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VERU INC. - Quarter Report: 2013 December (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

(Mark One)

 

 

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

 

For the quarterly period ended December 31, 2013

 

 

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from              to             

 

Commission file number 1-13602

 

 

The Female Health Company

(Name of registrant as specified in its charter)

 

 

 

 

 

 

 

Wisconsin

 

39-1144397

(State of Incorporation)

 

(I.R.S. Employer Identification No.)

 

 

515 N. State Street, Suite 2225

Chicago, IL

 

60654

(Address of principal executive offices)

 

(Zip Code)

 

312-595-9123

(Registrant’s telephone number, including area code)

 

N/A

(Former Name or Former Address, if Changed Since Last Report)

 

 

Indicate by check mark 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       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      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

(Do not check if smaller reporting company)

 

 

 

Indicate by check mark whether the registrant is a shell company (as determined by Rule 12b-2 of the Exchange Act).    Yes      No  

 

As of January 31, 2014, the registrant had 28,880,502 shares of $0.01 par value common stock outstanding.

 

 

 


 

 

THE FEMALE HEALTH COMPANY

 

 

 

INDEX

PAGE

 

 

 

 

 

 

PART I.          FINANCIAL INFORMATION

 

 

 

Cautionary Statement Regarding Forward Looking Statements 

3

 

 

Item 1.  Financial Statements 

4

 

 

Unaudited Condensed Consolidated Balance Sheets -

 

    December 31, 2013 and September 30, 2013 

4

 

 

Unaudited Condensed Consolidated Statements of Income -

 

    Three Months Ended December 31, 2013 and December 31, 2012

5

 

 

Unaudited Condensed Consolidated Statements of Cash Flows -

 

    Three Months Ended December 31, 2013 and December 31, 2012

6

 

 

Notes to Unaudited Condensed Consolidated Financial Statements 

7

 

 

Item 2.  Management's Discussion and Analysis of Financial Condition and Results of Operations 

13

 

 

Item 3.  Quantitative and Qualitative Disclosures About Market Risk 

25

Item 4.  Controls and Procedures 

25 

 

 

PART II.          OTHER INFORMATION

 

 

 

Item 1A.  Risk Factors 

26

 

 

Item 6.  Exhibits 

27

 

 

 

 

 

 

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Table of Contents

 

CAUTIONARY STATEMENT REGARDING

FORWARD LOOKING STATEMENTS

 

Certain statements included in this quarterly report on Form 10-Q which are not statements of historical fact are intended to be, and are hereby identified as, "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements can be identified by the use of forward-looking words or phrases such as "anticipate," "believe," "could," "intend," "may," "opportunity," "plan," "predict," "potential," "estimate," "will," "would" or the negative of these terms or other words of similar meaning.  The Company cautions readers that forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievement expressed or implied by such forward-looking statements. Such factors include, among others, the following: the Company's inability to secure adequate capital to fund working capital requirements and advertising and promotional expenditures; factors related to increased competition from existing and new competitors including new product introduction, price reduction and increased spending on marketing; limitations on the Company's opportunities to enter into and/or renew agreements with international partners, the failure of the Company or its partners to successfully market, sell and deliver its product in international markets, and risks inherent in doing business on an international level, such as laws governing medical devices that differ from those in the U.S., unexpected changes in the regulatory requirements, political risks, export restrictions, tariffs and other trade barriers and fluctuations in currency exchange rates; the disruption of production at the Company's manufacturing facilities due to raw material shortages, labor shortages and/or physical damage to the Company's facilities; the Company's inability to manage its growth and to adapt its administrative, operational and financial control systems to the needs of the expanded entity and the failure of management to anticipate, respond to and manage changing business conditions; the loss of the services of executive officers and other key employees and the Company's continued ability to attract and retain highly-skilled and qualified personnel; the costs and other effects of litigation, governmental investigations, legal and administrative cases and proceedings, settlements and investigations; payment of dividends is in the discretion of the Board of Directors and the Company may not have sufficient cash flows to continue to pay dividends; and developments or assertions by or against the Company relating to intellectual property rights. Such uncertainties and other risks that may affect the Company's performance are discussed further in Part I, Item 1A, "Risk Factors," in the Company's Form 10‑K for the year ended September 30, 2013.  The Company undertakes no obligation to make any revisions to the forward-looking statements contained in this report or to update them to reflect events or circumstances occurring after the date of this report.

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Item 1.    Financial Statements

THE FEMALE HEALTH COMPANY

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2013

 

September 30, 2013

ASSETS

 

 

 

 

 

Current Assets:

 

 

 

 

 

Cash

$

7,991,187 

 

$

8,922,430 

Accounts receivable, net

 

2,671,582 

 

 

2,362,165 

Income tax receivable

 

77,519 

 

 

78,440 

Inventory, net

 

2,532,874 

 

 

2,459,417 

Prepaid expenses and other current assets

 

452,931 

 

 

514,213 

Deferred income taxes

 

2,552,000 

 

 

2,552,000 

TOTAL CURRENT ASSETS

 

16,278,093 

 

 

16,888,665 

 

 

 

 

 

 

Other assets

 

146,956 

 

 

138,458 

 

 

 

 

 

 

PLANT AND EQUIPMENT

 

 

 

 

 

Equipment, furniture and fixtures

 

4,901,189 

 

 

4,821,001 

Less accumulated depreciation and amortization

 

(2,868,636)

 

 

(2,726,171)

Plant and equipment, net

 

2,032,553 

 

 

2,094,830 

 

 

 

 

 

 

Deferred income taxes

 

16,048,000 

 

 

16,048,000 

TOTAL ASSETS

$

34,505,602 

 

$

35,169,953 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Accounts payable

$

1,175,974 

 

$

904,049 

Accrued expenses and other current liabilities

 

1,232,597 

 

 

1,520,952 

Accrued compensation

 

456,800 

 

 

962,693 

Accrued dividend

 

2,021,600 

 

 

19,505 

TOTAL CURRENT LIABILITIES

 

4,886,971 

 

 

3,407,199 

 

 

 

 

 

 

Deferred rent

 

60,139 

 

 

66,799 

Deferred grant income

 

51,611 

 

 

57,819 

Deferred income taxes

 

232,453 

 

 

235,179 

TOTAL LIABILITIES

 

5,231,174 

 

 

3,766,996 

 

 

 

 

 

 

Commitments and Contingencies

 

 —

 

 

 —

 

 

 

 

 

 

STOCKHOLDERS' EQUITY:

 

 

 

 

 

Preferred Stock

 

 —

 

 

 —

Common Stock

 

308,450 

 

 

306,948 

Additional paid-in-capital

 

67,898,939 

 

 

67,460,478 

Accumulated other comprehensive loss

 

(581,519)

 

 

(581,519)

Accumulated deficit

 

(31,283,532)

 

 

(28,715,040)

Treasury stock, at cost

 

(7,067,910)

 

 

(7,067,910)

TOTAL STOCKHOLDERS' EQUITY

 

29,274,428 

 

 

31,402,957 

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

$

34,505,602 

 

$

35,169,953 

 

 

 

 

 

 

See notes to unaudited condensed consolidated financial statements.

 

 

 

 

 

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THE FEMALE HEALTH COMPANY

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

December 31,

   

2013

 

2012

   

 

 

 

 

 

Net revenues

$

6,690,195 

 

$

9,910,227 

   

 

 

 

 

 

Cost of sales

 

3,011,701 

 

 

3,944,028 

   

 

 

 

 

 

Gross profit

 

3,678,494 

 

 

5,966,199 

   

 

 

 

 

 

Operating expenses

 

2,094,858 

 

 

2,365,165 

   

 

 

 

 

 

Operating income

 

1,583,636 

 

 

3,601,034 

   

 

 

 

 

 

Non-operating expense:

 

 

 

 

 

Interest and other expense, net

 

(1,732)

 

 

(4,244)

Foreign currency transaction loss

 

(18,426)

 

 

(37,267)

Total non-operating expense

 

(20,158)

 

 

(41,511)

   

 

 

 

 

 

Income before income taxes

 

1,563,478 

 

 

3,559,523 

   

 

 

 

 

 

Income tax expense

 

98,875 

 

 

25,677 

 

 

 

 

 

 

Net income

$

1,464,603 

 

$

3,533,846 

   

 

 

 

 

 

Net income per basic common share outstanding

$

0.05 

 

$

0.12 

   

 

 

 

 

 

Basic weighted average common shares outstanding

 

28,479,597 

 

 

28,333,360 

   

 

 

 

 

 

Net income per diluted common share outstanding

$

0.05 

 

$

0.12 

 

 

 

 

 

 

Diluted weighted average common shares outstanding

 

28,798,400 

 

 

28,694,903 

   

 

 

 

 

 

Cash dividends declared per common share

$

0.14 

 

$

0.12 

 

 

 

 

 

 

See notes to unaudited condensed consolidated financial statements.

