UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(MARK ONE)

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

For the quarterly period ended June 30, 2011

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIESEXCHANGE ACT OF 1934

Commission file number 000-23544

	HUMAN PHEROMONE SCIENCES, INC.
	(Exact name of registrant as specified in its charter)

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


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

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

	Not applicable
	(Former name, former address and former fiscal year, if changed since last report)

Indicate by checkmark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [ X ] No [ ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X ] No [ ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

[ ]

Accelerated filer

[ ]

Non-accelerated filer

[ ]

Smaller reporting company

[X]

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 4,151,954 shares of Common Stock as of August 5, 2011.

HUMAN PHEROMONE SCIENCES, INC.

INDEX

Page

PART I
FINANCIAL INFORMATION
	ITEM 1.	FINANCIAL STATEMENTS
		Balance Sheets as of June 30, 2011 (Unaudited) and December 31, 2010	3

		Statements of Operations (Unaudited) for the Three and Six Months Ended June 30, 2011 and 2010	4
		Statements of Cash Flows (Unaudited) for the Six Months Ended June 30, 2011 and 2010	5

		Notes to Financial Statements (Unaudited)	6



	ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION	12

	ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	18
	ITEM 4.	CONTROLS AND PROCEDURES	19


PART II
OTHER INFORMATION
	ITEM 1.	LEGAL PROCEEDINGS	20
	ITEM 1A.	RISK FACTORS	20
	ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	20
	ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	20
	ITEM 4.	(REMOVED AND RESERVED)	20
	ITEM 5.	OTHER INFORMATION	20
	ITEM 6.	EXHIBITS	20


SIGNATURES			21

PART I

FINANCIAL INFORMATION

Item 1. Financial Statements

Human Pheromone Sciences, Inc.

Balance Sheets

	June 30,			December 31,
(in thousands, except share data)	2011			2010 (1)
	(unaudited)
Assets

Current assets:
Cash and cash equivalents	$	106		$	92
Accounts receivable		76			108
Inventories		37			26
Other current assets		33			49
Total current assets		252			275

Total assets	$	252		$	275


Liabilities and Shareholders' Equity (Deficit)

Current liabilities:
Accounts payable	$	42		$	42
Current portion of deferred revenue		82			146
Advanced payment		100			-
Accrued professional fees		41			52
Accrued employee benefits		42			42
Accrued income taxes		2			2
Other accrued expenses		8			6
Total current liabilities		317			290

Non-current liabilities
Deferred revenue		-			24
Total liabilities		317			314

Commitments and Contingencies

Shareholders' deficit:
Common stock, no par value, 13,333,333 shares authorized,
4,151,954 shares issued and outstanding at each date		21,098			21,098
Accumulated deficit		(21,163	)		(21,137	)
Total shareholders' deficit		(65	)		(39	)
Total liabilities and shareholders’ deficit	$	252		$	275

See accompanying notes to financial statements.

(1) The balance sheet as of December 31, 2010 has been derived from the audited financial statements as of that date included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010.

Human Pheromone Sciences, Inc.

Statements of Operations

(unaudited)

	Three months ended June 30,						Six months ended June 30,
(in thousands except per share data)	2011			2010			2011			2010

Net revenues	$	124		$	186		$	310		$	371
Cost of goods sold		11			28			63			62

Gross profit		113			158			247			309

Operating Expenses:
Research and development		5			16			10			33
Selling, general and administrative		125			202			261			434
Total operating expenses		130			218			271			467

Loss from operations		(17	)		(60	)		(24	)		(158	)

Other expense
Interest expense, net		1			-			1			-
Total other expense		1			-			1			-

Net loss before provision for income taxes		(18	)		(60	)		(25	)		(158	)

Provision for income taxes		1			2			1			2

Net loss	$	(19	)	$	(62	)	$	(26	)	$	(160	)


Net loss per common share
Basic	$	(0 .00	)	$	(0 .01	)	$	(0 .01	)	$	(0 .04	)
Diluted	$	(0 .00	)	$	(0 .01	)	$	(0 .01	)	$	(0 .04	)


Weighted average common shares outstanding
Basic		4,152			4,152			4,152			4,152
Diluted		4,152			4,152			4,152			4,152

See accompanying notes to financial statements.

Human Pheromone Sciences, Inc.

