Thomas Pharmaceuticals, Ltd. - FORM 10-Q - November 16, 2009

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UNITED STATES
 SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 
 
FORM 10-Q
 
 
(MARK ONE)
  
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended September 30, 2009
 
OR
 
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: 000-52876
 
THOMAS PHARMACEUTICALS, LTD.
(Exact name of registrant as specified in its charter)
 
New Jersey
20-3954826
(State or Other Jurisdiction of Incorporation or Organization)
(I.R.S. Employer Identification No.)
 
750 Highway 34, Matawan, NJ 07747
(Address of Principal Executive Offices)(Zip Code)
 
Registrant’s Telephone Number, Including Area Code:    (732) 441-7700
 
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 x No o
 
Indicate by check mark whether the registrant has submitted electronically and posted on its Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   Yes o No x
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated files, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the exchange act:

Large accelerated filer o Accelerated filer o Non-accelerated filer o Smaller reporting company x
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes x  No o
 
Number of shares of Class A, common stock, No par value, outstanding as of November 13, 2009:  541,810,067
 

 
THOMAS PHARMACEUTICALS, LTD. AND SUBSIDIARY
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2009 AND 2008


TABLE OF CONTENTS
 
 
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 
THOMAS PHARMACEUTICALS, LTD. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
 
   
September 30,
    
December 31,
  
   
2009
    
2008
  
   
(unaudited)
    
(restated)
  
ASSETS
            
CURRENT ASSETS
            
Cash and cash equivalents
   $ 1,276     $ 6,557  
Prepaid expenses and other current assets
     4,699       4,699  
   Total current assets
     5,975       11,256  
                 
PROPERTY AND EQUIPMENT, net of accumulated depreciation
                
   of $119,400 and $118,555, respectively
     1,408       2,253  
                 
TOTAL ASSETS
   $ 7,383     $ 13,509  
                 
LIABILITIES AND STOCKHOLDERS' DEFICIT
                
CURRENT LIABILITIES
                
Accounts payable and accrued expenses
   $ 1,358,918     $ 1,121,244  
Notes payable
     230,952       230,952  
Dividends payable
     198,452       157,315  
Liability for conversion feature
     218,701       209,945  
Convertible debentures payable
     735,812       697,632  
   Total current liabilities
     2,742,835       2,417,088  
                 
LONG TERM DEBT
                
Notes payable
     154,000       154,000  
                 
   Total liabilities
     2,896,835       2,571,088  
                 
COMMITMENTS AND CONTINGENCIES
                
                 
STOCKHOLDERS' DEFICIT
                
Series A Convertible Preferred stock, no par value; authorized 500,000 shares;
                
   no shares issued and outstanding
     --       --  
Series B Convertible Preferred stock, no par value; authorized 1,000 shares;
                
   550 shares issued and outstanding
     550,000       550,000  
Common stock, Class A – no par value; authorized 10,000,000,000 shares;
                
   541,810,067 at September 30, 2009 and 477,810,067 at December 31, 2008
                
   shares issued and outstanding
     34,355       28,291  
Common stock, Class B - no par value; authorized 50,000,000 shares;
                
   no shares issued or outstanding
     --       --  
Accumulated deficit
     (3,473,807 )     (3,135,870 )
   Total stockholders' deficit
     (2,889,452 )     (2,557,579 )
                 
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT
   $ 7,383     $ 13,509  

The accompanying notes are an integral part of these condensed consolidated financial statements.
 

 
THOMAS PHARMACEUTICALS, LTD. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
 
   
For the nine months
    
For the three months
  
   
September 30,
    
September 30,
  
   
2009
    
2008
    
2009
    
2008
  
         
(restated)
          
(restated)
  
NET REVENUES, net of provision for product returns
                        
    and credits of $0 and $0, respectively
   $ --     $ 27,375     $ --     $ --  
                                 
COST OF SALES
     --       --       --       --  
                                 
GROSS PROFIT
     --       27,375       --       --  
                                 
SELLING, GENERAL AND
                                
 ADMINISTRATIVE EXPENSES
                                
   General and administrative expenses
     209,714       373,702       56,768       86,270  
   Depreciation and amortization
     845       845       282       281  
Total selling, general and administrative expenses
     210,559       374,547       57,050       86,551  
                                 
LOSS FROM OPERATIONS
     (210,559 )     (347,172 )     (57,050 )     (86,551 )
                                 
OTHER (INCOME) EXPENSE
                                
   Interest expense
     101,955       172,701       34,891       43,601  
   Gain on settlement of debt
     (15,714 )     --       --       --  
Total other (income) expense
     86,241       172,701       34,891       43,601  
                                 
LOSS BEFORE PROVISION FOR
                                
   INCOME TAXES
     (296,800 )     (519,873 )     (91,941 )     (130,152 )
                                 
PROVISION FOR INCOME TAXES
     -       -       -       -  
                                 
LOSS BEFORE PREFERRED DIVIDENDS
     (296,800 )     (519,873 )     (91,941 )     (130,152 )
                                 
PREFERRED DIVIDENDS
     41,137       41,288       13,863       13,863  
                                 
NET LOSS APPLICABLE TO COMMON SHARES
   $ (337,937 )   $ (561,161 )   $ (105,804 )   $ (144,015 )
                                 
NET LOSS PER COMMON SHARE
                                
   Basic and diluted
   $ (0.00 )   $ (0.00 )   $ (0.00 )   $ (0.00 )
                                 
WEIGHTED AVERAGE SHARES OUTSTANDING
                                
   Basic and diluted
     524,286,257       287,054,207       541,810,067       310,158,714  

 
The accompanying notes are an integral part of these condensed consolidated financial statements.
 
 
 
THOMAS PHARMACEUTICALS, LTD. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
                                                                                                                     
                                                                                                                                                                  
 
  
2009
    
2008
  
             
CASH FLOWS FROM OPERATING ACTIVITIES:
            
   Net (loss) before preferred dividends
   $ (296,800 )   $ (519,873 )
   Adjustments to reconcile net (loss) to net cash (used in) operating activities:
                
   Depreciation expense
     845       845  
   Issuance of debt for compensation expenses
     --       70,000  
   Beneficial interest on convertible debt
     9,500       89,434  
   Gain on settlement of debt
     (15,714 )     --  
   Changes in certain assets and liabilities:
                
   (Increase) in prepaid expenses and other assets
     --       (294 )
   Increase in accounts payable and accrued liabilities
     296,888       304,061  
   Total cash (used in) operating activities
     (5,281 )     (55,827 )
                 
CASH FLOWS FROM FINANCING ACTIVITIES:
                
   Gross proceeds from debt financing
     --       77,250  
   Total cash provided by financing activities
     --       77,250  
                 
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
     (5,281 )     21,423  
                 
CASH AND CASH EQUIVALENTS – BEGINNING OF PERIOD
     6,557       9,705  
                 
CASH AND CASH EQUIVALENTS – END OF PERIOD
   $ 1,276     $ 31,128  
                 
                 
CASH PAID DURING THE PERIOD FOR:
                
   Interest expense
   $ -     $ -  
   Income taxes
   $ -     $ -  
                 
NON CASH TRANSACTIONS DURING THE PERIOD:
                
   Convertible debenture issued for unsecured debt
   $ 42,500     $ -  
   Common stock issued for settlement of unsecured debt
   $ 1,000     $ -  
 
The accompanying notes are an integral part of these condensed consolidated financial statements.

 
THOMAS PHARMACEUTICALS, LTD. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)(Continued)

SUPPLEMENTAL CASH FLOW INFORMATION

For the nine months ended September 30, 2009:

a)  
The Company issued 10,000,000 shares of Class A common stock as partial settlement of outstanding unsecured debt, valued at $1,000.

b)  
The Company issued 54,000,000 shares of Class A common stock to iVoice, Inc. as repayment of principal on an outstanding convertible debenture, valued at $4,320.

c)  
The Company issued a 6% convertible debenture as settlement of outstanding unsecured debt, valued at $42,500.

d)  
The Company accrued $41,137 of preferred stock dividends.


