|                                                                                                                                                                                                                                                                                                                                |                                                                                    | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------- | 
|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 September 30, 2007                                                                                                                                                                                                                                                                              
|                                                                                                                                                                                                                                                                                                                               
|[    ]                                                                                                                                                                                                                                                                                                                          | TRANSITION REPORT UNDER SECTION 13 OR A5(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                               
|Commission file number 0-23544                                                                                                                                                                                                                                                                                                 
|                                                                                                                                                                                                                                                                                                                               
|HUMAN PHEROMONE SCIENCES, INC.                                                                                                                                                                                                                                                                                                 
|(Name of small business issuer in its charter)                                                                                                                                                                                                                                                                                 
|                                                                                                                                                                                                                                                                                                                               
|California                                                                                                                                                                                                                                                                                                                      | 94-3107202                                                                        
|(State or other jurisdiction of
incorporation or organization)                                                                                                                                                                                                                                                                  | (I.R.S. employee
Identification No.)                                              
|                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                               
|84 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 November 9, 2007.                                                                                                                                           







1





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HUMAN PHEROMONE SCIENCES, INC.



INDEX





|                                                                                                                                                                      |     
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----
|                                                                                                                                                                      | Page
|PART I                                                                                                                                                               
|FINANCIAL INFORMATION                                                                                                                                                
|                                                                                                                                                                     
|Item 1. Financial Statements                                                                                                                                         
|                                                                                                                                                                     
|Balance Sheets as of September 30, 2007 (Unaudited) and December 31, 2006  .  . . . . . . . . . . . . .                                                               | 3   
|                                                                                                                                                                     
|Statements of Operations (Unaudited) for the Three and Nine Months Ended                                                                                             
|September 30, 2007 and 2006   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                                 | 4   
|                                                                                                                                                                      |     
|Statements of Cash Flows (Unaudited) for the Nine Months Ended                                                                                                        |     
|September 30, 2007 and 2006  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                                | 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 . . . . .                                                                      | 12  
|                                                                                                                                                                      |     
|Item 3. Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                 | 18  
|                                                                                                                                                                      |     
|PART II                                                                                                                                                              
|OTHER INFORMATION                                                                                                                                                    
|                                                                                                                                                                      |     
|Item 1. Legal Proceedings   . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                | 19  
|                                                                                                                                                                      |     
|Item 6. Exhibits   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .        | 19  
|                                                                                                                                                                      |     
|SIGNATURES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . | 20  
|                                                                                                                                                                     
|                                                                                                                                                                     





2





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PART I

FINANCIAL INFORMATION



|                             
|-----------------------------
|Item 1.  Financial Statements



Human Pheromone Sciences, Inc.

Balance Sheets





|                                                          |  |               |          |              |   |          | 
|--------------------------------------------------------- |  | ------------- | -------- | ------------ | - | -------- | 
|                                                          |  | September 30, |          | December 31, |  
|(in thousands except share data)                          |  | 2007          |          | 2006         |  
|                                                          |  | (unaudited)   |          |              |   |         
|Assets                                                    |  |               |          |              |   |          | 
|Current assets:                                           |  |               |          |              |   |          | 
|Cash and cash equivalents                                 |  | $             | 1,550    |              | $ | 1,941    | 
|Accounts receivable                                       |  |               | 60       |              |   | 39       | 
|Inventories, net                                          |  |               | 76       |              |   | 75       | 
|Other current assets                                      |  |               | 35       |              |   | 18       | 
|Total current assets                                      |  |               | 1,721    |              |   | 2,073    | 
|                                                          |  |               |          |              |   |          | 
|Property and equipment, net                               |  |               | 1        |              |   | 2        | 
|                                                          |  |               |          |              |   |          | 
|Total assets                                              |  | $             | 1,722    |              | $ | 2,075    | 
|                                                          |  |               |          |              |   |          | 
|                                                          |  |               |          |              |   |          | 
|                                                          |  |               |          |              |   |          | 
|                                                          |  |               |          |              |   |          | 
|Liabilities and Shareholders' Equity                      |  |               |          |              |   |          | 
|                                                          |  |               |          |              |   |          | 
|Current liabilities:                                      |  |               |          |              |   |          | 
|Accounts payable                                          |  | $             | 48       |              | $ | 30       | 
|Accrued professional fees                                 |  |               | 66       |              |   | 69       | 
|Accrued employee benefits                                 |  |               | 36       |              |   | 32       | 
|Accrued income taxes                                      |  |               | 1        |              |   | 7        | 
|Other accrued expenses                                    |  |               | 4        |              |   | 6        | 
|Current portion deferred revenue                          |  |               | 508      |              |   | 846      | 
|Total current liabilities                                 |  |               | 663      |              |   | 990      | 
|                                                          |  |               |          |              |   |          | 
|Non-current liabilities                                   |  |               |          |              |   |          | 
|Deferred revenue                                          |  |               | 681      |              |   | 721      | 
|Total liabilities                                         |  |               | 1,344    |              |   | 1,711    | 
|                                                          |  |               |          |              |   |          | 
|Commitments and Contingencies                             |  |               |          |              |   |          | 
|                                                          |  |               |          |              |   |          | 
|Shareholders' equity:                                     |  |               |          |              |   |          | 
|Common stock, no par value, 13,333,333 shares authorized, |  |               |          |              |   |          | 
|4,151,954 shares issued and outstanding at each date      |  |               | 20,933   |              |   | 20,865   | 
|Accumulated deficit                                       |  |               | (20,555) |              |   | (20,501) | 
|Total shareholders' equity                                |  |               | 378      |              |   | 364      | 
|Total liabilities and shareholders equity                |  | $             | 1,722    |              | $ | 2,075    | 



|                                               
|-----------------------------------------------
|See accompanying notes to financial statements.