Statements of Cash Flows

(unaudited)

	Six months ended June 30,
(in thousands)	2011			2010


Cash flows from operating activities
Net loss	$	(26	)	$	(160	)

Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization		-			1
Stock-based compensation		-			15
Changes in operating assets and liabilities:
Accounts receivable		32			30
Inventories		(10	)		4
Other current assets		15			8
Accounts payable and accrued liabilities		(9	)		(42	)
Deferred revenue		(88	)		(100	)
Advanced payments		100			-

Net cash provided by (used in) operating activities		14			(244	)


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


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


Net increase (decrease) in cash and cash equivalents		14			(244	)
Cash and cash equivalents at beginning of period		92			350
Cash and cash equivalents at end of period	$	106		$	106

See accompanying notes to financial statements.

Human Pheromone Sciences, Inc.

Notes to Financial Statements

(unaudited)

June 30, 2011

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,” or the “Company”.

The Company believes that human pheromones and other naturally-occurring compounds, identified, tested and funded by the Company, create unique product development and marketing opportunities for consumer product companies. Product categories include, but are not limited, to fragrances, toiletry and consumer products, as well as other types of consumer products that do not require Food and Drug Administration approval as pharmaceutical products. 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-Q and Article 8 of Regulation S-X. 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 six months ended June 30, 2011 are not necessarily indicative of the results that may be expected for the calendar year ending December 31, 2011. For further information, refer to the financial statements and footnotes thereto included in the Company’s annual report on Form 10-K for the year ended December 31, 2010.

Management’s Plans

The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company has incurred net losses of $26,000 in the six months ended June 30, 2011, and $97,000 and $284,000 for the years ended December 31, 2010 and 2009, respectively. In addition, the Company has used cash in operations of $86,000 in the six months ended June 30, 2011, and $258,000 and $557,000 for the years ended December 31, 2010 and 2009, respectively. As of June 30, 2011, the Company had an accumulated deficit of $21.2 million; cash and cash equivalents of $106,000 and no long-term debt.

Based on the Company’s current operating plans, management believes that the Company’s existing cash resources and cash forecasted by management to be generated by operations will not be sufficient to meet working capital and capital requirements through December 31, 2011. In this regard, the Company must be successful in its current licensing of its compounds or raise additional operating capital to fund continuing operations and support the further development of identified compounds. The Company has been working to secure the financing to continue with on-going operations, however, the Company may not be successful with its plans. If events and circumstances occur such that the Company does not meet its current operating plans, the Company is unable to raise sufficient additional equity or debt financing, the Company may be required to further reduce expenses or take other steps which could have a material adverse effect on its future performance, including but not limited to, the premature sale of some or all of its assets or product lines on undesirable terms, merger with or acquisition by another company on unsatisfactory terms, or the cessation of operations.

These factors raise a substantial doubt about the Company’s ability to continue as a going concern. The accompanying financial statements have been prepared on a going concern basis that contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The financial statements do not include adjustments relating to the recoverability of recorded asset amounts or the amounts or classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

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 revenue from sales initiated by sales agents, net of the sales commissions earned, following the interpretative guidance provided by FASB Accounting Standards Codification (ASC) Topic 605 – Revenue Recognition. License fees are earned over the license period according to the terms of the license agreement and interpretative guidance provided by ASC 605. The Company records multiple-element arrangements in accordance with ASC 605-25 Revenue Arrangements with Multiple Deliverables.

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

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

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

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

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

The Company’s agreement with Personal Products Company (hereinafter referred to as “PPC”) represents a multiple-element arrangement and includes post signing consulting support to PPC as needed to assist them in claims development and manufacturing processes, an exclusive right of first discussion for new compounds that the Company develops and for which the Company documents supportable claims of effectiveness, and an exclusive right to its existing patented compounds in specific consumer product fields. A portion of the initial payment received as part of the PPC agreement is being recognized as the Company incurs expenses and expends resources towards fulfilling the obligations to PPC, based on guidance provided by ASC 605-25.

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

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

	Three months ending June 30,				Six months ending June 30,
	2011		2010		2011		2010
	(unaudited)		(unaudited)		(unaudited)		(unaudited)
Right of first discussion	$	-	$	-	$	-	$	-
Exclusive license		29		32		75		86
Consulting services		-		-		-		-
Total	$	29	$	32	$	75	$	86

The deferred revenue from the PPC license agreement as of June 30, 2011 was $82,000.

