UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON, D.C.
20549





FORM
10-K






x           ANNUAL REPORT PURSUANT TO SECTION 13
OR 15(d)


OF
THE SECURITIES EXCHANGE ACT OF 1934





For
the fiscal year ended December 31, 2008





o           TRANSITION REPORT PURSUANT TO SECTION
13 OR 15(d)


OF
THE SECURITIES EXCHANGE ACT OF 1934





For the transition period from
___________to___________





Commission
file number 000-28790








PHYTOMEDICAL
TECHNOLOGIES, INC.


(Exact
name of registrant as specified in its charter)





Nevada
              87-0429962(State
      or other jurisdiction of incorporation or organization)
              (I.R.S.
      Employer 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)





Securities
registered pursuant to Section 12(b) of the Act: None




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




Title of each class
                        
                        Name of each exchange on which
      registeredCommon
      Stock, $0.00001 par value per share
                        
                        OTC
      Bulletin Board





Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. Yes oNo  x





Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or 15(d) of the Act.Yes oNo  x





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.  Yes xNo  o





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













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
                    o
                    
                    Accelerated
      filer
                    oNon-accelerated
      filer (Do not check if a smaller reporting company)
                    o
                    
                    Smaller
      reporting company
                    x





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




The
aggregate market value of the voting and non-voting common equity held by
non-affiliates of the registrant as of the last business day of the registrant’s
most recently completed second fiscal quarter, based upon the closing sale price
of the registrant’s common stock on June 30, 2008 as reported on the OTC
Bulletin Board was $10,768,786.





As of
March 12, 2009, there were 200,398,290 shares of the registrant’s Common Stock
outstanding.




DOCUMENTS
INCORPORATED BY REFERENCE


None.











TABLEOF CONTENTS





PHYTOMEDICAL
TECHNOLOGIES, INC.


ANNUAL
REPORT ON FORM 10-K


FOR
THE FISCAL YEAR ENDED DECEMBER 31, 2008








PART
      I
                      
                      PAGEItem
      1.
                      Business
                      4Item
      2.
                      Properties
                      7Item
      3.
                      Legal Proceedings
                      8Item
      4.
                      Submissions of Matters to a Vote of Security
      Holders
                      8PART
      IIItem
      5.
                      Market for Registrant’s Common Equity, Related Stockholder
      Matters and Issuer Purchases of Equity Securities
                      9Item
      7.
                      Management's Discussion and Analysis of Financial Condition and
      Results of Operations
                      10Item
      8.
                      Financial Statements
                      17Item
      9.
                      Changes in and Disagreements With Accountants on Accounting and
      Financial Disclosure
                      32Item
      9A(T).
                      Controls and Procedures
                      32Item
      9B.
                      Other Information
                      32PART
      IIIItem
      10.
                      Directors, Executive Officers, and Corporate
      Governance
                      33Item
      11.
                      Executive Compensation
                      36Item
      12.
                      Security Ownership of Certain Beneficial Owners and Management
      and Related Stockholder Matters
                      41Item
      13.
                      Certain Relationships and Related Transactions, and Director
      Independence
                      42Item
      14.
                      Principal Accounting Fees and Services
                      43PART
      IVItem
      15.
                      Exhibits, Financial Statement Schedules
                      44SIGNATURES
                      45EXHIBIT INDEX
                      46CERTIFICATIONS





Table of Contents





PARTI





ITEM
1.  BUSINESS





Cautionary
Statement Pursuant to Safe Harbor Provisions of the Private Securities
Litigation Reform Act of 1995:




Except
for the historical information presented in this document, the matters discussed
in this Form 10-K for the fiscal year ended December 31, 2008, and specifically
in the item 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-K 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-K. 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-K 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.





Description of
Business





PhytoMedical
Technologies, Inc. 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 (“PolyPhenal”) 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. PolyPhenal 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.  For convenience, the terms “Company” and “we,” “us,” and
“our” are used to refer collectively to the parent company and the subsidiaries
through which the Company’s various businesses are actually
conducted.





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





Cancer
Research





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.





Diabetes
Research





Through a
Sponsored Research Agreement with Iowa State University (“ISU”), the Company was
working to synthesize certain insulin enhancing (or mimetic) compounds isolated
and characterized from cinnamon bark over a ten year period by a team of United
States Department of Agriculture (“USDA”) Agricultural Research Service (“ARS”)
scientists.  These compounds increase insulin sensitivity by
activating key enzymes that stimulate insulin receptors while inhibiting the
enzymes that deactivate them.





4
 Table of Contents





The
primary objectives of the Company’s research was to synthesize the active
compounds found in cinnamon and characterize their beneficial health effects in
cell cultures systems, animals, and ultimately humans. Once active compounds had
been synthesized, characterized and tested, the Company intended to apply for
patents for the synthesis and use of such synthetic compounds.





On
December 18, 2008 the company was notified by ISU that the patent application
for the insulin enhancing synthesized compounds was rejected by the US Patent
Office.  After further review of the rejection letter along with the
culminated research costs incurred by the Company, the Company determined it was
in the best interests of the Company to terminate its license agreement with
Iowa State Research Foundation (“ISURF”) and its Sponsored Research Agreement
with ISU.  Pursuant to the terms of the license agreement and
Sponsored Research Agreement, the Company provided written notice of termination
to both ISURF and ISU on January 6, 2009.





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 and ISU and third party contract research
organizations. These agreements include salaries and benefits for research and
development personnel, allocated overhead and facility occupancy costs, contract
services and other costs.





The
Company relies primarily on Dartmouth, ISU and the third party contract research
organizations, to conduct, monitor and assess its research.  The
Company may have no control over the specifics of, and possible direction that
the research may take.  Accordingly, there can be no assurance that
such organizations will conduct the Company’s research in a manner that will
lead to the commercialization of any products.





The
Company is also dependent upon the services of certain key collaborating
scientific personnel who are not employed by the Company, including the
principal investigator with respect to the Company’s ongoing research related to
cancer. The loss of this investigator’s services could have a materially adverse
effect on the Company, unless a qualified replacement could be found. The
Company has no control over whether its principal investigators or other
scientific personnel will choose to remain involved with the Company’s projects.
Since these individuals are not bound by contract to the Company nor employed by
the Company directly, they might move on to other research.





The
Company charges all research and development expenses to operations as they are
incurred except for prepayments which are capitalized and amortized over the
applicable period. Research and development expense for the years ended December
31, 2008 and 2007 were $396,989 and $147,179.





Competition





The
Company’s commercial success will depend on its ability and the ability of its
sub-licensees, if any, to compete effectively in product development areas such
as, but not limited to, safety, efficacy, ease of use, patient or customer
compliance, price, marketing and distribution. There can be no assurance that
competitors will not succeed in developing products that are more effective than
any products derived from the Company’s research and development efforts or that
would render such products obsolete and non-competitive.





The
pharmaceutical and nutraceutical industries are characterized by intense
competition, rapid product development and technological change. Most of the
competition that the Company encounters will come from companies, research
institutions and universities who are researching and developing technologies
and products similar to or competitive with any the Company may
develop.





These
companies may enjoy numerous competitive advantages, including:





·
            significantly
      greater name recognition;


·
            established
      relations with healthcare professionals, customers and third-party
      payers;


·
            established
      distribution networks;


·
            additional
      lines of products, and the ability to offer rebates, higher discounts or
      incentives to gain a competitive
advantage;


·
            greater
      experience in conducting research and development, manufacturing, clinical
      trials, obtaining regulatory approval for products, and marketing approved
      products; and


·
            greater
      financial and human resources for product development, sales and
      marketing, and patent litigation.





As a
result, the Company may not be able to compete effectively against these
companies or their products.





5
 Table of Contents





Government and Safety
Regulations





FDA
Regulations





The
Company has yet to develop any products for submission for regulatory approval.
Any such products submitted for approval must undergo rigorous preclinical and
clinical testing and an extensive regulatory approval process before they can be
marketed. This process makes it longer, harder and more costly to bring any
products to market; and, the Company cannot guarantee that approval will be
granted. The pre-marketing approval process can be particularly expensive,
uncertain and lengthy. A number of products for which FDA approval has been
sought by other companies have never been approved for marketing. In addition to
testing and approval procedures, extensive regulations also govern marketing,
manufacturing, distribution, labeling and record-keeping procedures. If the
Company does not comply with applicable regulatory requirements, such violations
could result in warning letters, non-approval, suspensions of regulatory
approvals, civil penalties and criminal fines, product seizures and recalls,
operating restrictions, injunctions and criminal prosecution.




Delays in
obtaining, or the rejection of necessary approvals by the FDA or other
government entity may also adversely affect the Company’s business. Such delays
or rejection may be encountered due to, among other reasons, government or
regulatory delays, lack of efficacy during clinical trials, unforeseen safety
issues, slower than expected rate of patient recruitment for clinical trials,
inability to follow patients after treatment in clinical trials, inconsistencies
between early clinical trial results and results obtained in later clinical
trials, varying interpretations of data generated by clinical trials, or changes
in regulatory policy during the period of product development in the United
States. In the United States more stringent FDA oversight in product clearance
and enforcement activities could result in the Company experiencing longer
approval cycles, more uncertainty, greater risk and significantly higher
expenses. Even if regulatory approval is granted, this approval may entail
limitations on uses for which any such product may be labeled and promoted. It
is possible, for example, that the Company may not receive FDA approval to
market any products, based on the Company’s research and development program for
broader or different applications or to market updated products that represent
extensions of any such products.  In addition, the Company may not
receive FDA approval to export products in the future, and countries to which
products are to be exported may not approve them for import.




Any
manufacturing facilities would also be subject to continual review and
inspection. The FDA has stated publicly that compliance with manufacturing
regulations will be scrutinized more strictly. A governmental authority may
challenge the Company’s compliance with applicable federal, state and foreign
regulations. In addition, any discovery of previously unknown problems with any
of the Company’s research and development efforts or products, if any, derived
from such research and development, or facilities may result in marketing, sales
and manufacturing restrictions, being imposed, as well as possible enforcement
actions.





From time
to time, legislative or regulatory proposals are introduced that could alter the
review and approval process relating to the Company’s research and development
programs and products, if any, derived from such research.  It is
possible that the FDA will issue additional regulations further restricting the
sale of products based on the Company’s underlying research and development
activities. Any change in legislation or regulations that govern the review and
approval process relating to the Company’s future products, if any, could make
it more difficult and costly to obtain approval, or to produce, market, and
distribute such products even if approved.





Animal
Testing





The
Company’s research and development efforts involve laboratory animals. The
Company may be adversely affected by changes in laws, regulations or accepted
procedures applicable to animal testing or by social pressures that would
restrict the use of animals in testing or by actions against the Company’s
collaborators or the Company by groups or individuals opposed to such
testing.





Environmental
Regulations





The
Company’s research and development programs do not generally involve the
handling of potentially harmful biological materials or hazardous materials, but
they may occasionally do so. The Company, ISU, Dartmouth and the Company’s
contract research organizations are subject to federal, state and local laws and
regulations governing the use, handling, storage and disposal of hazardous and
biological materials. If violations of environmental, health and safety laws
occur, the Company could be held liable for damages, penalties and costs of
remedial actions. These expenses or this liability could have a significant
negative impact on the Company’s business, financial condition and results of
operations. The Company may violate environmental, health and safety laws in the
future as a result of human error, equipment failure or other causes.
Environmental laws could become more stringent over time, imposing greater
compliance costs and increasing risks and penalties associated with violations.
The Company may be subject to potentially conflicting and changing regulatory
agendas of political, business and environmental groups. Changes to or
restrictions on permitting requirements or processes, hazardous or biological
material storage or handling might require an unplanned capital investment or
relocation. Failure to comply with new or existing laws or regulations could
harm the Company’s business, financial condition and results of
operations.





6
 Table of Contents





Intellectual
Property





The
Company does not own any patents regarding any of its research and development
activities.  The Company acquired the world wide licensing rights for
anti-cancer compounds from Dartmouth, effective September 1, 2008 (the
“Dartmouth License”).  These compounds are derived from anti-cancer
agents, claimed in Dartmouth United States Patent No.:
6,187,787.  Under the terms of the license, the Company is obligated
to make certain minimum royalty payments and Dartmouth has reserved a
non-transferable royalty-free right to use the Dartmouth Patent Rights and
Dartmouth Know-How in the Field itself, including use by its faculty, staff and
researchers, for educational and research purposes only.





The
Company has submitted a Confidential Treatment Request with the United States
Securities and Exchange Commission, which is currently pending. A redacted copy
of the exclusive worldwide Dartmouth License was filed on Form 8-K dated October
21, 2008 and filed on October 22, 2008.





The
Company can assert rights to addendums and future patents specific to the term
of their licensing agreement with Dartmouth. However,
the Company may not be able to assert any rights, under its sponsored research
agreements, to any patents held by ISURF or Dartmouth.  Third parties
could, in the future, assert infringement or misappropriation claims against the
Company with respect to its current research and development program or future
products, if any, derived from the Company’s research and development program.
Whether a product infringes a patent involves complex legal and factual issues,
the determination of which is often uncertain. Therefore, the Company cannot be
certain that it has not infringed the intellectual property rights of such third
parties.





