U.S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-QSB

(MARK ONE)

    [ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
              ACT OF 1934

                    For the quarter ended September 30, 1998
                                          ------------------

    [   ] TRANSITION REPORT UNDER SECTION 13 OR A5(d) OF THE SECURITIES EXCHANGE
             ACT OF 1934 (no fee required)

                         Commission file number 0-23544

                         HUMAN PHEROMONE SCIENCES, INC.
                         ------------------------------

                 (Name of small business issuer in its charter)

           California                                     94-3107202
-------------------------------             ------------------------------------
(State or other jurisdiction of             (I.R.S. employee Identification No.)
 incorporation or organization)


4034 Clipper Court, Fremont, California                      94538
----------------------------------------          ------------------------------
(Address of principal executive offices)                   (Zip code)

                    Issuer's telephone number: (510) 226-6874
                                               --------------



         Check 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 [   ]

                   (APPLICABLE ONLY TO CORPORATE REGISTRANTS)

         State the number of shares  outstanding of each of the issuer's classes
of common equity, as of the latest practicable date. 10,289,488 shares of Common
Stock as of November 9, 1998.

                                                                 Total Pages: 15

<PAGE>



<TABLE>
                         HUMAN PHEROMONE SCIENCES, INC.

                                      INDEX
<CAPTION>
                                                                                                               Page
                                                                                                               ----
PART I
FINANCIAL INFORMATION
<S>                                                                                                               <C>
         Item 1. Financial Statements

                  Condensed Balance Sheets (Unaudited) as of September 30, 1998
                  and December 31, 1997...........................................................................2

                  Statements of Operations (Unaudited) for the Three Months and Nine Months Ended
                  September 30, 1998 and 1997.....................................................................3

                  Condensed Statements of Cash Flows (Unaudited) for the Nine Months
                  Ended September 30, 1998 and 1997...............................................................4

                  Notes to Condensed Financial Statements (Unaudited).............................................5

         Item 2. Management's Discussion and Analysis

                  Management's Discussion and Analysis of Financial Condition and Results of Operations...........6

PART II
OTHER INFORMATION

         Item 6. Exhibits and Reports on Form 8-K................................................................11

SIGNATURES.......................................................................................................12

</TABLE>



<PAGE>


                                                       PART I
                                                FINANCIAL INFORMATION


Item 1.  Financial Statements



<PAGE>

<TABLE>

                                                  HUMAN PHEROMONE SCIENCES, INC.

                                                         Balance Sheets


<CAPTION>
                                                                                  September 30,    December 31,
                                                                                      1998             1997
                                                                                   ------------    ------------
<S>                                                                                <C>             <C>
Assets

Current assets:
  Cash and cash equivalents                                                        $     26,205    $    248,617
  Accounts receivable, net of allowances of $554,978
   and $822,813 in 1998 and 1997, respectively                                        2,037,047       3,084,784
  Inventory                                                                           3,153,259       3,421,298
  Other current assets                                                                  112,417         128,817
                                                                                   ------------    ------------
Total current assets                                                                  5,328,928       6,883,516

Property and equipment, net                                                              71,449          99,491
                                                                                   ------------    ------------

                                                                                   $  5,400,377    $  6,983,007
                                                                                   ============    ============


Liabilities and shareholders' equity



  Loan payable, bank                                                               $  1,305,390    $    548,000
  Accounts payable                                                                      952,706         800,648
  Other accrued expenses                                                              1,067,847       1,205,069
                                                                                   ------------    ------------
Total current liabilities                                                             3,325,943       2,553,717

Commitments                                                                                --              --

Shareholders' equity:
  Convertible  preferred  stock,  issuable in series,  no par value, 10,000,000
    shares authorized,  1,433,333 shares issued and outstanding at September 30,
    1998 and December 31, 1997, respectively                                          2,145,535       2,145,535
  Common stock, no par value, 40,000,000 shares authorized,
    10,289,488 shares issued and outstanding at September 30, 1998
    and December 31, 1997, respectively                                              17,667,024      17,667,024
  Accumulated deficit                                                               (17,738,125)    (15,383,269)
                                                                                   ------------    ------------
Total shareholders' equity                                                            2,074,434       4,429,290
                                                                                   ------------    ------------

                                                                                   $  5,400,377    $  6,983,007
                                                                                   ============    ============

<FN>
See accompanying notes.
</FN>
</TABLE>


<PAGE>


<TABLE>
                                            HUMAN PHEROMONE SCIENCES, INC.