 

 

 

 

 

 

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THE FEMALE HEALTH COMPANY

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

December 31,

 

2013

 

2012

 

 

 

 

 

 

OPERATING ACTIVITIES

 

 

 

 

 

Net income

$

1,464,603 

 

$

3,533,846 

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization

 

143,749 

 

 

130,911 

Amortization of deferred income from grant

 

(6,208)

 

 

(6,208)

Share-based compensation

 

203,753 

 

 

219,837 

Deferred income taxes

 

(2,726)

 

 

(1,423)

Loss on disposal of fixed assets

 

430 

 

 

483 

Changes in operating assets and liabilities

 

(621,942)

 

 

(2,860,061)

Net cash provided by operating activities

 

1,181,659 

 

 

1,017,385 

 

 

 

 

 

 

INVESTING ACTIVITIES

 

 

 

 

 

Capital expenditures

 

(81,902)

 

 

(68,899)

Net cash used in investing activities

 

(81,902)

 

 

(68,899)

 

 

 

 

 

 

FINANCING ACTIVITIES

 

 

 

 

 

Purchases of common stock for treasury shares

 

 —

 

 

(178,000)

Dividends paid on common stock

 

(2,031,000)

 

 

(1,735,185)

Net cash used in financing activities

 

(2,031,000)

 

 

(1,913,185)

 

 

 

 

 

 

Net decrease in cash

 

(931,243)

 

 

(964,699)

Cash at beginning of period

 

8,922,430 

 

 

5,295,462 

 

 

 

 

 

 

CASH AT END OF PERIOD

$

7,991,187 

 

$

4,330,763 

 

 

 

 

 

 

Supplemental Disclosure of Cash Flow Information:

 

 

 

 

 

Cash payments for income taxes

$

441,142 

 

$

25,677 

Schedule of noncash financing and investing activities:

 

 

 

 

 

Reduction of accrued expense upon issuance of shares

$

297,806 

 

$

189,644 

Dividends payable

 

2,023,175 

 

 

1,709,110 

Fixed asset additions in accounts payable

 

 —

 

 

160,717 

 

 

 

 

 

 

See notes to unaudited condensed consolidated financial statements.

 

 

 

 

 

 

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THE FEMALE HEALTH COMPANY

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 1 - Basis of Presentation 

 

The accompanying condensed consolidated financial statements are unaudited but in the opinion of management contain all the adjustments (consisting of those of a normal recurring nature) considered necessary to present fairly the financial position and the results of operations and cash flow for the periods presented in conformity with generally accepted accounting principles for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by United States generally accepted accounting principles for complete financial statements.

 

Operating results for the three months ended December 31, 2013, are not necessarily indicative of the results that may be expected for the fiscal year ending September 30, 2014. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's annual report on Form 10-K for the fiscal year ended September 30, 2013.

 

Principles of Consolidation and Nature of Operations

 

The consolidated financial statements include the accounts of the Company and its wholly owned subsidiary, The Female Health Company-UK, and its wholly owned subsidiaries, The Female Health Company-UK, plc and The Female Health Company (M) SDN.BHD. All significant intercompany transactions and accounts have been eliminated in consolidation. The Female Health Company ("FHC" or the "Company") is currently engaged in the marketing, manufacture and distribution of a consumer health care product, the FC2 Female Condom ("FC2").  The Female Health Company-UK, is the holding company of The Female Health Company-UK, plc, which is located in a 6,400 sq. ft. leased office facility located in London, England. The Female Health Company (M) SDN.BHD leases a 16,000 sq. ft. manufacturing facility located in Selangor D.E., Malaysia.

 

FC2 is currently sold or available in either or both commercial (private sector) and public health sector markets in 144 countries. The product is marketed directly to consumers in 16 countries by various country-specific commercial partners.

 

The Company also derives revenue from licensing its intellectual property under an agreement with its exclusive distributor in India, Hindustan Lifecare Limited (“HLL”).  HLL is authorized to manufacture FC2 at HLL's facility in Kochi, India, for sale in India, and the Company receives a royalty based on the number of units sold by HLL in India.  Such revenue appears in net revenues on the accompanying Unaudited Condensed Consolidated Statements of Income for the three months ended December 31, 2013 and 2012, and is recognized in the period in which the sale is made by HLL.  There was no royalty revenue under the HLL agreement for the three months ended December 31, 2013 or 2012.

 

The Company's standard credit terms vary from 30 to 90 days, depending on the class of trade and customary terms within a territory, so accounts receivable is affected by the mix of purchasers within the quarter.  As is typical in the Company's business, extended credit terms may occasionally be offered as a sales promotion.  For the past twelve months, the Company's average days’ sales outstanding has averaged approximately 43 days. Over the past five years, the Company’s bad debt expense has been less than .01 percent of product sales.  The balance in the allowance for doubtful accounts was $13,180 at December 31, 2013 and September 30, 2013.

 

Restricted cash

 

Restricted cash relates to security provided to one of the Company’s U.K. banks for performance bonds issued in favor of customers. Such security has been extended infrequently and only on occasions where it has been a contract term expressly stipulated as an absolute requirement by the funds’ provider. The expiration of the bond is defined by the completion of the event such as, but not limited to, a period of time after the product has been distributed or expiration of the product shelf life.  Restricted cash was $56,662 and $55,455 at December 31, 2013 and September 30, 2013, respectively, and is included in cash on the accompanying Unaudited Condensed Consolidated Balance Sheets.

 

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Foreign Currency and Change in Functional Currency

 

The Company recognized a foreign currency transaction loss of $18,426 and $37,267 for the three months ended December 31, 2013 and 2012, respectively. The consistent use of the U.S. dollar as functional currency across the Company reduces its foreign currency risk and stabilizes its operating results. As a result of the U.S. dollar being the functional currency of the Company and all of its subsidiaries, comprehensive income is equivalent to the reported net income.

 

Reclassifications

 

Certain items in the September 30, 2013 consolidated financial statements have been reclassified to conform to the December 31, 2013 presentation.

 

NOTE 2 – Earnings per Share 

 

Basic EPS is computed by dividing net income by the weighted average number of common shares outstanding for the period. Diluted EPS is computed by dividing net income by the weighted average number of common shares outstanding during the period after giving effect to all dilutive potential common shares that were outstanding during the period. Dilutive potential common shares consist of the incremental common shares issuable upon the exercise of stock options and unvested shares granted to employees and directors.   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

December 31,

Denominator

2013

 

2012

Weighted average common shares outstanding - basic

 

28,479,597 

 

 

28,333,360 

Net effect of dilutive securities:

 

 

 

 

 

Options

 

169,967 

 

 

176,793 

Unvested restricted shares

 

148,836 

 

 

184,750 

Total net effect of dilutive securities

 

318,803 

 

 

361,543 

Weighted average common shares outstanding - diluted

 

28,798,400 

 

 

28,694,903 

Income per common share – basic

$

0.05 

 

$

0.12 

Income per common share – diluted

$

0.05 

 

$

0.12 

 

All the outstanding stock options and unvested restricted shares were included in the computation of diluted net income per share for the three months ended December 31, 2013 and 2012.

 

NOTE 3 - Inventory 

 

Inventory consists of the following components at December 31, 2013 and September 30, 2013:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2013

 

September 30, 2013

 

 

 

 

 

 

Raw material

$

812,689 

 

$

868,742 

Work in process

 

85,613 

 

 

77,782 

Finished goods

 

1,657,819 

 

 

1,554,026 

Inventory, gross

 

2,556,121 

 

 

2,500,550 

Less: inventory reserves

 

(23,247)

 

 

(41,133)

Inventory, net

$

2,532,874 

 

$

2,459,417 

 

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NOTE 4 – Line of Credit

 

On August 1, 2013, the Company entered into an amendment to the Second Amended and Restated Loan Agreement (as amended, the “Loan Agreement”) with Heartland Bank to extend the term of the Company’s revolving line of credit to August 1, 2014. The credit facility consists of a single revolving note for up to $2 million with Heartland Bank, with borrowings limited to a borrowing base determined based on 70 percent to 80 percent of eligible accounts receivable plus 50 percent of eligible inventory. Significant restrictive covenants in the Loan Agreement include prohibitions on any merger, consolidation or sale of all or a substantial portion of the Company’s assets and limits on the payment of dividends or the repurchase of shares. The Loan Agreement does not contain any financial covenants that require compliance with ratios or amounts.  Dividends and share repurchases are permitted as long as after giving effect to the dividend or share repurchase the Company has a ratio of total liabilities to total stockholders’ equity of no more than 1:1.  Borrowings on the revolving note bear interest at a rate of the base rate (4.0 percent at December 31, 2013) plus 0.5 percent. The note is collateralized by substantially all of the assets of the Company. No amounts were outstanding under the Loan Agreement at either December 31, 2013 or September 30, 2013. 

 

NOTE 5 – Share-Based Payments

 

In March 2008, the Company’s shareholders approved the 2008 Stock Incentive Plan which is utilized to provide equity opportunities and performance–based incentives to attract, retain and motivate those persons who make (or are expected to make) important contributions to the Company.  A total of 2 million shares are available for issuance under this plan. As of December 31, 2013, 987,268 shares had been granted under the plan, of which 150,000 shares were in the form of stock options and the remainder were in the form of restricted stock or other share grants.

