U.S. SECURITIES AND EXCHANGE COMMISSION

-----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, A8AlPJwVFHBTWl99uZNC5OMcqeLtxA7WF4G7IyLR+ZPtAl4nU0XQhFZ8BrZlHyKR +VdP1qUg7is6uyuZW7Uwfg== 0000950005-08-000200.txt : 20080331 0000950005-08-000200.hdr.sgml : 20080331 20080331172747 ACCESSION NUMBER: 0000950005-08-000200 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20071231 FILED AS OF DATE: 20080331 DATE AS OF CHANGE: 20080331 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: 10KSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-23544 FILM NUMBER: 08726410 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 10KSB 1 p20388form10k.htm FORM 10-KSB U.S. SECURITIES AND EXCHANGE COMMISSION

United States

Securities and Exchange Commission

Washington, D.C. 20549

FORM 10-KSB

(MARK ONE)

[X]

ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2007

[ ]

TRANSITION REPORT UNDER SECTION 13 OR A5(d) OF THE SECURITIES EXCHANGE ACT OF 1934

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 incorporation or organization)		(I.R.S. employee Identification No.)

84 W Santa Clara St., Suite 720, San Jose, California		95113
(Address of principal executive offices)		(Zip code)

Issuer’s telephone number: (408) 938-3030

Securities registered under Section 12(b) of the Exchange Act:

None

(Title of class)

Securities registered under Section 12(g) of the Exchange Act:

Common

(Title of class)

Check whether the issuer is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. [ ]

Indicate by check mark whether the Issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark if disclosure of delinquent filers in response to Item 405 of Regulation S-B is not herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. Yes [X] No [ ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes [ ] No [X]

State issuer’s revenues for its most recent fiscal year. $ 1,291,000

The aggregate market value of the voting stock held by non-affiliates of the registrant was $ 1,760,000 as of March 14, 2008 based upon the closing sale price on the OTC Bulletin Board reported for such date. Shares of common stock held by each officer and director and by each person who owns 5% or more of the outstanding Common Stock have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes.

There were 4,151,954 shares of the registrant’s common stock issued and outstanding as of March 14, 2008.

DOCUMENTS INCORPORATED BY REFERENCE

Part III incorporates information by reference from the definitive proxy statement for the Annual Meeting of Shareholders to be held on June 17, 2008.

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 of the business and the 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 uncertain ties 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.

Item 1.

Description of Business

Introduction

The Company, a California corporation, was founded in 1989 as EROX Corporation to develop and market a broad range of consumer products containing human pheromones as a component. On May 29, 1998, the shareholders of the Company voted to change the name of the Company to Human Pheromone Sciences, Inc. Human Pheromone Sciences, Inc. is alternatively referred to in this report as “we,” “us,” “our,” “HPS” or the “Company”.

The Company believes that human pheromone research funded by the Company presents an opportunity to create and market new categories of mood-enhancing pheromone-based consumer products that do not require FDA approval. The Company believes that its related patents provide it a proprietary position in developing, licensing and marketing this category of consumer products.

Pheromones, that underlie the Company’s current patents, are chemical substances known to stimulate species-specific biological responses in animals. For eighteen years, scientists and advisors engaged by the Company have studied the functions and characteristics of human pheromones and other mood-enhancing compounds.

The human pheromones included as a component of and as a fixative for the Company’s current products are manufactured for the Company by contract vendors. The manufacturing process for these compounds begins with hydrocarbon compounds commonly available from chemical supply houses, and involves the use of a synthetic chemistry process. Since 2001 an independent laboratory has manufactured these compounds, androstadienone and estratetraenol (the “Initial Compounds”), under the direction of HPS’ consulting scientists. All the steps in the manufacturing process are standard chemical laboratory procedures. The manufacturing process for pheromones is similar to methods by which other naturally occurring substances (such as amino acids) are synthetically produced.

The Company is also involved in the identification and development of additional compounds that, in initial human studies, have shown a wide spectrum of mood-enhancing activities. In September 2007 the Company filed with the U.S. Patent Office a Provisional Patent Application for one of the new compounds that it has been testing.

The HPS Technology

The Initial Compounds. People have long known that insects and animals communicate with one another through subtle, biochemical cues recognized and understood by other members of the same species. These biochemical signals warn of danger, indicate the presence of food, mark territorial boundaries and display sexual maturation or readiness. The biochemical messengers that deliver these communications are pheromones. Pheromones trigger a nerve impulse to the hypothalamus and other emotion-related centers of the brain when applied within or adjacent to the nasal passages.

Scientists have observed that in higher species the influence of pheromones grows increasingly more subtle and complex. Not surprisingly, reactions to these mood-enhancing compounds are very subtle in human beings. While humans have definite responses to pheromones, the research sponsored by HPS and other scientists suggests that the highly developed human brain filters and masks those reactions. Rather than producing an isolated effect, as in lower level species, these mood-enhancing human pheromones act in concert with other sensory cues provided by odor, sight, taste, sound and touch to provide a cumulative influence.

As a result of its research and the research of other scientists, the Company believes evidence has been developed that indicates that humans respond to these Initial Compounds. HPS has also found that they are sexually dimorphic; that is, some show more activity in females while others show a higher level of activity in males. During the studies of human pheromones conducted by the Company, certain human subjects volunteered descriptions of their feelings. Women frequently described feeling comfortable or at ease or more positive, while a number of male subjects described a feeling of confidence and self-assurance.

The Company continues to explore naturally occurring substances in a variety of tests to increase its knowledge and understanding of their range of influence on human emotions and their application as components of consumer products. In 2005, the Company began conducting studies on human volunteers with two additional naturally-occurring compounds which have shown initially promising results, and the Company will continue to invest in further development of these two additional compounds, ER 303 and ER 99, for broad-based inclusion in consumer products. Expanded studies were conducted in 2007 and while there can be no assurances that these two compounds will be commercially successful, the Company believes that the results to date warrant further study. In September 2007, the Company filed with the U.S. Patent Office a Provisional Patent Application for one of the new compounds that it has been testing.

Consumer Products and the Initial Compounds. Animal pheromones are well known in the consumer products industry. Natural and synthetic equivalents of mammalian pheromones such as musk, civet and castoreum are found in many fragrances today. However, since pheromonal cues can trigger a response only by members of the same species, these animal pheromones have no specific effect on humans; instead, they act only as fixatives or carriers for the fragrance or as a component of the consumer product.

A scent binds to smell receptors in the nose and stimulates a specific region of the brain resulting in the sensation of smell. These Initial Compounds bind to separate receptors that are physically and functionally distinct from smell receptors. These pheromone receptors stimulate a region of the brain different from that stimulated by smell receptors. Since it is widely believed that traditional perfumes and toiletry products allure and intrigue the senses, an alliance between these products and the Company’s compounds seems quite natural. For these products to create a true effect in humans, however, it must contain human pheromones. Thus, consumer products containing these mood enhancing components may provide more allure than any others currently available.

The Current HPS Products and Research

Products. The Company initially operated in one business segment and began by marketing three fragrances, REALM® Women, REALM® Men and inner REALM®. These products were sold by the Company into U.S. department and specialty stores through a network of dedicated salespeople and through independent distributors in selected markets in the Middle East and South East Asia. In April 2000, the Company licensed the rights to sell these products in all parts of the world, excluding South East Asia, to Niche Marketing, Inc. (See “Markets and Competition”). On April 14, 2003 the Company sold to Niche Marketing Group, Inc. the assets and worldwide ownership rights to the REALM Women, REALM Men and innerREALM product lines, including the rights to all trademarks associated therewith. Niche Marketing, Inc. was subsequently purchased by Five Star Fragrances, Inc. These “ ;proof-of-concept” products included a full line of fragrance and bath and body products including eau de toilette, cologne, eau de parfume, lotion, bath and shower gel, after-shave balm, deodorant, talc, soap and body cream.

Subsequently, the Company developed a new line of fragrance and toiletry products containing these Initial Compounds for men and women under the trademark Natural Attraction®. The Company introduced these products via a new website, www.naturalattraction.com, in 2000, and updated the packaging and presentation in 2006. Marketing of this line of products is through the website and other direct marketing channels in the United States. The Company has granted non-exclusive rights to the Natural Attraction products in the United States, Europe and Japan. In addition, the Company is in discussions with several distributors for the sale of the Natural Attraction products, both inside and outside the United States.

Licensing the use of the Company’s Initial Compounds and related technology is currently the core business of the Company. These compounds are sold to licensed customers and included as components in their products. The Company also offers private label manufacturing services for licensed customers if that is desired.

In August 2006, the Company signed an Agreement with Personal Products Company, a division of McNeil-PPC, Inc. (“PPC”) a Johnson & Johnson company. The Agreement with PPC represents a multiple-element arrangement and includes post signing consulting support to PPC as needed to assist them in claims development and manufacturing processes, an exclusive right of first discussion for new compounds that the Company develops and documents supportable claims of effectiveness, and an exclusive right to our existing patented compounds in specific consumer product fields (collectively hereinafter referred to as “PPC Rights”). In exchange for the PPC rights HPS received an initial cash payment and will receive future royalties on sales. The Company retains exclusive rights in several product fields and shares co-exclusive rights in other product areas, with the right to sublicense.

