Summary of PHYTOMEDICAL TECHNOLOGIES INC

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

Forward-Looking Statements

Except for the historical information presented in this document, the matters discussed in this Form 10-Q for the three and nine months ended September 30, 2008, this report contains forward-looking statements. Such forward-looking statements include statements regarding, among other things, (a) our projected sales and profitability, (b) our growth strategies, (c) anticipated trends in our industry, (d) our future financing plans, and (e) our anticipated needs for working capital. Forward-looking statements, which involve assumptions and describe our future plans, strategies, and expectations, are generally identifiable by use of the words "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. 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 report generally. Actual events or results may differ materially from those discussed in forward-looking statements. 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.

Overview

PhytoMedical Technologies, Inc. together with its wholly owned subsidiaries is a pharmaceutical company focused on research, development and commercialization of pharmaceutical products.

Cancer Research

Pursuant to PhytoMedical's Sponsored Research Agreement with Dartmouth College ("Dartmouth"), we are synthesizing and testing a novel class of anti-cancer agents which have a 'cytotoxic' or poisonous affinity for cancer cells, and are designed to bind tightly to cancer cell DNA (deoxyribonucleic acid), the blueprint of life for the cancer cell. Previous studies conducted by Dartmouth using a leukemia mouse cell line, have demonstrated that such binding (or intercalation) should stop the replication of the DNA, and, ultimately, lead to the death of the cancer cell. Following the preparation of starting materials, researchers will design, synthesize and test new examples of compounds known to bind to DNA, called bis-acridines; these bis-acridines will be tethered to the DNA with both flexible and semi-rigid linking chains. If successfully synthesized, the compounds will be submitted for evaluation in human cancer cell lines.

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

Diabetes Research

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

The primary objectives of our research are to synthesize the active compounds found in cinnamon and characterize their beneficial health effects in cell cultures systems, animals, and ultimately humans. Once active compounds have been synthesized, characterized and tested, we intend to apply for patents for the synthesis and use of such synthetic compounds. Our goal is to develop a pharmacologically approved product that could be ingested orally.

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General and Administrative Expenses

Our general and administrative expenses consist primarily of personnel related costs, legal costs, including intellectual property, investor relations costs, stock based compensation costs, accounting costs, and other professional and administrative costs.

Research and Development Costs

Research and development costs represent costs incurred to develop our technology incurred pursuant to our sponsored research agreements with ISU and Dartmouth College. The agreements include salaries and benefits for research and development personnel, allocated overhead and facility occupancy costs, contract services and other costs. We charge all research and development expenses to operations as they are incurred except for prepayments which are capitalized and amortized over the applicable period. We do not track research and development expenses by project. In addition, costs for third party laboratory work might occur.

Cooperative and License Agreements

Iowa State University Cooperative Agreement

On February 1, 2007, the Company, through its wholly owned subsidiary, PolyPhenol Technologies Corporation, entered into a Sponsored Research Agreement with Iowa State University (ISU). Under terms of the agreement, PhytoMedical will continue to undertake its research at ISU for development of the Company's novel, synthesized type A-1 'polyphenolic' compounds.

Contractual Obligations under the ISU Agreement are as follows:

Year 1: $62,251 (paid as of September 30, 2008) to ISU in 4 quarterly installments, the first of which was due within 30 days of signing of the sponsored research agreement, the second of which was due to ISU 3 months from the previous payment;

Year 2: $70,295 ($35,148 of which was paid as of September 30, 2008) to ISU in 4 quarterly installments, the first of which was due to ISU 3 months from the previous payment; and

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

All rights, title, and interest in any subject invention made solely by the Company are owned by the Company, solely by ISU are owned by ISU, owned jointly by the two parties if made by any of the parties. The Agreement or parts thereof, is subject to termination at any time by mutual consent. Any party may unilaterally terminate the entire agreement at any time by giving the other parties written notice not less than sixty calendar days prior to the desired termination date.

