U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(MARK ONE)
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarter ended September 30, 1998
------------------
[ ] TRANSITION REPORT UNDER SECTION 13 OR A5(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (no fee required)
Commission file number 0-23544
HUMAN PHEROMONE SCIENCES, INC.
------------------------------
(Name of small business issuer in its charter)
California 94-3107202
- ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. employee Identification No.)
incorporation or organization)
4034 Clipper Court, Fremont, California 94538
- ---------------------------------------- ------------------------------
(Address of principal executive offices) (Zip code)
Issuer's telephone number: (510) 226-6874
--------------
Check whether the Issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [ X ] No [ ]
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date. 10,289,488 shares of Common
Stock as of November 9, 1998.
Total Pages: 15
<PAGE>
<TABLE>
HUMAN PHEROMONE SCIENCES, INC.
INDEX
<CAPTION>
Page
----
PART I
FINANCIAL INFORMATION
<S> <C>
Item 1. Financial Statements
Condensed Balance Sheets (Unaudited) as of September 30, 1998
and December 31, 1997...........................................................................2
Statements of Operations (Unaudited) for the Three Months and Nine Months Ended
September 30, 1998 and 1997.....................................................................3
Condensed Statements of Cash Flows (Unaudited) for the Nine Months
Ended September 30, 1998 and 1997...............................................................4
Notes to Condensed Financial Statements (Unaudited).............................................5
Item 2. Management's Discussion and Analysis
Management's Discussion and Analysis of Financial Condition and Results of Operations...........6
PART II
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K................................................................11
SIGNATURES.......................................................................................................12
</TABLE>
<PAGE>
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
<PAGE>
<TABLE>
HUMAN PHEROMONE SCIENCES, INC.
Balance Sheets
<CAPTION>
September 30, December 31,
1998 1997
------------ ------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 26,205 $ 248,617
Accounts receivable, net of allowances of $554,978
and $822,813 in 1998 and 1997, respectively 2,037,047 3,084,784
Inventory 3,153,259 3,421,298
Other current assets 112,417 128,817
------------ ------------
Total current assets 5,328,928 6,883,516
Property and equipment, net 71,449 99,491
------------ ------------
$ 5,400,377 $ 6,983,007
============ ============
Liabilities and shareholders' equity
Loan payable, bank $ 1,305,390 $ 548,000
Accounts payable 952,706 800,648
Other accrued expenses 1,067,847 1,205,069
------------ ------------
Total current liabilities 3,325,943 2,553,717
Commitments -- --
Shareholders' equity:
Convertible preferred stock, issuable in series, no par value, 10,000,000
shares authorized, 1,433,333 shares issued and outstanding at September 30,
1998 and December 31, 1997, respectively 2,145,535 2,145,535
Common stock, no par value, 40,000,000 shares authorized,
10,289,488 shares issued and outstanding at September 30, 1998
and December 31, 1997, respectively 17,667,024 17,667,024
Accumulated deficit (17,738,125) (15,383,269)
------------ ------------
Total shareholders' equity 2,074,434 4,429,290
------------ ------------
$ 5,400,377 $ 6,983,007
============ ============
<FN>
See accompanying notes.
</FN>
</TABLE>
<PAGE>
<TABLE>
HUMAN PHEROMONE SCIENCES, INC.
Statements of Operations
<CAPTION>
Three months ended Nine months ended
---------------------------- ----------------------------
September 30, September 30,
---------------------------- ----------------------------
------------ ------------ ------------ ------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $ 2,312,805 $ 3,847,893 $ 7,581,223 $ 12,761,724
Cost of goods sold 885,391 1,095,898 2,556,664 2,985,541
------------ ------------ ------------ ------------
Gross profit 1,427,414 2,751,995 5,024,559 9,776,183
Expenses:
Research and development 107,751 86,844 290,199 251,700
Selling, general and administrative 1,502,715 2,356,938 7,062,857 12,941,739
------------ ------------ ------------ ------------
Total expenses 1,610,466 2,443,782 7,353,056 13,193,439
------------ ------------ ------------ ------------
Loss from operations (183,052) 308,213 (2,328,497) (3,417,256)
Interest income 58 15 220 12,486
Interest (expense) (16,658) (23,514) (38,127) (60,342)
Other (expense) 13,737 (34) 11,548 2,358
------------ ------------ ------------ ------------
Income (loss) before income taxes (185,915) 284,680 (2,354,856) (3,462,754)
Income taxes -- 10,489 -- 11,289
------------ ------------ ------------ ------------
Net income (loss) $ (185,915) $ 274,191 $ (2,354,856) $ (3,474,043)
============ ============ ============ ============
Net income (loss) per common share-basic $ (.02) $ .03 $ (.23) $ (.34)
============ ============ ============ ============
Net income (loss) per common share-
assuming dilution $ (.02) $ .03 $ (.23) $ (.34)
============ ============ ============ ============
Weighted average shares used in calculation
of net income (loss) per share 10,289,488 10,304,125 10,289,488 10,265,274
============ ============ ============ ============
Weighted average shares and equivalents,
if dilutive, used in calculation of net income
(loss)per common share 10,289,488 10,304,125 10,289,488 10,265,274
============ ============ ============ ============
<FN>
See accompanying notes.