For the nine months ended September 30, 2008:

a)  
The Company issued 96,600,000 shares of Class A common stock to iVoice, Inc. as repayment of principal on an outstanding convertible debenture, valued at $61,800. The difference in the market value and the reduction in debt of $8,928 was charged to beneficial interest in the amount of $52,872.

b)  
The Company executed an employment agreement and a consulting agreement with Mr. Meller and Mr. Mahoney, respectively. The Company issued two promissory notes, in lieu of cash, in the amount of $70,000 for signing bonuses.

c)  
The Company received an initial investment of $75,000 for its newly formed subsidiary Small Cap Advisors, Inc. The investment was secured by a Convertible Promissory Note in the amount of $77,750. The difference of $2,250 was charged to interest expense in the statements of operations.

d)  
The Company accrued $41,288 of preferred stock dividends.

e)
The Company converted its outstanding accounts due to iVoice, Inc. for unpaid administrative services in the amount of $71,302 into a convertible promissory note.
 


The accompanying notes are an integral part of these condensed consolidated financial statements.
 
 
 
THOMAS PHARMACEUTICALS, LTD. AND SUBSIDIARY
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2009 AND 2008
 
NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION


Thomas Pharmaceuticals, Ltd. (the “Company” or “Thomas Pharmaceuticals”) was a wholly owned subsidiary of iVoice, Inc. (“iVoice”) by virtue of iVoice’s ownership of all of the shares of Class A Common Stock prior to the spin-off. The Company was incorporated as iVoice Acquisitions Corp. in New Jersey on May 19, 2005.  On January 6, 2006, iVoice Acquisitions Corp. completed the merger with Thomas Pharmaceuticals, Ltd., a New York Corporation (“Thomas NY”). Pursuant to the terms of the Agreement and Plan of Merger with Thomas NY, iVoice Acquisition Corp’s name was changed to Thomas Pharmaceuticals, Ltd. On November 21, 2007, the Company was spun-off from iVoice and is now an independent public reporting company. The Company develops and markets over the counter non-prescription healthcare products. The Company focuses on high-end, branded consumables. Its first product, Acid + All™, is a calcium-enriched, sugar free, anti-gas antacid. 

Currently the Company no longer produces any products. Earned sales are derived from finished goods inventory on hand and the reversal of reserves recorded in 2007 for chargebacks, rebates and product returns as the criteria for meeting the recognition of this revenue has occurred in 2008.

In June 2008, the Company formed a new, wholly owned subsidiary, Small Cap Advisors, Inc., to provide investor relation (“IR”) services to small and medium sized public companies. Micro-cap public companies typically take a stock promotion approach to IR. This involves sending out  un-targeted mass emails to potential investors, or getting profiled on investor relations websites.  The Company believes this is no longer a viable approach to gaining new investors, and in fact, current IR strategies may actually be undermining marketing efforts and diminishing shareholder goodwill.  The Company has developed a process which it calls “SEO-IR”, which involves a search engine optimization approach to IR.  SEO-IR is designed to build awareness, credibility,  relevance, and a community of dedicated shareholders for the Company’s clients. Furthermore, SEO-IR will facilitate the convergence of the client’s corporate marketing strategy and IR strategy by aligning multiple distribution channels to reach a targeted, engaged audience. However, the Company abandoned this business model in the fall of 2008 after the economic crisis in the U.S. began and the stock markets began to rapidly deteriorate in value.  The Company does not anticipate re-starting the operations of SEO-IR.

The Company operates its businesses from the home office of iVoice in Matawan, NJ.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiary, Small Cap Advisors, Inc. (“Small Cap Advisors”). Prior to November 21, 2007, the financial statements of Thomas Pharmaceuticals had been derived from the consolidated financial statements and accounting records of iVoice using the historical results of operations and historical basis of assets and liabilities of iVoice’s over the counter non-prescription healthcare products business and are prepared on the accrual basis of accounting in accordance with the accounting principles generally accepted in the United States of America. Management believes the assumptions underlying the financial statements are reasonable and include all costs directly applicable to the Company. These financial statements do not include any allocation of expenses and assets from the parent, iVoice.  However, the financial statements included herein may not necessarily reflect the Company’s results of operations, financial position and cash flows had the Company been a stand-alone company during the periods presented.

These condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Regulation S-X.  Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.  In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation have been included.  It is suggested that these condensed consolidated financial statements be read in conjunction with the December 31, 2008 audited financial statements and the accompanying notes thereto.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The accompanying condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiary, Small Cap Advisors, Inc. All significant inter-company transactions and balances have been eliminated in consolidation.
 
 
THOMAS PHARMACEUTICALS, LTD. AND SUBSIDIARY
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2009 AND 2008
Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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. Actual results could differ from those estimates.

Cash and Cash Equivalents

The Company considers all highly liquid debt instruments and other short-term investments with an initial maturity of three months or less to be cash or cash equivalents. As of September 30, 2009 and December 31, 2008, the Company has no cash equivalents.

The Company maintains cash and cash equivalents with a financial institution, which is insured by the Federal Deposit Insurance Corporation up to $250,000. The Company had no uninsured cash balances at September 30, 2009 or December 31, 2008.

Revenue and Cost Recognition

Product sales revenue, net of estimated provisions, is recognized when persuasive evidence that an arrangement exists, delivery has occurred, the selling price is fixed or determinable, and collectability is reasonably assured. Provisions for sales discounts, and estimates for chargebacks, rebates, and product returns are established as a reduction of product sales revenue at the time revenues are recognized, based on historical experience adjusted to reflect known changes in the factors that impact these reserves.  Cost of revenue includes direct costs to produce and distribute the products.

Advertising Costs

Advertising costs are expensed as incurred and are included in selling and marketing expenses.  For the nine months ended September 30, 2009 and 2008, the Company incurred $0 in advertising costs.

Income Taxes

Prior to November 2007, the Company was a subsidiary of iVoice and as such, its results of operations were reported as part of the consolidated federal income tax returns of iVoice. Upon the spin-off from iVoice, Inc, the Company will no longer be included in the consolidated returns of iVoice, Inc and will be required to account for income taxes in accordance with provisions of ASC 740 “Income Taxes”, which requires an asset and liability approach to financial accounting and reporting for income taxes. Deferred income taxes and liabilities are computed annually for differences between the financial statement and the tax basis of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.

Accounting for Certain Financial Instruments With Characteristics of both Liabilities and Equity – Change in Accounting  Principle.

As of June 30, 2009 we have adopted ASC 480 “Distinguishing Liabilities from Equity”. Previously, we had accounted for our variable weighted average priced convertible debt instruments in accordance with ASC 815-40 “Contracts in Entity’s Own Equity”, solely based on the variability in the shares to be issued in our convertible debt instruments. Upon further review of ASC 470-20-65-2 “Transition Related to EITF Issue No. 08-4, Transition Guidance for Conforming Changes to Issue No. 98-5” and ASC 480, we have changed our accounting policy to account for the conversion feature as a debt discount without bifurcating any additional component from the debt instrument as a derivative. We believe that the treatment under ASC 480, among the diversity in accounting treatments that exist, is more appropriate. Due to our change in accounting principle we have retroactively updated our financial statements as of December 31, 2008 and for the three and nine months ended September 30, 2008.

Fair Value of Financial Instruments

The carrying amount reported in the balance sheet for cash and cash equivalents, accounts receivable, accounts payable and accrued expenses approximate fair value because of the immediate or short-term maturity of these financial instruments. The carrying amount reported for notes payable and convertible debentures approximates fair value because the interest on the underlying instruments is comparable with current market rates.

 
THOMAS PHARMACEUTICALS, LTD. AND SUBSIDIARY
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2009 AND 2008
Loss Per Share of Common Stock

Historical net loss per common share is computed using the weighted average number of common shares outstanding. Common stock equivalents were not included in the computation of diluted earnings per share when the Company reported a loss because to do so would be antidilutive for periods presented.

