an as needed basis at a rate of prime plus 3%.  Effective September 15, 2008, Mr. Rayat and the Company terminated this loan agreement.At December 31, 2009, the Company had an unsecured promissory note pursuant to this loan agreement in the amount of $750,000 payable to Mr. Rayat, which was due on March 8, 2006 and bore interest at an annual rate of 8.5%.At December 31, 2009, accrued interest on the $750,000 remaining promissory note was $307,223 and was included in interest payable.  The entire principal and accrued interest was due and payable on demand.  On March 1, 2010, Mr. Rayat agreed to convert the then outstanding balance of the note payable ($750,000) and accrued and unpaid interest ($317,527) thereon to a fixed three (3) year term convertible note, totaling $1,067,527 (the Rayat Convertible Note).  The Rayat Convertible Note bears interest at the rate of 8.5% per annum, which interest is accrued and payable on the maturity date of the Rayat Convertible Note.  As long as the Rayat Convertible Note remains outstanding and not fully paid, Mr. Rayat has the right, but not the obligation, to convert all or any portion of the aggregate outstanding principal amount of the Rayat Convertible Note, together with all or any portion of the accrued and unpaid interest into that number of shares, subject to certain terms and conditions, of the Companys common stock equal to the amount of the converted indebtedness divided by $0.01 per share. In the event of default, as defined in the Convertible Promissory Note agreement, the annual interest rate increases to 10% and is due on demand. The Company may, in its discretion, redeem the Rayat Convertible Note at any time prior to the maturity date of the Rayat Convertible Note.  Certain events of default will result in all sums of principal and interest then remaining unpaid immediately due and payable, upon demand of Mr. Rayat.  Since the book value of the convertible promissory note ($1,067,527) divided by the number of shares of common stock to which the debt can be converted (106,752,700) is $0.01 per share, which was less than the fair value of the stock at the time the debt was issued ($0.03 per share), there was a beneficial conversion feature.  The beneficial conversion feature was recorded as a discount against the Rayat Convertible Note, which reduced the book value of the Rayat Convertible Note to not less than zero.  The Company amortizes the discount using the effective interest method over the three-year life of the Rayat Convertible Note.  During the three and nine months ended September 30, 2010, the Company recorded interest expense of $22,871 and $63,257 payable to Mr. Rayat related to the original $750,000 note payable and the Rayat Convertible Note.  During the three and nine months ended September 30, 2010, the Company recorded interest expense related to the accretion of the discount on the Rayat Convertible Note of $22 and $31.  At September 30, 2010, the carrying value of the convertible promissory note was $31, net of unamortized discount of $1,067,496. Due to the unique nature of the terms of the Rayat Convertible Note, it is not practicable to determine its fair value at September 30, 2010.  Note 13.  2010 Offering  On May 4, 2010, the Companys registration statement on Form S-1 (the Registration Statement) was declared effective by the United States Securities and Exchange Commission, and the Company commenced its self directed public offering (the 2010 Offering) in accordance with the Prospectus dated May 4, 2010 and included in the Registration Statement, of up to a maximum of 200,000,000 units (the "Units") of its securities at a price of $0.01 per Unit.  Each Unit consists of:  ·one (1) share of the Companys common stock, $0.00001 par value per share; and, ·one-half of one Series B Warrant (collectively, the Series B Warrants).  Each full Series B Warrant entitles the holder to purchase one additional share of the Companys common stock at an exercise price of $0.03 per share, expiring two (2) years from the date of issuance of the Series B Warrants.  The 2010 Offering is a direct public offering by the Company without any involvement of underwriters or broker-dealers.  The 2010 Offering may continue until all of the Units registered have been sold or August 2, 2010 (unless
  
 14


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extended for an additional 90 days in the sole discretion of the Company). The Company has elected to extend the offering to October 31, 2010.  In May 2010, the Company sold 40,000,000 Units for gross receipts of $400,000 pursuant to the terms of the 2010 Offering.  Accordingly, the Company issued 40,000,000 shares of its common stock and Series B Warrants to purchase up to 20,000,000 shares of common stock at an exercise price of $0.03 per share to the investors having subscribed for the 40,000,000 Units.  At the time of grant, the fair value of the Series B Warrants as calculated using the Black-Scholes model was $607,995using the following assumptions:  dividend yield of 0%, expected volatility of 152.5%, risk-free interest rate of 0.8%, and expected term of two years.The portion of the proceeds from the 2010 Offering allocated to the Series B Warrants was $110,144.  Note 14.  Stock Options  On July 12, 2001, the Company approved its 2001 Stock Option Plan (the 2001 Plan), which has 10,000,000 shares reserved for issuance thereunder, all of which were registered under Form S-8 on October 2, 2003. On July 25, 2005, the Company approved its 2005 Stock Option Plan (the 2005 Plan), which has 15,000,000 shares reserved for issuance thereunder. The 2001 Plan and 2005 Plan provide shares available for options granted to employees, directors and others. The options granted to employees under the Companys option plans generally vest over two to five years or as otherwise determined by the plan administrator. Options to purchase shares expire no later than ten years after the date of grant.  The Company measures all stock-based compensation awards using a fair value method on the date of grant and recognizes such expense in its consolidated financial statements over the requisite service period.The grant date fair value of stock options is based on the price of a share of the Companys common stock on the date of grant.  In determining grant date fair value of stock options, the Company uses the Black-Scholes option pricing model whichrequires management to make assumptionsregarding the option lives, expected volatility, and risk free interest rates all of which impact the fair value of the option and, ultimately, the expense that will be recognized over the life of the option.  The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for a bond with a similar term.  The Company does not anticipate declaring dividends in the foreseeable future.  Volatility is calculated based on the historical weekly closing stock prices for the same period as the expected life of the option.  The Company uses the simplified method for determining the expected term of its plain vanilla stock options.  The Company recognizes compensation expense for only the portion of stock options that are expected to vest.  Therefore, the Company applies an estimated forfeiture rate that is derived from historical employee termination data and adjusted for expected future employee turnover rates.  A summary of the Companys stock option activity for the nine months ended September 30, 2010 and related information follows:  WeightedAverageRemaining
     
     AggregateWeighted Average
     
     Contractual
     
     IntrinsicNumber of Options
     
     Exercise Price
     
     Term
     
     ValueOutstanding at December 31, 2009
     
     2,000,000
     
     $                        0.52Grants
     
     4,800,000
     
     0.04Forfeitures
     
     (6,600,000)
     
     0.19Expirations
     
     (200,000)
     
