Attached files
file | filename |
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EX-23.1 - EXHIBIT 23.1 - Ceres Ventures, Inc. | wordconsent123109.htm |
EX-32.1 - EXHIBIT 32.1 - Ceres Ventures, Inc. | exhibit_321pyto12310wujek.htm |
EX-32.2 - EXHIBIT 32.2 - Ceres Ventures, Inc. | exhibit_322pyto123109krauss.htm |
EX-31.1 - EXHIBIT 31.1 - Ceres Ventures, Inc. | exhibit_311pyto123109gregwuj.htm |
EX-31.2 - EXHIBIT 31.2 - Ceres Ventures, Inc. | exhibit_312pyto123109raykrau.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2009
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ___________ to ___________
Commission file number 000-28790
PHYTOMEDICAL TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
Nevada |
87-0429962
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(State or other jurisdiction of |
(I.R.S. Employer |
incorporation or organization) |
Identification No.) |
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100 Overlook Drive, 2nd Floor
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Princeton, New Jersey |
08540 |
(Address of principal executive offices) |
(Zip Code) |
(800) 611-3388
(Registrants telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Title of each class________ __ Common Stock, $0.00001 par value per share |
Name of each exchange on which registered OTC Bulletin Board |
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No T
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes o No T
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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S‑K is not contained herein, and will not be contained, to the best of the registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. 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 |
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Accelerated filer |
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Non-accelerated filer (Do not check if a smaller reporting company) |
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Smaller reporting company |
x |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.). Yes o No T
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant as of the last business day of the registrants most recently completed second fiscal quarter, based upon the closing sale price of the registrants common stock on June 30, 2009 as reported on the OTC Bulletin Board was $5,733,231.
As of January 15, 2010, there were 201,487,995 shares of the registrants Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None.
PART I
Cautionary Statement Pursuant to Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995:
Except for the historical information presented in this document, the matters discussed in this Form 10-K for the fiscal year ended December 31, 2009, and specifically in the item entitled "Managements Discussion and Analysis of Financial Condition and Results of Operations," or otherwise incorporated by reference into this document, contain "forward-looking statements" (as such term is defined in the Private Securities Litigation Reform Act of 1995). These statements are identified by the use of forward-looking terminology such as "believes," "plans," "intend," "scheduled," "potential," "continue," "estimates," "hopes," "goal," "objective," expects," "may," "will," "should," or "anticipates" or the negative thereof or other variations thereon or comparable terminology, or by discussions of strategy that involve risks and uncertainties.
The safe harbor provisions of Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as amended, apply to forward-looking statements made by the Company. The reader is cautioned that no statements contained in this Form 10-K should be construed as a guarantee or assurance of future performance or results. These forward-looking statements involve risks and uncertainties, including those identified within this Form 10-K. The actual results that the Company achieves may differ materially from any forward-looking statements due to such risks and uncertainties. These forward-looking statements are based on current expectations, and the Company assumes no obligation to update this information. Readers are urged to carefully review and consider the various disclosures made by the Company in this Form 10-K and in the Company's other reports filed with the Securities and Exchange Commission that attempt to advise interested parties of the risks and factors that may affect the Company's business.
Item 1. Business
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. The Company ceased to conduct business in Canada on August 31, 2008 and closed its Canadian office. As a result, the Company dissolved PhytoMedical Ltd. and eliminated all intercompany balances, effective January 1, 2009.
The Company is a pharmaceutical company focused on research, development and commercialization of pharmaceutical products. The Companys strategy is to develop new technologies and, where warranted, acquire rights to obtain licenses to technologies and products that are being developed by third parties, primarily universities and government agencies, through sponsored research and development agreements.
The Company is currently focusing its research and development efforts on an anti-cancer compound, D11B, for the treatment of glioblastoma. The Company has an exclusive license, granted pursuant to a license agreement dated September 1, 2008 (the Dartmouth License Agreement), between the Company and the Trustees of Dartmouth College (the Dartmouth Trustees), to develop, market and distribute a novel class of synthesized compounds known as bis-intercalators. The Company commenced its research and development activities relating to D11B through a Sponsored Research Agreement (the Sponsored Research Agreement) with Dartmouth College
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(Dartmouth). The Company is continuing to independently research and develop the anti-cancer compound, D11B, for the treatment of glioblastoma, pursuant to the Dartmouth License Agreement.
The Company does not expect to generate any revenues for the foreseeable future and expects to continue to incur losses. The Companys independent registered public accountant has issued an audit opinion which includes a statement expressing substantial doubt as to the Companys ability to continue as a going concern.
Cancer Research
Dartmouth Sponsored Research Agreement
Since the expiration of the Companys Sponsored Research Agreement with Dartmouth on September 30, 2009, the Company is continuing its independent 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), which is 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.
The Company has 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 the Company from the Dartmouth Trustees. Throughout 2009, the Company 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 the Companys D11B compound, researchers:
- reported a significant reduction in tumor size; prolonged lifespan of 46%-plus for the treated group versus the control group;
- reported 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 the Companys 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.
Based upon the results of in vivo efficacy and toxicity tests, the Company has initiated efforts to develop an intravenous (IV) formulation of D11B. Accordingly, the Company has contracted a drug formulation company, Latitude Pharmaceuticals, Inc., (Latitude) to assist the Company in the development of such an IV formulation of D11B. See Latitude Agreement below.
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 of 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.
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As of September 30, 2009, the termination date of the Sponsored Research Agreement with Dartmouth, Dartmouth has concluded its research and development, and provided the Company with, it believes, a key anti-cancer compound for glioblastoma, D11B. The Company is now independently continuing to research and develop the D11B compound.
Dartmouth License Agreement
On September 1, 2008, the Company entered into Dartmouth License Agreement with the Dartmouth Trustees, pursuant to which the Company has 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, 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 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. The Companys request was granted by the SEC 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, the Company entered into a fee-for-services agreement with Latitude, which was amended on October 23, 2009 (the Latitude Agreement), to assist the Company in the development of an IV formulation of the Companys anti-cancer compound for glioblastoma, D11B, for use in ongoing and future testing to determine the compounds efficacy and toxicology evaluation and, if warranted future early stage human clinical trials. Under the terms of the Latitude Agreement, the Company retains all rights, including but not limited to intellectual property rights, to formulations and products developed, if any.
Competition
The Companys commercial success will depend on its ability and the ability of its sub-licensees, if any, to compete effectively in product development areas such as, but not limited to, safety, efficacy, ease of use, patient or customer compliance, price, marketing and distribution. There can be no assurance that competitors will not succeed in developing products that are more effective than any products derived from the Companys research and development efforts or that would render such products obsolete and non-competitive.
The pharmaceutical and biotechnology industries are characterized by intense competition, rapid product development and technological change. Most of the competition that the Company encounters will come from companies, research institutions and universities who are researching and developing technologies and products similar to or competitive with any the Company may develop.
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These companies may enjoy numerous competitive advantages, including:
· significantly greater name recognition;
· established relations with healthcare professionals, customers and third-party payers;
· established distribution networks;
· additional lines of products, and the ability to offer rebates, higher discounts or incentives to gain a competitive advantage;
· greater experience in conducting research and development, manufacturing, clinical trials, obtaining regulatory approval for products, and marketing approved products; and
· greater financial and human resources for product development, sales and marketing, and patent litigation.
As a result, the Company may not be able to compete effectively against these companies or their products.
Given the early stage of the Companys research and development efforts, it has not yet formulated a specific marketing strategy. Ultimately, the Company plans to market products, if any, developed through its current research and development efforts, subject to obtaining regulatory approvals, through co-marketing, co-promotion, licensing and distribution arrangements with third party collaborators. No such arrangements presently exist. The Company believes that this approach will both increase market penetration and commercial acceptance of its products and avoid expending significant funds to develop a large sales and marketing organization.
Reliance on Limited Resources
The Company relies primarily on Dartmouth and third party contract research organizations, to conduct, monitor and assess its research. The Company may have no control over the specifics of, and possible direction that the research may take. Accordingly, there can be no assurance that such organizations will conduct the Companys research in a manner that will lead to the commercialization of any products.
The Company is also dependent upon the services of certain key collaborating scientific personnel who are not employed by the Company, including the principal investigator with respect to the Companys ongoing research related to cancer. The loss of this investigators services could have a materially adverse effect on the Company, unless a qualified replacement could be found. The Company has no control over whether its principal investigators or other scientific personnel will choose to remain involved with the Companys projects. Since these individuals are not bound by contract to the Company nor employed by the Company directly, they might move on to other research.
Government and Safety Regulations
FDA Regulations
The Company has yet to develop any products for submission for regulatory approval. Any such products submitted for approval must undergo rigorous preclinical and clinical testing and an extensive regulatory approval process before they can be marketed. This process makes it longer, harder and more costly to bring any products to market; and, the Company cannot guarantee that approval will be granted. The pre-marketing approval process can be particularly expensive, uncertain and lengthy. A number of products for which FDA approval has been sought by other companies have never been approved for marketing. In addition to testing and approval procedures, extensive regulations also govern marketing, manufacturing, distribution, labeling and record-keeping procedures. If the Company does not comply with applicable regulatory requirements, such violations could result in warning letters, non-approval, suspensions of regulatory approvals, civil penalties and criminal fines, product seizures and recalls, operating restrictions, injunctions and criminal prosecution.
Delays in obtaining, or the rejection of necessary approvals by the FDA or other government entity may also adversely affect the Companys business. Such delays or rejection may be encountered due to, among other reasons, government or regulatory delays, lack of efficacy during clinical trials, unforeseen safety issues, slower than expected rate of patient recruitment for clinical trials, inability to follow patients after treatment in clinical trials,
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inconsistencies between early clinical trial results and results obtained in later clinical trials, varying interpretations of data generated by clinical trials, or changes in regulatory policy during the period of product development in the United States. In the United States more stringent FDA oversight in product clearance and enforcement activities could result in the Company experiencing longer approval cycles, more uncertainty, greater risk and significantly higher expenses. Even if regulatory approval is granted, this approval may entail limitations on uses for which any such product may be labeled and promoted. It is possible, for example, that the Company may not receive FDA approval to market any products, based on the Companys research and development program for broader or different applications or to market updated products that represent extensions of any such products. In addition, the Company may not receive FDA approval to export products in the future, and countries to which products are to be exported may not approve them for import.
Any manufacturing facilities would also be subject to continual review and inspection. The FDA has stated publicly that compliance with manufacturing regulations will be scrutinized more strictly. A governmental authority may challenge the Companys compliance with applicable federal, state and foreign regulations. In addition, any discovery of previously unknown problems with any of the Companys research and development efforts or products, if any, derived from such research and development, or facilities may result in marketing, sales and manufacturing restrictions, being imposed, as well as possible enforcement actions.
From time to time, legislative or regulatory proposals are introduced that could alter the review and approval process relating to the Companys research and development programs and products, if any, derived from such research. It is possible that the FDA will issue additional regulations further restricting the sale of products based on the Companys underlying research and development activities. Any change in legislation or regulations that govern the review and approval process relating to the Companys future products, if any, could make it more difficult and costly to obtain approval, or to produce, market, and distribute such products even if approved.
Animal Testing
The Companys research and development efforts involve laboratory animals. The Company may be adversely affected by changes in laws, regulations or accepted procedures applicable to animal testing or by social pressures that would restrict the use of animals in testing or by actions against the Companys collaborators or the Company by groups or individuals opposed to such testing.
Environmental Regulations
The Companys research and development programs do not generally involve the handling of potentially harmful biological materials or hazardous materials, but they may occasionally do so. The Company, Dartmouth and the Companys contract research organizations are subject to federal, state and local laws and regulations governing the use, handling, storage and disposal of hazardous and biological materials. If violations of environmental, health and safety laws occur, the Company could be held liable for damages, penalties and costs of remedial actions. These expenses or this liability could have a significant negative impact on the Companys business, financial condition and results of operations. The Company may violate environmental, health and safety laws in the future as a result of human error, equipment failure or other causes. Environmental laws could become more stringent over time, imposing greater compliance costs and increasing risks and penalties associated with violations. The Company may be subject to potentially conflicting and changing regulatory agendas of political, business and environmental groups. Changes to or restrictions on permitting requirements or processes, hazardous or biological material storage or handling might require an unplanned capital investment or relocation. Failure to comply with new or existing laws or regulations could harm the Companys business, financial condition and results of operations.