The following is a reconciliation of the computation for basic and diluted EPS:
 
   
Nine months ended September 30,
  
   
2009
    
2008
  
             
Net (loss) applicable to common shares
   $ (337,937 )   $ (561,161 )
                 
Weighted-average common shares
  
Outstanding
     524,286,257       287,054,207  
                 
Net (loss) per share (basic and diluted)
   $ (0.00 )   $ (0.00 )

The Company has shares issuable upon conversion of the iVoice Convertible Debentures, the iVoice Promissory Notes, the Thomas Acquisition Convertible Debenture and the Series B Convertible Preferred Stock. At September 30, 2009 and 2008, the Company had common stock equivalents of 19,890,034,694 and 19,995,300,000, respectively.

Recent Accounting Pronouncements

In May 2009, the FASB issued ASC 855, “Subsequent Events”, which establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before the financial statements are issued or are available to be issued. The Company adopted FASB ASC 855 effective April 1, 2009 and has evaluated subsequent events after the balance sheet date of September 30, 2009 through the date the financial statements were issued.

In June 2009, the FASB issued Accounting Standards Update 2009-01, “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles-a replacement of FASB Statement No. 162”. The FASB Accounting Standards Codification (“ASC”) is intended to be the source of authoritative U.S. generally accepted accounting principles (“GAAP”) and reporting standards as issued by the Financial Accounting Standards Board. Its primary purpose is to improve clarity and use of existing standards by grouping authoritative literature under common topics. This Statement is effective for financial statements issued for interim and annual periods ending after September 15, 2009. The Codification does not change or alter existing GAAP and there was no impact on our consolidated financial position or results of operations.

In August 2009, the FASB issued Accounting Standards Update 2009-05, “Fair Value Measurements and Disclosures (Topic 820)”. The purpose of this Update is to clarify that in circumstances in which a quoted price in an active market for the identical liability is not available, a reporting entity is required to measure fair value using a valuation technique that uses either the quoted price of the identical liability when traded as an asset or quoted prices for similar liabilities or similar liabilities when traded as assets. This guidance is effective upon issuance. There was no material impact to the Company from the adoption of this standard.

In October 2009, the FASB issued Accounting Standards Update 2009-13, “Revenue Recognition (Topic 605)”. This Update provides amendments to the criteria in Subtopic 605-24 for separating consideration in multiple-deliverable revenue arrangements. It establishes a hierarchy of selling prices to determine the selling price of each specific deliverable which includes vendor-specific objective evidence (if available), third-party evidence (if vendor-specific evidence is not available), or estimated selling price if neither of the first two are available. This Update also eliminates the residual method for allocating revenue between the elements of an arrangement and requires that arrangement consideration be allocated at the inception of the arrangement. Finally, this Update expands the disclosure requirements regarding a vendor’s multiple-deliverable revenue arrangements. This Update is effective for fiscal years beginning on or after June 15, 2010. We do not anticipate any material impact from this Update.
 
 
THOMAS PHARMACEUTICALS, LTD. AND SUBSIDIARY
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2009 AND 2008

 
NOTE 3 – FAIR VALUE MEASUREMENTS

Effective January 1, 2008, the Company adopted ASC 820 “Fair Value Measurements and Disclosures” (previously Statement of Financial Accounting Standards No. 157, Fair Value Measurements). This Statement defines fair value for certain financial and nonfinancial assets and liabilities that are recorded at fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. This guidance applies to other accounting pronouncements that require or permit fair value measurements. The adoption of ASC 820 had no effect on the Company’s condensed consolidated financial position or results of operations.

NOTE 4 – CONVERTIBLE DEBENTURES

On January 6, 2006 the Company issued to iVoice a $360,000 secured convertible debenture due on January 1, 2013 bearing interest of 10%, compounded quarterly. During the nine months ended September 30, 2009, the Company issued 54,000,000 shares of Class A common stock as repayment of principal of $4,320. As of September 30, 2009 the remaining principal balance of the convertible debenture was $343,312 plus $158,774 of accrued interest.

On January 6, 2006 the Company issued to iVoice a $100,000 administrative service convertible debenture due on January 1, 2013 bearing interest of 10%, compounded quarterly. This debenture is issued in lieu of payments on the Administrative Services Agreement of the same date. As of September 30, 2009 the remaining principal balance of the convertible debenture was $100,000 plus $44,594 of accrued interest.
 
On April 27, 2006 the Company issued to iVoice a $225,000 secured convertible debenture due on January 1, 2013 bearing interest of 10%, compounded quarterly. As of September 30, 2009 the remaining principal balance of the convertible debenture was $225,000 plus $90,725 of accrued interest.

On February 7, 2007, the Company issued to iVoice a $25,000 secured convertible debenture due on February 6, 2014 bearing interest of 10%, compounded quarterly. As of September 30, 2009 the remaining principal balance of the convertible debenture was $25,000 plus $7,452 of accrued interest.

The Company can redeem a portion or all amounts outstanding under the iVoice Convertible Debentures at any time upon thirty (30) business days advanced written notice.  The redemption price shall be equal to one hundred twenty-five percent (125%) multiplied by the portion of the principal sum being redeemed, plus any accrued and unpaid interest.

iVoice may, at its discretion, convert the outstanding principal and accrued interest, in whole or in part, into a number of shares of Thomas Pharmaceuticals Class A Common Stock at the price per share equal to eighty percent (80%) of the lowest closing bid price of the Common Stock for the five (5) trading days immediately preceding the conversion date. The Company determined that the conversion feature of the iVoice Debentures met the criteria of ASC 480 as it could result in the note being converted into a variable number of shares. At the commitment dates, the Company determined the value of the iVoice Convertible Debentures to be an aggregate $832,957, which represented their face values of $710,000 plus the present values of the liability for the conversion features of $122,957. The Company recorded the $122,957 to interest expense at the commitment dates of the debentures.  The difference between the fair value of the conversion feature and the present value is being accreted through interest expense.  As of September 30, 2009 and 2008, an expense of $5,795 and $5,859 was recorded as interest expense for the accretion of the discount from the liability of the conversion feature.

On March 30, 2009, the Company issued to Bagell Josephs Levine & Co, LLC (“BJL”) a $42,500 convertible debenture (the “BJL Debenture”) due on March 30, 2012 bearing interest of 6% per annum. BJL may, at its discretion, convert the outstanding principal and accrued interest, in whole or in part, into a number of shares of Thomas Pharmaceuticals Class A Common Stock at the price per share equal to ninety eighty percent (98%) of the lowest closing bid price of the Common Stock for the five (5) trading days immediately preceding the conversion date. The Company determined that the beneficial conversion feature of the BJL Debenture met the criteria of ASC 480 and therefore the conversion feature was accounted at its intrinsic value of $867 and was charged to interest expenses on the consolidated statements of operations.

The aggregate principal value of the iVoice and BJL debentures at September 30, 2009 is $735,812.

NOTE 5 – NOTES PAYABLE

CURRENT PORTION

As part of the merger with Thomas NY, the Company assumed a $20,000 promissory note due to Jana M. Wesley which bears interest at the rate of 5% per annum, compounded annually.  The promissory note matured on January 19, 2009 with a lump sum payment due of any remaining principal and interest. As of the date of this filing, the Company is in default of this obligation and will incur additional interest charges at a rate of the lesser of 15% per annum or the maximum interest rate provided by law, and the interest shall be payable monthly. As of September 30, 2009, the unpaid balance on the promissory note is $20,000 plus accrued interest of $6,851.
 
 
THOMAS PHARMACEUTICALS, LTD. AND SUBSIDIARY
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2009 AND 2008

 
On June 10, 2008, the Company received $77,250 from iVoice, Inc. for an initial investment in Small Cap Advisors. The Company secured the receipt with a convertible promissory note, at an interest of prime plus 1 (4.25% at September 30, 2009) percent per annum. Additional amounts may be added to this note based on any unpaid administrative service fees and will accrue interest at the above specified rate from date of advance until paid. The principal and interest shall be due and payable as follows: (a) interest shall accrue monthly on the unpaid balance and shall be paid annually, and (b) principal shall be payable on demand. As of September 30, 2009, the balance due on the note is $69,650, plus accrued interest of $4,604.