</FN>
</TABLE>
<PAGE>
<TABLE>
HUMAN PHEROMONE SCIENCES, INC.
Statements of Cash Flows
<CAPTION>
Nine Months ended September 30,
--------------------------------
1998 1997
------------ -----------
<S> <C> <C>
Cash flows from operating activities
Net loss $(2,354,856) $(3,474,043)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization 49,838 48,040
Changes in operating assets and liabilities:
Accounts receivable 1,047,737 (436,007)
Inventory 268,039 (1,281,066)
Other current assets 16,400 (92,260)
Accounts payable and accrued liabilities 14,836 65,599
----------- -----------
Net cash generated by (used in) operating activities (958,006) (5,169,737)
Cash flows from investing activities
Purchase of property and equipment (21,796) (91,928)
----------- -----------
Net cash used in investing activities (21,796) (91,928)
Cash flows from financing activities
Proceeds from bank borrowings 757,390 772,149
Proceeds from issuance of preferred stock -- 2,150,000
Proceeds from issuance of common stock -- 292,289
----------- -----------
Net cash provided by financing activities 757,390 3,214,438
Net decrease in cash and cash equivalents (222,412) (2,047,227)
Cash and cash equivalents at beginning of the year 248,617 2,059,084
----------- -----------
Cash and cash equivalents at end of the period $ 26,205 $ 11,857
=========== ===========
<FN>
See accompanying notes.
</FN>
</TABLE>
<PAGE>
Human Pheromone Sciences, Inc.
Notes to Condensed Financial Statements
(unaudited)
September 30, 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited condensed financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three months and nine months ended
September 30, 1998 are not necessarily indicative of the results that may be
expected for the calendar year ending December 31, 1998. For further
information, refer to the financial statements and footnotes thereto included in
the Company's annual report on Form 10-KSB for the year ended December 31, 1997.
Inventory
Inventories are stated at the lower of cost (first in - first out
method) or market. The inventory at September 30, 1998 consists of finished
goods inventory valued at $1,134,023 work in process of $215,415 and raw
materials of $1,803,821. At December 31, 1997, these balances were $1,665,393,
$151,143 and $1,604,762, respectively.
Net Income (Loss) Per Share
In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128 (SFAS 128), Earnings per Share. Statement
128 replaced the previously reported primary and fully diluted earnings per
share with basic and diluted earnings per share. Unlike primary earnings per
share, basic earnings per share excludes any dilutive effects of options,
warrants and convertible securities. Diluted earnings per share is similar to
the previously reported fully diluted earnings per share. All per share amounts
for all periods have been presented, and where necessary, restated to conform to
Statement 128 requirements.
<TABLE>
Basic net income (loss) per share is computed using the
weighted-average number of common shares outstanding. Diluted net income per
share is computed using the weighted-average number of common shares and
dilutive common equivalent shares outstanding during the period. Dilutive common
share equivalents consist of employee stock options using the treasury stock
method and dilutive convertible securities using the if-converted method.