The Company has granted two additional license agreements for the development, manufacture, sale and distribution of consumer personal care products using the Company’s patented technology. License fees received and attributed to these agreements are being recognized on a straight-line basis over the initial life of the license periods ranging from fifteen to thirty-six months.

A summary of the revenue recognized from these additional licenses and royalty revenues follows (in thousands):

	Three months ending June 30,				Six months ending June 30,
	2011		2010		2011		2010
	(unaudited)		(unaudited)		(unaudited)		(unaudited)
Royalty revenues	$	68	$	75	$	124	$	150
License fee		8		7		14		14
Total	$	76	$	82	$	138	$	164

The deferred revenue from these licenses has been completely recognized as of June 30, 2011.

Advanced Payment

On May 16, 2011 the Company and CrowdGather, Inc. (“CrowdGather”) entered into an Asset Purchase and License Agreement (the “Agreement”). Pursuant to the Agreement, the Company sold to CrowdGather the EROX registered trademark in the United States, Hong Kong and Switzerland and the erox.com domain name.

In addition, CrowdGather obtained the exclusive license to make, use, sell, distribute, or other wise commercially exploit rights for product containing a combination of the Company compounds (the “EROX Product”) marketed to adults solely through adult sex-based Internet distribution channels worldwide, with the exception of Taiwan, for the five-year term, which may be extended for an additional five (5) year period(s) upon mutual agreement of both parties.

Pursuant to the Agreement, the Company received a $100,000 payment upon execution of the Agreement, $50,000 as compensation for the assets acquired by CrowdGather and for the assistance the Company will provide for product development, manufacturing and fulfillment facilitation for their initial product (for which the Company will sell to CrowdGather its proprietary compounds). The remaining $50,000 advance payment received will be applied, at a future date, to acquire restricted common stock of the Company. Within 30 days of receipt of the EROX Product from the Company, CrowdGather shall accept the EROX Product or request changes to the EROX Product; not later than 60 days from the end of such thirty (30) day period CrowdGather agrees to apply $50,000 of the advance payment as the payment for the purchased assets and paid up development fee and the remaining $50,000 of the advanced payment fee will be converted into restricted common stock of the Company. The number of shares of the Company’s common stock to be issued to CrowdGather shall be calculated by dividing $50,000 by the closing price of the Company’s common stock on such sixtieth (60) day. If such day is not a trading day (a day on which the New York Stock Exchange is open for business) it shall be calculated by using the closing price the next such trading day.

Inventories

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

	June 30, 2011
	(unaudited)		December 31, 2010
Components (raw materials)	$	34	$	23
Finished goods		3		3
Total	$	37	$	26

Earnings (Loss) Per Share

The Company follows the provisions of SFAS No. 128, Earnings Per Share. SFAS No. 128 provides for the calculation of “Basic” and “Diluted” earnings per share. Basic earnings (loss) per share is computed using the weighted-average number of common shares outstanding. Diluted earnings (loss) per share is computed using the weighted-average number of common shares and dilutive common shares outstanding during the period. For the three months ended June 30, 2011 and 2010, options to purchase 837,000 and 907,000 shares of common stock, respectively, were excluded from the computation of diluted earnings per share since their effect would be antidilutive. For the six months ended June 30, 2011 and 2010, options to purchase 838,000 and 908,000 shares of common stock, respectively, were excluded from the computation of diluted earnings per share since their effect would be antidilutive.

As of June 30, 2011 and 2010, the unaudited components of basic and diluted earnings per share are as follows (in thousands):

	Three months ending June 30,						Six months ending June 30,
	2011			2010			2011			2010

Net income (loss) available to common shareholders (unaudited)	$	(19	)	$	(62	)	$	(26	)	$	(160	)

Weighted-average common shares outstanding during the period		4,152			4,152			4,152			4,152

Fully diluted weighted-average common shares and potential common stock (unaudited)		4,152			4,152			4,152			4,152

Capital Stock and Stock Options

During the six months ended June 30, 2011, no common stock or preferred stock was issued. During the six months ended June 30, 2010, 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 six months ended June 30, 2011 and 9,999 stock options expired under the expired 1990 Stock Option Plan.

The Company adopted ASC 718 “Compensation – Stock Compensation”, 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 adjusts 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 June 30, 2011 and 2010 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.

The Company did not have any employee or of non-employee compensation expense for stock options to record during the three months ended June 30, 2011, but did record $4,000 of employee and $4,000 of non-employee compensation expense for stock options during the three months ended June 30, 2010.