Any
infringement or misappropriation claim could cause the Company to incur
significant costs, could place significant strain on the Company’s financial
resources, divert management’s attention from its business and harm its
reputation. If the relevant patents were upheld as valid and enforceable and the
Company were found to infringe, it could be prohibited from continuing its
research and development activities and from marketing or selling products, if
any, derived from the Company’s research efforts unless it could obtain licenses
to use the technology covered by the patent or are able to design around the
patent. The Company may be unable to obtain a license on terms acceptable to it,
if at all, and it may not be able to commercialize any products. A court could
also order the Company to pay compensatory damages for such infringement, plus
prejudgment interest and could, in addition, treble the compensatory damages and
award attorney fees. These damages could be substantial and could harm the
Company’s reputation, business, financial condition and operating results.
Depending on the nature of the relief ordered by the court, the Company could
become liable for additional damages to third parties.





Employees





Effective
August 31, 2008, the Company closed its administrative office in Vancouver,
British Columbia, Canada, terminating the employment of all of its employees in
Vancouver.  As a result of this downsizing, as of September 1, 2008
and the date of this report, the Company employs only one person on a full time
basis, Mr. Greg Wujek, its President and Chief Executive Officer. As of the date
of this report, the Company does not have any part time employees.





The
Company considers its relationship with its employee to be good. To the best of
the Company’s knowledge, none of the Company’s officers or directors is bound by
restrictive covenants from prior employers which would preclude them from
providing services to the Company.





All of
the Company’s research and development activities are provided on its behalf by
scientists and others employed by academic institutions with which the Company
has agreements or by third party providers.  The Company plans to
retain and utilize the services of outside consultants, including members of its
Advisory Board, as the need arises.





ITEM2.  PROPERTIES





The
Company's corporate office is located at 100 Overlook Drive, 2nd Floor,
Princeton, New Jersey, 08540.





Until
August 31, 2008, the Company’s administrative office was located at 1628 West
First Avenue, Suite 216, Vancouver, British Columbia, Canada, V6J 1G1. This
premise in Vancouver, British Columbia is owned by a private corporation
controlled by a former director and a controlling shareholder of the Company.
 Effective August 31, 2008, the Company closed its administrative office in
Vancouver, British Columbia, Canada, terminating all of its employees in
Vancouver, British Columbia.





7
 Table of Contents





ITEM3.  LEGAL PROCEEDINGS





As of the
date of this report, the Company is not party to any legal proceedings nor is it
aware of any pending or threatened legal proceedings.





ITEM4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS





The
Annual Meeting of Stockholders (the “Annual Meeting”) of the Company was held on
October 16, 2008, at which time the stockholders voted on the following
proposals:





ITEM
1.





The
election of a board of directors to serve until the next Annual Meeting or until
their respective successors are duly elected and have qualified.





Votes For
                  Votes Against
                  Votes AbstainedMr.
      Greg Wujek
                  137,625,202
                  871,816
                  232,190Mr.
      Gary Branning
                  137,788,684
                  713,334
                  227,190Mr.
      Raymond Krauss
                  137,639,256
                  781,454
                  308,498Mr.
      Harmel S. Rayat (1)
                  137,546,064
                  949,952
                  233,192





(1)Mr. Rayat resigned from the board
of directors, effective September 5, 2008.





ITEM
2.





To ratify
the appointment of Peterson Sullivan, LLP for the fiscal year ending December
31, 2008.





Votes For
                        Votes Against
                        Votes Abstained137,751,726
                        728,291
                        249,191





8
 Table of Contents





PART
II





ITEM5.  MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED
STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES





Market
Information





The
Company's Common Stock is traded on the Over the Counter Bulletin Board (the
“OTCBB”) under the symbol “PYTO”.





The
following table sets forth the high and low closing sale prices for the
Company's Common Stock for each quarter during the past two fiscal years as
reported by the OTCBB:





High
                    
                    
                    LowFiscal Year 2008First
      Quarter 2008 (January 1 – March 31, 2008)
                    
                    $
                    0.40
                    
                    
                    $
                    0.22Second
      Quarter 2008 (April 1 – June 30, 2008)
                    
                    $
                    0.32
                    
                    
                    $
                    0.12Third
      Quarter 2008 (July 1 – September 30, 2008)
                    
                    $
                    0.14
                    
                    
                    $
                    0.05Fourth
      Quarter 2008 (October 1 – December 31, 2008)
                    
                    $
                    0.10
                    
                    
                    $
                    0.03Fiscal Year 2007First
      Quarter 2007 (January 1 – March 31, 2007)
                    
                    $
                    0.55
                    
                    
                    $
                    0.36Second
      Quarter 2007 (April 1 – June 30, 2007)
                    
                    $
                    0.50
                    
                    
                    $
                    0.32Third
      Quarter 2007 (July 1 – September 30, 2007)
                    
                    $
                    0.50
                    
                    
                    $
                    0.27Fourth
      Quarter 2007 (October 1 – December 31, 2007)
                    
                    $
                    0.47
                    
                    
                    $
                    0.28





As of
February 17, 2009, there were approximately 300 stockholders of record of the
Company's Common Stock.





Dividend
Policy





The
Company does not have a history of paying dividends on its Common Stock, and
there can be no assurance that it will pay any dividends in the foreseeable
future. The Company intends to use any earnings, which may be generated, to
finance the growth of its businesses. The Company’s Board of Directors has the
right to authorize the issuance of preferred stock, without further shareholder
approval, the holders of which may have preferences over the holders of the
Common Stock as to payment of dividends.





9
 Table of Contents








Securities Authorized for
Issuance Under Equity Compensation Plans





The
following table sets forth certain information regarding the common stock that
may be issued upon the exercise of options, warrants and other rights that have
been or may be granted to employees, directors or consultants under all of the
Company’s existing equity compensation plans, as of December 31,
2008.





Plan
      Category
                            
                            Number
      of securities to be issued upon exercise of outstanding options, warrants
      and rights
                            
                            
                            Weighted-average
      exercise price of outstanding options, warrants and rights
                            
                            
                            Number
      of securities remaining available for future issuance under equity
      compensation plans (excluding securities reflected in column
      (a))(a)
                            
                            
                            (b)
                            
                            
                            (c)Equity compensation plans
      approved by security holders(1)
                            
                            
                            2,000,000
                            
                            
                            $
                            0.52
                            
                            
                            
                            20,250,000Equity compensation plans not
      approved by security holders(2)
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -Total
                            
                            
                            2,000,000
                            
                            
                            $
                            0.52
                            
                            
                            
                            20,250,000





(1)
            Consists
      of grants under the Company’s 2005 Stock
Plan.





(2)
            Consists
      of grants under individual compensation arrangements approved separately
      by the Board of Directors and are not part of any written or formal plan
      under which the Company will be obligated to issue equity compensation in
      the future.





ITEM7.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS





Overview





The
following Management’s Discussion and Analysis (“MD&A”) is intended to help
the reader understand the 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 Item 8 of this Form 10-K.





The
Company’s discussion and analysis of its financial condition and results of
operations is based on its financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States.
The preparation of these 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.





Cancer
Research





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.





10
 Table of Contents





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.





Diabetes
Research





Through a
Sponsored Research Agreement with Iowa State University (“ISU”), the Company was
working to synthesize certain insulin enhancing (or mimetic) compounds isolated
and characterized from cinnamon bark over a ten year period by a team of United
States Department of Agriculture (“USDA”) Agricultural Research Service (“ARS”)
scientists.  These compounds increase insulin sensitivity by
activating key enzymes that stimulate insulin receptors while inhibiting the
enzymes that deactivate them.





The
primary objective of the Company’s research was to synthesize the active
compounds found in cinnamon and characterize their beneficial health effects in
cell cultures systems, animals, and ultimately humans. Once active compounds had
been synthesized, characterized and tested, the Company intended to apply for
patents for the synthesis and use of such synthetic compounds.





On
December 18, 2008 the company was notified by ISU that the patent application
for the insulin enhancing synthesized compounds was rejected by the US Patent
Office.  After further review of the rejection letter along with the
culminated research costs incurred by the Company, the Company determined it was
in the best interests of the Company to terminate its license agreement with
Iowa State Research Foundation (“ISURF”) and its Sponsored Research Agreement
with ISU.  Pursuant to the terms of the license agreement and
Sponsored Research Agreement, the Company provided written notice of termination
to both ISURF and ISU on January 6, 2009.





Sponsored Research and
License Agreements





IowaStateUniversitySponsored
ResearchAgreement





On
February 1, 2007, the Company, through its wholly owned subsidiary, PolyPhenol
Technologies Corporation, 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.





Contractual Obligations
under theISU
Sponsored ResearchAgreementwereas
follows:





Year 1:
$62,251 (paid as of December 31, 2008) 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 December 31, 2008) 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 is due to ISU 3
months from the previous payment.





As
of December 31, 2008, the Company has paid a total of $114,972 pursuant to
the terms of the ISU Sponsored Research Agreement of which $83,846 and $31,126
is included in research and development expense for the years ended December 31,
2008 and 2007.  In addition to contractual obligations pursuant to the
ISU Sponsored Research Agreement, the Company reimbursed ISU $506 and $20,463
during the years ended December 31, 2008 and 2007 for other out-of-pocket costs
that are included in research and development expense.





As of
December 31, 2008 and upon written 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.





11
 Table of Contents





IowaStateUniversityResearch 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 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.





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 has 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.





As of
December 31, 2008, the Company has 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.  Of the total $31,223 paid to ISURF for
patent and research costs, $0 and $2,304 is included in research and development
expense for the years ended December 31, 2008 and 2007.





As of
December 31, 2008 and upon written 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.





Ricerca Development
Agreements





The
Company announced in July 2006 that it had entered into a development agreement
with Ricerca BioSciences LLC (“Ricerca”), to begin development work on the
Company’s BDC-03 compound for cachexia.  The Company terminated the
BDC-03 development in November 2007 and currently utilizes Ricerca as a research
vendor on an as needed basis.





As of
December 31, 2008, the Company paid a total of $239,996 for services provided by
Ricerca, of which $174,937 and $13,500 is included in research and development
expense for years ended December 31, 2008 and 2007.





DartmouthSponsored 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.





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
December 31, 2008, the Company has paid a total of $161,050 pursuant to the
Sponsored Research Agreement with Dartmouth, of which $115,300 and $45,750 is
included in research and development expense for the years ended December 31,
2008 and 2007.





12
 Table of Contents





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 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 has submitted a Confidential Treatment Request with the United States
Securities and Exchange Commission, which is currently pending. A redacted copy
of the exclusive worldwide Dartmouth License was filed on Form 8-K dated October
21, 2008 and filed on October 22, 2008.





Results of
Operations





A summary
of the Company’s operating expense for the years ended December 31, 2008 and
2007 was as follows:





Year
      EndedDecember
      31,
                      
                      
                      Percentage2008
                      
                      
                      2007
                      
                      
                      ChangeOperating
      expensesDirector
      fees - related party
                      
                      $
                      9,750
                      
                      
                      $
                      3,400
                      
                      
                      
                      187
                      %Investor
      relations
                      
                      
                      492,360
                      
                      
                      
                      127,545
                      
                      
                      
                      286Wages
      and benefits
                      
                      
                      346,538
                      
                      
                      
                      1,581,736
                      
                      
                      
                      (78
                      )Research
      and development
                      
                      
                      396,989
                      
                      
                      
                      147,179
                      
                      
                      
                      170Professional
      fees
                      
                      
                      110,249
                      
                      
                      
                      66,588
                      
                      
                      
                      66Impairment
      of license fee
                      
                      
                      20,000
                      
                      
                      
                      -
                      
                      
                      
                      *Other
      operating expenses
                      
                      
                      122,308
                      
                      
                      
                      155,306
                      
                      
                      
                      (21
                      )Total
      operating expenses
                      
                      $
                      1,498,194
                      
                      
                      $
                      2,081,754
                      
                      
                      
                      (28
                      )
      %





* Not
meaningful





Director
fees – related party





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





The
increase in director fees is substantially due to the Company recording
directors fees earned for the year ended December 31, 2007 of $3,150 during the
year ended December 31, 2008.





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.





The
increase in investor relations of $364,815 during the year ended December 31,
2008 compared to 2007 is substantially due to the increased 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.





Wages
and benefits





Wages and
benefits decreased $1,235,198 primarily as a result of a decrease in stock based
compensation expense.  On April 4, 2006, the Company granted a stock
option to purchase 2,250,000 shares of common stock at an exercise price of
$1.22 to Mr. Greg Wujek, President, CEO, and Director of the
Company.   The fair value of the 2,250,000 stock options at the
time of grant was $2,587,500 using the Black-Scholes Option Pricing
Model.





13
 Table of Contents





On August
1, 2006, the Company cancelled the stock option to purchase 2,250,000 shares of
common stock while simultaneously granting a stock option to Mr. Wujek to
purchase 2,000,000 shares of common stock at an exercise price of $0.52 per
share, expiring August 1, 2016.  The cancellation and re-issuance of
the stock option was accounted for as a modification of terms, resulting in
additional stock-based compensation expense.  The total fair value of
the 2,000,000 stock options as a result of the modification was $2,667,500,
which was amortized over the expected requisite period.





During
the years ended December 31, 2008 and 2007, the Company recorded $13,624 and
$1,210,568 in stock based compensation expense related to the amortization of
the 2,000,000 stock options granted to Mr. Wujek.





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 and ISU and 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.





During
the years ended December 31, 2008 and 2007, the Company incurred $83,846 and
$31,126 pursuant to the terms of the ISU Sponsored Research
Agreement.  During the years ended December 31, 2008 and 2007, the
Company incurred $174,937 and $13,500 pursuant to development agreements with
Ricerca.  During the years ended December 31, 2008 and 2007, the
Company incurred $115,300 and $45,750 pursuant to the terms of the Sponsored
Research Agreement with Dartmouth.





Research
and development expense for the years ended December 31, 2008 and 2007 also
includes reimbursement for other out-of-pocket costs.