                                               Statements of Operations
<CAPTION>
                                                        Three months ended                Nine months ended
                                                   ----------------------------    ----------------------------
                                                           September 30,                    September 30,
                                                   ----------------------------    ----------------------------
                                                   ------------    ------------    ------------    ------------
                                                        1998            1997            1998            1997
                                                   ------------    ------------    ------------    ------------

<S>                                                <C>             <C>             <C>             <C>         
Net sales                                          $  2,312,805    $  3,847,893    $  7,581,223    $ 12,761,724
Cost of goods sold                                      885,391       1,095,898       2,556,664       2,985,541
                                                   ------------    ------------    ------------    ------------

Gross profit                                          1,427,414       2,751,995       5,024,559       9,776,183

Expenses:
   Research and development                             107,751          86,844         290,199         251,700
   Selling, general and administrative                1,502,715       2,356,938       7,062,857      12,941,739
                                                   ------------    ------------    ------------    ------------

Total expenses                                        1,610,466       2,443,782       7,353,056      13,193,439
                                                   ------------    ------------    ------------    ------------

Loss from operations                                   (183,052)        308,213      (2,328,497)     (3,417,256)

Interest income                                              58              15             220          12,486
Interest (expense)                                      (16,658)        (23,514)        (38,127)        (60,342)
Other (expense)                                          13,737             (34)         11,548           2,358
                                                   ------------    ------------    ------------    ------------

Income (loss) before income taxes                      (185,915)        284,680      (2,354,856)     (3,462,754)

Income taxes                                               --            10,489            --            11,289
                                                   ------------    ------------    ------------    ------------

Net income (loss)                                  $   (185,915)   $    274,191    $ (2,354,856)   $ (3,474,043)
                                                   ============    ============    ============    ============

Net income (loss) per common share-basic           $       (.02)   $        .03    $       (.23)   $       (.34)
                                                   ============    ============    ============    ============

Net income (loss) per common share-
  assuming dilution                                $       (.02)   $        .03    $       (.23)   $       (.34)
                                                   ============    ============    ============    ============

Weighted average shares used in calculation
  of net income (loss) per share                     10,289,488      10,304,125      10,289,488      10,265,274
                                                   ============    ============    ============    ============

Weighted average shares and equivalents,
  if dilutive, used in calculation of net income
  (loss)per common share                             10,289,488      10,304,125      10,289,488      10,265,274
                                                   ============    ============    ============    ============
<FN>
See accompanying notes.
</FN>
</TABLE>



<PAGE>

<TABLE>
                                       HUMAN PHEROMONE SCIENCES, INC.

                                         Statements of Cash Flows
<CAPTION>
                                                                   Nine Months ended  September 30,
                                                                   --------------------------------
                                                                        1998             1997
                                                                   ------------      -----------
<S>                                                                 <C>               <C>
Cash flows from operating activities                                               
Net loss                                                            $(2,354,856)     $(3,474,043)
                                                                                   
Adjustments to reconcile net loss to net cash used                                 
   in operating activities:                                                        
  Depreciation and amortization                                          49,838           48,040
                                                                                   
  Changes in operating assets and liabilities:                                     
    Accounts receivable                                               1,047,737         (436,007)
    Inventory                                                           268,039       (1,281,066)
    Other current assets                                                 16,400          (92,260)
 Accounts payable and accrued liabilities                                14,836           65,599
                                                                    -----------      -----------
Net cash generated by (used in) operating activities                   (958,006)      (5,169,737)
                                                                                   
Cash flows from investing activities                                               
Purchase of property and equipment                                      (21,796)         (91,928)
                                                                    -----------      -----------
Net cash used in investing activities                                   (21,796)         (91,928)
                                                                                   
Cash flows from financing activities                                               
Proceeds from bank borrowings                                           757,390          772,149
Proceeds from issuance of preferred stock                                  --          2,150,000
Proceeds from issuance of common stock                                     --            292,289
                                                                    -----------      -----------
Net cash provided by financing activities                               757,390        3,214,438
                                                                                   
Net decrease in cash and cash equivalents                              (222,412)      (2,047,227)
Cash and cash equivalents at beginning of the year                      248,617        2,059,084
                                                                    -----------      -----------
Cash and cash equivalents at end of the period                      $    26,205      $    11,857
                                                                    ===========      ===========
<FN>                                                                             
See accompanying notes.
</FN>
</TABLE>