3



---





Human Pheromone Sciences, Inc.

Statements of Operations

(unaudited)





|                                                     |  |                    |         |                   |   |       |  |      |         |  |   |        
|---------------------------------------------------- |  | ------------------ | ------- | ----------------- | - | ----- |  | ---- | ------- |  | - | -------
|                                                     |  | Three months ended |         | Nine months ended
|                                                     |  | September 30,      |         | September 30,    
|(in thousands except per share data)                 |  | 2007               |         | 2006              |   | 2007  |  | 2006
|                                                     |  |                    |         |                   |   |       |  |      |         |  |   |        
|Net revenues                                         |  | $                  | 239     |                   | $ | 365   |  | $    | 902     |  | $ | 815    
|                                                     |  |                    |         |                   |   |       |  |      |         |  |   |        
|Cost of goods sold                                   |  |                    | 94      |                   |   | 68    |  |      | 277     |  |   | 179    
|                                                     |  |                    |         |                   |   |       |  |      |         |  |   |        
|Gross profit                                         |  |                    | 145     |                   |   | 297   |  |      | 625     |  |   | 636    
|                                                     |  |                    |         |                   |   |       |  |      |         |  |   |        
|Operating Expenses:                                  |  |                    |         |                   |   |       |  |      |         |  |   |        
|Research and development                             |  |                    | 10      |                   |   | 29    |  |      | 38      |  |   | 88     
|Selling, general and administrative                  |  |                    | 240     |                   |   | 227   |  |      | 686     |  |   | 734    
|Total operating expenses                             |  |                    | 250     |                   |   | 256   |  |      | 724     |  |   | 822    
|                                                     |  |                    |         |                   |   |       |  |      |         |  |   |        
|Income (loss) from operations                        |  |                    | (105)   |                   |   | 41    |  |      | (99)    |  |   | (186)  
|                                                     |  |                    |         |                   |   |       |  |      |         |  |   |        
|Other income                                         |  |                    |         |                   |   |       |  |      |         |  |   |        
|Interest income, net                                 |  |                    | 16      |                   |   | 8     |  |      | 50      |  |   | 9      
|Total other income                                   |  |                    | 16      |                   |   | 8     |  |      | 50      |  |   | 9      
|                                                     |  |                    |         |                   |   |       |  |      |         |  |   |        
|Net income (loss)  before provision for income taxes |  |                    | (89)    |                   |   | 49    |  |      | (49)    |  |   | (177)  
|                                                     |  |                    |         |                   |   |       |  |      |         |  |   |        
|Provision for income taxes                           |  |                    | 4       |                   |   | -     |  |      | 5       |  |   | -      
|                                                     |  |                    |         |                   |   |       |  |      |         |  |   |        
|Net income (loss)                                    |  | $                  | (93)    |                   | $ | 49    |  | $    | (54)    |  | $ | (177)  
|                                                     |  |                    |         |                   |   |       |  |      |         |  |   |        
|                                                     |  |                    |         |                   |   |       |  |      |         |  |   |        
|                                                     |  |                    |         |                   |   |       |  |      |         |  |   |        
|Net income (loss) per common share                   |  |                    |         |                   |   |       |  |      |         |  |   |        
|Basic                                                |  | $                  | (0 .02) |                   | $ | 0 .01 |  | $    | (0 .01) |  | $ | (0 .04)
|Diluted                                              |  | $                  | (0 .02) |                   | $ | 0 .01 |  | $    | (0 .01) |  | $ | (0 .04)
|                                                     |  |                    |         |                   |   |       |  |      |         |  |   |        
|                                                     |  |                    |         |                   |   |       |  |      |         |  |   |        
|Weighted average common shares outstanding           |  |                    |         |                   |   |       |  |      |         |  |   |        
|Basic                                                |  |                    | 4,152   |                   |   | 4,152 |  |      | 4,152   |  |   | 4,152  
|Diluted                                              |  |                    | 4,152   |                   |   | 4,841 |  |      | 4,152   |  |   | 4,152  







|                                               
|-----------------------------------------------
|See accompanying notes to financial statements.





4



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Human Pheromone Sciences, Inc.

