-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RWiHZTxpz3D5x3/OVr9HuJB0PyW46F4Ou9m6YLVS+fidMfKnINQJOZYOuMihPep1 n1z3Gm/Kv9a5Ww28w0hZmQ== 0000950005-03-000834.txt : 20030814 0000950005-03-000834.hdr.sgml : 20030814 20030814165426 ACCESSION NUMBER: 0000950005-03-000834 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20030630 FILED AS OF DATE: 20030814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HUMAN PHEROMONE SCIENCES INC CENTRAL INDEX KEY: 0000878616 STANDARD INDUSTRIAL CLASSIFICATION: PERFUMES, COSMETICS & OTHER TOILET PREPARATIONS [2844] IRS NUMBER: 943107202 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-23544 FILM NUMBER: 03848506 BUSINESS ADDRESS: STREET 1: 84 WEST SANTA CLARA STREET STREET 2: SUITE 720 CITY: SAN JOSE STATE: CA ZIP: 95113 BUSINESS PHONE: 4089383030 FORMER COMPANY: FORMER CONFORMED NAME: EROX CORP DATE OF NAME CHANGE: 19940307 10QSB 1 p17515_10-qsb.txt QUARTERLY REPORT UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB (MARK ONE) [ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarter ended June 30, 2003 [ ] TRANSITION REPORT UNDER SECTION 13 OR A5(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (no fee required) Commission file number 0-23544 HUMAN PHEROMONE SCIENCES, INC. (Name of small business issuer in its charter) California 94-3107202 - ------------------------------- ------------------- (State or other jurisdiction of (I.R.S. employee incorporation or organization) Identification No.) 84 West Santa Clara Street, San Jose, California 95113 - ------------------------------------------------ ---------- (Address of principal executive offices) (Zip code) Issuer's telephone number: (408) 938-3030 ------------- --------------------------------------------------------------- (Former name or former address, if changed since last report) State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: 4,027,616 shares of Common Stock as of July 31, 2003. 1 HUMAN PHEROMONE SCIENCES, INC. INDEX
Page ---- PART I FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheets as of June 30, 2003 (Unaudited) and December 31, 2002.......................................................................3 Consolidated Statements of Operations and Comprehensive Income /Loss (Unaudited) for the For the Three and Six Months Ended June 30, 2003 and 2002...................................4 Consolidated Statements of Cash Flows (Unaudited) for the Six Months Ended June 30, 2003 and 2002................................................................5 Notes to Consolidated Financial Statements (Unaudited)......................................6 Item 2. Management's Discussion and Analysis Management's Discussion and Analysis of Financial Conditions and Results of Operations .....9 Item 3. Controls and Procedures....................................................................15 PART II OTHER INFORMATION Item 2. Changes in Securities and Use of Proceeds..................................................16 Item 4. Submission of Matters to a Vote of Security Holders>>.....................................16 Item 6. Exhibits and Reports on Form 8-K .........................................................16 SIGNATURES..................................................................................................17
2 PART I FINANCIAL INFORMATION Item 1. Financial Statements Human Pheromone Sciences, Inc. Consolidated Balance Sheets
June 30, December 31, (in thousands except share data) 2003 2002 - ---------------------------------------------------------------------------------- ----------- ----------- (unaudited) Assets Current assets: Cash and cash equivalents $ 2,057 $ 1,394 Accounts receivable, net of allowances of $12,000 and $70,000 in 2003 and 2002, respectively 142 249 Inventories, net 110 151 Assets to be sold -- 493 Other current assets 41 10 -------- -------- Total current assets 2,350 2,297 Property and equipment, net 9 5 Product licenses 50 50 -------- -------- $ 2,409 $ 2,352 ======== ======== Liabilities, Convertible Redeemable Preferred Stock and Shareholders' Equity (Deficiency) Current liabilities: Accounts payable $ 58 $ 186 Liabilities associated with assets to be sold -- 330 Accrued income tax 21 -- Accrued professional fees 42 57 Accrued vacation 43 34 Other accrued expenses 18 19 -------- -------- Total current liabilities 182 626 -------- -------- Commitments and Contingencies Convertible redeemable preferred stock: Preferred stock, issuable in series, no par value, 10,000,000 shares authorized, Series AA 100,000 and 1,433,333 convertible shares issued and outstanding in 2003 and 2002, respectively (total liquidation value $150 and $2,150, respectively) 150 2,146 Series BB 17,448 convertible shares issued and outstanding at December 31, 2002 (total liquidation value $1,745) -- 1,560 -------- -------- Total convertible redeemable preferred stock 150 3,706 -------- -------- Shareholders' equity (deficiency): Common stock, no par value, 13,333,333 shares authorized, 4,027,616 and 3,429,839 shares issued and outstanding at 2003 and 2002, respectively 20,717 17,667 Accumulated deficit (18,640) (19,581) Foreign currency translation -- (66) -------- -------- Total shareholders' equity (deficiency) 2,077 (1,980) -------- -------- $ 2,409 $ 2,352 ======== ========
See accompanying notes to consolidated financial statements. 3 Human Pheromone Sciences, Inc. Consolidated Statements of Operations and Comprehensive Income (Loss) (unaudited)
Three months ended June 30, Six months ended June 30, --------------------------- ------------------------- (in thousands except per share data) 2003 2002 2003 2002 ------- ------- ------- ------- Net revenues 61 146 279 291 Cost of goods sold 19 42 84 81 ------- ------- ------- ------- Gross profit 42 104 195 210 Operating Expenses: Research and development 4 82 7 162 Selling, general and administrative 264 226 527 489 ------- ------- ------- ------- Total operating expenses 268 308 534 651 ------- ------- ------- ------- Income (loss) from operations (226) (204) (339) (441) Other income (expense) Interest income (net) 5 5 8 10 Income tax benefit from on-going operations 33 -- 33 -- ------- ------- ------- ------- Income (loss) from on-going operations (188) (199) (298) (431) Net income from discontinued operations 7 81 79 347 Net gain from sale of assets 1,226 -- 1,226 -- ------- ------- ------- ------- Net income (loss) available to common shareholders 1,045 (118) 1,007 (84) Other comprehensive loss - translation adjustment -- 2 -- 2 ------- ------- ------- ------- Comprehensive income (loss) $ 1,045 $ (116) $ 1,007 $ (82) ======= ======= ======= ======= Net income (loss) per common share- basic From on-going operations $ (0.05) $ (0.06) $ (0.08) $ (0.12) From discontinued operations $ 0.00 $ 0.02 $ 0.02 $ 0.10 From assets sold $ 0.33 $ 0.00 $ 0.34 $ 0.00 ------- ------- ------- ------- Net income (loss) $ 0.28 $ (0.04) $ 0.28 $ (0.02) ======= ======= ======= ======= Net income (loss) per common share-fully diluted From on-going operations $ (0.04) $ (0.06) $ (0.06) $ (0.12) From discontinued operations $ 0.00 $ 0.02 $ 0.02 $ 0.10 From assets sold $ 0.26 $ 0.00 $ 0.24 $ 0.00 ------- ------- ------- ------- Net income (loss) $ 0.22 $ (0.04) $ 0.20 $ (0.02) ======= ======= ======= ======= Weighted average common shares outstanding- basic 3,686 3,430 3,558 3,430 ======= ======= ======= ======= Weighted average common shares outstanding - fully diluted 4,773 3,430 5,011 3,430 ======= ======= ======= =======
See accompanying notes to consolidated financial statements. 4 Human Pheromone Sciences, Inc. Consolidated Statements of Cash Flows (unaudited) Six months ended June 30, ------------------- (in thousands) 2003 2002 - --------------------------------------------------------- ------- -------- Cash flows from operating activities Net income (loss) $ 1,007 $ (84) Net income from discontinued operations 79 347 Net income from sale of assets 1,226 -- ------- ------- Net loss from on-going operations (298) (431) Adjustments to reconcile net income to net cash provided or used by operating activities: Depreciation and amortization 2 4 Changes in operating assets and liabilities: Accounts receivable 41 23 Inventories 40 11 Other current assets (30) (28) Accounts payable and accrued liabilities (79) (24) ------- ------- Net cash used by on-going operating activities (324) (445) ------- ------- Net cash provided by operations of assets sold 156 383 ------- ------- Cash flows provided (used) in investing activities Sale of Realm assets 1,342 -- Acquisition of fixed assets (6) -- ------- ------- Net cash provided by investing activities 1,336 -- Cash flows used in financing activities Purchase of Series BB preferred stock (505) -- Effect of exchange rate on cash -- 2 ------- ------- Net increase in cash and cash equivalents 663 (60) Cash and cash equivalents at beginning of period 1,394 1,355 ------- ------- Cash and cash equivalents at end of period $ 2,057 $ 1,295 ======= ======= See accompanying notes to consolidated financial statements. 5 Human Pheromone Sciences, Inc. Notes to Consolidated Financial Statements (unaudited) June 30, 2003 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization and Nature of Operations Human Pheromone Sciences, Inc. (the "Company") was incorporated in the State of California in 1989 under the name of EROX Corporation. The Company changed the name to Human Pheromone Sciences, Inc. in May 1998. The Company is engaged in the research, development, manufacturing and marketing of consumer products containing synthetic human pheromones as a component. The Company initiated commercial operations in late 1994 with a line of fine fragrances and toiletries. In April 2000, the Company licensed the sale of its REALM fragrance products through department and specialty stores across the United States and selected international markets to Niche Marketing, Inc. In April 2003 the Company sold the REALM(R) and innerREALM(R) brands and trademarks to Niche Marketing Group, Inc. The Company will continue to license and sell its human pheromones for inclusion in other companies products in exchange for supply revenues and/or royalties, and will continue to involved in brand and product development. Basis of Presentation The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-QSB and Item 310(b) of Regulation S-B. 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 of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and six months ended June 30, 2003 are not necessarily indicative of the results that may be expected for the calendar year ending December 31, 2003. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's annual report on Form 10-KSB for the year ended December 31, 2002. Certain prior period balances have been reclassified to conform to the current period presentation. Revenue Recognition Revenue is recorded at the time of merchandise shipment, net of provisions for returns. License fees are earned over the license period according to the terms of the license agreement and interpretative guidance provided by Staff Accounting Bulletin (SAB) No. 101. The majority of the Company's sales are to distributors and licensees, and these distributors and licensees have no right to return products. Inventories Inventories are stated at the lower of cost (first in - first out method) or market. The inventory at June 30, 2003 consists of finished goods inventory valued at $17,000 and raw materials of $93,000. At December 31, 2002, these balances were $14,000 and $137,000, respectively. Sale of Assets On April 14, 2003 the Company sold to Niche Marking Group, Inc. the assets and worldwide ownership rights to the REALM Women, REALM Men and innerREALM product lines. .Assets consisting REALM and innerREALM trademarks, inventory and product licenses were sold resulting in a net gain of $1,226,000. All REALM and innerREALM operating results have been classified as discontinued operations, $79,000 for the six months ending June 30, 2003 and $347,000 the comparable period in 2002. Reclassifications of certain 2002 financial statement information have been made to present the operating results from on-going operations on a comparable basis. 6 License Fees The Company capitalizes license fees paid for the rights to use new pheromone discoveries. License agreements for pheromones and products that are not yet available for sale are not subject to amortization in accordance with Statement of Financial Accounting Standards No. 142: Goodwill and Other Intangible Assets. The Company continually evaluates whether events or circumstances have occurred that indicate the remaining estimated value of the license agreements may not be recoverable. When factors indicate that the value license may be impaired, the Company estimates the remaining value and reduces the license agreement to that amount. Income Taxes The Company has recorded a tax provision of $22,000 for 2003 and no income tax provision for 2002, due primarily to a valuation allowance on deferred tax assets being recorded and the expected utilization of net operating losses carried forward from prior years to offset any significant tax liability. As of June 30, 2003, the Company's gross deferred tax asset, which relates primarily to net operating losses carried forward was $6,410,000. California has suspended for 2003 the utilization of operating loss carry forwards which will result in a tax liability for the year if the Company's taxes exceed the available Research & Development tax credit of $82,000. Earnings (Loss) Per Share The Company calculates earnings (loss) per share in accordance with SFAS No. 128, "Earnings Per Share." SFAS No. 128 replaced the presentation of primary and fully diluted earnings per share with the presentation of basic and diluted earnings per share. Basic earnings per share excludes dilution and is calculated by dividing income available to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted earnings per share includes the potential dilutive effects that could occur if securities or other contracts to issue common stock were exercised or converted into common stock ("potential common stock") that would then share in the earnings of the Company. As of June 30, 2003 and 2002, the unaudited components of basic and diluted earnings per share are as follows (all amounts are in thousands):
2003 2002 ---------- -------- Net income (loss) available to common shareholders $ 1,007 $ (84) ========== ======== Weighted-average common shares outstanding during the period 3,558 3,430 Incremental shares from assumed conversions of convertible preferred stock and stock options 1,453 1,721 ---------- -------- Fully diluted weighted-average common shares and potential commons stock (unaudited) 5,011 5,151 ========== ========