 

Stock Options

 

Under the Company’s previous share based long-term incentive compensation plan, the 1997 Stock Option Plan, the Company granted non-qualified stock options to employees.  There are no shares available for grant under this plan which expired on December 31, 2006.  Options issued under this plan expire 10 years after the date of grant and generally vested 1/36 per month, with full vesting after three years. Under the Company’s 2008 Stock Incentive Plan, options issued expire 10 years after the date of grant and vest 1/36 per month, with full vesting after three years. The Company did not grant any options during the three months ended December 31, 2013 or 2012.

 

Compensation expense is recognized only for share-based payments expected to vest. The Company estimates forfeitures at the date of grant based on historical experience and future expectations. No  stock compensation expense related to options was recognized for the three months ended December 31, 2013 or 2012.

 

No stock options were exercised during the three months ended December 31, 2013 or 2012.

 

The following table summarizes the stock options outstanding and exercisable at December 31, 2013:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   

Options

Wghted. Avg.

 

 

 

 

 

 

Outstanding and Exercisable

Remaining Life

 

Wghted. Avg.

 

Aggregate

 

At 12/31/2013

(years)

 

Exercise Price

 

Intrinsic Value

Total

240,000

3.84

 

$

2.64

 

$

1,405,500

 

The aggregate intrinsic value in the table above is before income taxes, based on the closing price of the Company’s common stock of $8.50 per share as of the last business day of the period ended December 31, 2013.  As of December 31, 2013, the Company had no unrecognized compensation expense relating to outstanding stock options as all outstanding stock options were fully vested.  The deferred tax asset and realized benefit from stock options exercised and other share-based payments for the three months ended December 31, 2013 and 2012, was not recognized, based on the Company’s election of the “with and without” approach.

 

Restricted Stock

 

The Company issues restricted stock to employees, directors and consultants. Such issuances may have vesting periods that range from one to three years.  In addition, the Company has issued stock awards to certain employees that provide for future issuance contingent on continued employment for periods that range from one to three years.

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The Company granted a total of 118,910 shares of restricted stock or shares issuable pursuant to promises to issue shares of common stock during the three months ended December 31, 2013. The fair value of the awards granted was approximately $1,054,000. All such shares of restricted stock vest and all such shares must be issued at the end of the applicable period, provided the grantee has not voluntarily terminated service or been terminated for cause prior to the vesting or issuance date. There were no shares of restricted stock forfeited during the three months ended December 31, 2013. 

 

The Company granted a total of 49,750 shares of restricted stock or shares issuable pursuant to promises to issue shares of common stock during the three months ended December 31, 2012. The fair value of the awards granted was approximately $350,000. All such shares of restricted stock vest and all such shares must be issued at the end of the applicable period, provided the grantee has not voluntarily terminated service or been terminated for cause prior to the vesting or issuance date.  There were no shares of restricted stock forfeited during the three months ended December 31, 2012. 

 

The Company recognized share-based compensation expense for restricted stock or promises to issue shares of common stock of approximately $204,000 and $220,000 for the three months ended December 31, 2013 and 2012, respectively, $62,000 and $57,000 of which was included in accrued expenses at the three months then ended since the related shares had not yet been issued at December 31, 2013 and 2012, respectively.  This compensation expense was included in operating expenses on the accompanying Unaudited Condensed Consolidated Statements of Income for the three months ended December 31, 2013 and 2012. As of December 31, 2013, there was approximately $1,078,000, representing approximately 125,000 unvested shares, of total unrecognized compensation cost related to non-vested restricted stock compensation arrangements granted under the Company’s equity compensation plans. This unrecognized cost will be recognized over the weighted average period of the next 2.23 years.

 

Common Stock Purchase Warrants

 

The Company did not issue any common stock purchase warrants during the three months ended December 31, 2013 or 2012.  During the three months ended December 31, 2012, a warrant holder exercised 52,000 warrants using the cashless exercise option available within the warrant agreements which entitled the warrant holder to 43,465 shares of common stock.  As of December 31, 2013, there are no outstanding warrants.

 

NOTE 6 - Stock Repurchase Program

 

The Company’s Stock Repurchase Program was announced on January 17, 2007.  At initiation, the program’s terms specified that up to 1,000,000 shares of its common stock could be purchased during the subsequent twelve months. Subsequently, the Board has amended the program a number of times to both extend its term and increase the maximum number of shares which could be repurchased.  Currently, the program allows for a maximum repurchase of up to 3,000,000 shares through the period ending December 31, 2014.  From the program’s onset through December 31, 2013, the total number of shares repurchased by the Company is 2,014,454.  The total number of shares that may yet be purchased under the program is 985,546. The Stock Repurchase Program authorizes purchases in privately negotiated transactions as well as in the open market.  In October 2008, the Company's Board of Directors authorized repurchases in private transactions under the Stock Repurchase Program of shares issued under the Company's equity compensation plans to directors, employees and other service providers at the market price on the effective date of the repurchase request. Total repurchases under this provision currently are limited to an aggregate of 450,000 shares per calendar year and to a maximum of 50,000 shares annually per individual. Private repurchase transactions for the three months ended December 31, 2012 were 25,000 shares. There were no open market repurchase transactions for the three months ended December 31, 2012.  There were no repurchases of any kind under the program for the three months ended December 31, 2013.

 

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Table of Contents

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Details of Treasury Stock Purchases to Date

Issuer Purchases of Equity Securities

through December 31, 2013:

 

Total Number

 

Average Price

 

 

 

 

of Shares

 

Paid

 

Cost of Treasury

 

Purchased

 

Per Share

 

Stock

Period:

 

 

 

 

 

 

January 1, 2007 – September 30, 2013

2,014,454 

 

$

3.51 

 

$

7,067,910 

October 1, 2013 - October 31, 2013

 —

 

 

 —

 

 

 —

November 1, 2013 - November 30, 2013

 —

 

 

 —

 

 

 —

December 1, 2013 - December 31, 2013

 —

 

 

 —

 

 

 —

   Quarterly Subtotal

 —

 

 

 —

 

 

 —

Total

2,014,454 

 

$

3.51 

 

$

7,067,910 

 

NOTE 7 - Industry Segments and Financial Information About Foreign and Domestic Operations 

 

The Company currently operates in one industry segment which includes the development, manufacture and marketing of consumer health care products.

 

The Company operates in foreign and domestic regions. Information about the Company's operations by geographic area is as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Revenues to External Customers for

 

Long-Lived Asset As Of

   

the Three Months Ended December 31,

 

December 31,

 

September 30,

   

2013

 

 

2012

 

 

2013

 

2013

Angola

$

2,476 

(1)

 

$

*

 

 

$

 —

 

$

 —

South Africa

 

1,656 

(1)

 

 

4,004 

(1)

 

 

 —

 

 

 —

United States

 

710 

(1)

 

 

948 

 

 

 

132 

 

 

154 

Congo

 

650 

 

 

 

*

 

 

 

 —

 

 

 —

Brazil

 

*

 

 

 

2,240 

(1)

 

 

 —

 

 

 —

Uganda

 

*

 

 

 

666 

 

 

 

 —

 

 

 —

India

 

*

 

 

 

*

 

 

 

40 

 

 

45 

United Kingdom

 

*

 

 

 

*

 

 

 

177 

 

 

181 

Malaysia

 

*

 

 

 

*

 

 

 

1,831 

 

 

1,853 

Other

 

1,198 

 

 

 

2,052 

 

 

 

 —

 

 

 —

Total

$

6,690 

 

 

$

9,910 

 

 

$

2,180 

 

$

2,233 

 

* Less than 5 percent of total net revenues.

(1) Exceeds 10 percent of total net revenues.

 

NOTE 8 – Contingent Liabilities 

 

The testing, manufacturing and marketing of consumer products by the Company entail an inherent risk that product liability claims will be asserted against the Company. The Company maintains product liability insurance coverage for claims arising from the use of its products. The coverage amount is currently $5 million for FHC's consumer health care product.

 

NOTE 9 – Income Taxes

 

The Company accounts for income taxes using the liability method, which requires the recognition of deferred tax assets or liabilities for the tax-effected temporary differences between the financial reporting and tax bases of its assets and liabilities, and for net operating loss and tax credit carryforwards.

 

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The Company completes a detailed analysis of its deferred income tax valuation allowances on an annual basis or more frequently if information comes to our attention that would indicate that a revision to our estimates is necessary.  In evaluating the Company’s ability to realize its deferred tax assets, management considers all available positive and negative evidence on a country-by-country basis, including past operating results and forecast of future taxable income.  In determining future taxable income, management makes assumptions to forecast U.S. federal and state, U.K. and Malaysia operating income, the reversal of temporary differences, and the implementation of any feasible and prudent tax planning strategies.  These assumptions require significant judgment regarding the forecasts of the future taxable income in each tax jurisdiction, and are consistent with the forecasts used to manage the Company’s business.   It should be noted that the Company realized significant losses through 2005 on a consolidated basis.  Since fiscal year 2006, the Company has consistently generated taxable income on a consolidated basis, providing a reasonable future period in which the Company can reasonably expect to generate taxable income.  In management’s analysis to determine the amount of the deferred tax asset to recognize, management projected future taxable income for the subsequent ten years for each tax jurisdiction.

