UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549



FORM 10-QSB



(MARK ONE)



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



For the quarterly period ended   June 30, 2006



[    ] 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 West Santa Clara Street, San Jose, California |  | 95113     
|(Address of principal executive offices)         |  | (Zip code)





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





Not applicable

(Former name or former address, if changed since last report)









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  [   ]



Indicate by a checkmark whether the registrant is a shell company (as defined in Rule 12-2 of the Exchange Act).  Yes  [   ]   No  [ X ]



State the number of shares outstanding of each of the issuers classes of common equity, as of the latest practicable date: 4,151,954 shares of Common Stock as of August 9, 2006.











1





---







| |                       |                                                             |                                                                                        |    |  |    |  |   |    |    |      |  |  |  |  |  |  |  |  |  |  |  |  |  | 
| | --------------------- | ----------------------------------------------------------- | -------------------------------------------------------------------------------------- | -- |  | -- |  | - | -- | -- | ---- |  |  |  |  |  |  |  |  |  |  |  |  |  | 
| |                       | HUMAN PHEROMONE SCIENCES, INC.                             
| |                       |                                                             |                                                                                        |    |  |    |  |   |    |    |      | 
| |                       | INDEX                                                      
| |                       |                                                             |                                                                                        |    |  |    |  |   |    |    | Page | 
| | PART I                |                                                             |                                                                                        |    |  |    |  |   |    |    |      | 
| | FINANCIAL INFORMATION |                                                             |                                                                                        |    |  |    |  |   |    |   
| |                       |                                                             |                                                                                        |    |  |    |  |   |    |    |      | 
| |                       | Item 1. Financial Statements                                |                                                                                        |    |  |    |  |   |    |   
| |                       |                                                             |                                                                                        |    |  |    |  |   |    |    |      | 
| |                       |                                                             | Balance Sheets as of June 30, 2006 (Unaudited) and December 31, 2005                   |    |  | 3  | 
| |                       |                                                             |                                                                                        |    |  |    |  |   |    |    |      | 
| |                       |                                                             | Statements of Operations (Unaudited) for the Three and Six Months Ended                |    |  |   
| |                       |                                                             | June 30, 2006 and 2005                                                                 |    |  |    |  |   |    | 4  |     
| |                       |                                                             |                                                                                        |    |  |    |  |   |    |    |      | 
| |                       |                                                             | Statements of Cash Flows (Unaudited) for the Six Months Ended                          |    |  |    | 
| |                       |                                                             | June 30, 2006 and 2005                                                                 |    |  |    |  |   |    | 5  |     
| | .                     |                                                             |                                                                                        |    |  |    |  |   |    |    |      | 
| |                       |                                                             | Notes to Financial Statements (Unaudited)                                              |    |  |    |  | 6 |   
| |                       |                                                             |                                                                                        |    |  |    |  |   |    |    |      | 
| |                       | Item 2. Managements Discussion and Analysis                |                                                                                        |    |  |    |  |  
| |                       |                                                             |                                                                                        |    |  |    |  |   |    |    |      | 
| |                       |                                                             | Managements Discussion and Analysis of Financial Conditions and Results of Operations | 11 | 
| |                       |                                                             |                                                                                        |    |  |    |  |   |    |    |      | 
| |                       | Item 3. Controls and Procedures                             |                                                                                        |    |  |    |  |   | 15 |   
| |                       |                                                             |                                                                                        |    |  |    |  |   |    |    |      | 
| | PART II               |                                                             |                                                                                        |    |  |    |  |   |    |    |      | 
| | OTHER INFORMATION     |                                                             |                                                                                        |    |  |    |  |   |    |   
| |                       |                                                             |                                                                                        |    |  |    |  |   |    |    |      | 
| |                       | Item 1. Legal Proceedings                                   |                                                                                        |    |  |    |  |   | 16 |   
| |                       |                                                             |                                                                                        |    |  |    |  |   |    |    |      | 
| |                       | Item 4. Submission of Matters to a Vote of Security Holders |                                                                                        |    |  | 16 | 
| |                       |                                                             |                                                                                        |    |  |    |  |   |    |    |      | 
| |                       | Item 5. Other Information                                   |                                                                                        |    |  |    |  |   |    | 16 |     
| |                       |                                                             |                                                                                        |    |  |    |  |   |    |    |     
| |                       | Item 6. Exhibits                                            |                                                                                        |    |  |    |  |   |    | 16 |     
| |                       |                                                             |                                                                                        |    |  |    |  |   |    |    |      | 
| | SIGNATURES            |                                                             |                                                                                        |    |  |    |  |   |    | 17 |     
| |                       |                                                             |                                                                                        |    |  |    |  |   |    |    |      | 







2





---





PART I

FINANCIAL INFORMATION



Item 1.  Financial Statements



Human Pheromone Sciences, Inc.

