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, 2009



___        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 Floor
     08540Princeton, New Jersey
     (Zip Code)(Address of principal executive offices)




(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 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




Indicate by check mark whether the registrant is a shell company (as defined in 12b-2 of the Exchange Act.)  YesoNoT.

Indicate the number of shares outstanding of each of the issuers classes of common stock, as of the latest practicable date: 201,487,995 shares of Common Stock, par value $0.00001, were outstanding on November 1, 2009.



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PHYTOMEDICAL TECHNOLOGIES, INC.FORM 10-QFor the Quarterly Period Ended September 30, 2009Table of ContentsPART I FINANCIAL INFORMATIONItem 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.
     16Item 4T. Controls and Procedures.
     26PART II OTHER INFORMATIONItem 1.
     Legal Proceedings.
     27Item 2.
     Unregistered Sales of Equity Securities and Use of Proceeds.
     27Item 3.
     Defaults Upon Senior Securities.
     27Item 4.
     Submission of Matters to a Vote of Security Holders.
     27Item 5.
     Other Information.
     27Item 6.
     Exhibits.
     27SignaturesCertifications


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## PART IFINANCIAL INFORMATION



Item 1. Consolidated Financial Statements (Unaudited)



PHYTOMEDICAL TECHNOLOGIES, INC.CONSOLIDATED BALANCE SHEETSSEPTEMBER 30, 2009 AND DECEMBER 31, 2008(Expressed in U.S. Dollars)(Unaudited)September 30,
     
     December 31,2009
     
     2008ASSETSCurrent assetsCash and cash equivalents
     $
     230,981
     $
     665,833Prepaid expenses and other current assets
     
     675
     
     2,260Total current assets
     
     231,656
     
     668,093Intangible assets - license fees
     
     15,000
     
     15,000Total assets
     $
     246,656
     $
     683,093LIABILITIES AND STOCKHOLDERS' DEFICITCurrent liabilitiesAccounts payable
     $
     28,534
     $
     23,397Interest payable
     
     291,154
     
     243,473Notes payable
     
     750,000
     
     750,000Total current liabilities
     
     1,069,688
     
     1,016,870Commitments and ContingenciesStockholders' deficitPreferred stock: $0.25 par value; 1,000,000 authorized, no shares issued and outstanding at September 30, 2009 
      and December 31, 2008
     
     -
     
     -Common stock: $0.00001 par value; 300,000,000 authorized, 200,398,290 shares issued and outstanding at
      September 30, 2009 and December 31, 2008
     
     2,004
     
     2,004Common stock issuable: 1,089,705 shares at September 30, 2009
     
     11
     
     -Additional paid-in capital
     
     25,152,591
     
     26,285,899Accumulated other comprehensive loss
     
     -
     
     (523)Accumulated deficit
     
     (25,977,638)
     
     (26,621,157)Total stockholders' deficit
     
     (823,032)
     
     (333,777)Total liabilities and stockholders' deficit
     $
     246,656
     $
     683,093(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, 2009 AND 2008(Expressed in U.S. Dollars)(Unaudited)Three Months Ended
     
     Nine Months EndedSeptember 30,
     
     September 30,2009
     
     2008
     
     2009
     
     2008Revenue
     $
     -
     $
     -
     $
     -
     $
     -Operating expensesDirectors fees - related party
     
     1,900
     
     3,000
     
     5,100
     
     6,150Investor relations
     
     1,125
     
     6,815
     
     2,533
     
     492,360Wages and benefits
     
     63,806
     
     98,051
     
     198,487
     
     288,158Research and development
     
     60,110
     
     116,017
     
     92,849
     
     343,968Professional fees
     
     34,643
     
     15,859
     
     107,974
     
     77,894Other operating expenses
     
     29,918
     
     24,793
     
     34,630
     
     106,583Total operating expenses
     
     191,502
     
     264,535
     
     441,573
     
     1,315,113Loss from operations
     
     (191,502)
     
     (264,535)
     
     (441,573)
     
     (1,315,113)Other income (expense)Interest income
     
     -
     
     3,546
     
     -
     
     21,698Interest expense
     
     (16,068)
     
     (19,864)
     
     (47,682)
     
     (65,857)Change in fair value of warrant liability
     
     6,744
     
     -
     
     (93,910)
     
     -Gain on extinguishment of warrant liability
     
     52,631
     
     -
     
     52,631
     
     -Loss on disposal of fixed assets
     
     -
     
     (8,068)
     
     -
     
     (8,068)Loss on dissolution of foreign subsidiary
     
     -
     
     -
     
     (523)
     
     -Foreign exchange loss
     
     -
     
     (3,391)
     
     -
     
     (6,969)Total other income (expense)
     
     43,307
     
     (27,777)
     
     (89,484)
     
     (59,196)Net loss
     $
     (148,195)
     $
     (292,312)
     $
     (531,057)
     $
     (1,374,309)Net loss per common share - basic and diluted
     $
     (0.00)
     $
     (0.00)
     $
     (0.00)
     $
     (0.01)Weighted average number of common sharesoutstanding - basic and diluted
     
     200,410,135
     
     200,398,290
     
     200,402,282
     
     200,398,290(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, 2009 AND YEAR ENDED DECEMBER 31, 2008(Expressed in U.S. Dollars)(Unaudited)Accumulated Other
     
     
     
     
     
     TotalCommon Stock
     
     Common Stock Issuable
     
     Additional
     
     Comprehensive
     
     Accumulated
     
     Comprehensive
     
     Stockholders'Shares
     
     Amount
     
     Shares
     
     Amount
     
     Paid-in Capital
     
     (Loss) Income
     
     Deficit
     
     Loss
     
     Equity (Deficit)Balance, December 31, 2007
     200,398,290
     
     $  2,004
     
     -
     
     $  -
     
     $26,272,275
     
     $  1
     
     $(25,060,356)
     