Diluted net income (loss) per share are computed using the weighted-average
number of common shares outstanding during the period. Common stock equivalents
are excluded from the diluted net (loss) per share computation as their effect
in antidilutive. The following table sets forth the computation for basic and
diluted net income (loss) per share:
<CAPTION>
Three months ended Nine months ended
---------------------------------- -----------------------------------
September 30, September 30,
---------------------------------- -----------------------------------
1998 1997 1998 1997
-------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Numerator:
Net income (loss) from operations $ (185,915) $ 274,191 $ (2,354,856) $ (3,474,043)
Denominator:
Denominator for basic net income (loss)
per-share-data 10,289,488 10,304,125 10,289,488 10,265,274
Denominator for diluted net income (loss)
per-share data 10,289,488 10,304,125 10,289,488 10,265,274
Basic net income (loss) per share (.02) .03 (.23) (.34)
Diluted net income loss per share (.02) .03 (.23) (.34)
</TABLE>
<PAGE>
Human Pheromone Sciences, Inc.
Notes to Condensed Financial Statements
(unaudited)
September 30, 1998
2. LOAN PAYABLE, BANK
At September 30, 1998, the Company was not in compliance with all of
the covenants of its line of credit bank loan with Mid-Peninsula Bank. The bank
has waived compliance with these covenants for the period ended September 30,
1998.
Item 2. Management's Discussion and Analysis
This report contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. Except for the historical
information contained in this discussion and analysis of financial condition and
results of operations, the matters discussed herein are forward looking
statements. These forward looking statements include but are not limited to the
Company's plans for sales growth and expansion into new channels of trade,
expectations of gross margin, expenses, new product introduction, and the
Company's liquidity and capital needs. These matters involve risks and
uncertainties that could cause actual results to differ materially from the
statements made. In addition to the risks and uncertainties described in "Risk
Factors", below, these risks and uncertainties may include consumer trends,
business cycles, scientific developments, changes in governmental policy and
regulation, currency fluctuations, economic trends in the United States and
inflation. These and other factors may cause actual results to differ materially
from those anticipated in forward-looking statements. Readers are cautioned not
to place undue reliance on these forward-looking statements, which speak only as
of the date hereof.
Risk Factors
The Company's future results may be affected to a greater or lesser
degree by the following factors among others:
Competition: The prestige fragrance market is volatile and extremely
competitive. Consumer preferences and demands can shift dramatically reflecting
changes in fashion and current fads. There are numerous fragrance products that
are better known than the products marketed by the Company. There are also many
companies which have substantially greater resources than Human Pheromone
Sciences, Inc. and which have the ability to invest heavily in new product
development and introduction. The Company can expect that its competitors will
attempt to compete with the Company through the introduction of new products and
promotion of existing products.
In addition, the product life cycle of fragrances is shortening.
Traditional fragrance companies now introduce a new fragrance every one to two
years compared to every four to five years as in the past. This increase in
competing fragrances makes it difficult for any one fragrance to hold the
consumer's attention on a long-term basis. Although the Company believes the
inclusion of human pheromones as a component clearly differentiates its
products, other fragrances are competing for space with the Company's products
at both the store level and in print and media advertising.
Marketing: The failure to establish and maintain the necessary sales or
distribution channels could have a material adverse effect on the Company's
business. Although the Company believes its marketing strategy is the most
cost-effective way to introduce its products, there can be no assurance that
broader-scale retail launches will be successful. The Company cannot guarantee
that retail outlets or catalogs will continue to carry the Human Pheromone
Sciences products. If the current strategy is unsuccessful, marketing of the
Company's products would require a new strategy and may require a significantly
more expensive sales effort for which the Company may not have sufficient funds.
<PAGE>
Retail environment: Continued consolidation in the retail trade has led
to the emergence of four major retail players who control the major share of the
market. Federated Department Stores, The May Company, Dayton Hudson/Marshall
Fields and Dillard Department Stores now comprise the majority of US upper end
department stores. This consolidation could lead to price and promotional
pressure and increased credit risk for the Company.
The retail environment in better department stores is increasingly
challenging. Retailers have aggressively cut inventories across the board, and
attempt to utilize return privileges to maintain their desired inventory turns .
Promotional support in the form of co-op advertising dollars is being cut back
and retailers are feeling pressure to become more promotional in order to
compete with price conscious chains appealing to bargain hunters. Fragrances and
cosmetics are increasingly being sold in secondary markets such as discount
perfumeries, drug chains and lower priced department stores. There can be no
assurance that the department store class of trade in the U.S. will become more
profitable in the near future.
Seasonality: Sales in the fragrance industry are generally seasonal,
with generally higher sales in the second half of the calendar year as a result
of increased demand for fragrance products in anticipation of and during the
Christmas holiday season. The anticipated seasonality of the Company's sales
could cause a significant variation in its quarterly operating results.
