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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

____________________



FORM 10-Q



(Mark One)



X QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



For quarterly period ended June 30, 2010



___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



For the transition period from ___________ to ___________



Commission file number 000-28790





PHYTOMEDICAL TECHNOLOGIES, INC.

(Exact name of registrant as specified in its charter)





Nevada


87-0429962





(State or other jurisdiction of


(I.R.S. Employer



incorporation or organization)


Identification No.)




100 Overlook Drive, 2nd Floor




Princeton, New Jersey
08540



(Address of principal executive offices)


(Zip Code)




(800) 611-3388

(Registrant’s telephone number, including area code)



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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ? No ? ?Not Applicable T.

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



Large accelerated filer
??

Accelerated filer
??









Non-accelerated filer (Do not check if a smaller reporting company)
??

Smaller reporting company
?x





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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: On August 12, 2010 there were 241,487,995 shares of common stock, par value $0.00001 outstanding.







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PHYTOMEDICAL TECHNOLOGIES, INC.

FORM 10-Q



For the Quarterly Period Ended June 30, 2010



Table of Contents






PART I FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements (Unaudited)
Consolidated Balance Sheets (Unaudited) 3
Consolidated Statements of Operations (Unaudited) 4
Consolidated Statements of Stockholders’ Equity (Deficit) (Unaudited) 5
Consolidated Statements of Cash Flows (Unaudited) 6
Notes to Consolidated Financial Statements (Unaudited) 7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 20
Item 4. Controls and Procedures 31
PART II OTHER INFORMATION
Item 1. Legal Proceedings 32
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 32
Item 3. Defaults Upon Senior Securities 32
Item 4. Submission of Matters to a Vote of Security Holders 32
Item 5. Other Information 32
Item 6. Exhibits 32
Signatures
Certifications










--------------------------------------------------------------------------------




PART I — FINANCIAL INFORMATION


Item 1. Consolidated Financial Statements (Unaudited)





PHYTOMEDICAL TECHNOLOGIES, INC.


CONSOLIDATED BALANCE SHEETS

JUNE 30, 2010 AND DECEMBER 31, 2009

(Expressed in U.S. Dollars)

(Unaudited)



June 30,
Decenber 31,

2010
2009


ASSETS

Current assets

Cash and cash equivalents
$
269,727
$
75,291

Prepaid expenses and other current assets
22,401
278

Total current assets
292,128
75,569


Intangible assets - license fees
15,000
15,000


Total assets
$
307,128
$
90,569


LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)


Current liabilities

Accounts payable
$
73,760
$
19,112

Interest payable
1,118
307,223

Notes payable
-
750,000

Convertible note payable, net of unamortized discount of $39,801 and $0
199
-

Accrued payroll liabilities
40,277
-

Total current liabilities
115,354
1,076,335


Long term liabilities

Convertible note payable, net of unamortized discount of $1,067,518 and $0
9
-

Interest payable
30,081
-

Total long term liabilities
30,090
-



Total liabilities
145,444
1,076,335


Commitments and Contingencies


Stockholders' equity (deficit)

Preferred stock: $0.25 par value; 1,000,000 authorized, no shares issued and outstanding at June 30, 2010 and December 31, 2009
-
-

Common stock: $0.00001 par value; 2,000,000,000 authorized, 201,487,995 shares issued and outstanding at June 30, 2010 and December 31, 2009
2,015
2,015

Common stock issuable: 40,000,0000 shares at June 30, 2010
400
-

Additional paid-in capital
23,998,219
25,152,591

Accumulated deficit
(23,838,950)
(26,140,372)

Total stockholders' equity (deficit)
161,684
(985,766)


Total liabilities and stockholders' equity (deficit)
$
307,128
$
90,569


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






3

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PHYTOMEDICAL TECHNOLOGIES, INC.


CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2010 AND 2009

(Expressed in U.S. Dollars)

(Unaudited)


Three Months Ended
Six Months Ended

June 30,
June 30,

2010
2009
2010
2009


Revenue
$
-
$
-
$
-
$
-


Operating expense (income)

Director and management fees - related party
6,792
1,500
14,950
3,200

Investor relations and marketing
3,962
1,408
7,762
1,408

Wages and benefits
34,919
66,776
(2,566,368)
134,680

Research and development
3,800
14,416
3,800
32,739

Professional fees
57,293
28,323
160,330
73,330

Other operating expenses
24,262
1,648
36,392
4,715

Total operating expense (income)
131,028
114,071
(2,343,134)
250,072


Income (loss) from operations
(131,028)
(114,071)
2,343,134
(250,072)


Other expense (income)

Interest expense
(23,663)
(15,894)
(41,712)
(31,613)

Change in fair value of warrant liability
-
54,507
-
(100,654)

Loss on dissolution of foreign subsidiary
-
-
-
(523)

Total other expense (income)
(23,663)
38,613
(41,712)
(132,790)


Net income (loss)
$
(154,691)
$
(75,458)
$
2,301,422
$
(382,862)


Net income (loss) per share - basic
$
(0.00)
$
(0.00)
$
0.01
$
(0.00)

Net income (loss) per share - diluted
$
(0.00)
$
(0.00)
$
0.01
$
(0.00)


Weighted average number of common shares outstanding

Basic
219,949,533
200,398,290
210,769,763
200,398,290

Dilutive
219,949,533
200,398,290
322,345,245
200,398,290



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






4

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PHYTOMEDICAL TECHNOLOGIES, INC.


CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)

FOR THE SIX MONTHS ENDED JUNE 30, 2010 AND THE YEAR ENDED DECEMBER 31, 2009

(Expressed in U.S. Dollars)

(Unaudited)





Accumulated

Other
Total

Common Stock
Common Stock Issuable
Additional
Comprehensive
Accumulated
Comprehensive
Stockholders'

Shares
Amount
Shares
Amount
Paid-in Capital
(Loss) Income
Deficit
Income (Loss)
Equity (Deficit)



Balance, December 31, 2008
200,398,290
$ 2,004
-
$ -
$ 26,285,899
$ (523)
$ (26,621,157)
$ -
$ (333,777)


Cumulative adjustment upon adoption
of ASC 815-40
-
-
-
-
(1,198,679)
-
1,174,576
-
(24,103)


Extinguishment of warrant liability
1,089,705
11
-
-
65,371
-
-
-
65,382


Comprehensive income (loss)

Loss on dissolution of foreign subsidiary
-
-
-
-
-
523
-
523
523


Net loss, year ended December 31, 2009
-
-
-
-
-
-
(693,791)
(693,791)
(693,791)

Total comprehensive loss
(693,268)


Balance, December 31, 2009
201,487,995
2,015
-
-
25,152,591
-
(26,140,372)
(985,766)


Stock based compensation expense
-
-
-
-
12,769
-
-
-
12,769


Reversal of stock based compensation due to
forfeiture of stock options
-
-
-
-
(2,674,268)
-
-
-
(2,674,268)


Beneficial conversion feature on
convertible notes payable
-
-
-
-
1,107,527
-
-
-
1,107,527


Issuance of common stock related
to the 2010 Offering
40,000,000
400
399,600
-
-
-
400,000


Net income, six months ended June 30, 2010
-
-
-
-
-
-
2,301,422
2,301,422
2,301,422

Total comprehensive income
$ 2,301,422


Balance, June 30, 2010
201,487,995
$ 2,015
40,000,000
$ 400
$ 23,998,219
$ -
$ (23,838,950)
$ 161,684



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






5

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PHYTOMEDICAL TECHNOLOGIES, INC.


CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009

(Expressed in U.S. Dollars)

(Unaudited)



Six Months Ended

June 30,

2010
2009


Cash flows from operating activities

Net income (loss)
$
2,301,422
$
(382,862)

Adjustments to reconcile net income (loss) to net cash used in operating activities

Accreted discount on convertible debt
208
-

Change in fair value of warrant liability
-
100,654

Stock based compensation
12,769
-

Reversal of stock based compensation due to forfeiture of stock options
(2,674,268)
-

Loss on dissolution of foreign subsidiary
-
523

Changes in operating assets and liabilities:

Increase in deferred research and development costs
-
(23,960)

Increase in prepaid expenses and other current assets
(22,123)
(267)

Increase (decrease) in accounts payable
54,648
(14,970)

Increase in interest payable
41,503
31,613

Increase in accrued payroll liabilities
40,277
-

Net cash used in operating activities
(245,564)
(289,269)


Cash flows from financing activities

Proceeds from convertible note payable to stockholder
40,000
-

Allocated proceeds from issuance of common stock
289,856
-

Allocated proceeds from issuance of warrants attached to issuance of common stock
110,144
-

Net cash provided by financing activities
440,000
-


Increase (decrease) in cash and cash equivalents
194,436
(289,269)


Cash and cash equivalents at beginning of period
75,291
665,833

Cash and cash equivalents at end of period
$
269,727
$
376,564



Supplemental disclosure of cash flow information:

Interest paid in cash
$
-
$
-

Income tax paid in cash
$
-
$
-

Notes payable and accrued interest converted to convertible note payable
$
1,067,527
$
-

Debt discount recorded for beneficial conversion feature
$
1,107,527
$
-



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






6

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PHYTOMEDICAL TECHNOLOGIES, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



June 30, 2010

(Expressed in U.S. Dollars)

(Unaudited)



Note 1. Organization and Description of Business



PhytoMedical Technologies, Inc. (the “Company”) was incorporated in the State of Nevada on July 25, 2001. The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries PhytoMedical Technologies Corporation (“PhytoMedical Corp.”), PolyPhenol Technologies Corporation (“PolyPhenol”) and PhytoMedical Technologies Ltd. (“PhytoMedical Ltd.”).



PhytoMedical Corp. was incorporated on March 10, 2004 in the State of Nevada and has no assets and liabilities.



PolyPhenol was incorporated on August 24, 2004 in the State of Nevada and has no assets and liabilities.



PhytoMedical Ltd. was incorporated on April 11, 2007 in the Province of British Columbia, Canada for providing administrative services to the Company’s Canada office. The Company ceased to conduct business in Canada on August 31, 2008 and closed this office. As a result, the Company dissolved PhytoMedical Ltd. and eliminated all intercompany balances, effective January 1, 2009.