Balance Sheets



|                                                                                          |  |                    |  |  |                     
|----------------------------------------------------------------------------------------- |  | ------------------ |  |  | --------------------
|                                                                                          |  | June 30,           |  |  | December 31,        
|(in thousands except share data)                                                          |  | 2006               |  |  | 2005                
|                                                                                          |  | (unaudited)        |  |  |                     
|Assets                                                                                    |  |                    |  |  |                     
|                                                                                          |  |                    |  |  |                     
|Current assets:                                                                           |  |                    |  |  |                     
|Cash and cash equivalents                                                                 |  | $             252  |  |  | $               452 
|Accounts receivable                                                                       |  | 52                 |  |  | 11                  
|Inventories, net                                                                          |  | 74                 |  |  | 70                  
|Other current assets                                                                      |  | 13                 |  |  | 18                  
|Total current assets                                                                      |  | 391                |  |  | 551                 
|                                                                                          |  |                    |  |  |                     
|Property and equipment, net                                                               |  | 5                  |  |  | 8                   
|                                                                                          |  |                    |  |  |                     
|                                                                                          |  | $             396  |  |  | $               559 
|                                                                                          |  |                    |  |  |                     
|                                                                                          |  |                    |  |  |                     
|Liabilities and Shareholders' Equity                                                      |  |                    |  |  |                     
|Current liabilities:                                                                      |  |                    |  |  |                     
|Accounts payable                                                                          |  | $               79 |  |  | $                 21
|Accrued professional fees                                                                 |  | 49                 |  |  | 63                  
|Accrued employee benefits                                                                 |  | 35                 |  |  | 27                  
|Accrued sales returns                                                                     |  | -                  |  |  | 15                  
|Accrued income tax                                                                        |  | 2                  |  |  | 2                   
|Other accrued expenses                                                                    |  | 11                 |  |  | 12                  
|Deferred revenue                                                                          |  | 10                 |  |  | -                   
|Total current liabilities                                                                 |  | 186                |  |  | 140                 
|                                                                                          |  |                    |  |  |                     
|                                                                                          |  |                    |  |  |                     
|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                                                |  | 20,826             |  |  | 20,809              
|Accumulated deficit                                                                       |  | (20,616)           |  |  | (20,390)            
|Total shareholders' equity                                                                |  | 210                |  |  | 419                 
|                                                                                          |  | $              396 |  |  | $              559  





See accompanying notes to financial statements.





3



---







Human Pheromone Sciences, Inc.

Statements of Operations

(unaudited)





|                                                                    |  |                             |  |               |                           |  |                |  |               
|------------------------------------------------------------------- |  | --------------------------- |  | ------------- | ------------------------- |  | -------------- |  | --------------
|                                                                    |  | Three months ended June 30, |  |               | Six months ended June 30,
|(in thousands except per share data)                                |  | 2006                        |  | 2005          |                           |  | 2006           |  | 2005          
|                                                                    |  |                             |  |               |                           |  |                |  |               
|Net revenues                                                        |  | 184                         |  | 131           |                           |  | 450            |  | 257           
|Cost of goods sold                                                  |  | 58                          |  | 17            |                           |  | 111            |  | 58            
|                                                                    |  |                             |  |               |                           |  |                |  |               
|Gross profit                                                        |  | 126                         |  | 114           |                           |  | 339            |  | 199           
|                                                                    |  |                             |  |               |                           |  |                |  |               
|Operating Expenses:                                                 |  |                             |  |               |                           |  |                |  |               
|Research and development                                            |  | 35                          |  | 48            |                           |  | 59             |  | 94            
|Selling, general and administrative                                 |  | 247                         |  | 319           |                           |  | 507            |  | 645           
|Total operating expenses                                            |  | 282                         |  | 367           |                           |  | 566            |  | 739           
|                                                                    |  |                             |  |               |                           |  |                |  |               
|Loss from operations                                                |  | (156)                       |  | (253)         |                           |  | (227)          |  | (540)         
|                                                                    |  |                             |  |               |                           |  |                |  |               
|Other income                                                        |  |                             |  |               |                           |  |                |  |               
|Interest income, net                                                |  | -                           |  | 5             |                           |  | 1              |  | 11            
|                                                                    |  |                             |  |               |                           |  |                |  |               
|Total other income                                                  |  | -                           |  | 5             |                           |  | 1              |  | 11            
|                                                                    |  |                             |  |               |                           |  |                |  |               
|                                                                    |  |                             |  |               |                           |  |                |  |               
|Net loss                                                            |  | $          (156)            |  | $       (248) |                           |  | $        (226) |  | $        (529)
|                                                                    |  |                             |  |               |                           |  |                |  |               
|                                                                    |  |                             |  |               |                           |  |                |  |               
|                                                                    |  |                             |  |               |                           |  |                |  |               
|                                                                    |  |                             |  |               |                           |  |                |  |               
|Net loss per common share  basic and fully diluted                 |  | $        (0 .04)            |  | $     (0 .06) |                           |  | $      (0 .05) |  | $      (0 .13)
|                                                                    |  |                             |  |               |                           |  |                |  |               
|                                                                    |  |                             |  |               |                           |  |                |  |               
|Weighted average common shares outstanding basic and fully diluted |  | 4,152                       |  | 4,152         |                           |  | 4,152          |  | 4,152         