     0.04Outstanding at September 30, 2010
     
     -
     
     $                           -
     
     -
     
     $                   -Exercisable at September 30, 2010
     
     -
     
     $                           -
     
     -
     
     $                   -Available for grant at September 30, 2010
     
     22,250,000
  
 15


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The aggregate intrinsic value in the table above represents the total pretax intrinsic value for all in-the-money options (i.e. the difference between the Companys closing stock price on the last trading day of its third quarter of its fiscal year 2010 and the exercise price, multiplied by the number of shares) that would have been received by the option holders had all option holders exercised their options on September 30, 2010. The intrinsic value of the options changes based on the fair market value of the Companys common stock.  Stock Option Expirations  On June 17, 2010, Mr. Greg Wujek tendered his resignation as a Director of the Company effective as of that date. Of the 400,000 stock options previously granted to Mr. Wujek on March 15, 2010, 200,000 had vested and were exercisable through September 19, 2010.  These stock options expired unexercised.  During the three months ended September 30, 2010 and 2009 and the nine months ended September 30, 2009, no stock-based compensation expense was recorded.  During the nine months ended September 30, 2010, stock-based compensation expense of $12,768 was recorded for stock options previously granted and vesting over time, offset by the reversal of stock-based compensation of $2,674,268 recorded for unvested stock options that were forfeited during the same time.  Of the net stock-based compensation income of $2,661,500 recorded during the nine months ended September 30, 2010, stock-based compensation expense of $6,000 is included in director and management fees  related party and stock-based compensation income of $2,667,500 is included in wages and benefits.  As of September 30, 2010, the Company did not have any unrecognized compensation cost related to unvested stock options and there were no stock options issued and outstanding.  The Company does not repurchase shares to fulfill the requirements of stock options that are exercised. Further, the Company issues new shares when stock options are exercised.  Note 15.  Warrants  Series B Warrants  On May 4, 2010, the Company commenced its 2010 Offering of up to a maximum of 200,000,000 Units of its securities at a price of $0.01 per Unit.  Please refer to Note 13. 2010 Offering.  Each Unit consists of:  ·one (1) share of the Companys common stock, $0.00001 par value per share; and, ·one-half of one Series B Warrant  Each full Series B Warrant entitles the holder to purchase one additional share of the Companys common stock at an exercise price of $0.03 per share, expiring two (2) years from the date of issuance of the Series B Warrants.  In May 2010, the Company sold 40,000,000 Units for gross receipts of $400,000 pursuant to the terms of the 2010 Offering.  Accordingly, the Company issued 40,000,000 shares of its common stock and Series B Warrants to purchase up to 20,000,000 shares of common stock at an exercise price of $0.03 per share to the investors having subscribed for the 40,000,000 Units.  At the time of grant, the fair value of the Series B Warrants as calculated using the Black-Scholes model was $607,995using the following assumptions:  dividend yield of 0%, expected volatility of 152.5%, risk-free interest rate of 0.8%, and expected term of two years. The portion of the proceeds from the 2010 Offering allocated to the Series B Warrants was $110,144.  Class A Warrants  On September 25, 2007, PhytoMedical completed a $3,205,000 private placement (the 2007 Private Placement), for which Palladium Capital, LLC (Palladium"), acted as the exclusive placement agent. The 2007 Private Placement consisted of the sale of 10,683,331 units (the "Units") at a price of $0.30 per Unit (the "Unit Issue Price") or $3,205,000 in the aggregate. The Units were offered and sold to 13 accredited investors (the Investors) as
  
 16


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defined in Regulation D as promulgated under the Securities Act of 1933, as amended.   Each Unit consisted of one share of common stock and one Class A warrant (Class A Warrant) at an exercise price of $0.40 per share, expiring September 25, 2010.  The Company issued 10,683,331 Class A Warrants pursuant to the terms of the 2007 Private Placement and 213,750 to the agent as commission (under the same terms), for a total of 10,897,081 Class A Warrants.  The terms of the Class A Warrants that were issued pursuant to the 2007 Private Placement contained a provision such that upon subsequent equity sales of common stock or common stock equivalents at an effective price per share (the Base Share Price) less than the $0.40 exercise price per share of the Class A Warrants then the exercise price of the Class A Warrants would have been reduced to the Base Share Price and the number of Class A Warrants would have been increased such that the aggregate exercise price payable, after taking into account the decrease in the exercise price would have been equal to the aggregate exercise price prior to such adjustment (Dilutive Issuance). The potential adjustment to the Class A Warrant exercise price and number of underlying shares of common stock resulted in a settlement amount that did not equal the difference between the fair value of a fixed number of the Companys common stock and a fixed exercise price.  Accordingly, the Class A Warrants were not considered indexed to the Companys own stock and therefore needed to be accounted for as a derivative.  At the time of grant, the fair value of the Class A Warrants as calculated using the Black-Scholes model was $2,724,270.  The proceeds from the 2007 Private Placement allocated to the Class A Warrants were $1,198,679.  Class A Warrant Liability and Securities Exchange Agreement  On January 1, 2009, the Company adopted guidance which is now part of ASC 815-40,Contracts in Entitys Own Equity (ASC 815-40).The Company determined that its Class A Warrants contained a Dilutive Issuance provision.  As a result, the Company reclassified 10,897,081 of its Class A Warrants to warrant liability, under long-term liabilities, resulting in a cumulative adjustment to accumulated deficit as of January 1, 2009 of $1,174,576.  The Companys Class A Warrants were considered derivative financial instruments and were therefore required to be adjusted to fair value each quarter.  Fair value measurement should be determined based on the assumptions that market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair value measurements, the Company used a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the reporting entitys own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy). On September 29, 2009, the Company consummated a securities exchange agreement (Securities Exchange Agreement) with the holders of the Companys Class A Warrants whereby the holders and the Company agreed to exchange the holders remaining Class A Warrants, on the basis of one share for every ten (10) Class A Warrants for an aggregate of 1,089,705 shares of the Companys common stock $0.00001 par value per share. The exchange of the Class A Warrants for common stock pursuant to the Securities Exchange Agreement resulted in an extinguishment of the warrant liability. The fair value of the Companys warrant liability at September 29, 2009, the effective date of the Securities Exchange Agreement, using a Black-Scholes model (Level 3 inputs) was $118,013, using the following assumptions:  dividend yield of 0%, expected volatility of 156.43%, risk-free interest rate of 0.41%, and expected term of 1.0 year.  The fair value of the 1,089,705 shares of common stock issued to settle the warrant liability was $65,382, based on the closing price of the Companys common stock of $0.06 per share on September 29, 2009 as quoted on the Over the Counter Bulletin Board.  The Company recorded a gain on extinguishment of warrant liability of $52,631 on September 29, 2009 as a result of the excess of the Class A Warrant Liability over the fair value of the consideration provided the warrant holders, in the form of common stock.  As of September 30, 2010 no Class A Warrants were outstanding.
  