Since its incorporation, the Company focused its activities on the development of new technologies (in particular pharmaceutical technologies and products) and, where warranted, the acquisition of rights to obtain licenses to technologies and products that are being developed by third parties, primarily universities and government agencies, through sponsored research and development.



Although the Company is currently focusing its efforts on the anti-cancer compound for glioblastoma, D11B, to which the Company currently has an exclusive license, pursuant to a license agreement between the Company and the Trustees of Dartmouth College (the “Dartmouth Trustees”) dated September 8, 2008 (the “Dartmouth License Agreement”), following the changes in June 2010, to the Company’s management and Board of Directors, the Company’s Board of Directors is evaluating whether it is in the best interests of the Company’s shareholders to continue to expend its capital resources on the development of the D11B compound or to explore other viable business ventures and opportunities. Until such time as the Board of Directors reaches its conclusion, the Company will continue its research and development efforts with respect to the D11B anti cancer compound.



Note 2. Going Concern Uncertainties



The Company has not generated any revenues, has an accumulated deficit of $23,838,950 as of June 30, 2010 and does not have positive cash flows from operating activities. The accompanying consolidated financial statements have been prepared in conformity with generally accepted accounting principles in the United States of America, which contemplates continuation of the Company as a going concern, which is dependent upon the Company’s ability to establish itself as a profitable business.



The Company has expended a significant amount of cash in developing its technology and expects to incur additional losses as it continues to develop its technologies. To date, the Company’s cash flow requirements have primarily been met by proceeds of $400,000 received pursuant to the 2010 Offering (as defined in “Note 12. 2010 Offering” below) and net proceeds of $3,109,500 received pursuant to the 2007 Private Placement (as defined in “Note 14. Warrants” below) which was completed by the Company in September 2007. Management recognizes that in order to meet the Company’s capital requirements, and continue to operate, regardless of whether it continues to research and develop the D11B compound or elects to pursue other business opportunities, additional financing will be necessary. The Company expects to raise additional funds through private or public equity investments in order to support existing operations and expand the range and scope of its business operations. The Company will seek access to private or public equity



7

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but there is no assurance that such additional funds will be available for the Company to finance its operations on acceptable terms, if at all. Furthermore, there is no assurance that the net proceeds received from any successful financing arrangement will be sufficient to cover cash requirements during the initial stages of the Company’s operations. If the Company is unable to raise additional capital or generate positive cash flow, it is unlikely that the Company will be able to continue as a going concern.



In view of these conditions, the ability of the Company to continue as a going concern is in substantial doubt and dependent upon achieving a profitable level of operations and on the ability of the Company to obtain necessary financing to fund ongoing operations. These consolidated financial statements do not give effect to any adjustments which will be necessary should the Company be unable to continue as a going concern and therefore be required to realize its assets and discharge its liabilities in other than the normal course of business and at amounts different from those reflected in the accompanying consolidated financial statements.



Note 3. Presentation of Interim Information



The accompanying unaudited interim consolidated financial statements have been prepared in accordance with accounting principles accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments (of a normal recurring nature) considered necessary for a fair presentation of the financial statements have been included. Operating results for the three and six months ended June 30, 2010 are not necessarily indicative of the results that may be expected for the year ended December 31, 2010 or any other interim period. For further information, refer to the financial statements and notes thereto included in the Company’s 2009 Annual Report on Form 10-K for the year ended December 31, 2009 filed with the Securities and Exchange Commission.



Note 4. Summary of Significant Accounting Policies

Estimates

The preparation of the Company’s consolidated financial statements requires management to make estimates and use assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses. These estimates and assumptions are affected by management’s application of accounting policies. Critical accounting policies for the Company include accounting for research and development costs and accounting for stock-based compensation. On an on-going basis, the Company evaluates its estimates. Actual results and outcomes may differ materially from these estimates and assumptions.

Research and Development

Research and development costs represent costs incurred to develop the Company’s technology, including salaries and benefits for research and development personnel, allocated overhead and facility occupancy costs, supplies, equipment purchase and repair and other costs. Research and development costs are expensed when incurred, except for nonrefundable advance payments for future research and development activities which are capitalized and recognized as expense as the related services are performed.

During the three months ended June 30, 2010 and 2009, the Company incurred $3,800 and $14,416 on research and development activities. During the six months ended June 30, 2010 and 2009, the Company incurred $3,800 and $32,739 on research and development activities.



8

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Fair Value



The Company measures fair value as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the reporting date. The Company utilizes a three-tier hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value:



Level 1. Valuations based on quoted prices in active markets for identical assets or liabilities that an entity has the ability to access. The Company has no assets or liabilities valued with Level 1 inputs.



Level 2. Valuations based on quoted prices for similar assets or liabilities, quoted prices for identical assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable data for substantially the full term of the assets or liabilities. The Company has no assets or liabilities valued with Level 2 inputs.



Level 3. Valuations based on inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Liabilities valued with Level 3 inputs are described in “Note 11. Notes Payable and Convertible Notes Payable,” “Note 13. Stock Options,” and “Note 14. Warrants.”

Stock-Based Compensation


The Company measures all employee stock-based compensation awards using a fair value method on the date of grant and recognizes such expense in its consolidated financial statements over the requisite service period. The Company uses the Black-Scholes pricing model to determine the fair value of stock-based compensation awards on the date of grant. The Black-Scholes pricing model requires management to make assumptions regarding the warrant and option lives, expected volatility, and risk free interest rates. See “Note 13. Stock Options” and “Note 14. Warrants” for additional information on the Company’s stock-based compensation plans.



Recently Adopted Accounting Pronouncements

In January 2010, the FASB issued ASU No. 2010-06, “Fair Value Measurements and Disclosures,” which amends the disclosure requirements related to recurring and nonrecurring fair value measurements The guidance requires disclosure of transfers of assets and liabilities between Level 1 and Level 2 of the fair value measurement hierarchy, including the reasons and the timing of the transfers and information on purchases, sales, issuance, and settlements on a gross basis in the reconciliation of the assets and liabilities measured under Level 3 of the fair value measurement hierarchy. The guidance is effective for annual and interim reporting periods beginning after December 15, 2009, except for Level 3 reconciliation disclosures which are effective for annual and interim periods beginning after December 15, 2010. The Company adopted this guidance at the beginning of its first quarter of fiscal 2010, except for the Level 3 reconciliation disclosures on the roll forward activities, which it will adopt at the beginning of its first quarter of fiscal 2011. Other than requiring additional disclosures, the adoption of this standard did not and will not have a material impact on the Company’s consolidated financial position and results of operations.



Recent Accounting Pronouncements Not Yet Adopted

The Company reviews new accounting standards as issued. Although some of these accounting standards issued or effective after the end of the Company’s previous fiscal year may be applicable to the Company, it expects that none of the new standards will have a significant impact on its consolidated financial statements.



Note 5. Net Income (Loss) per Share



Basic net income (loss) per share is computed by dividing the net income (loss) by the weighted average number of common shares outstanding during the period. Diluted net income (loss) per share is computed by dividing the net income (loss) by the weighted average number of common and dilutive common equivalent shares outstanding during the period.



9

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During the three months ended June 30, 2010 and 2009 and the six months ended June 30, 2009, the Company recorded a net loss. Therefore, the issuance of shares of common stock from the exercise of stock options or warrants would be anti-dilutive. Excluded from the computation of diluted net loss per share for the three months ended June 30, 2010 because their effect would be anti-dilutive, are stock options and warrants to acquire 20,200,000 shares of common stock with a weighted-average exercise price of $0.03 per share. Excluded from the computation of diluted net loss per share for the three and six months ended June 30, 2009 because their effect would be anti-dilutive, are stock options and warrants to acquire 12,897,081 shares of common stock with a weighted-average exercise price of $0.42 per share.



Excluded from the computation of diluted net income per share for the six months ended June 30, 2010 because their effect would be anti-dilutive, are stock options to acquire 200,000 shares of common stock with a weighted-average exercise price of $0.04 per share.



For purposes of earnings per share computations, shares of common stock that are issuable at the end of a reporting period are included as outstanding.



Following is the computation of basic and diluted net income (loss) per share for the three and six months ended June 30, 2010 and 2009:



Three Months Ended
Six Months Ended

June 30,
June 30,

2010
2009
2010
2009


Basic Net Income (Loss) Per Share Computation

Numerator: net income (loss)
$ (154,691)
$ (75,458)
$ 2,301,422
$ (382,862)


Denominator:

Weighted average number of common shares outstanding
219,949,533
200,398,290
210,769,763
200,398,290


Basic net income (loss) per share
$ (0.00)
$ (0.00)
$ 0.01
$ (0.00)


Dilutive Net Income (Loss) Per Share Computation

Numerator: net income (loss)
$ (154,691)
$ (75,458)
$ 2,301,422
$ (382,862)

Add: convertible notes payable interest expense and accreted discount
-
-
31,407
-

Adjusted net income (loss)
$ (154,691)
$ (75,458)
$ 2,332,829
$ (382,862)


Denominator:

Weighted average number of common shares outstanding
219,949,533
200,398,290
210,769,763
200,398,290

Effect of dilutive securities:

Warrants
-
-
822,742
-

Assumed conversion of convertible notes payable
-
-
110,752,740
-

Total shares
219,949,533
200,398,290
322,345,245
200,398,290


Diluted net income (loss) per share
$ (0.00)
$ (0.00)
$ 0.01
$ (0.00)




Note 6. Iowa State University Sponsored Research Agreement



On February 1, 2007, the Company, through its wholly owned subsidiary, PolyPhenol, entered into a Sponsored Research Agreement with Iowa State University (“ISU”). Under terms of the agreement, the Company continued to undertake its research at ISU for development of the Company’s novel, synthesized type A-1 ‘polyphenolic’



10

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compounds. On January 6, 2009, the Company provided written notice to ISU terminating the Sponsored Research Agreement between the Company and ISU. The termination was effective March 6, 2009.



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.



As of June 30, 2010, we had paid a total of $114,972 pursuant to the terms of the ISU Sponsored Research Agreement, none of which is included in research and development expense for the three and six months ended June 30, 2010 and 2009. In addition to contractual obligations pursuant to the ISU Sponsored Research Agreement, we have reimbursed ISU $673 for other out-of-pocket costs, none of which is included in research and development expense for the either the three or six month periods ended June 30, 2010 and 2009.