   

As of December 31, 2013, the Company had U.S. federal and state net operating loss carryforwards of approximately $19,165,000 and $17,220,000, respectively, for income tax purposes expiring in years 2018 to 2027.  The Company’s U.K. subsidiary, The Female Health Company-UK, plc has U.K. net operating loss carryforwards of approximately $63,264,000 as of December 31, 2013, which can be carried forward indefinitely to be used to offset future U.K. taxable income. With the increasing demand for and profitability of FC2, the Company expects utilization of its net operating losses in both the U.K. and the U.S. will continue.  However, because some of the U.S. federal tax losses have a net loss carryforward limitation of twenty years, it is possible that some of the Company’s early losses carried forward in the U.S. will not be fully utilized.  The U.K. net operating losses do not expire. The Company’s Malaysia subsidiary had no net operating loss carryforwards as of December 31, 2013.

 

A reconciliation of income tax expense and the amount computed by applying the statutory federal income tax rate to income before income taxes for the three months ended December 31, 2013 and 2012, is as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

December 31,

 

2013

 

2012

Income tax expense at statutory rates

$

532,000 

 

$

1,210,000 

State income tax, net of federal benefits

 

98,000 

 

 

223,000 

Non-deductible expenses

 

2,000 

 

 

5,000 

Effect of lower foreign income tax rates

 

(114,211)

 

 

(525,798)

Utilization of NOL carryforwards

 

(125,982)

 

 

(565,278)

Decrease in valuation allowance

 

(292,932)

 

 

(321,247)

Income tax expense

$

98,875 

 

$

25,677 

 

Note 10 – Dividends

 

Beginning February 16, 2010, through December  31, 2013, the Company has paid 16 quarterly cash dividends.  The first 9 were paid at a quarterly rate per share of $0.05 through February 9, 2012, 4 were paid at a quarterly rate per share of $0.06 from May 9, 2012 through February 6, 2013, and 3 were paid at a quarterly rate per share of $0.07 from May 8, 2013 through November 6, 2013.  The Company paid cash dividends of approximately $2.0 million and $1.7 million during the three months ended December 31, 2013 and 2012, respectively. 

 

On December 12, 2013, the Company’s Board of Directors declared a quarterly cash dividend of $0.07 per share.  The Company will pay, from its cash on hand, approximately $2.0 million pursuant to the dividend on February 5, 2014 to stockholders of record as of January 29, 2014.

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Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

General

 

The Female Health Company manufactures, markets and sells the FC2 Female Condom.  FC2 is the only currently available female-controlled product approved by the U.S. Food and Drug Administration (FDA) and cleared by the World Health Organization (WHO) for purchase by U.N. agencies that provides dual protection against unintended pregnancy and sexually transmitted infections ("STIs"), including HIV/AIDS. The Company’s first generation product was the FC1 Female Condom, a Class III medical device approved by FDA in 1993.  The Company’s second generation product, FC2, has been available globally since 2007, and in the U.S. since 2009 after it was approved by the FDA as a Class III medical device. To date, FHC has manufactured and sold approximately 412 million FC1 and FC2 Female Condoms.

 

Products

 

Currently, there are only two FDA approved and marketed products that prevent the transmission of HIV/AIDS through sexual intercourse: the male condom and FC2. FC2 is currently the only FDA approved and marketed female-controlled product that prevents STIs, including HIV/AIDS. Used consistently and correctly, FC2 provides women dual protection against STIs,  including HIV/AIDS, and unintended pregnancy.  FC2 does not compete with the male condom; it provides an alternative to either unprotected sex or male condom usage.

 

An economic analysis of the cost effectiveness of an FC2 HIV/AIDS prevention program conducted by Dr. David Holtgrave, the chairman of the Department of Health Behavior and Society at the Johns Hopkins Bloomberg School of Public Health was featured in the March 26, 2012  issue of AIDS and Behavior.  The study showed that the Washington, D.C. FC2 prevention program, a public-private partnership to provide and promote FC2, prevented enough HIV infections in the first year alone to save over $8 million in avoided future medical care costs (over and above the cost of approximately $445,000 for the program).  This means that for every dollar spent on the program, there was a cost savings of nearly $20.  In the article Dr. Holtgrave concluded, “These results clearly indicate that delivery of, and education about, Female Condoms is an effective HIV prevention intervention and an outstanding public health investment.”  The district began its program in 2010 to fight a disease that is at epidemic levels.  At least 3 percent of Washington residents have HIV or AIDS, a prevalence rate that is the highest of any U.S. city. 

 

Numerous clinical and behavioral studies have been conducted regarding use of the female condom. Studies show that in many cultures, the female condom is found acceptable by women and their partners. Importantly, studies also show that when the female condom is made available as an option along with male condoms there is a significant increase in protected sex acts with a concurrent decrease in STIs. The increase in protected sex acts varies by country and averages between 10 percent and 35 percent.

 

FC2 has basically the same physical design, specifications, safety and efficacy profile as FC1.  Manufactured from a nitrile polymer formulation that is exclusive to the Company, FC2 can be produced more economically than the first generation product, FC1, which was made from a more costly raw material (polyurethane).   FC2 consists of a soft, loose fitting sheath and two rings: an external ring of rolled nitrile and a loose internal ring, made of flexible polyurethane. FC2’s soft sheath lines the vagina, preventing skin-to-skin contact during intercourse.  Its external ring remains outside the vagina, partially covering the external genitalia. The internal ring is used for insertion and helps keep the device in place during use.

 

FC2’s primary raw material (a nitrile polymer) offers a number of benefits over natural rubber latex, the raw material most commonly used in male condoms.  FC2’s nitrile polymer is stronger than latex, reducing the probability that the Female Condom sheath will tear during use. Unlike latex, FC2’s nitrile polymer quickly transfers heat.  FC2 warms to body temperature immediately upon insertion which may enhance the user’s sensation and pleasure. Unlike the male condom, FC2 may be inserted in advance of arousal, eliminating disruption during sexual intimacy. FC2 is also an alternative to latex sensitive users (7 percent to 20 percent of the population) who are unable to use male condoms without irritation. To the Company's knowledge, there is no reported allergy to the nitrile polymer.  FC2 is pre-lubricated, disposable and recommended for use during a single sex act.  FC2 is not reusable.

 

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FC2 received FDA approval as a Class III medical device on March 10, 2009, and has been available in the United States since August 2009.  In addition to FDA approval, FC2 has been approved by other regulatory agencies, including in the European Union, India and Brazil.  Based on a rigorous scientific review, WHO agreed that FC2 performs in the same manner as FC1 and cleared FC2 for purchase by U.N. agencies in 2006.  

 

Raw Materials

 

The principal raw material used to produce FC2 is a nitrile polymer. While general nitrile formulations are available from a number of suppliers, the Company has chosen to work closely with the technical market leader in synthetic polymers to develop a grade ideally suited to the bio-compatibility and functional needs of a female condom.  The supplier has agreed that the Company is the sole and exclusive owner of the unique polymer formulation that was developed for FC2.

 

Global Market Potential

 

Because FC2 offers a woman dual protection against both unintended pregnancy and STIs, including HIV/AIDS, its market encompasses both family planning and disease prevention.

 

DISEASE PREVENTION

 

The first clinical evidence of AIDS was noted more than thirty years ago.  Since then, HIV/AIDS has become the most devastating pandemic facing humankind in recorded history. In November 2009, WHO released statistics indicating that on a world-wide basis, HIV/AIDS is now the leading cause of death in women 15 to 44 years of age.  According to the WHO, in 2010 worldwide more than half of all the adults living with HIV were women and almost 50 percent of all new adult cases of HIV/AIDS were women. In the United States the Centers for Disease Control and Prevention (CDC) and FDA both list heterosexual sex as the most common method of HIV transmission in women.

 

For sexually active couples, male condoms and FC2 are the only barrier methods approved by FDA for preventing sexual transmission of HIV/AIDS.  In recent years, scientists have sought to develop alternative means of preventing HIV/AIDS.   Based on the complexities of such research, a viable broadly usable prevention alternative is unlikely to be available in the foreseeable future.  To date, it is clear that condoms, male and female, continue to play a key role in the prevention of STIs, including HIV/AIDS.  FC2, when used consistently and correctly, gives a woman control over her sexual health by providing dual protection against STIs (including HIV/AIDS) and unintended pregnancy.

 

In the United States, the CDC continues to report that the HIV/AIDS epidemic is taking an increasing toll on women and girls. Women of color, particularly black women, have been especially hard hit.  Women of color comprise both the majority of new HIV and AIDS cases among women, and the majority of women living with the disease. 