Patent protection: The Company's ability to compete successfully in the
consumer market place and to attract licensing partners will depend, in part, on
its ability to protect its proprietary technology. There can be no assurance
that any patent or patent application owned or controlled by the Company will
not be challenged, invalidated or circumvented or continue to provide
commercially significant protection of the Company's technology or ensure that
the Company may not be determined to infringe valid patents of others. In
addition, the laws of certain foreign countries may not protect the Company's
proprietary rights to the same extent as do the laws of the United States. No
assurance can be given that others will not independently develop substantially
equivalent proprietary information or otherwise gain access to the Company's
trade secrets or that the Company can meaningfully protect its technology,
proprietary information or trade secrets.
Although the Company does not believe that its products infringe the
proprietary rights of any third parties, there can be no assurance that
infringement or invalidity claims (or claims for indemnification resulting from
infringement claims) will not be asserted against the Company or that any such
assertions will not materially adversely affect the Company's business,
financial condition or results of operations. Irrespective of the validity or
the successful assertion of such claims, the Company could incur significant
costs with respect to the defense thereof which could have a material adverse
effect on the Company's business, financial condition or results of operations.
Attraction and retention of key employees: The success of the Company's
future operations depends in large part on the Company's ability to recruit and
retain key employees and consultants with research, product development and
marketing experience, as well as other professionals who are in considerable
demand. There can be no assurance that the Company will be successful in
retaining or recruiting such key personnel.
Dependence on third parties for manufacturing: The Company does not
have facilities to manufacture its products and relies on Pherin
Pharmaceuticals, Inc. to manufacture its pheromones and other third parties to
supply components and to blend, fill and package its fragrance products. The
Company believes that such manufacturing services are the most effective method
of producing its products. The majority of the fragrance industry uses contract
fillers, and the Company has no current plans to set up its own filling
facilities. However, as with any business that is not vertically integrated, if
the Company is unable to obtain or retain fragrance suppliers, component
manufacturers or third party manufacturing on acceptable terms, it may not be
able to obtain commercial quantities of its products, which would adversely
affect results.
Results of Operations
Three Months ended September 30, 1998 as compared to the Three Months ended
September 30, 1997
Net sales for the second quarter of 1998 were $2,312,805 representing a
decrease of 40% from sales of $3,847,893 for the prior year's quarter. The
decline in sales to the U.S. department stores accounted for 99% of the
<PAGE>
third quarter sales decrease. The Company decreased the number of promotional
sets offered, and decreased the available quantities to the Department stores
this quarter compared to last year's third quarter. These reductions were made
in order to keep store inventories at levels consistent with the retailer's
forecasts, and at a level where the Company could provide acceptable marketing
support to the retailers. Gross sales of sets were down 44% this quarter
compared to last years third quarter. Our regular priced product line gross
sales to the U.S. department stores were also less than the 1997 third quarter
at levels either better than or consistent with the current condition of the
domestic fragrance business. inner REALM(R), which was launched in 1997,
contributed 24% of the department store gross sales in the third quarter of
1997, compared to 9% in 1998 third quarter. The retail sales of inner REALM(R)
continues to be less that desired, and the company is focusing on ways to bring
the retailer inventories to acceptable levels with new marketing plans, and
return provisions.
Sales volume to the alternative classes of trade was consistent with
the prior year. Our international shipments for the quarter were $5,167 more
than last year, as we continue to develop our international markets The Company
plans to aggressively pursue the international, secondary, and direct marketing
distribution as they offer a cost-effective method of distribution. Net sales
for the quarters ended September 30, 1998 and 1997 were as follows:
- --------------------------------------------------------------------
Markets 1998 1997
- --------------------------------------------------------------------
U.S. Markets $2,026,618 $3,566,873
International Markets 286,187 281,020
---------- ----------
Net Sales $2,312,805 $3,847,893
Gross margin declined in 1998 due to the increased percentage of sales
derived from promotional and gift sets in both the department store and
secondary markets. The sets provide a better-perceived value to the consumer,
and the Company can offset the reduced margin with reduced selling and
advertising expenses. The Company sees the increased use of promotional and gift
sets as an economic way to promote selling through the product in conjunction
with overall marketing and consumer awareness programs that increase consumer
knowledge and desire for products containing synthesized human pheromones.