Professional
fees





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





Professional
fees increased $43,661 during the year ended December 31, 2008 compared to 2007
substantially due to an increase in accounting, audit, and tax fees of
approximately $33,000.  This increase is partially the result of the
Company 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.  During the year ended December 31,
2008 the Company incurred $11,100 more in tax related preparation and filing
fees than during the year ended December 31, 2007.





Impairment
of license fee





On
December 18, 2008 the company was notified by ISU that the patent application
for the insulin enhancing synthesized compounds was rejected by the US Patent
Office.  After further review of the rejection letter along with the
culminated research costs incurred by the Company, the Company determined it was
in the best interests of the Company to terminate its license agreement with
ISURF and its Sponsored Research Agreement with ISU.  Pursuant to the
terms of the license agreement and Sponsored Research Agreement, the Company
provided written notice of termination to both ISURF and ISU on January 6,
2009.   As a result of the termination of the license agreement
with ISURF, the Company recorded an impairment charge of $20,000 at December 31,
2008 to write-off the previously paid license fee.





Other
operating expenses





Other
operating expenses include travel and entertainment, rent, office supplies,
printing and mailing, information technology related fees and other
administrative costs.





Other
operating expenses decreased $32,998 during the year ended December 31, 2008
compared to the same period in 2007 partially due to a decrease in rent of
$24,496 as a result of the Company closing its administrative office in
Vancouver, Canada, effective August 31, 2008.





During
the year ended December 31, 2008, the Company recorded a loss on disposal of
fixed assets of $8,068 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,
Canada.  Depreciation expense for the year ended December 31, 2008 was
$2,022 compared to $9,451 for the year ended December 31, 2007.





14
 Table of Contents





Other
income (expense)





A summary
of the Company’s other income (expense) for the years ended December 31, 2008
and 2007 was as follows:





Year
      EndedDecember
      31,
                      
                      
                      Percentage2008
                      
                      
                      2007
                      
                      
                      ChangeOther
      income (expense)Interest
      income
                      
                      $
                      22,679
                      
                      
                      $
                      35,029
                      
                      
                      
                      (35
                      )
      %Interest
      expense
                      
                      
                      (70,445
                      )
                      
                      
                      (105,689
                      )
                      
                      
                      (33
                      )Loss
      on disposal of fixed assets
                      
                      
                      (8,068
                      )
                      
                      
                      -
                      
                      
                      
                      *Foreign
      exchange loss
                      
                      
                      (6,773
                      )
                      
                      
                      (2,947
                      )
                      
                      
                      130Total
      other income (expense)
                      
                      $
                      (62,607
                      )
                      
                      $
                      (73,607
                      )
                      
                      
                      (15
                      )
      %





* Not
meaningful





Interest income





Interest
income decreased $12,350 during the year ended December 31, 2008 compared to the
same period in 2007.  The Company raised net proceeds of $3,109,500 in
September 2007 pursuant to the terms of a private placement.  The
decrease in interest income reflects the declining average cash balance
resulting from cash used in operating activities from September 2007 through
December 31, 2008.





Interest expense





Interest
expense decreased $35,244 during the year ended December 31, 2008 compared to
the same period in 2007 as a result of the Company repaying the principal
balance of $250,000 of a note payable in February 2008.





Loss
on disposal of fixed assets





The
Company recorded a loss on disposal of fixed assets of $8,068 during the year
ended December 31, 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
was closed, effective August 31, 2008.





Liquidity and Capital
Resources





The
accompanying financial statements have been prepared assuming the Company will
continue as a going concern.  The Company incurred cumulative losses
of $26,621,157 through December 31, 2008.  Additionally, the Company
has expended a significant amount of cash in developing its
technology.  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, which the Company
anticipates will be sufficient to fund its operations for the next twelve
months.  The Company's future funding requirements will depend on
numerous factors, including: the time and investment required to invest in the
Company’s research and development projects; to recruit and train qualified
management personnel; and the Company's ability to compete against other, better
capitalized corporations in similar businesses.





At
December 31, 2008, the Company had cash and cash equivalents of $665,833. The
Company has financed its operations primarily from funds received pursuant to a
private placement completed by the Company in September 2007, raising net
proceeds of $3,109,500.





Net cash
used in operating activities was $1,496,700 for the year ended December 31, 2008
compared to $1,074,205 for the same period in 2007.  The increase of
$422,495 in cash used was substantially due to increases in investor relations
expense of $364,815 and research and development expense of $249,810 during the
years ended December 31, 2008 compared to 2007.  Offsetting the
increase in cash used in operating activities during the year ended December 31,
2008 compared to 2007 was $161,037 included in accrued liabilities at December
31, 2006 and paid in January 2007 for a Cooperative Research and Development
Agreement (CRADA) with the USDA's Agricultural Research Service (ARS). The CRADA
with ARS was terminated on February 1, 2007.





15
 Table of Contents





Net cash
used in investing activities was $21,173 for the year ended December 31, 2008,
compared to $3,747 during the same period in 2007.  During the year
ended December 31, 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 $250,000 for the year ended December 31, 2008
compared to net cash provided by financing activities of $3,125,724 for the same
period in 2007.  During the year ended December 31, 2008, the Company
repaid $250,000 of the outstanding principal balance on its notes
payable.  During the year ended December 31, 2007, the Company
received net proceeds of $3,109,500 pursuant to a private
placement.





Related Party
Transactions





Wages
and benefits





During
the years ended December 31, 2008 and 2007, the Company incurred
$260,331 and $266,208 in cash wages and benefits expense for services
rendered by Mr. Greg Wujek, the President, Chief Executive Officer, and Director
of the Company.





During
the years ended December 31, 2008 and 2007, the Company recorded $13,624 and
$1,210,568 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.





Director
fees





During
the years ended December 31, 2008 and 2007, the Company incurred $9,750 and
$3,400 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 year ended December 31,
2008, the Company repaid $250,000 to Mr. Rayat with the accrued interest of
$67,664.  At December 31, 2008, 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 December 31, 2008, accrued interest on the
$750,000 remaining promissory note was $243,473 and is included in interest
payable. The entire principal and accrued interest is due and payable on
demand.





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





The
Company does not have any contractual obligations other than the Sponsored
Research and License Agreements, Notes Payable and Accrued Interest, as
discussed above.





Off-Balance Sheet
Arrangements





The
Company has no off-balance sheet arrangements that have had, or are reasonably
likely to have, a material current or future effect on the Company’s financial
condition or consolidated financial statements.





Recently Issued Accounting
Pronouncements





See Note
3.  Summary of Significant Accounting Policies to the Consolidated
Financial Statements in this Form 10-K.





16
 Table of Contents





ITEM8.  FINANCIAL
STATEMENTS








INDEX
TO FINANCIAL STATEMENTS








Report
      of Independent Registered Public Accounting Firm
                  18Consolidated
      Balance Sheets as of December 31, 2008 and 2007
                  19Consolidated
      Statements of Operations for the Years Ended December 31, 2008 and
      2007
                  20Consolidated
      Statements of Stockholders’ Equity (Deficit) for the Years Ended December
      31, 2008 and 2007
                  21Consolidated
      Statements of Cash Flows for the Years Ended December 31, 2008 and
      2007
                  22Notes
      to Consolidated Financial Statements
                  23
      - 31





17
 Table of Contents









REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM








To the
Board of Directors


PhytoMedical
Technologies, Inc.


Princeton,
New Jersey








We have
audited the accompanying consolidated balance sheets of PhytoMedical
Technologies, Inc. and Subsidiaries ("the Company") as of December 31, 2008
and 2007, and the related consolidated statements of operations, stockholders'
equity (deficit), and cash flows for the years then ended.  These
financial statements are the responsibility of the Company's
management.  Our responsibility is to express an opinion on these
financial statements based on our audits.





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





In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of PhytoMedical Technologies,
Inc. and Subsidiaries as of December 31, 2008 and 2007, and the results of
their operations and their cash flows for the years then ended, in conformity
with accounting principles generally accepted in the United States.





The
accompanying consolidated financial statements have been prepared assuming the
Company will continue as a going concern.  As discussed in Note 2
to the financial statements, the Company has experienced recurring losses from
operations since inception, and has a substantial accumulated
deficit.  These conditions raise substantial doubt about the Company's
ability to continue as a going concern.  Management's plans regarding
these matters are also described in Note 2.  The consolidated
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.





/S/
PETERSON SULLIVAN LLP





Seattle,
Washington


March 14,
2009





18
 Table of Contents




PHYTOMEDICAL
TECHNOLOGIES, INC.


CONSOLIDATED
BALANCE SHEETS
 December
31, 2008 and December 31, 2007
 (Expressed
in U.S. Dollars)


December
      31,
                    
                    
                    December
      31,2008
                    
                    
                    2007ASSETSCurrent
      assetsCash
      and cash equivalents
                    
                    $
                    665,833
                    
                    
                    $
                    2,434,230Prepaid
      expenses
                    
                    
                    2,260
                    
                    
                    
                    -Total
      current assets
                    
                    
                    668,093
                    
                    
                    
                    2,434,230Equipment,
      net of accumulated depreciation
                    
                    
                    -
                    
                    
                    
                    3,917Intangible
      assets - license fees
                    
                    
                    15,000
                    
                    
                    
                    20,000Total
      assets
                    
                    $
                    683,093
                    
                    
                    $
                    2,458,147LIABILITIES
      AND STOCKHOLDERS' EQUITY (DEFICIT)LIABILITIESCurrent
      liabilitiesAccounts
      payable
                    
                    $
                    23,397
                    
                    
                    $
                    -Accrued
      liabilities
                    
                    
                    -
                    
                    
                    
                    2,970Interest
      payable
                    
                    
                    243,473
                    
                    
                    
                    241,253Notes
      payable
                    
                    
                    750,000
                    
                    
                    
                    1,000,000Total
      current liabilities
                    
                    
                    1,016,870
                    
                    
                    
                    1,244,223Commitments
      and ContingenciesSTOCKHOLDERS'
      EQUITY (DEFICIT)Stockholders'
      equity (deficit)Preferred
      stock: $0.25 par value; 1,000,000 authorized, no shares issued and
      outstanding at December 31, 2008 and 2007
                    
                    
                    -
                    
                    
                    
                    -Common
      stock: $0.00001 par value; 300,000,000 authorized, 200,398,290 shares
      issued and outstanding at December 31, 2008 and 2007
                    
                    
                    2,004
                    
                    
                    
                    2,004Additional
      paid-in capital
                    
                    
                    26,285,899
                    
                    
                    
                    26,272,275Accumulated
      other comprehensive (loss) income
                    
                    
                    (523
                    )
                    
                    
                    1Accumulated
      deficit
                    
                    
                    (26,621,157
                    )
                    
                    
                    (25,060,356
                    )Total
      stockholders' equity (deficit)
                    
                    
                    (333,777
                    )
                    
                    
                    1,213,924Total
      liabilities and stockholders' equity (deficit)
                    
                    $
                    683,093
                    
                    
                    $
                    2,458,147





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





19
 Table of Contents




PHYTOMEDICAL
      TECHNOLOGIES, INC.CONSOLIDATED
      STATEMENTS OF OPERATIONSFor
      the Years Ended December 31, 2008 and 2007(Expressed
      in U.S. Dollars)Year
      Ended December 31,2008
                        
                        
                        2007Revenue
                        
                        $
                        -
                        
                        
                        $
                        -Operating
      expensesDirectors
      fees - related party
                        
                        
                        9,750
                        
                        
                        
                        3,400Investor
      relations
                        
                        
                        492,360
                        
                        
                        
                        127,545Wages
      and benefits
                        
                        
                        346,538
                        
                        
                        
                        1,581,736Research
      and development
                        
                        
                        396,989
                        
                        
                        
                        147,179Professional
      fees
                        
                        
                        110,249
                        
                        
                        
                        66,588Impairment
      of license fee
                        
                        
                        20,000
                        
                        
                        
                        -Other
      operating expenses
                        
                        
                        122,308
                        
                        
                        
                        155,306Total
      operating expenses
                        
                        
                        1,498,194
                        
                        
                        
                        2,081,754Operating
      loss
                        
                        
                        (1,498,194
                        )
                        
                        
                        (2,081,754
                        )Other
      income (expense)Interest
      income
                        
                        
                        22,679
                        
                        
                        
                        35,029Interest
      expense
                        
                        
                        (70,445
                        )
                        
                        
                        (105,689
                        )Loss
      on disposal of fixed assets
                        
                        
                        (8,068
                        )
                        
                        
                        -Foreign
      exchange loss
                        
                        
                        (6,773
                        )
                        
                        
                        (2,947
                        )Net
      loss
                        
                        $
                        (1,560,801
                        )
                        
                        $
                        (2,155,361
                        )Net loss per common share -basic and diluted
                        
                        $
                        (0.01
                        )
                        
                        $
                        (0.01
                        )Weighted average number of
      common shares outstanding- basic and diluted
                        
                        
                        200,398,290
                        
                        
                        
                        192,516,914




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





20
 Table of Contents




PHYTOMEDICAL
      TECHNOLOGIES, INC.CONSOLIDATED
      STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)For
      the Years Ended December 31, 2008 and 2007(Expressed
      in U.S. Dollars)Accumulated
      Other
                      
                      
                      
                      
                      
                      Comprehensive
                      
                      
                      TotalCommon
      Stock
                      
                      
                      Additional
                      
                      
                      Comprehensive
                      
                      
                      Accumulated
                      
                      
                      Income
                      
                      
                      Stockholders'Shares
                      
                      
                      Amount
                      
                      
                      Paid-in
      Capital
                      
                      
                      (Loss)
      Income
                      
                      
                      Deficit
                      
                      
                      (Loss)
                      