 

In 2009, the CDC listed the rate of new HIV infection for black women as approximately 15 times the rate for white women in the United States. In 2009, in the United States, it estimated that one in 32 black women would be diagnosed with HIV in her lifetime, compared to the one in 526 incidence rate amongst white women. 

 

The CDC estimates there are 19 million new sexually transmitted infections in the United States each year. It is also estimated that over 24,000 women each year in the U.S. lose the ability to conceive or carry a pregnancy to term due to undiagnosed or untreated STIs. In March 2008, the CDC announced that a study indicated that 26 percent of female adolescents in the United States have at least one of the most common STIs.  Led by the CDC’s Sara Forhan, the study is the first to examine the combined national prevalence of common STIs among adolescent women in the United States. In addition to overall STI prevalence, the study found that by race, African American teenage girls had the highest prevalence, with an overall prevalence of 48 percent compared to 20 percent among both whites and Mexican Americans.  Overall, approximately half of all the teens in the study reported ever having sex. Among these girls, the STI prevalence was 40 percent.

 

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On November 29, 2012, in conjunction with World AIDS Day, U.S. Secretary of State Hillary Clinton, as part of the President’s Emergency Plan For AIDS Relief (“PEPFAR”), issued a blueprint for an AIDS Free Generation.  In the blueprint it states that female condoms are unique in providing a female controlled HIV prevention option and that PEPFAR will work with partner governments and other donors to promote female condoms wherever effective programs can build a sustained demand.

 

On December 3, 2013, donors pledged $12 billion, which includes $1.5 billion from the U.K. Government, over a 3 year period to the Global Fund to fight HIV/AIDS, Tuberculosis and Malaria treatment and prevention.

 

CONTRACEPTION

The feminization of HIV/AIDS has increased the relevance of FC2 for the prevention of unintended pregnancies as well as disease prevention.  Unintended pregnancy may result in maternal and infant death, babies with HIV/AIDS, AIDS orphans and increased health care costs.

 

On July 11, 2012, World Population Day, the U.K. Government and the Bill and Melinda Gates Foundation held a Summit on Family Planning in London, England (the “London Summit”).  It was attended by public health officials, government officials, and private sector companies that supply contraceptives and related products.  The primary goal of the London Summit was to increase access to contraceptives to an additional 120 million poor women in 69 developing countries by 2020.  Achievement of this goal will reduce maternal and infant mortality, HIV/AIDS babies, AIDS orphans and health care costs.

 

At the close of the London Summit it was announced that commitments of $4.6 billion had been made to fund the 2012-2020 program.  This included commitments by the U.K. Government, other specific countries, the Bill & Melinda Gates Foundation, other foundations, Bloomberg Philanthropies, and other private sector donors.

 

FHC was one of only fourteen companies invited to attend the London Summit.  O.B. Parrish, the Company’s Chairman and Chief Executive Officer, participated on a panel “Partnering for Progress: The Role of Public/Private Partnerships”.

 

FHC announced a Public/Private Partnership program to support the goal to provide contraceptives to an additional 120 million women by 2020.  FHC’s program includes the following:

 

·

Aggregate annual FC2 purchases from all major public sector buyers each year to establish volume-based unit pricing for the succeeding year.

·

Award major public sector purchasers with FC2 Female Condoms equal to 5 percent of their total annual units purchased, at no cost to such purchasers.

·

Invest up to $14 million over the period from 2013 through 2018 in reproductive health and HIV/AIDS prevention education and training in collaboration with global agencies.

 

The Company believes achievement of the London Summit’s goals will increase the market for contraceptives over the long-term.  It also believes it will increase the market for the female condom, as it is the only female-initiated product that provides dual protection against unintended pregnancy and STIs including HIV/AIDS.

 

On September 28, 2013, The Global Poverty Project in partnership with the Cotton On Foundation sponsored a concert in Central Park in New York, which included a number of celebrities. Attendance was estimated to be 60,000 and the concert was streamed worldwide. The mission of the Global Citizens Group is to end extreme poverty. It has a number of private sector partners. At the Central Park concert FHC was recognized as a lead partner in the It Takes Two Campaign, a global awareness campaign whose goal is to increase awareness and support for the London Summit’s goals.

 

On the Company’s YouTube channel the ‘FC2 All About Pleasure’ animation had been viewed over 9 million times from January 1, 2013 to November 30, 2013.

 

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The Condom Market

 

The global male condom market (public and private sector) is estimated to be $3 billion annually. The global public health sector market for male condoms is estimated to be greater than 10 billion units annually.  The private sector market for male condoms is estimated at 3 billion units annually.  The United Nations Joint Programme on HIV/AIDS (“UNAIDS”) estimates that the annual public health sector demand for condoms, both male and female, will reach 19 billion units by 2015.

 

Strategy

 

The Company’s strategy is to fully develop global markets for FC2 for both contraception and STI prevention, including HIV/AIDS. Since the introduction of its first generation product, FC1, the Company has developed contacts and relationships with global public health sector organizations such as WHO, the United Nations Population Fund (UNFPA), the United States Agency for International Development (USAID), UNAIDS, country-specific health ministries and non-governmental organizations (NGOs), and commercial partners in various countries. The Company has representatives in various locations around the world to provide technical support and assist with its customers’ prevention and family planning programs. As announced during the London Summit, the Company has pledged to significantly increase its global educational and training investment over the period from 2013 through 2018.

 

The Company’s first generation product, FC1, was produced from a costly raw material, polyurethane, in a labor intensive manufacturing process in a suburb of London, England.  To expand women’s access to the female condom, increase sales volume, reduce costs, and significantly increase gross margin, the Company developed its second generation product, FC2.  The second generation product is made from a less costly raw material, nitrile polymer. FC2’s production process is more efficient and less labor intensive than that of FC1, making it less costly to produce.  Its price is now approximately 30 percent less than that of FC1.  FC2 is currently being produced at the Company’s facility in Selangor D.E., Malaysia and in Kochi, India, in conjunction with FHC’s exclusive distributor in India, Hindustan Lifecare Limited (“HLL”). The Company made its first substantial sales of FC2 in fiscal 2007.  Since October 2009, all of the Company’s unit sales have been FC2.  Production in London was discontinued with the final shipment of FC1 in October 2009. As a result of the successful development of FC2, the Company was able to both reduce the price to the public health sector and increase its gross margin.

 

Since the product’s primary market is currently the public health sector, the Company incurs minimal sales and marketing expense.  Thus, as the demand for FC2 continues to grow in the public health sector, the Company’s operating expenses are likely to grow at a much lower rate than that of volume.

 

Commercial Markets - Direct to Consumers

 

The Company has distribution agreements and other arrangements with commercial partners which market directly to consumers in 16 countries, including the United States, Brazil, Spain, France, and the United Kingdom. These agreements are generally exclusive for a single country. Under these agreements, the Company sells FC2 to the distributor partners, who market and distribute the product to consumers in the established territory.   

 

In the U.S., FHC is conducting two test programs to reach young consumers: The FC2 Mobile Engagement Program and The FC2 College Campus Program. The objective is to create awareness and sexual health knowledge that results in online/in store retail purchasing by young women and men. Education and training are the key content elements for these programs, similar to the public sector.

 

·

The FC2 Mobile Engagement Program is currently targeted to the following five cities where FHC has established community support through its partnership with women’s and public health groups in conducting Public Sector Programs: Washington D.C., Chicago, Atlanta, Houston and San Francisco.

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·

Earlier this year FHC initiated the FC2 College Campus Program. Colleges were contacted and advised that they could apply to participate in an on-campus FC2 Program. If accepted, FHC would provide a mini-grant ($50-$500) and related education and training materials to help start an on-campus program. Grants would be awarded based on a schools intention to (1) raise awareness of FC2 on campus, (2) increase access to FC2 on campus, and (3) enhance students’ capacity to effectively and accurately use FC2. Colleges also had the option (alternate to the mini-grant application) of completing FHC’s Online Training Program or participating in a centrally located multi-institution training session located in a central city. The pilot regions for The FC2 College Campus Program were determined through selection of the following four American College Health Associations Regional Affiliates: New England, New York, South and South West College Health Associations. In total 30 colleges were chosen to receive grants for The FC2 College Campus Program, including Colgate University, Tulane University and Duke University plus student groups from institutions such as Boston College.

 

Relationships and Agreements with Public Health Sector Organizations

 

The Company’s customers are primarily large global agencies, non-government organizations, ministries of health and other government agencies which purchase and distribute FC2 for use in HIV/AIDS prevention and family planning programs.  The Company offers uniform, volume-based pricing to such agencies, rather than entering into long-term supply agreements. In the United States, FC2 is sold to city and state public health clinics as well as not-for-profit organizations such as Planned Parenthood. 