<PAGE>


                         Human Pheromone Sciences, Inc.
                     Notes to Condensed Financial Statements
                                   (unaudited)
                               September 30, 1998

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

         The accompanying  unaudited  condensed  financial  statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB and Rule 10-01 of
Regulation  S-X.  Accordingly,  they do not include all of the  information  and
footnotes  required by generally  accepted  accounting  principles  for complete
financial statements. In the opinion of management,  all adjustments (consisting
of normal recurring accruals)  considered necessary for a fair presentation have
been  included.  Operating  results for the three  months and nine months  ended
September  30, 1998 are not  necessarily  indicative  of the results that may be
expected  for  the  calendar  year  ending   December  31,  1998.   For  further
information, refer to the financial statements and footnotes thereto included in
the Company's annual report on Form 10-KSB for the year ended December 31, 1997.

Inventory

         Inventories  are  stated  at the  lower of cost  (first  in - first out
method) or market.  The  inventory  at September  30, 1998  consists of finished
goods  inventory  valued at  $1,134,023  work in  process  of  $215,415  and raw
materials of $1,803,821.  At December 31, 1997,  these balances were $1,665,393,
$151,143 and $1,604,762, respectively.

Net Income (Loss) Per Share

         In 1997, the Financial  Accounting  Standards Board issued Statement of
Financial Accounting Standards No. 128 (SFAS 128), Earnings per Share. Statement
128 replaced the  previously  reported  primary and fully  diluted  earnings per
share with basic and diluted  earnings per share.  Unlike  primary  earnings per
share,  basic  earnings  per share  excludes  any  dilutive  effects of options,
warrants and convertible  securities.  Diluted  earnings per share is similar to
the previously  reported fully diluted earnings per share. All per share amounts
for all periods have been presented, and where necessary, restated to conform to
Statement 128 requirements.

<TABLE>
         Basic   net   income   (loss)   per   share  is   computed   using  the
weighted-average  number of common  shares  outstanding.  Diluted net income per
share is  computed  using  the  weighted-average  number of  common  shares  and
dilutive common equivalent shares outstanding during the period. Dilutive common
share  equivalents  consist of employee  stock options using the treasury  stock
method  and  dilutive  convertible  securities  using the  if-converted  method.
Diluted  net income  (loss) per share are  computed  using the  weighted-average
number of common shares outstanding during the period.  Common stock equivalents
are excluded from the diluted net (loss) per share  computation  as their effect
in  antidilutive.  The following  table sets forth the computation for basic and
diluted net income (loss) per share:

<CAPTION>
                                                     Three months ended                     Nine months ended
                                              ----------------------------------    -----------------------------------
                                                        September 30,                         September 30,
                                              ----------------------------------    -----------------------------------
                                                  1998                1997               1998                1997
                                              --------------     ---------------    ---------------     ---------------
<S>                                           <C>                <C>                <C>                 <C>           
Numerator:
Net income (loss) from operations             $    (185,915)     $      274,191      $  (2,354,856)      $  (3,474,043)
Denominator:
Denominator for basic net income (loss)                                                                  
per-share-data                                   10,289,488          10,304,125         10,289,488          10,265,274
Denominator for diluted net income (loss)                                                                
per-share data                                   10,289,488          10,304,125         10,289,488          10,265,274
Basic net income (loss) per share                      (.02)                .03               (.23)               (.34)
Diluted net income loss per share                      (.02)                .03               (.23)               (.34)

</TABLE>



<PAGE>


                         Human Pheromone Sciences, Inc.
                     Notes to Condensed Financial Statements
                                   (unaudited)
                               September 30, 1998

2. LOAN PAYABLE, BANK

         At September 30, 1998,  the Company was not in  compliance  with all of
the covenants of its line of credit bank loan with Mid-Peninsula  Bank. The bank
has waived  compliance  with these  covenants for the period ended September 30,
1998.