In May 2007, the Company signed an Agreement with Schwarzkopf & Henkel, a division of Henkel Consumer Goods, Inc. Under the terms of the Agreement, HPS granted Schwarzkopf & Henkel a non-exclusive license for the development, manufacture, sale and distribution of certain licensed hair styling products using the Company’s patented technology. Schwarzkopf & Henkel paid a license fee of $20,000 plus royalties based on net sales of licensed products in specified countries. The license was effective May 1, 2007 and expires on April 30, 2010.

Research. Pheromones, in general, are chemical substances known to stimulate species-specific biological responses in animals. The study of the uses, effects and advantages of human pheromones is in its infancy, but studies conducted under the Company’s sponsorship as well as several studies conducted by scientists at leading research universities around the world have revealed new information regarding the beneficial effects of the Company’s compounds and the biological pathways these compounds traverse in the human body.

On July 13, 2004 the Company signed a Research Agreement with the University of Utah to conduct research and provide services. The five year agreement, which became effective on July 15, 2004, provides that the University will provide professional research and services for specific research programs mutually initiated by the Company and accepted by the University. While the University shall own any inventions and improvements conceived or reduced to practice from the work performed, the Company retains the exclusive option to license any inventions or improvements conceived or reduced to practice and market the products developed from the research results. The Company has the right to develop new compounds outside of this Research Agreement.

Scientists working on behalf of HPS have identified, synthesized and tested several naturally occurring mood enhancing compounds. The initial results of testing on each of the two compounds, ER 303 and ER 99, resulted with positive results so testing and product development efforts have continued. The Company completed and filed with the U.S. Patent Office a Provisional Patent Application for ER 303. HPS intends to continue research and testing on several other compounds it has developed for application to apply to consumer products. For the years ended December 31, 2007 and 2006, total research and development expenditures totaled $199,000 and $166,000, respectively. Research expenditures of $150,000 that were incurred in 2007, and $64,000 incurred in 2006, to support the PPC license have been charged as cost of goods sold. The Company expects to continue development efforts, with or without with consume r product company(s) as development partners. Since its inception through December 31, 2007, the Company has incurred $5,904,000 in direct research and development related expenses.

Markets and Competition

The Competitive Environment. The Company’s current products contain what the Company believes are unique components: androstadienone and estratetraenol, synthesized mood-enhancing human pheromone compounds. With these components HPS is able to differentiate its products, and its licensee’s products, from traditional consumer products. Other than its customers and licensees, the Company believes that no other companies in or outside the United States have the right to produce or distribute products that contain these compounds. However, even with this proprietary technology, the Company and its current customers and licensees are competing against numerous companies including Estee Lauder, Chanel, Proctor and Gamble, Unilever, L’Oreal, and offerings from retailers such as Victoria’s Secret Beauty and Bath and Body Works.

While HPS’s current products are fragrances and toiletries, the Company believes its patented technology has applications far beyond traditional fragrances and bath and body products. HPS hopes to position its technology as a desired “value added” ingredient for any consumer product. Synthesized human pheromones provide the first patented technology of a component that could have broad application and usage in cosmetic, treatment, cleansing, over-the-counter health supplements and home and vehicle environmental products. The Company does not feel that it has the resources to successfully exploit the potential markets for such applications and continues to actively seek licensing and supply relationships with consumer product manufacturers.

Marketing Strategy. The Company’s strategy has shifted from the initial need to educate the consumers and the trade about the Company’s unique compounds to its current focus on expanding the market for its existing patented pheromones to other consumer product and fragrance companies. In addition the Company continues to market its internally developed brand of pheromone-based products under the Natural Attraction brand. The Company will seek to add to this group of products with new, patented compounds that may be developed through the research efforts that the Company is now directly managing.

Historic Distribution and Promotional Activities through April 14, 2003. During 1993, the Company developed two fragrances, REALM Women and REALM Men. Initial promotion and distribution was in the form of a one half-hour infomercial, broadcast-tested in August 1994 and rolled-out nationally in the last four months of the year. The infomercial continued to be broadcast through mid-1995 while the Company commenced selling its products in the U.S. retail department stores on a limited basis in late 1994 and on an expanded basis during the next several years.

Through 1998 HPS was primarily involved in one class of trade -- better U.S. department stores. REALM fragrances and toiletries were available in more than 1,300 stores in the 48 contiguous states. The Company also entered into distribution agreements for the sale of REALM fragrances and toiletries in selected Middle East markets, including Saudi Arabia and the Gulf States, selected Duty Free markets in the Caribbean, South America and on the Mexican and Canadian borders, Switzerland, Spain/Portugal and China.

During 1999, the Company reduced its presence in U.S. retailers whose business was not profitable since it believed that it was difficult for a company with a limited portfolio to profitably compete in the U.S. department store fragrance business.

On April 24, 2000, HPS signed a multi-year licensing agreement for its REALM and innerREALM fragrance and toiletry products with Niche Marketing, Inc. (“Niche”), and on April 14, 2003 the Company sold to Niche the assets and worldwide ownership rights to the REALM Women, REALM Men and innerREALM product lines. The sale of assets consisted of REALM and innerREALM product lines, which resulted in a net gain of $1,170,000.

Current Distribution and Promotional Activities. The Company’s strategic focus is now on expanding the market for its existing patented mood-enhancing pheromones to other consumer product companies and to the expansion of its internally developed brand of products under the Natural Attraction label. The Company is also engaged in a program to add distributors outside the United States for its Natural Attraction Brand, to sell its Initial Compounds for use in consumer products marketed by other companies and to increase its private label manufacturing services for licensees who want a completed product delivered to them for further sale to the consumer.

The Company will seek to add to these Initial Compounds by the development of additional compounds that have been identified as having mood altering or enhancing properties in laboratory and consumer studies. Two such compounds are being aggressively tested at the present time and there are several other compounds waiting to undergo similar development efforts. Basic research on these compounds is not required. That has been done over the past eight years. Scientists working on behalf of the Company are now focused on the less-costly scale-up and testing of these additional compounds.

Technology Licensing and Supply Agreements

One of the strategic objectives of the Company is to expand the use of its patented human pheromone technology by working closely with consumer products companies who are leaders in their particular markets. In December 1998, HPS signed its first agreement to supply Avon Products, Inc. with its synthesized human pheromones. Revenues commenced in 1999 and continued through 2007. Total revenues from this agreement and others aggregated $2,438,410 in 2007 and $1,851,950 in 2006, respectively. HPS is also in supply and / or licensing discussions with other companies in several consumer products fields and markets.

In August 2006, the Company signed an agreement with Personal Products Company, a division of McNeil-PPC, Inc. (“PPC”) a Johnson & Johnson company. As consideration for the rights of first discussion, technology consulting services and licensing rights granted the Company received an initial cash payment of $1,750,000 and future royalties on sales. The PPC agreement will expire when the initial patents on the licensed technology expire, in December 2010 and March 2012. The Company records revenue for the consulting services and rights of first discussions as the Company incurs expenses and resources towards fulfilling the obligations to PPC. License revenue is being recognized over the life of the agreement, sixty-seven months, on a straight line basis.

At any given time the Company is in discussions with other companies as to potential licensing and supply agreements.

During 2007, three customers comprised 39%, 16% and 12% of the Company’s net sales. Accounts receivable from these customers at December 31, 2007 account for 0%, 30% and 0%, respectively, of the net receivables. During 2006, three customers comprised 62%, 15% and 12% of the Company’s net revenues, and accounts receivable from these customers at December 31, 2006 accounted for 74%, 0% and 0%, respectively.

Patents and Other Intellectual Property

In December 1993 and January 1994, the Company received two United States patents for non-therapeutic compositions of fragrances and human pheromones for use as components in perfumes and personal care products and consumer and industrial products such as clothing, air fresheners and paper products. The initial patents on the licensed technology expire will expire in December 2010 and March 2012. In 1995, patents were granted in Taiwan, and in 1997, patents were granted in Mexico. In June 1998, the Company was granted a Notice of Allowance of its patents for the inclusion of synthesized human pheromones by the European Patent Office. Individual country patents were also granted. HPS is also the exclusive licensee for non-therapeutic uses of pheromones in consumer products under a royalty-free worldwide perpetual license to United States patents and patent applications covering pheromone technology o wned by Pherin Pharmaceuticals, Inc. This technology is also the subject of other foreign patents and applications. The Company also relies on trade secrets protection for confidential and proprietary information. Other patent applications are currently anticipated as new compounds are developed.

In September 2007, the Company filed with the U.S. Patent Office a Provisional Patent Application for a new compound, referred to by the Company as ER 303. In testing with human volunteers, ER 303 showed significant improvement in many types of feelings in both men and women as compared with a placebo.

Regulation

Unless the FDA extends its regulatory authority, regulation by governmental authorities in the United States and other countries is not expected to be a significant consideration in the sale of the Company’s products and in its ongoing research and development activities. Under current regulations, the market introduction of the majority of non-medicated cosmetics products does not require prior formal registration or approval by the FDA, although this could change in the future. The cosmetic industry has established self-regulating procedures and most companies perform their own toxicity and consumer tests. Voluntary filings related to manufacturing facilities are made with the FDA. The Cosmetics Division of the FDA, however, does monitor closely problems of safety, adulteration and labeling. In addition, if the FDA should determine that claims made by the Company for its fragrances involve the cure, miti gation or treatment of disease, the FDA could take regulatory action against the Company and its products.