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As of September 30, 2008, the Company has paid a total of $97,399 pursuant to the terms of the ISU Sponsored Research Agreement of which $66,273 and $31,126 is included in research and development expense for the nine months ended September 30, 2008 and 2007. In addition to contractual obligations pursuant to the ISU Sponsored Research Agreement, the Company reimbursed ISU $506 and $20,297 during the nine months ended September 30, 2008 and 2007 for other out-of-pocket costs that are included in research and development expense.

Iowa State University Research Foundation License Agreement

On June 12, 2006, the Company, through its wholly owned subsidiary, PolyPhenol Technologies Corporation, entered into an exclusive license agreement with Iowa State University Research Foundation Inc. ("ISURF") to develop, market and distribute novel synthesized compounds derived from type A-1 polyphenols, which have been linked to insulin sensitivity by the USDA's Agricultural Research Service.

Under terms of the agreement, the Company has to pay to ISURF license fees, of which $20,000 was payable (paid) within 30 days of execution of the agreement, $50,000 is payable upon completion of the first successful Phase 2 clinical trial and the remaining $250,000 is payable upon first approval by the regulatory authority on new drug application. In addition, ISURF will receive royalty payments equal to 5% on the net sales of products, except that 3% will apply on the net sales of pharmaceutical products. The Company will pay a minimum annual royalty of $20,000, $50,000 and $100,000 in calendar year 2010, 2011, 2012 and onwards, respectively. The Company also has to reimburse ISURF the cost incurred for filing, prosecuting and maintaining the licensed patents together with 15% of the said costs, not exceeding $10,000, as the administration fee. The Company will administrate the development, regulatory approval and commercialization of the compounds and pursue future collaborative arrangements.

As of September 30, 2008, the Company has paid a total of $20,000 to ISURF for the license fee and $31,223 for reimbursement of patent costs and research expenses as per agreement with ISURF. Of the total $31,223 paid to ISURF for patent and research costs, $nil and $2,304 is included in research and development expense for the nine months ended September 30, 2008 and 2007.

Ricerca Development Agreements

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

As of September 30, 2008, the Company paid a total of $216,298 for services provided by Ricerca, of which $151,103 and $13,500 is included in research and development expense for the nine months ended September 30, 2008 and 2007.

Dartmouth Sponsored Research Agreement

On May 25, 2007, we entered into a Sponsored Research Agreement with Dartmouth College, pursuant to which we are synthesizing and testing a novel class of anti-cancer agents which have a 'cytotoxic' or poisonous affinity for cancer cells, and are designed to bind tightly to cancer cell DNA (deoxyribonucleic acid), the blueprint of life for the cancer cell. Previous studies conducted by Dartmouth using a leukemia mouse cell line, have demonstrated that such binding (or intercalation) should stop the replication of the DNA, and, ultimately, lead to the death of the cancer cell. Following the preparation of starting materials, researchers will design, synthesize and test new examples of compounds known to bind to DNA, called bis-acridines; these bis-acridines will be tethered to the DNA with both flexible and semi-rigid linking chains. The compounds will be submitted for evaluation in human cancer cell lines.

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Dartmouth granted us 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.

We will reimburse Dartmouth for all costs associated with obtaining and maintaining Dartmouth's pre-existing patents related to the subject technology.

As of September 30, 2008, the Company has paid a total of $161,050 pursuant to the Sponsored Research Agreement with Dartmouth, of which $103,550 and $16,375 is included in research and development expense for the nine months ended September 30, 2008 and 2007.

Dartmouth License Agreement

On September 1, 2008, the Company entered into an exclusive license agreement with the Trustees of Dartmouth College ("DC") to develop, market and distribute a novel class of synthesized compounds known as bis-intercalators. These anti-cancer agents which have a 'cytotoxic' or poisonous affinity for cancer cells, and are designed to bind tightly to cancer cell DNA (deoxyribonucleic acid), the blueprint of life for the cancer cell.