Item 2. Management's Discussion and Analysis

         This report contains  forward-looking  statements within the meaning of
Section 27A of the  Securities  Act of 1933, as amended,  and Section 21E of the
Securities  Exchange  Act  of  1934,  as  amended.  Except  for  the  historical
information contained in this discussion and analysis of financial condition and
results  of  operations,  the  matters  discussed  herein  are  forward  looking
statements.  These forward looking statements include but are not limited to the
Company's  plans for sales  growth and  expansion  into new  channels  of trade,
expectations  of gross  margin,  expenses,  new  product  introduction,  and the
Company's   liquidity  and  capital  needs.  These  matters  involve  risks  and
uncertainties  that could cause  actual  results to differ  materially  from the
statements made. In addition to the risks and  uncertainties  described in "Risk
Factors",  below,  these risks and  uncertainties  may include  consumer trends,
business cycles,  scientific  developments,  changes in governmental  policy and
regulation,  currency  fluctuations,  economic  trends in the United  States and
inflation. These and other factors may cause actual results to differ materially
from those anticipated in forward-looking statements.  Readers are cautioned not
to place undue reliance on these forward-looking statements, which speak only as
of the date hereof.

Risk Factors

         The  Company's  future  results  may be affected to a greater or lesser
degree by the following factors among others:

         Competition:  The prestige  fragrance  market is volatile and extremely
competitive.  Consumer preferences and demands can shift dramatically reflecting
changes in fashion and current fads. There are numerous  fragrance products that
are better known than the products marketed by the Company.  There are also many
companies  which have  substantially  greater  resources  than  Human  Pheromone
Sciences,  Inc.  and which  have the  ability to invest  heavily in new  product
development and  introduction.  The Company can expect that its competitors will
attempt to compete with the Company through the introduction of new products and
promotion of existing products.

         In  addition,  the  product  life cycle of  fragrances  is  shortening.
Traditional  fragrance  companies now introduce a new fragrance every one to two
years  compared  to every four to five years as in the past.  This  increase  in
competing  fragrances  makes  it  difficult  for any one  fragrance  to hold the
consumer's  attention on a long-term  basis.  Although the Company  believes the
inclusion  of  human  pheromones  as  a  component  clearly  differentiates  its
products,  other fragrances are competing for space with the Company's  products
at both the store level and in print and media advertising.

         Marketing: The failure to establish and maintain the necessary sales or
distribution  channels  could have a material  adverse  effect on the  Company's
business.  Although  the Company  believes  its  marketing  strategy is the most
cost-effective  way to introduce  its products,  there can be no assurance  that
broader-scale  retail launches will be successful.  The Company cannot guarantee
that retail  outlets or  catalogs  will  continue  to carry the Human  Pheromone
Sciences  products.  If the current strategy is  unsuccessful,  marketing of the
Company's  products would require a new strategy and may require a significantly
more expensive sales effort for which the Company may not have sufficient funds.



<PAGE>

         Retail environment: Continued consolidation in the retail trade has led
to the emergence of four major retail players who control the major share of the
market.  Federated  Department Stores, The May Company,  Dayton  Hudson/Marshall
Fields and Dillard  Department  Stores now comprise the majority of US upper end
department  stores.  This  consolidation  could  lead to price  and  promotional
pressure and increased credit risk for the Company.

         The retail  environment  in better  department  stores is  increasingly
challenging.  Retailers have aggressively cut inventories  across the board, and
attempt to utilize return privileges to maintain their desired inventory turns .
Promotional  support in the form of co-op advertising  dollars is being cut back
and  retailers  are  feeling  pressure to become  more  promotional  in order to
compete with price conscious chains appealing to bargain hunters. Fragrances and
cosmetics  are  increasingly  being sold in  secondary  markets such as discount
perfumeries,  drug chains and lower priced  department  stores.  There can be no
assurance that the department  store class of trade in the U.S. will become more
profitable in the near future.

         Seasonality:  Sales in the fragrance  industry are generally  seasonal,
with generally  higher sales in the second half of the calendar year as a result
of increased  demand for fragrance  products in  anticipation  of and during the
Christmas  holiday season.  The  anticipated  seasonality of the Company's sales
could cause a significant variation in its quarterly operating results.

         Patent protection: The Company's ability to compete successfully in the
consumer market place and to attract licensing partners will depend, in part, on
its ability to protect its  proprietary  technology.  There can be no  assurance
that any patent or patent  application  owned or  controlled by the Company will
not  be  challenged,   invalidated  or   circumvented  or  continue  to  provide
commercially  significant  protection of the Company's technology or ensure that
the  Company  may not be  determined  to infringe  valid  patents of others.  In
addition,  the laws of certain  foreign  countries may not protect the Company's
proprietary  rights to the same extent as do the laws of the United  States.  No
assurance can be given that others will not independently  develop substantially
equivalent  proprietary  information  or otherwise  gain access to the Company's
trade  secrets or that the Company  can  meaningfully  protect  its  technology,
proprietary information or trade secrets.