On June 11, 2008, the Company converted its outstanding accounts due to iVoice, Inc. for unpaid administrative services in the amount of $47,302 into a convertible promissory note at the rate of prime plus 1 (4.25% at September 30, 2009) percent per annum. Additional amounts may be added to this note based on any unpaid administrative service fees and will accrue interest at the above specified rate from date of advance until paid. The principal and interest shall be due and payable as follows: (a) interest shall accrue monthly on the unpaid balance and shall be paid annually, and (b) principal shall be payable on demand. At September 30, 2009, the principal balance of the note is $71,302, plus accrued interest of $3,797.

The Company determined that the beneficial conversion feature of the iVoice convertible promissory notes met the criteria of ASC 480 and therefore the conversion feature was accounted at its intrinsic value of $35,239  and was charged to interest expenses on the consolidated statements of operations.

On April 16, 2008 and May 7, 2008, the Company executed a consulting agreement with Jerome Mahoney and an employment agreement with Mark Meller, respectively. As part of their individual compensation agreements, the Company issued two five (5) year promissory notes in the amount of $35,000, each, for signing bonuses. The notes carry interest charges of 3% per annum and are convertible into Class B common stock on a dollar for dollar basis plus accrued interest. As of September 30, 2009, the balance due on the notes is $35,000 each, plus accrued interest of $1,530 and $1,467, respectively.

The aggregate principal balances of the promissory notes at September 30, 2009 is $230,952.
 
LONG TERM PORTION

On January 26, 2007, Thomas Acquisition issued to an investor a debenture in the principal amount of $103,200 convertible into Class A Common Stock of Thomas Pharmaceuticals and a debenture in the principal amount of $96,800 convertible into Series B Convertible Preferred Stock of the Company. The $103,200 convertible debentures provide that, at the holder’s option, principal and interest due on the debentures can be converted into the number of shares of the Company’s Class A Common Stock determined by dividing the amount of the debenture being converted by a 20% discount to the lowest closing bid price of the Company’s Class A Common Stock for the five trading days before the conversion date.  The $96,800 convertible debentures provide that, at the holder’s option, principal and interest due on the debentures can be converted into the Company’s Series B Convertible Preferred Stock having a stated value of $1,000 per share. The $103,200 convertible debenture was secured with the assets of the Company, subordinate to the security interest previously granted to iVoice. The net proceeds of $160,000 from the convertible debentures were loaned to the Company in the form of a Promissory Note. The Promissory Note bears interest at the rate of ten percent per annum and the term shall be seven (7) years and shall be due and payable on January 8, 2014. On February 12, 2007, the Company repaid $6,000 that was applied to the principal balance of the promissory note. As of September 30, 2009, the unpaid balance on the promissory note is $154,000 plus accrued interest of $41,865.

The Company determined that the beneficial conversion feature of the Thomas Acquisition Debentures met the criteria of ASC 480 and therefore the conversion feature was accounted at its intrinsic value of $50,000 and was charged to interest expenses on the consolidated statements of operations.

NOTE 6 - LIABILITY FOR CONVERSION FEATURE

In accordance with ASC 480 “Distinguishing Liabilities from Equity”, the conversion feature of the iVoice Convertible Debentures, the iVoice Promissory Notes, the Thomas Acquisition Convertible Debentures and the BJL Debentures has an aggregate intrinsic value of $263,606 and had a present value of $185,186 at issuance. The difference is being accreted over the term of the debt to interest expense and its current value is $218,701 at September 30, 2009. Interest expense for the nine months ended September 30, 2009 include a charge of $8,711 for accretion and new charges for the period.

NOTE 7 - RELATED PARTY TRANSACTIONS

In addition to the financing provided, iVoice provided administrative services and other miscellaneous support to the Company from time to time. As of January 1, 2009, iVoice no longer provides administrative services to the Company. For the nine months ended September 30, 2009 and 2008, the Company has recorded $0 and $52,000 of these charges in the financial accounts of the Company. As of September 30, 2009, the unpaid balance of the current accounts due was transferred to a secured promissory note payable to iVoice. These amounts will remain unpaid until the Board of Directors determines that the Company has sufficient liquidity to make such payments.

 
 
THOMAS PHARMACEUTICALS, LTD. AND SUBSIDIARY
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2009 AND 2008

 
NOTE 8 – COMMITMENTS AND CONTINGENCIES

On January 2, 2006 the Company entered into an Employment Agreement with John E. Lucas to serve as its Chief Executive Officer through December 31, 2008 at an annual salary of $60,000 with annual cost of living increases.  On June 11, 2007, this agreement was amended to add the additional title of President and allow the Company to issue Class A Common Stock in lieu of cash payments for any compensation due and owing to Mr. Lucas. On April 29, 2008, Mr. Lucas resigned his positions with the Company and the board accepted his resignation. At the time of Mr. Lucas’ resignation, the Company had accumulated unpaid compensation of $73,558 which is due and owing in cash or Class A Common Stock, as determined by the Board of Directors.

On March 1, 2007 the Company entered into a five-year employment agreement with Jerome Mahoney, which became effective at the time of the distribution, to serve as its Non-Executive Chairman of the Board for a term of five years. As consideration, the Company will pay Mr. Mahoney the sum of $85,000 the first year with an annual increase based on the Consumer Price Index every year thereafter. The compensation payable to Mr. Mahoney under the agreement may be paid in the form of cash, debt or shares of Class B Common Stock. On April 16, 2008, Mr. Mahoney resigned his positions with the Company and the board accepted his resignation. At the time of Mr. Mahoney’s resignation, the Company had accumulated unpaid compensation of $48,997 which is due and owing in cash or Class A Common Stock, as determined by the Board of Directors.
 
On March 1, 2007, the Company entered into an administrative services agreement with iVoice which became effective at the time of the distribution and replaced the administrative services agreement entered into on January 6, 2006. Under this agreement, iVoice provides the Company with physical premises, contract review, sales issuance, invoicing and collection services, financial accounting and reporting, claims administration and reporting, and other areas where the Company needs transitional assistance and support. Under the administrative services agreement, iVoice provides the Company substantially the same level of service and use substantially the same degree of care as iVoice’s personnel provided and used in providing such services prior to the execution of the agreement. For these services, the Company will pay iVoice a fee of $4,000 per month. On June 11, 2008, the administrative services agreement was amended to provide that any fees that are earned and remain unpaid shall be converted into a secured convertible promissory note which shall accrue interest at prime plus 1% (4.25% at September 30, 2009) per annum. As of January 1, 2009, iVoice no longer provides administrative services to the Company. As of September 30, 2009, the unpaid fees in the amount of $71,302 were converted to the promissory note and remain unpaid.

On June 10, 2008, the Company entered into an administrative services agreement with iVoice on behalf of its wholly owned subsidiary, Small Cap Advisors. Under this agreement, iVoice provides the Company with physical premises, contract review, sales issuance, invoicing and collection services, financial accounting and reporting, claims administration and reporting, and other areas where the Company needs transitional assistance and support. For these services, Small Cap Advisors will pay iVoice a fee of $4,000 per month. In addition, fees that are earned and remain unpaid at the end of a month shall be added to iVoice secured convertible promissory note which shall accrue interest at prime plus 1% (4.25% at September 30, 2009) per annum. As of January 1, 2009, iVoice no longer provides administrative services to the Company. As of September 30, 2009, the unpaid fees in the amount of $19,400 were converted to the promissory note and remain unpaid.