 17


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Note 16.  Related Party Transactions  Director and Management fees- related party  On June 3, 2010, in order to fill vacancies created by the resignations of Mr. Lynch and Mr. Branning, the Board of Directors appointed Mr. Amit S. Dang and Mr. Jeet S. Sidhu to the Companys Board of Directors.  The Board of Directors also approved the terms of an Interim Executive Services Agreement between the Company and Mr. Dang (the Executive Services Agreement) pursuant to which Mr. Dang was appointed the Companys President and Chief Executive Officer.  On June 22, 2010, in order to fill the vacancy created by the resignation of Mr. Krauss, the Board of Directors also appointed Mr. Dang to serve as the Companys Interim Chief Financial Officer, Treasurer, and Secretary.  Mr. Dang receives compensation of $5,000 per month during the term of the Executive Services Agreement.  The Executive Services Agreement may be terminated at any time with or without cause by the Company. During the three and nine months ended September 30, 2010, the Company incurred $15,000 and $20,000 pursuant to the Executive Services Agreement which is included in director and management fees  related party.  Until May 31, 2010, non-employee Board members received $250 per month for services rendered in the capacity of a Board memberplus $100 per Board meeting attended.  The Board approved an increase, effective June 1, 2010, in non-employee Board fees to $750 per month.  During the three months ended September 30, 2010 and 2009, the Company incurred $3,000 and $1,900 in non-employee director fees.  During the nine months ended September 30, 2010 and 2009, the Company incurred $6,950 and $5,100 in non-employee director fees.  Additionally, during the nine months ended September 30, 2010, the Company recorded stock compensation of $6,000 (net of the reversal of stock compensation discussed in Note 14. Stock Options) for stock options previously granted to directors and vesting over time.  Notes payable and convertible note payable  The Company had arranged with Mr. Harmel S. Rayat, former Chief Financial Officer, Director, and majority shareholder of the Company, a loan amount up to $2,500,000 that may be drawn down on an as needed basis at a rate of prime plus 3%.  Effective September 15, 2008, Mr. Rayat and the Company terminated this loan agreement.At December 31, 2009, the Company had an unsecured promissory note pursuant to this loan agreement in the amount of $750,000 payable to Mr. Rayat, which was due on March 8, 2006 and bore interest at an annual rate of 8.5%.  On March 1, 2010, Mr. Rayat agreed to convert the then outstanding balance of the note payable ($750,000) and accrued and unpaid interest ($317,527) thereon to the Rayat Convertible Note.  The Rayat Convertible Note bears interest at the rate of 8.5% per annum, which interest is accrued and payable on the maturity date of the Rayat Convertible Note.  As long as the Rayat Convertible Note remains outstanding and not fully paid, Mr. Rayat has the right, but not the obligation, to convert all or any portion of the aggregate outstanding principal amount of the Rayat Convertible Note, together with all or any portion of the accrued and unpaid interest into that number of shares, subject to certain terms and conditions, of the Companys common stock equal to the amount of the converted indebtedness divided by $0.01 per share. In the event of default, as defined in the Convertible Promissory Note agreement, the annual interest rate increases to 10% and is due on demand. The Company may, in its discretion, redeem the Rayat Convertible Note at any time prior to the maturity date of the Rayat Convertible Note.  Certain events of default will result in all sums of principal and interest then remaining unpaid immediately due and payable, upon demand of Mr. Rayat.  During the three and nine months ended September 30, 2010, the Company recorded interest expense of $22,871 and $63,257 payable to Mr. Rayat related to the original $750,000 note payable and the Rayat Convertible Note.  Please refer to Note 12.  Notes Payable and Convertible Notes Payable.
  
 18


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All related party transactions are recorded at the exchange amount established and agreed to between related parties and are in the normal course of business.
  
 19


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Item 2.  Managements Discussion and Analysis of Financial Condition and Results of Operations  Forward-Looking Statements  This Report on Form 10-Q contains forward-looking statements which involve assumptions and describe our future plans, strategies, and expectations, and are generally identifiable by use of words such as may, will, should, expect, anticipate, estimate, believe, intend, or project or the negative of these words or other variations on these words or comparable terminology. These statements are expressed in good faith and based upon a reasonable basis when made, but there can be no assurance that these expectations will be achieved or accomplished.  Such forward-looking statements include statements regarding, among other things, (a) the potential markets for our technologies, our potential profitability, and cash flows (b) our growth strategies (c) expectations from our ongoing sponsored research and development activities (d) anticipated trends in the technology industry (e) our future financing plans and (f) our anticipated needs for working capital. This information may involve known and unknown risks, uncertainties, and other factors that may cause our actual results, performance, or achievements to be materially different from the future results, performance, or achievements expressed or implied by any forward-looking statements. These statements may be found under Managements Discussion and Analysis of Financial Condition and Results of Operations as well as in this Form 10-Q generally. Actual events or results may differ materially from those discussed in forward-looking statements as a result of various and matters described in this Form 10-Q generally. In light of these risks and uncertainties, there can be no assurance that the forward-looking statements contained in this filing will in fact occur. In addition to the information expressly required to be included in this filing, we will provide such further material information, if any, as may be necessary to make the required statements, in light of the circumstances under which they are made, not misleading.  Although forward-looking statements in this report reflect the good faith judgment of our management, forward-looking statements are inherently subject to known and unknown risks, business, economic and other risks and uncertainties that may cause actual results to be materially different from those discussed in these forward-looking statements. Readers are urged not to place undue reliance on these forward-looking statements, which speak only as of the date of this report. We assume no obligation to update any forward-looking statements in order to reflect any event or circumstance that may arise after the date of this report, other than as may be required by applicable law or regulation. Readers are urged to carefully review and consider the various disclosures made by us in our reports filed with the Securities and Exchange Commission which attempt to advise interested parties of the risks and factors that may affect our business, financial condition, results of operation and cash flows. If one or more of these risks or uncertainties materialize, or if the underlying assumptions prove incorrect, our actual results may vary materially from those expected or projected.  The following Managements Discussion and Analysis (MD&A) is intended to help the reader understand our consolidated results of operations and financial condition. The MD&A is provided as a supplement to, and should be read in conjunction with, our consolidated financial statements and the accompanying notes to the consolidated financial statements included in this Form 10-Q.  Our discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities and expenses and related disclosures. We review our estimates on an ongoing basis.  Overview  We were incorporated in the State of Nevada on July 25, 2001.  The accompanying consolidated financial statements include the accounts of PhytoMedical Technologies, Inc and its wholly owned subsidiaries PhytoMedical Technologies Corporation (PhytoMedical Corp.),PolyPhenol Technologies Corporation(PolyPhenol) and PhytoMedical Technologies Ltd. (PhytoMedical Ltd.).  PhytoMedical Corp. was incorporated on March 10, 2004 in the State of Nevada and has no assets and liabilities.
  
 20


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PolyPhenol was incorporated on August 24, 2004 in the State of Nevada and has no assets and liabilities.  PhytoMedical Ltd. was incorporated on April 11, 2007 in the Province of British Columbia, Canada for providing administrative services to our Canada office.We ceased to conduct business in Canada on August 31, 2008 and closed this office. As a result,we dissolved PhytoMedical Ltd. and eliminated all intercompany balances, effective January 1, 2009.  Since our incorporation we have focused our activities on the development of new technologies (in particular pharmaceutical technologies and products) and, where warranted, acquisition of rights to obtain licenses to technologies and products that are being developed by third parties, primarily universities and government agencies, through sponsored research and development agreements.  We have an exclusive license, granted pursuant to a license agreement dated September 1, 2008 (the Dartmouth License Agreement), between us and the Trustees of Dartmouth College (the Dartmouth Trustees), to develop, market and distribute a novel class of synthesized compounds known as bis-intercalators. We commenced our research and development activities relating to D11B through a Sponsored Research Agreement (the Sponsored Research Agreement) with Dartmouth College (Dartmouth).  On May 31, 2010, our then President and Chief Executive Officer, James Lynch, resigned both as an officer and as a director, and Mr. Amit S. Dang was appointed in his place. On June 3, 2010, Mr. Jeet Sidhu was appointed to our Board of Directors.  In June 2010 Messrs. Gary Branning, Greg Wujek, and Raymond Krauss resigned as directors.  Mr. Krauss also resigned as our Chief Financial Officer, a position currently held by Mr. Dang.  Following the recent management changes which occurred in June 2010, our Board of Directors determined that it is in our shareholders best interest to refocus our business in activities in a manner which may more fully enhance shareholder value.   As a result, on August 25, 2010, we entered into a non-binding Memorandum of Intent (the MOI) with Standard Gold Corp., a Nevada corporation (SGC), relating to continuing discussions and the negotiation of a definitive agreement regarding our possible acquisition of all of the issued and outstanding shares of SGC (the SGC Acquisition).  The MOI terminates if a definitive agreement is not entered into by December 31, 2010.  Pursuant to the MOI, we loaned SGC $30,000 (the SGC Loan) so that it could maintain its mineral claims, in good standing, pending on-going negotiations.  The SGC Loan bears interest at an annual rate of 8.5%.  Both the principal and the accrued interest on the SGC Loan are due and payable on December 31, 2010.  SGC is a natural resource exploration company engaged in the exploration of precious metals in the western United States on properties that may contain economic concentrations of mineralization.  As of the date of this report, none of SGCs properties are known to contain any reserves. SGCs strategy is to acquire properties that are prospective for mineral exploration and may have undergone some degree of mineral exploration and exploitation.  To date, SGC has acquired interests in gross acres of State Leases and Federal lode claims in the State of Nevada.  Upon consummation of the SGC Acquisition, our intention is to terminate the Dartmouth License Agreement and pursue the exploration and development of the mineral claims currently held by SGC.  We do not expect to generate any revenues for the foreseeable future and expect to continue to incur losses. Our independent registered public accountant has issued an audit opinion which includes a statement expressing substantial doubt as to our ability to continue as a going concern.  The following discussion and analysis of our financial condition and results of operations relates solely to our current operations and may not necessarily be applicable to our proposed resource exploration activities following consummation of the SGC Acquisition.
  