 

In the U.S., municipal and state departments of health have been increasing access to FC2 within established condom programming. Chicago, Los Angeles, San Francisco, New York and Washington, D.C., are all examples of cities with programs providing female and male condoms free of charge. In New York City, at December 31, 2013 FC2 was available in 1,495 locations, up 33% over 1,128 locations at December 31, 2012.

 

The Company has encouraged growth in the U.S. through education and program development support.  To make health professional education broadly available, the Company introduced its FC2 On-line Training Program in March 2012. In 2013 the Company launched the pilot for an FC2 College Campus Program in the Northeast, with a second phase in the South/Southwest United States following in late 2013. With the success of the pilot the Company intends to open up the program to higher learning institutions nationally.

 

The National Female Condom Coalition (NFCC) and Universal Access to Female Condoms (UAFC) sponsored the second annual Global Female Condom Day on September 16, 2013. The 2013 Global Female Condom Day drew greater attention and participation than in the previous year. Public events highlighting the need for access to female condoms and promoting their use in family planning and disease prevention were organized around the world and in the U.S., including events specifically initiated or co-sponsored by the Company.

 

To increase visibility in the U.S., FHC has partnered with Ogilvy Public Relations to develop a Consumer Text Messaging Program and a Media Relations Toolkit and Webinar for our community partners.

 

Manufacturing Facilities

 

The Company leases 16,000 sq. ft. of production space in Selangor D.E., Malaysia for the production of FC2.  In fiscal 2012, expansion of the facility’s manufacturing capacity by 20 percent to approximately 100 million units annually was begun. The expansion was completed in October 2012, when the new lines went into production.  The cost was approximately $700,000, which was funded internally.

 

The Company’s India-based FC2 end-stage production capacity for supply to the Indian market is located at a facility owned by its exclusive distributor, HLL, in the Cochin Special Export Zone. In December 2007, production began at that facility which has a capacity of 7.5 million units per year. 

 

FHC’s total FC2 production capacity is approximately 100 million units annually.  The Company is currently reviewing options to expand its manufacturing capacity, as needed, on a modular basisThe Company will consider manufacturing in other locations as the demand for FC2 develops.

 

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Government Regulation

 

Female condoms as a group were classified by the FDA as Class III medical devices in 1989.  Class III medical devices are deemed by the FDA to carry potential risks with use which must be tested prior to FDA approval, referred to as Premarket Approval (PMA), for sale in the U.S.  As FC2 is a Class III medical device, prior to selling FC2 in the U.S., the Company was required to submit a PMA application containing technical information on the use of FC2 such as pre-clinical and clinical safety and efficacy studies which were gathered together in a required format and content.  The FC2 PMA was approved by the FDA as a Class III medical device in March 2009.

 

FC2 received the CE Mark which allows it to be marketed throughout the European Union.  FC2 has also been approved by regulatory authorities in Brazil, India and other jurisdictions. 

 

The Company believes that FC2’s PMA and FDA classification as a Class III medical device creates a significant barrier to entry in the U.S. market. The Company estimates that it would take a minimum of four to six years to implement, execute and receive FDA approval of a PMA to market another type of female condom.

 

In the U.S., FC2 is regulated by the FDA. Pursuant to section 515(a)(3) of the Safe Medical Amendments Act of 1990 (the "SMA Act"), the FDA may temporarily suspend approval and initiate withdrawal of the PMA if the FDA finds that FC2 is unsafe or ineffective, or on the basis of new information with respect to the device, which, when evaluated together with information available at the time of approval, indicates a lack of reasonable assurance that the device is safe or effective under the conditions of use prescribed, recommended or suggested in the labeling. Failure to comply with the conditions of FDA approval invalidates the approval order. Commercial distribution of a device that is not in compliance with these conditions is a violation of the SMA Act.  As an FDA approved medical device, the facilities in which FC2 is produced and tested are subject to periodic FDA inspection to ensure compliance with current Good Manufacturing Processes.  The Company’s most recent FDA inspection was completed in September 2010.

 

The FDA’s approval order for FC2 includes conditions that relate to product labeling, including information on the package itself and instructions for use called a “package insert” which accompanies each product.  The Company believes it is in compliance with the FDA approval order.

 

The Company’s facility may also be subject to inspection by UNFPA, USAID, and country specific ministries of health.

 

Competition 

 

FC2 participates in the same market as male condoms; however, it is not seen as directly competing with male condoms. Rather, studies show that providing FC2 is additive in terms of prevention and choice. Male condoms cost less and have brand names that are more widely recognized than FC2. In addition, male condoms are generally manufactured and marketed by companies with significantly greater financial resources than the Company.

 

Other parties have developed and marketed female condoms.  None of these female condoms marketed or under development by other parties have secured FDA approval. FDA approval is required to sell female condoms in the U.S. or through USAID. The Cupid female condom became the second female condom design to successfully complete the WHO prequalification process in July 2012 and be cleared for purchase by U.N. agencies. It is possible that other female condoms may receive FDA approval or complete the WHO prequalification process or may otherwise compete with FC2.

 

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Patents and Trademarks

 

FC2 patents have been issued by the United States, Europe, Canada, Australia, South Africa, The People’s Republic of China,  Japan, Mexico and the African Regional Intellectual Property Organization (ARIPO), which includes Botswana, Gambia, Ghana, Kenya, Lesotho, Malawi, Mozambique, Namibia, Sierra Leone, Sudan, Swaziland, Tanzania, Uganda, Zambia and Zimbabwe.  Further, the European patent for FC2 has been validated in the following countries: Austria, Belgium, Bulgaria, Switzerland, Republic of Cyprus, Czech Republic, Germany, Denmark, Estonia, Spain, Finland, France, United Kingdom, Greece, Hungary, Ireland, Italy, Luxembourg, Monaco, Netherlands, Portugal, Romania, Sweden, Slovenia, Slovakia, and Turkey.  The patents cover the key aspects of FC2, including its overall design and manufacturing process.  The patents expire from 2023 through 2024. In addition, patent applications for FC2 are pending in a number of other countries around the world. There can be no assurance that pending patent applications provide the Company with protection against copycat products entering markets during the pendency of the applications.

 

The Company has the registered trademark “FC2 Female Condom” in the United States. Furthermore, the Company has filed applications or secured registrations in 40 countries or jurisdictions around the world to protect the various names and symbols used in marketing FC2. These encompass 14 different trademarks, including “femidom”, “femy”, “Reality” and others. In addition, the experience that has been gained through years of manufacturing the FC Female Condoms (FC1 and FC2) has allowed the Company to develop trade secrets and know-how, including certain proprietary production technologies that further protects its competitive position.

 

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Overview

 

The Company manufactures, markets and sells FC2. FC2 is the only currently available female-controlled product approved by the FDA that provides dual protection against unintended pregnancy and STIs, including HIV/AIDS.

 

Because FC2’s primary usage is for disease prevention, the public health sector is the Company’s main market. Within the public health sector, various organizations supply critical products such as FC2, at no cost or low cost, to those who need but cannot afford to buy such products for themselves.

 

FC2 is currently available in 144 countries. A significant number of countries with the highest demand potential are in the developing world. The incidence of HIV/AIDS, other STIs and unwanted pregnancy in these countries represents a remarkable potential for significant sales of a product that benefits some of the world’s most underprivileged people. However, conditions in these countries can be volatile and result in unpredictable delays in program development, tender applications and processing orders.

 

The Company has a relatively small customer base, with a limited number of customers who generally purchase in large quantities. Over the past few years, major customers have included large global agencies, such as UNFPA and USAID.  Other customers include ministries of health or other governmental agencies, which either purchase directly or via in-country distributors, and NGOs. 

 

Purchasing patterns vary significantly from one customer to another, and may reflect factors other than simple demand.  For example, some governmental agencies purchase through a formal procurement process in which a tender (request for bid) is issued for either a specific or a maximum unit quantity.  Tenders also define the other elements required for a qualified bid submission (such as product specifications, regulatory approvals, clearance by WHO, unit pricing and delivery timetable).  Bidders have a limited period of time in which to submit bids.  Bids are subjected to an evaluation process which is intended to conclude with a tender award to the successful bidder.  The entire tender process, from publication to award, may take many months to complete. Administrative issues, politics, bureaucracy, process errors, changes in leadership, funding priorities and/or other pressures may delay or derail the process and affect the purchasing patterns of public sector customers.  As a result, the Company may experience significant quarter-to-quarter sales variations due to the timing and shipment of large orders.

 

In the past few years, the Company’s business model, which includes high gross margins, modest capital expenditures and low expense requirements compared to production volumes, has permitted the Company to sustain profitable operations without debt and maintain dividend payments during periods of delayed orders. Continuation of these accomplishments in the future periods will be contingent on a number of factors, including the degree and period of sales volatility and on the strength of global demand for the Company’s product.

 

During fiscal 2011, the Company's unit shipments, revenues and net income were adversely affected by bureaucratic delays and other timing issues involving the receipt and shipment of large orders from Brazil and the Republic of South Africa (RSA). Significant orders for both countries were received in the first quarter of fiscal 2012. The 20 million unit order received for shipment to Brazil was the largest order in the Company’s history. Receipt of these orders positively impacted results in the first quarter of fiscal 2013.  