Note 7. Iowa State University Research Foundation License Agreement



On June 12, 2006, the Company, through its wholly owned subsidiary, PolyPhenol, entered into an exclusive license agreement with Iowa State University Research Foundation Inc. (“ISURF”) to develop, market and distribute novel synthesized compounds derived from type A-1 polyphenols, which have been linked to insulin sensitivity by the USDA's Agricultural Research Service. On January 6, 2009, the Company gave written notice to ISURF, terminating the License Agreement between the Company and ISURF, effective April 6, 2009.



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.



As of June 30, 2010, the Company had paid a total of $20,000 to ISURF for the license fee and $31,223 for reimbursement of patent costs and research expenses as per agreement with ISURF, none of which is included in research and development expense for the three and six months ended June 30, 2010 and 2009.



Note 8. Dartmouth Sponsored Research Agreement



On May 25, 2007, the Company entered into a Sponsored Research Agreement with Dartmouth College (“Dartmouth”), in the area of cancer research, specifically furthering research and development of anti-tumor bis-acridines. The Sponsored Research Agreement with Dartmouth was amended on October 1, 2008 extending it to September 30, 2009. As of September 30, 2009, Dartmouth had concluded their research and development and provided the Company with a key anti-cancer compound for glioblastoma. The Company has entered into a fee-for-services agreement with Latitude Pharmaceuticals, Inc. (“Latitude”) to develop an intravenous (“IV”) formulation for its lead anti-cancer compound for glioblastoma (see “Note 10. Latitude Agreement”). The Company is currently evaluating the advisability of continuing to independently pursue its research and development goals.



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 June 30, 2010, the Company has paid $220,260 pursuant to the Sponsored Research Agreement with Dartmouth and $5,053 for reimbursement of expenses. Of the total $225,313 paid to Dartmouth, $3,800 is included in research and development expense for both of the three and six month periods ended June 30, 2010 and $13,003 and $24,753 is included in research and development expense for the three and six months ended June 30, 2009.





11

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Note 9. Dartmouth License Agreement



On September 1, 2008, the Company entered into the Dartmouth License Agreement pursuant to which the Company obtained the rights to develop, market and distribute a novel class of synthesized compounds known as bis-intercalators. These anti-cancer agents which have a ‘cytotoxic’ or poisonous affinity for cancer cells, are designed to bind tightly to cancer cell DNA (deoxyribonucleic acid), the blueprint of life for the cancer cell.



Under the terms of the Dartmouth License Agreement, the Company is obligated to pay annual license maintenance fees to the Dartmouth Trustees, in addition to an upfront payment of $15,000 within 30 days of execution of the agreement, with such payment already having been made. Additionally, the Company is required to make milestone payments to the Dartmouth Trustees if, and only when, specific clinical and regulatory approval milestones are achieved.



Throughout the duration of the Dartmouth License Agreement, the Company is obligated to make royalty payments to the Dartmouth Trustees based on the net sales of products derived from the Dartmouth License Agreement, if any. The Company is also obligated to reimburse the Dartmouth Trustees all costs incurred for filing, prosecuting and maintaining any licensed patents related to the Dartmouth License Agreement, throughout the duration of the agreement. The Company is required to undertake the development, regulatory approval, and commercialization, of products derived from the Dartmouth License Agreement, if any, and pursue collaborative commercial partnerships, if viable.



Pursuant to Rule 24b-2, the Company submitted a request for confidential treatment of certain portions of the Dartmouth License Agreement, relating to the payment terms and certain provisions under the Dartmouth License Agreement. The Company’s request was granted on March 9, 2009. Accordingly, certain terms of the Dartmouth License Agreement do not need to be released to the public until August 5, 2013.



Note 10. Latitude Agreement



On July 6, 2009, the Company entered into a fee-for-services agreement with Latitude, which was amended on October 23, 2009 (the “Latitude Agreement”), to develop an IV formulation of the Company’s anti-cancer compound for glioblastoma, D11B, for use in ongoing and future testing to determine the compound’s efficacy and toxicology, and if warranted, future early stage human clinical trials. As of June 30, 2010, the Company has paid $45,377 pursuant to the terms of the Latitude Agreement, none of which is included in research and development expense for the three and six months ended June 30, 2010 and 2009.



Note 11. Notes Payable and Convertible Notes Payable



Convertible Note Payable – Current



On March 2, 2010 the Company issued a one year convertible promissory note in the amount of $40,000 to a non-affiliated third party. The convertible note bears interest at the rate of 8.5% per annum, which interest is accrued and payable on the maturity date of the convertible promissory note. As long as the convertible promissory note remains outstanding and not fully paid, the holder has the right, but not the obligation, to convert all or any portion of the aggregate outstanding principal amount of the convertible promissory note, together with all or any portion of the accrued and unpaid interest into that number of shares, subject to certain terms and conditions, of the Company’s common stock equal to the amount of the converted indebtedness divided by $0.01 per share. In the event of default, as defined in the Convertible Promissory Note agreement, the annual interest rate increases to 10% and is due on demand. The Company may, in its discretion, redeem the convertible promissory note at any time prior to the maturity date of the convertible promissory note. Certain events of default will result in all sums of principal and interest then remaining unpaid immediately due and payable, upon demand of the holder.



Since the book value of the convertible promissory note ($40,000) divided by the number of shares to which the debt can be converted (4,000,000 shares of common stock) is $0.01 per share, which was less than the fair value of the stock at the time the debt was issued ($0.03 per share), there was a beneficial conversion feature. The beneficial conversion feature was recorded as a discount against the convertible promissory note, which reduced the book



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value of the convertible promissory note to not less than zero. The Company amortizes the discount using the effective interest method over the one-year life of the convertible promissory note.



During the three and six months ended June 30, 2010, the Company recorded interest expense of $847 and $1,118 payable to the holder of the convertible promissory note. During the three and six months ended June 30, 2010, the Company recorded interest expense related to the accretion of the discount on the convertible promissory note of $186 and $199. At June 30, 2010, the carrying value of the convertible promissory note was $199, net of unamortized discount of $39,801. Due to the unique nature of the terms of the convertible promissory note, it is not practicable to determine its fair value at June 30, 2010.



Notes Payable and Convertible Note Payable – Long Term



The Company had arranged with Mr. Harmel S. Rayat, former Chief Financial Officer, Director, and majority shareholder of the Company, a loan amount up to $2,500,000 that may be drawn down on an “as needed basis” at a rate of prime plus 3%. Effective September 15, 2008, Mr. Rayat and the Company terminated this loan agreement. At December 31, 2009, the Company had an unsecured promissory note pursuant to this loan agreement in the amount of $750,000 payable to Mr. Rayat, which was due on March 8, 2006 and bore interest at an annual rate of 8.5%. At December 31, 2009, accrued interest on the $750,000 remaining promissory note was $307,223 and was included in interest payable. The entire principal and accrued interest was due and payable on demand.



On March 1, 2010, Mr. Rayat agreed to convert the then outstanding balance of the note payable ($750,000) and accrued and unpaid interest ($317,527) thereon to a fixed three (3) year term convertible note, totaling $1,067,527 (the “Rayat Convertible Note”). The Rayat Convertible Note bears interest at the rate of 8.5% per annum, which interest is accrued and payable on the maturity date of the Rayat Convertible Note. As long as the Rayat Convertible Note remains outstanding and not fully paid, Mr. Rayat has the right, but not the obligation, to convert all or any portion of the aggregate outstanding principal amount of the Rayat Convertible Note, together with all or any portion of the accrued and unpaid interest into that number of shares, subject to certain terms and conditions, of the Company’s common stock equal to the amount of the converted indebtedness divided by $0.01 per share. In the event of default, as defined in the Convertible Promissory Note agreement, the annual interest rate increases to 10% and is due on demand. The Company may, in its discretion, redeem the Rayat Convertible Note at any time prior to the maturity date of the Rayat Convertible Note. Certain events of default will result in all sums of principal and interest then remaining unpaid immediately due and payable, upon demand of Mr. Rayat.



Since the book value of the convertible promissory note ($1,067,527) divided by the number of shares of common stock to which the debt can be converted (106,752,700) is $0.01 per share, which was less than the fair value of the stock at the time the debt was issued ($0.03 per share), there was a beneficial conversion feature. The beneficial conversion feature was recorded as a discount against the Rayat Convertible Note, which reduced the book value of the Rayat Convertible Note to not less than zero. The Company amortizes the discount using the effective interest method over the three-year life of the Rayat Convertible Note.



During the three and six months ended June 30, 2010, the Company recorded interest expense of $22,623 and $40,386 payable to Mr. Rayat related to the original $750,000 note payable and the Rayat Convertible Note. During the three and six months ended June 30, 2010, the Company recorded interest expense related to the accretion of the discount on the Rayat Convertible Note of $7 and $9. At June 30, 2010, the carrying value of the convertible promissory note was $9, net of unamortized discount of $1,067,518. Due to the unique nature of the terms of the Rayat Convertible Note, it is not practicable to determine its fair value at June 30, 2010.



Note 12. 2010 Offering



On May 4, 2010, the Company’s registration statement on Form S-1 (the “Registration Statement”) was declared effective by the United States Securities and Exchange Commission, and the Company commenced its self directed public offering (the “2010 Offering”) in accordance with the Prospectus dated May 4, 2010 and included in the Registration Statement, of up to a maximum of 200,000,000 units (the "Units") of its securities at a price of $0.01 per Unit. Each Unit consists of:





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· one (1) share of the Company’s common stock, $0.00001 par value per share; and,

· one-half of one Series B Warrant (collectively, the “Series B Warrants”).



Each full Series B Warrant entitles the holder to purchase one additional share of the Company’s common stock at an exercise price of $0.03 per share, expiring two (2) years from the date of issuance of the Series B Warrants.



The 2010 Offering is a direct public offering by the Company without any involvement of underwriters or broker-dealers. The 2010 Offering may continue until all of the Units registered have been sold or August 2, 2010 (unless extended for an additional 90 days in the sole discretion of the Company). The Company has elected to extend the offering for an additional 90 days.



During the three months ended June 30, 2010, the Company sold 40,000,000 Units for gross receipts of $400,000 pursuant to the terms of the 2010 Offering. Accordingly, the Company issued 40,000,000 shares of its common stock and Series B Warrants to purchase up to 20,000,000 shares of common stock at an exercise price of $0.03 per share to the investors having subscribed for the 40,000,000 Units.