Intellectual Property
The Company does not own any patents regarding any of its research and development activities. The Company acquired the world wide licensing rights for anti-cancer compounds from Dartmouth, effective September 1, 2008. These compounds are derived from anti-cancer agents, claimed in Dartmouth United States Patent No.: 6,187,787, for which the Company holds an exclusive license pursuant to the Dartmouth License Agreement. The company can assert rights to addendums and future patents specific to the term of their licensing agreement with Dartmouth. Third parties could, in the future, assert infringement or misappropriation claims against the Company with respect
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to its current research and development program or future products, if any, derived from the Companys research and development program. Whether a product infringes a patent involves complex legal and factual issues, the determination of which is often uncertain. Therefore, the Company cannot be certain that it has not infringed the intellectual property rights of such third parties.
Any infringement or misappropriation claim could cause the Company to incur significant costs, could place significant strain on the Companys financial resources, divert managements attention from its business and harm its reputation. If the relevant patents were upheld as valid and enforceable and the Company were found to infringe, it could be prohibited from continuing its research and development activities and from marketing or selling products, if any, derived from the Companys research efforts unless it could obtain licenses to use the technology covered by the patent or are able to design around the patent. The Company may be unable to obtain a license on terms acceptable to it, if at all, and it may not be able to commercialize any products. A court could also order the Company to pay compensatory damages for such infringement, plus prejudgment interest and could, in addition, treble the compensatory damages and award attorney fees. These damages could be substantial and could harm the Companys reputation, business, financial condition and operating results. Depending on the nature of the relief ordered by the court, the Company could become liable for additional damages to third parties.
Diabetes Research
Terminated Agreements
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 Companys novel, synthesized type A-1 polyphenolic compounds. On January 6, 2009, the Company provided written notice to ISU terminating the Sponsored Research Agreement between the Company and ISU. The termination was effective March 6, 2009.
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.
Research and Development
Research and development costs represent costs incurred to develop the Companys technologies and are incurred pursuant to the Companys sponsored research agreements with Dartmouth and ISU and third party contract research organizations. These agreements include salaries and benefits for research and development personnel, allocated overhead and facility occupancy costs, contract services and other costs.
The Company charges all research and development expenses to operations as they are incurred except for prepayments which are capitalized and amortized over the applicable period. Research and development expense for the years ended December 31, 2009 and 2008 were $113,826 and $379,716.
Employees
As of December 31, 2009, the Company had one full time employee, Mr. Greg Wujek, the Companys President and Chief Executive Officer.
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Item 2. Properties
The Company's corporate office is located at 100 Overlook Drive, 2nd Floor, Princeton, New Jersey, 08540. Rent for this month-to-month operating lease is $250 per month plus tax and variable charges. Pursuant to the lease terms, the Company is provided with a bundle of services, including, but not limited to, reception, phone and mail service.
Item 3. LEGAL PROCEEDINGS
As of the date of this report, the Company is not a party to any material pending legal proceedings or government actions, including any bankruptcy, receivership, or similar proceedings. In addition, management is not aware of any known litigation or liabilities involving the operators of the Companys properties that could affect its operations. Should any liabilities incur in the future, they will be accrued based on managements best estimate of the potential loss. As such, there is no adverse effect on the Companys financial position, results of operations or cash flow at this time. Furthermore, the Company does not believe that there are any proceedings to which any of the Companys directors, officers, or affiliates, any owner of record of the beneficially or more than five percent of the Companys common stock, or any associate of any such director, officer, affiliate, or security holder is a party adverse or has a material interest adverse to the Company.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Stockholders (the Annual Meeting) of the Company was held on November 23, 2009, at which time the stockholders voted on the following proposals:
ITEM 1.
The election of a board of directors to serve until the next Annual Meeting or until their respective successors are duly elected and have qualified.
Votes For | Votes Against | Votes Abstained | |
Mr. Greg Wujek | 103,974,293 | 644,692 | 338,602 |
Mr. Gary Branning | 104,001,677 | 678,860 | 277,050 |
Mr. Raymond Krauss | 104,020,124 | 660,108 | 277,355 |
ITEM 2.
To ratify the appointment of Peterson Sullivan, LLP for the fiscal year ending December 31, 2009.
Votes For | Votes Against | Votes Abstained | |
104,261,526 | 387,145 | 308,916 |
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PART II
ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
The Company's Common Stock is traded on the Over the Counter Bulletin Board (the OTCBB) under the symbol PYTO.
The following table sets forth the high and low closing sale prices for the Company's Common Stock for each quarter during the past two fiscal years as reported by the OTCBB:
High | Low | |
Fiscal Year Ended December 31, 2009 | ||
First Quarter 2009 (January 1 March 31, 2009) | $0.14 | $0.03 |
Second Quarter 2009 (April 1 June 30, 2009) | $0.09 | $0.04 |
Third Quarter 2009 (July 1 September 30, 2009) | $0.08 | $0.05 |
Fourth Quarter 2009 (October 1 December 31, 2009) | $0.08 | $0.02 |
Fiscal Year Ended December 31, 2008 | ||
First Quarter 2008 (January 1 March 31, 2008) | $0.40 | $0.22 |
Second Quarter 2008 (April 1 June 30, 2008) | $0.32 | $0.12 |
Third Quarter 2008 (July 1 September 30, 2008) | $0.14 | $0.05 |
Fourth Quarter 2008 (October 1 December 31, 2008) | $0.10 | $0.03 |
As of January 4, 2010, there were approximately 301 stockholders of record of the Company's Common Stock.
Dividend Policy
The Company does not have a history of paying dividends on its Common Stock, and there can be no assurance that it will pay any dividends in the foreseeable future. The Company intends to use any earnings, which may be generated, to finance the growth of its businesses. The Companys Board of Directors has the right to authorize the issuance of preferred stock, without further stockholder approval, the holders of which may have preferences over the holders of the Common Stock as to payment of dividends.
Securities Authorized for Issuance Under Equity Compensation Plans
The following table sets forth certain information regarding the common stock that may be issued upon the exercise of options, warrants and other rights that have been or may be granted to employees, directors or consultants under all of the Companys existing equity compensation plans, as of December 31, 2009.
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Plan Category |
Number of securities to be issued upon exercise of outstanding options, warrants and rights
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Weighted-average exercise price of outstanding options, warrants and rights
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Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
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(a) |
(b) |
(c) |
Equity compensation plans approved by security holders (1)
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2,000,000 |
$0.52 |
20,250,000 |
Equity compensation plans not approved by security holders
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- |
- |
- |
Total |
2,000,000 |
$ 0.52 |
20,250,000 |
(1) Consists of grants under the Companys 2005 Stock Plan.
Item 7. Management's Discussion and Analysis of Financial condition and results of operations
The following Managements Discussion and Analysis (MD&A) is intended to help the reader understand the results of operations and financial condition of PhytoMedical Technologies, Inc. The MD&A is provided as a supplement to, and should be read in conjunction with the Companys consolidated financial statements and the accompanying notes to the consolidated financial statements included in Item 8 of this Form 10-K.
The Companys discussion and analysis of its financial condition and results of operations is based on its financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities and expenses and related disclosures. The Company reviews its estimates on an ongoing basis.
Overview
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. 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.
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The Company is a pharmaceutical company focused on research, development and commercialization of pharmaceutical products. The Companys strategy is to develop new technologies and, where warranted, acquire rights to obtain licenses to technologies and products that are being developed by third parties, primarily universities and government agencies, through sponsored research and development agreements.
The Company is currently focusing its research and development efforts on an 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 Dartmouth Trustees.
The Company does not expect to generate any revenues for the foreseeable future and expects to continue to incur losses. The Companys independent registered public accountant has issued an audit opinion which includes a statement expressing substantial doubt as to the Companys ability to continue as a going concern..
Cancer Research
Dartmouth Sponsored Research Agreement
Pursuant to the Companys Sponsored Research Agreement with Dartmouth College (Dartmouth), which expired on September 30, 2009, the Company is continuing its 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.
The Company has 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 the Company from Dartmouth. Throughout 2009, the Company 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 the Companys D11B compound, researchers reported: a significant reduction in tumor size; prolonged lifespan of 46%-plus for the treated group versus the control group; notably enhanced chemotherapeutic effect of the compound; and observed tumor cured in one of the specimens with the deadly glioblastoma cancer.
Interpreting the data collected from these important efficacy and toxicity tests, researchers concluded that the Companys 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 has concluded its research and development, and provided the Company with, it believes, a key anti-cancer compound for glioblastoma, D11B. Based upon results of in vivo efficacy and toxicity tests, the Company has entered into a fee-
13
for-services agreement with Latitude to assist the Company in its development of an IV formulation of D11B, in order to conduct additional tests.
As of December 31, 2009, the Company has paid $220,260 pursuant to the Sponsored Research Agreement with Dartmouth and $1,253 for reimbursement of expenses. Of the total $221,513 paid to Dartmouth, $60,463 and $115,300 is included in research and development expense for the years ended December 31, 2009 and 2008.
Dartmouth License Agreement
On September 1, 2008, the Company entered into Dartmouth License Agreement with the Dartmouth Trustees pursuant to which the Company 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, 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 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. The Companys 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, the Company entered into a fee-for-services agreement with Latitude, which was amended on October 23, 2009 (the Latitude Agreement), to assist the Company in its development of an IV formulation of the Companys anti-cancer compound for glioblastoma, D11B, for use in ongoing and future testing to determine the compounds efficacy and toxicology, and if warranted, future early stage human clinical trials. Under the terms of the Latitude Agreement, the Company retains all rights to formulations and products developed, if any, including but not limited to intellectual property rights. As of December 31, 2009, the Company has paid $45,377 pursuant to the terms of the agreement with Latitude, all of which is included in research and development expense for the year ended December 31, 2009.
Diabetes Research
Terminated Agreements
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 Companys novel, synthesized type A-1 polyphenolic
14
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.
As of December 31, 2009, the Company had paid a total of $114,972 pursuant to the terms of the ISU Sponsored Research Agreement, of which $0 and $83,846 is included in research and development expense for the years ended December 31, 2009 and 2008. In addition to contractual obligations pursuant to the ISU Sponsored Research Agreement, the Company reimbursed ISU $0 and $506 during the years ended December 31, 2009 and 2008 for other out-of-pocket costs that are included in research and development expense.
Iowa State University Research Foundation License Agreement
On June 12, 2006, the Company, through its wholly owned subsidiary, PolyPhenol, 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.
As of December 31, 2009, the Company had paid a total of $20,000 to ISURF for the license fee and $31,223 for reimbursement of patent costs and research expenses as per agreement with ISURF, none of which is included in research and development expense for the years ended December 31, 2009 and 2008.
Results of Operations
A summary of the Companys operating expenses for the years ended December 31, 2009 and 2008 was as follows:
Year Ended | ||||||||
December 31, | Increase / | Percentage | ||||||
2009 | 2008 | (Decrease) | Change | |||||
Operating expenses | ||||||||
Director fees - related party | $ | 6,800 | $ | 9,750 | $ | (2,950) | (30) | % |
Investor relations | 3,658 | 492,360 | (488,702) | (99) | ||||
Wages and benefits | 263,052 | 346,538 | (83,486) | (24) | ||||
Research and development | 113,826 | 379,716 | (265,890) | (70) | ||||
Professional fees | 136,423 | 110,249 | 26,174 | 24 | ||||
Impairment of license fee | - | 20,000 | (20,000) | * | ||||
Other operating expenses | 64,480 | 139,581 | (75,101) | (54) | ||||
Total operating expenses | $ | 588,239 | $ | 1,498,194 | $ | (909,955) | (61) | % |
* Not meaningful
Director fees related party
Non-employee directors receive $250 per month for their services as directors plus $100 for each board meeting attended.
The decrease in director fees of $2,950 for the year ended December 31, 2009 compared to 2008 is substantially due to the Company recording directors fees earned for the year ended December 31, 2007 of $3,150 during the year ended December 31, 2008. The $3,150 was not deemed significant to the consolidated financial statements taken as a whole.
15
Investor relations
Investor relations costs represent fees paid to publicize the Companys technology. The Companys investor relations expense decreased significantly in the year ended December 31, 2009 versus 2008.
.
Effective April 15, 2009, the Company entered into a one-year Shareholder Communication Services Agreement (the Shareholder Communications Agreement) with a third party consultant to provide shareholder communication and related administrative services. In accordance with the terms of the Shareholder Communications Agreement, the Company pays the third party consultant $375 per month.