On May 22, 2008, the Company entered into a consulting agreement with Jerome Mahoney to provide consulting services on strategic plans, policies and procedures, acquisitions, personnel matters and other assignments as directed by the Chief Executive Officer. As consideration, the Company will pay Mr. Mahoney the sum of $80,000 the first year with an annual increase of 10% every year thereafter. This compensation may be paid in Class B Common Stock, in lieu of cash, at the option of Board of Directors. In addition, the Company issued a five (5) year promissory note in the amount of $35,000 for a signing bonus. The promissory note carries an interest charge of 3% per annum and is convertible into Class B common stock on a dollar for dollar basis plus accrued interest. As of September 30, 2009, the total unpaid compensation in the amount of $148,120 is due and owing.

On May 22, 2008, the Company entered into an Employment Agreement with Mark Meller to serve as its Chief Executive Officer and Director through May 7, 2013 at an annual salary of $80,000 with an annual increase of 10% every year thereafter. This compensation may be paid in Class B Common Stock, in lieu of cash, at the option of Board of Directors. In addition, the Company issued a five (5) year promissory note in the amount of $35,000 for a signing bonus. The promissory note carries an interest charge of 3% per annum and is convertible into Class B common stock on a dollar for dollar basis plus accrued interest. On September 29, 2009, Mr. Meller resigned his positions with the Company and the board accepted his resignation. At the time of Mr. Meller’s resignation, the Company had accumulated unpaid compensation of $129,839 which is due and owing in cash or Class A Common Stock, as determined by the Board of Directors.

On December 13, 2007, Independent Can filed suit against the Company seeking payment of monies owed equal to $19,100.80. Independent Can had provided the Company the tins that held the Acid+All® tablets.  In June 2008, the Company defaulted on a settlement agreement and Independent Can was awarded a judgment for $14,785.32 for amounts due on the original stipulation of settlement. As of the date of this filing, the judgment is still outstanding.
 
 
THOMAS PHARMACEUTICALS, LTD. AND SUBSIDIARY
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2009 AND 2008
 
On August 7, 2008, the intellectual property attorney Ursula Day asserted a claim against the Company for unpaid bills equal to $9,547.  The Company had been in discussions attempting to resolve this dispute. However, counsel for Ms. Day has been uncooperative in providing us the support necessary for Ms. Day to substantiate her claim.
 
On January 22, 2009, the accounting firm of Rosen, Seymour, Shapss, Martin & Company LLP (“Rosen”) filed suit against the Company for the sum of $25,000 claiming that the Company did not pay the accounting firm fees previously agreed upon.  Rosen has entered a default judgment against the Company.

NOTE 9 - STOCKHOLDERS’ DEFICIT

Pursuant to the Company’s Certificate of Incorporation, the Company is authorized to issue 1,000,000 shares of preferred stock, no par value per share, 10,000,000,000 shares of Class A Common Stock, no par value per share, and 50,000,000 shares of Class B Common Stock, no par value per share. Of the 1,000,000 authorized shares of Preferred Stock, 500,000 shares are designated as “Series A Convertible Preferred Stock” and 1,000 shares are designated as “Series B Convertible Preferred Stock”.
 
a) Preferred Stock
 
Preferred Stock consists of 1,000,000 shares of authorized preferred stock with no par value, of which 501,000 shares are in the designations listed below. The balance of the shares, 499,000, remain available for designation by the Company.

Series A Convertible Preferred Stock

Series A Convertible Preferred Stock consisted of 500,000 shares with no par value. The initial value of each share is $.01 and were subject to adjustment for stock dividends, combinations, splits, recapitalizations and the like. On January 6, 2006, the Company completed the merger with Thomas NY and as a result of the merger; the shareholders of Thomas NY exchanged all of their common stock shares of Thomas NY for 500,000 shares of Series A Convertible Preferred Stock. Following the spin-off from iVoice in November 2007, the holders of the 500,000 shares of Series A Convertible Preferred Stock shares were exchanged for 5,091,237 shares of Class A Common Stock pursuant to the provisions of the spin-off agreement.

As of September 30, 2009 and 2008, there are no shares issued and outstanding.

Series B Convertible Preferred Stock

Series B Convertible Preferred Stock consists of 1,000 shares with no par value. The initial value of each share is $1,000 and is subject to adjustment for stock dividends, combinations, splits, recapitalizations and the like. The holders of these shares are entitled to receive dividends at a rate of 10% per annum based on the initial value of the shares outstanding. Upon liquidation, the holders of these shares will receive up to 125% of the initial value of the shares plus accumulated and unpaid dividends, but following the distribution to any senior debt or senior equities. On June 12, 2008, the Certificate of Incorporation was amended such that the holders of these shares may convert their shares into Class A Common Stock at the price per share equal to eighty percent (80%) of the lowest closing bid price of the Common Stock for the thirty (30) trading days immediately preceding the conversion date and to limit the Series B Preferred stockholders to hold no more than 9.99% of the total Class A Common Stock at that time of conversion.   The holders of these shares shall have one vote for each share of Class A Common Stock into which each share of Series B Preferred Shares could be converted, assuming a conversion price of eighty percent (80%) of the lowest closing bid price of the Common Stock for the thirty (30) trading days immediately preceding the record date and to limit the voting rights of the Series B Preferred stockholders to no more than 9.99% of the total voting rights of the aggregate of the Series B Preferred Stock, Class A Common Stock and Class B Common Stock shareholders. The Corporation must also get a majority approval from the holders of the Series B Preferred Stock to make any changes to the structure of the Company or to authorize or issue any equity or debt security that has a preference or priority over the Series B Preferred Stock as to liquidation preferences, dividend rights, voting rights, or otherwise.

On January 6, 2006, the Company issued 550 shares of Series B Convertible Preferred Stock valued at $550,000 to iVoice, Inc., a related party, pursuant to the terms of the Agreement and Plan of Merger, with Thomas NY.

As of September 30, 2009 and 2008, there are 550 shares issued and outstanding.
 
 
THOMAS PHARMACEUTICALS, LTD. AND SUBSIDIARY
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2009 AND 2008

b)  
Class A Common Stock

Class A Common Stock consists of 10,000,000,000 shares with no par value.  As of September 30, 2009, there are 541,810,067 shares issued and outstanding. As of September 30, 2008, there are 347,876,105 shares issued and outstanding.
 
Each holder of Class A common stock is entitled to one vote for each share held of record.  Holders of our Class A common stock have no preemptive, subscription, conversion, or redemption rights.  Upon liquidation, dissolution or winding-up, the holders of Class A common stock are entitled to receive net assets pro rata.  Each holder of Class A common stock is entitled to receive ratably any dividends declared by our board of directors out of funds legally available for the payment of dividends.
 
For the nine months ended September 30, 2009, the Company had the following transactions in its Class A common stock:

On February 11, 2009, the Company issued 10,000,000 shares of Class A Common Stock to Lebhar Friedman as part of a settlement of all outstanding debts due to Lebhar Friedman pursuant to the agreement executed on the same day.

On March 23, 2009, the Company issued 54,000,000 shares of Class A common stock to iVoice, Inc. as repayment of principal on an outstanding convertible debenture, valued at $5,400.

For the nine months ended September 30, 2008, the Company had the following transactions in its Class A common stock:

The Company issued 96,600,000 shares of Class A common stock to iVoice, Inc. as repayment of principal on an outstanding convertible debenture, valued at $61,800. The difference in the market value and the reduction in debt of $8,928 was charged to beneficial interest in the amount of $52,872.

c)  
Class B Common Stock

Class B Common Stock consists of 50,000,000 shares with no par value.  As of September 30, 2009 and 2008 there are no shares issued and outstanding.

Upon the consummation of a Spin-off Transaction and the commencement of public trading of the Class A Common Stock of the Corporation, each holder of Class B Common Stock shall have the right to convert each share of Class B Common Stock into the number of Class A Common Stock Shares calculated by dividing the number of Class B Common Stock Shares being converted by eighty percent (80%) of the lowest price that the Company had previously issued its Class A Common Stock since the Class B Common Stock Shares were issued.