In addition, the United States Federal Trade Commission (“FTC”) monitors product claims made in television and radio commercials and print advertising to ensure that any claim can be substantiated. If the FTC believes that any advertising claim made by the Company with regard to the effect or benefit of its products is not substantiated by adequate data or research and the Company cannot support such claim, the FTC could also take regulatory action against the Company and its products.

Employees

At March 1, 2008, the Company had two full-time employees and one part-time employee. In addition, the Company, as needed, retains consultants to provide advice in the areas of research, sales and marketing, advertising, product safety testing, regulatory compliance, MIS and product development. None of the Company’s employees is represented by a labor union. The Company considers its relations with its employees and consultants to be good.

Manufacturing

The Company and its licensees are dependent on third parties to manufacture its products. The Company has selected several essential oil companies that provide fragrance products to the industry to supply such compounds to HPS and its licensees in accordance with proprietary formulas developed for the Company and generic formulas developed by the essential oil companies. The Company has agreements in place with the supplier for its products and has been furnished with commercial quantities of the Company’s and its licensees’ products for sale to consumers. While the Company is responsible for providing the patented compounds, final bottling and packaging of the products and ancillary product lines are performed by independent manufacturers. These manufacturers selected by HPS and its licensees have extensive experience in blending, filling and packaging consumer products, and have the capacity to sati sfy the Company’s and its licensees’ manufacturing needs, at least for the foreseeable future. The Company believes that such manufacturing services are widely available to the consumer products industry at competitive prices and has identified additional contract manufacturing companies.

The Company has qualified two manufacturers for the production of the synthesized human pheromones. Since 2002, the Company has utilized only one of these manufacturers to furnish all of the Company’s human pheromone requirements. The Company does not believe that it would be economically feasible to establish its own manufacturing facilities since synthesized human pheromones are available from laboratories that now have experience in the preparation of these compounds.

Available Information

We make available free of charge on or through our Internet website our annual reports on Form 10-KSB, quarterly reports on Form 10-QSB, current reports on Form 8-K and all amendments to those reports as soon as reasonably practicable after they are electronically filed with, or furnished to, the Securities and Exchange Commission. Our Internet website address is "www.erox.com". The reference to our Internet website does not constitute incorporation by reference of the information contained on or hyperlinked from our Internet website. Our filings are also available online at the Securities and Exchange Commission (SEC) website on the Internet. The address of that site is www.sec.gov. The materials are also available at the SEC’s Public Reference Room, located at 100 F Street, Washington, D.C. 20549. The public may obtain information through the public reference room by calling the SEC at 1-800-S EC-0330.

Risk Factors

Our business is subject to various risks, including those described below. You should carefully consider the following risk factors and all other information contained in this Form 10-KSB. If any of the following events or outcomes actually occurs, our business, operating results and financial condition would likely suffer.

The Company has not had sustained profitable operations since 1997 and may need additional funding to continue operations. Since 1997, the Company has incurred losses from operations. In May 2000, the Company refocused its business model based on product licensing agreements. While the Company anticipated that this change in its business will result in profitable operations, it has not to date, and the Company’s license based business model may not be successful in the future. Although the Company’s current cash position and projected results of operations for the next twelve months are not expected to require additional outside financing, the Company is continuing to seek additional financing opportunities. The Company may not be able to obtain such additional funding on commercially reasonable terms if such funding is required.

The Company’s marketing strategy may not be successful. The Company may not be able to establish and maintain the necessary sales and distribution channels. Consumer product companies may choose not to license or private label the Company’s products.

The Company may not be able to protect its technology or trade secrets from others who choose to violate the Company’s patents. The Company intends to protect and defend its patent rights from those who might violate them. However, the costs to defend and litigate may exceed the Company’s financial resources.

The Company may not be able to develop new patentable compounds. The Company’s success substantially depends upon developing and obtaining patents for new mood and sensory enhancing compounds. The Company requires that its products be scientifically tested validating the human responses to the compounds. The Company may not be successful in validating that the desired human responses are obtained.

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 and its distributors/licensees rely upon other companies to manufacture its pheromones, supply components, and to blend, fill and package its fragrance products. The Company and its distributors/licensees may not be able to obtain or retain pheromone manufacturers, fragrance suppliers, or component manufacturers on acceptable terms. This would adversely affect operating results.

Item 2.

Description of Property

The Company presently occupies 2,609 square feet of space for its headquarter offices in San Jose, California, pursuant to a lease extension signed on March 5, 2004 that expired March 31, 2007. The minimum annual rental is $50,734, with annual rent increases in accordance with the increase in the Consumer Price Index in the local area. The Company has converted to a month-to-month lease for these offices. Commencing in February 2001, the Company leases storage space in the local area on a month-to-month basis for approximately $0.75 per square foot.

The Company also occupies a 1,700 square feet of laboratory space for its research & development operations located in Salt Lake City, Utah, pursuant to a lease signed on September 1, 2006 that expires September 1, 2008. The minimum annual rental is $50,000 with no annual rent increase. Our existing facilities are not yet being used at full capacity and management believes that these facilities are adequate and suitable for current and anticipated needs.

During the year ended December 31, 2007, the Company incurred $110,000 in net rent expense and related charges for these facilities.

Item 3.

Legal Proceedings

We are not currently involved in any material legal proceedings.

Item 4.

Submission of Matters to a Vote of Security Holders

None.

Item 5.

Market for Common Equity, Related Stockholder Matters and Small Business Issuer Purchases of Equity Securities

The Company’s common stock is quoted on the OTC Bulletin Board under the symbol EROX.OB. As of March 1, 2008, there were approximately 700 holders of record of the Company’s common stock. Set forth below is the high and low bid information for the Company’s common stock on the OTC Bulletin Board as reported during each of the four calendar quarters of 2007 and 2006.


	HIGH		LOW
2007
First quarter	$	0.90	$	0.56
Second quarter	$	0.97	$	0.59
Third quarter	$	1.10	$	0.77
Fourth quarter	$	0.90	$	0.60

2006
First quarter	$	0.32	$	0.15
Second quarter	$	0.35	$	0.17
Third quarter	$	0.95	$	0.33
Fourth quarter	$	1.01	$	0.69

These quotations reflect interdealer prices, without retail mark-up, markdown or commissions and may not represent actual sales.

The Company has never paid cash dividends on its common stock. The Company currently intends to retain future earnings, if any, to fund the development and growth of its business and does not plan to pay any cash dividends in the foreseeable future.

Issuer Purchases of Equity Securities

In December 2007, the Board of Directors approved a stock repurchase program for the Company to buy back up to 400,000 shares of the Company’s common stock. No shares were repurchased in fiscal 2007.

Item 6.

Management’s Discussion and Analysis

The Company’s strategic focus is now on expanding the use of its existing patented human pheromones to other consumer product companies on a worldwide basis and the development of its internally developed Natural Attraction and other proprietary lines of mood enhancing based products. In addition, the Company would like to add to this group of products new patented compounds that are being developed through the research efforts that the Company is now directly managing.

Year ended December 31, 2007 compared with the year ended December 31, 2006

Net sales and revenues for the year ended December 31, 2007 were $1,291,000 compared to $1,227,000 for the prior year, an increase of $64,000, or 5%. License revenues for the years ending December 31, 2007 and 2006 were $526,000 and $182,000, respectively, an increase of $344,000. The increase is attributable to the PPC license agreement signed in August 2006 and the Schwarzkopf and Henkel license agreement signed in May 2007. Revenue recognized under the PPC license totaled $498,000 in 2007, $292,000 for first discussion work, $149,000 license fee amortization and $57,000 for consulting services. In 2006, for the first five months of the license, the license revenues were $183,000, $112,000 for first discussion work, $56,000 license fee amortization and $15,000 for consulting services. The 2007 license with Schwarzkopf and Henkel produced $28,000 of license revenue, a combination of royalties and amortiz ation of the initial payment received upon signing.

Net product revenues of $765,000 for the year ending December 31, 2007 was $280,000 less than last year’s $1,045,000. Our primary customer’s purchases, which have had significant annual fluctuations in the past, decreased by more than 73% from their 2006 purchases. This customer launched products containing our patented compounds into new international markets in 2006 and there was not a similar expansion in 2007. Net product revenues from new customers and increased orders from existing customers increased 99% from 2006. Natural Attraction sales, both domestically and internationally have increased slightly over the 2006 levels. Revenues from international private label products has decreased 41% as the customer is now manufacturing offshore with the compounds that we supply to them. The Company is continuing to seek new licensees and expand discussions with potential licensees in c onsumer product markets.


	Year ending December 31,
	2007		2006
	(unaudited)		(unaudited)
	(in thousands)		(in thousands)
Net revenue by type:
Product revenue	$	765	$	1,045
License revenue		526		182
Total	$	1,291	$	1,227

Gross profit for the year decreased by $25,000, to $915,000 in 2007 from $940,000 in 2006. Gross margin in 2007 was 71% of revenue as compared with 77% in the prior year. The slight decrease is primarily attributable to increased revenue from the lower margin consulting and the rights portion of the PPC agreement.