At the time of grant, the fair value of the Series B Warrants as calculated using the Black-Scholes model was $607,995 using the following assumptions: dividend yield of 0%, expected volatility of 152.5%, risk-free interest rate of 0.8%, and expected term of two years. The portion of the proceeds from the 2010 Offering allocated to the Series B Warrants was $110,144.



Note 13. Stock Options



On July 12, 2001, the Company approved its 2001 Stock Option Plan (the “2001 Plan”), which has 10,000,000 shares reserved for issuance thereunder, all of which were registered under Form S-8 on October 2, 2003. On July 25, 2005, the Company approved its 2005 Stock Option Plan (the “2005 Plan”), which has 15,000,000 shares reserved for issuance thereunder. The 2001 Plan and 2005 Plan provide shares available for options granted to employees, directors and others. The options granted to employees under the Company’s option plans generally vest over two to five years or as otherwise determined by the plan administrator. Options to purchase shares expire no later than ten years after the date of grant.



The Company measures all stock-based compensation awards using a fair value method on the date of grant and recognizes such expense in its consolidated financial statements over the requisite service period. The grant date fair value of stock options is based on the price of a share of the Company’s common stock on the date of grant. In determining grant date fair value of stock options, the Company uses the Black-Scholes option pricing model which requires management to make assumptions regarding the option lives, expected volatility, and risk free interest rates all of which impact the fair value of the option and, ultimately, the expense that will be recognized over the life of the option.



The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for a bond with a similar term. The Company does not anticipate declaring dividends in the foreseeable future. Volatility is calculated based on the historical weekly closing stock prices for the same period as the expected life of the option. The Company uses the “simplified” method for determining the expected term of its “plain vanilla” stock options. The Company recognizes compensation expense for only the portion of stock options that are expected to vest. Therefore, the Company applies an estimated forfeiture rate that is derived from historical employee termination data and adjusted for expected future employee turnover rates.



A summary of the Company’s stock option activity for the six months ended June 30, 2010 and related information follows:





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Weighted

Average

Remaining
Aggregate

Weighted Average
Contractual
Intrinsic

Number of Options
Exercise Price
Term
Value


Outstanding at December 31, 2009
2,000,000
$ 0.52

Grants
4,800,000
0.04

Forfeitures
(6,600,000)
0.19

Outstanding at June 30, 2010
200,000
$ 0.04
0.2 years
$ -


Exercisable at June 30, 2010
200,000
$ 0.04
0.2 years
$ -


Available for grant at June 30, 2010
22,050,000




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 its second quarter of its fiscal year 2010 and the exercise price, multiplied by the number of shares) that would have been received by the option holders had all option holders exercised their options on June 30, 2010. The intrinsic value of the options changes based on the fair market value of the Company’s common stock.



Stock Option Forfeitures



On May 31, 2010, Mr. James Lynch tendered his resignation as a Director and as the President and Chief Executive Officer of the Company, effective May 31, 2010. The resignation constituted a termination of the employment agreement between Mr. Lynch and the Company dated March 15, 2010 (the “Lynch Employment Agreement”). None of the 4,000,000 stock options previously granted to Mr. Lynch on March 15, 2010, pursuant to the Lynch Employment Agreement had vested and the options have been forfeited. Accordingly, during the three and six months ended June 30, 2010, the Company recorded a reversal of stock compensation expense previously recorded for the fair value of Mr. Lynch’s stock options of $6,311, which is included in wages and benefits.



On June 1, 2010, Mr. Gary Branning tendered his resignation as a Director of the Company effective as of that date. None of the 200,000 stock options previously granted to Mr. Branning on March 15, 2010 had vested and the options have been forfeited. Accordingly, during the three and six months ended June 30, 2010, the Company recorded a reversal of stock compensation expense previously recorded for the fair value of Mr. Branning’s stock options of $153, which is included in director and management fees – related party.



On June 17, 2010, Mr. Raymond Krauss tendered his resignation as a Director and as the Chief Financial Officer, Secretary and Treasurer of the Company effective as of that date. None of the 200,000 stock options previously granted to Mr. Krauss on March 15, 2010 had vested and the options have been forfeited. Accordingly, during the three and six months ended June 30, 2010, the Company recorded a reversal of stock compensation expense previously recorded for the fair value of Mr. Krauss’ stock options of $153, which is included in director and management fees – related party.



On June 17, 2010, Mr. Greg Wujek tendered his resignation as a Director of the Company effective as of that date. Of the 400,000 stock options previously granted to Mr. Wujek on March 15, 2010, 200,000 had vested and may be exercised through September 19, 2010, which is 90 days from June 17, 2010. The remaining 200,000 options granted to Mr. Wujek had not vested and have been forfeited. Accordingly, during the three and six months ended June 30, 2010, the Company recorded a reversal of stock compensation expense previously recorded for the fair value of Mr. Wujek’s stock options of $152, which is included in director and management fees – related party.



On March 15, 2010, Mr. Greg Wujek tendered his resignation as the Company’s President and Chief Executive Officer effective as of that date. Simultaneously with his resignation as the Company’s President and Chief Executive Officer the employment agreement between the Company and Mr. Wujek was terminated and all of the 2,000,000 stock options previously granted to Mr. Wujek were forfeited. Accordingly, during the three and six



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months ended June 30, 2010, the Company recorded a reversal of stock compensation expense previously recorded for the fair value of Mr. Wujek’s stock options of $0 and $2,667,500, which is included in wages and benefits.



During the three months ended June 30, 2010 and 2009 no stock-based compensation expense was recorded. During the six months ended June 30, 2010 and 2009, stock-based compensation expense of $12,769 and $0 was recognized for stock options previously granted and vesting over time. Of the total $12,769 recorded during the six months ended June 30, 2010, $6,458 is included in director and management fees – related party and $6,311 is included in wages and benefits. As of June 30, 2010, the Company did not have any unrecognized compensation cost related to unvested stock options.



The following table summarizes information about stock options outstanding and exercisable at June 30, 2010:





Stock Options Outstanding




Stock Options Exercisable



Weighted
Weighted

Average
Weighted
Average
Weighted

Number of
Remaining
Average
Number of
Remaining
Average

Options
Contractual
Exercise
Options
Contractual
Exercise

Exercise Price
Outstanding
Life (Years)
Price
Exercisable
Life (Years)
Price


$
0.04
200,000
0.2
$
0.04
200,000
0.2
$
0.04






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 14. Warrants



Series B Warrants



On May 4, 2010, the Company commenced its 2010 Offering (please refer to “Note 12. 2010 Offering”) of up to a maximum of 200,000,000 Units of its securities at a price of $0.01 per Unit. Each Unit consists of:



· one (1) share of the Company’s common stock, $0.00001 par value per share; and,

· one-half of one Series B Warrant



Each full Series B Warrant entitles the holder to purchase one additional share of the Company’s common stock at an exercise price of $0.03 per share, expiring two (2) years from the date of issuance of the Series B Warrants.



During the three months ended June 30, 2010, the Company sold 40,000,000 Units for gross receipts of $400,000 pursuant to the terms of the 2010 Offering. Accordingly, the Company issued 40,000,000 shares of its common stock and Series B Warrants to purchase up to 20,000,000 shares of common stock at an exercise price of $0.03 per share to the investors having subscribed for the 40,000,000 Units.



At the time of grant, the fair value of the Series B Warrants as calculated using the Black-Scholes model was $607,995 using the following assumptions: dividend yield of 0%, expected volatility of 152.5%, risk-free interest rate of 0.8%, and expected term of two years. The portion of the proceeds from the 2010 Offering allocated to the Series B Warrants was $110,144.



Class A Warrants



On September 25, 2007, PhytoMedical completed a $3,205,000 private placement (the “2007 Private Placement”), for which Palladium Capital, LLC (“Palladium"), acted as the exclusive placement agent. The 2007 Private



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Placement consisted of the sale of 10,683,331 units (the "Units") at a price of $0.30 per Unit (the "Unit Issue Price") or $3,205,000 in the aggregate. The Units were offered and sold to 13 accredited investors (the “Investors”) as defined in Regulation D as promulgated under the Securities Act of 1933, as amended. Each Unit consisted of one share of common stock and one Class A warrant (“Class A Warrant”) at an exercise price of $0.40 per share, expiring September 25, 2010. The Company issued 10,683,331 Class A Warrants pursuant to the terms of the 2007 Private Placement and 213,750 to the agent as commission (under the same terms), for a total of 10,897,081 Class A Warrants.



The terms of the Class A Warrants that were issued pursuant to the 2007 Private Placement contained a provision such that upon subsequent equity sales of common stock or common stock equivalents at an effective price per share (the “Base Share Price”) less than the $0.40 exercise price per share of the Class A Warrants then the exercise price of the Class A Warrants would have been reduced to the Base Share Price and the number of Class A Warrants would have been increased such that the aggregate exercise price payable, after taking into account the decrease in the exercise price would have been equal to the aggregate exercise price prior to such adjustment (“Dilutive Issuance”). The potential adjustment to the Class A Warrant exercise price and number of underlying shares of common stock resulted in a settlement amount that did not equal the difference between the fair value of a fixed number of the Company’s common stock and a fixed exercise price. Accordingly, the Class A Warrants were not considered indexed to the Company’s own stock and therefore needed to be accounted for as a derivative.



At the time of grant, the fair value of the Class A Warrants as calculated using the Black-Scholes model was $2,724,270. The proceeds from the 2007 Private Placement allocated to the Class A Warrants were $1,198,679.



Warrant Liability and Securities Exchange Agreement



On January 1, 2009, the Company adopted guidance which is now part of ASC 815-40, Contracts in Entity’s Own Equity (ASC 815-40). The Company determined that its Class A Warrants contained a Dilutive Issuance provision. As a result, the Company reclassified 10,897,081 of its Class A Warrants to warrant liability, under long-term liabilities, resulting in a cumulative adjustment to accumulated deficit as of January 1, 2009 of $1,174,576.



The Company’s Class A Warrants were considered derivative financial instruments and were therefore required to be adjusted to fair value each quarter. Fair value measurement should be determined based on the assumptions that market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair value measurements, the Company used a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the reporting entity’s own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy).