Each holder of Class B common stock is entitled to one vote for each share of Class B common stock held.  Each holder has full voting rights and powers equal to the voting rights and powers of the holders of Class A Common Stock and is entitled to vote, together with holders of Class A Common Stock and not as a separate class (except as required by law), with respect to any question upon which holders of Class A Common Stock have the right to vote. Upon the consummation of a Spin-off Transaction and the commencement of public trading of the Class A common stock, then every holder of the outstanding shares of the Class B Common Stock shall be entitled on each matter to cast the number of votes equal to the number of Class A Common Stock Shares that would be issued upon the conversion of the Class B Common Stock Shares held by that holder, had all of the outstanding Class B Common Stock Shares held by that holder been converted on the record date used for purposes of determining which shareholders would vote in such an election.  With respect to all matters upon which shareholders are entitled to vote or to which shareholders are entitled to give consent, the holders of the outstanding shares of Class B Common Stock Shares shall vote together with Class A Common Stock Shares without regard to class, except as to those matters on which separate class voting is required by applicable law.

Each share of Class B Common Stock shall receive dividends or other distributions, as declared, equal to the number of Class A Common Stock Shares that would be issued upon the conversion of the Class B Common Stock Shares, had all of the outstanding Class B Common Stock Shares been converted on the record date established for the purposes distributing any dividend or other shareholder distribution.
 
 
THOMAS PHARMACEUTICALS, LTD. AND SUBSIDIARY
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2009 AND 2008

 
d)  
Dividends

Pursuant to the Company’s amended certificate of incorporation, the Company is required to accrue dividends at the rate of 10% per annum of the Series B Initial Value of each share of Series B Convertible Preferred Stock outstanding on each Dividend Payment Date, being March 31, June 30, September 30 and December 31. Dividends on the Series B Preferred Stock shall be cumulative from the date of issue. Accrued and unpaid dividends for any past Dividend Period, being the quarterly period commencing on and including the day after the preceding Dividend Payment Date, may be declared and paid at any time as may be fixed by the Board of Directors. The Company has not paid any dividends on its Series B Convertible Preferred Stock or its common stock and management does not contemplate doing so in the foreseeable future. The Company anticipates that any earnings generated from operations will be used to finance growth.
 
NOTE 10 - INCOME TAXES

Deferred income taxes will be determined using the liability method for the temporary differences between the financial reporting basis and income tax basis of the Company’s assets and liabilities.  Deferred income taxes will be measured based on the tax rates expected to be in effect when the temporary differences are included in the Company’s tax return.  Deferred tax assets and liabilities are recognized based on anticipated future tax consequences attributable to differences between financial statement carrying amounts of assets and liabilities and their respective tax bases. At September 30, 2009 and December 31, 2008 deferred tax assets consist of the following:
 
   
September 30, 2009
    
December 31, 2008
  
Deferred tax assets
   $ 470,000     $ 350,000  
Less: Valuation allowance
     (470,000 )     (350,000 )
   Net deferred tax assets
   $ 0     $ 0  
 
At September 30, 2009 and December 31, 2008, the Company had a federal net operating loss carry forwards in the approximate amount of $1,175,000 and $875,000, respectively, available to offset future taxable income.  The Company established a valuation allowance equal to the full amount of the deferred tax asset due to the uncertainty of the utilization of the operating loss in future periods. Prior to the spin-off from iVoice, Inc, the Company was a subsidiary of iVoice and as such, did not have its’ own federal tax liability or federal net operating loss carry forward.

NOTE 11 - GOING CONCERN

The Company has sustained net operating losses, has a deficit working capital and has negative cash flows from operations for the year ended December 31, 2008 and for the nine months ended September 30, 2009. There is no guarantee that the Company will be able to raise enough capital or generate revenues to sustain its operations. This raises substantial doubt about the Company’s ability to continue as a going concern.

The Company’s future success is dependent upon its ability to achieve profitable operations and generate cash from operating activities, and from additional financing. There is no guarantee that the Company will be able to raise enough capital or generate revenues to sustain its operations. The Company continues to search for potential merger candidates with or without compatible technology and products, which management feels may make financing more appealing to potential investors.

The financial statements do not include any adjustments relating to the recoverability or classification of recorded assets and liabilities that might result should the Company be unable to continue as a going concern.

 
 
THOMAS PHARMACEUTICALS, LTD. AND SUBSIDIARY
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2009 AND 2008
NOTE 12 - RESTATEMENT

As of June 30, 2009 we have adopted ASC 480 “Distinguishing Liabilities from Equity”. Previously, we had accounted for our variable weighted average priced convertible debt instruments in accordance with ASC 815-40 “Contracts in Entity’s Own Equity”, solely based on the variability in the shares to be issued in our convertible debt instruments. Upon further review of ASC 470-20-65-2 “Transition Related to EITF Issue No. 08-4, Transition Guidance for Conforming Changes to Issue No. 98.5” and ASC 480, we have changed our accounting policy to account for the conversion feature as a debt discount without bifurcating any additional component from the debt instrument as a derivative. We believe that the treatment under ASC 480, among the diversity in accounting treatments that exist, is more appropriate. Due to our change in accounting principle we have retroactively updated our financial statements as of December 31, 2008 and for the three and nine months ended September 30, 2008.

The table below summarizes various accounts that were affected by the restatement:

   
Restated
    
As Reported
  
             
Three months ended September 30, 2008
            
   Net loss applicable to common shares
   $ (144,015 )   $ (199,895 )
                 
Nine months ended September 30, 2008
                
   Net loss applicable to common shares
   $ (561,161 )   $ (682,749 )
                 
Year ended December 31, 2008
                
   Total liabilities
   $ 2,571,088     $ 3,022,847  
   Total stockholders’ deficit
   $ (2,557,579 )   $ (3,009,338 )
 
NOTE 13 – SUBSEQUENT EVENTS

On October 27, 2009, the Board of Directors authorized management to negotiate and enter into an Employment Agreement or Consulting Agreement with Mr. Harold Halman to fill the vacant position of President of the Company. Mr. Halman has agreed to serve as Interim President until the Board of Directors formally accepts his assignment.

On November 16, 2009, Mr. Halman was also appointed to the position of President, Chief Executive Officer and Chief Financial Officer.
 
 
ITEM 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This discussion and analysis of our financial condition and results of operations includes “forward-looking” statements that reflect our current views with respect to future events and financial performance. We use words such as we “expect,” “anticipate,” “believe,” and “intend” and similar expressions to identify forward-looking statements. You should be aware that actual results may differ materially from our expressed expectations because of risks and uncertainties inherent in future events and you should not rely unduly on these forward looking statements. We will not necessarily update the information in this discussion if any forward-looking statement later turns out to be inaccurate.

You should read the following discussion in conjunction with our audited financial statements and related notes included in the Form 10-K previously filed with the SEC. Our fiscal year currently ends on December 31, and each of our fiscal quarters ends on the final day of a calendar quarter (each March 31, June 30 and September 30). The following discussion contains forward-looking statements. Please see Forward-Looking Statements for a discussion of uncertainties, risks and assumptions associated with these statements

Overview
 
Thomas Pharmaceuticals, Ltd. (the “Company” or “Thomas Pharmaceuticals”) was a wholly-owned subsidiary of iVoice.  Thomas Pharmaceuticals was founded on the premise that money can be made by making the “humdrum hip” or by retooling a mundane product to make it new and exciting.  The strategy of Thomas Pharmaceuticals is to capitalize on “old school” or “retro” products, such as antacids, with proven effectiveness and usefulness, but with improved formulation, packaging, marketing and advertising to articulate the brand attributes to a new generation of consumer who demand substance with style.

Currently the Company no longer produces any products. Earned sales are derived from finished goods inventory on hand and cash receipts from previously written off bad debts.