                      
                      Equity
      (Deficit)Balance,
      December 31, 2006
                      
                      
                      189,181,866
                      
                      
                      $
                      1,892
                      
                      
                      $
                      21,722,319
                      
                      
                      
                      -
                      
                      
                      $
                      (22,904,995
                      )
                      
                      
                      
                      
                      $
                      (1,180,784
                      )Common
      stock issued for cash
                      
                      
                      533,091
                      
                      
                      
                      5
                      
                      
                      
                      229,995
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      230,000Common
      stock issued for cash, net
                      
                      
                      10,683,333
                      
                      
                      
                      107
                      
                      
                      
                      1,910,713
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      1,910,820Issuance
      of warrants on private placement
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      1,175,167
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      1,175,167Issuance
      of warrants to broker as commission
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      23,513
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      23,513Stock
      based compensation expense
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      1,210,568
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      1,210,568Comprehensive
      income (loss)Foreign
      currency translation adjustments
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      1
                      
                      
                      
                      
                      
                      
                      
                      1
                      
                      
                      
                      1Net
      loss, year ended December 31, 2007
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (2,155,361
                      )
                      
                      
                      (2,155,361
                      )
                      
                      
                      (2,155,361
                      )Total
      comprehensive income (loss)
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      (2,155,360
                      )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 income (loss)
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      $
                      (1,561,325
                      )Balance,
      December 31, 2008
                      
                      
                      200,398,290
                      
                      
                      $
                      2,004
                      
                      
                      $
                      26,285,899
                      
                      
                      $
                      (523
                      )
                      
                      $
                      (26,621,157
                      )
                      
                      
                      
                      
                      
                      $
                      (333,777
                      )





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





21
 Table of Contents




PHYTOMEDICAL
      TECHNOLOGIES, INC.CONSOLIDATED
      STATEMENTS OF CASH FLOWSFor
      the Years Ended December 31, 2008 and 2007(Expressed
      in U.S. Dollars)Year
      Ended December 31,2008
                    
                    
                    2007Cash
      flows from operating activitiesNet
      loss
                    
                    $
                    (1,560,801
                    )
                    
                    $
                    (2,155,361
                    )Adjustments
      to reconcile net loss to net cash used in operating
    activitiesDepreciation
                    
                    
                    2,022
                    
                    
                    
                    9,451Stock
      based compensation
                    
                    
                    13,624
                    
                    
                    
                    1,210,568Loss
      on disposal of fixed assets
                    
                    
                    8,068
                    
                    
                    
                    -Impairment
      of license fee
                    
                    
                    20,000
                    
                    
                    
                    -Change
      in operating assets and liabilities:(Increase)
      decrease in prepaid expenses
                    
                    
                    (2,260
                    )
                    
                    
                    4,788Increase
      (decrease) in accounts payable
                    
                    
                    23,397
                    
                    
                    
                    (9,070
                    )Decrease
      in accrued liabilities
                    
                    
                    (2,970
                    )
                    
                    
                    (181,987
                    )Increase
      in interest payable
                    
                    
                    2,220
                    
                    
                    
                    47,406Net
      cash used in operating activities
                    
                    
                    (1,496,700
                    )
                    
                    
                    (1,074,205
                    )Cash
      flows from investing activitiesPurchase
      of equipment
                    
                    
                    (6,173
                    )
                    
                    
                    (3,747
                    )Additions
      to intangible assets - license fees
                    
                    
                    (15,000
                    )
                    
                    
                    -Net
      cash used in investing activities
                    
                    
                    (21,173
                    )
                    
                    
                    (3,747
                    )Cash
      flows from financing activitiesProceeds
      from issuance of common stocks and warrants
                    
                    
                    -
                    
                    
                    
                    3,339,500Proceeds
      from loan from stockholder
                    
                    
                    -
                    
                    
                    
                    150,000Repayment
      of loan to stockholder
                    
                    
                    (250,000
                    )
                    
                    
                    (363,776
                    )Net
      cash (used in) provided by financing activities
                    
                    
                    (250,000
                    )
                    
                    
                    3,125,724Effect
      of foreign exchange rate
                    
                    
                    (524
                    )
                    
                    
                    1(Decrease)
      increase in cash and cash equivalents
                    
                    
                    (1,768,397
                    )
                    
                    
                    2,047,773Cash
      and cash equivalents at beginning of period
                    
                    
                    2,434,230
                    
                    
                    
                    386,457Cash
      and cash equivalents at end of period
                    
                    $
                    665,833
                    
                    
                    $
                    2,434,230Supplemental
      disclosure of cash flow information:Interest
      paid in cash
                    
                    $
                    68,226
                    
                    
                    $
                    58,282Income
      tax paid in cash
                    
                    $
                    -
                    
                    
                    $
                    -





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





22
 Table of Contents





PHYTOMEDICAL
TECHNOLOGIES, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





December
31, 2008


(Expressed
in U.S. Dollars)





Note
1.  Organization and Nature of Operations





PhytoMedical
Technologies, Inc. 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 (“PolyPhenal”) 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. PolyPhenal 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.





Note
2.  Going Concern Uncertainties





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. The Company has incurred cumulative losses of $26,621,157 through
December 31, 2008 and does not have positive cash flows from operating
activities.  Additionally, the Company has expended a significant
amount of cash in developing its technology.  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.
Management believes that its current and future plans provide the opportunity
for the Company to continue as a going concern.





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
reflect any adjustments that might result from the outcome of this uncertainty.
Although management believes that the Company has sufficient financial resources
and commitments to sustain its current level of research and development
activities through the end of 2009, any expansion, acceleration or continuation
of such activities (beyond 2009) will require additional capital which may not
be available to the Company, if at all, on terms and conditions that the Company
finds acceptable. The future of the Company hereafter will depend in large part
on the Company’s ability to successfully raise capital from external sources to
pay for planned expenditures and to fund operations.





The
accompanying consolidated financial statements have been prepared assuming the
Company will continue as a going concern.  They 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.  Summary of Significant Accounting Policies





Basis
of Presentation





The
accompanying consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in the United States (“U.S.
GAAP”), and include the accounts of PhytoMedical Technologies, Inc., and its
subsidiaries, PhytoMedical Corp., PolyPhenol, and PhytoMedical Ltd.  All
significant intercompany transactions and accounts have been eliminated in
consolidation.





Accounting
Estimates





The
preparation of financial statements in conformity with U.S. GAAP requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and the disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period.  Areas where management uses
subjective judgment include valuation of equity instruments.  Actual
results may differ from those estimates and assumptions.





23
 Table of Contents





Reclassifications





Certain
reclassifications have been made to prior fiscal year amounts or balances to
conform to the presentation adopted in the current fiscal year.





Cash
and Cash Equivalents





Cash
equivalents comprise certain highly liquid instruments with a maturity of three
months or less when purchased. The Company did not have any cash equivalents as
of December 31, 2008 and 2007.  At times, cash deposits may exceed
federally insured limits.





Equipment





Equipment
is initially recorded at cost and is depreciated using the straight-line
method over its estimated useful life as follows:





Computer
      equipment
                
                2
      yearsOffice
      equipment and furniture
                
                2
      years





Repairs
and maintenance are charged to operations as incurred.





Impairment
of Long-Lived Assets





Long-lived
assets are reviewed for impairment when circumstances indicate the carrying
value of an asset may not be recoverable in accordance with the guidance
established in Statement of Financial Accounting Standards No. 144 “Accounting
for the Impairment or Disposal of Long-Lived Assets” (SFAS 144).  For
assets that are to be held and used, an impairment loss is recognized when the
estimated undiscounted cash flows associated with the asset or group of assets
is less than their carrying value. If impairment exists, an adjustment is made
to write the asset down to its fair value, and a loss is recorded as the
difference between the carrying value and fair value. Fair values are determined
based on discounted cash flows or internal and external appraisals, as
applicable.  Assets to be disposed of are carried at the lower of carrying
value or estimated net realizable value.





On
December 18, 2008 the company was notified by ISU that the patent application
for the insulin enhancing synthesized compounds was rejected by the US Patent
Office.  After further review of the rejection letter along with the
culminated research costs incurred by the Company, the Company determined it was
in the best interests of the Company to terminate its license agreement with
ISURF and its Sponsored Research Agreement with ISU.  Pursuant to the
terms of the license agreement and Sponsored Research Agreement, the Company
provided written notice of termination to both ISURF and ISU on January 6,
2009.   As a result of the termination of the license agreement
with ISURF, the Company recorded an impairment charge of $20,000 at December 31,
2008 to write-off the previously paid license fee.





Foreign
Operations and Foreign Currency Translation





The
functional currencies of the Company’s international subsidiaries are the local
currency of the country in which the subsidiary is located. Assets and
liabilities recorded in foreign currencies, as well as the Company’s investment
in PhytoMedical Ltd., are translated at the exchange rate on the balance sheet
date.  Translation adjustments resulting from this process are charged
or credited to accumulated other comprehensive income.  Revenues and
expenses of the Company’s consolidated foreign operations are translated at the
average rates of exchange prevailing during the year. Gains and losses on
foreign currency transactions are included in foreign exchange gain or
loss.




Research
and Development




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 years ended December 31, 2008 and 2007, the
Company incurred $396,989 and $147,179 on research and development
activities.





Fair
Value of Financial Instruments





Fair
value estimates of financial instruments are made at a specific point in time,
based on relevant information about financial markets and specific financial
instruments. As these estimates are subjective in nature, involving
uncertainties and matters of significant judgment, they cannot be determined
with precision.  Changes in assumptions can significantly affect estimated
fair value.





24
 Table of Contents





The
carrying value of cash and cash equivalents, accounts payable, accrued
liabilities, and notes payable approximate their fair value because of the
short-term nature of these instruments. Management is of the opinion that the
Company is not exposed to significant interest or credit risks arising from
these financial instruments.




Stock-Based
Compensation




The
Company accounts for stock-based compensation under SFAS No. 123(R) “Share-Based
Payment (as amended)”, which requires companies to measure all employee
stock-based compensation awards using a fair value method on the date of grant
and recognize 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
assumptions regarding the warrant and option lives, expected volatility, and
risk free interest rates.   See Notes 11 and 12 for additional
information on the Company’s stock-based compensation plans.





Income
Taxes




The
Company accounts for income taxes using the asset and liability method. Under
the asset and liability method, deferred tax assets and liabilities are
recognized for the future tax consequences attributed to differences between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases and tax credits and loss carry-forwards. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences and
carry-forwards are expected to be recovered or settled. The effect on deferred
tax assets and liabilities of a change in tax rates is recognized in income in
the period that includes the enactment date. A valuation allowance is
established when necessary to reduce deferred tax assets to amounts expected to
be realized.




The
Company accounts for unrecognized tax benefits in accordance with FASB
Interpretation No. 48, “Accounting for Uncertainty in Income Taxes, an
Interpretation of FASB Statement No. 109” (FIN 48). See Note 14 for further
discussion.





Net
Loss per Common Share




The
computation of basic net loss per common share is based on the weighted average
number of shares that were outstanding during the year. The computation of
diluted net loss per common share is based on the weighted average number of
shares used in the basic net loss per share calculation plus the number of
common shares that would be issued assuming the exercise of all potentially
dilutive common shares outstanding using the treasury stock method for shares
subject to stock options and warrants.  See Note 4 for further
discussion.





Segment
Reporting




The
Company’s business is considered as operating in one segment based upon the
Company’s organizational structure, the way in which the operations are managed
and evaluated, the availability of separate financial results and materiality
considerations.





Related
Party Transactions





A related
party is generally defined as (i) any person that holds 10% or more of the
Company’s securities and their immediate families, (ii) the Company’s
management, (iii) someone that directly or indirectly controls, is controlled by
or is under common control with the Company, or (iv) anyone who can
significantly influence the financial and operating decisions of the Company. A
transaction is considered to be a related party transaction when there is a
transfer of resources or obligations between related parties.





Recently
Issued Accounting Standards




In
September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements”
(SFAS 157), which defines fair value, establishes a framework for measuring fair
value, and expands disclosures about fair-value measurements required under
other accounting pronouncements. It does not change existing guidance as to
whether or not an instrument is carried at fair value. SFAS 157 is effective for
financial statements issued for fiscal years beginning after November 15,
2007, and interim periods within those fiscal years. In February 2008, the FASB
issued FASB Staff Position No. FAS 157-1 (FSP 157-1), which excludes SFAS
No. 13, “Accounting for Leases” and certain other accounting pronouncements
that address fair value measurements under SFAS 13, from the scope of SFAS 157.
In February 2008, the FASB issued FASB Staff Position No. 157-2 (FSP
157-2), which provides a one-year delayed application of SFAS 157 for
nonfinancial assets and liabilities, except for items that are recognized or
disclosed at fair value in the financial statements on a recurring basis (at
least annually). The Company is required to adopt SFAS 157 as amended by FSP
157-1 and FSP 157-2 on January 1, 2009, the beginning of its fiscal year
2009 (as related to non-financial assets and liabilities).  The
Company does not expect the application of SFAS No. 157 (as related to
non-financial assets and liabilities) to have a material effect on the Company’s
consolidated financial statements.





