10-Q 1 form-10q_16181.txt THOMAS PHARMACEUTICALS LTD. ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2008 OR [ ] 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 (I.R.S. Employer incorporation or organization) 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 [_] 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 [_] Accelerated filer [_] Non-accelerated filer [_] Smaller reporting company [X] (Do not check if a smaller reporting company) -------------------------------------------------------------------------------- Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [_] No [X] Number of shares of Class A, common stock, No par value, outstanding as of November 14, 2008: 434,810,067 ================================================================================ THOMAS PHARMACEUTICALS, LTD. AND SUBSIDIARY CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2008 AND 2007 TABLE OF CONTENTS ----------------- Page No. -------- PART I. FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements (Unaudited) Balance Sheets - September 30, 2008 (Unaudited) and December 31, 2007 (Audited) 2 Statements of Operations - For the nine months and three months ended September 30, 2008 and 2007 (Unaudited) 3 Statements of Cash Flows - For the nine months ended September 30, 2008 and 2007 (Unaudited) 4-5 Notes to Condensed Consolidated Financial Statements (Unaudited) 6-20 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 21-26 Item 4T. Controls and Procedures 26-27 PART II. OTHER INFORMATION Item 5. Other Information 28 Item 6. Exhibits 28 1 THOMAS PHARMACEUTICALS, LTD. AND SUBSIDIARY CONDENSED CONSOLIDATED BALANCE SHEETS

The accompanying notes are an integral part of these condensed consolidated financial statements. 2 THOMAS PHARMACEUTICALS, LTD. AND SUBSIDIARY CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

The accompanying notes are an integral part of these condensed consolidated financial statements. 3 THOMAS PHARMACEUTICALS, LTD. AND SUBSIDIARY CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) FOR THE NINE MONTHS ENDED SEPTEMBER 30,

The accompanying notes are an integral part of these condensed consolidated financial statements. 4 THOMAS PHARMACEUTICALS, LTD. AND SUBSIDIARY CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)(CONTINUED) SUPPLEMENTAL CASH FLOW INFORMATION For the nine months ended September 30, 2008: --------------------------------------------- a) The Company issued 99,6000,000 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 For the nine months ended September 30, 2007: --------------------------------------------- a) The Company issued a 10% Promissory Note valued at $160,000 to Thomas Pharmaceutical Acquisition Corp. pursuant to the terms of the Extension Agreement with iVoice, Inc., Thomas Pharmaceutical Acquisition Corp. and Thomas Pharmaceuticals. b) The Company issued a 10% Secured Convertible Debenture valued at $25,000 to iVoice, Inc. c) The Company accrued $41,136 of preferred stock dividends. The accompanying notes are an integral part of these condensed consolidated financial statements. 5 THOMAS PHARMACEUTICALS, LTD. AND SUBSIDIARY NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) SEPTEMBER 30, 2008 AND 2007 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(TM), 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 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 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. 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. 6 THOMAS PHARMACEUTICALS, LTD. AND SUBSIDIARY NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) SEPTEMBER 30, 2008 AND 2007 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, 2007 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. 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, 2008 and December 31, 2007, 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, 2008 or December 31, 2007. ADVERTISING COSTS Advertising costs are expensed as incurred and are included in selling and marketing expenses. For the nine months ended September 30, 2008 and 2007, the Company incurred $0 and $12,895, respectively, 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 Statements of 7 THOMAS PHARMACEUTICALS, LTD. AND SUBSIDIARY NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) SEPTEMBER 30, 2008 AND 2007 Financial Accounting Standards No. 109, "Accounting for 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. DERIVATIVE LIABILITIES During April 2003, the Financial Accounting Standards Board issued SFAS 