The Company did not have any employee or non-employee compensation expense for stock options during the six months ended June 30, 2011, but did record $8,000 of employee and $8,000 of non-employee compensation expense for stock options during the six months ended June 30, 2010. At June 30, 2011, there was no unrecognized compensation costs related to non-vested share-based compensation under the employee Nonstatutory Stock Option grants.

Nonstatutory Stock Option Agreements

In 2006 and 2008, the Company’s Board of Directors granted nonstatutory stock options to the officers and employees of the Company covering a total of 400,000 shares of common stock pursuant to Nonstatutory Stock Option Agreements. 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 Company’s common stock on the day of the grant.

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 June 30, 2011				Six months ending June 30, 2011
	Shares		Weighted Average Exercise Price		Shares		Weighted Average Exercise Price
Outstanding, beginning of period		400	$	0.34		400	$	0.34
Options Granted		-		-		-		-
Canceled or Expired		-		-		-		-
Outstanding, June 30, 2011		400	$	0.34		400	$	0.34

At June 30, 2011 all of the options to purchase 400,000 shares were exercisable.

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 upon director’s election to the board 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 Directors’ Plan has expired, but stock options issued under this Directors’ Plan are still outstanding.

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

Directors’ Plan	Three months ending June 30, 2011					Six months ending June 30, 2011
	Shares			Weighted Average Exercise Price		Shares			Weighted Average Exercise Price
Outstanding, beginning of period		20		$	0.33		20		$	0.33
Options Granted		-			-		-			-
Canceled or Expired		(10	)	$	0.54		(10	)	$	0.54
Outstanding, June 30, 2011		10		$	0.12		10		$	0.12

At June 30, 2011 all of the options to purchase 10,000 shares were exercisable.

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”). On June 20, 2007 the Board increased the maximum number of authorized shares of common stock which may be issued on exercise of the options granted pursuant to the 2003 Plan from 300,000 shares to 600,000 shares. The 2003 Plan expired on June 24, 2010. This plan replaces the Directors’ Plan which expired on June 13, 2003. The 2003 Plan provided 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.

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

2003 Plan	Three months ending June 30, 2011				Six months ending June 30, 2011
	Shares		Weighted Average Exercise Price		Shares		Weighted Average Exercise Price
Outstanding, beginning of period		420	$	0.48		420	$	0.48
Options Granted		-		-		-		-
Canceled or Expired		-		-		-		-
Outstanding, June 30, 2011		420	$	0.48		420	$	0.48

At June 30, 2011 all of the options to purchase 420,000 shares were exercisable.

Income Taxes

A provision for income taxes for the three month period ended June 30, 2011 was recorded for minimum tax liabilities incurred.

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 relate 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.

2. SEGMENT INFORMATION

Sales by geographic markets for the three and six months ended June 30, 2011 and 2010 were as follows (in thousands):

	Three months ending June 30,				Six months ending June 30,
	2011		2010		2011		2010
	(unaudited)		(unaudited)		(unaudited)		(unaudited)
Markets:
U.S. markets	$	19	$	59	$	77	$	80
International markets		-		13		20		41
Net product revenue		19		72		97		121

License revenue (worldwide)		105		114		213		250

Net sales	$	124	$	186	$	310	$	371

3. NEW ACCOUNTING PRONOUNCEMENTS

The Company has reviewed the recently issued Accounting Standard Updates and have determined that none of the recent pronouncements are currently applicable to the Company and therefore they are not anticipated to have a material effect on the financial position or results of operations of the Company. For a listing of new accounting pronouncements previously disclosed, see Form 10-K for the year ended December 31, 2010.

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 requirement this year for additional working capital to fund continuing operations which could include asset sales, new license opportunities, expectations for gross margins and additional cost savings measures. 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” in our annual report on Form 10-K for the year ended December 31, 2010, these risks and uncertainties may include consumer trends, business cycles, scientific developments and the ability to obtain additional working capital or successfully complete financing to support continuing operations. 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. The Company uses authoritative pronouncements, historical experience and other assumptions as the basis for making judgments. Actual results could differ from those estimates. The Company believes that the following critical accounting policies affect our more significant judgments and estimates in the preparation of our financial statements.