Wages and benefits
During the years ended December 31, 2009 and 2008, the Company incurred $263,052 and $273,956 in wages and benefits expense for services rendered by Mr. Greg Wujek, the President, Chief Executive Officer, and Director of the Company. Wages and benefits related to Mr. Wujek was $10,904 higher for the year ended December 31, 2008 than 2009 primarily due to the Company recording $13,624 of stock based compensation expense in fiscal year 2008 related to the amortization of a stock option previously granted to Mr. Wujek to purchase 2,000,000 shares of the Companys common stock at an exercise price of $0.52 per share. The fair value of the stock option was fully amortized in March 2008.
During the year ended December 31, 2008, the Company incurred a total of $72,582 in wages and benefits expense for services rendered by the employees in the Companys administrative office in Vancouver, Canada, which was closed on August 31, 2008.
Research and development
Research and development costs represent costs incurred to develop the Companys technologies and are incurred pursuant to the Companys sponsored research agreements with Dartmouth, ISU, Ricerca, Latitude, and other third party contract research organizations. The sponsored research agreements include salaries and benefits for research and development personnel, allocated overhead and facility occupancy costs, contract services and other costs. Research and development costs are expensed when incurred, except for nonrefundable advance payments for future research and development activities which are capitalized and recognized as expense as the related services are performed.
Following is a summary of research and development expense incurred for the years ended December 31, 2009 and 2008:
Year Ended |
||||||||
December 31, |
Increase/ | |||||||
2009 |
2008 |
(Decrease) | ||||||
Research and development expense |
||||||||
ISU Sponsored Research Agreement |
$ |
- |
$ |
83,846 |
$ |
(83,846) | ||
Dartmouth Sponsored Research Agreement |
60,463 |
115,300 |
(54,837) | |||||
Ricerca |
5,400 |
174,937 |
(169,537) | |||||
Latitude Agreement |
45,378 |
- |
45,378 | |||||
Other research and development expense |
2,585 |
5,633 |
(3,048) | |||||
Total research and development expense |
$ |
113,826 |
$ |
379,716 |
$ |
(265,890) |
16
Professional fees
Professional fees substantially consist of accounting fees, audit and tax fees, legal fees, and SEC related filing costs.
During the year ended December 31, 2009, the Company incurred professional fees of $136,423, an increase of $26,174, from $110,249 during the year ended December 31, 2008. The increase in professional fees is substantially due to increases in accounting fees of approximately $19,000 and legal fees of approximately $5,200. The increase in accounting fees is primarily the result of the Company closing its administrative office in Vancouver, British Columbia, Canada, effective August 31, 2008, terminating all of the employees in Vancouver, Canada. Due to this downsizing, as of September 1, 2008, the Company began outsourcing its administrative functions to third parties.
Impairment of license fee
On December 18, 2008 the company was notified by ISU that the patent application for the insulin enhancing synthesized compounds was rejected by the US Patent Office. After further review of the rejection letter along with the culminated research costs incurred by the Company, the Company determined it was in its best interest to terminate its license agreement with ISURF and its Sponsored Research Agreement with ISU. Pursuant to the terms of the license agreement and Sponsored Research Agreement, the Company provided written notice of termination to both ISURF and ISU on January 6, 2009. As a result of the termination of the license agreement with ISURF, the Company recorded an impairment charge of $20,000 at December 31, 2008 to write-off the previously paid license fee.
Other operating expenses
Other operating expenses include travel and entertainment, rent, office supplies, printing and mailing, and other administrative costs.
During the year ended December 31, 2009, the Company incurred other operating expenses of $64,480, a decrease of $75,101, from $139,581 during the year ended December 31, 2008. The decrease is substantially due to decreases in travel and entertainment of approximately $37,000, rent of approximately $18,700, and printing and mailing of approximately $10,100. The decrease in other operating expenses is the result of the Company closing its administrative office in Vancouver, Canada, effective August 31, 2008.
Other income (expense)
A summary of the Companys other income (expense) for the years ended December 31, 2009 and 2008 was as follows:
Year Ended |
|||||||||||
December 31, |
Increase / |
Percentage |
|||||||||
2009 |
2008 |
(Decrease) |
Change |
||||||||
Other income (expense) |
|||||||||||
Interest income |
$ |
- |
$ |
22,679 |
$ |
(22,679) |
* |
% | |||
Interest expense |
(63,750) |
(70,445) |
6,695 |
(10) |
|||||||
Change in fair value of warrant liability |
(93,910) |
- |
(93,910) |
* |
|||||||
Gain on extinguishment of warrant liability |
52,631 |
- |
52,631 |
* |
|||||||
Loss on disposal of fixed assets |
- |
(8,068) |
8,068 |
* |
|||||||
Loss on dissolution of foreign subsidiary |
(523) |
- |
(523) |
* |
|||||||
Foreign exchange loss |
- |
(6,773) |
6,773 |
* |
|||||||
Total other income (expense) |
$ |
(105,552) |
$ |
(62,607) |
$ |
(42,945) |
69 |
% |
* Not meaningful
17
Interest income
Interest income for the year ended December 31, 2008 represents interest earned on proceeds received as a result of the 2007 Private Placement completed by the Company in September 2007, raising net proceeds of $3,109,500. The Companys interest-bearing bank account was maintained at a financial institution located in Canada. Effective August 31, 2008, the Company closed its administrative office in Vancouver, Canada. As a result, the Company also closed the bank account at the Canadian financial institution on December 31, 2008 and transferred all of its cash to a non-interest bearing account at an U.S. financial institution.
Interest expense
Interest expense represents interest accrued on note payables to Mr. Harmel S. Rayat, at an annual rate of 8.5%. Mr. Rayat was the former Chief Financial Officer, former Director, and former majority shareholder of the Company. At January 1, 2008, the outstanding principal balance of the note payable was $1,000,000. In February 2008, the Company repaid $250,000 of the principal balance of the note payable. The remaining $750,000 note payable to Mr. Rayat, was due on March 8, 2006 and is payable on demand.
Change in fair value of warrant liability and gain on extinguishment of warrant liability
On January 1, 2009, the Company adopted guidance which is now part of ASC 815-40, Contracts in Entitys Own Equity (ÁSC 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 Companys Class A Warrants are considered derivative liabilities and are therefore required to be adjusted to fair value each quarter. The Company values its warrant liability using a Black-Scholes model. The Companys stock price, remaining term of the Class A Warrants and the volatility of the Companys stock all impact the fair value of the Companys Class A Warrants.
The adjustments recorded each quarter to adjust the Class A Warrants to fair value resulted in a net non-cash loss of $93,910 for the year ended December 31, 2009.
On September 29, 2009, the Company consummated a securities exchange agreement (Securities Exchange Agreement) with the holders of the Companys 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 Companys 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 Companys 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 the Companys common stock of $0.06 per share on September 29, 2009 as quoted on the Over the Counter Bulletin Board. The Company recorded a gain on extinguishment of warrant liability of $52,631 on September 29, 2009 as a result of the excess of the Class A Warrant Liability over the fair value of the consideration provided the warrant holders, in the form of common stock.
Loss on disposal of fixed assets
The Company recorded a loss on disposal of fixed assets of $8,068 during the year ended December 31, 2008 as a result of the removal of the cost and related accumulated depreciation from the Companys financial statements for equipment that was either no longer in service or deemed obsolete. Substantially all of this equipment was located
18
at the Companys administrative office in Vancouver, British Columbia, Canada, which, effective August 31, 2008, was closed.
Loss on dissolution of foreign subsidiary
PhytoMedical Ltd. provided administrative services to the Companys Canadian office. The Company ceased to conduct business in Canada, effective August 31, 2008 and closed this office. As a result, the Company dissolved PhytoMedical Ltd. and eliminated all intercompany balances, effective January 1, 2009. The Company recorded a loss on its investment in PhytoMedical Ltd. equal to the accumulated other comprehensive income at the time of the dissolution.
Liquidity and Capital Resources
The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. The Company has incurred cumulative losses of $26,140,372 through December 31, 2009, does not have positive cash flows from operating activities, and had negative working capital of $1,000,766 as of December 31, 2009. Additionally, the Company has expended a significant amount of cash in developing its technology. The Company faces all the risks common to companies that are relatively new, including under capitalization and uncertainty of funding sources, high initial expenditure levels, uncertain revenue streams, and difficulties in managing growth. These conditions raise substantial doubt about the Companys ability to continue as a going concern. Management recognizes that in order to meet the Companys capital requirements, and continue to operate, additional financing will be necessary. The Company expects to raise additional funds through private or public equity investments in order to expand the range and scope of its business operations. The Company will seek access to private or public equity but there is no assurance that such additional funds will be available for the Company to finance its operations on acceptable terms, if at all. If the Company is unable to raise additional capital or generate positive cash flow, it is unlikely that the Company will be able to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
The Company's principal source of liquidity is cash in the bank. At December 31, 2009, the Company had cash and cash equivalents of $75,291. The Company has financed its operations primarily from funds received pursuant to the 2007 Private Placement completed by the Company in September 2007, raising net proceeds of $3,109,500.
Net cash used in operating activities was $590,542 for the year ended December 31, 2009 compared to $1,496,700 for the same period in 2008. The decrease of $906,158 in cash used in operating activities was substantially due to decreases in investor relations expense of $488,702, research and development expense of $265,890, wages and benefits of $69,862 (excluding non-cash stock compensation expense of $13,624), and other operating expenses of $75,101 during the year ended December 31, 2009 compared to 2008. See Results of Operations above for further discussion regarding the decrease in these expenses.
Net cash used in investing activities was $0 for the year ended December 31, 2009 compared to $21,173 during the same period in 2008. During the year ended December 31, 2008, the Company purchased $6,173 of equipment and paid $15,000 to Dartmouth College for a license fee.
Net cash used in financing activities was $0 for the year ended December 31, 2009 compared to $250,000 for the same period in 2008. During the year ended December 31, 2008, the Company repaid $250,000 of the outstanding principal balance on its notes payable.
Related Party Transactions
Wages and benefits
During the years ended December 31, 2009 and 2008, the Company incurred $263,052 and $260,332 in wages and benefits expense for services rendered by Mr. Greg Wujek, the President, Chief Executive Officer, and Director of the Company.
19
In addition, during the years ended December 31, 2009 and 2008, the Company recorded $0 and $13,624 in stock based compensation expense related to the amortization of a stock option previously granted to Mr. Wujek to purchase 2,000,000 shares of the Companys Common Stock at an exercise price of $0.52 per share, which is included in wages and benefits.
Director fees
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 years ended December 31, 2009 and 2008, the Company incurred $6,800 and $9,750 in non-employee director fees.
Notes payable
The Company had arranged with Mr. Harmel S. Rayat, former Chief Financial Officer, former Director, and former majority shareholder of the Company, a loan amount up to $2,500,000 that may be drawn down on an as needed basis at a rate of prime plus 3%. Effective September 15, 2008, Mr. Rayat and the Company terminated this loan agreement. During the year ended December 31, 2008, the Company repaid $250,000 to Mr. Rayat with the accrued interest of $67,664. At December 31, 2009, the Company had an unsecured promissory note pursuant to this loan agreement in the amount of $750,000 payable to Mr. Rayat, which was due on March 8, 2006 and bears interest at an annual rate of 8.50%. During the years ended December 31, 2009 and 2008, the Company recorded $63,750 and $69,883 in interest expense related to the promissory note. At December 31, 2009, accrued interest on the $750,000 remaining promissory note was $307,223 and is included in interest payable. The entire principal and accrued interest is due and payable on demand. The carrying value of notes payable and accrued interest approximates fair value at December 31, 2009, based on their liquidity.
All related party transactions are recorded at the exchange amount established and agreed to between related parties and are in the normal course of business.
Other Contractual Obligations
As of the balance sheet date, the Company does not have any contractual obligations other than the notes payable of $750,000, accrued interest of $307,223, and $1,313 related to the Shareholder Communications Agreement, as discussed above.
Off-Balance Sheet Arrangements
The Company has no off-balance sheet arrangements.
Recently Issued Accounting Pronouncements
See Note 3. Summary of Significant Accounting Policies to the Consolidated Financial Statements in this Form 10-K.
20
Item 8. Financial Statements
INDEX TO FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm | 22 |
Consolidated Balance Sheets as of December 31, 2009 and 2008 | 23 |
Consolidated Statements of Operations for the Years Ended December 31, 2009 and 2008 | 24 |
Consolidated Statements of Stockholders Equity (Deficit) for the Years Ended December 31, 2009 and 2008 |
25 |
Consolidated Statements of Cash Flows for the Years Ended December 31, 2009 and 2008 | 26 |
Notes to Consolidated Financial Statements | 27 |
21
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
PhytoMedical Technologies, Inc.