Convertible Redeemable Preferred Stock On May 22, 2003 the Company purchased, from a fund of whom a board member is a general partner, all of the outstanding shares of its Series BB Preferred Stock for $505,000. In a related transaction 1,333,333 shares of Series AA Preferred Stock was converted into 597,777 shares of common stock. 7 Capital Stock and Stock Options Outstanding options to purchase shares of common stock and potential common shares issuable upon conversion of preferred stock are excluded from the computation of diluted earnings per share since when the average stock price for the period is less than the exercise price of outstanding options or when their effect would be antidilutive. On June 25, 2003 the Board of Directors adopted the 2003 Nonemployee Directors Stock Option Plan of Human Pheromone Sciences, Inc. A maximum of 300,000 shares of commons tock may be issued on exercise of the Options granted pursuant to this plan. The plan will expire June 24, 2010. This plan replaces the previous plan which expired June 13, 2003. During the three months ended June 30, 2003 no common or preferred stock was issued, common stock options totaling 80,000 shares under the 2003 Non Employee Directors Stock Option Plan were granted and no issued options were exercised. Recent Accounting Pronouncements In April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections. SFAS No. 145 updates, clarifies, and simplifies existing accounting pronouncements. This statement rescinds SFAS No. 4, which required all gains and losses from extinguishments of debt to be aggregated and if material, classified as an extraordinary item, net of related income tax effect. As a result, the criteria in APB No. 30 will now be used to classify those gains and losses. SFAS No. 64 amended SFAS No. 4 and is no longer necessary as SFAS No. 4 has been rescinded. SFAS No. 44 has been rescinded as it is no longer necessary. SFAS No. 145 amends SFAS No. 13 to require that certain lease modifications that have economic effects similar to sale-leaseback transactions be accounted for in the same manner as sale-lease transactions. This statement also makes technical corrections to existing pronouncements. While those corrections are not substantive in nature, in some instances, they may change accounting practice. This statement is not applicable to the Company. In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities. This statement addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force ("EITF") Issue No. 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring). This statement requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. Under EITF Issue 94-3, a liability for an exit cost, as defined, was recognized at the date of an entity's commitment to an exit plan. The provisions of this statement are effective for exit or disposal activities that are initiated after December 31, 2002 with earlier application encouraged. The Company does not expect adoption of SFAS No. 146 to have a material impact, if any, on its financial position or results of operations. In October 2002, the FASB issued SFAS No. 147, Acquisitions of Certain Financial Institutions. SFAS No. 147 removes the requirement in SFAS No. 72 and Interpretation 9 thereto, to recognize and amortize any excess of the fair value of liabilities assumed over the fair value of tangible and identifiable intangible assets acquired as an unidentifiable intangible asset. This statement requires that those transactions be accounted for in accordance with SFAS No. 141, Business Combinations, and SFAS No. 142, Goodwill and Other Intangible Assets. In addition, this statement amends SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, to include certain financial institution-related intangible assets. This statement is not applicable to the Company. In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based Compensation - Transition and Disclosure, an amendment of SFAS No. 123. SFAS No. 148 provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to require more prominent and more frequent disclosures in financial statements about the effects of stock-based compensation. This statement is effective for financial statements for fiscal years ending after December 15, 2002. SFAS No. 148 will not have any impact on the Company's financial statements as management does not have any intention to change to the fair value method. In April 2003, the Financial Accounting Standards Board ("FASB") issued SFAS No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities." SFAS No. 149 amends and clarifies accounting and reporting for derivative instruments and hedging activities under SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 149 is effective for derivative instruments and hedging activities entered into or modified after June 30, 2003, except for certain forward purchase and sale securities. For these forward purchase and sale securities, SFAS No. 149 is effective for both new and existing securities after June 30, 2003. Management does not expect adoption of SFAS No. 149 to have a material impact on the Company's statements of earnings, financial position, or cash flows. 8 In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity." SFAS No. 150 establishes standards for how an issuer classifies and measures in its statement of financial position certain financial instruments with characteristics of both liabilities and equity. In accordance with the standard, financial instruments that embody obligations for the issuer are required to be classified as liabilities. SFAS No. 150 will be effective for financial instruments entered into or modified after May 31, 2003 and otherwise will be effective at the beginning of the first interim period beginning after June 15, 2003. The Company has classified redeemable preferred stock as a separate liability. Item 2. Management's Discussion and Analysis of Financial Conditions and Results of Operations This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Except for the historical information contained in this discussion and analysis of financial condition and results of operations, the matters discussed herein are forward looking statements. These forward looking statements include but are not limited to the Company's plans for sales growth and expansion into new channels of trade, expectations of gross margin, expenses, new product introduction, and the Company's liquidity and capital needs. These matters involve risks and uncertainties that could cause actual results to differ materially from the statements made. In addition to the risks and uncertainties described in "Risk Factors", below, these risks and uncertainties may include consumer trends, business cycles, scientific developments, changes in governmental policy and regulation, currency fluctuations, economic trends in the United States and inflation. These and other factors may cause actual results to differ materially from those anticipated in forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. Risk Factors The Company's future results may be affected to a greater or lesser degree by the following factors among others: The Company has not had sustained profitable operations since 1997. Since 1997, the Company has incurred losses from operations. The Company's business model is based on obtaining product-licensing agreements. While the Company anticipates that this business model will result in profitable operations, the Company's license based business model may not be successful.. The Company's marketing strategy may not be successful. The Company or its distributors and licensees may not be able to establish and maintain the necessary sales and distribution channels. Retail outlets and catalogs may choose not to carry the Company's or its licensees' products. The Company, its licensees or its distributors may not have sufficient funds to successfully market its products if the current marketing strategy is not successful. The Company not be able to protect its technology or trade secrets. The Company's patents and patent applications may not protect the Company's technology or ensure that the Company's technology does not infringe another's valid patent. Others may independently develop substantially equivalent proprietary information. The Company may not be able to protect its technology, proprietary information or trade secrets. The Company's ongoing research and product development efforts may not be successful. While the Company plans to initiate several studies on human subjects, the products being tested may not be effective. The Company, its distributors and licensees may not be able to effectively compete with larger companies or with new products. The fragrance, toiletries and cosmetics markets are extremely competitive. Many competitive products are better known than the Company's products and compete for advertising and retail shelf space. Many competitors have significantly greater resources that will allow them to develop and introduce new competing products or increase the promotion of current products. The product life cycle of these products can be very short. Changing fashions and fads can dramatically shift consumer preferences and demands. Traditional fragrance, toiletries and cosmetics companies introduce a new products every year or so. Changing fashions and new products may reduce the chance of creating long term brand loyalty to human pheromone-based products. 9 The current retail environment may cause pricing and promotional pressures. Less than ten companies control the majority of the sales in the U.S. in the fragrance, toiletries and cosmetics arena. Because of their market share, each company will have significant power to determine the price and promotional terms that the Company and its licensees or distributors must meet in order to introduce and sell its products to the consumer. Seasonality in sales may cause significant variation in quarterly results. Sales in the fragrance industry are generally seasonal with sales higher in the second half of the year because of Christmas. This seasonality could cause a significant variation in the Company's quarterly operating results. The Company may not be able to recruit and retain key personnel. The Company's success substantially depends upon recruiting and retaining key employees and consultants with research, product development and marketing experience. The Company may not be successful in recruiting and retaining these key people. The Company relies upon other companies to manufacture its products. The Company relies upon other companies to manufacture its pheromones, supply components, and to blend, fill and package its fragrance products. The Company may not be able to obtain or retain pheromone manufacturers, fragrance suppliers, or component manufacturers on acceptable terms. If not, the Company may not be able to obtain commercial quantities of its products. This would adversely affect operating results. Results of Operations On April 24, 2000, the Company signed a multi-year licensing agreement for its REALM and innerREALM fragrance and toiletry products with Niche Marketing, Inc. ("Niche"), a newly formed affiliate of Northern Brands, Inc. Under the agreement, Niche will be responsible for the manufacture, marketing, selling and distribution of the REALM and innerREALM products in the United States and Internationally, excluding the Far East. On April 14, 2003, the Company sold to Niche Marking Group, Inc. the assets and worldwide ownership rights to the REALM Women, REALM Men and innerREALM product lines. The Company will continue to focus operations on the marketing of its patented technology to companies with established consumer product franchises while directly managing the on-going development of identified compounds for potential new products. All REALM(R) and innerREALM(R) financial activities have been classified as assets to be sold as a result of the April 14, 2003 sale. Therefore reclassifications of certain 2002 financial statement information have been made to present the operating results from on-going operations on a comparable basis. Three Months ended June 30, 2003 compared to the Three Months ended June 30, 2002 Net sales and revenues for the second quarter of 2003 were $61,000, representing an decrease of 58% from sales of $146,000 for the prior year's quarter. The $78,000, or 63%, decrease in license and supply revenues, from customers utilizing the Company's technology as a components in their consumer products, was the result of strong orders in the first quarter of the current year that resulted in lower shipments in the second quarter from established product lines. Sales of the Natural Attraction(R) products to the international and U.S. distributors utilizing a new bottle design began the last week of the quarter when the first production run was completed. Several pending orders could not be shipped during the quarter because of a delay in receipt of components; these will carry-over to the next quarter. Net sales for the quarters ended June 30, 2003 and 2002 were as follows (in thousands). 