 21


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The D11B Compound and Our Current Cancer Research  Dartmouth Sponsored Research Agreement  Pursuant to our Sponsored Research Agreement with Dartmouth, which expired on September 30, 2009, we are continuing our research and development of a novel class of anti-cancer agents which have a cytotoxic or poisonous affinity for cancer cells, and are designed to bind tightly to cancer cell DNA (deoxyribonucleic acid), the blueprint of life for the cancer cell. Previous studies conducted by Dartmouth using a leukemia mouse cell line, have demonstrated that such binding (or intercalation) should stop the replication of the DNA, and, ultimately, lead to the death of the cancer cell.  We have developed and tested new examples of such compounds known to bind to DNA, called bis-acridines.  These compounds are related to D11B, the anti-cancer compound licensed by us from Dartmouth.  Throughout 2009, we prepared starting materials, and designed, tested, and synthesized bis-acridines which were then evaluated in human cancer cells.  These tests were undertaken in order to identify new compounds for potential medicinal formulation, further testing and, if warranted, the eventual preparation and filing of an Investigational New Drug (IND) Application with the U.S. Food & Drug Administration (FDA).  Following research outcomes from early lab tests, scientists conducted in vivo (animal) tests to determine the effectiveness (efficacy) and toxic side-effects (toxicity) of D11B and other such compounds.  These compounds were administered to specimens with difficult-to-treat human brain cancer (SF295 glioblastoma xenografts) and, according to researchers, D11B proved to be least toxic and extremely effective in controlling the growth of SF295 human glioblastoma xenografts.  In all cases where specimens were treated for human glioblastoma brain cancer using our D11B compound, researchers reported: a significant reduction in tumor size; prolonged lifespan of 46%-plus for the treated group versus the control group; notably enhanced chemotherapeutic effect of the compound;  and observed tumor cured in one of the specimens with the deadly glioblastoma cancer.  Interpreting the data collected from these important efficacy and toxicity tests, researchers concluded that our anti-cancer compound, D11B, may have its selectivity in killing SF295 human glioblastoma cells.  The ability to selectively target and kill specific cancer cells is an important consideration for the treatment of cancers in vital organs such as the brain, where glioblastoma is exhibited.  Glioblastoma is the most common and aggressive form of brain cancer, and is often highly-resistant to chemotherapy and other conventional treatments. Currently, there is no effective treatment or cure for glioblastoma.  Additionally, surgical removal such as complete resection of the tumor in combination with the most current and aggressive treatments continues to result in low survival rates.  As of September 30, 2009, the termination date of the Sponsored Research Agreement, Dartmouth concluded that its research and development activities, and provided us with, it believes, a key anti-cancer compound for glioblastoma, D11B. Based upon results of in vivo efficacy and toxicity tests, we have entered into a fee-for-services agreement withLatitude Pharmaceuticals, Inc. (Latitude)to assist us in our development of an IV formulation of D11B, in order to conduct additional tests.  As of September 30, 2010, we have paid $220,260 pursuant to the Sponsored Research Agreement with Dartmouth and $10,017 for reimbursement of expenses.  Of the total $230,277 paid to Dartmouth, $4,964 and $8,764 is included in research and development expense for the three and nine month periods ended September 30, 2010 and $35,710 and $60,463 is included in research and development expense for the three and nine months ended September 30, 2009.  Dartmouth License Agreement  On September 1, 2008, we entered into Dartmouth License Agreement with the Dartmouth Trustees pursuant to which we obtained the exclusive rights to develop, market and distribute a novel class of synthesized compounds known as bis-intercalators. These anti-cancer agents have a cytotoxic or poisonous affinity for cancer cells.
  
 22


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Under the terms of the Dartmouth License Agreement, we are obligated to pay annual license maintenance fees to the Dartmouth Trustees, in addition to an upfront payment of $15,000 within 30 days of execution of the agreement, with such payment already having been made. Additionally, we are required to make milestone payments to the Dartmouth Trustees if, and only when, specific clinical and regulatory approval milestones are achieved.  Throughout the duration of the Dartmouth License Agreement, we are obligated to make royalty payments to the Dartmouth Trustees based on the net sales of products derived from the Dartmouth License Agreement, if any. We are also obligated to reimburse the Dartmouth Trustees all costs incurred for filing, prosecuting and maintaining any licensed patents related to the Dartmouth License Agreement, throughout the duration of the agreement. We are required to undertake the development, regulatory approval, and commercialization, of products derived from the Dartmouth License Agreement, if any, and pursue collaborative commercial partnerships, if viable.  Pursuant to Rule 24b-2, we submitted a request to the SEC for confidential treatment of certain portions of the Dartmouth License Agreement, relating to the payment terms and certain provisions under the Dartmouth License Agreement. Our request was granted on March 9, 2009. Accordingly, certain terms of the Dartmouth License Agreement do not need to be released to the public until August 5, 2013.  Upon consummation of the SGC acquisition we intend to terminate the Dartmouth License Agreement and pursue the exploration and development of the mineral claims currently held by SGC.As a result of the potential termination of Dartmouth License Agreement, we recorded an impairment charge of $15,000 at September 30, 2010 to write-off the previously paid license fee.  Latitude Agreement  On July 6, 2009, we entered into a fee-for-services agreement with Latitude, which was amended on October 23, 2009 (the Latitude Agreement), to assist in our development of an IV formulation of our anti-cancer compound for glioblastoma, D11B, for use in ongoing and future testing to determine the compounds efficacy and toxicology, and if warranted, future early stage human clinical trials. Under the terms of the Latitude Agreement, we retain all rights to formulations and products developed, if any, including but not limited to intellectual property rights.  As of September 30, 2010, we have paid $45,377 pursuant to the terms of the Latitude Agreement, none of which is included in research and development expense for the three and nine months ended September 30, 2010.  We recorded research and development expense of $23,400 during both of the three and nine months ended September 30, 2009 pursuant to the Latitude Agreement.  Diabetes Research  Terminated Agreements  Iowa State University Sponsored Research Agreement  On February 1, 2007, through our wholly owned subsidiary, PolyPhenol, we entered into a Sponsored Research Agreement with Iowa State University (ISU). Under terms of the agreement, we continued to undertake our research at ISU for development of our novel, synthesized type A-1 polyphenolic compounds.  On January 6, 2009, we provided written notice to ISU terminating the Sponsored Research Agreement between us and ISU. The termination was effective March 6, 2009.  As of September 30, 2010, we have paid a total of $114,972 pursuant to the terms of the ISU Sponsored Research Agreement and have reimbursed ISU $673 for other out-of-pocket costs, none of which is included in research and development expense for the either the three or nine month periods ended September 30, 2010 and 2009.  Iowa State University Research Foundation License Agreement  On June 12, 2006, through our wholly owned subsidiary, PolyPhenol, we entered into an exclusive license agreement with Iowa State University Research Foundation Inc. (ISURF) to develop, market and distribute novel
  