     $  -
     
     $  1,213,924Stock based compensation expense
     -
     
     -
     
     -
     
     -
     
     13,624
     
     -
     
     -
     
     -
     
     13,624Comprehensive income (loss)Foreign currency translation adjustments
     -
     
     -
     
     -
     
     -
     
     -
     
     (524)
     
     -
     
     (524)
     
     (524)Net loss, year ended December 31, 2008
     -
     
     -
     
     -
     
     -
     
     -
     
     -
     
     (1,560,801)
     
     (1,560,801)
     
     (1,560,801)Total comprehensive loss
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     (1,561,325)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, nine months ended September 30, 2009
     -
     
     -
     
     -
     
     -
     
     -
     
     -
     
     (531,057)
     
     (531,057)
     
     (531,057)Total comprehensive loss
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     $ (530,534)Balance, September 30, 2009
     200,398,290
     
     $  2,004
     
     1,089,705
     
     $ 11
     
     $25,152,591
     
     $ -
     
     $(25,977,638)
     
     
     
     $  (823,032)(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, 2009 AND 2008(Expressed in U.S. Dollars)(Unaudited)Nine Months EndedSeptember 30,2009
     
     2008Cash flows from operating activitiesNet loss
     $
     (531,057)
     $
     (1,374,309)Adjustments to reconcile net loss to net cash used in operating activitiesDepreciation
     
     -
     
     2,022Change in fair value of warrant liability
     
     93,910
     
     -Gain on extinguishment of warrant liability
     
     (52,631)
     
     -Stock based compensation
     
     -
     
     13,624Loss on disposal of fixed assets
     
     -
     
     8,068Loss on dissolution of foreign subsidiary
     
     523
     
     -Changes in operating assets and liabilities:Increase (decrease) in prepaid expenses and other current assets
     
     1,585
     
     (720)Increase in accounts payable
     
     5,137
     
     3,383Decrease in accrued liabilities
     
     -
     
     (2,501)Increase (decrease) in interest payable
     
     47,681
     
     (2,369)Net cash used in operating activities
     
     (434,852)
     
     (1,352,802)Cash flows from investing activitiesPurchase of equipment
     
     -
     
     (6,173)Additions to intangible assets - license fees
     
     -
     
     (15,000)Net cash used in investing activities
     
     -
     
     (21,173)Cash flows from financing activitiesRepayment of loan to stockholder
     
     -
     
     (250,000)Net cash used in financing activities
     
     -
     
     (250,000)Effect of foreign exchange rate
     
     -
     
     3,151Decrease in cash and cash equivalents
     
     (434,852)
     
     (1,620,824)Cash and cash equivalents at beginning of period
     
     665,833
     
     2,434,230Cash and cash equivalents at end of period
     $
     230,981
     $
     813,406Supplemental disclosure of cash flow information:Interest paid in cash
     $
     -
     $
     68,226Income tax paid in cash
     $
     -
     $
     -Issuance of 1,089,705 shares of common stock to extinguish warrant liability of $118,013during the three 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, 2009

(Expressed in U.S. Dollars)

(Unaudited)



Note 1.  Organization and Nature of Operations



PhytoMedical Technologies, Inc. (the Company) was incorporated in the State of Nevada on July 25, 2001; and together with its wholly owned subsidiaries PhytoMedical Technologies Corporation (PhytoMedical Corp.),PolyPhenol Technologies Corporation(PolyPhenol) and PhytoMedical Technologies Ltd. (PhytoMedical Ltd.) is a pharmaceutical company focused on research, development and commercialization of pharmaceutical products.  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.



Note 2.  Going Concern Uncertainties



The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern.The Company has incurred cumulative losses of $25,977,638 through September 30, 2009, does not have positive cash flows from operating activities, and had negative working capital of $838,032 as of September 30, 2009.  Additionally, the Company has expended a significant amount of cash in developing its technology.The Company faces 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 the Companys ability to continue as a going concern.  Management recognizes that in order to meet the Companys capital requirements, and continue to operate, additional financing will be necessary.The Company expects to raise additional funds through private or public equity investments in order to 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.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.



The Companys 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 Form 10-Q instructions and in the opinion of management of PhytoMedical Technologies, Inc., include all adjustments (of a normal recurring nature) considered necessary to present fairly the financial position of the Company as of September 30, 2009 and December 31, 2008 and the related results of operations, stockholders equity (deficit), and cash flows for the three and nine months ended September 30, 2009 and 2008. These results have been determined on the basis of generally accepted accounting principles and practices in the United States and applied consistently with those used in the preparation of the Companys 2008 Annual Report on Form 10-K.



Certain information and footnote disclosures normally included in the quarterly financial statements presented in accordance with generally accepted accounting principles in the United States have been condensed or omitted. It is suggested that the accompanying unaudited interim consolidated financial statements be read in conjunction with the

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consolidated financial statements and notes thereto incorporated by reference in the Companys 2008 Annual Report on Form 10-K.



Note 4.  Summary of Significant Accounting Policies

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, 2009 and 2008, the Company incurred $60,110 and $116,017 on research and development activities.  During the nine months ended September 30, 2009 and 2008, the Company incurred $92,849 and $343,968 on research and development activities.

#### 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 12. Stock Options and Note 13. Warrants for additional information on the Companys stock-based compensation plans.



Recently Issued Accounting Standards

In June 2009, the Financial Accounting Standards Board (FASB) issuedStatement of Financial Accounting Standard (SFAS)No. 168, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principals, a replacement of FASB Statement No. 162 (SFAS 168).This statement modifies the Generally Accepted Accounting Principles (GAAP) hierarchy by establishing only two levels of GAAP, authoritative and nonauthoritative accounting literature. Effective July 2009, the FASB Accounting Standards Codification (ASC), also known collectively as the Codification, is considered the single source of authoritative U.S. accounting and reporting standards, except for additional authoritative rules and interpretive releases issued by the SEC.  Nonauthoritative guidance and literature would include, among other things, FASB Concepts Statements, American Institute of Certified Public Accountants Issue Papers and Technical Practice Aids and accounting textbooks. The Codification was developed to organize GAAP pronouncements by topic so that users can more easily access authoritative accounting guidance.  It is organized by topic, subtopic, section, and paragraph, each of which is identified by a numerical designation.SFAS 168 is effective for interim and annual periods ending after September 15, 2009.  The Company adopted SFAS 168, effective July 1, 2009, the beginning of its third quarter ended September 30, 2009.All accounting references have been updated, and therefore SFAS references have been replaced with ASC references.