Statements of Cash Flows

(unaudited)









|                                                     |  |                                 |       |  |      |   |      
|---------------------------------------------------- |  | ------------------------------- | ----- |  | ---- | - | -----
|                                                     |  | Nine months ended September 30,
|(in thousands)                                       |  | 2007                            |       |  | 2006
|                                                     |  |                                 |       |  |      |   |      
|                                                     |  |                                 |       |  |      |   |      
|Cash flows from operating activities                 |  |                                 |       |  |      |   |      
|Net loss                                             |  | $                               | (54)  |  |      | $ | (177)
|                                                     |  |                                 |       |  |      |   |      
|Adjustments to reconcile net loss to net cash        |  |                                 |       |  |      |   |      
|provided by (used in) operating activities:          |  |                                 |       |  |      |   |      
|Depreciation and amortization                        |  |                                 | 3     |  |      |   | 4    
|Stock option compensation                            |  |                                 | 69    |  |      |   | 37   
|Changes in operating assets and liabilities:         |  |                                 |       |  |      |   |      
|Accounts receivable                                  |  |                                 | (21)  |  |      |   | (220)
|Inventories, net                                     |  |                                 | (2)   |  |      |   | 2    
|Other current assets                                 |  |                                 | (17)  |  |      |   | 3    
|Accounts payable and accrued liabilities             |  |                                 | 10    |  |      |   | 2    
|Deferred revenue                                     |  |                                 | (378) |  |      |   | 1,693
|                                                     |  |                                 |       |  |      |   |      
|Net cash provided by (used in) operating activities  |  |                                 | (390) |  |      |   | 1,344
|                                                     |  |                                 |       |  |      |   |      
|                                                     |  |                                 |       |  |      |   |      
|Cash flows used in investing activities              |  |                                 |       |  |      |   |      
|Purchase of equipment                                |  |                                 | (1)   |  |      |   | -    
|Net cash used in investing activities                |  |                                 | (1)   |  |      |   | -    
|                                                     |  |                                 |       |  |      |   |      
|                                                     |  |                                 |       |  |      |   |      
|                                                     |  |                                 |       |  |      |   |      
|Cash flows used in financing activities              |  |                                 | -     |  |      |   | -    
|Net cash used in financing activities                |  |                                 | -     |  |      |   | -    
|                                                     |  |                                 |       |  |      |   |      
|                                                     |  |                                 |       |  |      |   |      
|Net increase (decrease) in cash and cash equivalents |  |                                 | (391) |  |      |   | 1,344
|Cash and cash equivalents at beginning of period     |  |                                 | 1,941 |  |      |   | 452  
|Cash and cash equivalents at end of period           |  | $                               | 1,550 |  |      | $ | 1,796
|                                                     |  |                                 |       |  |      |   |      











|                                               
|-----------------------------------------------
|See accompanying notes to financial statements.







5



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Human Pheromone Sciences, Inc.

Notes to Financial Statements

(unaudited)

September 30, 2007





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 three and nine months ended September 30, 2007 are not necessarily indicative of the results that may be expected for the calendar year ending December 31, 2007. 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, 2006.



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 Revenue Recognition in Financial Statements, No. 104 Revenue Recognition and EITF No. 00-21 Revenue Arrangements with Multiple Deliverables.  The majority of the Companys sales are to distributors and licensees, and these distributors and licensees have no right to return products.



In addition to the aforementioned general policy, we enter into transactions that represent multiple-element arrangements, which may include post signing training and technical support to our licensees as needed to assist them in the use of our products and integration into their product development.  Multiple-element arrangements are assessed to determine whether they can be separated into more than one unit of accounting.  A multiple-element arrangement is separated into more than one unit of accounting if all of the following criteria are met.



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



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



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









6



---







If these criteria are not met, then license revenues are deferred until such criteria are met or until the period(s) over which the last undelivered element is delivered.  If there is objective and reliable evidence of fair value for all units of accounting in an arrangement, the consideration is allocated to the separate units of accounting based on each units relative fair value. A portion of the initial payment received as part of a license agreement is being recognized as milestones are achieved towards fulfillment of the license agreement terms, based on interpretative guidance provided by EITF No. 00-21.

Inventories



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





|                                       |  |               |      |              |   |     
|-------------------------------------- |  | ------------- | ---- | ------------ | - | ----
|                                       |  | September 30, |      | December 31,
|                                       |  | 2007          |      | 2006        
|                                       |  | (unaudited)   |      |              |  
|Components (raw materials)             |  | $             | 83   |              | $ | 83  
|Finished goods                         |  |               | 28   |              |   | 30  
|Reserve for shrinkage and obsolescence |  |               | (35) |              |   | (38)
|                                       |  | $             | 76   |              | $ | 75  







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 and nine months ended September 30, 2007, options to purchase 700,000 shares of common stock, and for the nine months ended September 30, 2006, options to purchase 630,000 shares of common stock, were excluded from the computation of diluted earnings per share since their effect would be antidilutive.



As of September 30, 2007 and 2006, the unaudited components of basic and diluted earnings per share are as follows (in thousands):





|                                                                                    |  |                                   |       |                                  |   |       |  |      |       |  |   |      
|----------------------------------------------------------------------------------- |  | --------------------------------- | ----- | -------------------------------- | - | ----- |  | ---- | ----- |  | - | -----
|                                                                                    |  | Three months ending
September 30, |       | Nine months ending
September 30,
|                                                                                    |  | 2007                              |       | 2006                             |   | 2007  |  | 2006
|                                                                                    |  |                                   |       |                                  |   |       |  |      |       |  |   |      
|Net income (loss) available to common shareholders (unaudited)                      |  | $                                 | (93)  |                                  | $ | 49    |  | $    | (54)  |  | $ | (177)
|                                                                                    |  |                                   |       |                                  |   |       |  |      |       |  |   |      
|Weighted-average common shares outstanding during the period                        |  |                                   | 4,152 |                                  |   | 4,152 |  |      | 4,152 |  |   | 4,152
|                                                                                    |  |                                   |       |                                  |   |       |  |      |       |  |   |      
|Incremental shares from assumed conversions of  stock options                       |  |                                   | -     |                                  |   | 689   |  |      | -     |  |   | -    
|                                                                                    |  |                                   |       |                                  |   |       |  |      |       |  |   |      
|Fully diluted weighted-average common shares and potential common stock (unaudited) |  |                                   | 4,152 |                                  |   | 4,841 |  |      | 4,152 |  |   | 4,152