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities." SFAS 149 amends and clarifies accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities under SFAS 133, "Accounting for Derivative Instruments and Hedging Activities." The statement requires that contracts with comparable characteristics be accounted for similarly and clarifies when a derivative contains a financing component that warrants special reporting in the statement of cash flows. SFAS 149 is effective for contracts entered into or modified after June 30, 2003, except in certain circumstances, and for hedging relationships designated after June 30, 2003. The financial statements for the nine months ended September 30, 2008 and 2007, include the recognition of the derivative liability on the underlying securities issuable upon conversion of the iVoice Secured Convertible Debentures, iVoice Secured Promissory Notes and Thomas Pharmaceuticals Acquisition Corp. ("Thomas Acquisition") Promissory Notes. 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:

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 8 THOMAS PHARMACEUTICALS, LTD. AND SUBSIDIARY NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) SEPTEMBER 30, 2008 AND 2007 Convertible Preferred Stock. At September 30, 2008, the Company had common stock equivalents of 19,995,300,000. At September 30, 2007, the common stock equivalents are indeterminable because there was no public market for the shares at that time. RECLASSIFICATIONS Certain reclassifications have been made to the September 30, 2007 financial statements to conform to the September 30, 2008 presentation. There has been no effect on net loss for the nine months and three months ended September 30, 2007. RECENT ACCOUNTING PRONOUNCEMENTS In April 2008, the FASB issued FSP No. 142-3, Determination of the Useful Life of Intangible Assets. FSP 142-3 amends the factors an entity should consider in developing renewal or extension assumptions used in determining the useful life of recognized intangible assets under SFAS 142, Goodwill and Other Intangible Assets, and adds certain disclosures for an entity's accounting policy of the treatment of the costs, period of extension, and total costs incurred. FSP 143-3 must be applied prospectively to intangible assets acquired after January 1, 2009. The Company is currently evaluating the impact that FSP 142-3 will have on its financial position or results of operations. In May 2008, the Financial Accounting Standards Board (the "FASB") issued FAS No. 162, "The Hierarchy of Generally Accepted Accounting Principles" ("FAS 162"). This statement identifies the sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements of nongovernmental entities that are presented in accordance with GAAP. With the issuance of this statement, the FASB concluded that the GAAP hierarchy should be directed toward the entity and not its auditor, and reside in the accounting literature established by the FASB as opposed to the American Institute of Certified Public Accountants (AICPA) Statement on Auditing Standards No. 69, "The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles." This statement is effective 60 days following the SEC's approval of the Public Company Accounting Oversight Board amendments to AU Section 411, "The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles." The adoption of FAS 162 is not expected to have a material impact on the Company's results from operations or financial position. NOTE 3 - FAIR VALUE MEASUREMENTS On January 1, 2008, the Company adopted SFAS No. 157 "Fair Value Measurements" ("SFAS 157"). SFAS 157 defines fair value, provides a consistent framework for measuring fair value under Generally Accepted Accounting Principles and expands fair value financial statement disclosure requirements. SFAS 157's valuation techniques are based on observable and unobservable inputs. Observable inputs reflect readily obtainable data from independent sources, while unobservable inputs reflect our market assumptions. 9 THOMAS PHARMACEUTICALS, LTD. AND SUBSIDIARY NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) SEPTEMBER 30, 2008 AND 2007 SFAS 157 classifies these inputs into the following hierarchy: Level 1 Inputs- Quoted prices for identical instruments in active markets. Level 2 Inputs- Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable. Level 3 Inputs- Instruments with primarily unobservable value drivers. The following table represents the fair value hierarchy for those financial assets and liabilities measured at fair value on a recurring basis as of September 30, 2008.