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Note 5.  Net Loss per Share



Basic net loss per share is computed by dividing the net loss by the weighted average number of common shares outstanding during the period.  Diluted net loss per share is computed by dividing the net loss by the weighted average number of common and dilutive common equivalent shares outstanding during the period.  As the Company had a net loss in each of the periods presented, basic and diluted net loss per share are the same.



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 antidilutive, are stock options and warrants to acquire 2,000,000 shares of common stock with a weighted-average exercise price of $0.52 per share.



Excluded from the computation of diluted net loss per share for the three and nine months ended September 30, 2008, because their effect would be antidilutive, 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.



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 loss per share for the three and nine months ended September 30, 2009 and 2008:



Three Months Ended
     
     Nine Months EndedSeptember 30,
     
     September 30,2009
     
     2008
     
     2009
     
     2008Numerator - net loss
     
     $      (148,195)
     
     $      (292,312)
     
     $      (531,057)
     
     $    (1,374,309)Denominator - weighted average numberof common shares outstanding - basic and diluted
     200,410,135
     
     200,398,290
     
     200,402,282
     
     200,398,290Basic and diluted net loss per common share
     $           (0.00)
     
     $           (0.00)
     
     $           (0.00)
     
     $           (0.01)






Note 6.  Iowa State University Sponsored Research Agreement



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.



Contractual Obligations under the ISU Sponsored Research Agreement were as follows:



Year 1: $62,251 (paid as of March 31, 2009) to ISU in 4 quarterly installments, the first of which was due within 30 days of signing of the Sponsored Research Agreement, the second of which was due to ISU 3 months from the previous payment;



Year 2: $70,295 ($52,721 of which was paid as of March 31, 2009) to ISU in 4 quarterly installments, the first of which was due to ISU 3 months from the previous payment; and



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Year 3: $72,140 to ISU in 4 quarterly installments, the first of which was due to ISU 3 months from the previous payment.



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, 2009, the Company had paid a total of $114,972 pursuant to the terms of the ISU Sponsored Research Agreement.  The Company did not incur any research and development expense pursuant to the terms of the ISU Sponsored Research Agreement during the three and nine months ended September 30, 2009.  During the three and nine months ended September 30, 2008 the Company incurred $33,137 and $66,273 pursuant to the terms of the ISU Sponsored Research Agreement.  In addition to contractual obligations pursuant to the ISU Sponsored Research Agreement, the Company reimbursed ISU $92 and $506 during the three and nine months ended September 30, 2008 for other out-of-pocket costs that are included in research and development expense.



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.



Under terms of the license agreement, the Company had to pay ISURF license fees, of which $20,000 was payable (paid) within 30 days of execution of the agreement, $50,000 was payable upon completion of the first successful Phase 2 clinical trial and the remaining $250,000 was payable upon first approval by the regulatory authority on new drug application. The Company also had to reimburse ISURF the cost incurred for filing, prosecuting and maintaining the licensed patents together with 15% of the said costs, not exceeding $10,000, as the administration fee.



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.



As of September 30, 2009, 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 agreement with ISURF, none of which is included in research and development expense for the three and nine months ended September 30, 2009 and 2008.



Note 8.  Ricerca Development Agreements



The Company utilizes Ricerca BioSciences LLC (Ricerca) as a research vendor, on an as needed basis, to assist in the development of the Companys technologies.  The terms and scope of the work that Ricerca performs is in accordance with formalized statements of work.



During the three and nine months ended September 30, 2009 the Company incurred $0 and $5,400for services provided by Ricerca, which is included in research and development expense.During the three and nine months ended September 30, 2008 the Company incurred $61,503 and $151,103for services provided by Ricerca, which is included in research and development expense.



Note 9.  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 subsequently

10

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partnered with LATITUDE Pharmaceuticals, Inc. (Latitude) to develop an intravenous (IV) formulation for its lead anti cancer compound for glioblastoma (see Note 11. LATITUDE Agreement).



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, 2009, the Company has paid a total of $220,260 pursuant to the Sponsored Research Agreement with Dartmouth and $1,253 for reimbursement of expenses, of which $35,710 and $60,463 is included in research and development expense for the three and nine months ended September 30, 2009 and $0 and $103,550 is included in research and development expense for the three and nine months ended September 30, 2008.



Note 10.  Dartmouth License Agreement



On September 1, 2008, the Company entered into an exclusive license agreement with the Trustees of Dartmouth College (DC) 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 license agreement, the Company has to pay license fees to DC based upon milestones, in addition to an upfront payment of $15,000 (paid) within 30 days of execution of the agreement.   In addition, DC will receive royalty payments on the net sales of products.   The Company will pay an annual royalty throughout the duration of the agreement.   The Company also has to reimburse DC the costs incurred for filing, prosecuting and maintaining the licensed patents. The Company will administer the development, regulatory approval, and commercialization of the compounds and pursue future collaborative arrangements.



The Company submitted a Confidential Treatment (CT) Request with the United States Securities and Exchange Commission (the SEC) on October 22, 2008.On March 9, 2009, the SEC granted the confidential treatment of the Dartmouth License Agreement to the Company. Accordingly, the terms of the license agreement do not need to be released to the public until August 5, 2013.



Note 11. LATITUDE Agreement



On July 6, 2009, the Company entered into an agreement with Latitude to develop an IV formulation for the Companys lead anti cancercompound for glioblastoma, D11B, to use in the Companys preclinical efficacy and toxicology evaluation and possible early stage human clinical trials.  As of September 30, 2009, the Company has paid $23,400 pursuant to the terms of the agreement with Latitude, all of which is included in research and development expense for the three and nine months ended September 30, 2009.