2003 2002 - -------------------------------------------------------------------------------- Markets: License and Supply Revenues $ 45 $123 Direct Marketing 10 23 U.S. Retail & Distributor Markets 5 -- International Markets 1 -- ---- ---- Net Sales $ 61 $146 ==== ==== 10 Gross profit for the quarter ended June 30, 2003 of $42,000 is 60% less than last years $104,000. As a percentage of sales, gross profit of 69% was slightly less than last years of 71% due to a reduction of license fees revenue earned during the quarter. Research and Development expenses for the first quarters of 2003 and 2002 were $4,000 and $82,000, respectively. As part of the Company's desire to directly control all future research and development work the Company terminated its relationships with its primary consultants in October 2002. The Company incurred very minimal expenses in the second quarter of 2003 since its independent research and development efforts had not commenced. Selling, general and administrative expenses of $264,000 were higher than last years second quarter expenses of $226,000. Selling, and marketing and distribution expenses were $7,000 less than the prior year as a result of decreased sales activities for Natural Attraction as the new bottle inventory was not available for the majority of the quarter. General, administrative and facility costs were $45,000 more in the current year's quarter due to last years $32,000 bad debt recovery and $9,000 of expenses related to the annual shareholder meeting which was held in the third quarter last year and additional SEC filings and related cost resulting from the sale of Realm and redemption and conversion of the Company's Series BB preferred stock. The Company earned $5,000 in net interest income in both 2003 and 2002. The increase in cash balances was offset by lower interest rates earned. The Company has recorded a tax provision of $22,000, due primarily to a valuation allowance on deferred tax assets being recorded, and the expected utilization of net operating losses carried forward from prior years to offset any significant tax liability. As of June 30, 2003, the Company's gross deferred tax asset, which relates primarily to net operating losses carried forward was $6,410,000. However, California has suspended for 2003 the utilization of operating losses carried forward which will result in a tax liability for the year if the Company's taxes exceed the available Research & Development tax credit of $82,000 On April 14, 2003 the Company sold to Niche Marking Group, Inc. the assets and worldwide ownership rights to the REALM Women, REALM Men and innerREALM product lines. Assets consisting REALM and innerREALM trademarks, inventory and product licenses were sold resulting in a net gain of $1,226,000. All REALM and innerREALM operating results have been classified as discontinued operations, for the quarter ending June 30, 2003 income from these operations were $7,000 which is less than last years $81,000. The reduction was primarily due to the sale which was the third week of the quarter. Six Months ended June 30, 2003 as compared to the Six Months ended June 30, 2002 Net revenues for the six months ended June 30, 2003 were $279,000. This was a 4% decrease from net revenues of $291,000 for the first half of 2002. License and supply revenues increased by $25,000 for the first six months of 2003 to $247,000 as a result of increased licensing and supply activities to Avon Products in 2003. Sales in International markets decreased by $35,000 due to the conversion to a new bottle for the Natural Attraction product line, and reduced promotional efforts. Net sales for the six months ended June 30, 2003 and 2002 were as follows: ================================================================================ Markets 2003 2002 - -------------------------------------------------------------------------------- License and Supply Revenues $247 $222 Direct Marketing 20 31 U.S. Retail & Distributor Markets 11 2 International Markets 1 36 ---- ---- Net Sales $279 $291 11 Gross profit for the first half of 2003 declined 7% to $195,000 from $210,000 in 2002. The decrease is the result of reduced license revenue from a single customer. Gross profit as a percentage of revenues decreased to 70% compared to 72% in 2002 a result of the reduced license revenue. Research and Development expenses for the first half of 2003 and 2002 were $7,000 and $162,000, respectively. The Company has ended its relationship with Pherin Pharmaceuticals and plans to conduct its own independent research and development operations, which have not commenced as of June 30, 2003. Selling, general and administrative expenses for the first half of 2003 were $527,000 and $489,000 for the comparable period of 2002. Selling, marketing and distribution expenses are $10,000 less than the prior year as Natural Attraction sales activity was limited awaiting the new component inventory. Selling, administrative and facilities were $ 48,000 more than last year. In 2002 a $32,000 bad debt recovery was made and no similar recovery was made in 2003. Additional administrative costs were incurred this year due to the sale of assets in April 2003, the redemption and conversion of the of Company's Series BB preferred stock in May 2003. The Company's cash balances generated $8,000 in net interest income during the first half of 2003, as compared to $10,000 in 2002. The decrease is due to reduced interest rates. LIQUIDITY AND CAPITAL RESOURCES At June 30, 2003, the Company had cash of $2,057,000 with no outstanding bank borrowings and working capital of $2,068,000; at December 31, 2002, it had cash of $1,394,000 with no outstanding bank borrowings and working capital of $1,671,000. For the first six months of 2003, net cash provided from all activities was $663,000. For the first six months of 2002, net cash used from all activities was $60,000. On May 2, 2003, the Company renewed a its Business Loan Agreement with Mid-Peninsula Bank of Palo Alto, California (the "Bank") providing for a revolving line of credit. The Company may borrow up to $500,000 at an interest rate equal to the Bank's prime rate plus 0.75% with borrowings secured primarily by the Company's trade receivables and inventory. The agreement, which expires on May 3, 2004, contains certain debt-to-equity and working capital covenants. At June 30, 2003 the Company was in compliance with such covenants. On May 22, 2003 the Company purchased, from a fund of whom a board member is a general partner, all of the outstanding shares of its Series BB Preferred Stock for $505,000. In a related transaction, with the same fund, 1,333,333 shares of Series AA Preferred Stock was converted into 597,777 shares of common stock. Assuming the Company's activities proceed substantially as planned, the Company's current cash position and projected results of operations for the next twelve months are not expected to require additional outside financing. RECENT ACCOUNTING PRONOUNCEMENTS In April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections. SFAS No. 145 updates, clarifies, and simplifies existing accounting pronouncements. This statement rescinds SFAS No. 4, which required all gains and losses from extinguishments of debt to be aggregated and if material, classified as an extraordinary item, net of related income tax effect. As a result, the criteria in APB No. 30 will now be used to classify those gains and losses. SFAS No. 64 amended SFAS No. 4 and is no longer necessary as SFAS No. 4 has been rescinded. SFAS No. 44 has been rescinded as it is no longer necessary. SFAS No. 145 amends SFAS No. 13 to require that certain lease modifications that have economic effects similar to sale-leaseback transactions be accounted for in the same manner as sale-lease transactions. This statement also makes technical corrections to existing pronouncements. While those corrections are not substantive in nature, in some instances, they may change accounting practice. This statement is not applicable to the Company. In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities. This statement addresses financial accounting and reporting for costs associated with exit or disposal 12 activities and nullifies Emerging Issues Task Force ("EITF") Issue No. 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring). This statement requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. Under EITF Issue 94-3, a liability for an exit cost, as defined, was recognized at the date of an entity's commitment to an exit plan. The provisions of this statement are effective for exit or disposal activities that are initiated after December 31, 2002 with earlier application encouraged. The Company does not expect adoption of SFAS No. 146 to have a material impact, if any, on its financial position or results of operations. In October 2002, the FASB issued SFAS No. 147, Acquisitions of Certain Financial Institutions. SFAS No. 147 removes the requirement in SFAS No. 72 and Interpretation 9 thereto, to recognize and amortize any excess of the fair value of liabilities assumed over the fair value of tangible and identifiable intangible assets acquired as an unidentifiable intangible asset. This statement requires that those transactions be accounted for in accordance with SFAS No. 141, Business Combinations, and SFAS No. 142, Goodwill and Other Intangible Assets. In addition, this statement amends SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, to include certain financial institution-related intangible assets. This statement is not applicable to the Company. In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based Compensation - Transition and Disclosure, an amendment of SFAS No. 123. SFAS No. 148 provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to require more prominent and more frequent disclosures in financial statements about the effects of stock-based compensation. This statement is effective for financial statements for fiscal years ending after December 15, 2002. SFAS No. 148 will not have any impact on the Company's financial statements as management does not have any intention to change to the fair value method. In April 2003, the Financial Accounting Standards Board ("FASB") issued SFAS No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities." SFAS No. 149 amends and clarifies accounting and reporting for derivative instruments and hedging activities under SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 149 is effective for derivative instruments and hedging activities entered into or modified after June 30, 2003, except for certain forward purchase and sale securities. For these forward purchase and sale securities, SFAS No. 149 is effective for both new and existing securities after June 30, 2003. Management does not expect adoption of SFAS No. 149 to have a material impact on the Company's statements of earnings, financial position, or cash flows. In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity." SFAS No. 150 establishes standards for how an issuer classifies and measures in its statement of financial position certain financial instruments with characteristics of both liabilities and equity. In accordance with the standard, financial instruments that embody obligations for the issuer are required to be classified as liabilities. SFAS No. 150 will be effective for financial instruments entered into or modified after May 31, 2003 and otherwise will be effective at the beginning of the first interim period beginning after June 15, 2003. The Company has classified redeemable preferred stock as a separate liability. CRITICAL ACCOUNTING POLICIES Our discussion and analysis of our financial conditions and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States. The preparation of financial statements require managers to make estimates and judgments that affect the reported amounts of assets and liabilities, revenues and expenses and disclosures on the date of the financial statements. On an on-going basis, we evaluate our estimates, including, but not limited to, those related to revenue recognition and license fees. We use authoritative pronouncements, historical experience and other assumptions as the basis for making judgments. Actual results could differ from those estimates. We believe that the following critical accounting policies affect our more significant judgments and estimates in the preparation of our consolidated financial statements. Revenue Recognition Revenue is recorded at the time of merchandise shipment, net of provisions for returns. License fees are earned over the license period according to the terms of the license agreement and interpretative guidance provided by Staff Accounting Bulletin (SAB) No. 101. The majority of the Company's sales are to distributors and licensees, and these distributors and licensees have no right to return products. 13 License Fees The Company capitalizes license fees paid for the rights to use new pheromone discoveries, and rights for additional REALM and innerREALM sales territories. License agreements that have a finite useful life are amortized using the straight-line method over the life of the agreement. License agreements for pheromones and products that are not yet for available for sale are not subject to amortization in accordance with Statement of Financial Accounting Standards No. 142: Goodwill and Other Intangible Assets. The Company continually evaluates whether events or circumstances have occurred that indicate the remaining estimated value of the license agreements may not be recoverable. When factors indicate that the value license may be impaired, the Company estimates the remaining value and reduces the license agreement to that amount. Subsequent Event On July 1, 2003 Michael D. Kaufman, a director since August 1997, resigned from the Board of Directors. Mr. Kaufman determined that his other business commitments would consume significantly more of his time, and prevent him from devoting the amount of time necessary to fulfill his duties and responsibilities as a Board member. 14 Item 3. Controls and Procedures Within 90 days prior to the date of this report, we carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) or 15d-15(e)). Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective in timely alerting them to material information required to be included in our periodic SEC reports. It should be noted that the design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote. In addition, we reviewed our internal controls, and there have been no significant changes in our internal controls or in other factors that could significantly affect those controls subsequent to the date of their last evaluation. 15 PART II OTHER INFORMATION Item 2. Changes in Securities On May 22, 2003 the Company purchased, from a fund of whom a board member is a general partner, all 17,448 outstanding shares of its Convertible Redeemable Series BB Preferred Stock for $505,000. In a related transaction, with the same fund, 1,333,333 shares of Convertible Redeemable Series AA Preferred Stock was converted into 597,777 shares of common stock. At the conclusion of the transaction 100,000 shares of the Convertible Redeemable Series AA Preferred Stock was outstanding. Item 4. Submission of Matters to a Vote of Security Holders The Company's annual shareholder meeting was held on June 18, 2003, at which the following proposal was approved: Proposal 1: Election for the following Directors: ---------------------------- ------------------- ---------------------- Name Votes For Votes Withheld ---------------------------- ------------------- ---------------------- William P. Horgan 4,056,203 92,356 ---------------------------- ------------------- ---------------------- Bernard I. Grosser, M.D. 4,055,224 93,335 ---------------------------- ------------------- ---------------------- Michael D. Kaufman (1) 642,611 - ---------------------------- ------------------- ---------------------- Helen C. Leong 4,055,224 93,335 ---------------------------- ------------------- ---------------------- Robert Marx 4,055,224 93,335 ---------------------------- ------------------- ---------------------- (1) Michael D. Kaufman was nominated and elected by the holders of the Series AA Preferred Stock. Item 6. Exhibits and Reports on Form 8-K a. Exhibits Exhibit 10.27 Business Loan Agreement dated May 2, 2003 Exhibit 10.28 2003 Nonemployee Directors Stock Option Plan of Human Pheromone Sciences, Inc. Exhibit 31.1 Certification Pursuant to Section 302 of the Sarbanes-Oxley Act Exhibit 31.2 Certification Pursuant to Section 302 of the Sarbanes-Oxley Act Exhibit 32 Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. 1350 b. Reports on Form 8-K The Company filed Form 8-K on April 29, 2003 in connection with the sale of assets transaction. 16 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant had duly caused this Report to be signed on behalf by the undersigned thereunto duly authorized. HUMAN PHEROMONE SCIENCES, INC. Registrant Date: August 11, 2003 /s/ William P. Horgan --------------------- William P. Horgan Chairman and Chief Executive Officer Date: August 11, 2003 /s/ Gregory S. Fredrick ----------------------- Gregory S. Fredrick Vice President Finance 17 EX-10.27 3 p17515_ex10-27.txt BUSINESS LOAN AGREEMENT BUSINESS LOAN AGREEMENT