See accompanying notes to financial statements.





4



---











Human Pheromone Sciences, Inc.

Statements of Cash Flows

(unaudited)







|                                                          |  |                           |  |  |                
|--------------------------------------------------------- |  | ------------------------- |  |  | ---------------
|                                                          |  | Six months ended June 30,
|(in thousands)                                            |  | 2006                      |  |  | 2005           
|                                                          |  |                           |  |  |                
|                                                          |  |                           |  |  |                
|Cash flows from operating activities                      |  |                           |  |  |                
|Net loss                                                  |  | $        (226)            |  |  | $         (529)
|                                                          |  |                           |  |  |                
|Adjustments to reconcile net loss to net cash provided by |  |                           |  |  |                
|(used in) operating activities:                           |  |                           |  |  |                
|Depreciation and amortization                             |  | 3                         |  |  | 5              
|Stock option compensation                                 |  | 17                        |  |  | -              
|Changes in operating assets and liabilities:              |  |                           |  |  |                
|Accounts receivable                                       |  | (41)                      |  |  | 178            
|Inventories                                               |  | (4)                       |  |  | 6              
|Other current assets                                      |  | 4                         |  |  | (26)           
|Accounts payable and accrued liabilities                  |  | 37                        |  |  | (31)           
|Deferred revenue                                          |  | 10                        |  |  | -              
|Net cash used in operating activities                     |  | (200)                     |  |  | (397)          
|                                                          |  |                           |  |  |                
|                                                          |  |                           |  |  |                
|Cash flows provided by (used in) investing activities     |  |                           |  |  |                
|Acquisition of property and equipment                     |  | -                         |  |  | (1)            
|                                                          |  |                           |  |  |                
|Net cash used in investing activities                     |  | -                         |  |  | (1)            
|                                                          |  |                           |  |  |                
|                                                          |  |                           |  |  |                
|Cash flows used in financing activities                   |  |                           |  |  |                
|                                                          |  | -                         |  |  | -              
|Net cash used in financing activities                     |  | -                         |  |  | -              
|                                                          |  |                           |  |  |                
|                                                          |  |                           |  |  |                
|Net decrease in cash and cash equivalents                 |  | (200)                     |  |  | (398)          
|Cash and cash equivalents at beginning of period          |  | 452                       |  |  | 1,201          
|Cash and cash equivalents at end of period                |  | $           252           |  |  | $          803 
|                                                          |  |                           |  |  |                
|                                                          |  |                           |  |  |                
|                                                          |  |                           |  |  |                
|See accompanying notes to financial statements.           |  |                           |  |  |                









5



---







Human Pheromone Sciences, Inc.

Notes to Financial Statements

(unaudited)

June 30, 2006





1.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES



Organization and Nature of Operations



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 an entirely new category of pheromone-based fragrances and toiletry products, as well as other types of consumer products that do not require FDA approval as a pharmaceutical product.  The Company believes that its related patents provide it a proprietary position in developing, licensing and marketing such products.



Basis of Presentation



The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-QSB and Item 310(b) of Regulation S-B.  Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America 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 six and three months ended June 30, 2006 are not necessarily indicative of the results that may be expected for the calendar year ending December 31, 2006. 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, 2005.



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) 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 and No. 104.  The majority of the Companys sales are to distributors and licensees, and these distributors and licensees have no right to return products.