Note 12.  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 provides 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.



11

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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 expected forfeiture rates,all of which impact the fair value of the stock option calculated under the Black-Scholes methodology 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.  To date, the Company has experienced minimal forfeitures, which did not impact the fair value of the stock option grants.  If the actual number of forfeitures differs from those estimated by the Company, additional adjustments to compensation expense may be required in future periods.



A summary of the Companys stock option activity for the nine months ended September 30, 2009 and related information follows:



WeightedAverageRemaining
     
     AggregateWeighted Average
     
     Contractual
     
     IntrinsicNumber of Options
     
     Exercise Price
     
     Term  (1)
     
     Value  (1)Outstanding at December 31, 2008 and September 30, 2009
     2,000,000
     
     $                        0.52
     
     6.84 years
     
     $                   -Exercisable at September 30, 2009
     
     -Available for grant at September 30, 2009
     
     20,250,000(1)The weighted average remaining contractual term and aggregate intrinsic value are as of September 30, 2009.




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 2009 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, 2009. The intrinsic value of the options changes based on the fair market value of the Companys common stock.



There were no stock options exercised during the three and nine months ended September 30, 2009 and 2008.



At September 30, 2009 the Company had unvested stock options to purchase 2,000,000 shares of the Companys common stock at a grant date fair value of $0.48 per share.



During the three and nine months ended September 30, 2009 no stock-based compensation expense was recognized for stock options previously granted.  During the three and nine months ended September 30, 2008, stock-based compensation expense of $0 and $13,624 was recognized for options previously granted and vesting over time, which is included in wages and benefits.  As of September 30, 2009, the Company had no unrecognized compensation cost related to unvested stock options.



The following table summarizes information about stock options outstanding and exercisable at September 30, 2009:



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Stock Options Outstanding
     
     Stock Options ExercisableWeighted
     
     
     
     
     
     WeightedAverage
     
     Weighted
     
     
     
     Average
     
     WeightedNumber of
     
     Remaining
     
     Average
     
     Number of
     
     Remaining
     
     AverageOptions
     
     Contractual
     
     Exercise
     
     Options
     
     Contractual
     
     ExerciseExercise Price
     
     Outstanding
     
     Life (Years)
     
     Price
     
     Exercisable
     
     Life (Years)
     
     Price$
     
     $
     0.52
     
     
     2,000,000
     
     6.84
     $
     0.52
     
     
     
     
     $
     






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 13.  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 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 contain 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 shall be reduced to the Base Share Price and the number of Class A Warrants shall be increased such that the aggregate exercise price payable, after taking into account the decrease in the exercise price shall be 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 results in a settlement amount that does 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 are not considered indexed to the Companys own stock and therefore need to be accounted for as a derivative.  As of September 30, 2009 the Company has not sold any shares of common stock or common stock equivalents that would result in an adjustment to the exercise price or number of shares of common stock underlying the Class A Warrants.



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.



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,(formerly Emerging Issues Task Force (EIFT) 07-5, Determining Whether an Instrument (or Embedded Feature) Is Indexed to an Entitys Own Stock).  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 are considered derivative financial instruments and are therefore required to be adjusted to fair value each quarter.  Fair value measurement should be determined based on the assumptions that

13

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market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair value measurements, the Company uses 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 Company 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 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, 2009 there were no Class A Warrants outstanding.



Note 14.  Related Party Transactions



Wages and benefits



During the three and nine months ended September 30, 2009, the Company incurred $63,806 and $198,487 in wages and benefits expense for services rendered by Mr. Greg Wujek, the President, Chief Executive Officer, and Director of the Company.   During the three and nine months ended September 30, 2008, the Company incurred $65,408 and $198,498 in wages and benefits expense for services rendered by Mr. Wujek.



During the nine months ended September 30, 2008, the Company also recorded $13,624 in stock based compensation expense related to the amortization of a stock option previously granted to Mr. Wujek to purchase 2,000,000 shares of the Companys common stock at an exercise price of $0.52 per share, which is included in wages and benefits.



Director fees



During the three and nine months ended September 30, 2009, the Company incurred $1,900 and $5,100 in non-employee director fees.  During the three and nine months ended September 30, 2008, the Company incurred $3,000 and $6,150 in non-employee director fees.



Notes 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.

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During the nine months ended September 30, 2008, the Company repaid $250,000 to Mr. Rayat with the accrued interest of $67,664.At September 30, 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 bears interest at an annual rate of 8.50%.At September 30, 2009, accrued interest on the $750,000 remaining promissory note was $291,154 and is included in interest payable.  The entire principal and accrued interest is due and payable on demand.The carrying value of notes payable and accrued interest approximates fair value at September 30, 2009, based on their liquidity.



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.



Note 15.  Subsequent Events



The Company has evaluated subsequent events through November 5, 2009, which is the date on which these consolidated financial statements were issued.  There have not been any events subsequent to September 30, 2009 that would require additional disclosure in the consolidated financial statements or that would have a material impact on the Companys consolidated financial position as of September 30, 2009 and December 31, 2008, and the results of operations, or cash flows for the three and nine months ended September 30, 2009 and 2008.



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Item 2.  Managements discussion and Analysis of Financial Condition and Results of Operations.



Forward-Looking Statements



Except for the historical information presented in this document, the matters discussed in this Form 10-Q for the three and nine months ended September 30, 2009, and specifically in the items entitled "Managements Discussion and Analysis of Financial Condition and Results of Operations," or otherwise incorporated by reference into this document, contain "forward-looking statements" (as such term is defined in the Private Securities Litigation Reform Act of 1995). These statements are identified by the use of forward-looking terminology such as "believes," "plans," "intend," "scheduled," "potential," "continue," "estimates," "hopes," "goal," "objective," expects," "may," "will," "should," or "anticipates" or the negative thereof or other variations thereon or comparable terminology, or by discussions of strategy that involve risks and uncertainties.