Princeton, New Jersey
We have audited the accompanying consolidated balance sheets of PhytoMedical Technologies, Inc. and Subsidiaries ("the Company") as of December 31, 2009 and 2008, and the related consolidated statements of operations, stockholders' equity (deficit), and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company has determined that it is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of PhytoMedical Technologies, Inc. and Subsidiaries as of December 31, 2009 and 2008, and the results of their operations and their cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States.
The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has experienced recurring losses from operations since inception, and has a substantial accumulated deficit. These conditions raise substantial doubt about the Company's ability to continue as a going concern. Management's plans regarding these matters are also described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/S/ PETERSON SULLIVAN LLP
Seattle, Washington
January 27, 2010
22
PHYTOMEDICAL TECHNOLOGIES, INC. | ||||
CONSOLIDATED BALANCE SHEETS | ||||
DECEMBER 31, 2009 AND 2008 | ||||
(Expressed in U.S. Dollars) | ||||
Decenber 31, | ||||
2009 |
2008 | |||
ASSETS |
||||
Current assets |
||||
Cash and cash equivalents |
$ |
75,291 |
$ |
665,833 |
Prepaid expenses and other current assets |
278 |
2,260 | ||
Total current assets |
75,569 |
668,093 | ||
Intangible assets - license fees |
15,000 |
15,000 | ||
Total assets |
$ |
90,569 |
$ |
683,093 |
LIABILITIES AND STOCKHOLDERS' DEFICIT |
||||
Current liabilities |
||||
Accounts payable |
$ |
19,112 |
$ |
23,397 |
Interest payable |
307,223 |
243,473 | ||
Notes payable |
750,000 |
750,000 | ||
Total current liabilities |
1,076,335 |
1,016,870 | ||
Commitments and Contingencies |
||||
Stockholders' deficit |
||||
Preferred stock: $0.25 par value; 1,000,000 authorized, no shares issued and outstanding at December 31, 2009 and 2008 |
- |
- | ||
Common stock: $0.00001 par value; 300,000,000 authorized, 201,487,995 and 200,398,290 shares issued and outstanding at December 31, 2009 and 2008 |
2,015 |
2,004 | ||
Additional paid-in capital |
25,152,591 |
26,285,899 | ||
Accumulated other comprehensive loss |
- |
(523) | ||
Accumulated deficit |
(26,140,372) |
(26,621,157) | ||
Total stockholders' deficit |
(985,766) |
(333,777) | ||
Total liabilities and stockholders' deficit |
$ |
90,569 |
$ |
683,093 |
(The accompanying notes are an integral part of these consolidated financial statements) |
23
PHYTOMEDICAL TECHNOLOGIES, INC. | ||||
CONSOLIDATED STATEMENTS OF OPERATIONS | ||||
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008 | ||||
(Expressed in U.S. Dollars) | ||||
Year Ended | ||||
December 31, | ||||
2009 |
2008 | |||
Revenue |
$ |
- |
$ |
- |
Operating expenses |
||||
Directors fees - related party |
6,800 |
9,750 | ||
Investor relations |
3,658 |
492,360 | ||
Wages and benefits |
263,052 |
346,538 | ||
Research and development |
113,826 |
379,716 | ||
Professional fees |
136,423 |
110,249 | ||
Impairment of license fee |
- |
20,000 | ||
Other operating expenses |
64,480 |
139,581 | ||
Total operating expenses |
588,239 |
1,498,194 | ||
Loss from operations |
(588,239) |
(1,498,194) | ||
Other income (expense) |
||||
Interest income |
- |
22,679 | ||
Interest expense |
(63,750) |
(70,445) | ||
Change in fair value of warrant liability |
(93,910) |
- | ||
Gain on extinguishment of warrant liability |
52,631 |
- | ||
Loss on disposal of fixed assets |
- |
(8,068) | ||
Loss on dissolution of foreign subsidiary |
(523) |
- | ||
Foreign exchange loss |
- |
(6,773) | ||
Total other income (expense) |
(105,552) |
(62,607) | ||
Net loss |
$ |
(693,791) |
$ |
(1,560,801) |
Net loss per share - basic and diluted |
$ |
(0.00) |
$ |
(0.01) |
Weighted average number of common shares |
||||
outstanding - basic and diluted |
200,675,941 |
200,398,290 | ||
(The accompanying notes are an integral part of these consolidated financial statements) |
24
PHYTOMEDICAL TECHNOLOGIES, INC. | |||||||||||||||||
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) | |||||||||||||||||
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008 | |||||||||||||||||
(Expressed in U.S. Dollars) | |||||||||||||||||
Accumulated |
Total | ||||||||||||||||
Common Stock |
Common Stock Issuable |
Additional |
Comprehensive |
Accumulated |
Comprehensive |
Stockholders' | |||||||||||
Shares |
Amount |
Shares |
Amount |
Paid-in Capital |
(Loss) Income |
Deficit |
Loss |
Equity (Deficit) | |||||||||
Balance, December 31, 2007 |
200,398,290 |
$ 2,004 |
- |
$ - |
$ 26,272,275 |
$ 1 |
$ (25,060,356) |
$ - |
$ 1,213,924 | ||||||||
Stock based compensation expense |
- |
- |
- |
- |
13,624 |
- |
- |
- |
13,624 | ||||||||
Comprehensive income (loss) |
|||||||||||||||||
Foreign currency translation adjustments |
- |
- |
- |
- |
- |
(524) |
- |
(524) |
(524) | ||||||||
Net loss, year ended December 31, 2008 |
- |
- |
- |
- |
- |
- |
(1,560,801) |
(1,560,801) |
(1,560,801) | ||||||||
Total comprehensive loss |
(1,561,325) |
||||||||||||||||
Balance, December 31, 2008 |
200,398,290 |
2,004 |
- |
- |
26,285,899 |
(523) |
(26,621,157) |
- |
(333,777) | ||||||||
Cumulative adjustment upon adoption |
- |
- |
- |
- |
(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) | |||||||||
|
25
PHYTOMEDICAL TECHNOLOGIES, INC. | ||||
CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008 | ||||
(Expressed in U.S. Dollars) | ||||
Year Ended | ||||
December 31, | ||||
2009 |
2008 | |||
Cash flows from operating activities |
||||
Net loss |
$ |
(693,791) |
$ |
(1,560,801) |
Adjustments to reconcile net loss to net cash used in operating activities |
||||
Depreciation |
- |
2,022 | ||
Change in fair value of warrant liability |
93,910 |
- | ||
Gain on extinguishment of warrant liability |
(52,631) |
- | ||
Stock based compensation |
- |
13,624 | ||
Loss on disposal of fixed assets |
- |
8,068 | ||
Impairment of license fee |
- |
20,000 | ||
Loss on dissolution of foreign subsidiary |
523 |
- | ||
Changes in operating assets and liabilities: |
||||
Decrease (increase) in prepaid expenses and other current assets |
1,982 |
(2,260) | ||
Increase (decrease) in accounts payable |
(4,285) |
23,397 | ||
Decrease in accrued liabilities |
- |
(2,970) | ||
Increase in interest payable |
63,750 |
2,220 | ||
Net cash used in operating activities |
(590,542) |
(1,496,700) | ||
Cash flows from investing activities |
||||
Purchase of equipment |
- |
(6,173) | ||
Additions to intangible assets - license fees |
- |
(15,000) | ||
Net cash used in investing activities |
- |
(21,173) | ||
Cash flows from financing activities |
||||
Repayment of loan to stockholder |
- |
(250,000) | ||
Net cash used in financing activities |
- |
(250,000) | ||
Effect of foreign exchange rate |
- |
(524) | ||
Decrease in cash and cash equivalents |
(590,542) |
(1,768,397) | ||
Cash and cash equivalents at beginning of period |
665,833 |
2,434,230 | ||
Cash and cash equivalents at end of period |
$ |
75,291 |
$ |
665,833 |
Supplemental disclosure of cash flow information: |
||||
Interest paid in cash |
$ |
- |
$ |
68,226 |
Income tax paid in cash |
$ |
- |
$ |
- |
Issuance of 1,089,705 shares of common stock to extinguish warrant liability of $118,013 |
||||
during the year ended December 31, 2009 |
$ |
118,013 |
$ |
- |
(The accompanying notes are an integral part of these consolidated financial statements) |
26
PHYTOMEDICAL TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009
(Expressed in U.S. Dollars)
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 Companys 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.
The Company is a pharmaceutical company focused on research, development and commercialization of pharmaceutical products. The Companys strategy is to develop new technologies and, where warranted, acquire rights to obtain licenses to technologies and products that are being developed by third parties, primarily universities and government agencies, through sponsored research and development agreements.
The Company is currently focusing its development 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).
Note 2. Going Concern Uncertainties
The Company has not generated any revenues, has an accumulated deficit of $26,140,372 as of December 31, 2009, does not have positive cash flows from operating activities, and had negative working capital of $1,000,766 as of December 31, 2009. 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 Companys 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 Companys cash flow requirements have primarily been met by funds received pursuant to the 2007 Private Placement completed by the Company in September 2007, raising net proceeds of $3,109,500. Management recognizes that in order to meet the Companys capital requirements, and continue to operate, additional financing will be necessary. The Company expects to raise additional funds through private or public equity investments in order to support existing operations and expand the range and scope of its business operations. The Company will seek access to private or public equity but there is no assurance that such additional funds will be available for the Company to finance its operations on acceptable terms, if at all. Furthermore, there is no assurance that the net proceeds received from any successful financing arrangement will be sufficient to cover cash requirements during the initial stages of the Companys 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.
27
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. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (U.S. GAAP).
Principles of Consolidation
These consolidated financial statements presented are those of the Company and its wholly-owned subsidiaries, PhytoMedical Corp., PolyPhenol, and PhytoMedical Ltd. All significant intercompany transactions and accounts have been eliminated in consolidation.
Accounting Estimates
The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Areas where management uses subjective judgment include valuation of equity instruments. Actual results can differ from those estimates and assumptions.
Reclassifications
Certain reclassifications have been made to prior fiscal year amounts or balances to conform to the presentation adopted in the current fiscal year.
Foreign Operations and Foreign Currency Translation
The functional currencies of the Companys international subsidiaries are the local currency of the country in which the subsidiary is located. Assets and liabilities recorded in foreign currencies are translated at the exchange rate on the balance sheet date. Translation adjustments resulting from this process are charged or credited to accumulated other comprehensive income. Revenues and expenses of the Companys consolidated foreign operations are translated at the average rates of exchange prevailing during the year. Gains and losses on foreign currency transactions are included in foreign exchange gain or loss.
Cash and Cash Equivalents
Cash and cash equivalents includes highly liquid investments with original maturities of three months or less. On occasion, the Company has amounts deposited with financial institutions in excess of federally insured limits.
Research and Development
Research and development costs are expensed when incurred, except for nonrefundable advance payments for future research and development activities which are capitalized and recognized as expense as the related services are performed.
28
During the years ended December 31, 2009 and 2008, the Company incurred $113,826 and $379,716 on research and development activities.
Stock-Based Compensation
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 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 11. Stock Options and Note 12. Warrants for additional information on the Companys stock-based compensation plans.
Impairment of Long-Lived Assets
Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate the carrying value of an asset may not be recoverable. Recoverability of assets to be held and used is measured by comparison of the carrying value of an asset to future net cash flows expected to be generated by the asset. If impairment exists, an adjustment is made to write the asset down to its fair value, and a loss is recorded as the difference between the carrying value and fair value. Fair values are determined based on discounted cash flows or internal and external appraisals, as applicable. Assets to be disposed of are carried at the lower of carrying value or estimated net realizable value.
On December 18, 2008 the company was notified by ISU that the patent application for the insulin enhancing synthesized compounds was rejected by the US Patent Office. After further review of the rejection letter along with the culminated research costs incurred by the Company, the Company determined it was in the best interests of the Company to terminate its license agreement with ISURF and its Sponsored Research Agreement with ISU. Pursuant to the terms of the license agreement and Sponsored Research Agreement, the Company provided written notice of termination to both ISURF and ISU on January 6, 2009. As a result of the termination of the license agreement with ISURF, the Company recorded an impairment charge of $20,000 at December 31, 2008 to write-off the previously paid license fee.