Stock Option Policy

The Company adopted ASC 718 “Compensation – Stock Compensation”, 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 period ended June 30, 2011 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 under the heading “Income Taxes” below.

Use of Estimates

Revenue Recognition

● 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.

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

The Company’s agreement with Personal Products Company (hereinafter referred to as “PPC”) represents a multiple-element arrangement and includes post signing consulting support to PPC as needed to assist them in claims development and manufacturing processes, an exclusive right of first discussion for new compounds that the Company develops and for which we document supportable claims of effectiveness, and an exclusive right to our existing patented compounds in specific consumer product fields. A portion of the initial payment received as part of the PPC agreement is being recognized as the Company incurs expenses and expends resources towards fulfilling the obligations to PPC, based on guidance provided by ASC 605-25.

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

	Three months ending June 30,				Six months ending June 30,
	2011		2010		2011		2010
	(unaudited)		(unaudited)		(unaudited)		(unaudited)
Right of first discussion	$	-	$	-	$	-	$	-
Exclusive license		29		32		75		86
Consulting services		-		-		-		-
Total	$	29	$	32	$	75	$	86

The deferred revenue from the PPC license agreement as of June 30, 2011 was $82,000.

A summary of the revenue recognized from these additional licenses and royalty revenues follows (in thousands):

	Three months ending June 30,				Six months ending June 30,
	2011		2010		2011		2010
	(unaudited)		(unaudited)		(unaudited)		(unaudited)
Royalty revenues	$	68	$	75	$	124	$	150
License fee		8		7		14		14
Total	$	76	$	82	$	138	$	164

The deferred revenue from these licenses has been completely recognized as of June 30, 2011.

Inventories

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

	June 30, 2011
	(unaudited)		December 31, 2010
Components (raw materials)	$	34	$	23
Finished goods		3		3
Total	$	37	$	26

Income Taxes

The Company accounts for income taxes under ASC 740 “Accounting for Income Taxes”. Deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carryforwards, and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities in the Company’s financial statements and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that all or some portion of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.

When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would ultimately be sustained. The benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more-likely-than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. The evaluation of a tax position taken is considered by itself and not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing 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 the Company directly manages 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. The Company has been unable to sustain profitability and will need additional financing to support our operations. The Company is looking at all sources of funding, raising capital, financing, asset sales and potential merger with desirable companies.

Results of Operations

Net revenue for the quarters ended June 30, 2011 and 2010 were as follows (in thousands):

	Three months ending June 30,
	2011		2010
	(unaudited)		(unaudited)
Net product revenue by markets:
U.S. markets	$	19	$	59
International markets		-		13
Net product revenue		19		72

License revenue (worldwide)		105		114

Net Revenues	$	124	$	186

Net revenues for the three months ending June 30, 2011 were $124,000, a $62,000, or 33%, decrease from the net revenues of $186,000 for the three months ending June 30, 2010. Domestic revenues for the three months ended June 30, 2011 were $19,000, a $40,000, or 68%, decrease from the domestic revenues of $59,000 for the three months ended June 30, 2010. The decrease in domestic revenues is attributable to reduced customer reorders and the timing of reorders as compared to the prior year. There were no revenues from international sales for the three months ended June 30, 2011 as compared to the revenues from international sales of $13,000 for the three months ended June 30, 2010. The decrease in international revenues is attributable to general economic conditions and customers carrying less inventory due to decreased demand. Neither the domestic nor international customers’ purchasing patterns are on a seasonal or cyclical pattern which results in inconsistent revenue.

License revenues for the three months ending June 30, 2011 and 2010 were $105,000 and $114,000, respectively, a decrease of $9,000 or 8%. The decrease is attributable to the decrease in license revenue generated from sales of hair products. The hair product licensee did not provide the Company with the royalties earned report by the cut-off date the Company requires for inclusion in the June 30, 2011 financial statements, therefore no revenue was reported for this licensee as it had been in the quarter ended June 30, 2011.. Any royalties earned for the three months ending June 30, 2011 will be recorded as license revenue in the following reporting period. The PPC license revenues from licensee fee amortization totaled $29,000 in the three months ending June 30, 2011, compared to the PPC license revenues from licensee fee amortization of $32,000 in the three months ending June 30, 2010. The additional licenses produced $76,000 of license revenue for the three months ending June 30, 2011 compared to $82,000 of license revenue for the three months ended June 30, 2010, the decreased revenues due, in part to the deferred hair care royalties reporting in this quarter.