7



---







Capital Stock and Stock Options



During the nine months ended September 30, 2007, no common stock or preferred stock was issued.  During the quarter ended September 30, 2007, no options to purchase shares of common stock were granted under the 2003 Non-Employee Directors Stock Option Plan.  No issued options were exercised during the nine months ended September 30, 2007; and 9,999 stock options expired under the expired 1990 Stock Option Plan.



The Company adopted SFAS 123 (R) Share-Based Payment, 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.



The Company does not record the stock compensation expense net of taxes since there was no material provision for income taxes for the periods ended September 30, 2007 and 2006 as the Company incurred net operating losses for which no benefit was recognized, or utilized tax loss carryforwards.  The tax benefit is a component of the deferred tax asset disclosed in the income taxes footnote.



|                                                                  |  |                    |  |                   
|----------------------------------------------------------------- |  | ------------------ |  | ------------------
|Stock Option Grants                                               |  | 2007 Option
Grants |  | 2006 Option
Grants
|                                                                 
|Weighted average interest rates                                   |  | 4.7%               |  | 5.1%              
|Dividend yield                                                    |  | 0.0%               |  | 0.0%              
|Volatility factor of the Companys common stock                   |  | 246.0%             |  | 180.0%            
|Forfeiture factor  Nonstatutory Stock Option Agreements          |  | -                  |  | 5.0%              
|Forfeiture factor  2003 Non-Employee Directors Stock Option Plan |  | -                  |  | -                 
|Weighted average expected life                                    |  | 7 years            |  | 7 years           



The Company recorded $13,000 and $16,000 of employee and non-employee compensation expense for stock options during the three months ended September 30, 2007, respectively, and $12,000 and $8,000 of employee and non-employee compensation expense for stock options during the three months ended September 30, 2006, respectively.  The Company recorded $39,000 and $30,000 of employee and non-employee compensation expense for stock options during the nine months ended September 30, 2007, respectively, and $16,000 and $21,000 of employee and non-employee compensation expense for stock options during the nine months ended September 30, 2006, respectively.  At September 30, 2007, there was $78,000 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 eight months.





Nonstatutory Stock Option Agreements



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







8



---





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



|                                     |  |                                        |  |                                       |  |        |  |                                 | 
|------------------------------------ |  | -------------------------------------- |  | ------------------------------------- |  | ------ |  | ------------------------------- | 
|Nonstatutory Stock Option Agreements |  | Three months ending
September 30, 2007 |  | Nine months ending
September 30, 2007
|                                     |  | Shares                                 |  | Weighted
Average
Exercise
Price       |  | Shares |  | Weighted
Average
Exercise
Price
|Outstanding, beginning of period     |  | 330                                    |  | $    0.32                             |  | 330    |  | $       0.32                   
|Options Granted                      |  | -                                      |  | -                                     |  | -      |  | -                              
|Canceled or Expired                  |  | -                                      |  | -                                     |  | -      |  | -                              
|Outstanding, September 30, 2007      |  | 330                                    |  | $    0.32                             |  | 330    |  | $       0.32                   



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



|                                              |  |                                        |  |                                       |  |        |  |                                 | 
|--------------------------------------------- |  | -------------------------------------- |  | ------------------------------------- |  | ------ |  | ------------------------------- | 
|Nonstatutory Stock Options
Non-vested Options |  | Three months ending
September 30, 2007 |  | Nine months ending
September 30, 2007
|                                              |  | Shares                                 |  | Weighted
Average
Exercise
Price       |  | Shares |  | Weighted
Average
Exercise
Price
|Outstanding, beginning of period              |  | 151                                    |  | $    0.32                             |  | 234    |  | $    0.32                      
|Options Granted                               |  | -                                      |  | -                                     |  | -      |  | -                              
|Vested                                        |  | (41)                                   |  | $    0.32                             |  | (124)  |  | $    0.32                      
|                                              |  |                                        |  |                                       |  |        |  |                                
|Outstanding, September 30, 2007               |  | 110                                    |  | $    0.32                             |  | 110    |  | $    0.32                      





Non-Employee Directors Stock Option Plan (Directors Plan)



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



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



|                                 |  |                                        |  |                                       |  |        |  |                                 | 
|-------------------------------- |  | -------------------------------------- |  | ------------------------------------- |  | ------ |  | ------------------------------- | 
|Non-Employee Directors Plan     |  | Three months ending
September 30, 2007 |  | Nine months ending
September 30, 2007
|                                 |  | Shares                                 |  | Weighted
Average
Exercise
Price       |  | Shares |  | Weighted
Average
Exercise
Price
|Outstanding, beginning of period |  | 50                                     |  | $    1.13                             |  | 60     |  | $        1.83                  
|Options Granted                  |  | -                                      |  | -                                     |  | -      |  | -                              
|Canceled or Expired              |  | -                                      |  | -                                     |  | (10)   |  | $        5.34                  
|Outstanding, September 30, 2007  |  | 50                                     |  | $    1.13                             |  | 50     |  | $        1.13                  



At September 30, 2007, no shares of the Companys common stock were reserved for future grants under the Directors Plan, and all options to purchase 50,000 shares were exercisable, at a weighted average exercise price of $1.13.