25
 Table of Contents





In
October 2008, the FASB issued FASB Staff Position No. FAS 157-3, “Determining
the Fair Value of a Financial Asset in a Market That Is Not Active” (FSP 157-3),
which clarifies the application of SFAS 157 when the market for a financial
asset is inactive. Specifically, FSP 157-3 clarifies how (1) management’s
internal assumptions should be considered in measuring fair value when
observable data are not present, (2) observable market information from an
inactive market should be taken into account, and (3) the use of broker quotes
or pricing services should be considered in assessing the relevance of
observable and unobservable data to measure fair value. The guidance in FSP
157-3 is effective immediately and did not have a material effect on the
Company’s consolidated financial statements.





In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities, Including an Amendment to FASB
No. 115” (SFAS 159). Under SFAS 159, entities may elect to measure
specified financial instruments and warranty and insurance contracts at fair
value on a contract-by-contract basis, with changes in fair value recognized in
earnings each reporting period. The election, called the fair value option, will
enable entities to achieve an offset accounting effect for changes in fair value
of certain related assets and liabilities without having to apply more complex
hedge accounting provisions.  SFAS No. 159 is effective for
fiscal years beginning after November 15, 2007.  The Company did
not elect the fair value option for any of its existing financial assets or
financial liabilities; therefore, this statement did not have a material impact
on the Company’s consolidated financial statements.





In June
2008, the FASB issued Staff Position EITF 03-06-1, “Determining Whether
Instruments Granted in Share-Based Payment Transactions Are Participating
Securities” (FSP EITF 03-06-1). FSP EITF 03-06-1 provides that unvested
share-based payment awards that contain nonforfeitable rights to dividends or
dividend equivalents (whether paid or unpaid) are participating securities and
shall be included in the computation of earnings per share pursuant to the
two-class method in SFAS No. 128, “Earnings per
Share.”   FSP EITF 03-06-1 did not have any impact on the
Company’s consolidated financial statements.





In June
2007, the Emerging Issues Task Force of the FASB issued EITF Issue No. 07-3,
“Accounting for Nonrefundable Advance Payments for Goods or Services to be Used
in Future Research and Development Activities” (EITF 07-3) which is effective
for new contracts entered into for fiscal years beginning after December 15,
2007.  EITF 07-3 requires that nonrefundable advance payments for
future research and development activities be deferred and capitalized. Such
amounts will be recognized as an expense as the goods are delivered or the
related services are performed.  The Company adopted EITF 07-3 on
January 1, 2008, the beginning of its fiscal year 2008.  The adoption
of EITF 07-3 did not have a material impact on the Company’s consolidated
financial statements.





In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements, an Amendment of Accounting Research Bulletin
No 51” (SFAS 160). SFAS 160 establishes accounting and reporting standards for
ownership interests in subsidiaries held by parties other than the parent,
changes in a parent’s ownership of a noncontrolling interest, calculation and
disclosure of the consolidated net income attributable to the parent and the
noncontrolling interest, changes in a parent’s ownership interest while the
parent retains its controlling financial interest and fair value measurement of
any retained noncontrolling equity investment. SFAS 160 is effective for
financial statements issued for fiscal years beginning after December 15,
2008, and interim periods within those fiscal years. Early adoption is
prohibited. The Company must adopt SFAS 160 on January 1, 2009, the beginning of
its fiscal year 2009.  The Company does not expect the application of
SFAS 160 to have a material effect on its consolidated financial
statements.





In
December 2007, the FASB issued SFAS No. 141R, “Business Combinations” (SFAS
141R), which establishes principles and requirements for the reporting entity in
a business combination, including recognition and measurement in the financial
statements of the identifiable assets acquired, the liabilities assumed, and any
noncontrolling interest in the acquiree. SFAS 141R applies prospectively to
business combinations for which the acquisition date is on or after the
beginning of the first annual reporting period on or after December 15,
2008, and interim periods within those fiscal years. The Company must adopt SFAS
141R on January 1, 2009, the beginning of its fiscal year 2009.  The
Company does not expect the application of SFAS 141R to have a material effect
on its consolidated financial statements.





Note
4.  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 years ended December
31, 2008 and 2007, 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.





26
 Table of Contents





Following
is the computation of basic and diluted net loss per share for years ended
December 31, 2008 and 2007:





Year
      EndedDecember
      31,2008
                                          
                                          
                                          2007Numerator
      - net loss
                                          
                                          $
                                          (1,560,801
                                          )
                                          
                                          $
                                          (2,155,361
                                          )Denominator
      - weighted average number of common shares outstanding
                                          
                                          
                                          200,398,290
                                          
                                          
                                          
                                          192,516,914Basic
      and diluted net loss per common share
                                          
                                          $
                                          (0.01
                                          )
                                          
                                          $
                                          (0.01
                                          )





Note
5.  Equipment





Year
      EndedDecember
      31,2008
                    
                    
                    2007Computer
      equipment
                    
                    $
                    -
                    
                    
                    $
                    6,040Office
      equipment
                    
                    
                    -
                    
                    
                    
                    19,613-
                    
                    
                    
                    25,653Less:
      accumulated depreciation
                    
                    
                    -
                    
                    
                    
                    (21,736
                    )$
                    -
                    
                    
                    $
                    3,917





During
the year ended December 31, 2008, the Company removed the cost and related
accumulated depreciation from the Company’s consolidated 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.  The Company recorded a loss on
disposal of fixed assets of $8,068 in the consolidated statements of operations
during the year ended December 31, 2008.





Depreciation
expense was $2,022 and $9,451 for the years ended December 31, 2008 and
2007.





Note
6.  Iowa State University Sponsored Research
Agreement





IowaStateUniversitySponsored
ResearchAgreement





On
February 1, 2007, the Company, through its wholly owned subsidiary, PolyPhenol
Technologies Corporation, 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.





Contractual Obligations
under theISU
Sponsored ResearchAgreementwereas
follows:





Year 1:
$62,251 (paid as of December 31, 2008) 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 December 31, 2008) 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 is due to ISU 3
months from the previous payment.





As
of December 31, 2008, the Company has paid a total of $114,972 pursuant to
the terms of the ISU Sponsored Research Agreement of which $83,846 and $31,126
is included in research and development expense for the years ended December 31,
2008 and 2007.  In addition to contractual obligations pursuant to the
ISU Sponsored Research Agreement, the Company reimbursed ISU $506 and $20,463
during the years ended December 31, 2008 and 2007 for other out-of-pocket costs
that are included in research and development expense.





27
 Table of Contents





As of
December 31, 2008 and upon written 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.





Note
7.  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 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.





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 has 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.





As of
December 31, 2008, the Company has 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.  Of the total $31,223 paid to ISURF for
patent and research costs, $0 and $2,304 is included in research and development
expense for the years ended December 31, 2008 and 2007.





As of
December 31, 2008 and upon written 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.





Note
8.  Ricerca Development Agreements





The
Company announced in July 2006 that it had entered into a development agreement
with Ricerca BioSciences LLC (“Ricerca”), to begin development work on the
Company’s BDC-03 compound for cachexia.  The Company terminated the
BDC-03 development in November 2007 and currently utilizes Ricerca as a research
vendor on an as needed basis.





As of
December 31, 2008, the Company paid a total of $239,996 for services provided by
Ricerca, of which $174,937 and $13,500 is included in research and development
expense for years ended December 31, 2008 and 2007.





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 Dartmouth was amended on October 1, 2008
extending it to September 30, 2009.  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
December 31, 2008, the Company has paid a total of $161,050 pursuant to the
Sponsored Research Agreement with Dartmouth, of which $115,300 and $45,750 is
included in research and development expense for the years ended December 31,
2008 and 2007.





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, and are designed to bind tightly to
cancer cell DNA (deoxyribonucleic acid), the blueprint of life for the cancer
cell.





28
 Table of Contents





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 has submitted a Confidential Treatment Request with the United States
Securities and Exchange Commission, which is currently pending. A redacted copy
of the exclusive worldwide Dartmouth License was filed on Form 8-K dated October
21, 2008 and filed on October 22, 2008.





Note
11.  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.





A summary
of the Company’s stock option activity for the years ended December 31, 2008 and
2007 and related information follows:





WeightedAverageRemaining
                  
                  
                  AggregateWeighted
      Average
                  
                  
                  Contractual
                  
                  
                  IntrinsicNumber
      of Options
                  
                  
                  Exercise
      Price
                  
                  
                  Term
      (Years)
                  
                  
                  ValueOutstanding
      at December 31, 2006
                  
                  
                  11,275,000
                  
                  
                  $
                  0.65Cancelled
                  
                  
                  (9,275,000
                  )
                  
                  
                  0.68Outstanding
      at December 31, 2007 andDecember
      31, 2008
                  
                  
                  2,000,000
                  
                  
                  $
                  0.52
                  
                  
                  
                  7.59
                  
                  
                  $
                  -Exercisable
      at December 31, 2008
                  
                  
                  -Available
      for grant at December 31, 2008
                  
                  
                  20,250,000





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 the period 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
December 31, 2008. The intrinsic value changes based on the fair market
value of the Company’s common stock.





At
December 31, 2008 and 2007, the Company had unvested stock options to purchase
2,000,000 shares of the Company’s common stock at a grant date fair value per
share of $0.48.





During
the years ended December 31, 2008 and 2007, stock-based compensation expense of
$13,624 and $1,210,568 was recognized for options previously granted.  As
of December 31, 2008, the Company had no unrecognized compensation cost related
to unvested stock options.





29
 Table of Contents





The
following table summarizes information about stock options outstanding and
exercisable at December 31, 2008:





Stock
      Options Outstanding
                        
                        
                        Stock
      Options ExercisableWeighted
                        
                        
                        
                        
                        
                        
                        
                        
                        WeightedWeighted
                        
                        
                        Average
                        
                        
                        
                        
                        
                        Weighted
                        
                        
                        AverageNumber
      of
                        
                        
                        Average
                        
                        
                        Remaining
                        
                        
                        Number
      of
                        
                        
                        Average
                        
                        
                        RemainingExercise
                        
                        
                        Options
                        
                        
                        Exercise
                        
                        
                        Contractual
                        
                        
                        Options
                        
                        
                        Exercise
                        
                        
                        ContractualPrices
                        
                        
                        Outstanding
                        
                        
                        Price
                        
                        
                        Life
      (Years)
                        
                        
                        Exercisable
                        
                        
                        Price
                        
                        
                        Life
      (Years)$
                        0.52
                        
                        
                        
                        2,000,000
                        
                        
                        $
                        0.52
                        
                        
                        
                        7.59
                        
                        
                        
                        -
                        
                        
                        $
                        -
                        
                        
                        
                        -





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
12.  Warrants





As of
December 31, 2008, there were 10,897,081 warrants outstanding. Each warrant
entitles the holder to purchase one share of the common stock of the Company at
an exercise price of $0.40 per share until September 25, 2010.





Note
13.  Related Party Transactions





Wages
and benefits





During
the years ended December 31, 2008 and 2007, the Company incurred
$260,331 and $266,208 in cash wages and benefits expense for services
rendered by Mr. Greg Wujek, the President, Chief Executive Officer, and Director
of the Company.





During
the years ended December 31, 2008 and 2007, the Company recorded $13,624 and
$1,210,568 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.





Director
fees





During
the years ended December 31, 2008 and 2007, the Company incurred $9,750 and
$3,400 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 year ended December 31,
2008, the Company repaid $250,000 to Mr. Rayat with the accrued interest of
$67,664.  At December 31, 2008, 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 December 31, 2008, accrued interest on the
$750,000 remaining promissory note was $243,473 and is included in interest
payable. The entire principal and accrued interest is due and payable on
demand.





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.





30
 Table of Contents





Note
14.  Income Taxes





Deferred
income taxes reflect the net tax effects of temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes and
the amounts used for income tax purposes.  Significant components of
the Company’s deferred tax assets at December 31, 2008 and 2007 are as
follows:




Years
      Ended December 31,2008
                                
                                
                                2007Deferred
      tax assets:Net
      operating loss carryforwards
                                
                                $
                                6,701,887
                                
                                
                                $
                                6,437,909Capitalized
      research and development
                                
                                
                                375,951
                                
                                
                                
                                282,237Depreciation
                                
                                
                                —
                                
                                
                                
                                2,002Stock
      based compensation
                                
                                
                                1,221,110
                                
                                
                                
                                1,216,478Accrued
      interest
                                
                                
                                82,781
                                
                                
                                
                                82,026Research
      and development credit carry forward
                                
                                
                                58,559
                                
                                
                                
                                41,786Total
      deferred tax assets
                                
                                
                                8,440,288
                                
                                
                                
                                8,062,438Less:
      valuation allowance
                                
                                
                                (8,440,288
                                )
                                
                                
                                (8,062,438
                                )Net
      deferred tax asset
                                
                                $
                                —
                                
                                
                                $
                                —





The net
increase in the valuation allowance for deferred tax assets was $377,850 and
$722,940 for the years ended December 31, 2008 and 2007.  The Company
evaluates its valuation allowance requirements on an annual basis based on
projected future operations. When circumstances change and this causes a change
in management’s judgment about the realizability of deferred tax assets, the
impact of the change on the valuation allowance is reflected in current
operations.





For
federal income tax purposes, the Company has net U.S. operating loss carry
forwards at December 31, 2008 available to offset future federal taxable income,
if any, of $19,634,099, which will begin to expire during the year ended
December 31, 2011.  The Company also has net Canadian operating loss carry
forwards at December 31, 2008 of $77,334, which will begin to expire during the
year ended December 31, 2027.  Accordingly, there is no current tax
expense for the years ended December 31, 2008 and 2007.  In addition,
the Company has research and development tax credit carry forwards of $58,559 at
December 31, 2008, which are available to offset federal income taxes and begin
to expire during the year ended December 31, 2026.