 23


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synthesized compounds derived from type A-1 polyphenols, which have been linked to insulin sensitivity by the USDA's Agricultural Research Service.On January 6, 2009, we gave written notice to ISURF terminating the License Agreement between us and ISURF. The termination is effective April 6, 2009.  As of September 30, 2010, we have paid a total of $20,000 to ISURF for the license fee and $31,223 for reimbursement of patent costs and research expenses as per the agreement with ISURF, none of which is included in research and development expense for either the three or nine months ended September 30, 2010 and 2009.  Results of Operations  A summary of our operating expense for the three and nine months ended September 30, 2010 and 2009 was as follows:  Three Months EndedSeptember 30,
     
     Increase/
     
     Percentage2010
     
     2009
     
     (Decrease)
     
     ChangeOperating expense (income)Director and management fees - related party
     $
     18,000
     $
     1,900
     $
     16,100
     
     847
     %Investor relations and marketing
     
     8,425
     
     1,125
     
     7,300
     
     649Wages and benefits
     
     
     -
     
     63,806
     
     (63,806)
     
     *Research and development
     
     4,964
     
     60,110
     
     (55,146)
     
     (92)Professional fees
     
     
     66,662
     
     34,643
     
     32,019
     
     92Impairment of license fee
     
     
     15,000
     
     -
     
     15,000
     
     *Other operating expenses
     
     
     (125)
     
     29,918
     
     (30,043)
     
     *Total operating expense (income)
     $
     112,926
     $
     191,502
     $
     (78,576)
     
     (41)
     %
 * Not meaningful  Nine Months EndedSeptember 30,
     
     Increase/
     
     Percentage2010
     
     2009
     
     (Decrease)
     
     ChangeOperating expense (income)Director and management fees - related party
     $
     32,950
     $
     5,100
     $
     27,850
     
     546
     %Investor relations and marketing
     
     16,187
     
     2,533
     
     13,654
     
     539Wages and benefits
     
     (2,566,368)
     
     198,487
     
     (2,764,855)
     
     *Research and development
     
     8,764
     
     92,849
     
     (84,085)
     
     (91)Professional fees
     
     226,992
     
     107,974
     
     119,018
     
     110Impairment of license fee
     
     15,000
     
     -
     
     15,000
     
     *Other operating expenses
     
     36,268
     
     34,630
     
     1,638
     
     5Total operating expense (income)
     $
     (2,230,207)
     $
     441,573
     $
     (2,671,780)
     
     *
     %
 * Not meaningful  Director and management fees  related party  On June 3, 2010, in order to fill vacancies created by the resignations of Mr. Lynch and Mr. Branning, the Board of Directors appointed Mr. Amit S. Dang and Mr. Jeet S. Sidhu to our Board of Directors.  The Board of Directors also approved the terms of an Interim Executive Services Agreement between us and Mr. Dang (the Executive Services Agreement) pursuant to which Mr. Dang was appointed our President and Chief Executive Officer.  On June 22, 2010, in order to fill the vacancy created by the resignation of Mr. Krauss, the Board of Directors also appointed Mr. Dang to serve as our Interim Chief Financial Officer, Treasurer, and Secretary.  Mr. Dang receives compensation of
  
 24


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$5,000 per month during the term of the Executive Services Agreement.  We may terminate the Executive Services Agreement at any time with or without cause. During the three and nine months ended September 30, 2010, we incurred $15,000 and $20,000, respectively, pursuant to the Executive Services Agreement.  Until May 31, 2010, non-employee Board members received $250 per month for services rendered in the capacity of a Board memberplus $100 per Board meeting attended.  The Board approved an increase, effective June 1, 2010, in non-employee Board fees to $750 per month.  During the three months ended September 30, 2010 and 2009, we incurred $3,000 and $1,900 in non-employee director fees.  During the nine months ended September 30, 2010 and 2009, we incurred $6,950 and $5,100 in non-employee director fees.  Additionally, during the nine months ended September 30, 2010, we recorded stock compensation of $6,000 (net of the reversal of stock compensation discussed in Note 14. Stock Options to the consolidated financial statements contained in this Form 10-Q) for stock options previously granted to directors and vesting over time.  Investor relations and marketing  Investor relations and marketing costs represent fees paid to publicize our company and our technology.  Effective April 15, 2009, we entered into a one-year Shareholder Communication Services Agreement (the Shareholder Communications Agreement) with a third party consultant to provide shareholder communication and related administrative services. In accordance with the terms of the Shareholder Communications Agreement, we pay a third party consultant $375 per month.  The Shareholder Communications Agreement was renewed (with the same terms) for another one-year term, expiring April 15, 2011.  The increase in investor relations and marketing during the three months ended September 30, 2010 compared to the same period in 2009 is substantially due to $5,500 paid for the publication of our financial statements and other corporate information in various financial periodicals and $1,800 incurred for the press release announcing that we are continuing negotiations for the acquisition of Standard Gold Corp.  The increase in investor relations and marketing during the nine months ended September 30, 2010 compared to the same period in 2009 is substantially due to $5,500 paid for the publication of our financial statements and other corporate information in various financial periodicals and $7,150 incurred for the press releasedescribed in the preceding paragraph and the announcement of the appointment of Dr. James Lynch as our President and Chief Executive Officer, effectiveMarch 15, 2010 (Dr. Lynch subsequently resigned as one of our Directors and from all executive officer positions, effective May 31, 2010).  Wages and benefits  We did not incur any wages and benefits expense during the three months ended September 30, 2010. Please refer to Director and management fees  related party above for amounts paid to Mr. Dang, our consultant President and Chief Executive Officer.  During the three months ended September 30, 2009, we incurred $63,806 in wages and benefits expense for services rendered by Mr. Greg Wujek, our former President, Chief Executive Officer, and one of our Directors.  During the nine months ended September 30, 2010, we incurred $50,135 in wages and benefits expense for services rendered by Dr. James Lynch and $50,997 in wages and benefits expense for services rendered by Mr. Wujek, both of whom served as our former President, Chief Executive Officer, and as each as one of our Directors.   Mr. Wujek resigned as our President and Chief Executive Officer, effective March 15, 2010 and as one of our directors, effective June 17, 2010. Simultaneously with his resignation as our President and Chief Executive Officer, the employment agreement between us and Mr. Wujek was terminated and all of the 2,000,000 stock options previously granted to Mr. Wujek were forfeited upon his resignation and termination of employment.  Accordingly, during the
  