9



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2003 Non-Employee Directors Stock Option Plan



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



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





|                                  |  |                                        |  |                                       |  |        |  |                                 | 
|--------------------------------- |  | -------------------------------------- |  | ------------------------------------- |  | ------ |  | ------------------------------- | 
|2003 Non-Employee Directors Plan |  | Three months ending
September 30, 2007 |  | Nine months ending
September 30, 2007
|                                  |  | Shares                                 |  | Weighted
Average
Exercise
Price       |  | Shares |  | Weighted
Average
Exercise
Price
|Outstanding, beginning of period  |  | 320                                    |  | $    0.48                             |  | 240    |  | $    0.36                      
|Options Granted                   |  | -                                      |  | -                                     |  | 80     |  | $    0.82                      
|Canceled or Expired               |  | -                                      |  | -                                     |  | -      |  | -                              
|Outstanding, September 30, 2007   |  | 320                                    |  | $    0.48                             |  | 320    |  | $    0.48                      





At September 30, 2007, 280,000 shares of the Companys common stock were reserved for future grants under the 2003 Non-Employees Directors Plan, and options to purchase 267,000 shares were exercisable, at a weighted average exercise price of $0.41.



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





|                                                      |  |                                        |  |                                       |  |        |  |                                 | 
|----------------------------------------------------- |  | -------------------------------------- |  | ------------------------------------- |  | ------ |  | ------------------------------- | 
|2003 Non-Employee  Directors Plan
Non-vested Options |  | Three months ending
September 30, 2007 |  | Nine months ending
September 30, 2007
|                                                      |  | Shares                                 |  | Weighted
Average
Exercise
Price       |  | Shares |  | Weighted
Average
Exercise
Price
|Outstanding, beginning of period                      |  | 73                                     |  | $   0.82                              |  | 25     |  | $    0.32                      
|Options Granted                                       |  | -                                      |  | -                                     |  | 80     |  | $    0.82                      
|Vested                                                |  | (20)                                   |  | $   0.82                              |  | (52)   |  | $    0.58                      
|                                                      |  |                                        |  |                                       |  |        |  |                                
|Outstanding, September 30, 2007                       |  | 53                                     |  | $   0.82                              |  | 53     |  | $    0.82                      







10



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INCOME TAXES



A provision for income taxes for the nine month period ended September 30, 2007 was recorded for minimum tax liabilities incurred, and additional taxes paid upon filing of the 2006 tax returns.  For the period ending 2006, the minimum tax liabilities were recorded as administrative expenses 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 (in thousands):



|                                                    |  |  |  |                                  |       |             |   |     
|--------------------------------------------------- |  |  |  | -------------------------------- | ----- | ----------- | - | ----
|                                                    |  |  |  | Nine months ending
September 30,
|                                                    |  |  |  | 2007                             |       | 2006       
|                                                    |  |  |  | (unaudited)                      |       | (unaudited)
|Federal tax (benefit) at the federal statutory rate |  |  |  | $                                | (17)  |             | $ | (60)
|Other differences                                   |  |  |  |                                  | (148) |             |   | (17)
|Permanent differences                               |  |  |  |                                  | -     |             |   | -   
|Increase in valuation allowance                     |  |  |  |                                  | 165   |             |   | 77  
|Income tax benefits                                 |  |  |  | $                                | -     |             | $ | -   



At September 30, 2007, the Company had federal net operating loss carryforwards of approximately $16,812,000.  The Company also had federal and state research and development tax carryforwards of approximately $176,000.  The net operating loss and credit carryforwards will expire between 2007 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):



|                                            |  |               |         |              |   |        
|------------------------------------------- |  | ------------- | ------- | ------------ | - | -------
|                                            |  | September 30, |         | December 31,
|                                            |  | 2007          |         | 2006        
|                                            |  | (unaudited)   |         |              |  
|Deferred tax asset:                         |  |               |         |              |   |        
|Net operating loss carryforwards            |  | $             | 6,115   |              | $ | 5,667  
|Research credit carryforwards               |  |               | 176     |              |   | 227    
|Reserves and accruals                       |  |               | 626     |              |   | 751    
|Other, net                                  |  |               | (203)   |              |   | (103)  
|Valuation allowance for deferred tax assets |  |               | (6,714) |              |   | (6,542)
|Net deferred tax assets                     |  | $             | -       |              | $ | -      



The Company adopted the provisions of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes (FIN No. 48) and FASB Interpretation No. 48-1 Definition of Settlement inFASBInterpretation No. 48 (FIN No. 48-1),on January 1, 2007. 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 $172,000 in first nine months of 2007. The valuation allowance was established because the Company was not able to determine that it is more likely than not that the deferred tax asset will be realized.