On September 29, 2009, the Company consummated a securities exchange agreement (“Securities Exchange Agreement”) with the holders of the Company’s Class A Warrants whereby the holders and the Company agreed to exchange the holders’ remaining Class A Warrants, on the basis of one share for every ten (10) Class A Warrants for an aggregate of 1,089,705 shares of the Company’s common stock $0.00001 par value per share. The exchange of the Class A Warrants for common stock pursuant to the Securities Exchange Agreement resulted in an extinguishment of the warrant liability.

The fair value of the Company’s warrant liability at September 29, 2009, the effective date of the Securities Exchange Agreement, using a Black-Scholes model (Level 3 inputs) was $118,013, using the following assumptions: dividend yield of 0%, expected volatility of 156.43%, risk-free interest rate of 0.41%, and expected term of 1.0 year.



The fair value of the 1,089,705 shares of common stock issued to settle the warrant liability was $65,382, based on the closing price of the Company’s common stock of $0.06 per share on September 29, 2009 as quoted on the Over the Counter Bulletin Board. The Company recorded a gain on extinguishment of warrant liability of $52,631 on September 29, 2009 as a result of the excess of the Class A Warrant Liability over the fair value of the consideration provided the warrant holders, in the form of common stock.





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As of June 30, 2010 no Class A Warrants were outstanding.



Note 15. Related Party Transactions



Director and Management fees- related party



On May 31, 2010, Mr. James Lynch tendered his resignation as a Director and as the President and Chief Executive Officer of the Company effective as of that date. On June 1, 2010, Mr. Gary Branning tendered his resignation as a Director of the Company effective as of that date. On June 17, 2010, Mr. Raymond Krauss and Mr. Greg Wujek tendered their resignations as Directors of the Company effective as of that date. The resignations of Messrs. Lynch, Branning, Krauss, and Wujek were not due to any disagreement between the Company and each of Messrs. Lynch, Branning, Krauss, and Wujek.



On June 3, 2010, in order to fill vacancies created by the resignations of Mr. Lynch and Mr. Branning, the Board of Directors appointed Mr. Amit S. Dang and Mr. Jeet S. Sidhu to the Company’s Board of Directors. The Board of Directors also approved the terms of an Interim Executive Services Agreement between the Company and Mr. Dang (the “Executive Services Agreement”) pursuant to which Mr. Dang was appointed the Company’s President and Chief Executive Officer. On June 22, 2010, in order to fill the vacancy created by the resignation of Mr. Krauss, the Board of Directors also appointed Mr. Dang to serve as the Company’s Interim Chief Financial Officer, Treasurer, and Secretary. Mr. Dang receives a salary of $5,000 per month during the term of the Executive Services Agreement. The Executive Services Agreement may be terminated at any time with or without cause by the Company. During the three months ended June 30, 2010, the Company incurred $5,000 pursuant to the Executive Services Agreement which is included in director and management fees – related party.



Non-employee Board members receive $750 per quarter for services rendered in the capacity of a Board member plus $100 per Board meeting attended.



During the three months ended June 30, 2010 and 2009, the Company incurred $2,250 and $1,500 in non-employee director fees. During the three months ended June 30, 2010, the Company also recorded a reversal of stock compensation of $458 for the forfeiture of stock options upon resignation by certain directors. Please refer to “Note 13. Stock Options.”



During the six months ended June 30, 2010 and 2009, the Company incurred $3,950 and $3,200 in non-employee director fees. Additionally, during the six months ended June 30, 2010, the Company recognized $6,000 in stock compensation (net of the reversal of stock compensation discussed in the preceding paragraph) for stock options previously granted to directors and vesting over time and $5,000 pursuant to the Executive Services Agreement.



Notes payable and convertible note payable



The Company had arranged with Mr. Harmel S. Rayat, former Chief Financial Officer, Director, and majority shareholder of the Company, a loan amount up to $2,500,000 that may be drawn down on an “as needed basis” at a rate of prime plus 3%. Effective September 15, 2008, Mr. Rayat and the Company terminated this loan agreement. At December 31, 2009, the Company had an unsecured promissory note pursuant to this loan agreement in the amount of $750,000 payable to Mr. Rayat, which was due on March 8, 2006 and bore interest at an annual rate of 8.5%.



On March 1, 2010, Mr. Rayat agreed to convert the then outstanding balance of the note payable ($750,000) and accrued and unpaid interest ($317,527) thereon to the Rayat Convertible Note. The Rayat Convertible Note bears interest at the rate of 8.5% per annum, which interest is accrued and payable on the maturity date of the Rayat Convertible Note. As long as the Rayat Convertible Note remains outstanding and not fully paid, Mr. Rayat has the right, but not the obligation, to convert all or any portion of the aggregate outstanding principal amount of the Rayat Convertible Note, together with all or any portion of the accrued and unpaid interest into that number of shares, subject to certain terms and conditions, of the Company’s common stock equal to the amount of the converted indebtedness divided by $0.01 per share. In the event of default, as defined in the Convertible Promissory Note



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agreement, the annual interest rate increases to 10% and is due on demand. The Company may, in its discretion, redeem the Rayat Convertible Note at any time prior to the maturity date of the Rayat Convertible Note. Certain events of default will result in all sums of principal and interest then remaining unpaid immediately due and payable, upon demand of Mr. Rayat.



During the three and six months ended June 30, 2010, the Company recorded interest expense of $22,623 and $40,386 payable to Mr. Rayat related to the original $750,000 note payable and the Rayat Convertible Note. Please refer to “Note 11. Notes Payable and Convertible Notes Payable”.



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.



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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations



Forward-Looking Statements



This Report on Form 10-Q contains forward-looking statements which involve assumptions and describe our future plans, strategies, and expectations, and are generally identifiable by use of words such as “may,” “will,” “should,” “expect,” “anticipate,” “estimate,” “believe,” “intend,” or “project” or the negative of these words or other variations on these words or comparable terminology. These statements are expressed in good faith and based upon a reasonable basis when made, but there can be no assurance that these expectations will be achieved or accomplished.



Such forward-looking statements include statements regarding, among other things, (a) the potential markets for our technologies, our potential profitability, and cash flows (b) our growth strategies (c) expectations from our ongoing sponsored research and development activities (d) anticipated trends in the technology industry (e) our future financing plans and (f) our anticipated needs for working capital. This information may involve known and unknown risks, uncertainties, and other factors that may cause our actual results, performance, or achievements to be materially different from the future results, performance, or achievements expressed or implied by any forward-looking statements. These statements may be found under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” as well as in this Form 10-Q generally. Actual events or results may differ materially from those discussed in forward-looking statements as a result of various and matters described in this Form 10-Q generally. In light of these risks and uncertainties, there can be no assurance that the forward-looking statements contained in this filing will in fact occur. In addition to the information expressly required to be included in this filing, we will provide such further material information, if any, as may be necessary to make the required statements, in light of the circumstances under which they are made, not misleading.



Although forward-looking statements in this report reflect the good faith judgment of our management, forward-looking statements are inherently subject to known and unknown risks, business, economic and other risks and uncertainties that may cause actual results to be materially different from those discussed in these forward-looking statements. Readers are urged not to place undue reliance on these forward-looking statements, which speak only as of the date of this report. We assume no obligation to update any forward-looking statements in order to reflect any event or circumstance that may arise after the date of this report, other than as may be required by applicable law or regulation. Readers are urged to carefully review and consider the various disclosures made by us in our reports filed with the Securities and Exchange Commission which attempt to advise interested parties of the risks and factors that may affect our business, financial condition, results of operation and cash flows. If one or more of these risks or uncertainties materialize, or if the underlying assumptions prove incorrect, our actual results may vary materially from those expected or projected.



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



Our discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities and expenses and related disclosures. We review our estimates on an ongoing basis.



Overview



We were incorporated in the State of Nevada on July 25, 2001. The accompanying consolidated financial statements include the accounts of PhytoMedical Technologies, Inc and its wholly owned subsidiaries PhytoMedical Technologies Corporation (“PhytoMedical Corp.”), PolyPhenol Technologies Corporation (“PolyPhenol”) and PhytoMedical Technologies Ltd. (“PhytoMedical Ltd.”).



PhytoMedical Corp. was incorporated on March 10, 2004 in the State of Nevada and has no assets and liabilities.



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PolyPhenol was incorporated on August 24, 2004 in the State of Nevada and has no assets and liabilities.



PhytoMedical Ltd. was incorporated on April 11, 2007 in the Province of British Columbia, Canada for providing administrative services to the Company’s Canada office. We ceased to conduct business in Canada on August 31, 2008 and closed this office. As a result, we dissolved PhytoMedical Ltd. and eliminated all intercompany balances, effective January 1, 2009.



Since our incorporation we have focused our activities on the development of new technologies (in particular pharmaceutical technologies and products) and, where warranted, acquisition of rights to obtain licenses to technologies and products that are being developed by third parties, primarily universities and government agencies, through sponsored research and development.



Although we are currently focusing our efforts on the anti-cancer compound for glioblastoma, D11B, to which the we have an exclusive license, pursuant to a license agreement between the Company and the Trustees of Dartmouth College (the “Dartmouth Trustees”) dated September 8, 2008 (the “Dartmouth License Agreement”), following the changes in June 2010, to our management and Board of Directors, our Board of Directors is evaluating whether it is in the best interests of our shareholders to continue to expend our limited capital resources on the development of the D11B compound or to explore other viable business ventures and opportunities. Until such time as the Board of Directors reaches its conclusion, we will continue its research and development efforts with respect to the D11B anti-cancer compound.



We do not expect to generate any revenues for the foreseeable future and expect to continue incurring losses.



Because we are a smaller reporting company, we are not required to make certain disclosures otherwise required to be made in a Form 10-Q.



Cancer Research



Dartmouth Sponsored Research Agreement



Pursuant to our Sponsored Research Agreement with Dartmouth, which expired on September 30, 2009, we are currently, pending completion of the Board of Directors evaluations discussed above under the heading “Overview,” continuing our research and development of a novel class of anti-cancer agents which have a ‘cytotoxic’ or poisonous affinity for cancer cells, and are designed to bind tightly to cancer cell DNA (deoxyribonucleic acid), the blueprint of life for the cancer cell. Previous studies conducted by Dartmouth using a leukemia mouse cell line, have demonstrated that such binding (or intercalation) should stop the replication of the DNA, and, ultimately, lead to the death of the cancer cell.