Research and development expenses for 2007 and 2006 were $49,000 and $102,000, respectively. Research expenditures of $150,000 that were incurred in 2007, and $64,000 incurred in 2006, to support the PPC license have been charged as cost of goods sold. The total research and development costs incurred for the current year, including the amount recorded as license costs, was $199,000 which was $33,000 more than the prior year’s $166,000. The increase of the research expenditures was the result of a full year of rent expense at the University of Utah which began on September 1, 2006, the Company completing and filing with the U.S. Patent Office a Provisional Patent Application for a new compound and continuing to invest in the compounds that have yielded encouraging initial results.

Selling, general and administrative expenses decreased $27,000 to $942,000 for the year ending December 31, 2007 from $969,000 for year ending December 31, 2006. Sales, marketing and distribution expenses decreased $28,000, while other administrative expenses increased by $1,000. The decrease in sales and marketing expenses was due to the Company continuing to focus on product licensing which is less capital intensive than direct product marketing and sales. Administrative expenses of $56,000 that were incurred in 2007, and $21,000 incurred in 2006, to support the PPC license have been charged as cost of goods sold. The total administrative cost incurred for the current year, including the amount recorded as license costs, was $910,000 which was $40,000 more than the prior year’s $870,000. Increased audit and tax fees of $53,000, and stock option grant compensation of $42,000 (due to increased stock value) were partially offset by reductions in legal expenses, liability insurance and employee compensation.

Total other income increased by $38,000 to $65,000 for the year ending December 31, 2007 from $27,000 in 2006. Net interest income for 2007 was $65,000 and in 2006 the net interest income was $27,000. The increase in net interest income was due to increased cash balances related to the cash payment received upon signing of the PPC license and the increase of interest rates in 2007 compared to 2006.

In 2007 the Company recorded a $5,000 a tax provision for state minimum taxes and for an adjustment to the 2006 state tax accrual.

As of December 31, 2007 the Company’s gross deferred tax asset, which relates primarily to net operating losses carried forward, was approximately $6,664,000. However, a full valuation allowance was provided for the gross deferred tax asset as management could not determine that it is more likely than not that the deferred tax asset will be realized.

Liquidity and Capital Resources

At December 31, 2007, the Company had cash and cash equivalents of $1,437,000, working capital of $1,009,000, and no bank borrowings outstanding. These balances at December 31, 2006 were $1,941,000 and $1,083,000, respectively with no bank borrowings outstanding. Net cash used in operating activities was $501,000 for the year ended 2007 as compared with net cash provided by operating activities of $1,489,000 for the year ended December 31, 2006. The cash used in operations for 2007 decreased by $1,990,000 and is primarily attributed to the PPC license agreement which provided a $1,750,000 cash receipt in 2006 and there was not a similar transaction in the current year.

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. The Company is continuing to seek additional financing opportunities.

New Accounting Pronouncements

In December 2007, the FASB issued SFAS No. 141(R), "Summary of Statement No. 141 (revised 2007)" ("SFAS 141(R)"). The objective of SFAS 141(R) is to improve the relevance, representational faithfulness, and comparability of the information that a reporting entity provides in its financial reports about a business combination and its effects. Under SFAS 141(R), an acquiring entity will be required to recognize all the assets acquired and liabilities assumed in a transaction at the acquisition-date fair value, with limited exceptions. The Company is required to adopt the provisions of SFAS 141(R), as applicable, beginning January 1, 2009. Management does not believe the adoption of SFAS 141(R) will have any impact on the Company's financial position or results of operations.

In December 2007, the FASB issued SFAS No. 160, "Summary Noncontrolling Interests in Consolidated Financial Statements—an amendment of ARB No. 51" ("SFAS 160"). SFAS 160 establishes new accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. The Company is required to adopt the provisions of SFAS 160, as applicable, beginning January 1, 2009. Management does not believe the adoption of SFAS 160 will have any impact on the Company's financial position or results of operations.

CRITICAL ACCOUNTING POLICIES

The discussion and analysis of our financial conditions and results of operations are based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of financial statements requires management 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 financia l statements.

Stock Option Policy

The Company adopted SFAS 123 (R) “Share-Based Payment”, to account for its stock options effective with the fiscal year beginning January 1, 2006. The fair value of each option granted is estimated on the date of the grant using the Black-Scholes option-pricing model. The Black-Scholes pricing model has assumptions for the risk free interest rates, dividends, stock volatility and expected life of an option grant. The risk free interest rate is based on the U.S. Treasury Bill rate with a maturity based on the expected life of the option and on the closest day to an individual stock option grant. Dividend rates are based on the Company’s dividend history. The stock volatility factor is based on the past seven years of market prices of the Company’s common stock. The expected life of an option grant is based on various factors including historical exercise rates in addition to the life of the stock option. The Company adjusts compensation expense by a forfeiture factor based on historical experience. The fair value of each option grant is recognized as compensation expense over the vesting period of the option on a straight line basis.

The Company did not record the stock compensation expense net of taxes since there was no material provision for income taxes for the periods ended December 31, 2007 and 2006 as the Company incurred net operating losses for which no benefit was recognized, nor were tax loss carryforwards utilized. The tax benefit is a component of the deferred tax asset disclosed in the income taxes footnote.

Use of Estimates

The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

Revenue Recognition

Revenue is recorded at the time of merchandise shipment, net of provisions for returns. The Company records revenues from sales initiated by sales agents, net of the sales commissions earned following the interpretative guidance provided by FASB Emerging Issue Task Force (EITF) No. 99-19 Reporting Revenue Gross as a Principal versus Net as an Agent. 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 Revenue Recognition in Financial Statements and SAB, No. 104 Revenue Recognition. The Company records multiple-element arrangements in accordance with EITF 00-21 Revenue Arrangements with Multiple Deliverables.

Multiple-element arrangements are assessed to determine whether they can be separated into more than one unit of accounting. A multiple-element arrangement is separated into more than one unit of accounting if all of the following criteria are met.

● The delivered items or service has value to the customer on a stand alone basis.

● There is objective and reliable evidence of the fair value of the undelivered items or service.

● If the delivery or performance of the undelivered items or service is considered probable and substantially in our control.

If these criteria are not met, then revenues are deferred until such criteria are met or until the period(s) over which the last undelivered element is delivered. If there is objective and reliable evidence of fair value for all units of accounting in an arrangement, the consideration is allocated to the separate units of accounting based on each unit’s relative fair value.

Our agreement with Personal Products Company (hereinafter referred to as “PPC”) represents a multiple-element arrangement and includes post signing consulting support to PPC as needed to assist them in claims development and manufacturing processes, an exclusive right of first discussion for new compounds that the Company develops and documents supportable claims of effectiveness, and an exclusive right to our existing patented compounds in specific consumer product fields. A portion of the initial payment received as part of the PPC agreement is being recognized as the Company incurs expenses and resources towards fulfilling the obligations to PPC, based on interpretative guidance provided by EITF 00-21.

The PPC agreement was entered into on August 18, 2006 and will expire when the initial patents on the licensed technology expire, in December 2010 and March 2012. For the services and rights granted in the agreement, the Company received an initial payment of $1,750,000 in September 2006 and will earn royalties on products developed and sold by PPC until the patents expire. The Company records revenue for the consulting services and right of first discussions as the Company incurs expenses and resources towards fulfilling its obligations to PPC. License revenue is being recognized on a straight-line basis over the life of the agreement of sixty-seven months. The Company began recognizing revenue from all three units during the quarter ending September 30, 2006.

A summary of the revenue recognized for these multiple units of accounting follows (in thousands):


		Year ending December 31,
		2007		2006
Right of first discussion		$	292	$	112
Exclusive license			149		56
Consulting services			57		15
	Total	$	498	$	183

The PPC initial payment recorded as deferred revenue as of December 31, 2007 and 2006 was $1,068,000 and $1,567,000, respectively.

The Company granted Schwarzkopf & Henkel a non-exclusive license for the development, manufacture, sale and distribution of certain licensed hair styling products using the Company’s patented technology. Schwarzkopf & Henkel paid a license fee of $20,000 plus royalties based on net sales of licensed products in specified countries. The license was effective May 1, 2007 and expires on April 30, 2010.

The $20,000 license fee is being recognized on a straight-line basis over the life of the license of thirty-six months. There is no discernable service to be provided by the Company to warrant an alternative revenue recognition method. The revenue recognized under this agreement in 2007 was $28,000 consisting of royalties of $24,000 and amortization of the license fee of $4,000. The deferred revenue from the Schwarzkopf & Henkel license as of December 31, 2007 was $16,000.

Income Taxes

The Company accounts for income taxes under SFAS 109 “Accounting for Income Taxes”. Deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carryforwards, and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities in the Company’s financial statements and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that all or some portion of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.

When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would ultimately be sustained. The benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more-likely-than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. The evaluation of a tax position taken is considered by itself and not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing auth ority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits in the accompanying balance sheet along with any associated interest and penalties that would be payable to the taxing authorities upon examination.

Off-Balance-Sheet Arrangements

As of December 31, 2007, the Company did not have any off-balance-sheet arrangements as defined in Item 303(c)(2) of SEC Regulation S-B.