Income Taxes
The Company accounts for income taxes using the asset and liability method. Under the asset and liability method, deferred tax assets and liabilities are recognized for the future tax consequences attributed to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and tax credits and loss carry-forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences and carry-forwards are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is established when necessary to reduce deferred tax assets to amounts expected to be realized. See Note 14. Income Taxes for further discussion.
Fair Value of Financial Instruments
Fair value estimates of financial instruments are made at a specific point in time, based on relevant information about financial markets and specific financial instruments. As these estimates are subjective in nature, involving uncertainties and matters of significant judgment, they cannot be determined with precision. Changes in assumptions can significantly affect estimated fair value.
The carrying value of cash and cash equivalents, accounts payable, accrued liabilities, and notes payable approximate their fair value because of the short-term nature of these instruments. Management is of the opinion that the Company is not exposed to significant interest or credit risks arising from these financial instruments.
29
Segment Reporting
The Companys business is considered as operating in one segment based upon the Companys organizational structure, the way in which the operations are managed and evaluated, the availability of separate financial results and materiality considerations.
Net Loss per Share
The computation of basic net income (loss) per common share is based on the weighted average number of shares that were outstanding during the year. The computation of diluted net income (loss) per common share is based on the weighted average number of shares used in the basic net income (loss) per share calculation plus the number of common shares that would be issued assuming the exercise of all potentially dilutive common shares outstanding using the treasury stock method for shares subject to stock options and warrants. See Note 4. Net Loss Per Share for further discussion.
Related Party Transactions
A related party is generally defined as (i) any person that holds 10% or more of the Companys securities and their immediate families, (ii) the Companys management, (iii) someone that directly or indirectly controls, is controlled by or is under common control with the Company, or (iv) anyone who can significantly influence the financial and operating decisions of the Company. A transaction is considered to be a related party transaction when there is a transfer of resources or obligations between related parties.
Recently Issued Accounting Standards
In June 2009, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standard (SFAS) No. 168, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principals, a replacement of FASB Statement No. 162 (SFAS 168). This statement modifies the Generally Accepted Accounting Principles (GAAP) hierarchy by establishing only two levels of GAAP, authoritative and nonauthoritative accounting literature. Effective July 2009, the FASB Accounting Standards Codification (ASC), also known collectively as the Codification, is considered the single source of authoritative U.S. accounting and reporting standards, except for additional authoritative rules and interpretive releases issued by the SEC. Nonauthoritative guidance and literature would include, among other things, FASB Concepts Statements, American Institute of Certified Public Accountants Issue Papers and Technical Practice Aids and accounting textbooks. The Codification was developed to organize GAAP pronouncements by topic so that users can more easily access authoritative accounting guidance. It is organized by topic, subtopic, section, and paragraph, each of which is identified by a numerical designation. SFAS 168 is effective for interim and annual periods ending after September 15, 2009. The Company adopted SFAS 168, effective October 1, 2009, the beginning of its fourth quarter ended December 31, 2009.
In September 2009, the FASB issued ASC 820-10 Measuring Liabilities at Fair Values (ASC 820-10). ASC 820-10 provides additional guidance on how companies should measure liabilities at fair value. Specifically, the fair value of a liability is not adjusted to reflect the impact of contractual restrictions that prevent its transfer. The Company adopted ASC 820-10, effective October 1, 2009, which did not have a material impact on its consolidated financial position, results of operations, and cash flows.
Note 4. Net Loss per Share
Basic net loss per share is computed by dividing the net loss by the weighted average number of common shares outstanding during the period. Diluted net loss per share is computed by dividing the net loss by the weighted average number of common and dilutive common equivalent shares outstanding during the period. As the Company had a net loss in each of the periods presented, basic and diluted net loss per share are the same.
Excluded from the computation of diluted net loss per share for the years ended December 31, 2009 and 2008, because their effect would be antidilutive, are stock options and warrants to acquire 2,000,000 and 12,897,081 shares of common stock with weighted-average exercise prices of $0.52 and $0.42 per share.
30
For purposes of earnings per share computations, shares of common stock that are issuable at the end of a reporting period are included as outstanding.
Following is the computation of basic and diluted net loss per share for the years ended December 31, 2009 and 2008:
Year Ended | ||||||
December 31, | ||||||
2009 |
2008 | |||||
Numerator - net loss |
$ (693,791) |
$ (1,560,801) | ||||
Denominator - weighted average number |
||||||
of common shares outstanding - basic and diluted |
200,675,941 |
200,398,290 | ||||
Basic and diluted net loss per common share |
$ (0.00) |
$ (0.01) |
Note 5. Equipment
During the year ended December 31, 2008, the Company removed the cost and related accumulated depreciation from the Companys consolidated financial statements for equipment that was either no longer in service or deemed obsolete. Substantially all of this equipment was located at the Companys administrative office in Vancouver, British Columbia, Canada, which, effective August 31, 2008, was closed. The Company recorded a loss on disposal of fixed assets of $8,068 in the consolidated statements of operations during the year ended December 31, 2008.
Depreciation expense was $0 and $2,022 for the years ended December 31, 2009 and 2008.
Note 6. Iowa State University Sponsored Research Agreement
Iowa State University Sponsored Research Agreement
On February 1, 2007, the Company, through its wholly owned subsidiary, PolyPhenol, entered into a Sponsored Research Agreement with Iowa State University (ISU). Under terms of the agreement, the Company continued to undertake its research at ISU for development of the Companys novel, synthesized type A-1 polyphenolic compounds. On January 6, 2009, the Company provided written notice to ISU terminating the Sponsored Research Agreement between the Company and ISU. The termination was effective March 6, 2009.
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 December 31, 2009, the Company had paid a total of $114,972 pursuant to the terms of the ISU Sponsored Research Agreement. During the years ended December 31, 2009 and 2008 the Company incurred $0 and $83,846 pursuant to the terms of the ISU Sponsored Research Agreement. In addition to contractual obligations pursuant to the ISU Sponsored Research Agreement, the Company reimbursed ISU $0 and $506 during the years ended December 31, 2009 and 2008 for other out-of-pocket costs that are included in research and development expense.
Note 7. Iowa State University Research Foundation License Agreement
On June 12, 2006, the Company, through its wholly owned subsidiary, PolyPhenol, entered into an exclusive license agreement with Iowa State University Research Foundation Inc. (ISURF) to develop, market and distribute novel
31
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 December 31, 2009, the Company had paid a total of $20,000 to ISURF for the license fee and $31,223 for reimbursement of patent costs and research expenses as per agreement with ISURF, none of which is included in research and development expense for the years ended December 31, 2009 and 2008.
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 is continuing to independently pursue its research and development goals and 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).
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 Dartmouths 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 Dartmouths pre-existing patents related to the subject technology.
As of December 31, 2009, the Company has paid $220,260 pursuant to the Sponsored Research Agreement with Dartmouth and $1,253 for reimbursement of expenses. Of the total $221,513 paid to Dartmouth, $60,463 and $115,300 is included in research and development expense for the years ended December 31, 2009 and 2008.
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.
32
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 Companys 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 Companys anti-cancer compound for glioblastoma, D11B, for use in ongoing and future testing to determine the compounds efficacy and toxicology, and if warranted, future early stage human clinical trials. As of December 31, 2009, the Company has paid $45,377 pursuant to the terms of the Latitude Agreement, all of which is included in research and development expense for the year ended December 31, 2009.
Note 11. Stock Options
On July 12, 2001, the Company approved its 2001 Stock Option Plan (the 2001 Plan), which has 10,000,000 shares reserved for issuance thereunder, all of which were registered under Form S-8 on October 2, 2003. On July 25, 2005, the Company approved its 2005 Stock Option Plan (the 2005 Plan), which has 15,000,000 shares reserved for issuance thereunder. The 2001 Plan and 2005 Plan provides shares available for options granted to employees, directors and others. The options granted to employees under the Companys 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 Companys 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. To date, the Company has experienced minimal forfeitures, which did not impact the fair value of the stock option grants. If the actual number of forfeitures differs from those estimated by the Company, additional adjustments to compensation expense may be required in future periods.
A summary of the Companys stock option activity for the years ended December 31, 2009 and 2008 and related information follows:
33
Weighted |
||||||||
Average |
||||||||
Remaining |
Aggregate | |||||||
Weighted Average |
Contractual |
Intrinsic | ||||||
Number of Options |
Exercise Price |
Term (1) |
Value (1) | |||||
Outstanding at December 31, 2009 and 2008 |
2,000,000 |
$ 0.52 |
6.59 years |
$ - | ||||
Exercisable at December 31, 2009 |
- |
|||||||
Available for grant at December 31, 2009 |
20,250,000 |
|||||||
(1) The weighted average remaining contractual term and aggregate intrinsic value are as of December 31, 2009. |
The aggregate intrinsic value in the table above represents the total pretax intrinsic value for all in-the-money options (i.e. the difference between the Companys closing stock price on the last trading day of its fourth quarter of its fiscal year 2009 and the exercise price, multiplied by the number of shares) that would have been received by the option holders had all option holders exercised their options on December 31, 2009. The intrinsic value of the options changes based on the fair market value of the Companys common stock.
At December 31, 2009 and 2008, the Company had unvested stock options to purchase 2,000,000 shares of the Companys common stock at a grant date fair value per share of $0.48.
During the years ended December 31, 2009 and 2008, stock-based compensation expense of $0 and $13,624 was recognized for options previously granted and vesting over time, which is included in wages and benefits. As of December 31, 2009, the Company had no unrecognized compensation cost related to unvested stock options.
The following table summarizes information about stock options outstanding and exercisable at December 31, 2009:
|
|
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 | |||||||||
$ |
0.52 |
2,000,000 |
6.59 |
$ |
0.52 |
|
|
$ |
|
The Company does not repurchase shares to fulfill the requirements of stock options that are exercised. Further, the Company issues new shares when stock options are exercised.
Note 12. Warrants
On September 25, 2007, PhytoMedical completed a $3,205,000 private placement (the 2007 Private Placement), for which Palladium Capital, LLC (Palladium"), acted as the exclusive placement agent. The 2007 Private Placement consisted of the sale of 10,683,331 units (the "Units") at a price of $0.30 per Unit (the "Unit Issue Price") or $3,205,000 in the aggregate. The Units were offered and sold to 13 accredited investors (the Investors) as defined in Regulation D as promulgated under the Securities Act of 1933, as amended. Each Unit consisted of one share of common stock and one Class A warrant (Class A Warrant) at an exercise price of $0.40 per share,
34
expiring September 25, 2010. The Company issued 10,683,331 Class A Warrants pursuant to the terms of the 2007 Private Placement and 213,750 to the agent as commission (under the same terms), for a total of 10,897,081 Class A Warrants.
The terms of the Class A Warrants that were issued pursuant to the 2007 Private Placement contain a provision such that upon subsequent equity sales of common stock or common stock equivalents at an effective price per share (the Base Share Price) less than the $0.40 exercise price per share of the Class A Warrants then the exercise price of the Class A Warrants shall be reduced to the Base Share Price and the number of Class A Warrants shall be increased such that the aggregate exercise price payable, after taking into account the decrease in the exercise price shall be equal to the aggregate exercise price prior to such adjustment (Dilutive Issuance). The potential adjustment to the Class A Warrant exercise price and number of underlying shares of common stock results in a settlement amount that does not equal the difference between the fair value of a fixed number of the Companys common stock and a fixed exercise price. Accordingly, the Class A Warrants are not considered indexed to the Companys own stock and therefore need 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 Entitys Own Equity (ÁSC 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 Companys Class A Warrants were considered derivative financial instruments and are therefore required to be adjusted to fair value each quarter. Fair value measurement should be determined based on the assumptions that 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 entitys 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 Companys 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 Companys 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 Companys 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 Companys common stock of $0.06 per share on September 29, 2009 as quoted on the Over the Counter Bulletin Board. The Company recorded a gain on extinguishment of warrant liability of $52,631 on September 29, 2009 as a result of the excess of the Class A Warrant Liability over the fair value of the consideration provided the warrant holders, in the form of common stock.
As a result of the Company adjusting the Class A Warrants to fair value each quarter, the Company recorded a non-cash loss related to the Class A Warrants of $93,910 for the year ended December 31, 2009.
As of December 31, 2009 there were no Class A Warrants outstanding.
35
Note 13. Related Party Transactions
Wages and benefits
During the years ended December 31, 2009 and 2008, the Company incurred $263,052 and $260,332 in wages and benefits expense for services rendered by Mr. Greg Wujek, the President, Chief Executive Officer, and Director of the Company.