We have developed and tested new examples of such compounds known to bind to DNA, called bis-acridines. These compounds are related to D11B, the anti-cancer compound licensed by us from Dartmouth. Throughout 2009, we prepared starting materials, and designed, tested, and synthesized bis-acridines which were then evaluated in human

cancer cells. These tests were undertaken in order to identify new compounds for potential medicinal formulation, further testing and, if warranted, the eventual preparation and filing of an Investigational New Drug (“IND”) Application with the U.S. Food & Drug Administration (“FDA”).



Following research outcomes from early lab tests, scientists conducted in vivo (animal) tests to determine the effectiveness (efficacy) and toxic side-effects (toxicity) of D11B and other such compounds. These compounds were administered to specimens with difficult-to-treat human brain cancer (“SF295 glioblastoma xenografts”) and, according to researchers, D11B proved to be least toxic and extremely effective in controlling the growth of SF295 human glioblastoma xenografts.



In all cases where specimens were treated for human glioblastoma brain cancer using our D11B compound, researchers reported: a significant reduction in tumor size; prolonged lifespan of 46%-plus for the treated group



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versus the control group; notably enhanced chemotherapeutic effect of the compound; and observed “tumor cured” in one of the specimens with the deadly glioblastoma cancer.



Interpreting the data collected from these important efficacy and toxicity tests, researchers concluded that our anti-cancer compound, D11B, may “…have its selectivity in killing SF295 human glioblastoma cells.” The ability to selectively target and kill specific cancer cells is an important consideration for the treatment of cancers in vital organs such as the brain, where glioblastoma is exhibited. Glioblastoma is the most common and aggressive form of brain cancer, and is often highly-resistant to chemotherapy and other conventional treatments. Currently, there is no effective treatment or cure for glioblastoma. Additionally, surgical removal such as complete resection of the tumor in combination with the most current and aggressive treatments continues to result in low survival rates.



As of September 30, 2009, the termination date of the Sponsored Research Agreement, Dartmouth concluded its research and development activities, and provided us with, it believes, a key anti-cancer compound for glioblastoma, D11B. Based upon results of in vivo efficacy and toxicity tests, we have entered into a fee-for-services agreement with Latitude to assist us in our development of an IV formulation of D11B, in order to conduct additional tests.



As of June 30, 2010, we have paid $220,260 pursuant to the Sponsored Research Agreement with Dartmouth and $5,053 for reimbursement of expenses. Of the total $225,313 paid to Dartmouth, $3,800 is included in research and development expense for both of the three and six month periods ended June 30, 2010 and $13,003 and $24,753 is included in research and development expense for the three and six months ended June 30, 2009.



Dartmouth License Agreement



On September 1, 2008, we entered into Dartmouth License Agreement with the Dartmouth Trustees pursuant to which we obtained the exclusive rights to develop, market and distribute a novel class of synthesized compounds known as bis-intercalators. These anti-cancer agents have a ‘cytotoxic’ or poisonous affinity for cancer cells.



Under the terms of the Dartmouth License Agreement, we are obligated to pay annual license maintenance fees to the Dartmouth Trustees, in addition to an upfront payment of $15,000 within 30 days of execution of the agreement, with such payment already having been made. Additionally, we are required to make milestone payments to the Dartmouth Trustees if, and only when, specific clinical and regulatory approval milestones are achieved.



Throughout the duration of the Dartmouth License Agreement, we are obligated to make royalty payments to the Dartmouth Trustees based on the net sales of products derived from the Dartmouth License Agreement, if any. We are also obligated to reimburse the Dartmouth Trustees all costs incurred for filing, prosecuting and maintaining any

licensed patents related to the Dartmouth License Agreement, throughout the duration of the agreement. We are required to undertake the development, regulatory approval, and commercialization, of products derived from the Dartmouth License Agreement, if any, and pursue collaborative commercial partnerships, if viable.



Pursuant to Rule 24b-2, we submitted a request to the SEC for confidential treatment of certain portions of the Dartmouth License Agreement, relating to the payment terms and certain provisions under the Dartmouth License Agreement. Our request was granted on March 9, 2009. Accordingly, certain terms of the Dartmouth License Agreement do not need to be released to the public until August 5, 2013.



Latitude Agreement



On July 6, 2009, we entered into a fee-for-services agreement with Latitude, which was amended on October 23, 2009 (the “Latitude Agreement”), to assist in our development of an IV formulation of our anti-cancer compound for glioblastoma, D11B, for use in ongoing and future testing to determine the compound’s efficacy and toxicology, and if warranted, future early stage human clinical trials. Under the terms of the Latitude Agreement, we retain all rights to formulations and products developed, if any, including but not limited to intellectual property rights.



As of June 30, 2010, we have paid $45,377 pursuant to the terms of the Latitude Agreement, none of which is included in research and development expense for the three and six months ended June 30, 2010 and 2009.





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Diabetes Research



Terminated Agreements



Iowa State University Sponsored Research Agreement



On February 1, 2007, through our wholly owned subsidiary, PolyPhenol, we entered into a Sponsored Research Agreement with Iowa State University (“ISU”). Under terms of the agreement, we continued to undertake our research at ISU for development of our novel, synthesized type A-1 ‘polyphenolic’ compounds. On January 6, 2009, we provided written notice to ISU terminating the Sponsored Research Agreement between us and ISU. The termination was effective March 6, 2009.



As of June 30, 2010, we had paid a total of $114,972 pursuant to the terms of the ISU Sponsored Research Agreement, none of which is included in research and development expense for the three and six months ended June 30, 2010 and 2009. In addition to contractual obligations pursuant to the ISU Sponsored Research Agreement, we have reimbursed ISU $673 for other out-of-pocket costs, none of which is included in research and development expense for the either the three or six month periods ended June 30, 2010 and 2009.



Iowa State University Research Foundation License Agreement



On June 12, 2006, through our wholly owned subsidiary, PolyPhenol, we entered into an exclusive license agreement with Iowa State University Research Foundation Inc. (“ISURF”) to develop, market and distribute novel synthesized compounds derived from type A-1 polyphenols, which have been linked to insulin sensitivity by the USDA's Agricultural Research Service. On January 6, 2009, we gave written notice to ISURF terminating the License Agreement between us and ISURF. The termination is effective April 6, 2009.



As of June 30, 2010, the Company had paid a total of $20,000 to ISURF for the license fee and $31,223 for reimbursement of patent costs and research expenses as per agreement with ISURF, none of which is included in research and development expense for the three and six months ended June 30, 2010 and 2009.



Results of Operations



A summary of our operating expense for the three and six months ended June 30, 2010 and 2009 was as follows:









Three Months Ended




June 30,
Increase/
Percentage

2010
2009
(Decrease)
Change


Operating expense

Director and management fees - related party
$
6,792
$
1,500
$
5,292
353
%

Investor relations and marketing
3,962
1,408
2,554
181

Wages and benefits
34,919
66,776
(31,857)
(48)

Research and development
3,800
14,416
(10,616)
(74)

Professional fees
57,293
28,323
28,970
102

Other operating expenses
24,262
1,648
22,614
1,372

Total operating expense
$
131,028
$
114,071
$
16,957
15
%




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Six Months Ended

June 30,
Increase/
Percentage

2010
2009
(Decrease)
Change


Operating expense (income)

Director and management fees - related party
$
14,950
$
3,200
$
11,750
367
%

Investor relations and marketing
7,762
1,408
6,354
451

Wages and benefits
(2,566,368)
134,680
(2,701,048)
*

Research and development
3,800
32,739
(28,939)
(88)

Professional fees
160,330
73,330
87,000
119

Other operating expenses
36,392
4,715
31,677
672

Total operating expense (income)
$
(2,343,134)
$
250,072
$
(2,593,206)
*
%



* Not meaningful



Director and management fees – related party



On May 31, 2010, Mr. James Lynch tendered his resignation as one of our Directors and as our President and Chief Executive Officer effective as of that date. On June 1, 2010, Mr. Gary Branning tendered his resignation as one of our Directors effective as of that date. On June 17, 2010, Mr. Raymond Krauss and Mr. Greg Wujek tendered their resignations as two of our Directors effective as of that date. The resignations of Messrs. Lynch, Branning, Krauss, and Wujek were not due to any disagreement between us and each of Messrs. Lynch, Branning, Krauss, and Wujek.



On June 3, 2010, in order to fill vacancies created by the resignations of Mr. Lynch and Mr. Branning, the Board of Directors appointed Mr. Amit S. Dang and Mr. Jeet S. Sidhu to our Board of Directors. The Board of Directors also approved the terms of an Interim Executive Services Agreement between us and Mr. Dang (the “Executive Services Agreement”) pursuant to which Mr. Dang was appointed our President and Chief Executive Officer. On June 22, 2010, in order to fill the vacancy created by the resignation of Mr. Krauss, the Board of Directors also appointed Mr. Dang to serve as our Interim Chief Financial Officer, Treasurer, and Secretary. Mr. Dang receives a salary of $5,000 per month during the term of the Executive Services Agreement. During the three months ended June 30, 2010, we incurred $5,000 pursuant to the Executive Services Agreement which is included in director and management fees – related party.



Non-employee Board members receive $750 per quarter for services rendered in the capacity of a Board member plus $100 per Board meeting attended.



During the three months ended June 30, 2010 and 2009, we incurred $2,250 and $1,500 in non-employee director fees. During the three months ended June 30, 2010, we also recorded a reversal of stock compensation of $458 for the forfeiture of stock options upon resignation by certain directors. Please refer to “Note 13. Stock Options” in the notes to the consolidated financial statements.



During the six months ended June 30, 2010 and 2009, we incurred $3,950 and $3,200 in non-employee director fees. Additionally, during the six months ended June 30, 2010, we recognized $6,000 in stock compensation (net of the reversal of stock compensation discussed in the preceding paragraph) for stock options previously granted to directors and vesting over time and $5,000 pursuant to the Executive Services Agreement.



Investor relations and marketing



Investor relations and marketing costs represent fees paid to publicize our company and our technology.



Effective April 15, 2009, we entered into a one-year Shareholder Communication Services Agreement (the “Shareholder Communications Agreement”) with a third party consultant to provide shareholder communication and related administrative services. In accordance with the terms of the Shareholder Communications Agreement, we



24

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pay a third party consultant $375 per month. The Shareholder Communications Agreement was renewed (with the same terms) for another one-year term, expiring April 15, 2011.