- --------------------------------------------------------------------------------------- Principal Loan Date Maturity Loan No Call / Coll Account Officer Initials $500,000.00 05-02-2003 05-03-2004 108143856 2000 016 /s/ - ---------------------------------------------------------------------------------------
References in the shaded area for Lender's use ony and do not limit the applicability of this document to any particular loan or item. Any item above containing "***" has been omitted due to text length limitations. - -------------------------------------------------------------------------------- Borrower: Human Pheromone Sciences, Inc. Lender: Mid-Peninsula Bank 84 West Santa Clara Street, Suite 720 Palo Alto Office San Jose, CA 96113 420 Cowper Street Palo Alto, CA 94301 ================================================================================ THIS BUSINESS LOAN AGREEMENT dated May 2, 2003, is made and executed between Human Pheromone Sciences, Inc. ("Borrower") and Mid-Peninsula Bank ("Lender") on the following terms and conditions. Borrower has received prior commercial loans from Lender or has applied to Lender for a commercial loan or loans or other financial accommodations, including those which may be described on any exhibit or schedule attached to this Agreement ("Loan"). Borrower understands and agrees that: (A) in granting, renewing, or extending any Loan, Lender is relying upon Borrower's representations, warranties, and agreements as set forth in this Agreement; (B) the granting, renewing, or extending of any Loan by Lender at all times shall be subject to Lender's sole judgment and discretion; and (C) all such Loans shall be and remain subject to the terms and conditions of this Agreement. TERM. This Agreement shall be effective as of May 2, 2003, and shall continue in full force and effect until such time as all of Borrower's Loans in favor of Lender have been paid in full, including principal, interest, costs, expenses, attorneys' fees, and other fees and charges, or until such time as the parties may agree in writing to terminate this Agreement. CONDITIONS PRECEDENT TO EACH ADVANCE. Lender's obligation to make the initial Advance and each subsequent Advance under this Agreement shall be subject to the fulfillment to Lender's satisfaction of all of the conditions set forth in this Agreement and in the Related Documents. Loan Documents. Borrower shall provide to Lender the following documents for the Loan: (1) the Note; (2) Security Agreements granting to Lender security interests in the Collateral; (3) financing statements and all other documents perfecting Lender's Security Interests; (4) evidence of insurance as required below; (5) together with all such Related Documents as Lender may require for the Loan; all in form and substance satisfactory to Lender and Lender's counsel. Borrower's Authorization. Borrower shall have provided in form and substance satisfactory to Lender properly certified resolutions, duly authorizing the execution and delivery of this Agreement, the Note and the Related Documents. In addition, Borrower shall have Provided such other resolutions, authorizations, documents and instruments as Lender or its counsel, may require. Payment of Fees and Expenses. Borrower shall have paid to Lender all fees, charges, and other expenses which are then due and payable as specified in this Agreement or any Related Document. Representations and Warranties. The representations and warranties set forth in this Agreement, in the Related Documents, and in any document or certificate delivered to Lender under this Agreement are true and correct. No Event of Default. There shall not exist at the time of any Advance a condition which would constitute an Event of Default under this Agreement or under any Related Document. REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to Lender, as of the date of this Agreement, as of the date of each disbursement of loan or proceeds, as of the date of any renewal, extension or modification of any Loan, and at all times any Indebtedness exists: Organization. Borrower is a corporation for profit which is, and at all times shall be, duly organized, validly existing, and in good standing under and by virtue or the laws of the State of California. Borrower is duly authorized to transact business in all other states in which Borrower is doing business, having contained all necessary filings, governmental licenses and approvals for each state in which Borrower is doing business. Specifically, Borrower is, and at all times shall be, duly qualified as a foreign corporation in all states in which the failure to so qualify would have a material adverse effect on its business or financial condition. Borrower has the full power and authority to own its properties and to transact the business in which it is presently engaged or presently proposes to engage. Borrower maintains an office at 84 West Santa Clara Street, Suite 720, San Jose, CA 95113. Unless Borrower has designated otherwise in writing, the principal office is the office at which Borrower keeps its books and records including its records concerning the Collateral. Borrower will notify Lender prior to any change in the location of Borrower's state of organization or any change in Borrower's name. Borrower shall do all things necessary to preserve and to keep in full force and effect its existence, rights and privileges, and shall comply with all regulations, rules, ordinances, statutes, orders and decrees of any governmental or quasi-governmental authority or court applicable to Borrower and Borrower's business activities. Assumed Business Names. Borrower has filed or recorded all documents or filings required by law relating to all assumed business names used by Borrower. Excluding the name of Borrower, the following is a complete list of all assumed business names under which Borrower does business: None. Authorization. Borrower's execution, delivery, and performance of this Agreement and all the Related Documents have been duly authorized by all necessary action by Borrower and do not conflict with, result in a violation of, or constitute a default under (1) any provision of Borrower's articles of incorporation or organization, or bylaws, or any agreement or other instrument binding upon Borrower or (2) any law, governmental regulation, court decree, or order applicable to Borrower or to Borrower's properties. Financial Information. Each of Borrower's financial statements supplied to Lender truly and completely disclosed Borrower's financial condition as of the date of the statement, and there has been no material adverse change in Borrower's financial condition subsequent to the date of the most recent financial statement supplied to Lender. Borrower has no material contingent obligations except as disclosed in such financial statements. Legal Effect. This Agreement constitutes, and any instrument or agreement Borrower is required to give under this Agreement when delivered will constitute legal, valid, and binding obligations of Borrower enforceable against Borrower in accordance with their respective terms. Properties. Except as contemplated by this Agreement or as previously disclosed in Borrower's financial statements or in writing to Lender and as accepted by Lender, and except for property tax liens for taxes not presently due and payable, Borrower owns and has good title to all of Borrower's properties free and clear of all Security Interests, and has not executed any security documents or financing statements relating to such properties. All of Borrower's properties are titled in Borrower's legal name, and Borrower has not used or filed a financing statement under any other name for at least the last five (5) years. Hazardous Substances. Except as disclosed to and acknowledged by Lender in writing, Borrower represents and warrants that: (1) During the period of Borrower's ownership of Borrower's Collateral, there has been no use, generation, manufacture, storage, treatment, disposal, release or threatened release of any Hazardous Substance by any person on, under, about or from any of the Collateral. (2) Borrower has no knowledge of, or reason to believe that there has been (a) any breach or violation of any Environmental Laws; (b) any use, generation, manufacture, storage, BUSINESS LOAN AGREEMENT Loan No: 108143856 (Continued) Page 2 ================================================================================ treatment, disposal, release or threatened release of any Hazardous Substance on, under, about or from the Collateral by any prior owners or occupants of any of the Collateral; or (c) any actual or threatened litigation or claims of any kind by any person relating to such matters. (3) Neither Borrower nor any tenant, contractor, agent or other authorized user of any of the Collateral shall use, generate, manufacture, store, treat, dispose of or release any Hazardous Substance on, under, about or from any of the Collateral; and any such activity shall be conducted in compliance with all applicable federal, state, and local laws, regulations, and ordinances, including without limitation all Environmental Laws. Borrower authorizes Lender and its agents to enter upon the Collateral to make such inspections and tests as Lender may deem appropriate to determine compliance of the Collateral with this section of the Agreement. Any inspections or tests made by Lender shall be at Borrower's expense and for Lender's purposes only and shall not be construed to create any responsibility or liability on the part of Lender to Borrower or to any other person. The representations and warranties contained herein are based on Borrower's due diligence in investigating the Collateral for hazardous waste and Hazardous Substances. Borrower hereby (1) releases and waives any future claims against Lender for indemnity or contribution in the event Borrower becomes liable for cleanup or other costs under any such laws, and (2) agrees to indemnify and hold harmless Lender against any and all claims, losses, liabilities, damages, penalties, and expenses which Lender may directly or indirectly sustain or suffer resulting from a breach of this section of the Agreement or as a consequence of any use, generation, manufacture, storage, disposal, release or threatened release of a hazardous waste or substance on the Collateral. The provisions of this section of the Agreement, including the obligation to indemnify, shall survive the payment of the Indebtedness and the termination, expiration or satisfaction of this Agreement and shall not be affected by Lender's acquisition of any interest in any of the Collateral, whether by foreclosure or otherwise. Litigation and Claims. No litigation, claim, investigation, administrative proceeding or similar action (including those for unpaid taxes) against Borrower is pending or threatened, and no other event has occurred which may materially adversely affect Borrower's financial condition or properties, other than litigation, claims, or other events, if any, that have been disclosed to and acknowledged by Lender in writing. Taxes. To the best of Borrower's knowledge, all of Borrower's tax returns and reports that are or were required to be filed, have been filed, and all taxes, assessments and other governmental charges have been paid in full, except those presently being or to be contested by Borrower in good faith in the ordinary course of business and for which adequate reserves have been provided. Lien Priority. Unless otherwise previously disclosed to Lender in writing, Borrower has not entered into or granted any Security Agreements, or permitted the filing or attachment of any Security Interests on or affecting any of the Collateral directly or indirectly securing repayment of Borrower's Loan and Note, that would be prior or that may in any way be superior to Lender's Security Interests and rights in and to such Collateral. Binding Effect. This Agreement, the Note, all Security Agreements (if any), and all Related Documents are binding upon the signers thereof, as well as upon their successors, representatives and assigns, and are legally enforceable in accordance with their respective terms. AFFIRMATIVE COVENANTS. Borrower covenants and agrees with Lender that, so long as this Agreement remains in effect, Borrower will: Notices of Claims and Litigation. Promptly inform Lender in writing of (1) all material adverse changes in Borrower's financial condition, and (2) all existing and all threatened litigation, claims, investigations, administrative proceedings or similar actions affecting Borrower or any Guarantor whioh could materially affect the financial condition of Borrower or the financial condition of any Guarantor. Financial Records. Maintain its books and records in accordance with GAAP, applied on a consistent basis, and permit Lender to examine and audit Borrowers books and records at all reasonable times. Financial Statements. Furnish Lender with the following: Interim Statements. As soon as available, but in no event later than 45 days after the end of each fiscal