The Company believes that all of its tax positions are sustainable and that no significant adjustment to its unrecognized tax benefits is expected.  The majority of the unrecognized tax benefits relates to positions where only the timing of a deduction item is in question. Such liabilities are offset by deferred tax assets and the only effect on the Company's statements of operations relates to the interest accrued on such liabilities.



The Company files U.S. federal income tax returns and state income tax returns in California, New Jersey, New York, Pennsylvania and Utah. Because of the net operating loss carryforwards available to the Company, Federal tax returns filed for tax years 1991 to 1995, 1997 to 2000 and 2002 to 2006 are subject to examination.   Tax returns for California, New Jersey, New York, and Pennsylvania for these jurisdictions remain subject to examination by the relevant taxing authorities for tax years ended on or after December 31, 2000.  The initial tax return for Utah was filed for the year ending December 31, 2006 and will be subject to examination by the relevant taxing authorities.



The Company did not recognize any change to retained earnings upon adoption of FIN No. 48 and FIN No. 48-1





11



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2.    SEGMENT INFORMATION



Sales by geographic markets for the three and nine months ended September 30, 2007 and 2006 were as follows (in thousands):





|                            |  |                                   |     |                                   |   |             |  |             |     |  |   |    
|--------------------------- |  | --------------------------------- | --- | --------------------------------- | - | ----------- |  | ----------- | --- |  | - | ---
|                            |  | Three months ending September 30, |     | Nine months ending  September 30,
|                            |  | 2007                              |     | 2006                              |   | 2007        |  | 2006       
|                            |  | (unaudited)                       |     | (unaudited)                       |   | (unaudited) |  | (unaudited)
|Markets:                    |  |                                   |     |                                   |   |             |  |             |     |  |   |    
|U.S Markets                 |  | $                                 | 7   |                                   | $ | 288         |  | $           | 330 |  | $ | 536
|International Markets       |  |                                   | 75  |                                   |   | 20          |  |             | 160 |  |   | 222
|Net product revenue         |  |                                   | 82  |                                   |   | 308         |  |             | 490 |  |   | 758
|                            |  |                                   |     |                                   |   |             |  |             |     |  |   |    
|License revenue (worldwide) |  |                                   | 157 |                                   |   | 57          |  |             | 412 |  |   | 57 
|                            |  |                                   |     |                                   |   |             |  |             |     |  |   |    
|Net Sales                   |  | $                                 | 239 |                                   | $ | 365         |  | $           | 902 |  | $ | 815





3.    NEW ACCOUNTING PRONOUNCEMENTS



In February 2007, the FASB released SFAS No. 159, Fair Value Option for Financial Assets and Financial Liabilities  Including an amendment of FASB Statement No. 115. SFAS No. 159 permits entities to choose to measure many financial instruments and certain other items at fair value.  The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. This statement is effective for fiscal years beginning after November 15, 2007.  Management does not believe the adoption of SFAS No. 159 will have a material impact on the Company's financial position or results of operations.





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



The Companys discussion and analysis of its financial conditions and results of operations are based upon financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America.  The preparation of financial statements requires management to make estimates and judgments that affect the reported amounts of assets and liabilities, revenues and expenses and disclosures on the date of the financial statements.  On an on-going basis, we evaluate our estimates, including, but not limited to, those related to revenue recognition and license fees.  We use authoritative pronouncements, historical experience and other assumptions as the basis for making judgments.  Actual results could differ from those estimates.  We believe that the following critical accounting policies affect our more significant judgments and estimates in the preparation of our financial statements.





12



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Stock Option Policy



The Company adopted SFAS 123 (R) Share-Based Payment, 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 adjusts compensation expense by a forfeiture factor based on historical experience. The fair value of each option grant is recognized as compensation expense over the vesting period of the option on a straight line basis.



The Company did not record the stock compensation expense net of taxes since there was no material provision for income taxes for the periods ended September 30, 2007 and 2006 as the Company incurred net operating losses for which no benefit was recognized, or utilized tax loss carryforwards.  The tax benefit is a component of the deferred tax asset disclosed in the income taxes footnote.





Use of Estimates



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





Revenue Recognition



Revenue is recorded at the time of merchandise shipment, net of provisions for returns.  The Company records revenues from sales initiated by sales agents, net of the sales commissions earned following the interpretative guidance provided by FASB Emerging Issue Task Force (EITF) EITF No. 99-19 Reporting Revenue Gross as a Principal versus Net as an Agent. License fees are earned over the license period according to the terms of the license agreement and interpretative guidance provided by Staff Accounting Bulletin (SAB) No. 101 Revenue Recognition in Financial Statements, No. 104 Revenue Recognition and EITF No. 00-21 Revenue Arrangements with Multiple Deliverables.  The majority of the Companys sales are to distributors and licensees, and these distributors and licensees have no right to return products.

In addition to the aforementioned general policy, we enter into transactions that represent multiple-element arrangements, which may include post signing training and technical support to our licensees as needed to assist them in the use of our products and integration into their product development.  Multiple-element arrangements are assessed to determine whether they can be separated into more than one unit of accounting.  A multiple-element arrangement is separated into more than one unit of accounting if all of the following criteria are met.

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



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



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

If these criteria are not met, then license revenues are deferred until such criteria are met or until the period(s) over which the last undelivered element is delivered.  If there is objective and reliable evidence of fair value for all units of accounting in an arrangement, the consideration is allocated to the separate units of accounting based on each units relative fair value. A portion of the initial payment received as part of a license agreement is being recognized as milestones are achieved towards fulfillment of the license agreement terms, based on interpretative guidance provided by EITF No. 00-21.