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, 2008, the Company issued 99,600,000 shares of Class A common stock as repayment of principal of $8,928. As of September 30, 2008 the remaining principal balance of the convertible debenture was $351,072 plus $111,319 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, 2008 the remaining principal balance of the convertible debenture was $100,000 plus $30,998 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, 2008 the remaining principal balance of the convertible debenture was $225,000 plus $61,039 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, 2008 the remaining principal balance of the convertible debenture was $25,000 plus $4,400 of accrued interest. 10 THOMAS PHARMACEUTICALS, LTD. AND SUBSIDIARY NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) SEPTEMBER 30, 2008 AND 2007 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 beneficial conversion feature of the iVoice Debentures met the criteria of EITF No. 98-5 "Accounting for Convertible Securities with Beneficial Conversion Features or Contingently Adjustable Conversion Ratios", and therefore the conversion feature was accounted for as a derivative. The fair value of the derivative was estimated at the date of issuance using the Black-Scholes model with the following assumptions: risk free interest rate (5.47%); expected dividend yield (0%); expected life (7 years); and volatility (169.22%, 194.86% and 154.79%). The aggregate fair value of the beneficial conversion feature was greater that the proceeds of the debentures and as such, an aggregate cumulative amount of $163,437 has been charged to loss on revaluation of derivatives, and the balance has been recorded as a discount on debt conversion. The aggregate principal value of the iVoice debentures at September 30, 2008 is $701,072. This amount is shown net of the unamortized portion of the discount on conversion of $441,751. This discount is being amortized over the life of the debenture and is being recorded as a charge to amortization of discount on beneficial conversion on the statement of operations. 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 matures on January 19, 2009 with a lump sum payment due of any remaining principal and interest. As of September 30, 2008, the unpaid balance on the promissory note is $20,000 plus accrued interest of $3,961. 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 (6% at September 30, 2008) 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, 2008, the balance due on the note is $89,250, plus accrued interest of $1,444. 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 11 THOMAS PHARMACEUTICALS, LTD. AND SUBSIDIARY NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) SEPTEMBER 30, 2008 AND 2007 rate of prime plus 1 (6% at September 30, 2008) 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, 2008, the principal balance of the note is $59,302, plus accrued interest of $775. The Company determined that the beneficial conversion feature of the iVoice convertible promissory notes met the criteria of EITF No. 98-5 and therefore the conversion feature was accounted for as a derivative. The fair value of the derivative was estimated at the date of issuance using the Black-Scholes model with the following assumptions: risk free interest rate: 5.47%; expected dividend yield: 0%: expected life: 5 years; and volatility: 267.55%. The aggregate fair value of the beneficial conversion feature was greater that the proceeds of the promissory note and as such, an aggregate of $79,036 was charged to loss on revaluation of derivatives and the balance was recorded as a discount on debt conversion at the time of issuance. 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. The aggregate principal balances of the promissory notes at September 30, 2008 is $238,552. This amount is shown net of the unamortized portion of the discount on conversion of the iVoice promissory notes of $114,173. This discount is being amortized over the life of the iVoice promissory notes and is being recorded as a charge to amortization of discount on beneficial conversion on the statement of operations. 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 12 THOMAS PHARMACEUTICALS, LTD. AND SUBSIDIARY NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) SEPTEMBER 30, 2008 AND 2007 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, 2008, the unpaid balance on the promissory note is $154,000 plus accrued interest of $26,251. The Company determined that the beneficial conversion feature of the Thomas Acquisition Debentures met the criteria of EITF No. 98-5 and therefore the conversion feature was accounted for as a derivative. The fair value of the derivative was estimated at the date of issuance using the Black-Scholes model with the following assumptions: risk free interest rate: 5.47%; expected dividend yield: 0%: expected life: 7 years; and volatility: 154.79%. The aggregate fair value of the beneficial conversion feature was greater that the proceeds of the promissory note and as such, an aggregate of $88,546 was charged to loss on revaluation of derivatives and the balance was recorded as a discount on debt conversion at the time of issuance. The principal amount of the promissory note at September 30, 2008 is $154,000. This amount is shown net of the unamortized portion of the discount on conversion of the Thomas