quarter, Borrower's balance sheet and profit and loss statement for the period ended, compiled by a certified public accountant satisfactory to Lender. Additional Requirements. To provide Lender with 10-K report annually within ninety (90) days of year end. All financial reports required to be provided under this Agreement shall be prepared in accordance with GAAP, applied on a consistent basis, and certified by Borrower as being true and correct. Additional Information. Furnish such additional information and statements, as Lender may request from time to time. Financial Covenants and Ratios. Comply with the following covenants and ratios: Working Capital Requirements. Borrower shall comply with the following working capital ratio requirements: Quick Ratio. Maintain a Quick Ratio in excess of 1.750 to 1.000. The term "Quick Ratio" means Borrower's Cash & Equivalent plus Borrower's net Trade Receivables divided by Borrower's total Current Liabilities. This liquidity ratio should be maintained at all times and may be evaluated at any time. Tangible Net Worth Requirements. Maintain a minimum Tangible Net Worth of not less than: $1,500,000.00. In addition, Borrower shall comply with the following net worth ratio requirements: Debt / Worth Ratio. Maintain a ratio of Debt / Worth not in excess of 0.500 to 1.000. The ratio "Debt / Worth" means Borrower's Total Liabilities divided by Borrower's Tangible Net Worth. This leverage ratio should be maintained at all times and may be evaluated at any Time. Other Requirements. As stated above under Debt / Worth Ratio. Tangible Net Worth (excluding deferred revenue from debt). Except as provided above, all computations made to determine compliance with the requirements contained in this paragraph shall be made in accordance with generally accepted accounting principles, applied on a consistent basis, and certified by Borrower as being true and correct. Insurance. Maintain fire and other risk insurance, public liability insurance, and such other insurance as Lender may require with respect to Borrower s properties and operations, in form, amounts, coverages and with insurance companies acceptable to Lender. Borrower, upon request of Lender, will deliver to Lender from time to time the policies or certificates of insurance in form satisfactory to Lender, including stipulations that coverages will not be cancelled or diminished without at least ten (10) days prior written notice to Lender. Each insurance policy also shall including an endorsement providing that coverage in favor of Lender will not be impaired in any way by any act, omission or default of Borrower or any other person. In connection with all policies covering assets in which Lender holds or is offered a security interest for the Loans, Borrower will provide Lender with such lender's loss payable or other endorsements as Lender may require. Insurance Reports. Furnish to Lender, upon request of Lender, reports on each existing insurance policy showing such information as Lender may reasonably request, including without limitation the following: (1) the name of the insurer; (2) the risks insured; (3) the amount of the policy; (4) the properties insured; (5) the then current property values on the basis of which insurance has been obtained, and the manner of determining those values; and (6) the expiration date of the policy. In addition, upon request of Lender (however not more often than annually), Borrower will have an independent appraiser satisfactory to Lender determine, as applicable, the actual cash value or replacement cost of any Collateral. The cost of such appraisal shall be paid by Borrower. BUSINESS LOAN AGREEMENT Loan No: 108143856 (Continued) Page 3 ================================================================================ Other Agreements. Commonly with all terms and conditions of all other agreements, whether now or hereafter existing, between Borrower and other party and notify Lender immediately in writing of any default in connection with any other such agreements. Loan Proceeds. Use all Loan proceeds solely for Borrower's business operations, unless specifically consented to the contrary by Lender in writing. Taxes, Charges and Liens. Pay and discharge when due all of its indebtedness and obligations, including without limitation all assessments, taxes, governmental charges, levies and liens, of every kind and nature, imposed upon Borrower or its properties, income, or profits, prior to the date on which penalties would attach, and all lawful claims that, if unpaid, might become a lien or charge upon any of Borrower's properties, income, or profits. Performance. Perform and comply, in a timely manner, with all terms, conditions, and provisions set forth in this Agreement, in the Related Documents, and in all other instruments and agreements between Borrower and Lender. Borrower shall notify Lender immediately in writing of any default in connection with any agreement. Operations. Maintain executive and management personnel with substantially the same qualifications and experience as the present executive and management personnel; provide written notice to Lender of any change in executive and management personnel; conduct its business affairs in a reasonable and prudent manner. Environmental Studies. Promptly conduct and complete, at Borrower's expense, all such investigations, studies, samplings and testings as may be requested by Lender or any governmental authority relative to any substance, or any waste or by-product of any substance defined as toxic or a hazardous substance under applicable federal, state, or local law, rule, regulation, order or directive, at or affecting any property or any facility owned, leased or used by Borrower. Compliance with Governmental Requirements. Comply with all laws, ordinances, and regulations, now or hereafter in effect, of all governmental authorities applicable to the conduct of Borrower's properties, businesses and operations, and to the use or occupancy of the Collateral, including without limitation, the Americans With Disabilities Act. Borrower may contest in good faith any such law, ordinance, or regulation and withhold compliance during any proceeding, including appropriate appeals, so long as Borrower has notified Lender in writing prior to doing so and so long as, in Lender's sole opinion, Lender's interests in the Collateral are not jeopardized. Lender may require Borrower to post adequate security or a surety bond, reasonably satisfactory to Lender, to protect Lender's interest. Inspection. Permit employees or agents of Lender at any reasonable time to inspect any and all Collateral for the Loan or Loans and Borrower's other properties and to examine or audit Borrower's books, accounts, and records and to make copies and memoranda of Borrower's books, accounts, and records. If Borrower now or at any time hereafter maintains any records (including without limitation computer generated records and computer software programs for the generation of such records) in the possession of a third party, Borrower, upon request of Lender, snail notify such party to permit Lender free access to such records at all reasonable times and to provide Lender with copies of any records it may request, all at Borrower's expense. Compliance Certificates. Unless waived in writing by Lender, provide Lender at least annually, with a certificate executed by Borrower's chief financial officer, or other officer or person acceptable to Lender, certifying that the representations and warranties set forth in this Agreement are true and correct as of the date of the certificate and further certifying that, as of the date of the certificate, no Event of Default exists under this Agreement. Environmental Compliance and Reports. Borrower shall comply in all respects with any and all Environmental Laws; not cause or permit to exist, as a result of an intentional or unintentional action or omission on Borrower's part or on the part of any third party, on property owned and/or occupied by Borrower, any environmental activity where damage may result to the environment, unless such environmental activity is pursuant to and in compliance with the conditions of a permit issued by the appropriate federal, state or local governmental authorities; shall furnish to Lender promptly and in any event within thirty (30) days after receipt thereof a copy of any notice, summons, lien, citation, directive, letter or other communication from any governmental agency or instrumentality concerning any intentional or unintentional action or omission on Borrower's part in connection with any environmental activity whether or not there is damage to the environment and/or other natural resources. Additional Assurances. Make, execute and deliver to Lender such promissory notes, mortgages, deeds of trust, security agreements, assignments, financing statements, instruments, documents and other agreements as Lender or its attorneys may reasonably request to evidence and secure the Loans and to perfect all Security Interests. RECOVERY OF ADDITIONAL COSTS. If the imposition of or any change in any law, rule, regulation or guideline, or the interpretation or application of thereof by any court or administrative or governmental authority (including any request or policy not having the force of law) shall impose, modify or make applicable any taxes (except federal, state or local income or franchise taxes imposed on Lender), reserve requirements, capital adequacy requirements or other obligations which would (A) increase the cost to Lender for extending or maintaining the credit facilities to which this Agreement relates. (B) reduce the amounts payable to Lender under this Agreement or the Related Documents, or (C) reduce the rate of return on Lender's capital as a consequence of Lender's obligations with respect to the credit facilities to which this Agreement relates, then Borrower agrees to pay Lender such additional amounts as will compensate Lender therefor, within five (5) days after Lender's written demand for such payment, which demand shall be accompanied by an explanation of such imposition or charge and a calculation in reasonable detail of the additional amounts payable by Borrower, which explanation and calculations shall be conclusive in the absence of manifest error. LENDER'S EXPENDITURES. If any action or proceeding is commenced that would materially affect Lender's interest in the Collateral or if Borrower fails to comply with any provision of this Agreement or any Related Documents, including but not limited to Borrower's failure to discharge or pay when due any amounts Borrower is required to discharge or pay under this Agreement or any Related Documents, Lender on Borrower's behalf may (but shall not be obligated to) take any action that Lender deems appropriate, including but not limited to discharging or paying all taxes, liens, security interests, encumbrances and other claims, at any time levied or placed on any Collateral and paying all costs for insuring, maintaining and preserving any Collateral. All such expenditures incurred or paid by Lender for such purposes will then bear interest at the rate charged under the Note from the date incurred or paid by Lender to the date of repayment by Borrower. All such expenses will become a part of the Indebtedness and, at Lender's option, will (A) be payable on demand; (B) be added to the balance of the Note and be apportioned among and be payable with any installment payments to become due during either (1) the term of any applicable insurance policy; or (2) the remaining term of the Note; or (C) be treated as a balloon payment which will be due and payable at the Note's maturity. NEGATIVE COVENANTS. Borrower covenants and agrees with Lender that while this Agreement is in effect, Borrower shall not, without the prior written consent of Lender: Indebtedness and Liens. (1) Except for trade debt incurred in the normal course of business and indebtedness to Lender contemplated by this Agreement, create, incur or assume indebtedness for borrowed money, including capital leases, (2) sell, transfer, mortgage, assign, pledge, lease, grant a security interest in, or encumber any of Borrower's assets (except as allowed as Permitted Liens), or (3) sell with recourse any of Borrower's accounts, except to Lender. Continuity of Operations. (1) Engage in any business activities substantially different than those in which Borrower is presently engaged, (2) cease operations, liquidate, merge, transfer, acquire or consolidate with any other entity, change its name, dissolve or transfer or sell Collateral out BUSINESS LOAN AGREEMENT Loan No: 108143856 (Continued) Page 4 ================================================================================ of the ordinary course of business, or (3) pay any dividends on Borrower's stock (other than dividends payable in its stock), provided, however that notwithstanding the foregoing, but only so long as no Event of Default has occurred and is continuing or would result from the payment of dividends, if Borrower is a "Subchapter S Corporation" (as defined in the Internal Revenue Code of 1986, as amended), Borrower may pay cash dividends on its stock to its shareholders from time to time in amounts necessary to enable the shareholders to pay income taxes and make estimated income tax payments to satisfy their liabilities under federal and state law which arise solely from their status as Shareholders of a Subchapter S Corporation because of their ownership of shares of Borrower's stock. Loans, Acquisitions and Guaranties. (1) Loan, invest in or advance money or assets, (2) purchase, create or acquire any interest in any other enterprise or entity, or (3) incur any obligation as surety or guarantor other than in the ordinary course of business. CESSATION OF ADVANCES. If Lender has made any commitment to make any Loan to Borrower, whether under this Agreement or under any other agreement, Lender shall have no obligation to make Loan Advances or to disburse Loan proceeds if: (A) Borrower or any Guarantor is in default under the terms of this Agreement or any of the Related Documents or any other agreement that Borrower or any Guarantor has with Lender; (B) Borrower or any Guarantor dies, becomes incompetent or becomes insolvent, files a petition in bankruptcy or similar proceedings, or is adjudged a bankrupt; (C) there occurs a material adverse change in Borrower's financial condition, in the financial condition of any Guarantor, or in the value of any Collateral securing any Loan; or (D) any Guarantor