13



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Income Taxes



Deferred income taxes are provided using the liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carryforwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.



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



Interest and penalties associated with unrecognized tax benefits are classified as interest expense and additional income taxes in the statements of operations.





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 September 30, 2007 compared to the Three Months ended September 30, 2006



Net revenue for the quarters ended September 30, 2007 and 2006 were as follows (in thousands):



|                                |  |                                   |     |             |   |    
|------------------------------- |  | --------------------------------- | --- | ----------- | - | ---
|                                |  | Three months ending September 30,
|                                |  | 2007                              |     | 2006       
|                                |  | (unaudited)                       |     | (unaudited)
|Net product revenue by markets: |  |                                   |     |             |   |    
|U.S. markets                    |  | $                                 | 7   |             | $ | 288
|International markets           |  |                                   | 75  |             |   | 20 
|Net product revenue             |  |                                   | 82  |             |   | 308
|                                |  |                                   |     |             |   |    
|License revenue (worldwide)     |  |                                   | 157 |             |   | 57 
|                                |  |                                   |     |             |   |    
|Net Revenues                    |  | $                                 | 239 |             | $ | 365







14



---





Total revenues for the quarter ended September 30, 2007 were $239,000, representing a 35% decrease from the prior years revenues of $365,000.  The $126,000 decrease in total revenues was due to $279,000 reduction in domestic product revenues to our primary customer which expanded into international markets in 2006 and did not have similar purchase requirements this year, with increases in International product revenues and license revenues.  International sales of $75,000 were $55,000 more than 2006 sales of $20,000 due to increased orders from Latin America and Asian markets.   License revenue for the third quarters of 2007 and 2006 were $157,000 and $57,000, respectively, an increase of $100,000.



|                              |  |                                   |     |                |   |    
|----------------------------- |  | --------------------------------- | --- | -------------- | - | ---
|                              |  | Three months ending September 30,
|                              |  | 2007                              |     | 2006          
|                              |  | (unaudited)                       |     | (unaudited)   
|                              |  | (in thousands)                    |     | (in thousands)
|Gross Profit by Revenue Type: |  |                                   |     |                |   |    
|Net product revenue           |  | $                                 | 60  |                | $ | 267
|License revenue               |  |                                   | 85  |                |   | 30 
|Gross Profit                  |  | $                                 | 145 |                | $ | 297



Gross profit for the quarter ended September 30, 2007 of $145,000 is 51% less than last years gross profit of $297,000.  As a percentage of revenues, gross margin of 61% was less than last years gross margin of 81%.  Gross margin on product revenues decreased in 2007 due to the reduced sales of higher margin products during the quarter.  To fulfill a portion of the license agreement terms with Personal Products Company (PPC), expenses associated with the PPC work have been included as cost of goods sold to offset the revenue recorded which results in a reduced overall gross margin.  The license revenue margin improved slightly as our second licensee has minimal costs associated with this agreement.



Research and development expenses for the third quarters of 2007 and 2006 were $10,000 and $29,000, respectively.  Research expenditures of $49,000 that were incurred in 2007, and $17,000 incurred in 2006, to support the PPC license have been charged as cost of goods sold. The total research and development costs incurred for the quarters, including the amount recorded as license costs, was $59,000 for the three months ended September 30, 2007, which was $13,000 more than the prior years $46,000.  Increased rent and consultant costs accounted for the increased research and development spending.  Research and development on several new compounds, in addition to the two compounds noted in the PPC license, is on-going at a reduced funding level.



Selling, general and administrative expenses of $240,000 are $13,000 more than last years $227,000.  Selling, marketing and distribution expenses were $2,000 more than the prior year due to costs associated with changing of our fulfillment center for direct marketing orders.  General and administrative and facility costs increased by $13,000, with increases in audit and tax fees and stock option compensation costs being somewhat offset by expenditures to support the PPC license being charged as cost of goods sold rather than to general and administrative expenses.



The Company earned $16,000 in net interest income during the three months ending September 30, 2007 and $8,000 for the three months ending September 30, 2006.  The increased earnings were due to the Companys cash increases resulting from the $1,750,000 payment upon signing the PPC license agreement in August 2006.



Nine Months ended September 30, 2007 as compared to the Nine Months ended September 30, 2006



Net revenues for the Nine months ended September 30, 2007 and 2006 were as follows (in thousands):



|                                |  |                                  |     |                |   |    
|------------------------------- |  | -------------------------------- | --- | -------------- | - | ---
|                                |  | Nine months ending September 30,
|                                |  | 2007                             |     | 2006          
|                                |  | (unaudited)                      |     | (unaudited)   
|                                |  | (in thousands)                   |     | (in thousands)
|Net product revenue by markets: |  |                                  |     |                |   |    
|U.S. markets                    |  | $                                | 330 |                | $ | 536
|International markets           |  |                                  | 160 |                |   | 222
|Net product revenue             |  |                                  | 490 |                |   | 758
|                                |  |                                  |     |                |   |    
|License revenue (worldwide)     |  |                                  | 412 |                |   | 57 
|Net Revenues                    |  | $                                | 902 |                | $ | 815