The increase in investor relations and marketing during the three months ended June 30, 2010 compared to the same period in 2009 is substantially due to $2,675 incurred for the press release announcing that we signed a letter of intent with a leading Chinese research organization to conduct IND-enabling studies on our anti-cancer compound for glioblastoma, D11B.



The increase in investor relations and marketing during the six months ended June 30, 2010 compared to the same period in 2009 is substantially due to $5,350 incurred for the press release described in the preceding paragraph and the announcement of the appointment of Dr. James Lynch as our President and Chief Executive Officer, effective March 15, 2010 (Dr. Lynch subsequently resigned as one of our Directors and from all executive officer positions, effective May 31, 2010).



Wages and benefits



During the three months ended June 30, 2010, we incurred $41,230 in wages and benefits expense for services rendered by Dr. Lynch and we recorded the reversal of stock compensation of $6,311 for the forfeiture of stock options when Dr. Lynch resigned as our President and from all executive officer positions, effective May 31, 2010. Please refer to “Note 13. Stock Options” in the notes to the consolidated financial statements.



During the six months ended June 30, 2010, we incurred $50,135 in wages and benefits expense for services rendered by Dr. Lynch and $50,997 in wages and benefits expense for services rendered by Mr. Greg Wujek, our former President, Chief Executive Officer, and Director. Mr. Wujek resigned as our President and Chief Executive Officer, effective March 15, 2010 and as one of our directors, effective June 17, 2010. Simultaneously with his resignation as our President and Chief Executive Officer, the employment agreement between us and Mr. Wujek was terminated and all of the 2,000,000 stock options previously granted to Mr. Wujek were forfeited upon his resignation and termination of employment. Accordingly, during the six months ended June 30, 2010, the Company recorded a reversal of stock compensation expense previously recorded for the fair value of Mr. Wujek’s stock options of $2,667,500. The six months ended June 30, 2010 also includes stock compensation of $6,311 for the amortization of the fair value of a stock option granted to Dr. Lynch to purchase up to 4,000,000 shares of our common stock at an exercise price of $0.04 per share. The stock option granted to Dr. Lynch was forfeited upon him tendering his resignation and therefore we recorded a reversal of stock compensation of $6,311 during the same six month period ending June 30, 2010 for a net $0 impact to the consolidated financial statements during this period.



During the three and six months ended June 30, 2009, we incurred $66,776 and $134,680 in wages and benefits expense for services rendered by Mr. Greg Wujek.



Research and development



Research and development costs represent costs incurred to develop our technologies and are incurred pursuant to our sponsored research agreement with Dartmouth and other third party contract research organizations. The sponsored research agreement includes salaries and benefits for research and development personnel, allocated overhead and facility occupancy costs, contract services and other costs. Research and development costs are expensed when incurred, except for nonrefundable advance payments for future research and development activities which are capitalized and recognized as expense as the related services are performed.



Research and development expense for the three and six months ended June 30, 2010 consists of payments made to a third party for furthering the development of our D11B compound.



Research and development expense for the three and six months ended June 30, 2009, includes payments made pursuant to our Sponsored Research Agreement with Dartmouth and for reimbursement of related expenses as well as payments to other third party contractors.



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Professional fees



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



During the three months ended June 30, 2010, we incurred professional fees of $57,293, an increase of $28,970, from $28,323 during the same period of the prior year. The increase is substantially due to increases in legal fees of approximately $22,900 and SEC related filing costs of approximately $4,800. The increase in legal fees is due to the preparation and filing of our Form S-1, fees incurred as a result of changes in the composition of our executive team and Board of Directors, and services performed in connection with the receipt of $400,000 pursuant to the 2010 Offering. The increase in SEC filing costs is due to the filing of our Form S-1 and related correspondence in addition to various Form 8-K’s.



During the six months ended June 30, 2010, we incurred professional fees of $160,330, an increase of $87,000, from $73,330 during the same period of the prior year. The increase is substantially due to increases in legal fees of approximately $61,800, accounting related fees of approximately $15,800, and SEC The increase is substantially due to increases filing costs of approximately $7,000. The increase in legal fees is due to the preparation and filing of our Form S-1, execution of stock option agreements for stock options granted on March 15, 2010 to Dr. Lynch and non-employee directors, fees incurred as a result of changes in the composition of our executive team and Board of Directors, and services performed in connection with the receipt of $400,000 pursuant to the 2010 Offering. The increase in accounting related fees is substantially due to the filing of our Form S-1 and the increase in corporate activity previously described. The increase in SEC filing costs is due to the filing of our Form S-1 and related correspondence in addition to various Form 8-K’s.



Other operating expenses



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



During the three months ended June 30, 2010, we incurred other operating expenses of $24,262, an increase of $22,614, from $1,648 during the same period of the prior year. The increase is substantially due to increases in patent filing fees of approximately $3,700 and travel related expenses of approximately $13,500. Significant travel related expenses were incurred as a result of changes in the composition of our executive team and Board of Directors as well as the facilitation of the sale of Units pursuant to our 2010 Offering.



During the six months ended June 30, 2010, we incurred other operating expenses of $36,392, an increase of $31,677, from $4,715 during the same period of the prior year. The increase is substantially due to increases in patent filing fees of approximately $4,300, travel related expenses of approximately $13,600, and printing and mailing costs of approximately $8,700 for the distribution of our Information Statement pursuant to Section 14(c) of the Securities Exchange Act of 1934, whereby in January 2010, we informed our investors that certain of our stockholders, representing a majority of our issued and outstanding shares of common stock, voted to increase the number of authorized shares of common stock issuable from 300,000,000 to 2,000,000,000.



Other expense



A summary of our other expense for the three and six months ended June 30, 2010 and 2009 was as follows:





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Three Months Ended

June 30,
Increase/
Percentage

2010

2009
(Decrease)
Change


Other (expense) income

Interest expense
$
(23,663)
$
(15,894)
$
7,769
49
%

Change in fair value of warrant liability
-
54,507
(54,507)
*

Total other (expense) income
$
(23,663)
$
38,613


* Not meaningful



Six Months Ended

June 30,
Increase/
Percentage

2010

2009
(Decrease)
Change


Other expense

Interest expense
$
(41,712)
$
(31,613)
$
10,099
32
%

Change in fair value of warrant liability
-
(100,654)
(100,654)
*

Loss on dissolution of foreign subsidiary
-
(523)
(523)
*

Total other expense
$
(41,712)
$
(132,790)
$
(91,078)
(69)
%


* Not meaningful



Interest expense



Interest expense for the three months ended June 30, 2010 represents interest accrued of $22,623 on the $1,067,527 convertible note payable to Mr. Harmel S. Rayat, at an annual rate of 8.5%, interest accrued of $847 on a $40,000 convertible note payable to a non-affiliated third party, and $193 for the accretion of the discount on the convertible notes payable. Please refer to “Note 11. Notes Payable and Convertible Notes Payable” in the notes to the consolidated financial statements.



Interest expense for the six months ended June 30, 2010 represents interest accrued of $40,386 on the $750,000 note payable (from January 1 through February 28, 2010) and $1,067,527 convertible note payable (from March 1 through June 30, 2010) to Mr. Harmel S. Rayat, at an annual rate of 8.5%, interest accrued of $1,118 on a $40,000 convertible note payable to a non-affiliated third party, and $208 for the accretion of the discount on the convertible notes payable. Please refer to “Note 11. Notes Payable and Convertible Notes Payable” in the notes to the consolidated financial statements.



Interest expense for the three and six months ended June 30, 2009 represents interest accrued on the $750,000 note payable to Mr. Rayat, at an annual rate of 8.5%. Please refer to “Note 11. Notes Payable and Convertible Notes Payable” in the notes to the consolidated financial statements.



Change in fair value of warrant liability



On January 1, 2009, we adopted guidance which is now part of ASC 815-40, Contracts in Entity’s Own Equity (ASC 815-40). We determined that our Class A Warrants contained a Dilutive Issuance provision. As a result, we reclassified 10,897,081 of our Class A Warrants to warrant liability, resulting in a cumulative adjustment to accumulated deficit as of January 1, 2009 of $1,174,576.



Our Class A Warrants were considered derivative liabilities and were therefore required to be adjusted to fair value each quarter. We valued our warrant liability using a Black-Scholes model. Our stock price, remaining term of the Class A Warrants and the volatility of our stock all impacted the fair value of our Class A Warrants.





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The adjustment recorded to adjust the Class A Warrants to fair value at June 30, 2009 resulted in a non-cash gain of $54,507 for the three months ended June 30, 2009 and a non-cash loss of $100,654 for the six months ended June 30, 2009.

On September 29, 2009, we consummated a securities exchange agreement (“Securities Exchange Agreement”) with the holders of our Class A Warrants whereby the holders and us agreed to exchange the holders’ remaining Class A Warrants, on the basis of one share for every ten (10) Class A Warrants for an aggregate of 1,089,705 shares of our common stock $0.00001 par value per share. The exchange of the Class A Warrants for common stock pursuant to the Securities Exchange Agreement resulted in an extinguishment of the warrant liability.

The fair value of our warrant liability at September 29, 2009, the effective date of the Securities Exchange Agreement, using a Black-Scholes model was $118,013, using the following assumptions: dividend yield of 0%, expected volatility of 156.43%, risk-free interest rate of 0.41%, and expected term of 1.0 year.



The fair value of the 1,089,705 shares of common stock issued to settle the warrant liability was $65,382, based on the closing price of our common stock of $0.06 per share on September 29, 2009 as quoted on the Over the Counter Bulletin Board. We recorded a gain on extinguishment of warrant liability of $52,631 on September 29, 2009 as a result of the excess of the Class A Warrant Liability over the fair value of the consideration provided the warrant holders, in the form of common stock.



As of June 30, 2010 no Class A Warrants were outstanding.



Loss on dissolution of foreign subsidiary



PhytoMedical Ltd. provided administrative services to our Canadian office. We ceased to conduct business in Canada, effective August 31, 2008 and closed this office. As a result, we dissolved PhytoMedical Ltd. and eliminated all intercompany balances, effective January 1, 2009. We recorded a loss on our investment in PhytoMedical Ltd. equal to the accumulated other comprehensive income at the time of the dissolution.