seeks, claims or otherwise attempts to limit, modify or revoke such Guarantor's guaranty of the Loan or any other loan with Lender. DEFAULT. Each of the following shall constitute an Event of Default under this Agreement: Payment Default. Borrower fails to make any payment when due under the Loan. Other Defaults. Borrower fails to comply with or to perform any other term, obligation, covenant or condition contained in this Agreement or in any of the Related Documents or to comply with or to perform any term, obligation, covenant or condition contained in any other agreement between Lender and Borrower. Default in Favor of Third Parties. Borrower or any Grantor defaults under any loan, extension of credit, security agreement, purchase or sales agreement, or any other agreement, in favor of any other creditor or person that may materially affect any of Borrower's or any Grantor's property or Borrower's or any Grantor's ability to repay the Loans or perform their respective obligations under this Agreement or any of the Related Documents. False Statements. Any warranty, representation or statement made or furnished to Lender by Borrower or on Borrowers behalf under this Agreement or the Related Documents is false or misleading in any material respect, either now or at the time made or furnisned or becomes false or misleading at any time thereafter. Insolvency. The dissolution or termination of Borrower's existence as a going business, the insolvency of Borrower, the appointment of a receiver for any part of Borrower's property, any assignment for the benefit of creditors, any type of creditor workout, or the commencement of any proceeding under any bankruptcy or insolvency laws by or against Borrower. Defective Collateralization. This Agreement or any of the Related Documents ceases to be in full force and effect (including failure of any collateral document to create a valid and perfected security interest or lien) at any time and for any reason. Creditor or Forfeiture Proceedings. Commencement of foreclosure or forfeiture proceedings, whether by judicial proceeding, self-help, repossession or any other method, by any creditor of Borrower or by any governmental agency against any collateral securing the Loan. This includes a garnishment of any of Borrower's accounts, including deposit accounts, with Lender. However, this Event of Default shall not apply if there is a good faith dispute by Borrower as to the validity or reasonableness of the claim which is the basis of the creditor or forfeiture proceeding and if Borrower gives Lender written notice of the creditor or forfeiture proceeding and deposits with Lender monies or a surety bond for the creditor or forfeiture proceeding, in an amount determined by Lender, in its sole discretion, as being an adequate reserve or bond for the dispute. Events Affecting Guarantor. Any of the preceding events occurs with respect to any Guarantor of any of the Indebtedness or any Guarantor dies or becomes incompetent, or revokes or disputes the validity of, or liability under, any Guaranty of the Indebtedness. In the event of a death, Lender, at its option, may, but shall not be required to, permit the Guarantor's estate to assume unconditionally the obligations arising under the guaranty in a manner satisfactory to Lender, and, in doing so, cure any Event of Default. Change in Ownership. Any change in ownership pursuant to which any person or controlled group acquires twenty-five percent (25%) or more of the common stock of Borrower. Adverse Change. A material adverse change occurs in Borrower's financial condition, or Lender believes the prospect of payment or performance of the Loan is impaired. Right to Cure. If any default, other than a default on Indebtedness, is curable and if Borrower or Grantor, as the case may be, has not been given a notice of a similar default within the preceding twelve (12) months, it may be cured (and no Event of Default will have occurred) if Borrower or Grantor, as the case may be, after receiving written notice from Lender demanding cure of such default: (1) cure the default within fifteen (15) days; or (2) if the cure requires more than fifteen (15) days, immediately initiate steps which Lender deems in Lender's sole discretion to be sufficient to cure the default and thereafter continue and complete all reasonable and necessary steps sufficient to produce compliance as soon as reasonably practical. EFFECT OF AN EVENT OF DEFAULT. If any Event of Default shall occur, except where otherwise provided in this Agreement or the Related Documents, all commitments and obligations of Lender under this Agreement or the Related Documents or any other agreement immediately will terminate (including any obligation to make further Loan Advances or disbursements), and, at Lender's option, all Indebtedness immediately will become due and payable, all without notice of any kind to Borrower, except that in the case of an Event of Default of the type described in the "Insolvency" subsection above, such acceleration shall be automatic and not optional. In addition, Lender shall have all the rights and remedies provided in the Related Documents or available at law, in equity, or otherwise. Except as may be prohibited by applicable law, all of Lender's rights and remedies shall be cumulative and may be exercised singularly or concurrently. Election by Lender to pursue any remedy shall not exclude pursuit of any other remedy, and an election to make expenditures or to take action to perform an obligation of Borrower or of any Grantor shall not affect Lender's right to declare a default and to exercise its rights and remedies. ACCOUNTS RECEIVABLE AGINGS. Borrower agrees to furnish Lender with, as soon as available, but in no event later than forty five (45) days after the end of each fiscal quarter, Borrower's detailed accounts receivable aging for the period ended. EXHIBIT A. Exhibit A is attached to this Agreement, and by this reference is made a part of this Agreement just as if all the provisions, terms and conditions of the Exhibit had been fully set forth in this Agreement. OUT OF DEBT PROVISION. Borrower agrees to maintain the principal balance on the Note at a zero balance for a period of at least thirty consecutive days commencing with the date of this Promissory Note and continuing through the maturity date of this Promissory Note. MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of this Agreement: BUSINESS LOAN AGREEMENT Loan No: 108143856 (Continued) Page 5 ================================================================================ Amendments. This Agreement, together with any Related Documents, constitutes the entire understanding and agreement of the parties as to the matters set forth in this Agreement. No alteration of or amendment to this Agreement shall be effective unless given in writing and signed by the party or parties sought to be charged or bound by the alteration or amendment. Attorneys' Fees; Expenses. Borrower agrees to pay upon demand all of Lender's costs and expenses, including Lender's attorneys' fees and Lender's legal expenses, incurred in connection with the enforcement of this Agreement. Lender may hire or pay someone else to help enforce this Agreement, and Borrower shall pay the costs and expenses of such enforcement. Costs and expenses include Lender's attorneys' fees and legal expenses whether or not there is a lawsuit, including attorneys' fees and legal expenses for bankruptcy proceedings (including efforts to modify or vacate any automatic stay or injunction), appeals, and any anticipated post-judgment collection services. Borrower also shall pay all court costs and such additional fees as may be directed by the court. Caption Headings. Caption headings in this Agreement are for convenience purposes only and are not to be used to interpret or define the provisions of this Agreement. Consent to Loan Participation. Borrower agrees and consents to Lender's sale or transfer, whether now or later, of one or more participation interests in the Loan to one or more purchasers, whether related or unrelated to Lender. Lender may provide, without any limitation whatsoever, to any one or more purchasers, or potential purchasers, any information or knowledge Lender may have about Borrower or about any other matter relating to the Loan, and Borrower hereby waives any rights to privacy Borrower may have with respect to such matters. Borrower additionally waives any and all notices of sale of participation interests, as well as all notices of any repurchase of such participation interests. Borrower also agrees that the purchasers of any such participation interests will be considered as the absolute owners of such interests in the Loan and will have all the rights granted under the participation agreement or agreements governing the sale of such participation interests. Borrower further waives all rights of offset or counterclaim that it may have now or later against Lender or against any purchaser of such, a participation interest and unconditionally agrees that either Lender or such purchaser may enforce Borrower's obligation under the Loan irrespective of the failure or insolvency of any holder of any interest in the Loan. Borrower further agrees that the purchaser of any such participation interests may enforce its interests irrespective of any personal claims or defenses that Borrower may have against Lender. Governing Law. This Agreement will be governed by, construed and enforced in accordance with federal law and the laws of the State of California. This Agreement has been accepted by Lender in the State of California. Choice of Venue. If there is a lawsuit, Borrower agrees upon Lender's request to submit to the jurisdiction of the courts of Santa Clara County, State of California. No Waiver by Lender. Lender shall not be deemed to have waived any rights under this Agreement unless such waiver is given in writing and signed by Lender. No delay or omission on the part of Lender in exercising any right shall operate as a waiver of such right or any other right. A waiver by Lender of a provision of this Agreement shall not prejudice or constitute a waiver of Lender's right otherwise to demand strict compliance with that provision or any other provision of this Agreement. No prior waiver by Lender, nor any course of dealing between Lender and Borrower, or between Lender and any Grantor, snail constitute a waiver of any of Lender's rights or of any of Borrower's or any Grantor's obligations as to any future transactions. Whenever the consent of Lender is required under this Agreement, the granting of such consent by Lender in any instance shall not constitute continuing consent to subsequent instances where such consent is required and in all cases such consent may be granted or withheld in the sole discretion of Lender. Notices. Any notice required to be given under this Agreement shall be given in writing, and shall be effective when actually delivered, when actually received by telefacsimile (unless otherwise required by law), when deposited with a nationally recognized overnight courier, or, if mailed, when deposited in the United States mail, as first class, certified or registered mail postage prepaid, directed to the addresses shown near the beginning of this Agreement. Any party may change its address for notices under this Agreement by giving formal written notice to the other parties, specifying that the purpose of the notice is to change the party's address. For notice purposes, Borrower agrees to keep Lender informed at all times of Borrower's current address. Unless otherwise provided or required by law, if there is more than one Borrower, any notice given by Lender to any Borrower is deemed to be notice given to all Borrowers. Severability. If a court of competent jurisdiction finds any provision of this Agreement to be illegal, invalid, or unenforceable as to any circumstance, that finding shall not make the offending provision illegal, invalid, or unenforceable as to any other circumstance, If feasible. The offending provision shall be considered modified so that it becomes legal, valid and enforceable. If the offending provision cannot be so modified, it shall be considered deleted from this Agreement. Unless otherwise required by law, the illegality, invalidity, or unenforceability of any provision of this Agreement shall not affect the legality, validity or enforceability of any other provision of this Agreement. Subsidiaries and Affiliates of Borrower. To the extent the context of any provisions of this Agreement makes it appropriate, including without limitation any representation, warranty or covenant, the word "Borrower" as used in this Agreement shall include all of Borrower's subsidiaries and affiliates. Notwithstanding the foregoing however, under no circumstances shall this Agreement be construed to require Lender to make any Loan or other financial accommodation to any of Borrower's subsidiaries or affiliates. Successors and Assigns. All covenants and agreements contained by or on behalf of Borrower shall bind Borrower's successors and assigns and shall inure to the benefit of Lender and its successors and assigns. Borrower shall not, however, have the right to assign Borrower's rights under this Agreement or any interest therein, without the prior written consent of Lender. Survival of Representations and Warranties. Borrower understands and agrees that in extending Loan Advances, Lender is relying on all representations, warranties, and covenants made by Borrower in this Agreement or in any certificate or other instrument delivered by Borrower to Lender under this Agreement or the Related Documents. Borrower further agrees that regardless of any investigation made by Lender, all such representations, warranties and covenants will survive the extension of Loan Advances and delivery to Lender of the Related Documents, shall be continuing in nature, shall be deemed made and redated by Borrower at the time each Loan Advance is made, and shall remain in full force and until such time as Borrower's Indebtedness shall be paid in full, or until this Agreement shall be terminated in the manner provided above, whichever is the last to occur. Time is of the Essence. Time is of the essence in the performance of this Agreement. Waive Jury. All parties to this Agreement hereby waive the right to any jury trial in any action, proceeding, or counterclaim brought by any party against any other party. (Initial Here WPH) DEFINITIONS. The following capitalized words and terms shall have the following