In addition, during the years ended December 31, 2009 and 2008, the Company recorded $0 and $13,624 in stock based compensation expense related to the amortization of a stock option previously granted to Mr. Wujek to purchase 2,000,000 shares of the Companys Common Stock at an exercise price of $0.52 per share, which is included in wages and benefits.
Director fees
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 years ended December 31, 2009 and 2008, the Company incurred $6,800 and $9,750 in non-employee director fees.
Notes payable
The Company had arranged with Mr. Harmel S. Rayat, former Chief Financial Officer, former Director, and former majority shareholder of the Company, a loan amount up to $2,500,000 that may be drawn down on an as needed basis at a rate of prime plus 3%. Effective September 15, 2008, Mr. Rayat and the Company terminated this loan agreement. During the year ended December 31, 2008, the Company repaid $250,000 to Mr. Rayat with the accrued interest of $67,664. At December 31, 2009, the Company had an unsecured promissory note pursuant to this loan agreement in the amount of $750,000 payable to Mr. Rayat, which was due on March 8, 2006 and bears interest at an annual rate of 8.50%. During the years ended December 31, 2009 and 2008, the Company recorded $63,750 and $69,883 in interest expense related to the promissory note. At December 31, 2009, accrued interest on the $750,000 remaining promissory note was $307,223 and is included in interest payable. The entire principal and accrued interest is due and payable on demand. The carrying value of notes payable and accrued interest approximates fair value at December 31, 2009, based on their liquidity.
All related party transactions are recorded at the exchange amount established and agreed to between related parties and are in the normal course of business.
Note 14. Income Taxes
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Companys deferred tax assets at December 31, 2009 and 2008 are as follows:
36
Year Ended | ||||||||||
December 31, | ||||||||||
2009 |
2008 | |||||||||
Deferred tax assets: |
||||||||||
Net operating loss carryforwards |
$ |
6,869,861 |
$ |
6,651,636 | ||||||
Capitalized research and development |
364,705 |
375,951 | ||||||||
Stock based compensation |
1,221,110 |
1,221,110 | ||||||||
Accrued interest |
104,456 |
82,781 | ||||||||
Impairment of intangible asset - license fee |
|
6,800 | ||||||||
Research and development credit carry forward |
63,368 |
58,559 | ||||||||
Other |
85 |
85 | ||||||||
Total deferred tax assets |
8,623,585 |
8,396,922 | ||||||||
Less: valuation allowance |
(8,623,585) |
(8,396,922) | ||||||||
Net deferred tax asset |
$ |
|
$ |
|
The net increase in the valuation allowance for deferred tax assets was $226,663 and $421,215 for the years ended December 31, 2009 and 2008. The Company evaluates its valuation allowance requirements on an annual basis based on projected future operations. When circumstances change and this causes a change in managements judgment about the realizability of deferred tax assets, the impact of the change on the valuation allowance is reflected in current operations.
For federal income tax purposes, the Company has net U.S. operating loss carry forwards at December 31, 2009 available to offset future federal taxable income, if any, of $20,205,997, which will begin to expire during the year ended December 31, 2011. Accordingly, there is no current tax expense for the years ended December 31, 2009 and 2008. In addition, the Company has research and development tax credit carry forwards of $63,368 at December 31, 2009, which are available to offset federal income taxes and begin to expire during the year ended December 31, 2026.
The utilization of the tax net operating loss carry forwards may be limited due to ownership changes that have occurred as a result of sales of common stock.
The effects of state income taxes were insignificant for the years ended December 31, 2009 and 2008.
The following is a reconciliation between expected income tax benefit and actual, using the applicable statutory income tax rate of 34% for the years ended December 31, 2009 and 2008:
37
Year Ended | ||||||||||
December 31, | ||||||||||
2009 |
2008 | |||||||||
Income tax benefit at statutory rate |
$ |
235,889 |
$ |
530,673 | ||||||
Non-deductible fund raising costs |
- |
(167,402) | ||||||||
Non-deductible fund raising costs - prior year |
- |
43,365 | ||||||||
Non-deductible meals and entertainment |
- |
(2,194) | ||||||||
Change in fair value of warrant liability |
(31,929) |
- | ||||||||
Gain on extinguishment of warrant liability |
17,894 |
- | ||||||||
Research and development credit |
4,809 |
16,773 | ||||||||
Change in valuation allowance |
(226,663) |
(421,215) | ||||||||
$ |
- |
$ |
- |
The fiscal years 2006 through 2009 remain open to examination by federal authorities and other jurisdictions of which the Company operates.
Note 15. Subsequent Events
The Company has evaluated subsequent events through January 27, 2010, which is the date on which these consolidated financial statements were issued. There have not been any events subsequent to December 31, 2009, other than the proposed increased in the number of authorized common shares as described below, that would require additional disclosure in the consolidated financial statements or that would have a material impact on the Companys consolidated financial position as of December 31, 2009 and 2008, and the results of operations, or cash flows for the years then ended.
On January 5, 2010, holders of a majority of the voting shares of PhytoMedical Technologies, Inc., acted by written consent in lieu of a special meeting of stockholders to adopt an amendment to the Companys Articles of Incorporation to increase the number of shares of common stock, $0.00001 par value per share which the Company is authorized to issue from 300,000,000 shares to 2,000,000,000 shares (the Articles Amendment).
The Company filed a Preliminary Schedule 14C Information Statement (Information Statement) with the SEC on January 7, 2010 and an amendment thereto on January 19, 2010. The Information Statement will be mailed on or about January 20, 2010 to stockholders of record as of January 4, 2010, the record date for determining the Companys stockholders eligible to consent in writing to the adoption of the Articles Amendment. The increase in the authorized number of shares of the Companys common stock will not become effective until at least 20 days after the initial mailing of the Information Statement.
38
ITEM 9: CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
The Company has not had any disagreements with its independent auditors with respect to accounting practices, procedures or financial disclosure.
ITEM 9A(T): CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of the Companys management, including its Chief Executive Officer and Chief Financial Officer, the Company conducted an evaluation of the effectiveness of the design and operation of its disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the Exchange Act), as of the end of the period covered by this annual report. Based on this evaluation, the Companys Chief Executive Officer and Chief Financial Officer concluded as of December 31, 2009 that the Companys disclosure controls and procedures were effective such that the information required to be disclosed in the Companys United States Securities and Exchange Commission (the SEC) reports is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and is accumulated and communicated to the Companys management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
(b) Managements Report on Internal Control over Financial Reporting
The Companys management is responsible for establishing and maintaining effective internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Under the supervision and with the participation of the Companys management, including its Chief Executive Officer and Chief Financial Officer, the Company conducted an evaluation of the effectiveness of its internal control over financial reporting based on the framework in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management concluded that the Companys internal control over financial reporting was effective as of December 31, 2009.
This annual report does not include an attestation report of the Company's registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by the Company's registered public accounting firm pursuant to temporary rules of the SEC that permit the Company to provide only management's report in this annual report.
(c) Changes in Internal Control over Financial Reporting
There were no changes in the Companys internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, the Companys internal control over financial reporting.
ITEM 9B: OTHER INFORMATION
None.
39
PART III
ITEM 10: DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth the names and ages of all of the Companys directors and executive officers. The Company has a board of directors comprised of three members. Each director holds office until a successor is duly elected or appointed. Executive officers serve at the discretion of the Board of Directors and are appointed by the Board of Directors. Also provided herein are brief descriptions of the business experience of each of the directors and officers during the past five years, and an indication of directorships held by each directors in other companies subject to the reporting requirements under the Federal securities law.
Name |
|
Age |
|
Position With Company |
|
Director Since |
Greg Wujek |
|
48 |
|
President, Chief Executive Officer, and Director
|
|
April 3, 2006
|
Gary Branning (1) |
|
56 |
|
Director Former Chief Financial Officer
|
|
September 13, 2006
|
Raymond Krauss (2) |
|
47 |
|
Chief Financial Officer, Secretary, Treasurer, Director
|
|
October 11, 2007
|
(1) Mr. Branning was appointed to the position of Chief Financial Officer on September 5, 2008 and resigned effective December 11, 2008.
(2) Mr. Krauss was appointed to the positions of Chief Financial Officer, Secretary and Treasurer on December 11, 2008 to fill the vacancy created by the resignation of Mr. Branning from these positions.
Set forth below are the names of all directors and executive officers of the Company, all positions and offices with the Company held by each person, the period during which each has served as such, and the principal occupations and employment of such persons during at least the last five years:
Greg Wujek. Mr. Greg Wujek earned his Bachelors degree in Science from Illinois State University in 1986. From November 2000 to May 2005, Mr. Wujek was employed by Andrx Laboratories. During his tenure at Andrx Laboratories, Mr. Wujek managed a team of over 450 individuals, and held several positions, including Vice President of Business Development, Vice President of Sales, as well as Vice President of Managed Care. During June 2005 to September 2005, Mr. Wujek performed independent consulting services for branded pharmaceutical companies. Consulting services ranged from sales management training, optimizing sales, managed care, and sales operations. From September 2005 to March 2006, Mr. Wujek was employed by Savient Pharmaceuticals, where he held the position of Vice President, Sales, and was responsible for sales, operations, training, and managed care. Mr. Wujek joined the Company as President, Chief Executive Officer and Director on April 3, 2006.
Gary Branning. Mr. Branning received his Bachelor of Science degree in Business Administration from Wagner College, on Staten Island, NY, and an MBA in finance from Fairleigh Dickinson University. In 2001, Mr. Branning joined Pharmacia Corporation. Mr. Branning was the Executive Director of Managed Markets Marketing for Pharmacia Corporation. The Marketing Unit of the Managed Markets Marketing of Pharmacia was a service organization focused on the development of brand programs, value added services and health management programs in managed markets. In 2003, Mr. Branning joined Managed Market Resources, a health care consulting and medical communications company as Managing Partner and Senior Vice President of Managed Market Resources. Mr. Brannings responsibilities included strategic consulting, new product development, business development, and executing Managed Market Resources sales and marketing plans. Mr. Branning joined the Company as a Director on September 13, 2006.
40
Raymond Krauss. Mr. Krauss, earned his B.S. in Biology from North Central College, Naperville, IL in 1984 and his M.S. in Physiology (emphasis on Cardiovascular Health) from Benedictine University, Lisle, IL in 1986. In March 2001 through March 2005, Mr. Krauss became a partner in Argavest, Inc., a regional leader in quality respiratory and critical care refurbished equipment, where he served as Vice President of Business Development. In March 2005, Mr. Krauss launched RK Capital Group, an international medical equipment sales organization, where he continues to serve as President and Owner. In July 2007, Mr. Raymond Krauss acquired the Illinois/Wisconsin office of HealthCare Recruiters International, the only executive search firm in the United States dedicated exclusively to the healthcare sector, where he serves as President and Owner. Mr. Krauss joined the Company as a Director on October 11, 2007.
Family Relationships and Other Matters
There are no family relationships among or between any of the Companys officers and directors.
Legal Proceedings
During the past five years, none of the Companys directors, executive officers, or promoters have been:
· the subject of any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time;
· convicted in a criminal proceeding or is subject to a pending criminal proceeding (excluding traffic violations and other minor offenses);
· subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities; or
· found by a court of competent jurisdiction (in a civil action), the Commission or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law.
COMPENSATION OF DIRECTORS
The Companys Board of Directors determines the non-employee directors compensation for serving on the Board and its committees. In establishing director compensation, the Board is guided by the following goals:
- Compensation should consist of a combination of cash and equity awards that are designed to fairly pay the directors for work required for a company of PhytoMedical Technologies, Inc.s size and scope;
- Compensation should align the directors interests with the long-term interests of stockholders; and
- Compensation should assist with attracting and retaining qualified directors.
The Company does not pay director compensation to directors who are also employees of the Company.
Non-employee directors receive $250 per month for their services as directors plus $100 for each board meeting attended. Directors are entitled to participate in the Companys 2005 Stock Plan. The Company also reimburses directors for any actual expenses incurred to attend meetings of the Board.
The following table provides information regarding all compensation paid to the Companys non-employee directors during the fiscal year ended December 31, 2009.
41
Director Compensation | ||||||||||||
Fees Earned or |
||||||||||||
Paid in |
Stock |
|||||||||||
Name |
Cash ($) (1) |
Awards ($) |
Total ($) | |||||||||
Gary Branning |
$ |
3,400 |
$ |
|
$ |
3,400 | ||||||
Raymond Krauss |
3,400 |
|
3,400 | |||||||||
Total director compensation |
$ |
6,800 |
$ |
|
$ |
6,800 |
(1) The amounts in this column represent the monthly cash meeting fee earned by or paid to the Company's non-employee directors for service during the fiscal year ended December 31, 2009.