Liquidity and Capital Resources



The accompanying consolidated financial statements have been prepared assuming we will continue as a going concern. We have incurred cumulative losses of $23,838,950 through June 30, 2010 and do not have positive cash flows from operating activities. Additionally, we have expended a significant amount of cash in developing our technology. We face all the risks common to companies that are relatively new, including under capitalization and uncertainty of funding sources, high initial expenditure levels, uncertain revenue streams, and difficulties in managing growth. These conditions raise substantial doubt about our ability to continue as a going concern. Management recognizes that in order to meet our capital requirements, and continue to operate regardless of whether we continue to develop the D11B anti-cancer compound or engage in other business opportunities or ventures, additional financing will be necessary. We expect to raise additional funds through private or public equity investments in order to expand the range and scope of our business operations. We will seek access to private or public equity but there is no assurance that such additional funds will be available for us to finance our operations on acceptable terms, if at all. If we are unable to raise additional capital or generate positive cash flow, it is unlikely that we will be able to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.



Our principal source of liquidity is cash in the bank. At June 30, 2010, we had cash and cash equivalents of $269,727. We have financed our operations primarily from $400,000 received pursuant to the 2010 Offering and the 2007 Private Placement completed in September 2007, raising net proceeds of $3,109,500.



Net cash used in operating activities was $245,564 for the six months ended June 30, 2010 compared to $289,269 for the same period in 2009. The decrease of $43,705 in cash used in operating activities was substantially due to decreases in payments made for research and development of approximately $29,000 and wages and benefits of approximately $47,000, offset by increases in professional fees of approximately $17,500, and director and management fees – related party of approximately $7,500.





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Net cash provided by financing activities was $440,000 for the six months ended June 30, 2010 compared to $0 for the same period in 2009. On May 19, 2010, we sold 40,000,000 Units pursuant to the 2010 Offering for gross receipts of $400,000. Please refer to “Note 12. 2010 Offering” in the notes to the consolidated financial statements. Additionally, on March 2, 2010 we issued a one year convertible promissory note in the amount of $40,000 to a non-affiliated third party. The convertible note bears interest at the rate of 8.5% per annum, which interest is accrued and payable on the maturity date of the convertible promissory note. Please refer to “Note 11. Notes Payable and Convertible Notes Payable” in the notes to the consolidated financial statements.



Related Party Transactions



Director and Management fees- related party



On May 31, 2010, Mr. James Lynch tendered his resignation as one of our Directors and as our President and Chief Executive Officer effective as of that date. On June 1, 2010, Mr. Gary Branning tendered his resignation as one of our Directors effective as of that date. On June 17, 2010, Mr. Raymond Krauss and Mr. Greg Wujek tendered their resignations as two of our Directors effective as of that date. The resignations of Messrs. Lynch, Branning, Krauss, and Wujek were not due to any disagreement between us and each of Messrs. Lynch, Branning, Krauss, and Wujek.



On June 3, 2010, in order to fill vacancies created by the resignations of Mr. Lynch and Mr. Branning, the Board of Directors appointed Mr. Amit S. Dang and Mr. Jeet S. Sidhu to our Board of Directors. The Board of Directors also approved the terms of an Interim Executive Services Agreement between us and Mr. Dang (the “Executive Services Agreement”) pursuant to which Mr. Dang was appointed our President and Chief Executive Officer. On June 22, 2010, in order to fill the vacancy created by the resignation of Mr. Krauss, the Board of Directors also appointed Mr. Dang to serve as our Interim Chief Financial Officer, Treasurer, and Secretary. Mr. Dang receives a salary of $5,000 per month during the term of the Executive Services Agreement. The Executive Services Agreement may be terminated at any time with or without cause by us. During the three months ended June 30, 2010, we incurred $5,000 pursuant to the Executive Services Agreement which is included in director and management fees – related party.



Non-employee Board members receive $750 per quarter for services rendered in the capacity of a Board member plus $100 per Board meeting attended.



During the three months ended June 30, 2010 and 2009, we incurred $2,250 and $1,500 in non-employee director fees. During the three months ended June 30, 2010, we also recorded a reversal of stock compensation of $458 for the forfeiture of stock options upon resignation by certain directors. Please refer to “Note 13. Stock Options” in the notes to the consolidated financial statements.



During the six months ended June 30, 2010 and 2009, we incurred $3,950 and $3,200 in non-employee director fees. Additionally, during the six months ended June 30, 2010, we recognized $6,000 in stock compensation (net of the reversal of stock compensation discussed in the preceding paragraph) for stock options previously granted to directors and vesting over time and $5,000 pursuant to the Executive Services Agreement.



Notes payable and convertible note payable



We had arranged with Mr. Harmel S. Rayat, our former Chief Financial Officer, Director, and majority shareholder, a loan amount up to $2,500,000 that may be drawn down on an “as needed basis” at a rate of prime plus 3%. Effective September 15, 2008, we terminated this loan agreement with Mr. Rayat. At December 31, 2009, we had an unsecured promissory note pursuant to this loan agreement in the amount of $750,000 payable to Mr. Rayat, which was due on March 8, 2006 and bore interest at an annual rate of 8.5%.



On March 1, 2010, Mr. Rayat agreed to convert the then outstanding balance of the note payable ($750,000) and accrued and unpaid interest ($317,527) thereon to a fixed three (3) year term convertible note, totaling $1,067,527 (the “Rayat Convertible Note”). The Rayat Convertible Note bears interest at the rate of 8.5 % per annum, which interest is accrued and payable on the maturity date of the Rayat Convertible Note. As long as the Rayat



29

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Convertible Note remains outstanding and not fully paid, Mr. Rayat has the right, but not the obligation, to convert all or any portion of the aggregate outstanding principal amount of the Rayat Convertible Note, together with all or any portion of the accrued and unpaid interest into that number of shares, subject to certain terms and conditions, of the Company’s common stock equal to the amount of the converted indebtedness divided by $0.01 per share. In the event of default, as defined in the Convertible Promissory Note agreement, the annual interest rate increases to 10% and is due on demand. We may, in our discretion, redeem the Rayat Convertible Note at any time prior to the maturity date of the Rayat Convertible Note. Certain events of default will result in all sums of principal and interest then remaining unpaid immediately due and payable, upon demand of Mr. Rayat.



During the three and six months ended June 30, 2010, we recorded interest expense of $22,623 and $40,386 payable to Mr. Rayat related to the original $750,000 note payable and the Rayat Convertible Note. Please refer to “Note 11. Notes Payable and Convertible Notes Payable” in the notes to the consolidated financial statements.



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



Other Contractual Obligations



As of June 30, 2010, we do not have any contractual obligations other than the Rayat Convertible Note of $1,067,527, a short term convertible note in the principal amount of $40,000, accrued interest of $31,199, and $3,563 related to the Shareholder Communications Agreement, as discussed above.



Off-Balance Sheet Arrangements



We have no off-balance sheet arrangements.



Recently Issued Accounting Pronouncements



See “Note 4. Summary of Significant Accounting Policies” to the Consolidated Financial Statements in this Form 10-Q.







30

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Item 4. Controls and Procedures



(a) Evaluation of Disclosure Controls and Procedures



Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”), as of the end of the period covered by this quarterly report. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded as of June 30, 2010 that our disclosure controls and procedures were effective such that the information required to be disclosed in our United States Securities and Exchange Commission (the “SEC”) reports is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.



(b) Changes in Internal Control over Financial Reporting



There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.



31

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PART II – OTHER INFORMATION



Item 1. Legal Proceedings.



None.



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



None.



Item 3. Defaults Upon Senior Securities.



None.



Item 4. Submission of Matters to a Vote of Security Holders.



None.



Item 5. Other Information.



None.



Item 6. Exhibits.



Exhibit No. Description of Exhibit



3.1 Amended and Restated Articles of Incorporation(1)



3.2 By Laws(1)



4.1 Form of Subscription Agreement(1)



4.2 Form of Series B Warrant(1)



10.1 Sponsored Research Agreement with Iowa State University dated February 1, 2007(1)



10.2 Exclusive license agreement with Iowa State University Research Foundation Inc. dated June 12, 2006(1)



10.3 Agreement with Latitude Pharmaceuticals, Inc. dated July 6, 2009(1)



10.4 Amendment dated October 23, 2009 to the Latitude Agreement(1)



10.5 Redacted License Agreement dated September 1, 2008 with the Trustees of Dartmouth College(1)



10.6 Sponsored Research Agreement dated May 25, 2007 with Dartmouth College(1)



10.7 Technologies Research Agreement with Dartmouth College as amended(1)



10.8 Employment Agreement with Greg Wujek dated April 6, 2006(1)



10.9 Stock Option Agreement with Greg Wujek dated August 1, 2006(1)



10.10 Employment Agreement with James F. Lynch dated March 15, 2010(1)



10.11 Stock Option Agreement with James F. Lynch dated March 15, 2010(1)



32

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10.12 Convertible Promissory Note dated March 1, 2010 in the original principal amount of $1,067,527.40(1)



10.13 Convertible Promissory Note dated March 2, 2010 in the original principal amount of $40,000(1)



10.14 Amendment No. 1 dated April 12, 2010 to the March 1, 2010 Promissory Note in the original principal amount of $1,067,527.40(1)



10.15 Amendment No. 1 dated April 12, 2010 to the March 2, 2010 Promissory Note in the original principal amount of $40,000(1)



10.16 Stock Option Agreement between PhytoMedical Technologies and Raymond Krauss(1)



10.17 Stock Option Agreement between PhytoMedical Technologies and Gary Branning(1)



10.18 Stock Option Agreement between PhytoMedical Technologies and Greg Wujek(1)



10.19 Employment Resignation Agreement between PhytoMedical Technologies, Inc. and Greg Wujek(1)



10.20 Contract Interim Executive-Services Agreement dated June 3, 2010 between the Company and Amit S. Dang.*



31.1 Certification of Principal Executive Officer and Principal Financial Officer Pursuant to Rule 13(a)-14 of the Securities Exchange Act of 1934, As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *



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



____________________



*Filed herewith.



(1) Incorporated by reference to the Company’s Form S-1/A as filed with the Commission on April 26, 2010.



33

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SIGNATURES



Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.









PhytoMedical Technologies, Inc.
(Registrant)

Date:
August 13, 2010
By:/s/ Amit S. Dang

Amit S. Dang
President, Chief Executive Officer, Chief Financial Officer, Director





34

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