In June 2008, the Company formed a new, wholly owned subsidiary, Small Cap Advisors, Inc., to provide investor relation (“IR”) services to small and medium sized public companies. Micro-cap public companies typically take a stock promotion approach to IR. This involves sending out un-targeted mass emails to potential investors, or getting profiled on investor relations websites.  The Company believed this was no longer a viable approach to gaining new investors, and in fact, current IR strategies may have actually undermined marketing efforts and diminishing shareholder goodwill.  The Company developed a process which it called “SEO-IR”, which involved a search engine optimization approach to IR.  SEO-IR was designed to build awareness, credibility, relevance, and a community of dedicated shareholders for the Company’s clients. Furthermore, SEO-IR would have facilitated the convergence of the client’s corporate marketing strategy and IR strategy by aligning multiple distribution channels to reach a targeted, engaged audience. However, the Company abandoned this business model in the fall of 2008 after the economic crisis in the U.S. began and the stock markets began to rapidly deteriorate in value.  The Company does not anticipate re-starting the operations of SEO-IR.

Results of Operations

Nine months ended September 30, 2009 compared to nine months ended September 30, 2008.

Total revenues for the nine months ended September 30, 2009 and 2008 were $0 and $27,375, respectively. There were no revenues in the nine months ended September 30, 2009. Revenues in the nine months ended September 30, 2008 were from the reversal of reserves recorded in 2007 for chargebacks, rebates and product returns as the criteria for meeting the recognition of this revenue has occurred in 2008.

Gross profit for the nine months ended September 30, 2009 and 2008 was $0 and $27,375, respectively. There is no gross profit in the nine months ended September 30, 2009. The gross profit for the nine months ended September 30, 2008 was the result of the sales of finished goods that had previously been written down to $0 and there were no costs on collections.

Operating expenses for the nine months ended September 30, 2009 and 2008 were $210,559 and $374,547, respectively, for a decrease of $163,988.  The decrease primarily consist of a decrease in executive salaries and taxes of $55,102, decreases of $48,279 in the curtailment of expenses in Small Cap Advisors, decrease of $52,000 in administrative services fees and other decreases in insurance and professional services when compared to the prior year.
 
Total other expense for the nine months ended September 30, 2009 was an expense of $86,241. This total was comprised of $92,455 of interest expense on the debentures and promissory notes and $9,500 accretion of discount from present value of conversion liability offset by $15,714 gain on the write-off of the Lebhar-Friedman debt in the settlement. Total other expense for the nine months ended September 30, 2008 was an expense of $172,701. This total was comprised of $89,434 of accretion of discount from present value of conversion liability and $83,267 of interest expense on the debentures and promissory notes. The increase in interest expense was related to the increase in convertible debt as compared to the prior year.
 
 
The restated loss before preferred dividends for the nine months ended September 30, 2009 and 2008 were $296,800 and $519,873, respectively. The decrease in the loss before preferred dividends of $223,073 was primarily the results of the lower operating expenses and the non-recurrence of the beneficial interest charge offset the gain on the write-off of debt in the current year.
 
Preferred dividends for the nine months ended September 30, 2009 and 2008 were $41,137 and $41,288, respectively. These dividends are accrued pursuant to the provisions of the Series B Convertible Preferred Stock and remain unpaid.

Three months ended September 30, 2009 compared to three months ended September 30, 2008.

Total revenues for the three months ended September 30, 2009 and 2008 were $0. There were no revenues in the three months ended September 30, 2009 or 2008.

Gross profit for the three months ended September 30, 2009 and 2008 were $0. There is no gross profit in the three months ended September 30, 2009 or 2008.

Operating expenses for the three months ended September 30, 2009 and 2008 were $57,050 and $86,551, respectively, for a decrease of $29,501.  The decrease primarily consists of a decrease in administrative service fees of $24,000 and decreases of $4,949 in the curtailment of expenses in Small Cap Advisors.
 
Total other expense for the three months ended September 30, 2009 was an expense of $34,891. This total was comprised of $31,987 of interest expense on the debentures and promissory notes and $2,904 accretion of discount from present value of conversion liability. Total other expense for the three months ended September 30, 2008 was an expense of $43,601. This total was comprised of $28,692 of interest expense on the debentures and promissory notes and $14,909 accretion of discount from present value of conversion liability. The increase in interest expense was related to the increase in convertible debt as compared to the prior year.
 
Loss before preferred dividends for the three months ended September 30, 2009 was $91,941. Restated loss for the three months ended September 30, 2008 was $130,152. The decrease in loss before preferred dividends of $38,211 was primarily the results of the lower operating expenses and total interest expenses when compared to the prior year.
 
Preferred dividends for the three months ended September 30, 2009 and 2008 were $13,863. These dividends are accrued pursuant to the provisions of the Series B Convertible Preferred Stock and remain unpaid.

Liquidity and Capital Resources

Between January 6, 2006 and February 7, 2007, iVoice purchased from Thomas Pharmaceuticals an aggregate of $550,000 of Thomas Pharmaceuticals Series B Convertible Preferred Stock (550 shares), an aggregate of $610,000 10% secured convertible debenture and a $100,000 10% administrative service convertible debenture. The administrative service debenture was issued by Thomas Pharmaceuticals to compensate iVoice for the administrative services that iVoice provided to Thomas Pharmaceuticals under the administrative services agreement. The purchase of the Series B Convertible Preferred Stock and the convertible debentures provided working capital to Thomas Pharmaceuticals.  The debentures are due between January 1, 2013 and February 6, 2015 and bear interest of 10%, compounded quarterly.

iVoice has the right to convert $710,000 in principal (plus accrued and unpaid interest) of convertible debentures into an indeterminate number of shares of Thomas Pharmaceuticals Class A Common Stock. The debentures are convertible at the option of iVoice any time up to maturity at a conversion price equal to 80% of the lowest closing bid price of the common stock for the 30 trading days immediately preceding the conversion date. In the event the debentures are redeemed, Thomas Pharmaceuticals will pay $125,000 plus interest for each $100,000 redeemed. There is no limitation on the number of shares of Class A Common Stock that we may be required to issue to iVoice upon the conversion of this indebtedness.

iVoice also has the right to convert each share of Series B Convertible Preferred Stock into the number of shares of Thomas Pharmaceuticals’ Class A Common Stock determined by dividing the number of shares of Series B Convertible Preferred Stock being converted by 80% of the lowest closing bid price of the common stock for the 30 trading days immediately preceding the conversion date. There is no limit upon the number of shares of Class A Common Stock that we may be required to issue upon conversion of any of these shares, except that the holders of the Series B Convertible Preferred Stock cannot hold more than 9.99% of the total Class A Common stock at the time of the conversion.
 
iVoice executed a Security Agreement with Thomas Pharmaceuticals to secure the obligations of Thomas Pharmaceuticals under the various debentures set forth above.

On August 9, 2006, iVoice entered into a Stock Purchase Agreement (the “Stock Purchase Agreement”) by and among Thomas Pharmaceuticals, Thomas Pharmaceutical Acquisition Corp. (“Thomas Acquisition”) and iVoice, whereby Thomas Acquisition, an entity unaffiliated with Thomas Pharmaceuticals or iVoice, agreed to purchase all of the securities of Thomas Pharmaceuticals outstanding as of such date and owned by iVoice (the “Securities”), for the purchase price of $1,235,100 plus twenty-five (25%) percent thereof, plus interest and dividends accrued under the terms of such securities through the closing date. iVoice had the right to terminate the Stock Purchase Agreement in the event the closing did not occur by October 31, 2006.
 
 
On January 26, 2007, iVoice entered into an Extension Agreement (the “Extension Agreement”) by and among Thomas Pharmaceuticals, Thomas Acquisition and iVoice. The Extension Agreement amended the Stock Purchase Agreement whereby the expiration date provided for in the Stock Purchase Agreement was extended to and through the date on which the Securities and Exchange Commission declares effective a registration statement for the distribution of Class A Common Stock of Thomas Pharmaceuticals to the shareholders of the iVoice (the “Effective Date”). It was also agreed by the parties that Thomas Acquisition would provide $160,000 to Thomas Pharmaceuticals as bridge financing.  Upon effectiveness of the registration statement on October 26, 2007, the Stock Purchase Agreement was terminated and Thomas Acquisition no longer had the right to purchase the iVoice Securities and iVoice is proceeding with the Distribution.  
 