SCIENTIFIC ADVISORY BOARD
The Company maintains a Scientific Advisory Board (Advisory Board), the members of which provide, from time to time, at the request of the Company, advice regarding specific facets of the Companys ongoing scientific research and development and general corporate activities. The Company believes that each member of the Advisory Board brings distinct scientific, clinical, and business development experience which can be called-upon as needed during various phases of the Companys active research, development and commercial development.
The members of the Advisory Board are compensated for their services at the rate of $250 per hour, not to exceed $1,250 per day. The Company also reimburses members of the Advisory Board for out-of-pocket expenses related to their services performed on behalf of the Company.
Currently, the Companys Advisory Board members are:
Name | Held Position Since |
Reza Fathi | April 2008 |
Charles Lee, PhD | August 2006 |
Jatinder S. Bhogal | September 2008 |
Li-Xi Yang, MD, PhD | January 2009 |
Reza Fathi
Dr. Reza Fathi is an expert in pharmaceutical research and development with 20 years of experience in medicinal chemistry, designing experimental protocols and managing research teams. Dr. Fathi is first author of numerous patents and more than a dozen scientific publications in subjects including small molecule drug discovery, lead compound identification and synthesis of natural product based molecular libraries. Dr. Fathis expertise is widely respected, garnering him an array of appointments to prestigious medicinal chemistry positions including Chemistry Core Manager at Harvard Medical Schools Harvard Institute of Chemistry and Cell Biology, Director of Research Operations for XTL biopharmaceuticals, Director of Research Operations for vivoquest, and Member of the Scientific Advisory Committee for Proseed Capital Holding CVA in addition to his appointment at PhytoMedical Technologies, Inc.
Charles Lee
Dr. Charles Lees professional career encompassed academia (1977-1987), pharmaceutical industry (1987-1993) and contract research organization (1993-2004). He is currently a professor of pharmaceutical Sciences at the Gregory School of Pharmacy, Palm Beach Atlantic University.
42
Jatinder S. Bhogal
Since December 1993, Mr. Bhogal has worked as a business consultant to emerging growth companies. For over 15 years, Mr. Bhogal has provided early business development guidance and consulting, on a contract basis, to companies developing healthcare services, medical devices, pharmaceuticals and vaccines, solar-photovoltaics, biofuels, and information technology solutions.
Li-Xi Yang
Dr. Li-Xi Yang has more than 25 years of experience in the fields of cancer research, credited with many patents on anticancer compounds and publications in peer-reviewed journals. Dr. Yang completed his Postdoctoral Fellowship at Dartmouth Medical School, where he received his PhD in Pharmacology and Toxicology. He currently serves as Director of Radiation Oncology Residency Education and Senior Scientist at California Pacific Medical Center Research Institute. Dr. Yang also serves as Director of Academic Research at St. Marys Medical Center, San Francisco, CA. Dr. Yang is an active member of several professional committees, including: Graduate Medical Education Committee, Institutional Review Board, and Institutional Animal Care and Use Committee.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Pursuant to Section 16(a) of the Exchange Act of 1934, the executive officers and directors of the Company in addition to any person who owns more than 10% of the common stock of the Company are required to report their ownership of the common stock of the Company and changes to such ownership with the SEC. Based on a review of such reports and information provided to the Company, the Company believes that during the fiscal year ended December 31, 2009, the executive officers and directors of the Company have complied with applicable filing requirements under Section 16(a).
CODE OF ETHICS
The Company has adopted a Code of Ethics that applies to all of the Companys officers, directors and employees, including its Chief Financial Officer and Chief Executive Officer, which complies with the requirements of the Sarbanes-Oxley Act of 2002 and applicable Financial Industry Regulatory Authority (FINRA) listing standards. Accordingly, the Code of Ethics is designed to deter wrongdoing, and to promote, among other things, honest and ethical conduct, full, timely, accurate and clear public disclosures, compliance with all applicable laws, rules and regulations, the prompt internal reporting of violations of the Code of Ethics, and accountability. The Companys Code of Ethics is available on the Companys website at http://www.phytomedical.com. To access the Code of Ethics, click on Investors and then click on Code of Ethics.
CORPORATE GOVERNANCE
The Company has adopted Corporate Governance Principles applicable to its Board of Directors. The Companys Corporate Governance Principles is available on the Companys website at http://www.phytomedical.com. To access the Companys Corporate Governance Principles, click on Investors and then click on Corporate Governance.
Director Independence
The Company is not listed on a U.S. securities exchange and, therefore, is not subject to the corporate governance requirements of any such exchange, including those related to the independence of directors. However, at this time, after considering all of the relevant facts and circumstances, the Companys Board of Directors has determined that each of Messrs. Branning and Krauss are independent from the Companys management and qualifies as independent directors under the standards of independence under the applicable FINRA listing standards. This means that, in the judgment of the Board of Directors, none of those directors (1) is an officer or employee of the Company or its subsidiaries or (2) has any direct or indirect relationship with the Company that would interfere with the exercise of his independent judgment in carrying out the responsibilities of a director. Upon the Companys
43
listing on any national securities exchange or any inter-dealer quotation system, it will elect such independent directors as is necessary under the rules of any such securities exchange.
Board of Directors Meetings and Committees of the Board of Directors
During the fiscal year ended December 31, 2009, the Board held a total of four meetings. All members of the Board attended at least 75% of all meetings of the Board.
The Company does not currently have any standing committees of the Board of Directors. The full Board is responsible for performing the functions of the: (i) Audit Committee, (ii) Compensation Committee and (iii) Nominating Committee.
Audit Committee
The Board does not currently have a standing Audit Committee. The full Board performs the principal functions of the Audit Committee. The full Board monitors the Company's financial reporting process and internal control system and reviews and appraises the audit efforts of the Company's independent accountants.
Compensation Committee
The Board does not currently have a standing Compensation Committee. The full Board establishes overall compensation policies for the Company and reviews recommendations submitted by the Companys management.
Nominating Committee
The Board does not currently have a standing Nominating Committee. The Company does not maintain a policy for considering nominees. The Companys Bylaws provides that the number of Directors shall be fixed from time to time by the Board, but in no event shall be less than the minimum required by law. The Board shall be large enough to maintain the Companys required expertise but not too large to function efficiently. Director nominees are recommended, reviewed and approved by the entire Board. The Board believes that this process is appropriate due to the relatively small number of directors on the Board and the opportunity to benefit from a variety of opinions and perspectives in determining director nominees by involving the full Board.
While the Board is solely responsible for the selection and nomination of directors, the Board may consider nominees recommended by Stockholders as it deems appropriate. Stockholders who wish to recommend a nominee should send nominations to the Companys Chief Executive Officer, Greg Wujek, 100 Overlook Drive, 2nd Floor, Princeton, NJ 08540, that include all information relating to such person that is required to be disclosed in solicitations of proxies for the election of directors. The recommendation must be accompanied by a written consent of the individual to stand for election if nominated by the Board and to serve if elected.
Communications with the Board of Directors
Stockholders who wish to communicate with the Board of Directors may do so by addressing their correspondence to the Board of Directors at PhytoMedical Technologies, Inc., Attention: Greg Wujek, Chief Executive Officer, 100 Overlook Drive, 2nd Floor, Princeton, NJ 08540. The Board of Directors has approved a process pursuant to which they shall review and forward correspondence to the appropriate director or group of directors for response.
ITEM 11: EXECUTIVE COMPENSATION
Summary Compensation
The following table and descriptive materials set forth information concerning compensation earned for services rendered to the Company by: the Chief Executive Officer (the CEO); the Chief Financial Officer (the CFO); and the three other most highly-compensated executive officers other than the CEO and CFO who were serving as executive officers of the Company at the end of the 2009 fiscal year (the Named Executive Officers).
44
SUMMARY COMPENSATION TABLE
The following table summarizes the compensation earned by the Named Executive Officers during the fiscal years ended December 31, 2009, 2008, and 2007.
Name and Principal Position |
Year Ended December 31, |
Salary ($) |
Option Awards ($)(4) |
All Other Compensation ($) |
Total ($) |
Greg Wujek (1) President, CEO, Director |
2009 2008 2007
|
225,000 225,000 225,000
|
- 13,624 1,210,568
|
- - -
|
225,000 238,624 1,435,568
|
Gary Branning (2) Director, Former CFO |
2009 2008 2007
|
- - -
|
- - -
|
3,400 5,000 1,700
|
3,400 5,000 1,700
|
Raymond Krauss (3) CFO, Secretary, Treasurer, Director |
2009 2008 2007
|
- - -
|
- - -
|
3,400 3,900 -
|
3,400 3,900 -
|
(1) On April 6, 2006, the Company appointed Mr. Greg Wujek to the positions of President and Chief Executive Officer. Pursuant to an Employment Agreement with Mr. Greg Wujek, the Board approved an annual salary of $225,000, a one-time payment of $16,437 for reimbursement of certain expenses incurred in connection with the acceptance of employment, and a stock option to purchase up to 2,250,000 shares of the Companys common stock, subject to certain vesting requirements, at an exercise price of $1.22.
.
On August 1, 2006, the Company cancelled the stock option granted to Mr. Wujek in April 2006 for 2,250,000 stock options and simultaneously entered into a stock option agreement with Mr. Wujek for the purchase of up to 2,000,000 shares of common stock, subject to certain vesting requirements, at an exercise price of $0.52 per share, expiring July 31, 2016.
The stock option to purchase up to 2,000,000 shares of common stock vests as follows: (a) 250,000 options shall vest if and when an Investigational New Drug (IND) application is filed for any current or future compounds; (b) 250,000 options shall vest if and when a phase I clinical trial is commenced for any current or future compounds; and (c) 1,500,000 options shall vest if and when the Company or a wholly owned subsidiary or any one current or future compound is acquired, in whole or in part, or when either through the Company or a subsidiary, enters into a strategic collaborative agreement for any one current or future compound, provided that the Companys Board of Directors has approved, by written resolution, any such acquisition, sale or agreement. The Company expected that the first 250,000 stock options would vest at around 12 months from the date of grant, the second 250,000 stock options would vest at around 18 months from the date of grant and the remaining 1,500,000 stock options would vest at around 12 months from the date of grant.
The Company accounted for the cancellation and re-issuance of the stock option as a modification of terms, resulting in additional stock-based compensation expense for the excess of the fair value of the replacement award over the fair value of the cancelled award at the cancellation date. The fair value of the stock option as a result of the cancellation and re-issuance was $2,667,500. The fair value of each batch of stock options was amortized over their expected service periods, which the Company reassessed on a periodic basis. During the
45
years ended December 31, 2009, 2008, and 2007, the Company recognized $0, $13,624, and $1,210,568, respectively, of stock-based compensation expense related to the 2,000,000 stock options granted to Mr. Wujek.
At December 31, 2009, there was no unrecognized stock-compensation expense related to the 2,000,000 stock option grant.
At December 31, 2009, none of the vesting requirements of the 2,000,000 stock options had been met and thus none of the 2,000,000 stock options were exercisable.
(2) Mr. Branning was appointed to the position of CFO on September 5, 2008 and resigned on December 11, 2008. The amount included in the All Other Compensation column represents non-employee director fees. Non-employee directors receive monthly cash compensation of $250 plus $100 for each board meeting attended. Mr. Branning was not an employee of the Company and did not receive additional compensation for the period of time when he served as the Companys CFO.
(3) Mr. Krauss was appointed to the positions of CFO, Secretary and Treasurer on December 11, 2008 to fill the vacancy created by the resignation of Mr. Branning. The amount included in the All Other Compensation column represents non-employee director fees. Non-employee directors receive monthly cash compensation of $250 plus $100 for each board meeting attended. Mr. Krauss did not receive additional compensation for the period of time when he served as the Companys CFO.
(4) This column reflects the dollar amount recognized for financial statement reporting purposes for stock options and warrants, which may include amounts from awards made in and prior to the years shown. For information regarding significant factors, assumptions and methodologies used in determining the fair value of the Company's stock options and warrants, see Note 11. Stock Options and Note 12. Warrants to the Consolidated Financial Statements included in this Form 10-K.
GRANTS OF PLAN-BASED AWARDS
The Company did not grant any stock options to the Companys Named Executive Officers during the fiscal year ended December 31, 2009.