 25


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nine months ended September 30, 2010, we recorded a reversal of stock compensation expense previously recorded for the fair value of Mr. Wujeks stock options of $2,667,500.  The nine months ended September 30, 2010 also includes stock compensation of $6,311 for the amortization of the fair value of a stock option granted to Dr. Lynch to purchase up to 4,000,000 shares of our common stock at an exercise price of $0.04 per share. The stock option granted to Dr. Lynch was forfeited upon him tendering his resignation, effective May 31, 2010, and therefore we recorded a reversal of stock compensation of $6,311 during the same nine month period ending September 30, 2010 for a net $0 impact to the consolidated financial statements during this period.  During the nine months ended September 30, 2009, we incurred $198,487 in wages and benefits expense for services rendered by Mr. Greg Wujek.  Research and development  Research and development costs represent costs incurred to develop our technologies and are incurred pursuant to our sponsored research agreement with Dartmouth and other third party contract research organizations. The sponsored research agreement includes salaries and benefits for research and development personnel, allocated overhead and facility occupancy costs, contract services and other costs.Research and development costs are expensed when incurred,except for nonrefundable advance payments for future research and development activities which are capitalized and recognized as expense as the related services are performed.  Research and development expense for the three and nine months ended September 30, 2010 consists of payments made to Dartmouth and a third party for furthering the development of our D11B compound.  Research and development expense for the three and nine months ended September 30, 2009, includes payments made pursuant to our Sponsored Research Agreement with Dartmouth, Latitude Agreement, reimbursement of related expenses, and payments to other third party contractors.  Professional fees  Professional fees substantially consist of accounting fees, audit and tax fees, legal fees, and SEC related filing costs.  During the three months ended September 30, 2010, we incurred professional fees of $66,662, an increase of $32,019, from $34,643 during the same period of the prior year.  The increase is substantially due to an increase in legal fees of approximately $29,100 due to the preparation and filing of our Form S-1, fees incurred as a result of changes in the composition of our executive team and Board of Directors, and services performed in connection with the MOI between us and Standard Gold Corp.  During the nine months ended September 30, 2010, we incurred professional fees of $226,992, an increase of $119,018, from $107,974 during the same period of the prior year.  The increase is substantially due to increases in legal fees of approximately $90,900, accounting related fees of approximately $19,100, and SEC filing costs of approximately $7,300.  The increase in legal fees is due to the preparation and filing of our Form S-1, execution of stock option agreements for stock options granted on March 15, 2010 to Dr. Lynch and non-employee directors, fees incurred as a result of changes in the composition of our executive team and Board of Directors, and services performed in connection with the receipt of $400,000 pursuant to the 2010 Offering and the MOI between us and Standard Gold Corp. The increase in accounting related fees is substantially due to the filing of our Form S-1 and the increase in corporate activity previously described. The increase in SEC filing costs is due to the filing of our Form S-1 and related correspondence in addition to various Form 8-Ks.  Impairment of license fee  On September 1, 2008, we entered into Dartmouth License Agreement with the Dartmouth Trustees pursuant to which we obtained the exclusive rights to develop, market and distribute a novel class of synthesized compounds known as bis-intercalators.
  
 26


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Under the terms of the Dartmouth License Agreement, we are obligated to pay annual license maintenance fees to the Dartmouth Trustees, in addition to an upfront payment of $15,000 within 30 days of execution of the agreement, with such payment already having been made.  Upon consummation of the SGC acquisition we intend to terminate the Dartmouth License Agreement and pursue the exploration and development of the mineral claims currently held by SGC.As a result of the potential termination of Dartmouth License Agreement, we recorded an impairment charge of $15,000 at September 30, 2010 to write-off the previously paid license fee.See Dartmouth License Agreement above.  Other operating expenses  Other operating expenses include patent application fees, license related fees, travel and entertainment, rent, office supplies, printing and mailing, information technology related fees and other administrative costs.  During the three months ended September 30, 2010, we had other operating income of $125 due to the reversal of a $10,000 accrual recorded at June 30, 2010 for estimated travel and entertainment expense.  Actual travel and entertainment related expense was approximately $2,500, which was $7,500 less than managements estimate.  We have deemed that this difference is immaterial to the consolidated financial statements taken as a whole.  Other operating expense for the three months ended September 30, 2009 was $29,918.  The decrease in other operating expense for the three months ended September 30, 2010 as compared to the same period in 2009 is partially due to the reversal of the accrual discussed in the preceding paragraph as well as decreases in patent filing fees of approximately $17,500 and a $10,000 license maintenance fee paid to Dartmouth in the prior year. Offsetting these decreases is an increase in rent of approximately $2,300 for additional office space leased by Mr. Dang in Detroit, MI.  During the nine months ended September 30, 2010, we incurred other operating expenses of $36,268, an increase of $1,638, from $34,630 during the same period of the prior year.  The increase is partially due to increases in travel related expenses of approximately $8,400, rent of approximately $2,600, printing and mailing costs of approximately $8,200 for the distribution of our Information Statement pursuant to Section 14(c) of the Securities Exchange Act of 1934, whereby in January 2010, we informed our investors that certain of our stockholders, representing a majority of our issued and outstanding shares of common stock, voted to increase the number of authorized shares of common stock issuable from 300,000,000 to 2,000,000,000, and approximately $4,500 paid for conferences, tradeshows and other administrative fees.  Offsetting these increases in other operating expenses are decreases in patent filing fees of approximately $13,100 and a $10,000 license maintenance fee paid to Dartmouth in the prior year.  Other income (expense)  A summary of our other income (expense) for the three and nine months ended September 30, 2010 and 2009 was as follows:  Three Months EndedSeptember 30,
     
     
     
     Percentage2010
     
     2009
     
     Change
     
     ChangeOther income (expense)Interest expense
     $
     (26,379)
     $
     (16,068)
     $
     (10,311)
     
     64
     %Interest income
     
     
     251
     
     -
     
     251
     
     *Change in fair value of warrant liability
     
     -
     
     6,744
     
     (6,744)
     
     *Gain on extinguishment of warrant liability
     -
     
     52,631
     
     (52,631)
     
     *Total other income (expense)
     $
     (26,128)
     $
     43,307
     
     (69,435)
     
     *
 * Not meaningful
  
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Nine Months EndedSeptember 30,
     
     
     
     Percentage2010
     
     2009
     
     Change
     
     ChangeOther income (expense)Interest expense
     $
     (68,090)
     $
     (47,682)
     $
     (20,408)
     
     43
     %Interest income
     
     
     251
     
     -
     
     251
     
     *Change in fair value of warrant liability
     
     -
     
     (93,910)
     
     93,910
     
     *Gain on extinguishment of warrant liability
     -
     
     52,631
     
     (52,631)
     
     *Loss on dissolution of foreign subsidiary
     -
     
     (523)
     
     523
     
     *Total other income (expense)
     $
     (67,839)
     $
     (89,484)
     $
     21,645
     