Gross profit for the three months ended June 30, 2011 of $113,000 is $45,000 less than gross profit of $158,000 for the three months ended June 30, 2010. As a percentage of revenue, gross profit of 91% for the three months ended June 30, 2011 was more than gross profit of 85% for the three months ended June 30, 2010. The improved gross margin is based on the increased percentage of license revenue, which has no costs component, and the decreased product revenues in 2011 as compared to 2010. The increases in the higher margin license revenues are consistent with the Company’s goal of licensing of the technology being the core of Company’s business.

	Three months ending June 30,
	2011		2010
	(unaudited)		(unaudited)
Gross Profit by Revenue Type:
Net product gross profit	$	8	$	44
License gross profit		105		114
Total Gross Profit	$	113	$	158

Research and development expenses for the three months ended June 30, 2011 and 2010 were $5,000 and $16,000, respectively. Research expenditures have been curtailed, to the extent possible, until the Company’s liquidity issues have been resolved. Reductions in rent and consultant fees account accounted for the reduced research and development spending. However, patent costs associated with securing U.S. and international registrations for ER 303, our mood-enhancement compound, continues to be funded on an on-going basis.

Selling, general and administrative expenses for the three months ended June 30, 2011 of $125,000 are $77,000 less than the selling general and administrative expenses of $202,000 incurred for the three months ended June 30, 2010. Selling, marketing and distribution expenses were consistent with the prior year and general and administrative and facility costs decreased by $77,000. The decreases in costs are the result of decreased compensation and benefits, insurance and legal expenses.

The Company incurred $1,000 of net interest expense for the three months ended June 30, 2011 compared to no net interest income or expense during the three months ending June 30, 2010. The increase in net interest expense was due to the Company’s reduced interest income from a decrease in cash balances which was offsetting insurance premium financings in 2010.

The Company recorded a minimum tax provision of $1,000 for the three months ended June 30 and a minimum tax provision of $2,000 was recorded in the three month period ended June 30, 2010. The minimum tax provision was recorded 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.

Six Months ended June 30, 2011 as compared to the Six Months ended June 30, 2010

Net revenue for the six months ended June 30, 2011 and 2010 were as follows:

	Six months ending June 30,
	2011		2010
	(unaudited)		(unaudited)
Net product revenue by markets:
U.S. markets	$	77	$	80
International markets		20		41
Net product revenue		97		121

License revenue (worldwide)		213		250

Net Revenues	$	310	$	371

Net revenue for the six months ended June 30, 2011 was $310,000, a 16% decrease from net revenue of $371,000 for the six months ended June 30, 2010. Revenue from domestic product sales for the six months ended June 30, 2011 of $77,000 were $3,000 less than the $80,000 for the six months ended June 30, 2010. The decrease is primarily attributable to reduced sales to distributors of the Natural Attraction products. International revenues of $20,000 for the six months ended June 30, 2011 decreased by $21,000 from $41,000 the six months ending June 30, 010. The sales reduction was due to the reduced orders from a Latin America customer.

License revenues for the six months ending June 30, 2011 and 2010 were $213,000 and $250,000, respectively, a decrease of $37,000 or 15%. The decrease is attributable to most licensees reduced sales in the current six month period. The PPC license, from which license fee amortization revenues totaled $75,000 in the six months ending June 30, 2011, compared to $86,000 of license fee amortization revenues in the six months ending June 30, 2010. The additional licenses produced $138,000 for the six months ending June 30, 2011 compared to $164,000 of license revenue for the six months ended June 30, 2010, a $26,000, or 16%, decrease.

Gross profit for the six months ending June 30, 2011 decreased 20% to $247,000 from $309,000 for the six months ending June 30, 2010. Gross margins for the six months ended June 30, 2011 and 2010 were 80% and 83%, respectively. The decreased gross profit and gross margins is attributable to the sales mix for the first six months of the year with decreased revenues from the higher margin royalty and licensing revenues received from our established consumer product licensees.

	Six months ending June 30,
	2011		2010
	(unaudited)		(unaudited)
Gross Profit by Revenue Type:
Net product gross profit	$	47	$	79
License gross profit		200		230
Total Gross Profit	$	247	$	309

Research and development expenses for the six months ended June 30, 2011 and 2010 were $10,000 and $33,000, respectively. Research expenditures have been curtailed, to the extent possible, until the Company’s liquidity issues have been resolved. Reductions in rent and consultant fees account accounted for the reduced research and development spending. However, patent costs associated with securing U.S. and international registrations for ER 303, our mood-enhancement compound, continues to be funded on an on-going basis.