The
utilization of the tax net operating loss carry forwards may be limited due to
ownership changes that have occurred as a result of sales of common
stock.





The
effects of state income taxes were insignificant for the years ended December
31, 2008 and 2007.





The
following is a reconciliation between expected income tax benefit and actual,
using the applicable statutory income tax rate of 34% for the years ended
December 31, 2008 and 2007:





Years
      Ended December 31,2008
                              
                              
                              2007Income
      tax benefit at statutory rate
                              
                              $
                              530,673
                              
                              
                              $
                              732,823Non-deductible
      fund raising costs
                              
                              
                              (167,402
                              )
                              
                              
                              -Non-deductible
      meals and entertainment
                              
                              
                              (2,194
                              )
                              
                              
                              (2,163
                              )Non-deductible
      stock offering costs
                              
                              
                              -
                              
                              
                              
                              (13,938
                              )Research
      and development credit
                              
                              
                              16,773
                              
                              
                              
                              6,218Change
      in valuation allowance
                              
                              
                              (377,850
                              )
                              
                              
                              (722,940
                              )$
                              -
                              
                              
                              $
                              -




The
fiscal years 2005 through 2008 remain open to examination by federal authorities
and other jurisdictions of which the Company operates.




Note
15.  Subsequent Events





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.





On
January 6, 2009, the Company also gave written notice to ISU terminating the
Sponsored Research Agreement between the Company and ISU. The termination is
effective March 6, 2009.





31
 Table of Contents





ITEM9: CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE





The
Company has not had any disagreements with its independent auditors with respect
to accounting practices, procedures or financial disclosure.




ITEM9A(T): 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 annual report. Based on this evaluation, the Company’s
Chief Executive Officer and Chief Financial Officer concluded as of
December 31, 2008 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)
Management’s Report on Internal Control over Financial
Reporting





The
Company’s management is responsible for establishing and maintaining effective
internal control over financial reporting, as such term is defined in Exchange
Act Rule 13a-15(f). 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 its
internal control over financial reporting based on the framework in Internal
Control - Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission.  Based on this evaluation,
management concluded that the Company’s internal control over financial
reporting was effective as of December 31, 2008.





This
annual report does not include an attestation report of the Company's
independent registered public accounting firm regarding internal control over
financial reporting. Management's report was not subject to attestation by the
Company's independent registered public accounting firm pursuant to the rules of
the SEC that permit the Company to provide only management's report in this
annual report.





(c)
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.





ITEM9B: OTHER INFORMATION





None.





32
 Table of Contents





PART
III





ITEM10: DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE
GOVERNANCE





DIRECTORS
AND EXECUTIVE OFFICERS OF THE COMPANY





Certain
information regarding the directors and executive officers of the Company
follows:





Name
                
                Age
                
                Position
      With Company
                
                Director
      SinceGreg
      Wujek
                
                47
                
                President,
      Chief Executive Officer, and Director
                
                April
      3, 2006Gary
      Branning (1)
                
                55
                
                Director
                  Former
      Chief Financial Officer
                
                September
      13, 2006Raymond
      Krauss (2)
                
                46
                
                Chief
      Financial Officer, Secretary, Treasurer, Director
                
                October
      11, 2007





(1)Mr. Branning was appointed to the
position of Chief Financial Officer on September 5, 2008 and resigned effective
December 11, 2008.





(2)Mr. Krauss was appointed to the
positions of Chief Financial Officer, Secretary and Treasurer on December 11,
2008 to fill the vacancy created by the resignation of Mr.
Branning.





Set forth
below are the names of all directors and executive officers of the Company, all
positions and offices with the Company held by each person, the period during
which each has served as such, and the principal occupations and employment of
such persons during at least the last five years:





GREG WUJEK.Mr.
Greg Wujek earned his Bachelor’s degree in Science from Illinois State
University in 1986.  From November 2000 to May 2005, Mr. Wujek was
employed by Andrx Laboratories.  During his tenure at Andrx Laboratories,
Mr. Wujek managed a team of over 450 individuals, and held several positions,
including Vice President of Business Development, Vice President of Sales, as
well as Vice President of Managed Care. During June 2005 to September 2005, Mr.
Wujek performed independent consulting services for branded pharmaceutical
companies.  Consulting services ranged from sales management training,
optimizing sales, managed care, and sales operations.  From September
2005 to March 2006, Mr. Wujek was employed by Savient Pharmaceuticals, where he
held the position of Vice President, Sales, and was responsible for sales,
operations, training, and managed care.  Mr. Wujek joined the Company
as President, Chief Executive Officer and Director on April 3,
2006.





GARY BRANNING.  Mr.
Branning received his Bachelor of Science degree in Business Administration from
Wagner College, on Staten Island, NY, and an MBA in finance from
Fairleigh Dickinson University. In 2001, Mr. Branning joined Pharmacia
Corporation.  Mr. Branning was the Executive Director of Managed Markets
Marketing for Pharmacia Corporation.  The Marketing Unit of the Managed
Markets Marketing of Pharmacia was a service organization focused on the
development of brand programs, value added services and health management
programs in managed markets.  In 2003, Mr. Branning joined Managed Market
Resources, a health care consulting and medical communications company as
Managing Partner and Senior Vice President of Managed Market Resources.
 Mr. Branning’s responsibilities included strategic consulting, new product
development, business development, and executing Managed Market Resource’s sales
and marketing plans. Mr. Branning joined the Company as a Director on September
13, 2006.  Mr. Branning was appointed to the position of Chief
Financial Office on September 5, 2008 and resigned on December 11,
2008.





RAYMOND KRAUSS.  Mr.
Krauss, earned his B.S. in Biology from North Central College, Naperville, IL in
1984 and his M.S. in Physiology (emphasis on Cardiovascular Health) from
Benedictine University, Lisle, IL in 1986.  In March 2001 through March
2005, Mr. Krauss became a partner in Argavest, Inc., a regional leader in
quality respiratory and critical care refurbished equipment, where he served as
Vice President of Business Development.  In March 2005, Mr. Krauss launched
RK Capital Group, an international medical equipment sales organization, where
he continues to serve as President and Owner.  In July 2007, Mr. Raymond
Krauss acquired the Illinois/Wisconsin office of HealthCare Recruiters
International, the only executive search firm in the United States
dedicated exclusively to the healthcare sector, where he serves as
President and Owner.  Mr. Krauss joined the Company as a Director on
October 11, 2007. Mr. Krauss was appointed to the positions of Chief
Financial Officer, Secretary and Treasurer on December 11, 2008 to fill the
vacancy created by the resignation of Mr. Branning.




There are
no family relationships among or between any of the Company’s officers and
directors.


33
 Table of Contents





During
the past five years, none of the Company’s directors, executive officers, or
promoters have been:





·
            the
      subject of any bankruptcy petition filed by or against any business of
      which such person was a general partner or executive officer either at the
      time of the bankruptcy or within two years prior to that
    time;





·
            convicted
      in a criminal proceeding or is subject to a pending criminal proceeding
      (excluding traffic violations and other minor
  offenses);




·
            subject
      to any order, judgment, or decree, not subsequently reversed, suspended or
      vacated, of any court of competent jurisdiction, permanently or
      temporarily enjoining, barring, suspending or otherwise limiting his
      involvement in any type of business, securities or banking activities;
      or





·
            found
      by a court of competent jurisdiction (in a civil action), the Commission
      or the Commodity Futures Trading Commission to have violated a federal or
      state securities or commodities
law.





SCIENTIFIC
ADVISORY BOARD





The
Company maintains a Scientific Advisory Board (“Advisory Board”), the
members of which provide, from time to time, at the request of the Company,
advice regarding specific facets of the Company’s ongoing scientific research
and development and general corporate activities.   The Company believes
that each member of the Advisory Board brings distinct scientific, clinical, and
business development experience which can be called-upon as needed during
various phases of the Company’s active research, development and commercial
development.





The
members of the Advisory Board are compensated for their services at the rate of
$250 per hour, not to exceed $1,250 per day.  The Company also
reimburses members of the Advisory Board for out-of-pocket expenses related to
their services performed on behalf of the Company.





Currently,
the Company’s Advisory Board members are:





Name
                Held Position
      SinceReza
      Fathi
                April
      2008Charles
      Lee, PhD
                August
      2006Jatinder
      S. Bhogal
                September
      2008Li-Xi
      Yang, MD, PhD
                January
      2009





Reza
Fathi





Dr. Reza
Fathi is an expert in pharmaceutical research and development with 20 years of
experience in medicinal chemistry, designing experimental protocols and managing
research teams. Dr. Fathi is first author of numerous patents and more than a
dozen scientific publications in subjects including small molecule drug
discovery, lead compound identification and synthesis of natural product based
molecular libraries. Dr. Fathi’s expertise is widely respected, garnering him an
array of appointments to prestigious medicinal chemistry positions including
Chemistry Core Manager at Harvard Medical School’s Harvard Institute of
Chemistry and Cell Biology, Director of Research Operations for XTL
biopharmaceuticals, Director of Research Operations for vivoquest, and Member of
the Scientific Advisory Committee for Proseed Capital Holding CVA in addition to
his appointment at phytomedical Technologies, Inc.





Charles
Lee





Dr.
Charles Lee’s professional career encompassed academia (1977-1987),
pharmaceutical industry (1987-1993) and contract research organization
(1993-2004). He is currently a professor of pharmaceutical Sciences at the
Gregory School of Pharmacy, Palm Beach Atlantic University.





Jatinder
S. Bhogal





Since
December 1993, Mr. Bhogal has worked as a business consultant to emerging growth
companies. For nearly 15 years, Mr. Bhogal has provided early business
development guidance and consulting to companies developing healthcare services,
medical devices, pharmaceuticals and vaccines, solar-photovoltaics, biofuels,
and information technology solutions.





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Li-Xi
Yang





Dr. Li-Xi
Yang has more than 25 years of experience in the fields of cancer research,
credited with many patents on anticancer compounds and publications in
peer-reviewed journals.  Dr. Yang completed his Postdoctoral Fellowship at
Dartmouth Medical School, where he received his PhD in Pharmacology
and Toxicology.  He currently serves as Director of Radiation Oncology
Residency Education and Senior Scientist at California Pacific Medical Center
Research Institute.  Dr. Yang also serves as Director of Academic Research
at St. Mary’s Medical Center, San Francisco, CA.  Dr. Yang is an
active member of several professional committees, including: Graduate Medical
Education Committee, Institutional Review Board, and Institutional Animal Care
and Use Committee.





COMPLIANCE
WITH SECTION 16(a) OF THE EXCHANGE ACT





Pursuant
to Section 16(a) of the Exchange Act of 1934, the executive officers and
directors of the Company in addition to any person who owns more than 10% of the
common stock of the Company are required to report their ownership of the common
stock of the Company and changes to such ownership with the
SEC.  Based on a review of such reports and information provided to
the Company, the Company believes that during the fiscal year ended December 31,
2008, the executive officers and directors of the Company have complied with
applicable filing requirements under Section 16(a), except that Mr. Harmel Rayat
filed a late Form 4 reporting one transaction.





CODE
OF ETHICS





The
Company has adopted a Code of Ethics that applies to all of the officers,
directors and employees of the Company and its affiliates, including its Chief
financial officer and Chief Executive Officer, which complies with the
requirements of the Sarbanes-Oxley Act of 2002 and NASD listing standards.
Accordingly, the Code of Ethics is designed to deter wrongdoing, and to promote,
among other things, honest and ethical conduct, full, timely, accurate and clear
public disclosures, compliance with all applicable laws, rules and regulations,
the prompt internal reporting of violations of the Code of Ethics, and
accountability. The Company’s Code of Ethics is available on the Company’s
website at http://www.phytomedical.com.
To access the Code of Ethics, click on “Investors” and then click on “Code of
Ethics.”





CORPORATE
GOVERNANCE





The
Company has adopted Corporate Governance Principles applicable to its Board of
Directors. The Company’s Corporate Governance Principles is available on the
Company’s website at http://www.phytomedical.com.
To access the Company’s Corporate Governance Principles, click on “Investors”
and then click on “Corporate Governance”.





Director
Independence





The
Company is not listed on a U.S. securities exchange and, therefore, is not
subject to the corporate governance requirements of any such exchange, including
those related to the independence of directors. However, at this time, after considering all of the relevant
facts and circumstances, the Company’s Board of Directors has determined that
Mr. Branning is independent from the Company’s management and qualifies as an
“independent director” under the standards of independence set forth in Rule
4200(15) of the NASDAQ Stock Market Rules.  This means that, in the
judgment of the Board of Directors, Mr. Branning (1) is not an officer or
employee (during the prior three fiscal years) of the Company or its
subsidiaries or (2) has any direct or indirect relationship with the Company
that would interfere with the exercise of his independent judgment in carrying
out the responsibilities of a director.Upon the Company’s
listing on any national securities exchange or any inter-dealer quotation
system, it will elect such independent directors as is necessary under the rules
of any such securities exchange.





Board
of Directors Meetings and Committees of the Board of Directors





During
the fiscal year ended December 31, 2008, the Board held a total of three
meetings.  All members of the Board attended at least 75% of all
meetings of the Board.





The
Company does not currently have any standing committees of the Board of
Directors.  The full Board is responsible for performing the functions
of the:  (i) Audit Committee, (ii) Compensation Committee and (iii)
Nominating Committee.





35
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Audit
Committee





The Board does not currently have a standing
Audit Committee.  The full Board performs the principal functions of
the Audit Committee.  The full Board monitors the Company's financial
reporting process and internal control system and reviews and appraises the
audit efforts of the Company's independent accountants.