On January 26, 2007, Thomas Acquisition issued to BioBridge LLC a debenture in the principal amount of $103,200 convertible into Class A Common Stock of Thomas Pharmaceuticals and a debenture in the principal amount of $96,800 convertible into Series B Convertible Preferred Stock of Thomas Pharmaceuticals. The $103,200 convertible debentures provide that, at the holder’s option, principal and interest due on the debentures can be converted into the number of shares of Thomas Pharmaceuticals Class A Common Stock determined by dividing the amount of the debenture being converted by a 20% discount to the lowest closing bid price of the Thomas Pharmaceuticals Class A Common Stock for the five trading days before the conversion date. The $96,800 convertible debentures provide that, at the holder’s option, principal and interest due on the debentures can be converted into the Thomas Pharmaceuticals Series B Convertible Preferred Stock having a stated value of $1,000 per share. The Thomas Pharmaceuticals Series B Convertible Preferred Stock is convertible at the holder’s option into the number of shares of Thomas Pharmaceuticals Class A Common Stock determined by dividing the stated value of the shares of Thomas Pharmaceuticals Series B Convertible Preferred Stock being converted by a 20% discount to the lowest closing bid price of the Thomas Pharmaceuticals Class A Common Stock for the five trading days before the conversion date. There is no limit upon the number of shares that Thomas Pharmaceuticals may be required to issue upon conversion of any of these obligations. The $103,200 convertible debenture was secured by substantially all of the assets of Thomas Pharmaceuticals (including goods, inventory, contract rights, accounts receivable, products and proceeds), subordinate to the security interest previously granted to iVoice. The net proceeds of $160,000 from the convertible debentures were loaned by Thomas Acquisition to Thomas Pharmaceuticals and Thomas Pharmaceuticals executed a Promissory Note for such funds. The Promissory Note bears interest at the rate of ten (10%) percent per annum and has a term of seven years.  In exchange for and in consideration of BioBridge LLC purchasing the secured convertible debenture and thereby permitting Thomas Acquisition to loan the net proceeds to Thomas Pharmaceuticals for operations, Thomas Pharmaceuticals agreed to have the convertible debenture secured with assets of Thomas Pharmaceuticals and convertible into shares of Thomas Pharmaceuticals.

On April 16, 2008 and May 7, 2008, the Company executed a consulting agreement with Jerome Mahoney and an employment agreement with Mark Meller, respectively. As part of their individual compensation agreements, the Company issued two five (5) year promissory notes in the amount of $35,000, each, for signing bonuses. The notes carry an interest charge of 3% per annum and are convertible into Class B common stock on a dollar for dollar basis plus accrued interest.

On June 10, 2008, the Company received $77,250 from iVoice, Inc. for an initial investment in Small Cap Advisors. The Company secured the receipt with a convertible promissory note, at an interest of prime plus 1 percent per annum. Additional amounts of $19,400 were added to this note based on any unpaid administrative service fees. In November 2008, $27,000 of the principal balance of the note was repaid to iVoice, Inc in cash. The outstanding principal balance of the note will accrue interest at the above specified rate from date of advance until paid.

On June 11, 2008, the Company converted its outstanding accounts due to iVoice, Inc. for unpaid administrative services in the amount of $47,302 into a convertible promissory note at the rate of prime plus 1 percent per annum. During 2008, additional amounts of $24,000 was added to this note based on any unpaid administrative service fees and will accrue interest at the above specified rate from date of advance until paid.

On March 30, 2009, the Company issued to Bagell Josephs Levine & Co, LLC a $42,500 convertible debenture due on March 30, 2012 bearing interest of 6% per annum. BJL may, at its discretion, convert the outstanding principal and accrued interest, in whole or in part, into a number of shares of Thomas Pharmaceuticals Class A Common Stock at the price per share equal to ninety eighty percent (98%) of the lowest closing bid price of the Common Stock for the five (5) trading days immediately preceding the conversion date.

To date, the Company has incurred substantial losses, and will require financing for working capital to meet its operating obligations. We anticipate that we will require financing on an ongoing basis for the foreseeable future to fund our working capital needs.
 
 
During the nine months ended September 30, 2009, the Company had a net decrease in cash of $5,281. The Company’s principal sources and uses of funds were as follows:

Cash used by operating activities. The Company used $5,281 in cash for operating activities in the nine months ended September 30, 2009. The use of funds is primarily the result of the cash losses from operations sustained by the Company offset by increases in accounts payable and accrued expenses.
 
Off-balance Sheet Arrangements

The Company has no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

Forward Looking Statements - Cautionary Factors

Certain information included in this Form 10-Q and other materials filed or to be filed by us with the Securities and Exchange Commission (as well as information included in oral or written statements made by us or on our behalf), may contain forward-looking statements about our current and expected performance trends, growth plans, business goals and other matters.  These statements may be contained in our filings with the Securities and Exchange Commission, in our press releases, in other written communications, and in oral statements made by or with the approval of one of our authorized officers.  Information set forth in this discussion and analysis contains various “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.  The Private Securities Litigation Reform Act of 1995 (the “Act”) provides certain “safe harbor” provisions for forward-looking statements.  The reader is cautioned that such forward-looking statements are based on information available at the time and/or management’s good faith belief with respect to future events, and are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in the statements.  Forward-looking statements speak only as of the date the statement was made.  We assume no obligation to update forward-looking information to reflect actual results, changes in assumptions or changes in other factors affecting forward-looking information.  Forward-looking statements are typically identified by the use of terms such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “predict,” “project,” “should,” “will,” and similar words, although some forward-looking statements are expressed differently.  Although we believe that the expectations reflected in such forward-looking statements are reasonable, we can give no assurance that such expectations will prove to be correct.

ITEM 4T - CONTROLS AND PROCEDURES

Management's report on internal control over financial reporting.

Management of the Company has evaluated, with the participation of the Chief Executive Officer and Chief Financial Officer of the Company, the effectiveness of the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) promulgated by the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934, as amended (the "Exchange Act")) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer of the Company had concluded that the Company's disclosure controls and procedures as of the period covered by this Quarterly Report on Form 10-Q were not effective for the following reasons:

a)           The deficiency was identified as the Company's limited segregation of duties amongst the Company's employees with respect to the Company's control activities. This deficiency is the result of the Company's limited number of employees. This deficiency may affect management's ability to determine if errors or inappropriate actions have taken place. Management is required to apply its judgment in evaluating the cost-benefit relationship of possible changes in our disclosure controls and procedures.

b)           The deficiency was identified in respect to the Company's Board of Directors. This deficiency is the result of the Company's limited number of external board members. This deficiency may give the impression to the investors that the board is not independent from management. Management and the Board of Directors are required to apply their judgment in evaluating the cost-benefit relationship of possible changes in the organization of the Board of Directors.

Changes in internal control over financial reporting.

Management of the Company has also evaluated, with the participation of the Chief Executive Officer of the Company, any change in the Company’s internal control over financial reporting that occurred during the period covered by this Quarterly Report on Form 10-Q and determined that there was no change in the Company’s internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
 

 
PART II – OTHER INFORMATION

ITEM 5 - OTHER INFORMATION

(b)  
The Company does not have a standing nominating committee or a committee performing similar functions as the Company’s Board of Directors consists of only two members and therefore there would be no benefit in having a separate nominating committee that would consist of the same number of members as the full board of directors.  Both members of the Board of Directors participate in the consideration of director nominees.

ITEM 6 - EXHIBITS

 
 
 
SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 
  Thomas Pharmaceuticals, Ltd.  
       
Date: November 16, 2009
By:
/s/ Harold Halman                 
    Harold Halman  
   
President, Chief Executive Officer
and Chief Financial Officer
  
       
 

 
 
 
 
Index of Exhibits