     (24)
     %
 * Not meaningful  Interest expense  Interest expense for the three months ended September 30, 2010 represents interest accrued of $22,871 on the $1,067,527 convertible note payable to Mr. Harmel S. Rayat, interest accrued of $857 on the $40,000 convertible note payable to a non-affiliated third party, and $2,651 for the accretion of the discount on the convertible notes payable.  Interest expense for the nine months ended September 30, 2010 represents interest accrued of $63,257 on the $750,000 note payable (from January 1 through February 28, 2010) and $1,067,527 convertible note payable (from March 1 through September 30, 2010) to Mr. Harmel S. Rayat, interest accrued of $1,975 on the $40,000 convertible note payable to a non-affiliated third party, and $2,858 for the accretion of the discount on the convertible notes payable.  Interest expense for the three and nine months ended September 30, 2009 represents interest accrued on the $750,000 note payable to Mr. Rayat, at an annual rate of 8.5%.  Please refer to Note 12. Notes Payable and Convertible Notes Payable in the notes to the consolidated financial statements contained in this Form 10-Q for the terms of the note payable and convertible notes payable discussed in the preceding paragraphs.  Interest income  Interest income for the three and nine months ended September 30, 2010 represents interest earned on the SGC Loan. Please refer to Overview above for the terms of the SGC Loan.  Change in fair value of warrant liability and gain on extinguishment of warrant liability  On January 1, 2009, we adopted guidance which is now part of ASC 815-40,Contracts in Entitys Own Equity(ASC 815-40).We determined that our Class A Warrants contained a Dilutive Issuance provision.  As a result, we reclassified 10,897,081 of our Class A Warrants to warrant liability, resulting in a cumulative adjustment to accumulated deficit as of January 1, 2009 of $1,174,576.  Our Class A Warrants were considered derivative liabilities and were therefore required to be adjusted to fair value each quarter.  We valued our warrant liability using the Black-Scholes model.  Our stock price, remaining term of the Class A Warrants and the volatility of our stock all impact the fair value of our Class A Warrants. On September 29, 2009, we consummated a securities exchange agreement (Securities Exchange Agreement) with the holders of our Class A Warrants whereby the holders and us agreed to exchange the holders remaining Class A Warrants, on the basis of one share for every ten (10) Class A Warrants for an aggregate of 1,089,705 shares of our
  
 28


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common stock, $0.00001 par value per share. The exchange of the Class A Warrants for common stock pursuant to the Securities Exchange Agreement resulted in an extinguishment of the warrant liability. The fair value of our warrant liability at September 29, 2009, the effective date of the Securities Exchange Agreement, using the Black-Scholes model was $118,013, using the following assumptions:  dividend yield of 0%, expected volatility of 156.43%, risk-free interest rate of 0.41%, and expected term of 1.0 year.  We recorded a non-cash gain related to the Class A Warrants of $6,744 for the three months ended September 30, 2009 and a non-cash loss of $93,910 for the nine months ended September 30, 2009.  The fair value of the 1,089,705 shares of common stock issued to settle the warrant liability was $65,382, based on the closing price of our common stock of $0.06 per share on September 29, 2009 as quoted on the Over the Counter Bulletin Board.  We recorded a gain on extinguishment of warrant liability of $52,631 on September 29, 2009 as a result of the excess of the Class A Warrant Liability over the fair value of the consideration provided the warrant holders, in the form of common stock.  As of September 30, 2010 no Class A Warrants were outstanding.  Loss on dissolution of foreign subsidiary  PhytoMedical Ltd. provided administrative services to our Canadian office. We ceased to conduct business in Canada, effective August 31, 2008 and closed this office. As a result,we dissolved PhytoMedical Ltd. and eliminated all intercompany balances, effective January 1, 2009.  We recorded a loss on our investment in PhytoMedical Ltd. equal to the accumulated other comprehensive income at the time of the dissolution.  Liquidity and Capital Resources  The accompanying consolidated financial statements have been prepared assuming we will continue as a going concern.  We have incurred cumulative losses of $23,978,004 through September 30, 2010 and do not have positive cash flows from operating activities.  Additionally, we have expended a significant amount of cash in developing our technology.We face all the risks common to companies that are relatively new, including under capitalization and uncertainty of funding sources, high initial expenditure levels, uncertain revenue streams, and difficulties in managing growth.These conditions raise substantial doubt about our ability to continue as a going concern.  Management recognizes that in order to meet our capital requirements, and continue to operate, regardless of whether we continue to research and develop the D11B compound or elect to pursue other business opportunities, including the contemplated acquisition of SGC, additional financing will be necessary.We expect to raise additional funds through private or public equity investments in order to expand the range and scope of our business operations. We will seek access to private or public equity but there is no assurance that such additional funds will be available for us to finance our operations on acceptable terms, if at all.If we are unable to raise additional capital or generate positive cash flow, it is unlikely that we will be able to continue as a going concern.  The financial statements do not include any adjustments that might result from the outcome of this uncertainty.  Our principal source of liquidity is cash in the bank.  At September 30, 2010, we had cash and cash equivalents of $151,074. We have financed our operations primarily from $400,000 received pursuant to the 2010 Offering and the 2007 Private Placement completed in September 2007, raising net proceeds of $3,109,500.  Net cash used in operating activities was $334,217 for the nine months ended September 30, 2010 compared to $434,852 for the same period in 2009.  The decrease of $100,635 in cash used in operating activities was substantially due to decreases in payments made for research and development of approximately $100,000 and wages and benefits of approximately $97,500, offset by increases in professional fees of approximately $71,700, and director and management fees  related party of approximately $22,500.  Net cash used in investing activities was $30,000 for the nine months ended September 30, 2010 compared to $0 for the same period in 2009. On August 25, 2010, pursuant to a Memorandum of Intent with SGC, we loaned SGC $30,000 so that it could maintain its mineral claims, in good standing, pending on-going negotiations. The SGC Loan bears interest at an annual rate of 8.5%. Both the principal and the accrued interest on the SGC Loan are due and payable on December 31, 2010. Please refer to Note 11. Note Receivable in the notes to the consolidated financial statements contained in this Form 10-Q.
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Net cash provided by financing activities was $440,000 for the nine months ended September 30, 2010 compared to $0 for the same period in 2009. On May 19, 2010, we sold 40,000,000 Units pursuant to the 2010 Offering for gross receipts of $400,000. Please refer to Note 13. 2010 Offering in the notes to the consolidated financial statements contained in this Form 10-Q. Additionally, on March 2, 2010 we issued a one year convertible promissory note in the amount of $40,000 to a non-affiliated third party. The convertible note bears interest at the rate of 8.5% per annum, which interest is accrued and payable on the maturity date of the convertible promissory note. Please refer to Note 12. Notes Payable and Convertible Notes Payable in the notes to the consolidated financial statements contained in this Form 10-Q.   Related Party Transactions  Director and Management fees- related party  On June 3, 2010, in order to fill vacancies created by the resignations of Mr. Lynch and Mr. Branning, the Board of Directors appointed Mr. Amit S. Dang and Mr. Jeet S. Sidhu to our Board of Directors.  The Board of Directors also approved the terms of an Interim Executive Services Agreement between us and Mr. Dang (the Executive Services Agreement) pursuant to which Mr. Dang was appointed our President and Chief Executive Officer.  On June 22, 2010, in order to fill the vacancy created by the resignation of Mr. Krauss, the Board of Directors also appointed Mr. Dang to serve as our Interim Chief Financial Officer, Treasurer, and Secretary.  Mr. Dang receives compensation of $5,000 per month during the term of the Executive Services Agreement.  We may terminate the Executive Services Agreement at any time with or without cause. During the three and nine months ended September 30, 2010, we incurred $15,000 and $20,000 pursuant to the Executive Services Agreement which is included in director and management fees  related party.  Until May 31, 2010, non-employee Board members received $250 per month for services rendered in the capacity of a Board memberplus $100 per Board meeting attended.  The Board approved an increase, effective June 1, 2010, in non-employee Board fees to $750 per month.  During the three months ended September 30, 2010 and 2009, we incurred $3,000 and $1,900 in non-employee director fees.  During the nine months ended September 30, 2010 and 2009, we incurred $6,950 and $5,100 in non-employee director fees.  Additionally, during the nine months ended September 30, 2010, we recorded stock compensation of $6,000 (net of the reversal of stock compensation discussed in Note 14. Stock Options in the notes to the consolidated financial statements contained in this Form 10-Q) for stock options previously granted to directors and vesting over time.  Notes payable and convertible note payable  We had arranged with Mr. Harmel S. Rayat, former Chief Financial Officer, Director, and majority shareholder, a loan amount up to $2,500,000 that may be drawn down on an as needed basis at a rate of prime plus 3%.  Effective September 15, 2008, we terminated this loan agreement with Mr. Rayat.At December 31, 2009, we had an unsecured promissory note pursuant to this loan agreement in the amount of $750,000 payable to Mr. Rayat, which was due on March 8, 2006 and bore interest at an annual rate of 8.5%.  On March 1, 2010, Mr. Rayat agreed to convert the then outstanding balance of the note payable ($750,000) and accrued and unpaid interest ($317,527) thereon to the Rayat Convertible Note.  The Rayat Convertible Note bears interest at the rate of 8.5% per annum, which interest is accrued and payable on the maturity date of the Rayat Convertible Note.  As long as the Rayat Convertible Note remains outstanding and not fully paid, Mr. Rayat has the right, but not the obligation, to convert all or any portion of the aggregate outstanding principal amount of the Rayat Convertible Note, together with all or any portion of the accrued and unpaid interest into that number of shares, subject to certain terms and conditions, of our common stock equal to the amount of the converted indebtedness divided by $0.01 per share. In the event of default, as defined in the Convertible Promissory Note agreement, the annual interest rate increases to 10% and is due on demand. We may, in our discretion, redeem the Rayat Convertible Note at any time prior to the maturity date of the Rayat Convertible Note.  Certain events of default will
  