The safe harbor provisions of Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as amended, apply to forward-looking statements made by the Company. The reader is cautioned that no statements contained in this Form 10-Q should be construed as a guarantee or assurance of future performance or results. These forward-looking statements involve risks and uncertainties, including those identified within this Form 10-Q. The actual results that the Company achieves may differ materially from any forward-looking statements due to such risks and uncertainties. These forward-looking statements are based on current expectations, and the Company assumes no obligation to update this information. Readers are urged to carefully review and consider the various disclosures made by the Company in this Form 10-Q and in the Company's other reports filed with the Securities and Exchange Commission that attempt to advise interested parties of the risks and factors that may affect the Company's business.



Overview



The following Managements Discussion and Analysis (MD&A) is intended to help the reader understand the consolidated results of operations and financial condition of Phytomedical Technologies, Inc. The MD&A is provided as a supplement to, and should be read in conjunction with the Companys consolidated financial statements and the accompanying notes to the consolidated financial statements included in this Form 10-Q.



The Companys discussion and analysis of its financial condition and results of operations is based on its 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 the Company to make estimates and judgments that affect the reported amounts of assets, liabilities and expenses and related disclosures. The Company reviews its estimates on an ongoing basis.



PhytoMedical Technologies, Inc. (the Company) was incorporated in the State of Nevada on July 25, 2001; and together with its wholly owned subsidiaries PhytoMedical Technologies Corporation (PhytoMedical Corp.),PolyPhenol Technologies Corporation(PolyPhenol) and PhytoMedical Technologies Ltd. (PhytoMedical Ltd.) is a pharmaceutical company focused on research, development and commercialization of pharmaceutical products.  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.



Because the Company is a smaller reporting company, certain disclosures otherwise required to be made in a Form 10-Q are not required to be made by the Company.



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Cancer Research



Dartmouth Sponsored Research Agreement



Pursuant to the Companys Sponsored Research Agreement with Dartmouth College (Dartmouth), which was amended on October 1, 2008 extending it to September 30, 2009, it is synthesizing and testing 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.  Following the preparation of starting materials, researchers will design, synthesize and test new examples of compounds known to bind to DNA, called bis-acridines; these bis-acridines will be tethered to the DNA with both flexible and semi-rigid linking chains.  If successfully synthesized, the compounds will be submitted for evaluation in human cancer cell lines.



Depending on research outcomes, the Company plans to fund various in vitro (test tube) and in vivo (animal) experiments that will involve the use of several commercially available human cancer cell lines covering key areas of concern such as glioblastoma (tumors related to the central nervous system, including but not limited to the brain, spinal cord and optic nerve), small cell lung, breast, kidney, pancreatic, and liver cancers.  The Companys goal, based on the results of both the in vitro and in vivo tests, will involve identification of the key compound(s) that demonstrated the greatest anti-cancer activity per human cancer cell line.



On February 3, 2009, the Company issued a news release to announce results from recent in vivo efficacy and toxicity tests where the Companys patented anti-cancer compound was administered to specimens with difficult-to-treat human brain cancer (SF295 glioblastoma xenografts) and, according to researchers, proved to be least toxic and effective in controlling the growth of SF295 human glioblastoma xenografts.



As of September 30, 2009, Dartmouth had concluded their research and development and provided the Company with a key anti cancer compound for glioblastoma.  Based on the results of these tests, the Company has partnered with LATITUDE Pharmaceuticals, Inc. (Latitude) to develop an intravenous (IV) formulation for its lead anti cancer compound for glioblastoma.



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, 2009, the Company has paid a total of $220,260 pursuant to the Sponsored Research Agreement with Dartmouth and $1,253 for reimbursement of expenses, of which $35,710 and $60,463 is included in research and development expense for the three and nine months ended September 30, 2009 and $0 and $103,550 is included in research and development expense for the three and nine months ended September 30, 2008.



Dartmouth License Agreement



On September 1, 2008, the Company entered into an exclusive license agreement with the Trustees of Dartmouth College (DC) 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, and are designed to bind tightly to cancer cell DNA (deoxyribonucleic acid), the blueprint of life for the cancer cell.



Under the terms of the license agreement, the Company has to pay license fees to DC based upon milestones, in addition to an upfront payment of $15,000 (paid) within 30 days of execution of the agreement.   In addition, DC will receive royalty payments on the net sales of products.   The Company will pay an annual royalty throughout the duration of the agreement.   The Company will also reimburse DC the costs incurred for filing, prosecuting and

17

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maintaining the licensed patents. The Company will administer the development, regulatory approval, and commercialization of the compounds and pursue future collaborative arrangements.



The Company submitted a Confidential Treatment Request (CTR) Request with the United States Securities and Exchange Commission (the SEC) on October 22, 2008 requesting permission to withhold disclosure of certain of the provisions of the Dartmouth License Agreement.On March 9, 2009, the SEC granted the CTR. Accordingly, certain terms of the Dartmouth License Agreement, subject to the CTR, do not need to be released to the public until August 5, 2013.



LATITUDE Agreement



On July 6, 2009, the Company entered into an agreement with Latitude to develop an IV formulation for the Companys lead anti cancercompound for glioblastoma, D11B, to use in the Companys preclinical efficacy and toxicology evaluation and possible early stage human clinical trials.  As of September 30, 2009, the Company has paid $23,400 pursuant to the terms of the agreement with Latitude, all of which is included in research and development expense for the three and nine months ended September 30, 2009.



Diabetes Research



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.



Contractual Obligations under the ISU Sponsored Research Agreement were as follows:



Year 1: $62,251 (paid as of March 31, 2009) to ISU in 4 quarterly installments, the first of which was due within 30 days of signing of the Sponsored Research Agreement, the second of which was due to ISU 3 months from the previous payment;



Year 2: $70,295 ($52,721 of which was paid as of March 31, 2009) to ISU in 4 quarterly installments, the first of which was due to ISU 3 months from the previous payment; and



Year 3: $72,140 to ISU in 4 quarterly installments, the first of which was due to ISU 3 months from the previous payment.