         Although the Company  does not believe  that its products  infringe the
proprietary  rights  of  any  third  parties,  there  can be no  assurance  that
infringement or invalidity claims (or claims for indemnification  resulting from
infringement  claims) will not be asserted  against the Company or that any such
assertions  will  not  materially   adversely  affect  the  Company's  business,
financial  condition or results of operations.  Irrespective  of the validity or
the  successful  assertion of such claims,  the Company could incur  significant
costs with respect to the defense  thereof  which could have a material  adverse
effect on the Company's business, financial condition or results of operations.

         Attraction and retention of key employees: The success of the Company's
future operations  depends in large part on the Company's ability to recruit and
retain key employees and  consultants  with research,  product  development  and
marketing  experience,  as well as other  professionals  who are in considerable
demand.  There  can be no  assurance  that the  Company  will be  successful  in
retaining or recruiting such key personnel.

         Dependence  on third  parties for  manufacturing:  The Company does not
have   facilities   to   manufacture   its   products   and   relies  on  Pherin
Pharmaceuticals,  Inc. to manufacture  its pheromones and other third parties to
supply  components and to blend,  fill and package its fragrance  products.  The
Company believes that such manufacturing  services are the most effective method
of producing its products.  The majority of the fragrance industry uses contract
fillers,  and  the  Company  has no  current  plans  to set up its  own  filling
facilities.  However, as with any business that is not vertically integrated, if
the  Company  is  unable to obtain  or  retain  fragrance  suppliers,  component
manufacturers or third party  manufacturing  on acceptable  terms, it may not be
able to obtain  commercial  quantities  of its products,  which would  adversely
affect results.

Results of Operations

Three  Months  ended  September  30, 1998 as compared to the Three  Months ended
September 30, 1997

         Net sales for the second quarter of 1998 were $2,312,805 representing a
decrease  of 40% from sales of  $3,847,893  for the prior  year's  quarter.  The
decline in sales to the U.S.  department  stores  accounted for 99% of the 


<PAGE>

third quarter sales  decrease.  The Company  decreased the number of promotional
sets offered,  and decreased the available  quantities to the Department  stores
this quarter  compared to last year's third quarter.  These reductions were made
in order to keep store  inventories  at levels  consistent  with the  retailer's
forecasts,  and at a level where the Company could provide acceptable  marketing
support  to the  retailers.  Gross  sales of sets  were  down  44% this  quarter
compared to last years third  quarter.  Our regular  priced  product  line gross
sales to the U.S.  department  stores were also less than the 1997 third quarter
at levels  either better than or  consistent  with the current  condition of the
domestic  fragrance  business.  inner  REALM(R),  which  was  launched  in 1997,
contributed  24% of the  department  store gross  sales in the third  quarter of
1997,  compared to 9% in 1998 third quarter.  The retail sales of inner REALM(R)
continues to be less that desired,  and the company is focusing on ways to bring
the retailer  inventories  to acceptable  levels with new marketing  plans,  and
return provisions.

         Sales volume to the  alternative  classes of trade was consistent  with
the prior year.  Our  international  shipments  for the quarter were $5,167 more
than last year, as we continue to develop our international  markets The Company
plans to aggressively pursue the international,  secondary, and direct marketing
distribution as they offer a cost-effective  method of  distribution.  Net sales
for the quarters ended September 30, 1998 and 1997 were as follows:

--------------------------------------------------------------------
Markets                                         1998         1997
--------------------------------------------------------------------

  U.S. Markets                               $2,026,618   $3,566,873
  International Markets                         286,187      281,020
                                             ----------   ----------

  Net Sales                                  $2,312,805   $3,847,893

         Gross margin declined in 1998 due to the increased  percentage of sales
derived  from  promotional  and  gift  sets in both  the  department  store  and
secondary markets.  The sets provide a  better-perceived  value to the consumer,
and the  Company  can  offset  the  reduced  margin  with  reduced  selling  and
advertising expenses. The Company sees the increased use of promotional and gift
sets as an economic way to promote  selling  through the product in  conjunction
with overall  marketing and consumer  awareness  programs that increase consumer
knowledge and desire for products containing synthesized human pheromones.