Inventories



Inventories are stated at the lower of cost (first in - first out method) or market.  A summary of inventories follows (in thousands):





|                                       |  |                           |  |                   
|-------------------------------------- |  | ------------------------- |  | ------------------
|                                       |  |                           |  |                   
|                                       |  | June 30, 2006
(unaudited) |  | December 31, 2005 
|                                       |  |                           |  |                   
|Components (raw materials)             |  | $            68           |  | $               56
|Finished goods                         |  | 34                        |  | 39                
|Reserve for shrinkage and obsolescence |  | (28)                      |  | (25)              
|                                       |  | $            74           |  | $               70







6



---







Earnings (Loss) Per 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 three months ended June 30, 2006 and 2005, options to purchase 808,000 and 442,165 shares of common stock, respectively, were excluded from the computation of diluted earnings per share since their effect would be antidilutive.



As of June 30, 2006 and 2005, the unaudited components of basic and diluted earnings per share are as follows (all amounts are in thousands):



|                                                             |  |            |  |           
|------------------------------------------------------------ |  | ---------- |  | ----------
|                                                             |  | 2006       |  | 2005      
|                                                             |  |            |  |           
|Net income (loss) available to common shareholders           |  | $    (226) |  | $    (529)
|                                                             |  |            |  |           
|                                                             |  |            |  |           
|Weighted-average common shares outstanding during the period |  | 4,152      |  | 4,152     
|                                                             |  |            |  |           





Capital Stock and Stock Options



During the six months ended June 30, 2006 no common stock or preferred stock was issued.  During the quarter ended June 30, 2006, options to purchase 60,000 share of common stock were granted under the 2003 Non-Employee Directors Stock Option Plan, options to purchase 330,000 shares of common stock were granted to employees pursuant to the Nonstatutory  Stock  Option Agreements issued outside of the Companys equity incentive plans.  No issued options were exercised and 10,000 stock options expired under the expired 1990 Stock Option Plan.



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 the 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.





7



---







The Company does not record the stock compensation expense net of taxes since there was no provision for income taxes for the periods ended June 30, 2006 and June 30, 2005 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                                               |  |  | 2006 Option Grants |  | 2005 Option Grants
|                                                                  |  |  |                    |  |                   
|Weighted Average Interest Rates                                   |  |  | 5.10%              |  | 4.00%             
|Dividend Yield                                                    |  |  | 0.00%              |  | 0.00%             
|Volatility factor of the Companys common stock                   |  |  | 180%               |  | 149%              
|Forfeiture factor  Nonstatutory Stock Option Agreements          |  |  | 5%                 |  | -                 
|Forfeiture factor  2003 Non-Employee Directors Stock Option Plan |  |  | -                  |  | -                 
|Weighted average expected life                                    |  |  | 7 years            |  | 5 years           



A summary of the activity under the 1990 Option Plan is as follows (in thousands except per share data):



|                                 |  |                                   |  |                                 |  |        |  |                                 | 
|-------------------------------- |  | --------------------------------- |  | ------------------------------- |  | ------ |  | ------------------------------- | 
|1990 Option Plan                 |  | Three months ending
June 30, 2006 |  | Six months ending
June 30, 2006
|                                 |  | Shares                            |  | Weighted Average Exercise Price |  | Shares |  | Weighted Average Exercise Price
|                                 |  |                                   |  |                                 |  |        |  |                                
|Outstanding, beginning of period |  | 188                               |  | $ 1.03                          |  | 188    |  | $ 1.03                         
|Options Granted                  |  | -                                 |  | -                               |  | -      |  |                                
|Canceled or Expired              |  | (10)                              |  | $ 1.03                          |  | (10)   |  | $ 1.03                         
|                                 |  |                                   |  |                                 |  |        |  |                                
|Outstanding, June 30, 2006       |  | 178                               |  | $ 1.03                          |  | 178    |  | $ 1.03                         
|                                 |  |                                   |  |                                 |  |        |  |                                



All of options under this plan are fully vested.





A summary of the activity under the Non-Employee & Director Plan is as follows (in thousands except per share data):



|                                 |  |                                   |  |                                 |  |        |  |                                
|-------------------------------- |  | --------------------------------- |  | ------------------------------- |  | ------ |  | -------------------------------
|Non-Employee & Director Plan     |  | Three months ending
June 30, 2006 |  | Six months ending
June 30, 2006
|                                 |  | Shares                            |  | Weighted Average Exercise Price |  | Shares |  | Weighted Average Exercise Price
|                                 |  |                                   |  |                                 |  |        |  |                                
|Outstanding, beginning of period |  | 250                               |  | $   1.66                        |  | 250    |  | $   1.66                       
|Options Granted                  |  | 60                                |  | $   0.32                        |  | 60     |  | $   0.32                       
|Canceled or Expired              |  | (10)                              |  | $ 23.64                         |  | (10)   |  | $ 23.64                        
|                                 |  |                                   |  |                                 |  |        |  |                                
|Outstanding, June 30, 2006       |  | 300                               |  | $   0.66                        |  | 300    |  | $   0.66                       