15



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Net revenues for the nine months ended September 30, 2007 were $902,000.  This was an 11% increase from net revenues of $815,000 for the nine months of 2006.The increase in total revenues was due to the $355,000 license revenues attributed to the our two license agreements, Personal Products Company (PPC), a division of McNeil-PPC, Inc. (a Johnson & Johnson company) license agreement signed in August 2006 and Schwarzkopf & Henkel, a division of Henkel Consumer Goods, Inc.  Net product revenues of $490,000 for the nine months ending September 30, 2007 was $268,000 less than last years $758,000  for the comparable period.  Domestically, revenues were $206,000 less than the prior years $536,000.  A new specialty retailers initial order was not able to offset the decrease in revenues from our primary customers who expanded into new territories in 2006 and did not require similar quantities in 2007.  Since the Company is not always aware of its customers manufacturing and marketing plans, revenue fluctuations will occur.   International revenues were $62,000 less than the prior year due to decreased sales in the Asian private label markets.



|                              |  |                                  |     |                |   |     | 
|----------------------------- |  | -------------------------------- | --- | -------------- | - | --- | 
|                              |  | Nine months ending September 30,
|                              |  | 2007                             |     | 2006          
|                              |  | (unaudited)                      |     | (unaudited)   
|                              |  | (in thousands)                   |     | (in thousands)
|Gross Profit by Revenue Type: |  |                                  |     |               
|Net product revenue           |  | $                                | 411 |                | $ | 606
|License revenue               |  |                                  | 214 |                |   | 30 
|Gross Profit                  |  | $                                | 625 |                | $ | 636



Gross profit for the first nine months of 2007 decreased slightly to $625,000 from $636,000 in 2006.  The decreased gross profit is the result of the reduced product revenues from higher margin products.  Gross margin decreased to 69% compared to 78% in 2006 due to the decreased revenues from higher margin products.



Research and development expenses for the first nine months of 2007 and 2006 were $38,000 and $88,000, respectively.  Research expenditures of $116,000 that were incurred in 2007, and $17,000 incurred in 2006, to support the PPC license have been charged as cost of goods sold. The total research and development cost incurred for the current year, including the amount recorded as license costs, was $154,000 which was $49,000 more than the prior years $105,000.  The increase of the research expenditures was the result of the Company completing and filing with the U.S. Patent Office a Provisional Patent Application for a new compound and continuing to invest in the compounds that have yielded encouraging results and .



Selling, general and administrative expenses for the nine months ended September 30, 2007 were $686,000 and $734,000 for the nine months ended September 30, 2006, a $48,000 reduction.  Selling, marketing and distribution expenses are $27,000 less than the prior year as the Company continues to focus on product licensing which is less capital intensive than direct product marketing and sales.    General and administrative and facility costs decreased by $21,000 as expenditures to support the PPC license being charged as cost of goods sold rather than to general and administrative expenses offset increased audit and tax service fees and stock option compensation expenses.



The Company earned $50,000 and $9,000 in net interest income during the nine months ending September  30, 2007 and 2006, respectively.  The increased earnings were due to the Companys increased cash resulting from the $1,750,000 payment upon signing the PPC license agreement in August 2006.



The Company recorded a $5,000 tax provision in 2007, $2,000 for the current year minimum tax provision and $3,000 paid upon filing of the 2006 corporate tax returns.  A minimum tax provision is 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 September 30, 2007, the Companys gross deferred tax asset, which relates primarily to net operating losses carried forward was $6,714,000.  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.







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LIQUIDITY AND CAPITAL RESOURCES



At September 30, 2007, the Company had cash and accounts receivables of $1,610,000 and current liabilities, net of the current portion of deferred revenue, of $155,000 with no outstanding bank borrowings.  At December 31, 2006, it had cash and accounts receivables of $1,980,000 and current liabilities, net of the current portion of deferred revenue, of $144,000 with no outstanding bank borrowings.  For the nine months ending September 30, 2007, cash used for on-going activities was $410,000 as compared with the prior years $406,000.  Increased audit, corporate compliance requirements and legal fees for patent application work have resulted in increased cash use in 2007 which have been somewhat offset by reductions in other areas.





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



The Companys marketing strategy may not be successful. The Company may not be able to establish and maintain the necessary sales and distribution channels, even if funding is obtained.  Consumer product companies may choose not to license or private label the Companys products.



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



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



The Company may not be able to recruit and retain key personnel.  The Companys success substantially depends upon recruiting and retaining key employees and consultants with research, product development and marketing experience.  The Company may not be successful in recruiting and retaining these key people.



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









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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 September 30, 2007 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.







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PART II

OTHER INFORMATION







Item 1.  Legal Proceedings



The Company is not party to any pending legal proceedings.







Item 6.  Exhibits



Exhibits





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







Reports on Form 8-K



The Company filed Form 8-K on October 17, 2007 in connection with the filing of a Provisional Patent Application with the U.S. Patent and Trademark Office.





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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:  November 12, 2007

/s/ William P. Horgan

William P. Horgan

Chairman and Chief Executive Officer

(Principal Executive Officer)







Date:  November 12, 2007

/s/ Gregory S. Fredrick

Gregory S. Fredrick

Chief Financial Officer

(Principal Financial Officer and Principal Accounting Officer)











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