 

During the eight year period from fiscal 2005 through fiscal 2013, the average annual compound growth rate of unit sales of Female Condoms (FC1 and FC2) has been 18.7 percent.

 

Details of the quarterly unit sales for the last five fiscal years are listed below:

 

 

 

 

 

 

 

 

 

 

 

 

 

Period

2014

2013

2012

2011

2010

October 1 – December 31

11,832,666 
17,114,630 
15,166,217 
6,067,421 
9,527,700 

January 1 – March 31

 

16,675,035 
13,945,320 
8,905,099 
12,960,496 

April 1 – June 30

 

12,583,460 
15,198,960 
5,922,334 
2,606,802 

July 1 - September 30

 

8,386,800 
17,339,500 
11,977,716 
13,824,264 

Total

11,832,666 
54,759,925 
61,649,997 
32,872,570 
38,919,262 

 

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Revenues.  Most of the Company's revenues are derived from sales of FC2, and are recognized upon shipment of the product to its customers. Since fiscal 2008, revenue is also being derived from licensing the Company’s intellectual property to its exclusive distributor in India, HLL.  HLL is authorized to manufacture FC2 at HLL's facility in Kochi, India for sale in India.  HLL is the Company's exclusive distributor in India and the Company receives a royalty based on the number of units sold by HLL in India.  Such revenue appears in net revenues on the Unaudited Condensed Consolidated Statements of Income for the three months ended December 31, 2013 and 2012, and is recognized in the period in which the sale is made by HLL.

 

The Company's strategy is to further develop a global market and distribution network for its product by maintaining relationships with public health sector groups and completing partnership arrangements with companies with the necessary marketing and financial resources and local market expertise.  

 

The Company’s most significant customers are either global public health sector agencies or those who facilitate their purchases and/or distribution of FC2 for use in HIV/AIDS prevention and/or family planning. The Company offers uniform pricing to such agencies, rather than entering into long-term supply agreements. The Company's three largest customers currently are UNFPA, USAID, and Sekunjalo Investments Corporation (PTY) Ltd., the Company’s distributor in the RSA.  In the United States, FC2 is sold to city and state public health clinics as well and to not-for-profit organizations such as Planned Parenthood.

 

Because the Company manufactures FC2 in a leased facility located in Malaysia, a portion of the Company's operating costs are denominated in foreign currencies. While a material portion of the Company's future sales are likely to be in foreign markets, all sales are denominated in the United States dollar. Effective October 1, 2009, the Company’s U.K. and Malaysia subsidiaries adopted the U.S. dollar as their functional currency, further reducing the Company’s foreign currency risk.

 

Expenses.  The Company manufactures FC2 at its facility located in Selangor D.E., Malaysia.  The Company's cost of sales consists primarily of direct material costs, direct labor costs and indirect production and distribution costs.  Direct material costs include raw materials used to make FC2, principally a nitrile polymer.  Indirect production costs include logistics, quality control and maintenance expenses, as well as costs for helium, nitrogen, electricity and other utilities.  All of the key components for the manufacture of FC2 are essentially available from multiple sources. 

 

The Company's operating expenses include costs for promotion, education and training relating to FC2.  During the London Summit, the Company announced a program to support the London Summit's goal to provide contraceptives to an additional 120 million women by 2020.  This program includes a plan for the Company to invest up to $14 million over the period from 2013 through 2018 in reproductive health and HIV/AIDS prevention education and training in collaboration with global agencies.  Such investment in education and training may increase the Company's operating expenses in future periods, although the Company has not set a specific timetable for any such increased spending on education and training. The Company believes that increased spending on education and training will expand the market for FC2.  In connection with the London Summit, the Company implemented a volume purchasing incentive program to award major public sector purchasers with FC2 equal to 5 percent of their total annual units purchased, at no cost to such purchasers. The initial entitlement to 5 percent no-cost product was based on FC2 units purchased during the initial six-month period from the start of the program on July 1, 2012 through December 31, 2012.  Future entitlements to 5 percent no-cost product will be determined on a calendar year basis beginning with the year ending December 31, 2013. The Company will reserve for the cost of the 5 percent no-cost product as a cost of sales, which may affect the Company's gross margin.  The Company believes that such no-cost product awards will assist in educating and training, making new users aware of FC2 and providing an incentive for increased unit sale volumes from major purchasers.

 

RESULTS OF OPERATIONS

 

THREE MONTHS ENDED DECEMBER 31, 2013 COMPARED TO THREE MONTHS ENDED December 31, 2012

 

The Company had net revenues of $6,690,195 and net income of $1,464,603, or $0.05 per diluted share, for the three months ended December 31, 2013 compared to net revenues of $9,910,227 and net income of $3,533,846, or $ 0.12 per diluted share, for the three months ended December 31, 2012.   

 

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Net revenues decreased $3,220,032, or 32 percent, on a 31 percent decrease in unit sales for the three months ended December 31, 2013, compared with the same period last year.  The decrease is due to the volatility of timing and shipment of large orders.  The three months ended December 31, 2012, was a record first quarter for net revenues, that included significant shipments to Brazil and RSA against the orders received from them in fiscal 2012.  The FC2 average sales price per unit decreased 2.4 percent compared with the same period last year.    

 

Cost of sales decreased  $932,327, or 24 percent, to $3,011,701 on a 31 percent decrease in unit sales in the three months ended December 31, 2013 from $3,944,028 for the same period last year.  The decrease is primarily due to lower unit sales, partially offset by the Company’s volume purchasing incentive program.

 

Gross profit decreased $2,287,705, or 38 percent, to $3,678,494 for the three months ended December 31, 2013 from $5,966,199 for the three months ended December 31, 2012.  Gross profit for the three months ended December 31, 2013 was  55 percent of net revenues versus 60 percent for the same period last year.  The reduction primarily reflects the effect of lower volumes.

 

Significant quarter-to-quarter variations in the Company’s results have historically resulted from the timing and shipment of large orders and production scheduling rather than from any fundamental changes in the business.

 

Operating expenses decreased  $270,307, or 11 percent, to $2,094,858 for the three months ended December 31, 2013 from $2,365,165 for the three months ended December 31, 2012.  The decrease is primarily due to lower legal and consulting expenses and incentive compensation expense.

 

Operating income for the three months ended December 31, 2013, was $1,583,636 versus operating income of $3,601,034 in the same period last year, a decrease of $2,017,398, or 56 percentThe decrease is primarily due to lower unit sales and the reduction of gross margins.

 

Interest, net and other expense for the three months ended December 31, 2013 was $1,732, a decrease of $2,512 from the same period in fiscal year 2012, when interest, net and other expense was $4,244.  The impact of foreign currency transactions for the first quarter of fiscal 2013 was a loss of $18,426 compared to a loss of $37,267 for the same period last year. 

 

The Company's net income decreased $2,069,243, or 59 percent, to $1,464,603 in the three months ended December 31, 2013 from net income of $3,533,846 in the same period of the prior year, as a result of the factors discussed above. Net income was 22 percent and 36 percent of net revenues for the three months ended December 31, 2013 and 2012, respectively.

 

Reliance on a Single Product

 

The Company expects to derive the vast majority, if not all, of its future revenues from FC2, its sole current product. While management believes the global potential for FC2 is significant, the ultimate level of consumer demand around the world is not yet known.

 

Distribution Network

 

The Company's strategy is to develop a global distribution network for FC2 by entering into partnership arrangements with financially secure companies with appropriate marketing expertise. This strategy has resulted in distribution in 144 countries, including numerous in-country distributions in the public health sector, particularly in Africa, Latin America and India. The Company has also entered into several partnership agreements for the commercialization of FC2 in consumer sector markets around the world. However, the Company is dependent on country governments, global donors, as well as U.S. municipal and state public health departments to continue AIDS/HIV/STI prevention and family planning programs that include FC2 as a component of such programs. The Company’s commercial market penetration is dependent on its ability to identify appropriate business partners who will effectively market and distribute FC2 within its contractual territory. Failure by the Company's partners to successfully market and distribute FC2 or failure of donors and/or country governments to establish and sustain HIV/AIDS prevention programs which include distribution of female condoms, the Company’s inability to secure additional agreements with global AIDS prevention and family planning organizations, or the Company’s inability to secure agreements in new markets, either in the public or private sectors, could adversely affect the Company’s financial condition and results of operations.

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Inventory and Supply

 

All of the key components for the manufacture of FC2 are essentially available from either multiple sources or multiple locations within a source.

 

Global Market and Foreign Currency Risks

 

The Company manufactures FC2 in a leased facility located in Malaysia. Although a material portion of the Company's future sales are likely to be in foreign markets, FC2 sales are denominated in U.S. dollars only.  Manufacturing costs are subject to normal currency risks associated with changes in the exchange rate of the Malaysian ringgit relative to the United States dollar.