Research and Development expenses for the third quarters of 1998 and
1997 were $107,751 and $86,844, respectively. These costs principally reflect
payments and costs under the Company's contract with Pherin Pharmaceuticals, and
additional costs to support licensing projects in process.
Operating expenses decreased $854,223 to $1,502,715 in the third
quarter of 1998 from $2,356,938 in the third quarter of 1997. Selling,
advertising, marketing and distribution expenses decreased $842,541 from 1997
third quarter spending. The reduced spending is the direct result of the
Company's continuing restructuring of the sales and marketing efforts targeted
at the department store business. The focus on the use of promotional and gift
sets, with more targeted and cost effective selling and advertising spending,
has enabled the Company to reduced spending. General and administrative spending
was $11,682 less than the third quarter of 1997 as efforts to hold these costs
to a minimum are being made.
The Company paid $16,658 in interest expense in the third quarter of
1998 on balances on its revolving bank line of credit. This compares to $23,514
interest expense in the second quarter of 1997.
Nine Months ended September 30, 1997 as compared to the Nine Months ended
September 30, 1998
Net sales for the nine months ended September 30, 1998 were $7,581,223.
This was a 41% decrease from net sales of $12,761,724 for the nine months of
1997. The Company attributes the decrease to declines in re-order levels for
inner REALM, and the reduced sales of promotional and gift sets. Initial launch
quantities of inner REALM(R) shipped in the first half of 1997 were not
duplicated by reorders in the first half of 1998. The Company's first fragrance
offerings: Realm Women and Realm Men have shown modest declines of 9% in reorder
quantities between the two years. Sales into the secondary distribution channel
increased 66% for the first nine months of 1998 compared to 1997 nine month
period. During the first nine months of 1998, foreign sales and
<PAGE>
sales to alternative classes of trade increased 15% from the prior year, and as
a percentage of total net sales this group increased by 16%.
- --------------------------------------------------------------------------------
Class of Trade 1998 1997
- --------------------------------------------------------------------------------
U.S. Markets $ 6,580,631 $ 11,818,232
International Markets 1,000,592 943,492
----------------- -----------------
Net Sales $ 7,581,223 $ 12,761,724
Gross margin for the nine months of 1998 was 66% compared to 77% for
the same period in 1997. This decrease is the result of decreases in sales of
the Company's inner REALM products to the department store class of trade, and
the increased percentage of promotional and gift sets sales to the department
stores and secondary channels.. The Company conceived inner REALM as a higher
gross margin product than its original Realm Women and Realm Men's lines in
order to increase overall gross margin. The lower sales of inner REALM to
department stores in the first half of 1998 has had a negative impact on gross
margin for the period when compared against the same period in the prior year.
Research and Development expenses for the first half of 1998 and 1997
were $290,199 and $251,700, respectively and are principally comprised of
payments under the Company's contract with Pherin Pharmaceuticals.
Operating expenses decreased $5,878,882 to $7,062,857 for the nine
months ended September 30, 1998, compared to the 1997 expenses of $12,941,739
for the same period in 1997. Selling, marketing and distribution expenses
decreased $5,837,649 to $5,718,557 for the nine months ended September 30, 1998
from $11,556,206 in the period ended September 30, 1997. In 1997, the Company
incurred expenses to launch its second women's fragrance: inner REALM. In 1998,
the Company carefully evaluated advertising plans to suit specific regional and
consumer preferences. The Company continues to evaluate advertising spending and
the effectiveness of co-operative advertising programs and in-store support
personnel. Future cost reductions in this area will result from the shift in the
Company's overall business focus from one of developing and distributing
products to developing and licensing products to serve the needs of partners
with established distribution networks. In 1998, the Company's general and
administrative expenses decreased 13% over the prior year period due to
decreases in headcount and spending controls.
In 1998, the Company paid $38,127 in interest expense related to
advances under its bank line of credit. During the first nine months of 1997,
the Company had interest expense of $60,342. This higher expense in 1997 was due
to larger bank borrowing balances incurred during the launch of inner REALM.
LIQUIDITY
At September 30, 1998, the Company had borrowed $1,305,390 against its
$3,000,000 line of credit. Working capital was $2,002,985. At September 30,
1997, the Company had net borrowings of $1,272,149 and working capital of
$4,182,447. For the first nine months of 1998, operating activities required net
cash of $958,006. During the first nine months of 1997, net cash used in
operating activities was $5,169,737. Assuming the Company's activities proceed
substantially as planned, the Company's line of credit and anticipated revenues
from product sales should be adequate to meet its working capital needs over the
next twelve months. Working capital requirements will primarily be for the
supply of inventory and accounts receivable financing.