OUTSTANDING EQUITY AWARDS AT FISCAL-YEAR END
The following table sets forth information regarding equity awards that have been previously awarded to each of the Named Executive Officers and which remained outstanding as of December 31, 2009.
|
Option Awards |
Option Awards |
|
|
Name |
Number of Securities Underlying Unexercised Options (#) Exercisable |
Number of Securities Underlying Unexercised Options (#) Unexercisable |
Option Exercise Price ($) |
Option Expiration Date |
Greg Wujek (1) |
-
|
2,000,000
|
0.52 |
7/31/2016 |
(1) On April 6, 2006, the Company appointed Mr. Greg Wujek to the positions of President and Chief Executive Officer. Pursuant to an Employment Agreement with Mr. Greg Wujek, the Board approved an annual salary of $225,000, a one-time payment of $16,437 for reimbursement of certain expenses incurred in connection with the acceptance of employment, and a stock option to purchase up to 2,250,000 shares of the Companys common stock, subject to certain vesting requirements, at an exercise price of $1.22.
.
46
On August 1, 2006, the Company cancelled the stock option granted to Mr. Wujek in April 2006 for 2,250,000 stock options and simultaneously entered into a stock option agreement with Mr. Wujek for the purchase of up to 2,000,000 shares of common stock, subject to certain vesting requirements, at an exercise price of $0.52 per share, expiring July 31, 2016. For the terms of the stock option, please refer to footnote (1) to the Summary Compensation table in ITEM 11: EXECUTIVE COMPENSATION.
OPTION EXERCISES AND STOCK VESTED
During the fiscal year ended December 31, 2009 none of the Named Executive Officers exercised any stock options and none of the outstanding stock options vested.
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The following table sets forth certain information as of January 4, 2010 by (i) all persons who are known to the Company to beneficially own more than 5% of the outstanding shares of the Companys common stock, and (ii) by each director, director nominee, and executive officer and (iii) by all executive officers and directors as a group:
Name and Address of Beneficial Owner |
|
Positions and Offices Held |
|
Number of Shares Beneficially Owned (1) |
|
Percent of Class(1) |
Greg Wujek 100 Overlook Drive, 2nd Floor, Princeton, NJ 08540 |
|
President, Chief Executive Officer, and Director
|
|
-0- (2) |
|
-0- %
|
Gary Branning (3) 100 Overlook Drive, 2nd Floor Princeton, NJ 08540
|
|
Director, Former Chief Financial Officer |
|
-0- |
|
-0- %
|
Raymond Krauss (4) 100 Overlook Drive, 2nd Floor Princeton, NJ 08540
|
|
Chief Financial Officer, Secretary, Treasurer, Director |
|
3,500 |
|
-0- %
|
1420525 Alberta Ltd. 1628 West 1st Avenue, Suite 216 Vancouver, British Columbia, V6J 1G1
|
|
Stockholder
|
|
85,730,171 (5) |
|
42.6 %
|
Jasvir Rayat (6) 3095 West 36th Avenue Vancouver, British Columbia V6N 2S7 |
|
Stockholder
|
|
12,142,857 |
|
6.0 %
|
Kundan Rayat (7) 54-8533 Cumberland Pl Burnaby, British Columbia, V6B 6E4
|
|
Stockholder
|
|
11,285,714 |
|
5.6 %
|
All Directors and Officers as a Group (3 persons) |
|
|
|
3,500 |
|
-0- %
|
47
(1) Calculated pursuant to rule 13d-3(d) of the Exchange Act. Beneficial ownership is calculated based on 201,487,995 shares of common stock issued and outstanding on a fully diluted basis as of January 4, 2010. Unless otherwise stated below, each such person has sole voting and investment power with respect to all such shares. Under Rule 13d-3(d) of the Exchange Act, shares not outstanding which are subject to options, warrants, rights or conversion privileges exercisable within 60 days are deemed outstanding for the purpose of calculating the number and percentage owned by such person, but are not deemed outstanding for the purpose of calculating the percentage owned by each other person listed.
(2) On April 6, 2006, the Companys Board of Directors appointed Mr. Greg Wujek to the positions of President and Chief Executive Officer. Pursuant to an Employment Agreement with Mr. Greg Wujek, the Board approved an annual salary of $225,000, a one-time payment of $16,437 for reimbursement of certain expenses incurred in connection with the acceptance of employment, and a stock option to purchase up to 2,250,000 shares of the Companys common stock, subject to certain vesting requirements, at an exercise price of $1.22.
.
On August 1, 2006, the Company cancelled the stock option granted to Mr. Wujek in April 2006 for 2,250,000 stock options and simultaneously entered into a stock option agreement with Mr. Wujek for the purchase of up to 2,000,000 shares of common stock, subject to certain vesting requirements, at an exercise price of $0.52 per share, expiring July 31, 2016.
The stock option to purchase up to 2,000,000 shares of common stock vests as follows: (a) 250,000 options shall vest if and when an Investigational New Drug (IND) application is filed for any current or future compounds; (b) 250,000 options shall vest if and when a phase I clinical trial is commenced for any current or future compounds; and (c) 1,500,000 options shall vest if and when the Company or a wholly owned subsidiary or any one current or future compound is acquired, in whole or in part, or when either through the Company or a subsidiary, enters into a strategic collaborative agreement for any one current or future compound, provided that the Companys Board of Directors has approved, by written resolution, any such acquisition, sale or agreement. The Company expected that the first 250,000 stock options would vest at around 12 months from the date of grant, the second 250,000 stock options would vest at around 18 months from the date of grant and the remaining 1,500,000 stock options would vest at around 12 months from the date of grant.
At January 4, 2010, none of the vesting requirements of the 2,000,000 stock options had been met and thus none of the 2,000,000 stock options were exercisable. The Company does not anticipate that they will become exercisable within 60 days. Thus, they are excluded from the beneficial ownership table.
(3) Mr. Branning was appointed to the position of CFO on September 5, 2008 and resigned effective December 11, 2008.
(4) Mr. Krauss was appointed to the positions of CFO, Secretary and Treasurer on December 11, 2008 to fill the vacancy created by the resignation of Mr. Branning.
(5) 1420525 Alberta Ltd, is a private Alberta corporation wholly owned by Mr. Harmel Rayat, a former officer, former director, and former majority stockholder. In such capacity, Mr. Rayat may be deemed to have beneficial ownership of these shares.
(6) Jasvir Rayat is the brother of Harmel S. Rayat, a former officer, former director, and former majority stockholder. Mr. Harmel S. Rayat disclaims any beneficial ownership of the shares owned by Jasvir Rayat.
(7) Kundan Rayat is the father of Harmel S. Rayat, a former officer, former director, and former majority stockholder. Mr. Harmel S. Rayat disclaims any beneficial ownership of the shares owned by Kundan Rayat.
48
CHANGES IN CONTROL
There are no understandings or agreements known by management at this time which would result in a change in control of the Company.
The Company does not have any change-of-control or severance agreements with any of its executive officers or directors. In the event of the termination of employment of the Named Executive Officers any and all unexercised stock options shall expire and no longer be exercisable as of the date of the termination.
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Transactions with Related Persons, Promoters and Certain Control Persons
Related Party Transactions
Wages and benefits
During the years ended December 31, 2009 and 2008, the Company incurred $263,052 and $260,332 in wages and benefits expense for services rendered by Mr. Greg Wujek, the President, Chief Executive Officer, and Director of the Company.
In addition, during the years ended December 31, 2009 and 2008, the Company recorded $0 and $13,624 in stock based compensation expense related to the amortization of a stock option previously granted to Mr. Wujek to purchase 2,000,000 shares of the Companys Common Stock at an exercise price of $0.52 per share, which is included in wages and benefits.
Director fees
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 years ended December 31, 2009 and 2008, the Company incurred $6,800 and $9,750 in non-employee director fees.
Notes payable
The Company had arranged with Mr. Harmel S. Rayat, former Chief Financial Officer, former Director, and former majority shareholder of the Company, a loan amount up to $2,500,000 that may be drawn down on an as needed basis at a rate of prime plus 3%. Effective September 15, 2008, Mr. Rayat and the Company terminated this loan agreement. During the year ended December 31, 2008, the Company repaid $250,000 to Mr. Rayat with the accrued interest of $67,664. At December 31, 2009, the Company had an unsecured promissory note pursuant to this loan agreement in the amount of $750,000 payable to Mr. Rayat, which was due on March 8, 2006 and bears interest at an annual rate of 8.50%. During the years ended December 31, 2009 and 2008, the Company recorded $63,750 and $69,883 in interest expense related to the promissory note. At December 31, 2009, accrued interest on the $750,000 remaining promissory note was $307,223 and is included in interest payable. The entire principal and accrued interest is due and payable on demand. The carrying value of notes payable and accrued interest approximates fair value at December 31, 2009, based on their liquidity.
All related party transactions are recorded at the exchange amount established and agreed to between related parties and are in the normal course of business.
Director Independence
For disclosure regarding director independence see ITEM 10: DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
49
ITEM 14: PRINCIPAL ACCOUNTING FEES AND SERVICES
The Board selected Peterson Sullivan, LLP (Peterson Sullivan) as the independent registered public accounting firm to audit the financial statements of the Company for its fiscal year ended December 31, 2009. To the knowledge of management, neither such firm nor any of its members has any direct or material indirect financial interest in the Company or any connection with the Company in any capacity otherwise than as independent accountants.
The Company does not currently have an audit committee.
The following table presents aggregate fees for professional services rendered by Peterson Sullivan for the years ended December 31, 2009 and 2008.
Year Ended | |||||
December 31, | |||||
2009 |
2008 | ||||
Audit fees |
$ |
27,858 |
$ |
23,126 | |
Tax fees |
4,840 |
11,096 | |||
Total fees |
$ |
32,698 |
$ |
34,222 |
Audit Fees
Audit Fees for the years ended December 31, 2009 and 2008 consist of the aggregate fees billed by Peterson Sullivan for the audit of the consolidated financial statements included in the Companys Annual Report on Form 10-K and review of interim consolidated financial statements included in the quarterly reports on Form 10-Q for the years ended December 31, 2009 and 2008.
Tax Fees
Tax Fees for the years ended December 31, 2009 and 2008 consist of the aggregate fees billed by Peterson Sullivan for professional services rendered for tax compliance, tax advice and tax planning.
50
PART IV
ITEM 15: EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) The following documents are filed as a part of this Form 10-K:
1. Financial Statements
The following financial statements are included in Part II, Item 8 of this Form 10-K:
- Report of Independent Registered Public Accounting Firm
- Consolidated Balance Sheets as of December 31, 2009 and 2008
- Consolidated Statements of Operations for the Years Ended December 31, 2009 and 2008
- Consolidated Statements of Stockholders Equity (Deficit) for the Years Ended December 31, 2009 and 2008
- Consolidated Statements of Cash Flows for the years ended December 31, 2009 and 2008
- Notes to Consolidated Financial Statements
2. Exhibits
The exhibits listed in the Exhibit Index, which appears immediately following the signature page, are incorporated herein by reference, and are filed as part of this Form 10-K.
3. Financial Statement Schedules
Financial statement schedules are omitted because they are not required or are not applicable, or the required information is provided in the consolidated financial statements or notes described in Item 15(a)(1) above.
51
SIGNATURES
Pursuant to the requirements of Sections 13 or 15 (d) of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
PhytoMedical Technologies, Inc.
(Registrant)
January 27, 2010 By: /s/ Greg Wujek
President, Chief Executive Officer, Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in capacities and on the dates indicated.
Signature Title Date
/s/ Greg Wujek
Greg WujekPresident, Chief Executive Officer,
Director January 27, 2010
/s/ Raymond Krauss
Raymond Krauss Chief Financial Officer , Secretary, Treasurer,
DirectorJanuary 27, 2010
/s/ Gary Branning
Gary BranningDirector
January 27, 2010
52
Exhibit Index
Exhibit No. Description of Exhibit
23.1 Consent of Peterson Sullivan, LLP
31.1 Certification of Principal Executive Officer Pursuant to Rule 13(a)-14 of the Securities Exchange Act of 1934, As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
31.2 Certification of Principal Financial Officer Pursuant to Rule 13(a)-14 of the Securities Exchange Act of 1934, As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
32.1 Certification of Principal Executive Officer Pursuant to 18 USC. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
32.1 Certification of Principal Financial Officer Pursuant to 18 USC. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
____________________
*Filed herewith.
53