Acquisition debentures of $117,333. This discount is being amortized over the life of the Thomas Acquisition debenture and is being recorded as a charge to amortization of discount on beneficial conversion on the statement of operations. NOTE 6 - DERIVATIVE LIABILITY In accordance with SFAS 133, " Accounting for Derivative Instruments and Hedging Activities" and EITF 00-19, " Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company's Own Stock", the beneficial conversion feature associated with the iVoice Convertible Debentures, iVoice Promissory Notes and Thomas Acquisition Convertible Debentures represents embedded derivatives in that the conversion price is variable, the numbers of shares to be issued are indeterminable and the control of whether shares are issued does not reside with the Company. As such; a) the Company has recognized embedded derivatives on the iVoice debentures in the amount of $873,437 as a derivative liability in the accompanying balance sheet and as of September 30, 2008 they had an estimated fair value of $875,410; b) the Company had recognized embedded derivatives on the iVoice promissory notes in the amount of $203,588 as a derivative liability in the accompanying balance sheet and as of September 30, 2008 they had an estimated fair value of $185,580; and c) the Company has recognized embedded derivatives on the Thomas Acquisition debentures in the amount of $242,546 as a derivative liability in the accompanying balance sheet and as of September 30, 2008 it was measured at its estimated fair value of $249,935. The estimated fair value of the embedded derivatives have been calculated based on a Black-Scholes pricing model using the following assumptions: September 30, 2008 ------------------ Fair market value of stock $0.00010 Exercise price $0.00008 Dividend yield 0.00% Risk free interest rate 5.47% Expected volatility * 310.52% Expected life 4.25 to 5.33 years * It was determined that the historical stock prices of iVoice provided the closest comparable for determining the expected volatility of the Thomas common stock. 13 THOMAS PHARMACEUTICALS, LTD. AND SUBSIDIARY NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) SEPTEMBER 30, 2008 AND 2007 Changes in the fair value of the embedded derivatives are calculated at each reporting period and recorded in (gain) loss on revaluation of derivatives in the condensed statements of operations. For the nine months ended September 30, 2008, there was a change in the fair value of the embedded derivatives, which resulted in a gain of $25,043. This gain was offset by the immediate recognition of loss on revaluation of derivatives issued during the same period in the amount of $79,037, resulting in a net loss of $53,994. For the nine months ending September 30, 2007, there was a change in the fair value of the embedded derivatives, which resulted in a gain of $160. This gain was offset by the immediate recognition of loss on revaluation of derivatives issued during the same period in the amount of $93,864, resulting in a net loss of $93,704. In accordance with SFAS 133, SFAS 150, "Accounting for Certain Financials Instruments With Characteristics of Both Liabilities and Equity" and EITF 00-19, the fair market value of the derivatives are recorded as a debt discount. The debt discount on the iVoice debentures, iVoice notes and Thomas Acquisition debentures of $710,000, $124,552 and $154,000, respectively, is being amortized over the life of the convertible debentures. Amortization expense on the debt discount for the nine months ended September 30, 2008 and 2007 was $104,156 and $91,646, respectively. NOTE 7 - RELATED PARTY TRANSACTIONS In addition to the financing provided, iVoice provides administrative services and other miscellaneous support to the Company from time to time. For the nine months ended September 30, 2008 and 2007, the Company has recorded $52,000 and $37,500 of these charges in the financial accounts of the Company. As of September 30, 2008, 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. 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 14 THOMAS PHARMACEUTICALS, LTD. AND SUBSIDIARY NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) SEPTEMBER 30, 2008 AND 2007 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% (6% at September 30, 2008) per annum. As of September 30, 2008, the unpaid fees in the amount of $59,302 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% (6% at September 30, 2008) per annum. As of September 30, 2008, the unpaid fees in the amount of $12,000 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, 2008, unpaid compensation in the amount of $36,667 is due and owing. 15 THOMAS PHARMACEUTICALS, LTD. AND SUBSIDIARY NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) SEPTEMBER 30, 2008 AND 2007 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. As of September 30, 2008, unpaid compensation in the amount of $38,222 is due and owing. 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, 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 16 THOMAS PHARMACEUTICALS, LTD. AND SUBSIDIARY NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) SEPTEMBER 30, 2008 AND 2007 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, 2008, there are 550 shares issued and outstanding. b) Class A Common Stock -------------------- Class A Common Stock consists of 10,000,000,000 shares with no par value. As of September 30, 2008, there are 347,876,105 shares issued and outstanding. As of September 30, 2007, there were 100 shares issued and outstanding prior to the spin-off and 243,184,868 shares issued and outstanding following the restatement for the 2,431,849 for 1 retroactive stock split. 