         Research and  Development  expenses for the third  quarters of 1998 and
1997 were $107,751 and $86,844,  respectively.  These costs principally  reflect
payments and costs under the Company's contract with Pherin Pharmaceuticals, and
additional costs to support licensing projects in process.

         Operating  expenses  decreased  $854,223  to  $1,502,715  in the  third
quarter  of  1998  from  $2,356,938  in the  third  quarter  of  1997.  Selling,
advertising,  marketing and distribution  expenses  decreased $842,541 from 1997
third  quarter  spending.  The  reduced  spending  is the  direct  result of the
Company's  continuing  restructuring of the sales and marketing efforts targeted
at the department  store business.  The focus on the use of promotional and gift
sets, with more targeted and cost effective  selling and  advertising  spending,
has enabled the Company to reduced spending. General and administrative spending
was $11,682  less than the third  quarter of 1997 as efforts to hold these costs
to a minimum are being made.

         The Company  paid $16,658 in interest  expense in the third  quarter of
1998 on balances on its revolving bank line of credit.  This compares to $23,514
interest expense in the second quarter of 1997.


Nine Months  ended  September  30,  1997 as  compared  to the Nine Months  ended
September 30, 1998

         Net sales for the nine months ended September 30, 1998 were $7,581,223.
This was a 41%  decrease  from net sales of  $12,761,724  for the nine months of
1997.  The Company  attributes  the decrease to declines in re-order  levels for
inner REALM, and the reduced sales of promotional and gift sets.  Initial launch
quantities  of  inner  REALM(R)  shipped  in the  first  half of 1997  were  not
duplicated by reorders in the first half of 1998. The Company's  first fragrance
offerings: Realm Women and Realm Men have shown modest declines of 9% in reorder
quantities between the two years. Sales into the secondary  distribution channel
increased  66% for the first  nine  months of 1998  compared  to 1997 nine month
period.  During  the  first  nine  months  of 1998,  foreign  sales and 



<PAGE>

sales to alternative  classes of trade increased 15% from the prior year, and as
a percentage of total net sales this group increased by 16%.

--------------------------------------------------------------------------------
Class of Trade                                   1998                      1997
--------------------------------------------------------------------------------

  U.S. Markets                       $      6,580,631          $     11,818,232
  International Markets                     1,000,592                   943,492
                                     -----------------         -----------------

  Net Sales                          $      7,581,223          $      12,761,724


         Gross  margin for the nine  months of 1998 was 66%  compared to 77% for
the same period in 1997.  This  decrease is the result of  decreases in sales of
the Company's inner REALM products to the department  store class of trade,  and
the increased  percentage of  promotional  and gift sets sales to the department
stores and secondary  channels..  The Company  conceived inner REALM as a higher
gross  margin  product  than its  original  Realm Women and Realm Men's lines in
order to  increase  overall  gross  margin.  The lower  sales of inner  REALM to
department  stores in the first half of 1998 has had a negative  impact on gross
margin for the period when compared against the same period in the prior year.

         Research and  Development  expenses for the first half of 1998 and 1997
were  $290,199  and  $251,700,  respectively  and are  principally  comprised of
payments under the Company's contract with Pherin Pharmaceuticals.

         Operating  expenses  decreased  $5,878,882 to  $7,062,857  for the nine
months ended  September 30, 1998,  compared to the 1997 expenses of  $12,941,739
for the same  period  in 1997.  Selling,  marketing  and  distribution  expenses
decreased  $5,837,649 to $5,718,557 for the nine months ended September 30, 1998
from  $11,556,206  in the period ended  September 30, 1997. In 1997, the Company
incurred expenses to launch its second women's fragrance:  inner REALM. In 1998,
the Company carefully evaluated  advertising plans to suit specific regional and
consumer preferences. The Company continues to evaluate advertising spending and
the  effectiveness  of co-operative  advertising  programs and in-store  support
personnel. Future cost reductions in this area will result from the shift in the
Company's  overall  business  focus  from  one of  developing  and  distributing
products to  developing  and  licensing  products to serve the needs of partners
with  established  distribution  networks.  In 1998,  the Company's  general and
administrative  expenses  decreased  13%  over  the  prior  year  period  due to
decreases in headcount and spending controls.

         In 1998,  the  Company  paid  $38,127 in  interest  expense  related to
advances  under its bank line of credit.  During the first nine  months of 1997,
the Company had interest expense of $60,342. This higher expense in 1997 was due
to larger bank borrowing balances incurred during the launch of inner REALM.