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, 2009, the Company had paid a total of $114,972 pursuant to the terms of the ISU Sponsored Research Agreement.  The Company did not incur any research and development expense pursuant to the terms of the ISU Sponsored Research Agreement during the three and nine months ended September 30, 2009.  During the three and nine months ended September 30, 2008 the Company incurred $33,137 and $66,273 pursuant to the terms of the ISU Sponsored Research Agreement.  In addition to contractual obligations pursuant to the ISU Sponsored Research Agreement, the Company reimbursed ISU $92 and $506 during the three and nine months ended September 30, 2008 for other out-of-pocket costs that are included in research and development expense.



Iowa State University Research Foundation License Agreement



On June 12, 2006, the Company, through its wholly owned subsidiary, PolyPhenol Technologies Corporation, entered into an exclusive license agreement with Iowa State University Research Foundation Inc. (ISURF) to

18

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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. The termination is effective April 6, 2009.



Under terms of the license agreement, the Company had to pay to ISURF license fees, of which $20,000 was payable (paid) within 30 days of execution of the agreement, $50,000 was payable upon completion of the first successful Phase 2 clinical trial and the remaining $250,000 was payable upon first approval by the regulatory authority on new drug application. The Company also had to reimburse ISURF the cost incurred for filing, prosecuting and maintaining the licensed patents together with 15% of the said costs, not exceeding $10,000, as the administration fee.



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.



As of September 30, 2009, 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 agreement with ISURF, none of which is included in research and development expense for the three and nine months ended September 30, 2009 and 2008.



Ricerca Development Agreements



The Company utilizes Ricerca BioSciences LLC (Ricerca) as a research vendor, on an as needed basis, to assist in the development of the Companys technologies.  The terms and scope of the work that Ricerca performs is in accordance with formalized statements of work.



During the three and nine months ended September 30, 2009 the Company incurred $0 and $5,400for services provided by Ricerca, which is included in research and development expense.During the three and nine months ended September 30, 2008 the Company incurred $61,503 and $151,103for services provided by Ricerca, which is included in research and development expense.



Results of Operations



A summary of the Companys operating expense for the three and nine months ended September 30, 2009 and 2008 was as follows:



Three Months Ended
     
     
     
     
     Nine Months EndedSeptember 30,
     
     Percentage
     
     
     September 30,
     
     Percentage2009
     
     2008
     
     Change
     
     
     2009
     
     2008
     
     ChangeOperating expensesDirector fees - related party
     $
     1,900
     $
     3,000
     
     (37)
     %
     $
     5,100
     $
     6,150
     
     (17)
     %Investor relations
     
     1,125
     
     6,815
     
     (83)
     
     
     2,533
     
     492,360
     
     (99)Wages and benefits
     
     63,806
     
     98,051
     
     (35)
     
     
     198,487
     
     288,128
     
     (31)Research and development
     
     60,110
     
     116,017
     
     (48)
     
     
     92,849
     
     343,968
     
     (73)Professional fees
     
     34,643
     
     15,859
     
     118
     
     
     107,974
     
     77,894
     
     39Other operating expenses
     
     29,918
     
     24,793
     
     21
     
     
     34,630
     
     106,583
     
     (68)Total operating expenses
     $
     191,502
     $
     264,535
     
     (28)
     %
     $
     441,573
     $
     1,315,083
     
     (66)
     %




Director fees  related party



Non-employee directors receive $250 per month for their services as directors plus $100 for each Board meeting attended.

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During the three and nine months ended September 30, 2009, the Company had two non-employee directors who each attended three Board meetings.



Directors fees for the three months ended September 30, 2008 includes $1,500 of fees earned for the three months ended June 30, 2008, but not recognized for financial reporting purposes until the subsequent quarter ended September 30, 2008.  The $1,500was not deemed significant to the consolidated financial statements taken as a whole.



Investor relations



Investor relations costs represent fees paid to publicize the Companys technology within the investor community with the purpose of increasing company recognition and branding, and to facilitate the efforts to raise funds in equity or debt financings.



During the first half of fiscal year 2008, the Company increased its production of newsletters, analyst coverage, and information distribution to the investor community as a result of technological advances made pursuant to the Sponsored Research Agreement with Dartmouth at the end of the fiscal year 2007 and the beginning of the fiscal year 2008, resulting in higher investor relations expense during the nine months ended September 30, 2008 compared to the nine months ended September 30, 2009.  Effective October 1, 2008, the Company ceased using an investor relations firm and therefore does not expect investor relations expense to be as high as it was in previous periods.



Effective April 15, 2009, the Company 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, the Company pays the third party consultant $375 per month.



Wages and benefits



During the three and nine months ended September 30, 2009, the Company incurred $63,806 and $198,487 in wages and benefits expense for services rendered by Mr. Greg Wujek, the President, Chief Executive Officer, and Director of the Company.



During the three months ended September 30, 2008, the Company incurred a total of $98,051 in wages and benefits expense, consisting of $65,408 for services rendered by Mr. Wujek and $32,643 for services rendered by the employees in the Companys administrative office in Vancouver, Canada, which was closed on August 31, 2008.



During the nine months ended September 30, 2008, the Company incurred a total of $288,158 in wages and benefits expense consisting of $198,498 for services rendered by Mr. Wujek, $13,624 of stock based compensation expense related to the amortization of a stock option previously granted to Mr. Wujek to purchase 2,000,000 shares of the Companys common stock at an exercise price of $0.52 per share, and $76,036 for services rendered by the employees in the Vancouver, Canada office.



Research and development



Research and development costs represent costs incurred to develop the Companys technologies and are incurred pursuant to the Companys sponsored research agreements with Dartmouth, ISU, Ricerca, Latitude, and other third party contract research organizations. The sponsored research agreements include 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.