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, 2008, the Company had the following transactions in its Class A common stock: The Company issued 99,600,000 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. 17 THOMAS PHARMACEUTICALS, LTD. AND SUBSIDIARY NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) SEPTEMBER 30, 2008 AND 2007 c) Class B Common Stock -------------------- Class B Common Stock consists of 50,000,000 shares with no par value. As of September 30, 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. 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 18 THOMAS PHARMACEUTICALS, LTD. AND SUBSIDIARY NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) SEPTEMBER 30, 2008 AND 2007 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, 2008 and December 31, 2007 deferred tax assets consist of the following: September 30, 2008 December 31, 2007 ------------------ ----------------- Deferred tax assets $ 310,000 $ 110,000 Less: Valuation allowance (310,000) (110,000) ------------ ------------ Net deferred tax assets $ 0 $ 0 ============ ============ At September 30, 2008 and December 31, 2007, the Company had a federal net operating loss carry forwards in the approximate amount of $775,000 and $275,000, 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, 2007 and for the nine months ended September 30, 2008. 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. 19 THOMAS PHARMACEUTICALS, LTD. AND SUBSIDIARY NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) SEPTEMBER 30, 2008 AND 2007 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. NOTE 12 - SUBSEQUENT EVENTS On October 13, 2008, the Company issued 17,358,962 shares of Class A Common Stock to Mertz and Muenz, LLP valued at $1,736 as repayment for legal services provided in 2007. On October 13, 2008, the Company issued 34,787,500 shares of Class A Common Stock to Mark Meller valued at $3,479 as repayment of deferred compensation. On October 13, 2008, the Company issued 34,787,500 shares of Class A Common Stock to Jerome Mahoney valued at $3,479 as repayment of deferred compensation. 20 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-KSB 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 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 Thomas Pharmaceuticals and Small Cap Advisors operate their businesses from the executive offices in Matawan, New Jersey. The Company began selling its first product, Acid+All(R), a calcium-enriched, sugar free, anti-gas antacid tablet, in January 2006 through retailers who have subsequentlY decided to no longer carry the Acid+All(R) product since the Company did not have the financial resources for necessary sales and marketing activities. The Company needs tO raise significant financing in 21 order to fund its ongoing operations. There can be no assurance as to the receipt or timing of financing. We anticipate that our operations will require at least $250,000 per quarter. RESULTS OF OPERATIONS NINE MONTHS ENDED SEPTEMBER 30, 2008 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 2007. Total revenues for the nine months ended September 30, 2008 and 2007 were $27,375 and $26,707, respectively. Revenues in the nine months ended September 30, 2008 were from finished goods inventory on-hand and from collection of receivables that were previously fully reserved. Sales for the nine months ended September 30, 2007 were $75,557, net of a provision for product returns and allowance of $48,850. Gross profit (loss) for the nine months ended September 30, 2008 and 2007 was $27,375 and $(34,269), respectively. The gross profit in 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. For the nine months ended September 30, 2007, our standard product gross profit of 50% was substantially eroded by the effect of the provision for product returns and a provision for obsolete inventory of $26,117. Operating expenses for the nine months ended September 30, 2008 and 2007 were $374,547 and $547,464, respectively. The costs in 2008 primarily represent the costs of running a public company, accrued executive compensation of $113,500, accrued administrative service fees of $36,000 and accrued professional fees for accounting, legal and business consulting services of $133,691. In addition, the Company incurred $65,000 of expenses related to Small Cap Advisors during its first couple of months of operation. The costs in 2007 include $93,315 for a sampling event in San Francisco on Valentine's Day, $42,031 provision for bad debts, amortization and impairment of intangible assets of $81,453, executive compensation of $46,530, accrued professional fees for accounting and legal of $114,425, accrued administrative service fees of $37,500, contract selling of $54,600 and costs of staffing and running our field sales office in New York City of $55,422, which was closed on March 31, 2007. Total other expense for the nine months ended September 30, 2008 was an expense of $294,289. This total was primarily comprised of $104,156 amortization of the discount on debt, $53,994 loss on revaluation of the derivatives, $52,872 of beneficial