Compensation
Committee





The
Boarddoes not
currently have a standing Compensation Committee.  The full Board
establishes overall compensation policies for the Company and reviews
recommendations submitted by the Company’s management.





Nominating
Committee





The Board
does not currently have a standing Nominating Committee.  The Company does
not maintain a policy for considering nominees.  The Company’s Bylaws
provides that the number of Directors shall be fixed from time to time by the
Board, but in no event shall be less than the minimum required by
law.  The Board shall be large enough to maintain the Company’s
required expertise but not too large to function
efficiently.  Director nominees are recommended, reviewed and approved
by the entire Board.  The Board believes that this process is appropriate
due to the relatively small number of directors on the Board and the opportunity
to benefit from a variety of opinions and perspectives in determining director
nominees by involving the full Board.





While the
Board is solely responsible for the selection and nomination of directors, the
Board may consider nominees recommended by Stockholders as it deems appropriate.
Stockholders who wish to recommend a nominee should send nominations to the
Company’s Chief Executive Officer, Greg Wujek, 100 Overlook Drive, 2nd Floor,
Princeton, NJ 08540, that include all information relating to such person that
is required to be disclosed in solicitations of proxies for the election of
directors. The recommendation must be accompanied by a written consent of the
individual to stand for election if nominated by the Board and to serve if
elected.





Communications
with the Board of Directors





Stockholders
who wish to communicate with the Board of Directors may do so by addressing
their correspondence to the Board of Directors at PhytoMedical Technologies,
Inc., Attention: Investor Relations, 100 Overlook Drive, 2nd Floor, Princeton,
NJ 08540.   The Board of Directors has approved a process
pursuant to which the Secretary shall review and forward correspondence to the
appropriate director or group of directors for response.





ITEM11:  EXECUTIVE COMPENSATION





The
following table and descriptive materials set forth information concerning
compensation earned for services rendered to the Company by: the Chief Executive
Officer (the “CEO”); the Chief Financial Officer (the “CFO”); and the three
other most highly-compensated executive officers other than the CEO and CFO who
were serving as executive officers of the Company at the end of the 2008 fiscal
year (the “Named Executive Officers”).





36
 Table of Contents





SUMMARY
COMPENSATION TABLE





The
following table summarizes the compensation earned by the Named Executive
Officers during the fiscal years ended December 31, 2008, 2007 and
2006.




Name
      and Principal Position
                                    Year
                                    Salary
      ($)
                                    Option
      Awards
                                      ($)(4)
                                    All
      Other
                                      Compensation
                                      ($)
                                    Total
                                      ($)2008
                                    225,000
                                    13,624
                                    -
                                    238,624Greg
      Wujek (1)
                                    2007
                                    225,000
                                    1,210,568
                                    -
                                    1,435,568President,
      CEO, Director
                                    2006
                                    161,250
                                    1,443,308
                                    16,437
                                    1,620,9952008
                                    -
                                    -
                                    5,000
                                    5,000Gary
      Branning (2)
                                    2007
                                    -
                                    -
                                    1,700
                                    1,700Director,
      Former CFO
                                    2006
                                    -
                                    -
                                    1,200
                                    1,200Raymond
      Krauss (3)
                                    2008
                                    -
                                    -
                                    3,900
                                    3,900CFO,
      Secretary, Treasurer,
                                    2007
                                    -
                                    -
                                    -
                                    -Director
                                    2006
                                    -
                                    -
                                    -
                                    -




(1)
            On
      April 6, 2006, the Company appointed Mr. Greg Wujek to the positions of
      President and Chief Executive Officer.  Pursuant to an
      Employment Agreement with Mr. Greg Wujek, the Board approved an annual
      salary of $225,000, a one-time payment of $16,437 for reimbursement of
      certain expenses incurred in connection with the acceptance of employment,
      and a stock option to purchase up to 2,250,000 shares of the Company’s
      common stock, subject to certain vesting requirements, at an exercise
      price of $1.22.




On August
1, 2006, the Company cancelled the stock option granted to Mr. Wujek in April
2006 for 2,250,000 stock options and simultaneously entered into a stock option
agreement with Mr. Wujek for the purchase of up to 2,000,000 shares of
common stock, subject to certain vesting requirements, at an exercise price of
$0.52 per share, expiring July 31, 2016.





The stock
option to purchase up to 2,000,000 shares of common stock vests as follows: (a)
250,000 options shall vest if and when an Investigational New Drug (IND)
application is filed for any current or future compounds;  (b) 250,000
options shall vest if and when a phase I clinical trial is commenced for any
current or future compounds; and  (c) 1,500,000 options shall vest if and
when the Company or a wholly owned subsidiary or any one current or future
compound is acquired, in whole or in part, or when either through the Company or
a subsidiary, enters into a strategic collaborative agreement for any one
current or future compound, provided that the Company’s Board of Directors has
approved, by written resolution, any such acquisition, sale or agreement.
 The Company expected that the first 250,000 stock options would vest at
around 12 months from the date of grant, the second 250,000 stock options would
vest at around 18 months from the date of grant and the remaining 1,500,000
stock options would vest at around 12 months from the date of
grant.





The
Company accounted for the cancellation and re-issuance of the stock option as a
modification of terms in accordance with SFAS 123(R), resulting in additional
stock-based compensation expense for the excess of the fair value of the
replacement award over the fair value of the cancelled award at the cancellation
date.  The fair value of the stock option as a result of the
cancellation and re-issuance was $2,667,500.  The fair value of each
batch of stock options was amortized over their expected service periods, which
the Company reassessed on a periodic basis.  During the years ended
December 31, 2008, 2007, and 2006 the Company recognized $13,624, $1,210,568,
and $1,443,308, respectively, of stock-based compensation expense related to the
2,000,000 stock options granted to Mr. Wujek.





At
December 31, 2008, there was no unrecognized stock-compensation expense related
to the 2,000,000 stock option grant.





At
December 31, 2008, none of the vesting requirements of the 2,000,000 stock
options had been met and thus none of the 2,000,000 stock options were
exercisable.





37
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(2)
            Mr.
      Branning was appointed to the position of CFO on September 5, 2008 and
      resigned on December 11, 2008.  The amount included in the “All
      Other Compensation” column represents non-employee director
      fees.  Non-employee directors receive monthly cash compensation
      of $250.  Mr. Branning was not an employee of the Company and
      did not receive additional compensation for the period of time when he
      served as the Company’s CFO.





(3)
            Mr.
      Krauss was appointed to the positions of CFO, Secretary and Treasurer on
      December 11, 2008 to fill the vacancy created by the resignation of Mr.
      Branning.  The amount included in the “All Other Compensation”
      column represents non-employee director fees.  Non-employee
      directors receive monthly cash compensation of $250.  Mr. Krauss
      did not receive additional compensation for the period of time when he
      served as the Company’s CFO.





(4)
            This
      column reflects the dollar amount recognized for financial statement
      reporting purposes in accordance with applicable SEC rules and guidance
      and FAS 123R for stock options and warrants, which may include amounts
      from awards made in and prior to the years shown.  For
      information regarding significant factors, assumptions and methodologies
      used in determining the fair value of the Company's stock options and
      warrants, see Note 11 Stock Options and Note 12 Warrants to the
      Consolidated Financial Statements included in this Form
    10-K.





GRANTS
OF PLAN-BASED AWARDS





The
following table provides information regarding grants of plan-based awards to
the Company’s Named Executive Officers during the fiscal year ended December 31,
2008.  The Company does not have any non-equity incentive plans and
has therefore omitted the corresponding columns.




Estimated
      Future Payouts Under Equity Incentive Plan AwardsName
                                
                                Grant
      Date
                                
                                Threshold
                                  (#)
                                
                                
                                Target
                                  (#)
                                
                                
                                Maximum
                                  (#)
                                
                                
                                Exercise
      or Base Price of Option Awards
                                  ($/Sh)
                                
                                
                                Grant
      Date Fair Value of Stock and Option Awards
                                  ($)(2)Greg
      Wujek (1)
                                
                                4/6/06
                                
                                
                                -0-
                                (1)
                                
                                
                                2,000,000
                                (1)
                                
                                
                                -0-
                                
                                
                                
                                0.52
                                
                                
                                
                                2,667,500





(1)
            On
      April 6, 2006, the Company appointed Mr. Greg Wujek to the positions of
      President and Chief Executive Officer.  Pursuant to an
      Employment Agreement with Mr. Greg Wujek, the Board approved an annual
      salary of $225,000, a one-time payment of $16,437 for reimbursement of
      certain expenses incurred in connection with the acceptance of employment,
      and a stock option to purchase up to 2,250,000 shares of the Company’s
      common stock, subject to certain vesting requirements, at an exercise
      price of $1.22.




On August
1, 2006, the Company cancelled the stock option granted to Mr. Wujek in April
2006 for 2,250,000 stock options and simultaneously entered into a stock option
agreement with Mr. Wujek for the purchase of up to 2,000,000 shares of
common stock, subject to certain vesting requirements, at an exercise price of
$0.52 per share, expiring July 31, 2016.





The stock
option to purchase up to 2,000,000 shares of common stock vests as follows: (a)
250,000 options shall vest if and when an Investigational New Drug (IND)
application is filed for any current or future compounds;  (b) 250,000
options shall vest if and when a phase I clinical trial is commenced for any
current or future compounds; and  (c) 1,500,000 options shall vest if and
when the Company or a wholly owned subsidiary or any one current or future
compound is acquired, in whole or in part, or when either through the Company or
a subsidiary, enters into a strategic collaborative agreement for any one
current or future compound, provided that the Company’s Board of Directors has
approved, by written resolution, any such acquisition, sale or agreement.
 The Company expected that the first 250,000 stock options would vest at
around 12 months from the date of grant, the second 250,000 stock options would
vest at around 18 months from the date of grant and the remaining 1,500,000
stock options would vest at around 12 months from the date of
grant.





The
Company accounted for the cancellation and re-issuance of the stock option as a
modification of terms in accordance with SFAS 123(R), resulting in additional
stock-based compensation expense for the excess of the fair value of the
replacement award over the fair value of the cancelled award at the cancellation
date.  The fair value of the stock option as a result of the
cancellation and re-issuance was $2,667,500.  The fair value of each
batch of stock options was amortized over their expected service periods, which
the Company reassessed on a periodic basis.  During the years ended
December 31, 2008, 2007, and 2006 the Company recognized $13,624, $1,210,568,
and $1,443,308, respectively, of stock-based compensation expense related to the
2,000,000 stock options granted to Mr. Wujek.





At
December 31, 2008, there was no unrecognized stock-compensation expense related
to the 2,000,000 stock option grant.





38
 Table of Contents





At
December 31, 2008, none of the vesting requirements of the 2,000,000 stock
options had been met and thus none of the 2,000,000 stock options were
exercisable.





(2)
            The
      grant date fair value of these options was determined in accordance with
      FAS 123R, using a Black-Scholes option pricing model.  For
      information regarding significant factors, assumptions and methodologies
      used in determining the fair value of the Company's stock options and
      warrants, see Note 11 Stock Options and Note 12 Warrants to the
      Consolidated Financial Statements included in this Form 10-K. The grant
      date fair value computed in accordance with FAS 123R was the same as that
      reported in the table above.





OUTSTANDING
EQUITY AWARDS AT FISCAL-YEAR END




The
following table sets forth information regarding equity awards that have been
previously awarded to each of the Named Executive Officers and which remained
outstanding as of December 31, 2008.




Option
      AwardsName
                                
                                Equity
      Incentive Plan Awards:
                                  Number
      of Securities
                                  Underlying
      Unexercised
                                  Unearned
      Options
                                  (#)
                                
                                
                                Option
      Exercise Price ($)
                                
                                Option
      Expiration DateGreg
      Wujek (1)
                                
                                
                                2,000,000
                                (1)
                                
                                
                                0.52
                                
                                7/31/2016





(1)
            On
      April 6, 2006, the Company appointed Mr. Greg Wujek to the positions of
      President and Chief Executive Officer.  Pursuant to an
      Employment Agreement with Mr. Greg Wujek, the Board approved an annual
      salary of $225,000, a one-time payment of $16,437 for reimbursement of
      certain expenses incurred in connection with the acceptance of employment,
      and a stock option to purchase up to 2,250,000 shares of the Company’s
      common stock, subject to certain vesting requirements, at an exercise
      price of $1.22.




On August
1, 2006, the Company cancelled the stock option granted to Mr. Wujek in April
2006 for 2,250,000 stock options and simultaneously entered into a stock option
agreement with Mr. Wujek for the purchase of up to 2,000,000 shares of
common stock, subject to certain vesting requirements, at an exercise price of
$0.52 per share, expiring July 31, 2016.





The stock
option to purchase up to 2,000,000 shares of common stock vests as follows: (a)
250,000 options shall vest if and when an Investigational New Drug (IND)
application is filed for any current or future compounds;  (b) 250,000
options shall vest if and when a phase I clinical trial is commenced for any
current or future compounds; and  (c) 1,500,000 options shall vest if and
when the Company or a wholly owned subsidiary or any one current or future
compound is acquired, in whole or in part, or when either through the Company or
a subsidiary, enters into a strategic collaborative agreement for any one
current or future compound, provided that the Company’s Board of Directors has
approved, by written resolution, any such acquisition, sale or agreement.
 The Company expected that the first 250,000 stock options would vest at
around 12 months from the date of grant, the second 250,000 stock options would
vest at around 18 months from the date of grant and the remaining 1,500,000
stock options would vest at around 12 months from the date of
grant.