20

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Following is a summary of research and development expense incurred for the three and nine months ended September 30, 2009 and 2008:



Three Months Ended
     
     
     
     Nine Months EndedSeptember 30,
     
     Increase/
     
     September 30,
     
     Increase/2009
     
     2008
     
     (Decrease)
     
     2009
     
     2008
     
     (Decrease)Research and development expenseISU Sponsored Research Agreement
     $
     -
     $
     33,137
     $
     (33,137)
     $
     -
     $
     66,273
     $
     (66,273)Dartmouth Sponsored Research Agreement
     35,710
     
     -
     
     35,710
     
     60,463
     
     103,550
     
     (43,087)Ricerca
     
     
     -
     
     61,503
     
     (61,503)
     
     5,400
     
     151,103
     
     (145,703)Latitude Agreement
     
     
     23,400
     
     -
     
     23,400
     
     23,400
     
     -
     
     23,400Other research and development expense
     1,000
     
     21,377
     
     (20,377)
     
     3,586
     
     23,042
     
     (19,456)Total research and development expense
     $
     60,110
     $
     116,017
     $
     (55,907)
     $
     92,849
     $
     343,968
     $
     (251,119)




Professional fees



Professional fees substantially consist of accounting fees, audit and tax fees, legal fees, and SEC related filing costs.



Professional fees increased $18,784 during the three months ended September 30, 2009 compared to the same period in 2008 substantially due to increases in legal fees of approximately $12,100 and accounting and tax related fees of approximately $4,300.  Accounting related fees increased due to costs incurred for the preparation and filing of the amended Form 10-Q for the quarter ended March 31, 2009.  Tax related fees increased as a result of costs incurred for the preparation and filing of the Companys Form 1120 for fiscal year 2008. The increase in legal fees is substantially the result costs incurred for legal counsel to prepare the Securities Exchange Agreement (see Change in fair value of warrant liability and gain on extinguishment of warrant liabilitybelow).



Professional fees increased $30,080 during the nine months ended September 30, 2009 compared to the same period in 2008 substantially due to increases in legal fees of approximately $5,100 and accounting and tax related fees of approximately $18,300. The increase in accounting fees is partially the result of theCompany closing its administrative office in Vancouver, British Columbia, Canada, effective August 31, 2008, terminating all of the employees in Vancouver, Canada.  Due to this downsizing, as of September 1, 2008, the Company began outsourcing its accounting function to third parties resulting in an increase in accounting fees.  Also contributing to the increase in accounting and tax related fees during the nine months ended September 30, 2009 is costs incurred for the preparation and filing of the amended Form 10-Q and Form 1120 discussed in the preceding paragraph.



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.



Other operating expenses increased $5,125 during the three months ended September 30, 2009 compared to the same period in 2008 substantially due to increases in patent application fees of approximately $17,500 and license related fees of $10,000 offset by decreases in travel and entertainment of approximately $4,600, office supplies, printing and mailing of approximately $11,400, and rent of approximately $5,500 as a result of theCompany closing its administrative office in Vancouver, Canada, effective August 31, 2008.



Other operating expenses decreased $71,953 during the nine months ended September 30, 2009 compared to the same period in 2008 substantially due to decreases in travel and entertainment of approximately $36,700, office supplies, printing and mailing of approximately $27,200, rent of $19,500, and office repair and maintenance of approximately $6,700, as a result of theCompany closing its administrative office in Vancouver, Canada, effective August 31, 2008.  These decreases are offset by increases inpatent application fees of approximately $17,500 and license related fees of $10,000.

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Other income (expense)



A summary of the Companys other income (expense) for the three and nine months ended September 30, 2009 and 2008 was as follows:



Three Months Ended
     
     
     
     
     Nine Months EndedSeptember 30,
     
     Percentage
     
     
     
     September 30,
     
     Percentage2009
     
     2008
     
     Change
     
     
     
     2009
     
     2008
     
     ChangeOther income (expense)Interest income
     
     $
     -
     $
     3,546
     
     *
     %
     
     $
     -
     $
     21,698
     
     *
     %Interest expense
     
     (16,068)
     
     (19,864)
     
     (19)
     
     
     
     (47,682)
     
     (65,857)
     
     (28)Change in fair value of warrant liability
     6,744
     
     -
     
     *
     
     
     
     (93,910)
     
     -
     
     *Gain on extinguishment of warrant liability
     52,631
     
     -
     
     *
     
     
     
     52,631
     
     -
     
     *Loss on disposal of fixed assets
     
     -
     
     (8,068)
     
     *
     
     
     
     -
     
     (8,068)
     
     *Loss on dissolution of foreign subsidiary
     -
     
     -
     
     *
     
     
     
     (523)
     
     -
     
     *Foreign exchange loss
     
     -
     
     (3,391)
     
     *
     
     
     
     -
     
     (6,969)
     
     *Total other income (expense)
     $
     43,307
     $
     (27,777)
     
     *
     %
     
     $
     (89,484)
     $
     (59,196)
     
     51
     %




* Not meaningful



Interest income



Interest income for the three and nine months ended September 30, 2008 represents interest earned on proceeds received as a result of the 2007 Private Placement completed by the Company in September 2007, raising net proceeds of $3,109,500.  The Companys interest-bearing bank account was maintained at a financial institution located in Canada.Effective August 31, 2008,theCompany closed its administrative office in Vancouver, Canada.  As a result, the Company also closed the bank account at the Canadian financial institution on December 31, 2008 and transferred all of its cash to a non-interest bearing account at an U.S. financial institution.



Interest expense



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 January 1, 2008, the outstanding principal balance of the note payable was $1,000,000.  In February 2008, the Company repaid $250,000 of the principal balance of the note payable.  The remaining $750,000 note payable to Mr. Rayat, which was due on March 8, 2006, bears interest at an annual rate of 8.50% andis payable on demand.



Change in fair value of warrant liability and gain on extinguishment of warrant liability



The Companys Class A Warrants are considered derivative liabilities and are therefore required to be adjusted to fair value each quarter.  The Company values its warrant liability using a Black-Scholes model.  The Companys stock price, remaining term of the Class A Warrants and the volatility of the Companys stock all impact the fair value of the Companys Class A Warrants.

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.

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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 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 Company 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 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.