Under the terms of the agreement, the Company has to pay to DC license fees based upon milestones in addition to an upfront payment (paid) within 30 days of execution of the agreement. In addition, DC will receive royalty payments on the net sales of products. The Company will pay an annual royalty throughout the duration of the agreement. We also have to reimburse DC the costs incurred for filing, prosecuting and maintaining the licensed patents. We will administrate the development, regulatory approval and commercialization of the compounds and pursue future collaborative arrangements.

Results of Operations

The Company has yet to establish any history of profitable operations. The Company has incurred operating losses of $292,312 and $353,094 for the three months ended September 30, 2008 and 2007 and $1,374,309 and $1,851,729 for the nine months ended September 30, 2008 and 2007. As a result, at September 30, 2008, the Company has an accumulated deficit of $26,434,665.

We expect that our future revenues will not be sufficient to sustain our operations for the foreseeable future. Our profitability will require the successful completion of our research and development programs, and the subsequent commercialization of the results or of products derived from such research and development efforts. No assurances can be given when this will occur or that we will ever be profitable.

Three and Nine Months Ended September 30, 2008 and 2007

The Company had no revenues during the three and nine months ended September 30, 2008 and 2007.

Operating expenses were $264,535 during the three months ended September 30, 2008, a decrease of $64,412 or 20%, from $328,947 during the same period in 2007. The decrease was substantially due to the Company recording $190,455 of stock based compensation expense during the three months ended September 30, 2007 compared to $nil during the three months ended September 30, 2008 related to stock options previously granted. On August 1, 2006, the Company cancelled 2,250,000 stock options granted to an employee on April 6, 2006, while simultaneously granting 2,000,000 stock options. The fair value of the 2,000,000 stock options was $2,667,500 which was amortized over the expected service periods, expected to be completed during the quarter ended March 31, 2008. This decrease was offset by an increase in research and development expense of $85,654 primarily as a result of the increase in amounts paid to Ricerca under the Sponsored Research Agreement.

Operating expenses were $1,315,113 during the nine months ended September 30, 2008, a decrease of $461,578 or 26%, from $1,776,691 during the same period in 2007. The decrease was substantially due to the Company recording $1,169,697 of stock based compensation expense during the nine months ended September 30, 2007 compared to $13,624 during the nine months ended September 30, 2008. This decrease was offset by increases in investor relations expense of $455,145 and research and development expense of $223,643 during the nine months ended September 30, 2008 compared to 2007. Investor relations expense represents fees paid to a firm to promote the Company's technology within the investor community with the purpose of increasing company recognition and branding, and to facilitate the efforts to raise funds in equity or debt financings. The increase in research and development expense is primarily due to the payments made pursuant to the Ricerca Development Agreements and the Dartmouth Sponsored Research Agreement.

Interest income was $3,546 and $5,855 for the three months ended September 30, 2008 and 2007. Interest income was $21,698 for the nine months ended September 30, 2008, an increase of $12,670 or 140%, from $9,028 during the same period in 2007. This increase reflects the higher average cash balance maintained during most of the first three quarterly periods in 2008 compared to 2007 as a result of the private placement completed by the Company in September 2007, raising net proceeds of $3,109,500.

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Interest expense was $19,864 for the three months ended September 30, 2008, a decrease of $9,786 or 33%, from $29,650 during the same period in 2007. The decrease is the result of a decrease in the principal balance of the 8.5% interest bearing Note Payable - Related Party. The principal balance was $750,000 during the third quarter of 2008 compared to $1,338,776 during the third quarter of 2007.

Interest expense was $65,857 for the nine months ended September 30, 2008, a decrease of 15,540 or 19%, from $81,397 during the same period in 2007 as a result of a lower weighted average principal outstanding balance on the Note Payable - Related Party note during the nine months ended September 30, 2008.

The Company recorded a loss on disposal of fixed assets of $8,068 during the three months ended September 30, 2008 as a result of the removal of the cost and related accumulated depreciation from the Company's financial statements for equipment that was either no longer in service or deemed obsolete. Substantially all of this equipment was located at the Company's administrative office in Vancouver, British Columbia, Canada, which, effective September 1, 2008, was closed.