LIQUIDITY

         At September 30, 1998, the Company had borrowed  $1,305,390 against its
$3,000,000  line of credit.  Working  capital was  $2,002,985.  At September 30,
1997,  the Company  had net  borrowings  of  $1,272,149  and working  capital of
$4,182,447. For the first nine months of 1998, operating activities required net
cash of  $958,006.  During  the  first  nine  months  of 1997,  net cash used in
operating  activities was $5,169,737.  Assuming the Company's activities proceed
substantially as planned,  the Company's line of credit and anticipated revenues
from product sales should be adequate to meet its working capital needs over the
next twelve  months.  Working  capital  requirements  will  primarily be for the
supply of inventory and accounts receivable financing.

         Additional working capital may be required should the Company's fail to
generate  consumer response levels to expected levels.  Furthermore,  additional
working  capital may be required  should the Company  experience  a greater than
planned success with its product and retail  efforts.  Funds would be needed for
inventory build,  accounts  receivable  financing and staffing purposes.  If the
Company fails to achieve  significant  revenues from its 1998 marketing efforts,
or if the retail  environment  proves to be more capital intensive than planned,
the Company may require additional funding.


<PAGE>

         On April 1, 1998, the Company signed a renegotiated loan agreement with
Mid-Peninsula  Bank  of Palo  Alto,  California  (the  "Bank")  providing  for a
continued line of credit. The Company may borrow up to $3,000,000 at an interest
rate equal to the Bank's prime rate plus .75% with borrowings  secured primarily
by the Company's trade receivables and inventory.  The agreement,  which expires
in April, 1999,  contains certain  debt-to-equity and working capital covenants.
There are no charges for any unused portions of the line.


YEAR 2000 COMPLIANCE

         The  Company  has  conducted  a  comprehensive  review of its  internal
computer systems to identify the issues expected to arise in connection with the
Year 2000.  The  Company  has plans to review the  status of its  customers  and
suppliers  with  regard  to this  issue  and  assess  the  potential  impact  of
non-compliance by such parties on the Company's operations.

         The  Company's   utilizes  a  server-based   system  for  its  material
management,  manufacturing,  EDI  interface,  and financial  systems.  Year 2000
compliant software upgrades are now available from the vendors.  Installing, and
testing the  upgraded  software is  expected to be  completed  by the end of the
first quarter of 1999. Based on current estimates,  management expects the total
cost to remediate non-compliant systems will be less than $20,000.00.

         The Company  has  started to review the impact of Year 2000  compliance
for the non-server  based systems and equipment  (i.e.  telephone  systems,  fax
machines,  off the shelf software).  This review will be completed by the end of
the second quarter of 1999.

         The Company is in the process of determining the extent to which it may
be impacted by third parties' systems, which may not be Year 2000 compliant. The
Year 2000  computer  issue  creates risk for the Company from third parties with
whom the Company deals on financial  transactions  worldwide.  While the Company
expects to complete  efforts to seek  reassurance from its suppliers and service
providers,  there can be no assurance  that the systems of other  companies that
the Company  deals with or on which the  Company's  systems  rely will be timely
converted, or that any such failure to convert by another company could not have
an adverse effect on the Company.

         The  Company has not yet  developed  any formal  contingency  plans for
addressing  any problems  resulting from upgrades that do not resolve all of the
issues of Year 2000,  or if  significant  customers  or  suppliers do not become
compliant.  Failure to complete any necessary  remediation  by the Year 2000 may
have a material adverse impact on the operations of the Company.



<PAGE>



                                     PART II
                                OTHER INFORMATION



Item 6.  Exhibits and Reports on Form 8-K
-------  --------------------------------
         (a) Exhibit 27.01-Financial Data Schedule                         E- xx




<PAGE>


                                   SIGNATURES


         Pursuant to the  requirements  of the Securities  Exchange Act of 1934,
the  registrant  had duly  caused  this  Report  to be  signed  on behalf by the
undersigned thereunto duly authorized.


                                           EROX CORPORATION
                                           Registrant




Date:  November 12, 1998                   /s/ William P. Horgan
                                           ------------------------------------
                                                   William P. Horgan
                                           Chairman and Chief Executive Officer




Date:  November 12, 1998                  /s/ Gregory S. Fredrick
                                          --------------------------------------
                                                  Gregory S. Fredrick
                                          Vice President, Controller