Item 7.

Financial Statements

See the Company’s audited financial statements set forth in pages 18 to 32.

Item 8.

Changes In and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 8A.

Controls and Procedures

a) Evaluation of Controls and Procedures.

Under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, the Company conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of December 31, 2007. Based on this evaluation, our chief executive officer and our chief financial officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this annual report on Form 10-KSB.

(b) Management’s Report on Internal Control over Financial Reporting.

Management is responsible for establishing and maintaining adequate internal control over financial reporting of the Company. Under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, we conducted an assessment of the effectiveness of our internal control over financial reporting based on the criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this evaluation, management concluded that our internal control over financial reporting was effective in providing reasonable assurance regarding the reliability of financial reporting and preparation of the financial statements for external purposes in accordance with U.S. generally accepted accounting principals as of December 31, 2007.

This annual report does not include an attestation report of the Company’s independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s independent registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this annual report.

(c) Changes in Internal Control Over Financial Reporting.

There have not been any changes in the Company’s internal control over financial reporting during the most recent fiscal quarter ended December 31, 2007, that materially affected, or are reasonably likely to materially effect, the Company’s internal control over financial reporting.

Item 8B.

Other Information

None.

PART III

Item 9.

Directors, Executive Officers, Promoters and Control Persons and Corporate Governance

of the Registrant; Compliance with Section (16a) of the Exchange Act

The executive officers of the Company and their ages as of March 1, 2008 are as follows:


Name	Age	Position

William P. Horgan	60	Chairman, Chief Executive Officer and Director

Gregory S. Fredrick	53	Chief Financial Officer

William P. Horgan was appointed to the newly created post of Chairman of the Board in November 1996 after serving as President, Chief Executive Officer and Director since January 1994, when he joined the Company. From May 1992 to January 1994, he served as Chief Financial and Administrative Officer of Geobiotics, Inc., a biotechnology-based development stage company, and from January 1990 to May 1992, was employed by E.S. Jacobs and Company as Senior Vice President of Worlds of Wonder, Inc. From March 1988 to January 1990, he was Chief Financial Officer of Advanced Polymer Systems, Inc., a manufacturer and supplier of polymer based delivery systems for the ethical dermatology, OTC skin care and personal care markets. Prior to 1988, he held various executive and management positions with CooperVision, Inc. and several affiliated companies, including President of its Revo, Inc. subsidiary.

Gregory S. Fredrick joined the Company in October 1998 as Vice President and Controller. Prior to joining the Company. Mr. Fredrick spent nearly eight years in the entertainment industry. From February 1997 to June 1998, he was the Vice President and Controller for the start-up record label / internet company 911 Entertainment. Mr. Fredrick served in various finance and operations capacities while with Windham Hill Records / BMG Entertainment from April 1990, leaving as Director of Operations in December 1996.

Code of Ethics

The Company has adopted a Code of Ethics that applies to all of our directors, officers and employees. The Code of Ethics is posted on our website at erox.com under the caption About the Company.

The Company intends to satisfy the disclosure requirement under Item 10 of Form 8-K regarding an amendment to, or waiver from, a provision of the Code of Ethics by posting such information on our website, at the address and location specified above.

The remainder of this item is incorporated by reference to the Company’s definitive Proxy Statement relating to its 2008 Annual Meeting of Shareholders (the “Proxy Statement”).

Item 10.

Executive Compensation

Incorporated by reference to the Proxy Statement.

Item 11.

Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters

Incorporated by reference to the Proxy Statement.

Item 12.

Certain Relationships and Related Transactions, and Director Independence

Incorporated by reference to the Proxy Statement.

Item 13.

Exhibits


Financial Statements.	The following are filed as a part of this report:
		Page
Report of Singer Lewak Greenbaum & Goldstein LLP, Independent Registered
Public Accounting Firm		18
Balance Sheets – December 31, 2007 and 2006		19
Statements of Operations – Years ended December 31, 2007 and 2006		20
Statements of Shareholders’ Equity –Years ended December 31, 2007 and 2006		21
Statements of Cash Flows – Years ended December 31, 2007 and 2006		22
Notes to Financial Statements		23

Exhibits. The following exhibits are filed as part of this report.


EXHIBIT NUMBER
EXHIBIT NUMBER			EXHIBIT TITLE

	3.1	Copy of the Registrant’s Articles of Incorporation ⁽¹⁾
	3.2	Copy of Registrant’s By-laws ⁽¹⁾
	10.1	Registrant’s Stock Plan * ⁽¹⁾
	10.2	Technology Transfer Agreement between Registrant and Pherin dated
		August 23, 1991 ⁽¹⁾
	10.3	Supply Agreement with Avon Products, Inc.⁽²⁾
	10.4	Lease Agreement between Registrant and Ernest E. Pestana and Irene Pestana, dated
		March 5, 2001 for the Registrant’s California offices⁽³⁾.
	10.5	Amendment to License and Purchase Agreement with Niche Marketing, Inc. dated
		March 8, 2002.⁽⁴⁾
	10.6	2003 Nonemployee Directors Stock Option Plan of Human Pheromone Sciences, Inc*⁽⁵⁾
	10.7	Lease Agreement between Registrant and Ernest E. Pestana and Irene Pestana, dated
		March 5, 2004 for the Registrant’s California offices⁽⁶⁾
	10.8	Research Agreement with University of Utah effective July 15, 2004⁽⁷⁾.
	10.9	Form of Nonstatutory Stock Option Agreement *⁽⁸⁾.
	10.10	License Agreement with Personal Products Company (PPC), a division of McNeil-PPC, Inc.⁽⁹⁾

	31.1	Certification of Chief Executive Officer pursuant to Rules 13a – 15(e)
	31.2	Certification of Chief Financial Officer pursuant to Rules 13a – 15(e)
	32	Certification of Chief Executive Officer and Chief Financial Officer pursuant to U.S.C. 1350


(1)	Filed as an exhibit with corresponding exhibit no. to Registrant’s Registration Statement on Form SB-2
	(Registration No. 33-52340) and incorporated herein by reference.

(2)	Filed as an exhibit with corresponding exhibit no. to Registrant’s Annual Report on Form 10-KSB for
	the year ended December 31, 1998.

(3)	Filed as an exhibit with corresponding exhibit no. To Registrant’s Annual Report on Form 10-KSB for
	the year ended December 31, 2001.

(4)	Filed as an exhibit with corresponding exhibit no. to Registrant’s Quarterly Report on Form 10-QSB for
	the three month ended March 31, 2002.

(5)	Filed as an exhibit with corresponding exhibit no. to Registrant’s Quarterly Report on Form 10-QSB for
	the three month ended June 30, 2003.

(6)	Filed as an exhibit with corresponding exhibit no. to Registrant’s Quarterly Report on Form 10-QSB for
	the three month ended March 31, 2004.

(7)	Filed as an exhibit with corresponding exhibit no. to Registrant’s Quarterly Report on Form 10-QSB for
	the six months ended June 30, 2004

Item 13.

Exhibits (continued)


(8)	Filed as an exhibit with corresponding exhibit no. to Registrant’s Quarterly Report on Form 10-QSB
	for the six months ended June 30, 2006.


(9)	Filed as an exhibit with corresponding exhibit no. to Registrant’s Quarterly Report on Form 10-QSB for
	the nine months ended September 30, 2006. Certain portions of this exhibit have been omitted and
	filed separately with the Commission. Confidential treatment has been requested with respect
	to the omitted portions.

* Management contract or compensatory plan

Item 14.

Principal Accountant Fees and Services

Incorporated by reference to the Proxy Statement.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, Human Pheromone Sciences, Inc. Corporation has duly caused this Annual Report on Form 10-KSB to be signed on its behalf by the undersigned, thereunto duly authorized, in San Jose, California, on March 28, 2008.

HUMAN PHEROMONE SCIENCES, INC.

By: /s/ William P. Horgan

Name: William P. Horgan

Title: Chief Executive Officer and Chairman of the Board

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENT, that each person whose signature appears below constitutes and appoints William P. Horgan and Gregory S. Fredrick, jointly and severally, his or her attorneys-in-fact, each with the power of substitution, for him or her in any and all capacities, to sign any amendments to this Annual Report on Form 10-KSB and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact, or his substitute or substitutes, may do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report has been signed on behalf of Human Pheromone Sciences, Inc. by the following persons in the capacities and on the dates indicated.

SIGNATURE

CAPACITY

DATE

/s/ William P. Horgan

Chief Executive Officer

March 28, 2008

William P. Horgan

and Chairman

(Principal Executive Officer)

/s/ Gregory S. Fredrick

Chief Financial Officer

March 28, 2008

Gregory S. Fredrick

(Principal Financial and

Accounting Officer)

/s/ Bernard I. Grosser

Director

March 28, 2008

Bernard I. Grosser, MD

/s/ Helen C. Leong

Director

March 28, 2008

Helen C. Leong

/s/ Robert Marx

Director

March 28, 2008

Robert Marx

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors

Human Pheromone Sciences, Inc.