Loss on disposal of fixed assets



The Company recorded a loss on disposal of fixed assets of $8,068 during the three months ended September 30, 2008 as a result of the removal of  the cost and related accumulated depreciation from the Companys financial statements for equipment that was either no longer in service or deemed obsolete.  Substantially all of this equipment was located at the Companys administrative office in Vancouver, British Columbia, Canada, which, effective August 31, 2008, was closed.



Loss on dissolution of foreign subsidiary



PhytoMedical Ltd. provided administrative services to the Companys Canadian office. The Company ceased to conduct business in Canada, effective August 31, 2008 and closed this office. As a result,the Company dissolved PhytoMedical Ltd. and eliminated all intercompany balances, effective January 1, 2009.  The Company recorded a loss on its 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 the Company will continue as a going concern.The Company has incurred cumulative losses of $25,977,638 through September 30, 2009, does not have positive cash flows from operating activities, and had negative working capital of $838,032 as of September 30, 2009.  Additionally, the Company has expended a significant amount of cash in developing its technology.The Company faces 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 the Companys ability to continue as a going concern.  Management recognizes that in order to meet the Companys capital requirements, and continue to operate, additional financing will be necessary.The Company expects to raise additional funds through private or public equity investments in order to 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.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.  The financial statements do not include any adjustments that might result from the outcome of this uncertainty.



The Company's principal source of liquidity is cash in the bank.  At September 30, 2009, the Company had cash and cash equivalents of $230,981. The Company has financed its operations primarily from funds received pursuant to the 2007 Private Placement completed by the Company in September 2007, raising net proceeds of $3,109,500.



Net cash used in operating activities was $434,852 for the nine months ended September 30, 2009 compared to $1,352,802 for the same period in 2008.  The decrease of $917,950 in cash used in operating activities was substantially due to decreases in investor relations expense of $489,827, research and development expense of $251,119, wages and benefits of $89,671, and other operating expenses of $71,953 during the nine months ended

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September 30, 2009 compared to 2008.  See Results of Operations above for further discussion regarding the decrease in these expenses.



Net cash used in investing activities was $0 for the nine months ended September 30, 2009 compared to $21,173 during the same period in 2008.  During the nine months ended September 30, 2008, the Company purchased $6,173 of equipment and paid $15,000 to Dartmouth College for a license fee.



Net cash used in financing activities was $0 for the nine months ended September 30, 2009 compared to $250,000 for the same period in 2008.  During the nine months ended September 30, 2008, the Company repaid $250,000 of the outstanding principal balance on its notes payable.



Related Party Transactions



Wages and benefits



During the three and nine months ended September 30, 2009, the Company incurred $63,806 and $198,487 in wages and benefits expense for services rendered by Mr. Greg Wujek, the President, Chief Executive Officer, and Director of the Company.   During the three and nine months ended September 30, 2008, the Company incurred $65,408 and $198,498 in wages and benefits expense for services rendered by Mr. Wujek.



During the nine months ended September 30, 2008, the Company also recorded $13,624 in stock based compensation expense related to the amortization of a stock option previously granted to Mr. Wujek to purchase 2,000,000 shares of the Companys common stock at an exercise price of $0.52 per share, which is included in wages and benefits.







Director fees



During the three and nine months ended September 30, 2009, the Company incurred $1,900 and $5,100 in non-employee director fees.  During the three and nine months ended September 30, 2008, the Company incurred $3,000 and $6,150 in non-employee director fees.



Notes 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.  During the nine months ended September 30, 2008, the Company repaid $250,000 to Mr. Rayat with the accrued interest of $67,664.At September 30, 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 bears interest at an annual rate of 8.50%.At September 30, 2009, accrued interest on the $750,000 remaining promissory note was $291,154 and is included in interest payable.  The entire principal and accrued interest is due and payable on demand.The carrying value of notes payable and accrued interest approximates fair value at September 30, 2009, based on their liquidity.



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 the balance sheet date, the Company does not have any contractual obligations other than the notes payable of $750,000, accrued interest of $291,154, and $2,813 related to the Shareholder Communications Agreement, as discussed above.

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Off-Balance Sheet Arrangements



The Companyhas no 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 4T.   Controls and Procedures



(a) Evaluation of Disclosure Controls and Procedures



Under the supervision and with the participation of the Companys management, including its Chief Executive Officer and Chief Financial Officer, the Company conducted an evaluation of the effectiveness of the design and operation of its 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, the Companys Chief Executive Officer and Chief Financial Officer concluded as of September 30, 2009 that the Companys disclosure controls and procedures were effective such that the information required to be disclosed in the Companys 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 the Companys management, including its 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 the Companys 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, the Companys internal control over financial reporting.

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PART II  OTHER INFORMATION



Item 1.   Legal Proceedings.



The Company is not aware of any legal proceedings contemplated by any governmental authority or any other party involving the Company or its properties. As of the date of this report, no director, officer or affiliate is a party adverse to the Company in any legal proceeding or has an adverse interest to the Company in any legal proceedings. The Company is not aware of any other legal proceedings pending or that have been threatened against the Company or its properties.



Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds.

On September 29, 2009, the Company consummated the transactions contemplated by the 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 10,897,081 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 issuance of the common stock is exempt from registration pursuant to Section 4(2) of the Securities Act, and the stock certificates contained an appropriate legend stating that such securities have not been registered under the Securities Act and may not be offered or sold absent registration or an exemption therefrom.

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.



31.1Certification of Principal Executive 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.*



31.2Certification of 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 Pursuant to 18 USC. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*



32.2        Certification of Principal Financial Officer Pursuant to 18 USC. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*



____________________



*Filed herewith.

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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)                                           
|                 |                                                        
|November 5, 2009 | By:/s/ Greg Wujek                                      
|                 | Greg Wujek                                             
|                 | President, Chief Executive Officer, Director           
|                 |                                                        
|November 5, 2009 | /s/ Raymond Krauss                                     
|                 | Chief Financial Officer, Secretary, Treasurer, Director







28

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