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result in all sums of principal and interest then remaining unpaid immediately due and payable, upon demand of Mr. Rayat.  During the three and nine months ended September 30, 2010, we recorded interest expense of $22,871 and $63,257 payable to Mr. Rayat related to the original $750,000 note payable and the Rayat Convertible Note.  Please refer to Note 12. Notes Payable and Convertible Notes Payable in the consolidated notes to the financial statements contained in this Form 10-Q.  All related party transactions are recorded at the exchange amount established and agreed to between related parties and are in the normal course of business.  Other Contractual Obligations  As of September 30, 2010, we do not have any contractual obligations other than the Rayat Convertible Note of $1,067,527, a short term convertible note in the principal amount of $40,000, accrued interest of $54,927, $2,438 related to the Shareholder Communications Agreement, as discussed above, and $1,375 related to a three month lease agreement we have for office space in Detroit, MI.  Off-Balance Sheet Arrangements  We haveno off-balance sheet arrangements.  Recently Issued Accounting Pronouncements  See Note 4. Summary of Significant Accounting Policies to the Consolidated Financial Statements in this Form 10-Q.
  
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Item 4.   Controls and Procedures  (a) Evaluation of Disclosure Controls and Procedures  Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the Exchange Act), as of the end of the period covered by this quarterly report. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded as of September 30, 2010 that our disclosure controls and procedures were effective such that the information required to be disclosed in our United States Securities and Exchange Commission (the SEC) reports is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.  (b) Changes in Internal Control over Financial Reporting  There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
  
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PART II  OTHER INFORMATION  Item 1.   Legal Proceedings.  None.  Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds.  None.  Item 3.   Defaults Upon Senior Securities.  None.  Item 4.   Submission of Matters to a Vote of Security Holders.  None.  Item 5.   Other Information.  None.  Item 6.   Exhibits.  Exhibit No.Description of Exhibit  3.1                          Amended and Restated Articles of Incorporation(1)  3.2                          By Laws(1)  4.1                          Form of Subscription Agreement(1)  4.2                          Form of Series B Warrant(1)  10.1                        Sponsored Research Agreement with Iowa State University dated February 1, 2007(1)  10.2                        Exclusive license agreement with Iowa State University Research Foundation Inc. dated June 12, 2006(1)  10.3                        Agreement with Latitude Pharmaceuticals, Inc. dated July 6, 2009(1)  10.4                        Amendment dated October 23, 2009 to the Latitude Agreement(1)  10.5                        Redacted License Agreement dated September 1, 2008 with the Trustees of Dartmouth College(1)  10.6                        Sponsored Research Agreement dated May 25, 2007 with Dartmouth College(1)  10.7                        Technologies Research Agreement with Dartmouth College as amended(1)  10.8                        Employment Agreement with Greg Wujek dated April 6, 2006(1)  10.9                        Stock Option Agreement with Greg Wujek dated August 1, 2006(1)  10.10                      Employment Agreement with James F. Lynch dated March 15, 2010(1)  10.11                      Stock Option Agreement with James F. Lynch dated March 15, 2010(1)
  
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10.12                      Convertible Promissory Note dated March 1, 2010 in the original principal amount of $1,067,527.40(1)  10.13                      Convertible Promissory Note dated March 2, 2010 in the original principal amount of $40,000(1)  10.14                      Amendment No. 1 dated April 12, 2010 to the March 1, 2010 Promissory Note in the original principal amount of $1,067,527.40(1)  10.15                      Amendment No. 1 dated April 12, 2010 to the March 2, 2010 Promissory Note in the original principal amount of $40,000(1)  10.16                      Stock Option Agreement between PhytoMedical Technologies and Raymond Krauss(1)  10.17                      Stock Option Agreement between PhytoMedical Technologies and Gary Branning(1)  10.18                      Stock Option Agreement between PhytoMedical Technologies and Greg Wujek(1)  10.19                      Employment Resignation Agreement between PhytoMedical Technologies, Inc. and Greg Wujek(1)  10.20                      Contract Interim Executive-Services Agreement dated June 3, 2010 between the Company and Amit S. Dang.(2)  10.21                      Memorandum of Intent dated August 25, 2010, between the Company and Standard Gold Corp. *  10.22                      Bridge Loan Agreement and Promissory Note dated August 25, 2010, between the Company and Standard Gold Corp. *  31.1                        Certification of Principal Executive Officer and Principal Financial Officer Pursuant to Rule 13(a)-14 of the Securities Exchange Act of 1934, As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *  32.1                        Certification of Principal Executive Officer and Principal Financial Officer Pursuant to 18 USC. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *  ____________________  *Filed herewith.  (1)Incorporated by reference to the Companys Form S-1/A as filed with the Commission on April 26, 2010.  (2)Incorporated by reference to the Companys Form 10-Q for the quarter ended June 30, 2010 as filed with the Commission on August 13, 2010.
  
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SIGNATURES  Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned  thereunto duly  authorized.  PhytoMedical Technologies, Inc.(Registrant)October 21, 2010
     
     By:/s/ Amit S. DangAmit S. DangPresident, Chief Executive Officer,Chief Financial Officer, Director
  
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