8



---





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





|                                                |  |                                   |  |                                 |  |        |  |                                
|----------------------------------------------- |  | --------------------------------- |  | ------------------------------- |  | ------ |  | -------------------------------
|Non-employee & Director Plan
Non-vested Options |  | Three months ending
June 30, 2006 |  | Six months ending
June 30, 2006
|                                                |  | Shares                            |  | Weighted Average Exercise Price |  | Shares |  | Weighted Average Exercise Price
|                                                |  |                                   |  |                                 |  |        |  |                                
|Outstanding, beginning of period                |  | 25                                |  | $   0.40                        |  | 40     |  | $   0.40                       
|Options Granted                                 |  | 60                                |  | $   0.32                        |  | 60     |  | $   0.32                       
|Vested                                          |  | (20)                              |  | $   0.38                        |  | (35)   |  | $   0.39                       
|                                                |  |                                   |  |                                 |  |        |  |                                
|Outstanding, June 30, 2006                      |  | 65                                |  | $   0.33                        |  | 65     |  | $   0.33                       





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



|                                     |  |                                   |  |                                 |  |        |  |                                
|------------------------------------ |  | --------------------------------- |  | ------------------------------- |  | ------ |  | -------------------------------
|Nonstatutory Stock Option Agreements |  | Three months ending
June 30, 2006 |  | Six months ending
June 30, 2006
|                                     |  | Shares                            |  | Weighted Average Exercise Price |  | Shares |  | Weighted Average Exercise Price
|Outstanding, beginning of period     |  | -                                 |  | -                               |  | -      |  | -                              
|Options Granted                      |  | 330                               |  | $   0.32                        |  | 330    |  | $  0.32                        
|Canceled or Expired                  |  | -                                 |  | -                               |  | -      |  | -                              
|                                     |  |                                   |  |                                 |  |        |  |                                
|Outstanding, June 30, 2006           |  | 330                               |  | $   0.32                        |  | 330    |  | $ 0.32                         





A summary of the non-vested options activity under direct Nonstatutory Stock Option Agreements is as follows (in thousands except per share data):



|                                                         |  |                                   |  |                                 |  |        |  |                                 | 
|-------------------------------------------------------- |  | --------------------------------- |  | ------------------------------- |  | ------ |  | ------------------------------- | 
|Nonstatutory Stock Options Agreements
Non-vested Options |  | Three months ending
June 30, 2006 |  | Six months ending
June 30, 2006
|                                                         |  | Shares                            |  | Weighted Average Exercise Price |  | Shares |  | Weighted Average Exercise Price
|Outstanding, beginning of period                         |  | -                                 |  | -                               |  | -      |  | -                              
|Options Granted                                          |  | 330                               |  | $  0.32                         |  | 330    |  | $        0.32                  
|Vested                                                   |  | (14)                              |  | $  0.32                         |  | (14)   |  | $        0.32                  
|                                                         |  |                                   |  |                                 |  |        |  |                                
|Outstanding, June 30, 2006                               |  | 316                               |  | $  0.32                         |  | 316    |  | $        0.32                  





The Company recorded $12,000, and $17,000 of employee and non-employee compensation expense for  stock options during the three and six months ended June 30, 2006, respectively.  At June 30, 2006 there was $112,000 of unrecognized compensation costs related to non-vested share-based compensation under the 2003 Non-Employee Directors Stock Option Plan and the Nonstatutory Stock Option grants.  This cost is expected to be recognized over the following twenty three months.





9



---





Prior to adopting SFAS 123 (R) the Company applied APB 25 and related Interpretations in accounting for its employee stock options.  Had compensation expense been determined based upon the fair value of the awards at the grant date and consistent with the method under SFAS No. 123 (R), the Companys net income (loss) per share would have been increased as shown by the pro forma amount indicated in the following table (in thousands):



|                                               |  |                          |  |                           
|---------------------------------------------- |  | ------------------------ |  | --------------------------
|                                               |  | Three months ended       |  | Six months ended          
|                                               |  | June 30, 2005            |  | June 30, 2005             
|                                               |  | (unaudited)              |  | (unaudited)               
|Net income (loss):                             |  |                          |  |                           
|As reported                                    |  | $                  (248) |  | $                    (529)
|Deduct total stock based employee compensation |  |                          |  |                           
|expense determined under fair value method for |  |                          |  |                           
|all awards, net of tax                         |  | (9)                      |  | (17)                      
|Pro forma                                      |  | $                  (257) |  | $                    (546)
|                                               |  |                          |  |                           
|Basic and diluted loss per share:              |  |                          |  |                           
|As reported                                    |  | $                 (0.06) |  | $                   (0.13)
|Pro forma                                      |  | $                 (0.06) |  | $                   (0.13)
|                                               |  |                          |  |                           