Selling, general and administrative expenses for the six months ending June 30, 2011 were 261,000 and $434,000 for the six months ending June 30, 2010, a $173,000 decrease. Selling, marketing and distribution expenses were consistent with the prior year as the Company continues to focus on product licensing which is less capital intensive and places the Company technology into consumer products and marketed by consumer product companies. General and administrative and facility costs decreased by $173,000 primarily due to reduced employee compensation and benefits, insurance, legal and accounting fees and rent.

The Company incurred $1,000 of net interest expense for the three months ended June 30, 2011 compared to no net interest income or expense during the three months ending June 30, 2010. The increase in net interest expense was due to the Company’s reduced interest income from a decrease in cash balances which has been offsetting the interest paid for insurance premiums.

The Company recorded a $1,000 and $2,000 minimum tax provisions for the six months ending June 30, 2011 and 2010, respectively, 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.

Off-Balance Sheet Arrangements.

None.

LIQUIDITY AND CAPITAL RESOURCES

At June 30, 2011, the Company had cash of $106,000, accounts receivable of $76,000 with no outstanding bank borrowings. At December 31, 2010, it had cash of $92,000 and accounts receivables of $108,000 with no outstanding bank borrowings. For the first six months of 2011, net cash used in on-going activities was $86,000 as compared to the prior year’s $244,000. The net cash used in operations for the first six months of 2011 was $158,000 less than the prior year.

Based on the Company’s current operating plans, management believes that the Company’s existing cash resources and cash forecasted by management to be generated by operations will not be sufficient to meet working capital and capital requirements through December 31, 2011. In this regard, the Company must be successful in its current licensing strategy of its compounds or raising additional operating capital to fund continuing operations and support the further development of identified compounds. The Company has been working to secure the financing to continue with on-going operations, however, the Company may not be successful with its plans. If events and circumstances occur such that the Company does not meet its current operating plans, the Company is unable to raise sufficient additional equity or debt financing, the Company may be required to further reduce expenses or take other steps which could have a material adverse effect on its future performance, including but not limited to, the premature sale of some or all of its assets or product lines on undesirable terms, merger with or acquisition by another company on unsatisfactory terms, or the cessation of operations.

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

Not required for smaller reporting companies.

Item 4. 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-Q, 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) were effective.

Changes in Internal Control Over Financial Reporting. There were no changes in our internal control over financial reporting identified in connection with our evaluation that occurred during the fiscal quarter ended June 30, 2011 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II

OTHER INFORMATION

Item 1. Legal Proceedings

The Company is not party to any pending legal proceedings.

Item 1A. Risk Factors

Not required for smaller reporting companies.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

In December 2007, the Board of Directors approved a stock repurchase program for the Company to buy back up to 400,000 shares of the Company’s common stock. No shares were repurchased in the quarter ended June 30, 2011.

Item 3. Defaults Upon Senior Securities

None.

Item 4. (Removed and Reserved)

Item 5. Other Information

None

Item 6. Exhibits

Exhibits

Exhibit31.1

Certification Pursuant to Section 302 of the Sarbanes-Oxley Act

Exhibit31.2

Certification Pursuant to Section 302 of the Sarbanes-Oxley Act

Exhibit32

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

101.INS*		XBRL Instance Document
101.SCH*		XBRL Taxonomy Extension Schema Document
101.CAL*		XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*		XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*		XBRL Taxonomy Extension Label Linkbase Document
101.PRE*		XBRL Taxonomy Extension Presentation Document

*XBRL (Extensible Business Reporting Language) information is furnished and not filed herewith, is not a part of a registration statement or Prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, and otherwise is not subject to liability under these sections.

SIGNATURES

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

	HUMAN PHEROMONE SCIENCES, INC.

Date: August 15, 2011		/s/ William P. Horgan
		William P. Horgan
		Chairman and Chief Executive Officer
		(Principal Executive Officer)



Date: August 15, 2011		/s/ Gregory S. Fredrick
		Gregory S. Fredrick
		Chief Financial Officer
		(Principal Financial Officer and Principal Accounting Officer)

HUMAN PHEROMONE SCIENCES INC 10-Q