meanings when used in this Agreement. Unless specifically stated to the contrary, all references to dollar amounts shall mean amounts in lawful money of the United States of America. Words and terms used in the singular shall include the plural, and the plural shall include the singular, as the context may require. Words and terms not otherwise defined in this Agreement shall have the meanings attributed to sucn terms in the Uniform Commercial Code. Accounting words and terms not otherwise defined in this Agreement shall have the meanings assigned to them in accordance with generally accepted accounting principles as in effect on the date of this Agreement: Advance. The word "Advance" means a disbursement of Loan funds made, or to be made, to Borrower or on Borrower's behalf on a line of credit or multiple advance basis under the terms and conditions of this Agreement. BUSINESS LOAN AGREEMENT Loan No: 108143856 (Continued) Page 6 ================================================================================ Agreement. The word "Agreement" means this Business Loan Agreement, as this Business Loan Agreement may be amended or modified from time to time, together with all exhibits and schedules attached to this Business Loan Agreement from time to time. Borrower. The word "Borrower" means Human Pheromone Sciences, Inc., and all other persons and entities signing the Note in whatever capacity. Collateral. The word "Collateral" means all property and assets granted as collateral security for a Loan, whether real or personal property, whether granted directly or indirectly, whether granted now or in the future, and whether granted in the form of a security interest, mortgage, collateral mortgage, deed of trust, assignment, pledge, crop pledge, chattel mortgage, collateral chattel mortgage, chattel trust, factor's lien, equipment trust, conditional sale, trust receipt, lien, charge, lien or title retention contract, lease or consignment intended as a security device, or any other security or lien interest whatsoever, whether created by law, contract, or otherwise. Environmental Laws. The words "Environmental Laws" mean any and all state, federal and local statutes, regulations and ordinances relating the protection of human health or the environment, including without limitation the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended, 42 U.S.C. Section 9601, et seq. ("CERCLA"), the Superfund Amendments and Reauthorization Act of 1986, Pub. L. No. 99-499 ("SARA"), the Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et seq., the Resource Conservation and Recover Act, 42 U.S.C. Section 6901, et seq., Chapters 6.5 through 7.7 of Division 20 of the California Health and Safety Code, Section 25100, et seq., other applicable state or federal laws, rules, or regulations adopted pursuant thereto. Event of Default. The words "Event of Default" mean any of the events of default set forth in this Agreement in the default section of this Agreement. GAAP. The word "GAAP" means generally accepted accounting principles. Grantor. The word "Grantor" means each and all of the persons or entities granting a Security Interest in any Collateral for the Loan, including without limitation all Borrowers granting such a Security Interest. Guarantor. The word "Guarantor" means any guarantor, surety, or accommodation party of any or all of the Loan. Guaranty. The word "Guaranty" means the guaranty from Guarantor to Lender, including without limitation a guaranty of all or part of the Note. Hazardous Substances. The words "Hazardous Substances" mean materials that, because of their quantity, concentration or physical, chemical or infectious characteristics, may cause or pose a present or potential hazard to human health or the environment when improperly used, treated, stored, disposed of, generated, manufactured, transported or otherwise handled. The words "Hazardous Substances" are used in their very broadest sense and include without limitation any and all hazardous or toxic substances, materials or waste as defined by or listed under the Environmental Laws. The term "Hazardous Substances" also includes, without limitation, petroleum and petroleum by-products or any fraction thereof and asbestos. Indebtedness. The word "indebtedness" means the indebtedness evidenced by the Note or Related Documents, including all principal and interest together with all other indebtedness and costs and expenses for which Borrower is responsible under this Agreement or under any of the Related Documents. Lender. The word "Lender" means Mid-Peninsula Bank, its successors and assigns. Loan. The word "Loan" means any and all loans and financial accommodations from Lender to Borrower whether now or hereafter existing, and however evidenced, including without limitation those loans and financial accommodations described herein or described on any exhibit or schedule attached to this Agreement from time to time. Note. The word "Note" means the Note executed by Human Pheromone Sciences, Inc. in the principal amount of $500,000.00 dated May 2, 2003, together with all renewals of, extensions of, modifications of, refinancings of, consolidations of, and substitutions for the note or credit agreement. Permitted Liens. The words "Permitted Liens" mean (1) liens and security interests securing Indebtedness owed by Borrower to Lender; (2) liens for taxes, assessments, or similar charges either not yet due or being contested in good faith; (3) liens of materialmen, mechanics, warehousemen, or carriers, or other like liens arising in the ordinary course of business and securing obligations which are not yet delinquent: (4) purchase money liens or purchase money security interests upon or in any property acquired or held by Borrower in the ordinary course of business to secure indebtedness outstanding on the date of this Agreement or permitted to be incurred under the paragraph of this Agreement titled "Indebtedness and Liens"; (5) liens and security interests which, as of the date of this Agreement, have been disolosed to and approved by the Lender in writing; and (6) those liens and security interests which in the aggregate constitute an immaterial and insignificant monetary amount with respect to the net value of Borrower's assets. Related Documents. The words "Related Documents" mean all promissory notes, credit agreements, loan agreements, environmental agreements, guaranties, security agreements, mortgages, deeds of trust, security deeds, collateral mortgages, and all other instruments, agreements and documents, whether now or hereafter existing, executed in connection with the Loan. Security Agreement. The words "Security Agreement" mean and include without limitation any agreements, promises, covenants, arrangements, understandings or other agreements, whether created by law, contract, or otherwise, evidencing, governing, representing, or creating a Security Interest. Security Interest. The words "Security Interest" mean, without limitation, any and all types of collateral security, present and future, whether in the form of a lien, charge, encumbrance, mortgage, deed of trust, security deed, assignment, pledge, crop pledge, chattel mortgage, collateral chattel mortgage, chattel trust, factor's lien, equipment trust, conditional sale, trust receipt, lien or title retention contract, lease or consignment intended as a security device, or any other security or lien interest whatsoever whether created by law, contract, or otherwise. Tangible Net Worth. The words "Tangible Net Worth" mean Borrower's total assets excluding all intangible assets (i.e., goodwill, trademarks, patents, copyrights, organizational expenses, and similar intangible items, but including leaseholds and leasehold improvements) less total debt. Trade Receivables. The words "Trade Receivables" mean all of Borrower's accounts from trade, net of allowance for doubtful accounts. BUSINESS LOAN AGREEMENT Loan No: 108143856 (Continued) Page 7 ================================================================================ BORROWER ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS BUSINESS LOAN AGREEMENT AND BORROWER AGREES TO ITS TERMS. THIS BUSINESS LOAN AGREEMENT IS DATED MAY 2, 2003. BORROWER: HUMAN PHEROMONE SCIENCES, INC. By: /s/ William Horgan - --------------------------------------- William Horgan, Chairman & CEO of Human Pheromone Sciences, Inc. LENDER: MID-PENINSULA BANK By: /s/ J. H. Stafford - --------------------------------------- J. H. Stafford EX-10.28 4 p17515_ex10-28.txt STOCK OPTION PLAN Exhibit 10.28 2003 NONEMPLOYEE DIRECTORS STOCK OPTION PLAN OF HUMAN PHEROMONE SCIENCES, INC. 1. PURPOSES OF THE PLAN The purposes of the 2003 Nonemployee Directors Stock Option Plan of Human Pheromone Sciences, Inc., a California corporation, are: (a) to encourage Nonemployee Directors to accept or continue their association with the Company; and (b) to increase their interest in the Company's success through participation in the growth in value of the Common Stock of the Company. Options granted hereunder shall be "Nonstatutory Options," and shall not include "incentive stock options" intended to qualify for treatment under Sections 421 and 422 of the Internal Revenue Code of 1986, as amended. 2. DEFINITIONS As used herein, the following definitions shall apply: (a) "Administrator" shall mean the entity, either the Board or a committee appointed by the Board, responsible for administering this Plan, as provided in Section 5. (b) "Affiliate" shall mean a parent or subsidiary corporation as defined in the applicable provisions of the Code. (c) "Annual Option" shall have the meaning set forth in Section 6(b). (d) "Board" shall mean the Board of Directors of the Company, as constituted from time to time. (e) "Change in Control" shall mean the occurrence of any one of the following: (i) any "person", as such term is used in Sections 13(d) and 14(d) of the Exchange Act (other than the Company, an Affiliate, or a Company employee benefit plan, including any trustee of such plan acting as trustee) is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 20% or more of the combined voting power of the Company's then outstanding securities; (ii) the solicitation of proxies (within the meaning of Rule 14a-1(k) under the Exchange Act and any successor rule) resulting in the election of directors constituting a majority of the board of directors of the Company who were not candidates proposed by a majority of the Board in office prior to the time of such election; or (iii) the dissolution or liquidation (partial or total) of the Company or a sale of assets involving 50% or more of the assets of the Company, or any merger or reorganization of the Company, whether or not another entity is the survivor, or other transaction pursuant to which the holders, as a group, of all of the shares of the Company outstanding prior to the transaction hold, as a group, less than 50% of the shares of the Company outstanding after the transaction. (f) "Code" shall mean the Internal Revenue Code of 1986, as amended. (g) "Common Stock" shall mean the Common Stock of the Company. (h) "Company" shall mean Human Pheromone Sciences, Inc, a California corporation. (i) "Exchange Act" means the Securities Exchange Act of 1934, as amended from time to time, and any successor statute. (j) "Fair Market Value" shall mean, as of the date in question, the last transaction price quoted by the Nadsaq Stock Market or on another established stock exchange or quoted on any established interdealer quotation or bulletin board system, on the date of grant; provided, however, that if the Common Stock is not so traded or the foregoing shall otherwise be inappropriate, then the Fair Market Value shall be determined by the Administrator in good faith at its sole discretion and on such basis as it shall deem appropriate. Such determination shall be conclusive and binding on all persons. (k) "Initial Option" shall have the meaning set forth in Section 6(a). (l) "Nonemployee Director" shall mean any person who is a member of the Board but is not an employee of the Company or any Parent or Subsidiary of the Company and has not been an employee of the Company or any Parent or Subsidiary of the Company at any time during the preceding 12 months. (m) "Option" shall mean a stock option granted pursuant to this Plan. 2 (n) "Option Agreement" shall mean the written agreement described in Section 6(c) evidencing the grant of an Option to a Nonemployee Director and containing the terms, conditions and restrictions pertaining to such Option. (o) "Option Shares" shall mean the Shares subject to an Option granted under this Plan. (p) "Optionee" shall mean a Nonemployee Director who holds an Option. (q) "Parent" shall mean a "parent corporation," whether now or hereafter existing, as defined in Section 424(e) of the Code. (r) "Plan" shall mean this 2003 Nonemployee Directors Stock Option Plan of Human Pheromone Sciences, Inc., as it may be amended from time to time. (s) "Rule 16b-3" shall mean Rule 16b-3 promulgated by the Securities and Exchange Commission, or any successor rule thereto. (t) "Section" unless the context clearly indicates otherwise, shall refer to a Section of this Plan. (u) "Share" shall mean a share of Common Stock, as adjusted in accordance with Section 7(a). (v) "Subsidiary" shall mean a "subsidiary corporation" of the Company, whether now or hereafter existing, within the meaning of Section 424(f) of the Code, but only for so long as it is a "subsidiary corporation". 3. ELIGIBLE PERSONS Every person who at the date of grant of an Option is a Nonemployee Director is eligible to receive Options under this Plan and only Nonemployee Directors may receive Options under this Plan. 4. STOCK SUBJECT TO THIS PLAN (a) Subject to Section 7(a) of this Plan, the maximum aggregate number of Shares which may be issued on exercise of Options granted pursuant to this Plan is 300,000 Shares. Such shares may consist, in whole or in part, of authorized and unissued shares or shares reacquired in private transactions or open market purchases, but all shares issued under the Plan regardless of source shall be counted against the 300,000 3 share limitation. If any Option terminates or expires without being exercised in full, the shares issuable under such Option shall again be available for issuance in connection with other Options. If shares of Common Stock issued pursuant to an Option are repurchased by the Company, such Common Stock shall not again be available for issuance in connection with Options. To the extent the number of shares of Common Stock issued pursuant to an Option is reduced to satisfy withholding tax obligations, the number of shares withheld to satisfy the withholding tax obligations shall not be available for later grant under the Plan. (b) An Optionee shall have no rights as a shareholder with respect to any Shares covered by his or her Option until the issuance (as evidenced by the appropriate entry on the books of the Company or its duly authorized transfer agent) of a stock certificate evidencing such Shares. Subject to Section 7(a), no adjustment shall be made for dividends (ordinary or extraordinary, whether in cash, securities or other property), distributions, or other rights for which the record date is prior to the date the certificate is issued. 