INCOME TAXES



There was no provision for income taxes for the periods ended June 30, 2006 or June 30, 2005 as the Company incurred net operating losses for which no benefit was recognized, or utilized tax loss carryforwards.



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



|                                                    |  |                            |  |                    
|--------------------------------------------------- |  | -------------------------- |  | -------------------
|                                                    |  | Six months ending June 30,
|                                                    |  | 2006                       |  | 2005               
|                                                    |  | (unaudited)                |  | (unaudited)        
|Federal (tax benefit) at the federal statutory rate |  | $            (77)          |  | $             (84) 
|Other differences                                   |  | -                          |  | -                  
|Permanent differences                               |  | -                          |  | -                  
|Increase (decrease) in valuation allowance          |  | 77                         |  | 84                 
|Income tax benefits                                 |  | $                -         |  | $                 -
|                                                    |  |                            |  |                    



At June 30, 2006, the Company had federal net operating loss carryforwards of approximately $19,372,000.  The Company also had federal and state research and development tax carryforwards of approximately $222,000.  The net operating loss and credit carryforwards will expire between 2006 and 2021.  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 are as follows (in thousands):



|                                            |  |  |                   |  |                     
|------------------------------------------- |  |  | ----------------- |  | --------------------
|                                            |  |  | June 30,          |  | December 31,        
|                                            |  |  | 2006              |  | 2005                
|                                            |  |  | (unaudited)       |  |                     
|Deferred tax asset:                         |  |  |                   |  |                     
|Net operating loss carryforward             |  |  | $        6,898    |  | $           6,813   
|Research credit carryforward                |  |  | 222               |  | 222                 
|Reserves and accruals                       |  |  | 88                |  | 62                  
|Other, net                                  |  |  | (134)             |  | (112)               
|Valuation allowance for deferred tax assets |  |  | (7,074)           |  | (6,985)             
|Net deferred tax assets                     |  |  | $               - |  | $                  -





10



---







| |  |  |  |  | 
| |  |  |  |  | 





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 $89,000 in the first six months of 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.





2.    SEGMENT INFORMATION



Revenues by geographic markets for the three and six months ended June 30, 2006 and 2005 were as follows:





|                      |  |                              |  |                             |  |                 |  |                  | 
|--------------------- |  | ---------------------------- |  | --------------------------- |  | --------------- |  | ---------------- | 
|                      |  | Three months ending June 30, |  | Six months ending  June 30,
|                      |  | 2006                         |  | 2005                        |  | 2006            |  | 2005            
|                      |  | (unaudited)                  |  | (unaudited)                 |  | (unaudited)     |  | (unaudited)     
|Markets:              |  |                              |  |                             |  |                 |  |                 
|U.S Markets           |  | $        103                 |  | $         128               |  | $           248 |  | $            175
|International Markets |  | 81                           |  | 3                           |  | 202             |  | 82              
|                      |  |                              |  |                             |  |                 |  |                 
|Net Sales             |  | $       184                  |  | $        131                |  | $         450   |  | $           257 









Item 2. Managements Discussion and Analysis of Financial Conditions and Results of Operations



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





CRITICAL ACCOUNTING POLICIES



Our 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 require 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 financial statements.





11



---









Stock Option Policy



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 rates in addition to the life of the stock option.  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.



The Company did not record the stock compensation expense net of taxes since there was no provision for income taxes for the periods ended June 30, 2006 or December 31, 2005 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.





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) 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 and No. 104.  The majority of the Companys sales are to distributors and licensees, and these distributors and licensees have no right to return products.





COMPANY OVERVIEW





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.  Licensing of the Companys technology is currently the core business of the Company while directly managing the on-going development of identified compounds for potential new products.  The Companys patented compounds are sold to licensed customers and included as components in their fragranced consumer products.  The Company also offers private label manufacturing services for third party consumer product licensees.