San Jose, California

We have audited the balance sheets of Human Pheromone Sciences, Inc. (the “Company”) as of December 31, 2007 and 2006, and the related statements of operations, shareholders’ equity and cash flows for each of the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Human Pheromone Sciences, Inc. as of December 31, 2007 and 2006, and the results of its operations and its cash flows for each of the years then ended, in conformity with U.S. generally accepted accounting principles.

We were not engaged to examine management's assertion about the effectiveness of Human Pheromone Sciences, Inc.’s internal control over financial reporting as of December 31, 2007 included in the accompanying Item 8A Controls and Procedures and, accordingly, we do not express an opinion thereon.

As discussed in Note 7 to the financial statements, the Company has adopted the provisions of Statement of Financial Accounting Standards Interpretation No. 48, “Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement No. 109” on January 1, 2007.

/s/ SINGER LEWAK GREENBAUM & GOLDSTEIN LLP

Los Angeles, California

March 28, 2008

Human Pheromone Sciences, Inc.

Balance Sheets


		December 31,		December 31,
(in thousands except share data)		2007		2006
Assets

Current assets:
Cash and cash equivalents	$	1,437	$	1,941
Accounts receivable		194		39
Inventories, net		25		75
Other current assets		40		18
Total current assets		1,696		2,073

Property and equipment, net		3		2

Total assets	$	1,699	$	2,075




Liabilities and Shareholders' Equity

Current liabilities:
Accounts payable	$	28	$	30
Current portion of deferred revenue		518		846
Accrued professional fees		95		69
Accrued employee benefits		39		32
Accrued income taxes		1		7
Other accrued expenses		6		6
Total current liabilities		687		990

Non-current liabilities
Deferred revenue		566		721
Total liabilities		1,253		1,711

Commitments and contingencies

Shareholders' equity:
Common stock, no par value, 13,333,333 shares authorized,
4,151,954 shares issued and outstanding at each date		20,963		20,865
Accumulated deficit		(20,517)		(20,501)
Total shareholders' equity		446		364
Total liabilities and shareholders’ equity	$	1,699	$	2,075



See accompanying notes to financial statements

Human Pheromone Sciences, Inc.

Statements of Operations


		Years ended December 31,
(in thousands except per share data)		2007		2006

Net revenues	$	1,291	$	1,227
Cost of goods sold		376		287

Gross profit		915		940

Operating expenses:
Research and development		49		102
Selling, general and administrative		942		969

Total operating expenses		991		1,071

Loss from operations		(76)		(131)

Other income
Interest income (net)		65		27
Total other income		65		27

Net loss before provision for income taxes		(11)		(104)

Provision for income taxes		5		7

Net loss	$	(16)	$	(111)



Net loss per common share - basic and fully diluted	$	(0.00)	$	(0.03)



Weighted average common shares outstanding – basic and fully diluted		4,152		4,152






See accompanying notes to financial statements.

Human Pheromone Sciences, Inc.

Statements of Shareholders’ Equity


(in thousands)
	Common Stock				Accumulated			Total Shareholders’
	Shares	Amount			Deficit		Equity
Balances, at December 31, 2005	4,152		$	20,809	$	(20,390)		$	419
Net loss	–			–		(111)			(111)
Stock option compensation	–			56		–			56

Balances, at December 31, 2006	4,152			20,865		(20,501)			364
Net loss	–			–		(16)			(16)
Stock option compensation	–			98		–			98
Balances, at December 31, 2007	4,152		$	20,963	$	(20,517)		$	446


See accompanying notes to financial statements.

Human Pheromone Sciences, Inc.

Statements of Cash Flows



		Years ended December 31
(in thousands)		2007		2006


Cash flows from operating activities:
Net loss	$	(16)	$	(111)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation		2		6
Stock option compensation		98		56
Changes in operating assets and liabilities:
Accounts receivable		(155)		(28)
Inventories, net		50		(5)
Other current assets		(22)		-
Accounts payable and accruals		25		4
Deferred revenue		(483)		1,567

Net cash provided by (used in) operating activities		(501)		1,489

Cash flows used in investing activities:
Purchase of property and equipment		(3)		-
Net cash used in investing activities		(3)		-

Cash flows used in financing activities
Net cash used in financing activities		-		-

Net increase (decrease) in cash and cash equivalents		(504)		1,489
Cash and cash equivalents at beginning of the year		1,941		452
Cash and cash equivalents at end of the year	$	1,437	$	1,941

(in dollars)
Cash disbursements for income taxes	$	11,000	$	2,000

Cash disbursements for interest	$	3,000	$	3,000



See accompanying notes to financial statements.

Human Pheromone Sciences, Inc.

Notes to Financial Statements

December 31, 2007

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 its 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 and other mood enhancing compounds. 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 select international markets to Niche Marketing, Inc. 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 of the REALM and innerREALM trademarks, inventory and product licenses were sold. Licensing of the Company’s technology is currently the core business of the Company. The Company’s patented compounds are sold to licensed customers and included as components in their products. The Company also offers private label manufacturing services for third party consumer product licensees.

Use of Estimates

Concentration of Credit Risk

Since the Company has refocused its business based on a licensing model, its concentration of credit risk consists principally of cash, cash equivalents and accounts receivable. The Company places its cash and cash equivalents with high quality institutions. As of December 31, 2007 the Company had deposits in two financial institutions which aggregated $1,437,000 and as of December 31, 2006, the Company had deposits at one financial institution which aggregated $1,925,000. Such funds are insured by the Federal Deposit Insurance Corporation up to $100,000. Concentration of credit risk with respect to accounts receivable has been consistent since the Company’s customer base consisting of several large customers in the United States and distributors in several international markets has remained relatively unchanged. On-going credit evaluations of customers’ financial condition are performed and, generall y, no collateral is required. However, until the credit worthiness of these international customers is acceptable to the Company, the customer generally pays in advance of shipment. The Company maintains an allowance, when appropriate, for potential losses based upon management’s analysis of possible uncollectible accounts.

Customer Concentration

During 2007, three customers comprised 39%, 16% and 12% of the Company’s net revenues. Accounts receivable from these customers at December 31, 2007 account for 0%, 30% and 0%, respectively, of the net receivables. During 2006, three customers comprised 62%, 15% and 12% of the Company’s net revenues, and accounts receivable from these customers at December 31, 2006 accounted for 74%, 0% and 0%, respectively.

Supplier Concentration

The Company is dependent on third parties to manufacture its fragrance products, as well as the synthesized human pheromones used in these products. Capacity limitations at these essential suppliers, or any other occurrences leading to an interruption of supply, could have a material adverse effect on the Company. During 2007 and 2006 three suppliers comprised 99% of the cost of goods sold.

Human Pheromone Sciences, Inc.

Notes to Financial Statements

December 31, 2007

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Revenue Recognition

Revenue is recorded at the time of merchandise shipment, net of provisions for returns. The Company records revenues from sales initiated by sales agents net of the sales commissions earned following the interpretative guidance provided by FASB Emerging Issue Task Force (EITF) No. 99-19 Reporting Revenue Gross as a Principal versus Net as an Agent. 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 Revenue Recognition in Financial Statements and SAB, No. 104 Revenue Recognition. The Company records multiple-element arrangements in accordance with EITF 00-21 Revenue Arrangements with Multiple Deliverables.

● The delivered items or service has value to the customer on a stand alone basis.

● There is objective and reliable evidence of the fair value of the undelivered items or service.

● If the delivery or performance of the undelivered items or service is considered probable and substantially in our control.

Our agreement with Personal Products Company (hereinafter referred to as PPC) represents a multiple-element arrangement and includes post signing consulting support to PPC as needed to assist them in claims development and manufacturing processes, an exclusive right of first discussion for new compounds that the Company develops and documents supportable claims of effectiveness, and an exclusive right to our existing patented compounds in specific consumer product fields. A portion of the initial payment received as part of the PPC agreement is being recognized as the Company incurs expenses and resources towards fulfilling the obligations to PPC, based on interpretative guidance provided by EITF 00-21.

The PPC agreement was entered into on August 18, 2006 and will expire when the initial patents on the licensed technology expire, in December 2010 and March 2012. For the services and rights granted in the agreement the Company received an initial payment of $1,750,000 in September 2006 and will earn royalties on products developed and sold by PPC until the patents expire. The Company records revenue for the consulting services and right of first discussions as the Company incurs expenses and resources towards fulfilling its obligations to PPC. License revenue is being recognized on a straight-line basis over the life of the agreement of sixty-seven months. The Company began recognizing revenue form all three units during the quarter ending September 30, 2006.

A summary of the revenue recognized for these multiple units of accounting follows (in thousands):


		Year ending December 31,
		2007		2006
Right of first discussion		$	292	$	112
Exclusive license			149		56
Consulting services			57		15
	Total	$	498	$	183

The deferred revenue related to the PPC agreement as of December 31, 2007 and 2006 was $1,068,000 and $1,567,000, respectively.

Human Pheromone Sciences, Inc.

Notes to Financial Statements

December 31, 2007

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Revenue Recognition (continued)

In May 2007, the Company granted Schwarzkopf & Henkel a non-exclusive license for the development, manufacture, sale and distribution of certain licensed hair styling products using the Company’s patented technology. Schwarzkopf & Henkel paid a license fee of $20,000 plus royalties based on net sales of licensed products in specified countries. The license was effective May 1, 2007 and expires on April 30, 2010.

