Form 10-Q for THOMAS PHARMACEUTICALS, LTD.
--------------------------------------------------------------------------------
19-Aug-2009
Quarterly Report
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 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
Six months ended June 30, 2009 compared to six months ended June 30, 2008.
Total revenues for the six months ended June 30, 2009 and 2008 were $0 and $27,375, respectively. There were no revenues in the six months ended June 30, 2009. Revenues in the six months ended June 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 six months ended June 30, 2009 and 2008 was $0 and $27,375, respectively. There is no gross profit in the six months ended June 30, 2009. The gross profit for the six months ended June 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 six months ended June 30, 2009 and 2008 were $153,509 and $287,996, respectively, for a decrease of $134,487. The decrease primarily consist of a decrease in executive salaries and taxes of $55,102, decreases of $47,330 in the curtailment of expenses in Small Cap Advisors, decrease of $24,000 in administrative services fees and other decreases in insurance and professional services when compared to the prior year.
Total other expense for the six months ended June 30, 2009 was an expense of $51,350. This total was comprised of $60,468 of interest expense on the debentures and promissory notes and $6,596 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 six months ended June 30, 2008 was an expense of $129,100. This total was comprised of $75,007 of accretion of discount from present value of conversion liability and $54,093 of interest expense on the debentures and promissory notes. The increase in interest expense were related to the increases in convertible debt as compared to the prior year.
The restated loss before preferred dividends for the six months ended June 30, 2009 and 2008 were $204,859 and $389,721, respectively. The decrease in the loss before preferred dividends of $184,862 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.
--------------------------------------------------------------------------------
Table of Contents
Preferred dividends for the six months ended June 30, 2009 and 2008 were $27,274 and $27,425, respectively. These dividends are accrued pursuant to the provisions of the Series B Convertible Preferred Stock and remain unpaid.
Three months ended June 30, 2009 compared to three months ended June 30, 2008.
Total revenues for the three months ended June 30, 2009 and 2008 were $0 and $27,090, respectively. There were no revenues in the three months ended June 30, 2009. Revenues in the three months ended June 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 three months ended June 30, 2009 and 2008 was $0 and $27,090, respectively. There is no gross profit in the three months ended June 30, 2009. The gross profit for the three months ended June 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 three months ended June 30, 2009 and 2008 were $60,275 and $199,259, respectively, for a decrease of $138,984. The decrease primarily consist of a decrease of $45,506 in consulting and legal fees, decreases of $47,910 in the curtailment of expenses in Small Cap Advisors, a decrease in executive compensation and taxes of approximately $36,536 and a decrease in administrative service fees of $12,000.
Total other expense for the three months ended June 30, 2009 was an expense of $34,353. This total was comprised of $31,447 of interest expense on the debentures and promissory notes and $2,906 accretion of discount from present value of conversion liability. Total other expense for the three months ended June 30, 2008 was an expense of $55,691. This total was comprised of $26,979 accretion of discount from present value of conversion liability and $28,712 of interest expense on the debentures and promissory notes. 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 three months ended June 30, 2009 was $94,628. Restated loss for the three months ended June 30, 2008 was $227,860. The decrease in loss before preferred dividends of $133,232 was primarily the results of the lower operating expenses and interest expenses when compared to the prior year.
Preferred dividends for the three months ended June 30, 2009 and 2008 were $13,712 and $13,712, 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 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.
--------------------------------------------------------------------------------
Table of Contents
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 six months ended June 30, 2009, the Company had a net decrease in cash of $5,796. The Company's principal sources and uses of funds were as follows:
Cash used by operating activities. The Company used $5,796 in cash for operating activities in the six months ended June 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.
--------------------------------------------------------------------------------
Table of Contents
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.