The Company incurred a net loss of $292,312 and $353,094 during the three months ended September 30, 2008 and 2007. The Company incurred a net loss of $1,374,309 and $1,851,729 for the nine months ended September 30, 2008 and 2007.

Liquidity and Capital Resources

The accompanying financial statements have been prepared assuming the Company will continue as a going concern. The Company incurred cumulative losses of $26,434,665 through September 30, 2008. Additionally, the Company has expended a significant amount of cash in developing its technology. These conditions raise substantial doubt about the Company's ability to continue as a going concern. Management recognizes that in order to meet the Company's capital requirements, and continue to operate, additional financing will be necessary. The Company is evaluating alternative sources of financing to improve its cash position and is undertaking efforts to raise capital. If the Company is unable to raise additional capital or generate positive cash flow, it is unlikely that the Company will be able to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

At September 30, 2008, the Company had a cash balance of $813,406. The Company has financed its operations primarily from funds received pursuant to a private placement completed by the Company in September 2007, raising net proceeds of $3,109,500.

Net cash used in operating activities was $1,352,802 for the nine months ended September 30, 2008, compared to net cash used of $733,929 for the same period in 2007. The increase in cash used was substantially due to increases in investor relations expense of $455,145 and research and development expense of $223,643 during the nine months ended September 30, 2008 compared to 2007.

Net cash used in investing activities was $21,173 for the nine months ended September 30, 2008, compared to $nil during the same period in 2007. During the nine months ended September 30, 2008, the Company purchased $6,173 of equipment and paid $15,000 to Dartmouth College for a license fee.

Net cash used in financing activities was $250,000 for the nine months ended September 30, 2008 compared to net cash flows provided by financing activities of $3,464,500 for the same period in 2007. During the nine months ended September 30, 2008, the Company repaid $250,000 of the outstanding principal balance on the Notes Payable- Related Party. During the nine months ended September 30, 2007, the Company received net proceeds of $3,109,500 pursuant to a private placement.

Related Party Transactions

Non-Employee Directors Fees: During the three and nine months ended September 30, 2008, the Company incurred $3,000 and $6,150 for non-employee directors fees. During the three and nine months ended September 30, 2007, the Company incurred $nil and $3,400 for non-employee director fees.

The Company had arranged with Mr. Harmel S. Rayat, former Chief Financial Officer, director and majority shareholder of the Company a loan amount up to $2,500,000 that may be drawn down on an "as needed basis" at a rate of prime plus 3%. Effective September 15, 2008, Mr. Rayat and the Company terminated this loan agreement. During the nine months ended September 30, 2008, the Company repaid $250,000 to Mr. Rayat with the accrued interest of $67,664. At September 30, 2008, the Company had an unsecured promissory note pursuant to this loan agreement in the amount of $750,000 payable to Mr. Rayat, which was due on March 8, 2006 and bears interest at an annual rate of 8.50%. At September 30, 2008, accrued interest on the $750,000 remaining promissory note was $238,884 and is included in interest payable - related parties. The entire principal and accrued interest is due and payable on demand.

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Rent: Until August 31, 2008, the Company's administrative office was located at 1628 West 1st Avenue, Suite 216, Vancouver, British Columbia, Canada, V6J 1G1. This premise is owned by a private corporation controlled by a director and majority shareholder. Rent expense for this administrative office for the three and nine months ended September 30, 2008 was $6,283 and $22,239. Rent expense for this administrative office for the three and nine months ended September 30, 2007 was $9,281 and $26,136. Effective August 31, 2008, the Company closed its administrative office in Vancouver, British Columbia, Canada, terminating all of its employees.

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

Other Contractual Obligations

The Company does not have any contractual obligations other than the Cooperative and License Agreements, Notes Payable and Accrued Interest and operating lease with the related party as discussed above.

Off Balance Sheet Arrangements

The Company has no off-balance sheet arrangements.

Recently Issued Accounting Standards

See Note 2 to the Consolidated Financial Statements in this Form 10-Q.