 

Government Regulation

 

FC2 is subject to regulation by the FDA pursuant to the Federal Food, Drug and Cosmetic Act (the "FDC Act"), and by other state and foreign regulatory agencies. Under the FDC Act, medical devices must receive FDA clearance before they can be sold. FDA regulations also require the Company to adhere to certain current "Good Manufacturing Practices," which include testing, quality control and documentation procedures. The Company's compliance with applicable regulatory requirements is monitored through periodic inspections by the FDA.  The failure to comply with applicable regulations may result in fines, delays or suspensions of clearances, seizures or recalls of products, operating restrictions, withdrawal of FDA approval and criminal prosecutions. The Company's operating results and financial condition could be materially adversely affected in the event of a withdrawal of approval from the FDA.

 

Liquidity and Sources of Capital

 

The Company's operations generated positive cash flow of $1.2 million in the three months ended December 31, 2013, which included a negative impact of changes in operating assets and liabilities of $(0.6) million, compared with $1.0 million in the three months ended December 31, 2012, which included a negative impact of changes in operating assets and liabilities of $(2.9) million.

 

Accounts receivable increased from $2.4 million at September 30, 2013 to $2.7 million at December 31, 2013.  The Company’s credit terms vary from 30 to 90 days, depending on the class of trade and customary terms within a territory, so the accounts receivable balance is also impacted by the mix of purchasers within the quarter.  As is typical in the Company's business, extended credit terms may occasionally be offered as a sales promotion.  For the past twelve months, the Company's average days’ sales outstanding has been approximately 43 days.  Over the past five years, the Company’s bad debt expense has been less than 0.01 percent of product sales.

 

Beginning February 16, 2010, through December 31, 2013, the Company has paid 16 quarterly cash dividends.  The first 9 were paid at a quarterly rate per share of $0.05 through February 9, 2012, 4 were paid at a quarterly rate per share of $0.06 from May 9, 2012 through February 6, 2013, and 3 were paid at a quarterly rate per share of $0.07 from May 8, 2013 through November 6, 2013. The Company paid cash dividends of $2.0 million and $1.7 million during the three months ended December 31, 2013 and 2012, respectively. 

 

On December 12, 2013, the Company’s Board of Directors declared a quarterly cash dividend of $0.07 per share.  The Company will pay, from its cash on hand, approximately $2.0 million pursuant to the dividend on February 5, 2014 to stockholders of record as of January 29, 2014.

 

Any future quarterly dividends and the record date for such dividends will be approved each quarter by the Company’s Board of Directors and announced by the Company.  Payment of future dividends is at the discretion of the Board of Directors and the Company may not have sufficient cash flows to continue to pay dividends.

 

At December 31, 2013, the Company had working capital of $11.4 million and stockholders’ equity of $29.3 million compared to working capital of $11.1 million and stockholders’ equity of $24.5 million as of December 31, 2012.

 

The Company believes its current cash position is adequate to fund operations of the Company in the next 12 months, although no assurances can be made that such cash will be adequate. If the Company needs additional cash, it may sell equity securities to raise additional capital and may borrow funds under its Heartland Bank credit facility.

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On August 1, 2013, the Company entered into the Loan Agreement with Heartland Bank to extend the term of the Company’s revolving line of credit to August 1, 2014. The credit facility consists of a single revolving note for up to $2 million with Heartland Bank, with borrowings limited to a borrowing base determined based on 70 percent to 80 percent of eligible accounts receivable plus 50 percent of eligible inventory. Significant restrictive covenants in the Loan Agreement include prohibitions on any merger, consolidation or sale of all or a substantial portion of the Company’s assets and limits on the payment of dividends or the repurchase of shares. The Loan Agreement does not contain any financial covenants that require compliance with ratios or amounts.  Dividends and share repurchases are permitted as long as after giving effect to the dividend or share repurchase the Company has a ratio of total liabilities to total stockholders’ equity of no more than 1:1.  Borrowings on the revolving note bear interest at a rate of the base rate (4.0 percent at December 31, 2013) plus 0.5 percent. The note is collateralized by substantially all of the assets of the Company. No amounts were outstanding under the revolving note at either December 31, 2013 or September 30, 2013. 

 

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Item 3Quantitative and Qualitative Disclosures About Market Risk

 

The Company's exposure to market risk is limited to fluctuations in raw material commodity prices, particularly the nitrile polymer used to manufacture FC2, and foreign currency exchange rate risk associated with the Company's foreign operations.  The Company does not utilize financial instruments for trading purposes or to hedge risk and holds no derivative financial instruments which would expose it to significant market risk.  Effective October 1, 2009, the Company's U.K. and Malaysia subsidiaries adopted the U.S. dollar as their functional currency.  The consistent use of the U.S. dollar as the functional currency across the Company reduces its foreign currency risk and stabilizes its operating results.  The Company currently has no significant exposure to interest rate risk.  The Company has a line of credit with Heartland Bank, consisting of a revolving note for up to $2 million with borrowings limited to a percentage of eligible accounts receivable and eligible inventory.  Outstanding borrowings under the line of credit will incur interest at a rate equal to a base rate plus 0.5 percent.  The Company has not had any outstanding borrowings in the last five years.  There is, therefore, currently no significant exposure to market risk for changes in interest rates.  To the extent that the Company incurs future borrowings under its lines of credit, it would be subject to interest rate risk related to such borrowings. 

 

Item 4Controls and Procedures

 

As of the end of the period covered by this report, the Company carried out an evaluation, under the supervision and with the participation of the Company's management, including the Company's Chief Executive Officer and the Company's Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended). Based on this evaluation, the Company's Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective. It should be noted that in designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. The Company has designed its disclosure controls and procedures to reach a level of reasonable assurance of achieving desired control objectives and, based on the evaluation described above, the Company's Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective at reaching that level of reasonable assurance.

 

There was no change in the Company's internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended) during the Company's most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.

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PART II.       OTHER INFORMATION

 

Item 1ARisk Factors

 

There have been no material changes from the risk factors previously disclosed in Part I, Item 1A, "Risk Factors," of the Company's Form 10-K for the year ended September 30, 2013.  Please refer to that section for disclosures regarding the risks and uncertainties relating to the Company's business.

 

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Item 6Exhibits

 

Exhibit

NumberDescription 

 

 

 

3.1

Amended and Restated Articles of Incorporation.  (1)

 

 

3.2

Articles of Amendment to the Amended and Restated Articles of Incorporation of the Company increasing the number of authorized shares of common stock to 27,000,000 shares.  (2)

 

 

3.3

Articles of Amendment to the Amended and Restated Articles of Incorporation of the Company increasing the number of authorized shares of common stock to 35,500,000 shares.  (3)

 

 

3.4

Articles of Amendment to the Amended and Restated Articles of Incorporation of the Company increasing the number of authorized shares of common stock to 38,500,000 shares.  (4)

 

 

3.5

Amended and Restated By-Laws.  (5)

 

 

4.1

Amended and Restated Articles of Incorporation (same as Exhibit 3.1).

 

 

4.2

Articles II, VII and XI of the Amended and Restated By-Laws (included in Exhibit 3.5).

 

 

10.1

Consulting Agreement, dated as of December 31, 2013, between the Company and Mary Ann Leeper.

 

 

10.2

Letter Agreement, dated December 5, 2013, between the Company and Karen King.  (6)

 

 

10.3

Change of Control Agreement, effective as of January 20, 2014, between the Company and Karen King. (6)

 

 

31.1

Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

31.2

Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

32.1

Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350 (Section 906 of the Sarbanes-Oxley Act of 2002).  (7)

 

 

101

The following materials from the Company's Quarterly Report on Form 10-Q for the quarter ended December 31, 2013, formatted in XBRL (Extensible Business Reporting Language):  (1) the Unaudited Condensed Consolidated Balance Sheets, (2) the Unaudited Condensed Consolidated Statements of Income, (3) the Unaudited Condensed Consolidated Statements of Cash Flows and (4) the Notes to the Unaudited Condensed Consolidated Financial Statements.

 

_____________________________

 

 

 

 

 

(1)

Incorporated herein by reference to the Company's Registration Statement on Form SB‑2, filed with the Securities and Exchange Commission on October 19, 1999.

 

 

(2)

Incorporated by reference to the Company's Registration Statement on Form SB‑2, filed with the Securities and Exchange Commission on September 21, 2000.

 

 

(3)

Incorporated by reference to the Company's Registration Statement on Form SB‑2, filed with the Securities and Exchange Commission on September 6, 2002.

 

 

(4)

Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended December 31, 2003.

 

 

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(5)

Incorporated by reference to the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on May 22, 2013.

 

 

(6)

Incorporated by reference to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on December 11, 2013.

 

 

(7)

This certification is not "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended.

 

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SIGNATURES

 

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

 

 

THE FEMALE HEALTH COMPANY

 

 

DATE: February 3, 2014

 

/s/ Karen King

Karen King,  President and

Chief Executive Officer

 

 

DATE: February 3, 2014

 

/s/ Michele Greco

Michele Greco, Vice President and

Chief Financial Officer

 

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