The $20,000 license fee is being recognized, on a straight-line basis, over the thirty-six month life of the license. There is no discernable service to be provided by the Company to warrant an alternative revenue recognition method. The revenue recognized under this agreement in 2007 was $28,000, consisting of royalties of $24,000 and amortization of the license fee of $4,000. The deferred revenue from the Schwarzkopf & Henkel license as of December 31, 2007 was $16,000.

Research and Development

Research and development costs are charged to expense when incurred. Research and development costs were $49,000 and $102,000 in 2007 and 2006, respectively.

Fair Value of Financial Instruments

The Company believes that the book value of financial instruments, including cash and cash equivalents, accounts receivable, inventory, accounts payable and accrued expenses, approximate their fair value.

Income Taxes

The Company adopted the provisions of FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (FIN No. 48) and FASB Interpretation No. 48-1 “Definition of Settlement in FASB Interpretation No. 48” (FIN No. 48-1), on January 1, 2007. FIN 48 clarifies the accounting for uncertainty in income taxes recognized in financial statements and requires the impact of a tax position to be recognized in the financial statements if that position is more likely than not to be sustained by the taxing authority. The adoption of FIN 48 did not have a material effect on the Company’s consolidated financial position or results of operations.

The Company accounts for income taxes under SFAS No. 109 Accounting for Income Taxes. In accordance with SFAS No. 109, deferred tax assets and liabilities are established for the temporary differences between the financial reporting basis and tax basis of the Company’s assets and liabilities at enacted tax rates expected to be in effect when such amounts are realized or settled. The Company provides a valuation allowance against net deferred tax assets unless, based upon available evidence, it is more likely than not that the deferred tax asset will be realized.

Stock Option Policy

The Company adopted SFAS 123(R) to account for its stock options effective with the fiscal year beginning January 1, 2006. The fair value of each option granted is estimated on the date of the grant using the Black-Scholes option-pricing model. The Black-Scholes pricing model has assumptions for the risk free interest rates, dividends, stock volatility and expected life of an option grant. The risk free interest rate is based on the U.S. Treasury Bill rate with a maturity based on the expected life of the option and on the closest day to an individual stock option grant. Dividend rates are based on the Company’s dividend history. The stock volatility factor is based on the past seven years of market prices of the Company’s common stock. The expected life of an option grant is based on various factors including historical exercise rates in addition to the life of the stock option. &nb sp;The Company did adjust the compensation expense by a forfeiture factor based on historical experience. The fair value of each option grant is recognized as compensation expense over the vesting period of the option on a straight line basis.

Human Pheromone Sciences, Inc.

Notes to Financial Statements

December 31, 2007

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Stock Option Policy (continued)

The Company did not record the stock compensation expense net of taxes since there was no material provision for income taxes for the periods ended December 31, 2007 or December 31, 2006 as the Company incurred net operating losses for which no benefit was recognized, nor were tax loss carryforwards utilized. The tax benefit is a component of the deferred tax asset disclosed in the income tax footnote.

New Accounting Pronouncements

Net Income (Loss) Per Common Share

The Company follows the provisions of SFAS No. 128, Earnings Per Share. SFAS No. 128 provides for the calculation of “basic” and “diluted” earnings per share. Basic earnings (loss) per share is computed using the weighted-average number of common shares outstanding. Diluted earnings (loss) per share is computed using the weighted-average number of common shares and dilutive common shares outstanding during the period. For the years ended December 31, 2007 and 2006, options to purchase 671,000 and 630,000 shares of common stock, respectively, were excluded from the computation of diluted earnings per share since their effect would be anti-dilutive.

Cash and Cash Equivalents

The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents.

Accounts Receivable and Sales Returns Allowances

The Company records accounts receivable upon the shipment of goods and records an offsetting estimate for future sales returns or other allowances that the Company anticipates. The Company estimates the required reserves based on historical sales activity, contractual obligations with customers, current sell-through of inventory at the customer locations, customer credit worthiness and general economic and consumer trends. Significant judgment is required to estimate our allowance for doubtful accounts in any accounting period. Therefore, our estimates could differ materially from actual results. At December 31, 2007 the Company has an allowance for uncollectible accounts of $0 as it believes that the accounts receivable balance is fully collectible.

Human Pheromone Sciences, Inc.

Notes to Financial Statements

December 31, 2007

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Inventories

Inventories are stated at the lower of cost (first-in, first-out method) or market. The Company records an inventory reserve for inventory shrinkage and obsolescence. The Company estimates the required reserves based on historical sales and projected sales, historical inventory shrinkage, marketing plans, packaging modifications required, minimum production runs, economic viability and general economic environment.

Property and Equipment

The Company’s property and equipment are stated at cost, net of accumulated depreciation. Depreciation is provided on a straight-line basis over three years for all categories.

INVENTORIES


A summary of inventories follows (in thousands):
		December 31,
		2007		2006
	Components (raw materials)	$	31	$	83
	Finished goods		22		30
	Reserve for shrinkage and obsolescence		(28)		(38)
		$	25	$	75

PROPERTY AND EQUIPMENT


Property and equipment consist of the following (in thousands):
		December 31,
				2007		2006
	Computer hardware	$		52	$	55
	Computer software			52		52
	Furniture and other office equipment			21		18
				125		125
	Accumulated depreciation			(122)		(123)
			$	3	$	2

Depreciation expense for the years ended December 31, 2007 and 2006 were $2,000 and $6,000, respectively.

BANK BORROWING

The Company did not have any credit facility opened during and as of the year ended December 31, 2007.

Human Pheromone Sciences, Inc.

Notes to Financial Statements

December 31, 2007

COMMITMENTS AND CONTINGENCIES

The Company presently occupies 1,700 square feet of laboratory space for its research & development operations located in Salt Lake City, Utah, pursuant to a lease signed on September 1, 2006 that expires September 1, 2008. The minimum annual rental is $50,000 with no annual rent increase. Future minimum lease payments under this non-cancelable lease as of December 31, 2007 are as follows:


Year Ending December 31,	Minimum Lease Payment
Year Ending December 31,	Minimum Lease Payment
2008	$	33,000

Total rent expense was $110,000 and $65,000 for the years ended December 31, 2007 and 2006, respectively.

SHAREHOLDERS’ EQUITY

Stock Option Plan

In June 2006, the Company’s Board of Directors granted Nonstatutory Stock Option Agreements to the Company’s employees covering a total of 330,000 shares of common stock. The Board of Directors had set terms and conditions for these stock options. Options were granted at the fair value at the date of the grant as determined by the average closing price of the day prior to the grant date and the day of the grant.

A summary of the option activity for the Nonstatutory Stock Option Agreements is as follows (in thousands except per share data):


	Shares	Weighted Average Exercise Price
	Shares	Weighted Average Exercise Price

Outstanding, January 1, 2006	-	$	-
Granted	330	$	0.32
Outstanding, December 31, 2006	330	$	0.32
Granted	-	$	-
Outstanding, December 31, 2007	330	$	0.32

At December 31, 2007 options to purchase 261,250 shares of common stock were exercisable, 68,750 stock options had not vested and all of the options had a weighted average exercise price of $0.32 under the Nonstatutory Stock Option Agreements.

In June 1993, the Company’s Board of Directors adopted a Non-Employee Directors’ Stock Option Plan (Directors’ Plan) covering a total of 158,333 shares of common stock, which provides for a one-time automatic grant of options to purchase 8,333 shares of common stock and annual grants thereafter of options to purchase 3,333 shares of common stock to each non-employee director at an exercise price equal to the fair market value of the stock on the date of grant. This plan has expired, but stock options issued under this plan are still outstanding.

A summary of the options activity under the 2003 Non-Employee Directors Stock Option Plan is as follows (in thousands except per share data):


	Shares	Weighted Average Exercise Price
	Shares	Weighted Average Exercise Price
Outstanding, January 1, 2006	70	$	4.95
Forfeited or Expired	(10)	$	23.64
Outstanding, December 31, 2006	60	$	1.83
Forfeited or Expired	(10)	$	5.34
Outstanding, December 31, 2007	50	$	1.13

Human Pheromone Sciences, Inc.

Notes to Financial Statements

December 31, 2007

SHAREHOLDERS’ EQUITY (continued)

At December 31, 2007, no shares of the Company’s common stock were reserved for future grants under the Directors’ Plan, and all options to purchase 50,000 shares were exercisable, at a weighted average exercise price of $1.13.

On June 25, 2003 the Board of Directors adopted the 2003 Non-Employee Directors Stock Option Plan (the “2003 Plan”) of Human Pheromone Sciences, Inc. On June 20, 2007 the Board increased the maximum number of authorized shares of common stock which may be issued on exercise of the Options granted pursuant to the 2003 Plan from 300,000 shares to 600,000 shares. The 2003 Plan will expire on June 24, 2010. This plan replaces the Directors’ Plan which expired on June 13, 2003. The 2003 Plan provides for annual grants of options to purchase 20,000 shares of common stock to each non-employee director at an exercise price equal to the fair market value of the stock on the date of the grant. The 2003 Plan also grants to new directors options to purchase 20,000 shares of common stock upon election to the Board. Mr. Carson Tang was elected to the Board on June 20, 2007 and stock options w ere issued to Mr. Tang as specified by the 2003 Plan.