Results of Operations



Three Months ended June 30, 2006 compared to the Three Months ended June 30, 2005



Net revenues for the second quarter of 2006 were $184,000, representing a 40% increase from the prior years revenues of $131,000.  Domestically, revenues were $25,000 less than the prior year, attributable to decreased pheromone reorders from existing licensees.  Domestic customers purchasing patterns continue to be erratic and the Company is not always aware of the customers manufacturing and marketing plans so these fluctuations will continue to occur.  International revenues were $78,000 more than the prior year due to increased sales to distributor in Asia.



Net revenue for the quarters ended June 30, 2006 and 2005 were as follows (in thousands):



|                      |  |          |  |        
|--------------------- |  | -------- |  | -------
|                      |  | 2006     |  | 2005   
|Markets:              |  |          |  |        
|U.S Markets           |  | $    103 |  | $  128 
|International Markets |  | 81       |  | 3      
|                      |  |          |  |        
|Net Sales             |  | $    184 |  | $   131







12



---







Gross profit for the quarter ended June 30, 2006 of $126,000 is 11% more than last years gross profit of $114,000.  As a percentage of sales, gross profit of 68% was less than last years gross profit of 87%.  The decreased gross margin was caused by an increased sales of lower margin private label products in the current period compared to last years higher level of pheromone sales.  The increase in gross profit is attributed to the higher sales level for the current quarter.



Research and development expenses for the second quarters of 2006 and 2005 were $35,000 and $48,000, respectively.  The decrease of the research expenditures was the result of the Company not requiring the same level of activity in 2006 as in 2005.  In 2005, the Company conducted various levels of testing, including human testing, on two new compounds, with encouraging results.  Research and development on several new compounds is on-going.



Selling, general and administrative expenses of $247,000 are $72,000 less than last years $319,000.  Selling, marketing and distribution expenses were $21,000 less than the prior year as the Company reduced marketing consulting fees.  General and administrative and facility costs decreased by $51,000, primarily a result of reduced   payroll related costs, consultant and legal fees.  All of these reductions are associated with plans initiated in 2005 that were realized during the current year.



The Company earned less than $1,000 and $5,000 in net interest income during the three months ending June 30, 2006 and 2005, respectively.  The decrease is due to lower cash balances.



The Company recorded no income tax provision in 2006 or 2005, due primarily to a valuation allowance on deferred tax assets being recorded and the expected utilization of net operating losses carried forward from prior years to offset any significant tax liability.  As of June 30, 2006, the Companys gross deferred tax asset, which relates primarily to net operating losses carried forward was $7,074,000.  However, a full valuation allowance is provided for the gross deferred tax asset as management could not determine whether its realization is more likely than not.





Six Months ended June 30, 2006 as compared to the Six Months ended June 30, 2005



Net revenues for the six months ended June 30, 2006 were $450,000.  This was a 75% increase from net revenues of $257,000 for the first half of 2005.Domestically, revenues were $73,000 more than the prior years $175,000.  Domestic reorders from existing accounts increased sales in the current year.  Since the Company is not always aware of its customers manufacturing and marketing plans, revenue fluctuations will occur.   International revenues were $120,000 greater than the prior year due to increased sales in the Asian and Latin American markets



Net revenues for the six months ended June 30, 2006 and 2005 were as follows:



|                      |  |                   |  |                  
|--------------------- |  | ----------------- |  | -----------------
|Markets               |  | 2006              |  | 2005             
|                      |  |                   |  |                  
|U.S Markets           |  | $             248 |  | $             175
|International Markets |  | 202               |  | 82               
|                      |  |                   |  |                  
|Net Revenues          |  | $             450 |  | $             257



Gross profit for the first half of 2006 increased 70% to $339,000 from $199,000 in 2005.  The increase gross profit is the result of the increased sales.  Gross margin decreased slightly to 75% compared to 77% in 2005 due to the increase of private label sales in markets outside the United States.



Research and development expenses for the first half of 2006 and 2005 were $59,000 and $94,000, respectively.  The decrease of the research expenditures was the result of the Company not requiring the same level of activity in 2006 as was incurred in 2005.  In 2005, the Company conducted various levels of testing on two new compounds, with encouraging results.  Development work on these compounds, and others, is continuing in 2006 with reduced cost requirements.



Selling, general and administrative expenses for the first half of 2006 were $507,000 and $645,000 for the comparable period of 2005, a $138,000 reduction.  Selling, marketing and distribution expenses are $40,000 less than the prior year as the Company reduced marketing consulting fees. General, administrative and facility expenses were  $98,000 less than last year primarily due to decrease payroll related costs and consultant fees.