5. ADMINISTRATION (a) This Plan shall be administered by the Board, or by a committee (the "Committee") of at least two Board members who are Nonemployee Directors to which administration of the Plan is delegated (in either case, the "Administrator"), in accordance with the requirements of Rule 16b-3. (b) Subject to the other provisions of this Plan, the Administrator shall have the authority, in its sole discretion: (i) to determine the Fair Market Value of the Shares subject to Option; (ii) to interpret this Plan; (iii) to prescribe, amend and rescind rules and regulations relating to this Plan; (iv) to defer (with the consent of the Optionee) or accelerate the exercise date of any Option; (v) to authorize any person to execute on behalf of the Company any instrument evidencing the grant of an Option; and (vi) to make all other determinations deemed necessary or advisable for the administration of this Plan. The Administrator may delegate nondiscretionary administrative duties to such employees of the Company as it deems proper. (c) All questions of interpretation, implementation and application of this Plan shall be determined by the Administrator. Such determination shall be final and binding on all persons. 6. GRANT OF OPTIONS 4 (a) Grant for Initial Election or Appointment to Board. Subject to the terms and conditions of this Plan, beginning at any time after the Company's 2003 Annual Stockholder's meeting if any person who qualifies as a Nonemployee Director as defined herein is first elected or appointed as a member of the Board, then the Company shall grant to such Nonemployee Director on such day an Option to purchase 20,000 Shares ("Initial Option") at an exercise price equal to the Fair Market Value of such Shares on the date of such Initial Option grant, subject to the limitation of Section 7(i). (b) Grant for Re-election to Board. Subject to the terms and conditions of this Plan, on the date of the first meeting of the Board immediately following each annual meeting of stockholders of the Company beginning with the Company's 2003 Annual Stockholders Meeting (even if held on the same day as the meeting of stockholders) the Company shall grant to each Nonemployee Director then in office for longer than six months, an Option to purchase 20,000 shares (the "Annual Option") at an exercise price equal to the Fair Market Value of such Shares. (c) Optional Grants. Subject to the terms and conditions of this Plan, the Administrator, at its sole discretion, may grant an Option to purchase shares of the Company's Common Stock at an exercise price equal to the Fair Market Value of such Shares to any Nonemployee Director from time to time. Nothing in this Section shall confer upon any Nonemployee Director any right to receive any additional Options other than the Initial Option and the Annual Option. (d) No Option shall be granted under this Plan after seven years from the date of adoption of this Plan by the Board. Each Option shall be evidenced by a written Option Agreement, in form and substance satisfactory to the Company, executed by the Company and the Optionee. Failure by the Company, the Nonemployee Director, or both to execute an Option Agreement shall not invalidate the granting of an Option; however, the Option may not be exercised until the Option Agreement has been executed by both parties. 7. TERMS AND CONDITIONS OF OPTIONS Each Option granted under this Plan shall be subject to the terms and conditions set forth in this Section 7. (a) Changes in Capital Structure. Subject to subsection 7(b), if the Common Stock is changed by reason of a stock split, reverse stock split, stock dividend, or recapitalization, or converted into or exchanged for other securities as a result of a merger, consolidation, or reorganization, appropriate adjustments shall be made in: (i) the number and class of shares of stock subject to this Plan and each Option outstanding 5 under this Plan; and (ii) the exercise price of each outstanding Option; provided, however, that the Company shall not be required to issue fractional shares as a result of any such adjustment. Each such adjustment shall be subject to approval by the Administrator in its sole discretion. (b) Time of Option Exercise. Subject to the other provisions of this Plan, each Option shall be for a term of seven years. Each Option shall become exercisable with respect to one-twelfth of the number of Shares covered by such Option on the first day of each month following the date of grant, so that such Option shall be fully exercisable twelve months after the first day of the month following the date of grant. (c) Limitation on Other Grants. The Administrator shall have no discretion to grant Options under this Plan other than as set forth in Sections 6(a), 6(b) and 6(c). (d) Nonassignability of Option Rights. Unless determined otherwise by the Administrator in its absolute discretion, no Option shall be assignable or otherwise transferable by the Optionee, except by will or the laws of descent and distribution, and during the life of an Optionee, an Option shall be exercisable only by the Optionee. (e) Payment. Except as provided below, payment in full, in cash, shall be made for all Option Shares purchased at the time written notice of exercise of an Option is given to the Company, and proceeds of any payment shall constitute general funds of the Company. At the time an Option is granted or exercised, the Administrator, in its absolute discretion, may authorize (i) delivery by the Optionee of Common Stock already owned by the Optionee for all or part of the Option price, provided the Fair Market Value of such Common Stock is equal on the date of exercise to the Option price, or such portion thereof as the Optionee is authorized to pay by delivery of such stock; provided, however, that if an Optionee has exercised any portion of any Option granted by the Company by delivery of Common Stock, the Optionee may not, within six months following such exercise, exercise any Option granted under this Plan by delivery of Common Stock, (ii) the consideration to be received by the Company under a "cashless exercise/sale" procedure or program implemented or approved by the Company in connection with the Plan, and (iii) any other consideration and method of payment to the extent permitted under the California Corporation Code. (f) Termination as Director. Unless determined otherwise by the Administrator in its absolute discretion, to the extent not already expired or exercised, an Option shall terminate at the earlier of: (i) the expiration of the term of the Option; or (ii) three months after the last day served by the Optionee as a director of the Company; 6 provided, that an Option shall be exercisable after the date of termination of service as a director only to the extent exercisable on the date of termination; and provided further, that if an Optionee dies or suffers a "disability" (as determined in accordance with Section 22(e)(3) of the Code) while serving as a director (or, in the event of death, within the period that the Option remains exercisable after termination of service as a director), the Optionee, or the Optionee's personal representative (or any other person who acquires the Option from the Optionee by will or the applicable laws of descent and distribution), may at any time within 12 months after the termination of service as a director (or such lesser period as is specified in the Option Agreement but in no event after the expiration of the term of the Option), exercise the rights to the extent they were exercisable on the date of the termination. (g) Withholding and Employment Taxes. At the time of exercise of an Option (or at such later time(s) as the Administrator may prescribe), the Optionee shall remit to the Company in cash all applicable federal and state withholding and employment taxes. If authorized by the Administrator in its sole discretion, an Optionee shall be permitted to elect, by means of a form of election to be prescribed by the Administrator, to have shares of Common Stock which are acquired upon exercise of the Option withheld by the Company or to tender to the Company other shares of Common Stock or other securities of the Company owned by the Optionee on the date of determination of the amount of tax to be withheld as a result of the exercise of such Option (the "Tax Date") to pay the amount of withholding taxes due. Any securities so withheld or tendered shall be valued by the Company as of the Tax Date. (h) Option Term. Each Option shall expire seven years after the date of grant. 8. EFFECT OF CHANGE IN CONTROL. In the event of a "Change in Control," any Options outstanding as of the date such Change in Control is determined to have occurred and not then exercisable and vested shall become fully exercisable and vested. 9. MANNER OF EXERCISE (a) An Optionee wishing to exercise an Option shall give written notice to the Company at its principal executive office, to the attention of the officer of the Company designated by the Administrator, accompanied by payment of the exercise price as provided in Section 7(e) and, if required, by payment of any federal or state withholding or employment taxes required to be withheld due to exercise of the Option. The date the Company receives written notice of an exercise accompanied by payment of 7 the exercise price and any required federal or state withholding or employment taxes will be considered as the date such Option was exercised. Unless otherwise provided by the Administrator, Options may be exercised only twice in any calendar year. (b) Promptly after the date an Option is exercised, the Company shall, without stock issue or transfer taxes to the optionee or other person entitled to exercise the Option, deliver to the Optionee or such other person a certificate or certificates for the requisite number of shares of Common Stock. An Optionee or transferee of an Optionee shall not have any privileges as a stockholder with respect to any Common Stock covered by the Option until the date of issuance of a stock certificate. 10. NO RIGHT TO DIRECTORSHIP Neither this Plan nor any Option shall confer upon any Optionee any right with respect to continuation of the Optionee's membership on the Board or shall interfere in any way with provisions in the Company's Certificate of Incorporation, as amended, and Bylaws, as amended, relating to the election, appointment, terms of office, and removal of members of the Board. 11. LEGAL REQUIREMENTS The Company shall not be obligated to offer or sell any Shares upon exercise of any Option unless the Shares are at that time effectively registered or exempt from registration under the federal securities laws and the offer and sale of the Shares are otherwise in compliance with all applicable securities laws and the regulations of any stock exchange on which the Company's securities may then be listed. The Company shall have no obligation to register the Shares covered by this Plan under the federal securities laws or take any other steps as may be necessary to enable the Shares covered by this Plan to be offered and sold under federal or other securities laws. Upon exercising all or any portion of an Option, an Optionee may be required to furnish representations or undertakings deemed appropriate by the Company to enable the offer and sale of the Shares or subsequent transfers of any interest in the Shares to comply with applicable securities laws. Certificates evidencing Shares acquired upon exercise of Options shall bear any legend required by, or useful for purposes of compliance with, applicable securities laws, this Plan or the Option Agreements. 12. AMENDMENTS TO PLAN The Board may amend this Plan at any time. Without the consent of an Optionee, no amendment may adversely affect outstanding Options. No amendment shall 8 require stockholder approval unless the Board otherwise concludes that stockholder approval is advisable. 13. TERM This Plan shall become effective upon adoption by the Board of Directors. This Plan shall terminate seven years after adoption by the Board unless terminated earlier by the Board. The Board may terminate this Plan at any time. No Options shall be granted after termination of this Plan, but termination shall not affect rights and obligations under then-outstanding Options. Adopted by the Board of Directors: June 25, 2003 9 EX-31.1 5 p17515_ex31-1.txt CERTIFICATION Exhibit 31.1 CERTIFICATION I, William P. Horgan, certify that: 1. I have reviewed this quarterly report on Form 10-QSB of Human Pheromone Sciences, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any changes in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: August 11, 2003 /s/ William P. Horgan - --------------------- Chairman and Chief Executive Officer EX-31.2 6 p17515_ex31-2.txt CERTIFICATION Exhibit 31.2 CERTIFICATION I, Gregory S. Fredrick, certify that: 1. I have reviewed this quarterly report on Form 10-QSB of Human Pheromone Sciences, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any changes in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: August 11, 2003 /s/ Gregory S. Fredrick - ----------------------- Chief Financial Officer EX-32 7 p17515_ex32.txt CERTIFICATION CEO & CFO Exhibit 32 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 In connection with the Quarterly Report of Human Pheromone Sciences, Inc. (the "Company") on Form 10-QSB for the period ending June 30, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), we, William P. Horgan, Chief Executive Officer of the Company, and Gregory S. Fredrick, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1394; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ William P. Horgan - --------------------- August 11, 2003 /s/ Gregory S. Fredrick - ----------------------- August 11, 2003 -----END PRIVACY-ENHANCED MESSAGE-----