The
Company accounted for the cancellation and re-issuance of the stock option as a
modification of terms in accordance with SFAS 123(R), resulting in additional
stock-based compensation expense for the excess of the fair value of the
replacement award over the fair value of the cancelled award at the cancellation
date.  The fair value of the stock option as a result of the
cancellation and re-issuance was $2,667,500.  The fair value of each
batch of stock options was amortized over their expected service periods, which
the Company reassessed on a periodic basis.  During the years ended
December 31, 2008, 2007, and 2006 the Company recognized $13,624, $1,210,568,
and $1,443,308, respectively, of stock-based compensation expense related to the
2,000,000 stock options granted to Mr. Wujek.





At
December 31, 2008, there was no unrecognized stock-compensation expense related
to the 2,000,000 stock option grant.





At
December 31, 2008, none of the vesting requirements of the 2,000,000 stock
options had been met and thus none of the 2,000,000 stock options were
exercisable.





39
 Table of Contents





OPTION
EXERCISES AND STOCK VESTED




During
the fiscal year ended December 31, 2008 none of the Named Executives Officers
exercised any stock options.  As of December 31, 2008, the Company
does not have any unvested stock awards.




PAYMENTS
UPON TERMINATION OR CHANGE IN CONTROL





The
Company does not have any change-of-control or severance agreements with any of
its executive officers or directors. In the event of the termination of
employment of the Named Executive Officers any and all unexercised stock options
shall expire and no longer be exercisable as of the date of the
termination.





COMPENSATION
OF DIRECTORS





The
Company does not pay director compensation to directors who are also employees
of the Company.  The Company’s Board of Directors determines the
non-employee directors’ compensation for serving on the Board and its
committees. In establishing director compensation, the Board is guided by the
following goals:





·
            Compensation
      should consist of a combination of cash and equity awards that are
      designed to fairly pay the directors for work required for a company of
      PhytoMedical Technologies, Inc.’s size and
  scope;





·
            Compensation
      should align the directors’ interests with the long-term interests of
      stockholders; and





·
            Compensation
      should assist with attracting and retaining qualified
      directors.





Non-employee
directors receive $250 per month for their services as directors plus $100 for
each board meeting attended.  Directors are entitled to participate in
the Company’s 2005 Stock Plan.  The Company also reimburses directors
for any actual expenses incurred to attend meetings of the Board.





The
following table provides information regarding all compensation paid to the
Company’s non-employee directors during the fiscal year ended December 31,
2008.





Non-Employee
      Director CompensationFees
      Earned orPaid
      in
                    
                    
                    StockName
                    
                    Cash
      ($) (1)
                    
                    
                    Awards
      ($)
                    
                    
                    Total
      ($)Gary
      Branning
                    
                    $
                    5,000
                    
                    
                    $
                    —
                    
                    
                    $
                    5,000Raymond
      Krauss
                    
                    
                    3,900
                    
                    
                    
                    —
                    
                    
                    
                    3,900Rick
      Henson (2)
                    
                    
                    850
                    
                    
                    
                    —
                    
                    
                    
                    850Total
      Non-employee Director Compensation
                    
                    $
                    9,750
                    
                    
                    $
                    —
                    
                    
                    $
                    9,750





(1)
            The
      amounts in this column represent the monthly cash meeting fee earned by or
      paid to the Company's non-employee directors for service during the fiscal
      year ended December 31, 2008.  Non-employee directors receive
      monthly cash compensation of $250.





(2)
            Mr.
      Henson resigned as a Director on September 12, 2007.  Mr. Henson
      received $850 in January 2008 for services rendered as a non-employee
      director during fiscal year 2007.





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 Table of Contents





ITEM12:  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS





The
following table sets forth certain information as of February 17, 2009 by (i)
all persons who are known to the Company to beneficially own more than 5% of the
outstanding shares of the Company’s common stock, and (ii) by each director,
director nominee, and executive officer and (iii) by all executive officers and
directors as a group:





Name
      and Address of Beneficial Owner
                        
                        Positions
      and Offices Held
                        
                        Number
      of Shares Beneficially Owned (1)
                        
                        Percent
                          of
      Class(1)Greg
      Wujek100
      Overlook Drive, 2nd Floor,
                        
                        President,
      Chief Executive
                        
                        -0-(2)
                        
                        -0-%Princeton,
      NJ 08540
                        
                        Officer,
      and DirectorGary
      Branning (3)
                          100
      Overlook Drive, 2nd Floor
                          Princeton,
      NJ 08540
                        
                        Director,
      Former Chief Financial Officer
                        
                        -0-
                        
                        -0-
      %Raymond
      Krauss (4)
                          100
      Overlook Drive, 2nd Floor
                          Princeton,
      NJ 08540
                        
                        Chief
      Financial Officer, Secretary, Treasurer, Director
                        
                        3,500
                        
                        -0-
      %Harmel
      S. Rayat
                          Suite
      216 – 1628 West 1st
      Avenue
                          Vancouver,
      British Columbia, V6J 1G1
                        
                        Stockholder
                        
                        85,730,171
      (5)
                        
                        42.8
      %Jasvir
      Rayat
                          3095
      West 36th
      Avenue
                          Vancouver,
      British Columbia V6N 2S7
                        
                        Stockholder
                        
                        12,142,857
                        
                        6.1
      %Kundan
      Rayat
                          54-8533
      Cumberland Pl
                          Burnaby,
      British Columbia, V6B 6E4
                        
                        Stockholder
                        
                        11,285,714
                        
                        5.6
      %All
      Directors and Officers as a Group (3 persons)
                        
                        
                        
                        3,500
                        
                        -0-
      %




(1)
            Calculated
      pursuant to rule 13d-3(d) of the Exchange Act.  Beneficial
      ownership is calculated based on 200,398,290 shares of common stock issued
      and outstanding on a fully diluted basis as of February 17,
      2009.  Unless otherwise stated below, each such person has sole
      voting and investment power with respect to all such
      shares.  Under Rule 13d-3(d) of the Exchange Act, shares not
      outstanding which are subject to options, warrants, rights or conversion
      privileges exercisable within 60 days are deemed outstanding for the
      purpose of calculating the number and percentage owned by such person, but
      are not deemed outstanding for the purpose of calculating the percentage
      owned by each other person listed.





(2)
            On
      April 6, 2006, the Company appointed Mr. Greg Wujek to the positions of
      President and Chief Executive Officer.  Pursuant to an
      Employment Agreement with Mr. Greg Wujek, the Board approved an annual
      salary of $225,000, a one-time payment of $16,437 for reimbursement of
      certain expenses incurred in connection with the acceptance of employment,
      and a stock option to purchase up to 2,250,000 shares of the Company’s
      common stock, subject to certain vesting requirements, at an exercise
      price of $1.22.




On August
1, 2006, the Company cancelled the stock option granted to Mr. Wujek in April
2006 for 2,250,000 stock options and simultaneously entered into a stock option
agreement with Mr. Wujek for the purchase of up to 2,000,000 shares of
common stock, subject to certain vesting requirements, at an exercise price of
$0.52 per share, expiring July 31, 2016.





41
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The stock
option to purchase up to 2,000,000 shares of common stock vests as follows: (a)
250,000 options shall vest if and when an Investigational New Drug (IND)
application is filed for any current or future compounds;  (b) 250,000
options shall vest if and when a phase I clinical trial is commenced for any
current or future compounds; and  (c) 1,500,000 options shall vest if and
when the Company or a wholly owned subsidiary or any one current or future
compound is acquired, in whole or in part, or when either through the Company or
a subsidiary, enters into a strategic collaborative agreement for any one
current or future compound, provided that the Company’s Board of Directors has
approved, by written resolution, any such acquisition, sale or agreement.
 The Company expected that the first 250,000 stock options would vest at
around 12 months from the date of grant, the second 250,000 stock options would
vest at around 18 months from the date of grant and the remaining 1,500,000
stock options would vest at around 12 months from the date of
grant.





At
February 17, 2009, none of the vesting requirements of the 2,000,000 stock
options had been met and thus none of the 2,000,000 stock options were
exercisable.  The Company does not anticipate that they will become
exercisable within 60 days. Thus, they are excluded from the beneficial
ownership table.





(3)
            Mr.
      Branning was appointed to the position of CFO on September 5, 2008 and
      resigned effective December 11,
2008.





(4)
            Mr.
      Krauss was appointed to the positions of CFO, Secretary and Treasurer on
      December 11, 2008 to fill the vacancy created by the resignation of Mr.
      Branning.





(5)      Represents
shares owned by 1420525 Alberta Ltd., a private Alberta corporation wholly owned
by Mr. Rayat.




ITEM13:  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS,
AND DIRECTOR INDEPENDENCE





Related
Party Transactions





Wages
and benefits





During
the years ended December 31, 2008 and 2007, the Company incurred
$260,331 and $266,208 in cash wages and benefits expense for services
rendered by Mr. Greg Wujek, the President, Chief Executive Officer, and Director
of the Company.





During
the years ended December 31, 2008 and 2007, the Company recorded $13,624 and
$1,210,568 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.





Director
fees





During
the years ended December 31, 2008 and 2007, the Company incurred $9,750 and
$3,400 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 year ended December 31,
2008, the Company repaid $250,000 to Mr. Rayat with the accrued interest of
$67,664.  At December 31, 2008, 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 December 31, 2008, accrued interest on the
$750,000 remaining promissory note was $243,473 and is included in interest
payable. The entire principal and accrued interest is due and payable on
demand.





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.





Director
Independence





Please
refer to “ITEM 10: DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE
GOVERNANCE.”





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ITEM14: PRINCIPAL ACCOUNTING FEES AND SERVICES





The firm
of Peterson Sullivan, LLP currently serves as the Company’s independent
auditors.  The Board of Directors of the Company, in its discretion,
may direct the appointment of different public accountants at any time during
the year, if the Board believes that a change would be in the best interests of
the stockholders.  The Board of Directors has considered the audit
fees, audit-related fees, tax fees and other fees paid to the Company's
auditors, as disclosed below, and had determined that the payment of such fees
is compatible with maintaining the independence of the accountants.





The
Company does not currently have an audit committee.





The
following table presents aggregate fees for professional services rendered by
Peterson Sullivan, LLP for the years ended December 31, 2008 and
2007.




Year
      Ended
                        December
      31, 2008
                      
                      
                      Year
      Ended
                        December
      31,
                        2007Audit
      fees
                      
                      $
                      23,126
                      
                      
                      $
                      21,939Audit-related
      fees
                      
                      
                      -
                      
                      
                      
                      -Tax
      fees
                      
                      
                      11,096
                      
                      
                      
                      -All
      other fees
                      
                      
                      -
                      
                      
                      
                      -Total
                      
                      $
                      34,222
                      
                      
                      $
                      21,939




Audit
Fees





Audit
Fees for the years ended December 31, 2008 and 2007 consist of the aggregate
fees billed by Peterson Sullivan, LLP for the audit of the consolidated
financial statements included in the Annual Report on Form 10-K and review of
interim consolidated financial statements included in the quarterly reports on
Form 10-Q for the years ended December 31, 2008 and 2007.





Tax
Fees





Tax Fees
for the years ended December 31, 2008 and 2007 consist of the aggregate fees
billed by Peterson Sullivan, LLP for tax compliance, tax advice and tax
planning.





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PART
IV





ITEM15:  EXHIBITS, FINANCIAL STATEMENT
SCHEDULES.





(a) The
following documents are filed as a part of this
Form 10-K:




1.   Financial
Statements





The
following financial statements are included in Part II, Item 8 of this
Form 10-K:





·
            Report
      of Independent Registered Public Accounting
Firm


·
            Consolidated
      Balance Sheets as of December 31, 2008 and
2007


·
            Consolidated
      Statements of Operations for the Years Ended December 31, 2008 and
      2007


·
            Consolidated
      Statements of Stockholders’ Equity (Deficit) for the Years Ended December
      31, 2008 and 2007


·
            Consolidated
      Statements of Cash Flows for the years ended December 31, 2008 and
      2007


·
            Notes
      to the Consolidated Financial
Statements





2.  Exhibits





The
Exhibits listed in the Exhibit Index, which appears immediately following the
signature page, are incorporated herein by reference, and are filed as part of
this Form 10-K.





3.  Financial
Statement Schedules




Financial
statement schedules are omitted because they are not required or are not
applicable, or the required information is provided in the consolidated
financial statements or notes described in Item 15(a)(1)
above.





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 Table of Contents





SIGNATURES





Pursuant
to the requirements of Sections 13 or 15 (d) of the Securities and 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)March
      19, 2009
              By:
              /s/ Greg WujekPresident,
      Chief Executive Officer,
Director




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





Signature
              Title
              Date/s/ Greg Wujek
              President,
      Chief Executive Officer,
              March
      19, 2009Greg
      Wujek
              Director/s/ Raymond Krauss
              Chief
      Financial Officer , Secretary, Treasurer,
              March
      19, 2009Raymond
      Krauss
              Director/s/ Gary Branning
              Director
              March
      19, 2009Gary
      Branning





45
 Table of Contents





ExhibitIndex





Exhibit No.
                Description of Exhibit31.1
                Certification
      of the Chief Executive Officer pursuant to Rule
  13a-14(a).31.2
                Certification
      of the Chief Financial Officer pursuant to
      Rule 13a-14(a).32.1
                Certification
      by the Chief Executive Officer pursuant to 18 U.S.C. 1350 as adopted
      pursuant to Section 906 of the Sarbanes-Oxley Act of
      2002.32.2
                Certification
      by the Chief Financial Officer pursuant to 18 U.S.C. 1350 as adopted
      pursuant to Section 906 of the Sarbanes-Oxley Act of
      2002.






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