13



---









The Company earned less than $1,000 and $11,000 in net interest income during the six months ending   June 30, 2006 and 2005, respectively.  The decrease is due to lower cash balances.





LIQUIDITY AND CAPITAL RESOURCES



At June 30, 2006, the Company had cash of $252,000 with no outstanding bank borrowings and working capital of $205,000.  At December 31, 2005, it had cash of $452,000 with no outstanding bank borrowings and working capital of $411,000.  For the first six months of 2006, net cash used in on-going activities was $201,000 compared to the prior years $397,000 and is the result of a reduction of the net loss for the current year.





The Companys current cash position and projected results of operations for the year 2006 requires that additional sources of funding be obtained.  Unless the Company raises additional funds by debt or equity issuances, asset sales or a significant increase in product sales accompanied by reductions in corporate spending, the Companys current cash on hand will be insufficient to cover its working capital requirements.   The Company is actively working on securing the required funding, and it is not known how successful those efforts might be.



The Company may be unable to raise sufficient additional capital when needed or to raise capital on favorable terms. The sale of equity or convertible debt securities in the future may be dilutive to the Companys stockholders and debt financing arrangements may require the Company to pledge certain assets and enter into covenants that could restrict certain business activities or the Companys ability to incur further indebtedness, and may contain other terms that are not favorable to the Company or its stockholders. If the Company is unable to obtain adequate funds on reasonable terms, it may be required to curtail operations significantly or to obtain funds by entering into financing agreements on unattractive terms.



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-QSB. If any of the following events or outcomes actually occurs, our business, operating results, and financial condition would likely suffer.



The Companys current cash position and projected results of operations for the year 2006 requires that additional funding be obtained. Unless the Company raises additional funding by debt or equity issuances, asset sales or a significant increase in product sales accompanied by reductions in corporate spending, the Companys current cash on hand is will be insufficient to cover its working capital requirements.   The Company is actively working on securing the required funding but it cannot guarantee that it will be successful.



The Company has not had sustained profitable operations since 1997.  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.  To maintain the current operations, the Company will require additional funding due to the continued operating losses sustained and projected.



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, even if funding is obtained.  Consumer product companies may choose not to license or private label the Companys products.





14



---







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 3.  Controls and Procedures



Evaluation of Disclosure Controls and Procedures.  Based on our evaluation as of the end of the period covered by this Quarterly Report on Form 10-QSB, our chief executive officer and chief financial officer have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934) are effective to ensure that information required to be disclosed by us in reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.



Changes in Internal Control Over Financial Reporting. There were no changes in our internal control over financial reporting identified in connection with our evaluation that occurred during the fiscal quarter ended June 30, 2006 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.







15



---





PART II

OTHER INFORMATION







Item 1.  Legal Proceedings



The Company is not party to any pending legal proceedings.





Item 4.  Submission of Matters to a Vote of  Security Holders



The Companys annual shareholder meeting was held on June 21, 2006, at which the following proposal was approved:



Proposal 1:  Election for the following Directors:



|                         |           |               
|------------------------ | --------- | --------------
|Name                     | Votes For | Votes Withheld
|                         |           |               
|William P. Horgan        | 2,742,689 | 79,450        
|Bernard I. Grosser, M.D. | 2,743,355 | 78,784        
|Helen C. Leong           | 2,742,223 | 79,916        
|Robert Marx              | 2,743,338 | 78,801        







Item 5.  Other Information



On June 22, 2006, Mr. William Horgan was granted an nonstatutory stock option outside of the Companys equity incentive plans to purchase 300,000 shares of the Company's common stock, which will vest and become exercisable in twenty four equal monthly installments beginning on June 22, 2006; provided that in the event of a termination without cause (as defined in the stock option agreement), the vesting and exercisability of the unvested shares will accelerate.  The option exercise price is $0.315 per share



Item 6.  Exhibits



Exhibits



Exhibit 10.12  Form of Nonstatutory Stock Option Agreement



Exhibit 31.1  Certification Pursuant to Section 302 of the Sarbanes-Oxley Act



Exhibit 31.2  Certification Pursuant to Section 302 of the Sarbanes-Oxley Act



Exhibit 32  Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. 1350









16



---





SIGNATURES





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





HUMAN PHEROMONE SCIENCES, INC.











Date:  August 9, 2006

/s/ William P. Horgan

William P. Horgan

Chairman and Chief Executive Officer

(Principal Executive Officer)







Date:  August 9, 2006

/s/ Gregory S. Fredrick

Gregory S. Fredrick

Chief Financial Officer

(Principal Financial Officer and Principal Accounting

Officer)









17