interest on debt conversion and $83,267 of accrued interest expense on the debentures and promissory notes. Total other expense for the nine months ended September 30, 2007 was an expense of $255,719. This total was primarily comprised of $91,646 amortization of the discount on debt, $93,704 loss on revaluation of the derivatives and $70,369 of accrued interest expense on the on the debentures and promissory notes. The increase in amortization of the discount on debt and the increase in interest expense were related to the increases in convertible debt as compared to the prior year. Loss before preferred dividends for the nine months ended September 30, 2008 and 2007 were $641,461 and $837,452, respectively. The decrease in loss before preferred dividends of $195,991 was primarily the results of the Company curtailing any spending for selling, marketing and advertising until further funding becomes available. Preferred dividends for the nine months ended September 30, 2008 and 2007 were $41,288 and $41,136, respectively. These dividends are accrued pursuant to the provisions of the Series B Convertible Preferred Stock and remain unpaid. 22 THREE MONTHS ENDED SEPTEMBER 30, 2008 COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 2007. There were no new revenues or gross profit (loss) for the three months ended September 30, 2008 or 2007. We had basically stopped shipping new products in the 2nd quarter of 2007 and there were no new collections during the respective periods. Operating expenses for the three months ended September 30, 2008 and 2007 were $86,551 and $93,562, respectively. The costs in 2008 primarily represent the costs of running a public company of $8,004, accrued executive compensation of $20,000, accrued administrative service fees of $12,000 and accrued professional fees for accounting, legal and business consulting services of $29,509. In addition, the Company incurred $17,038 of expenses related to Small Cap Advisors during this period. The costs in 2007 include the costs of running a public company of $12,372, accrued executive compensation of $15,540, accrued administrative service fees $12,500, accrued professional fees for accounting and legal of $23,150, co-op advertising fees of $12,000 and contract selling of $18,000. Total other expense for the three months ended September 30, 2008 was an expense of $99,481. This total was primarily comprised of $37,486 amortization of the discount on debt, $25,929 loss on revaluation of the derivatives, $6,892 of beneficial interest on debt conversion and $29,714 of accrued interest expense on the debentures and promissory notes. Total other expense for the three months ended September 30, 2007 was an expense of $102,764. This total was primarily comprised of $31,259 amortization of the discount on debt, $46,844 loss on revaluation of the derivatives and $24,661 of accrued interest expense on the on the debentures and promissory notes. The increase in amortization of the discount on debt and the increase in interest expense were related to the increases in convertible debt as compared to the prior year. Net loss before preferred dividends for the three months ended September 30, 2008 and 2007 were $186,032 and $196,326, respectively. The decrease in net loss before preferred dividends of $10,294 was primarily the results of the Company curtailing any spending for selling, marketing and advertising until further funding becomes available. Preferred dividends for the three months ended September 30, 2008 and 2007 were $13,863 and $13,863, respectively. 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 23 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 24 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 $12,000 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 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. Additional amounts of $12,000 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. 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, 2008, THE COMPANY HAD A NET INCREASE IN CASH OF $21,423. THE COMPANY'S PRINCIPAL SOURCES AND USES OF FUNDS WERE AS FOLLOWS: CASH USED BY OPERATING ACTIVITIES. The Company used $55,827 in cash for operating activities in the nine months ended September 30, 2008. 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. 25 CASH USED BY INVESTING ACTIVITIES. The Company used no cash in the nine months ended September 30, 2008 for investing activities CASH PROVIDED BY FINANCING ACTIVITIES. The Company provided $77,250 in cash from financing activities in the nine months ended September 30, 2008. The Company received gross proceeds of $77,250 from iVoice, Inc to fund the initial investment in Small Cap Advisor. 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 26 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. 27 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 31.1 Rule 13a-14(a)/15d-14(a) Certifications. 32.1 Certification of Chief Executive and Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 28 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. By: /s/ Mark Meller Date: November 19, 2008 ------------------------------------- Mark Meller, Chief Executive Officer and Chief Financial Officer 29 INDEX OF EXHIBITS 31.1 Rule 13a-14(a)/15d-14(a) Certifications. 32.1 Certification of Chief Executive and Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 30

Thomas Pharmaceuticals, Ltd. 10-Q