A summary of the stock option activity under the Director’s Plans is as follows (in thousands except per share data):


	Shares	Weighted Average Exercise Price
	Shares	Weighted Average Exercise Price
Outstanding, January 1, 2006	180	$	0.38
Granted	60	$	0.32
Canceled or Expired	-	$
Outstanding, December 31, 2006	240	$	0.36
Granted	80	$	0.82
Canceled or Expired	-	$	-
Outstanding, December 31, 2007	320	$	0.48

At December 31, 2007, a total of 280,000 shares of the Company’s common stock were reserved for future grants under the 2003 Plan. The Company’s 2003 Plan had, at December 31, 2007, 287,000 exercisable options outstanding at a price of $0.44 a share and 33,000 stock options that had not yet vested, at a price of 0.82 a share. During 2007, 25,000 options vested at a per share price of $0.32 and 47,000 shares vested at a per share price of $0.82.

The following table summarizes information about all stock options of the Company that are outstanding at December 31, 2007 (in thousands except per share data).


						Options Outstanding				Options Exercisable
Range of Exercise Prices						Number of Shares Outstanding at 12/31/07	Weighted Average Remaining Contractual Life (years)	Weighted Average Exercise Price		Number Exercisable At 12/31/07	At a Weighted Average Exercise Price

$	0.12	to	$	0.50		520	4.5	$	0.30	451	$	0.30
$	0.51	to	$	1.00		150	4.7	$	0.71	117	$	0.68
$	1.01	to	$		1.50	10	2.5	$	1.19	10	$	1.19
$	1.51	to	$		2.02	20	1.0	$	1.91	20	$	1.91
$	0.12	to	$		2.02	700	3.8	$	0.45	598	$	0.44

The weighted average fair value of options granted during 2007 and 2006 was $0.82 and $0.32, respectively. The Company recognized $98,000 of stock option compensation expense in 2007 and has $49,000 of unrecognized stock option compensation expense.

Human Pheromone Sciences, Inc.

Notes to Financial Statements

December 31, 2007

SHAREHOLDERS’ EQUITY (continued)

The Company adopted SFAS 123 (R) for accounting for its stock options effective with the fiscal year beginning January 1, 2006. The fair value of each option granted is estimated on the date of the grant using the Black-Scholes option-pricing model. The Black-Scholes pricing model has assumptions for the risk free interest rates, dividends, stock volatility and expected life of an option grant. The risk free interest rate is based on the U.S. Treasury Bill rate with a maturity based on the expected life of the options and on the closest day to an individual stock option grant. Dividend rates are based on the Company’s dividend history. The stock volatility factor is based on the past seven years of market prices of the Company’s common stock. The expected life of an option grant is based on various factors including historical exercise and expiration experience rates in addition to t he life of the option. The Company adjusted the compensation expense by a forfeiture factor based on historical experience. The fair value of each option grant is recognized as compensation expense over the vesting period of the option on a straight line basis.

The Company does not record the stock compensation expense net of taxes since there was no material provision for income taxes for the periods ended December 31, 2007 and December 31, 2006 as the Company incurred net operating losses for which no benefit was recognized, or utilized tax loss carryforwards. The tax benefit is a component of the deferred tax asset disclosed in the income tax footnote.


Stock Option Grants	2007 Option Grants		2006 Option Grants

Weighted average interest rates	4.7	%	5.1	%
Dividend yield	0.0	%	0.0	%
Volatility factor of the Company’s common stock	246.0	%	180.0	%
Forfeiture factor – Nonstatutory Stock Option Agreements	-		5.0	%
Forfeiture factor – 2003 Non-Employee Directors Stock Option Plan	-		-
Weighted average expected life	7 years		7 years

The aggregate intrinsic value of the stock options issued as of December 31, 2007 was $210,000. Aggregate intrinsic value is the market price at December 31, 2007, $0.69, less the exercise price of the outstanding options.

The weighted-average fair value of options granted during the years ended December 31, 2007 and 2006 for which the exercise price was equal to the market price on the grant date was $0.82 and $0.32, respectively, and the weighted-average exercise price was $0.82 and $0.32, respectively. No stock options were granted during the years ended December 31, 2006 and 2005 for which the exercise price was greater than or less than the market price on the grant date.

The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which do not have vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions, including the expected stock price volatility. Because the Company’s employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management’s opinion the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options.

Human Pheromone Sciences, Inc.

Notes to Financial Statements

December 31, 2007

INCOME TAXES

In 2007, the Company has recorded a $1,725 tax provision for state minimum taxes and for states where the utilization of net losses carried forward are not available.

A reconciliation of the effective tax and the statutory U.S. federal income tax is as follows (in thousands):


	Years ended December 31,
	2007		2006

Federal tax (tax benefit) at the federal statutory rate	$	(4)		(36)
Other differences		(113)		83
Permanent differences		1		1
Increase (decrease) in valuation allowance		116		(48)
Income tax benefits	$	-	$	-

At December 31, 2007, the Company had federal and state net operating loss carryforwards of approximately $21,446,000. The Company also had federal and state research and development tax credit carryforwards of approximately $176,000. The net operating loss and credit carryforwards will expire between 2008 and 2026. The utilization of certain of the loss carryforwards is limited under Section 382 of the Internal Revenue Code.

Temporary differences that give rise to a significant portion of the deferred tax asset (liabilities) are as follows (in thousands):


	December 31,
	2007		2006
Deferred tax assets (liabilities):
Net operating loss carryforward	$	6,101	$	5,667
Research credit carryforward		176		227
Reserves and accruals		573		751
Other, net		(186)		(103)
Valuation allowance for deferred tax assets		(6,664)		(6,542)
Net deferred tax assets	$	-	$	-

Because of the Company’s lack of earnings history, the deferred tax asset has been fully offset by a valuation allowance. The net valuation allowance has increased by $116,000 in 2007 and decreased by $48,000 in 2006. The valuation allowance was established because the Company was not able to determine that it is more likely than not that the deferred tax asset will be realized.

The Company has not finalized its study to assess whether an ownership change has occurred that would materially impact the utilization of NOLs. The work performed to date does not indicate a material limitation of any NOLs, however there may be additional ownership changes in the future, and any future change at its current market capitalization would severely limit the annual use of these NOLs going forward. Such limitation could also result in expiration of a portion of the NOLs before utilization. Further, until the study is completed and any limitations known, no amounts are being considered as an uncertain tax position or disclosed as an unrecognized tax benefit under FIN 48. Due to the existence of the valuation allowance, future changes in the Company’s unrecognized tax benefits will not impact its effective tax rate. Any NOLs that expire prior to utilization as a result of such limitations will be removed from defer red tax assets with a corresponding reduction of the valuation allowance.

Human Pheromone Sciences, Inc.

Notes to Financial Statements

December 31, 2007

8. SEGMENT INFORMATION

Sales by geographic markets for the year ended December 31, 2007 and 2006 were as follows:


					Year ending December 31,
					2007		2006
				(unaudited)			(unaudited)
Net Sales by Markets:
U.S Markets			$	482		$	801
International Markets				283			244
		Net Sales		765			1,045
License revenues (worldwide)				526			182

	Total Revenues		$	1,291		$	1,227

EX-31 2 p20388ex311.htm EXHIBIT 31.1 Exhibit 31

Exhibit 31.1

CERTIFICATION

I, William P. Horgan, certify that:

1. I have reviewed this annual report on Form 10-KSB of Human Pheromone Sciences, Inc.;

2. Based on my knowledge, this 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 report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report;

4. The small business issuer'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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the small business issuer 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 small business issuer is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the small business issuer '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

d) Disclosed in this report any changes in the small business issuer’s internal control over financial reporting that occurred during the small business issuer’s most recent fiscal quarter (the small business issuer’s fourth fiscal quarter, in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer’s internal control over financial reporting; and

5. The small business issuer's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of small business issuer'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 small business issuer'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 small business issuer's internal control over financial reporting.

Date: March 28, 2008

/s/ William P. Horgan

Chairman and Chief Executive Officer

(Principal Executive Officer)

EX-31 3 p20388ex312.htm EXHIBIT 31.2 Exhibit 31

Exhibit 31.2

CERTIFICATION

I, Gregory S. Fredrick, certify that:

1. I have reviewed this annual report on Form 10-KSB of Human Pheromone Sciences, Inc.;

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal control over financial reporting.

Date: March 28, 2008

/s/ Gregory S. Fredrick

Chief Financial Officer

(Principal Financial Officer and Principal Accounting Officer)

EX-32 4 p20388ex32.htm EXHIBIT 32 Exhibit 32

Exhibit 32

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350

In connection with the Annual Report of Human Pheromone Sciences, Inc. (the “Company”) on Form 10-KSB for the year ending December 31, 2007 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), we, William P. Horgan and Gregory S. Fredrick 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 1934; 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

Chairman and Chief Executive Officer

(Principal Executive Officer)

March 28, 2008

/s/ Gregory S. Fredrick

Chief Financial Officer

(Principal Financial Officer and Principal Accounting Officer)

March 28, 2008

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