Additional working capital may be required should the Company's fail to
generate consumer response levels to expected levels. Furthermore, additional
working capital may be required should the Company experience a greater than
planned success with its product and retail efforts. Funds would be needed for
inventory build, accounts receivable financing and staffing purposes. If the
Company fails to achieve significant revenues from its 1998 marketing efforts,
or if the retail environment proves to be more capital intensive than planned,
the Company may require additional funding.
<PAGE>
On April 1, 1998, the Company signed a renegotiated loan agreement with
Mid-Peninsula Bank of Palo Alto, California (the "Bank") providing for a
continued line of credit. The Company may borrow up to $3,000,000 at an interest
rate equal to the Bank's prime rate plus .75% with borrowings secured primarily
by the Company's trade receivables and inventory. The agreement, which expires
in April, 1999, contains certain debt-to-equity and working capital covenants.
There are no charges for any unused portions of the line.
YEAR 2000 COMPLIANCE
The Company has conducted a comprehensive review of its internal
computer systems to identify the issues expected to arise in connection with the
Year 2000. The Company has plans to review the status of its customers and
suppliers with regard to this issue and assess the potential impact of
non-compliance by such parties on the Company's operations.
The Company's utilizes a server-based system for its material
management, manufacturing, EDI interface, and financial systems. Year 2000
compliant software upgrades are now available from the vendors. Installing, and
testing the upgraded software is expected to be completed by the end of the
first quarter of 1999. Based on current estimates, management expects the total
cost to remediate non-compliant systems will be less than $20,000.00.
The Company has started to review the impact of Year 2000 compliance
for the non-server based systems and equipment (i.e. telephone systems, fax
machines, off the shelf software). This review will be completed by the end of
the second quarter of 1999.
The Company is in the process of determining the extent to which it may
be impacted by third parties' systems, which may not be Year 2000 compliant. The
Year 2000 computer issue creates risk for the Company from third parties with
whom the Company deals on financial transactions worldwide. While the Company
expects to complete efforts to seek reassurance from its suppliers and service
providers, there can be no assurance that the systems of other companies that
the Company deals with or on which the Company's systems rely will be timely
converted, or that any such failure to convert by another company could not have
an adverse effect on the Company.
The Company has not yet developed any formal contingency plans for
addressing any problems resulting from upgrades that do not resolve all of the
issues of Year 2000, or if significant customers or suppliers do not become
compliant. Failure to complete any necessary remediation by the Year 2000 may
have a material adverse impact on the operations of the Company.
<PAGE>
PART II
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
- ------- --------------------------------
(a) Exhibit 27.01-Financial Data Schedule E- xx
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant had duly caused this Report to be signed on behalf by the
undersigned thereunto duly authorized.
EROX CORPORATION
Registrant
Date: November 12, 1998 /s/ William P. Horgan
------------------------------------
William P. Horgan
Chairman and Chief Executive Officer
Date: November 12, 1998 /s/ Gregory S. Fredrick
--------------------------------------
Gregory S. Fredrick
Vice President, Controller
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The Schedule Contains Summary Financial
Information Extracted From Balance Sheets
and Statements of Income
</LEGEND>
<CIK> 0000878616
<NAME> Human Pheromone Sciences, Inc.
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<EXCHANGE-RATE> 1
<CASH> 26,205
<SECURITIES> 0
<RECEIVABLES> 2,592,025
<ALLOWANCES> (554,978)
<INVENTORY> 3,153,259
<CURRENT-ASSETS> 5,328,928
<PP&E> 812,262
<DEPRECIATION> (740,813)
<TOTAL-ASSETS> 5,400,377
<CURRENT-LIABILITIES> 3,325,943
<BONDS> 0
0
2,145,535
<COMMON> 17,667,024
<OTHER-SE> (17,738,125)
<TOTAL-LIABILITY-AND-EQUITY> 5,400,377
<SALES> 7,581,223
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<INCOME-CONTINUING> (2,354,856)
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<NET-INCOME> (2,354,856)
<EPS-PRIMARY> (0.23)
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</TABLE>
