f10k_120412.htm

THE FEMALE HEALTH COMPANY

FORM 10-K

SEPTEMBER 30, 2012

TABLE OF CONTENTS

PART I		Page

Item 1.	Business	5
Item 1A.	Risk Factors	15
Item 1B.	Unresolved Staff Comments	21
Item 2.	Properties	21
Item 3.	Legal Proceedings	21
Item 4.	Mine Safety Disclosures	21

PART II

Item 5.	Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	22
Item 6.	Selected Financial Data	23
Item 7.	Management's Discussion and Analysis of Financial Condition and Results of Operations	26
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	34
Item 8.	Financial Statements and Supplementary Data	35
Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure	35
Item 9A.	Controls and Procedures	35
Item 9B.	Other Information	36

PART III

Item 10.	Directors, Executive Officers and Corporate Governance	36
Item 11.	Executive Compensation	42
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	57
Item 13.	Certain Relationships and Related Transactions, and Director Independence	60
Item 14.	Principal Accounting Fees and Services	60

PART IV

Item 15.	Exhibits and Financial Statement Schedules	61
	Signatures	66

FORWARD-LOOKING STATEMENTS

Certain statements included in this Annual Report on Form 10-K 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. 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 achievements expressed or implied by such forward-looking statements. Such factors include, but are not limited to, those described under the caption "Risk Factors" in Item 1A. of this report. 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.

As used in this report, the terms "we," "us," "our," "The Female Health Company," "FHC" and the "Company" mean The Female Health Company and its subsidiaries, unless the context indicates another meaning, and the term "common stock" means shares of our common stock, par value of $0.01 per share.

PART I

Item 1. Business

General

The Female Health Company manufactures, markets and sells the FC2 female condom. FC2 is the only currently available product under a woman's control, approved by both 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.

The FC2 female condom provides women dual protection against STI’s (including HIV/AIDS) and unintended pregnancy. 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.

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, significant customers have included large global agencies, such as the United Nations Population Fund (UNFPA) and the United States Agency for International Development (USAID), through its facilitator, John Snow, Inc. Other customers include ministries of health or other governmental agencies, which either purchase directly or via in-country distributors, and non-governmental organizations.

FC2 is currently available in 138 countries. A significant number of countries with the highest demand potential are in the developing world. The incidence of HIV/AIDS, other STI’s 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.

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 other requirements 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.

The Company currently operates in one industry segment which includes the development, manufacture and marketing of consumer health care products. Therefore, no segment data is disclosed in the Notes to the Consolidated Financial Statements contained in this report. Information regarding the Company's operations by geographic area is included in Note 10 in the Notes to the Consolidated Financial Statements contained in this report.

Company History

The female condom was invented by a Danish physician who obtained a U.S. patent for the FC1 product in 1988. The physician subsequently sold certain rights to the condom to Chartex Resources Limited. In the years that followed, Chartex, with resources provided by a Danish entrepreneur and a nonprofit Danish foundation, developed the manufacturing processes and completed other activities associated with bringing the female condom to market in certain non-U.S. countries. The Wisconsin Pharmacal Company, Inc. (“Wisconsin Pharmacal”, the Company's predecessor) owned certain rights to the female condom in the U.S., Canada and Mexico. Wisconsin Pharmacal pursued the pre-clinical and clinical studies and overall development of the product, necessary for U.S. FDA approval and worldwide distribution of the product.

The Female Health Company is the successor to Wisconsin Pharmacal, a company which manufactured and marketed disparate specialty chemical and branded consumer products. The Company was originally incorporated in 1971.

In fiscal 1995, the Company's Board of Directors approved a plan to complete a series of actions designed, in part, to maximize the potential of the female condom. First, the Company restructured and transferred the Wisconsin Pharmacal name and all of the assets and liabilities of the Company other than those related to the female condom to a newly formed, wholly-owned subsidiary of the Company, WPC Holdings, Inc. ("Holdings"). In January 1996, the Company sold Holdings to an unrelated third party. Then, in February 1996, the Company acquired Chartex. At the same time, the Company was renamed The Female Health Company. As a result of the sale of Holdings and the acquisition of Chartex, The Female Health Company evolved to its current state with its sole business consisting of the manufacture, marketing and sale of the female condoms.

The FDA approved FC1 for distribution in the U.S. in 1993 and approved the Company's U.K. FC1 manufacturing facility in 1994. In 2005, the Company introduced a second generation female condom, FC2, which had been developed to:

1.	Expand access to female-initiated prevention by offering a more affordable product

2.	Increase HIV/AIDS prevention and family planning options

3.	Lower health care costs

4.	Increase gross margins

FC2 was first marketed internationally in March 2007 and has been marketed in the U.S. since August 2009. In October 2009, the Company completed the transition from its first generation product, FC1, to its second generation product, FC2, and production of FC1 ceased. The Company retains ownership of certain world-wide rights, as well as various patents, regulatory approvals and other intellectual property related to FC1.

FC2 was approved by the FDA as a Class III medical device on March 10, 2009. In addition to FDA approval, the FC2 female condom 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.

Since FC2’s introduction in March 2007 through September 30, 2012, approximately 170 million FC2 female condoms have been distributed in 138 countries. It is sold directly to consumers in 16 countries. Since the first FDA approval in 1993, the Company has sold over 345 million FC female condoms (FC1 and FC2).

Strategy

The Company’s strategy is to fully develop global markets for the FC2 female condom for both contraception and STI prevention. 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, UNFPA, USAID, the United Nations Joint Programme on HIV/AIDS (“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 July 2012 London Summit on Family Planning, the Company has pledged to significantly increase its global educational and training investment over the next six years.

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 49% less than FC1’s final unit sales price. 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 the female condom 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.

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 the FC2 female condom. The FC2 female condom is currently the only FDA approved and marketed product controlled by women that prevents STI's, including HIV/AIDS. Used consistently and correctly, it provides women dual protection against STI’s (including HIV/AIDS) and unintended pregnancy. The FC2 female condom does not compete with the male condom, but is 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 female condoms, 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% 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 STI’s. The increase in protected sex acts varies by country and averages between 10% and 35%.

FC2, the Company’s second generation female condom, 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% to 20% 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.

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, the FC2 female condom 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.

Global Market Potential

Because the FC2 female condom offers a woman dual protection against both unintended pregnancy and STI’s, including HIV/AIDS, its market encompasses both family planning and disease prevention.

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 World Health Organization, in 2010 worldwide more than half of all the adults livings with HIV were women and almost 50% 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 the FC2 female condom 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 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 STI’s, including HIV/AIDS. The Company’s FC2 female condom, when used consistently and correctly, gives a woman control over her sexual health by providing dual protection against STI’s (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 lists 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 is 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 sexual transmitted infections in the United States each year. It is also estimated that over 24,000 women each year in the US lose the ability to conceive or carry a pregnancy to term due to undiagnosed or untreated STI’s. In March 2008, the CDC announced that a study indicated that 26% of female adolescents in the United States have at least one of the most common STI’s. Led by the CDC’s Sara Forhan, the study is the first to examine the combined national prevalence of common STI’s 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% compared to 20% 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%.

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.

The value of FC2 as a contraceptive device was highlighted on World AIDS Day, December 1, 2011, when the British Government pledged 5 million British pounds (approximately $7.6 million) for the purchase of female condoms. In the announcement, the British Government noted the prevention of unintended pregnancies as a reason for the donation.

On July 11, 2012, World Population Day, the UK 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 immortality, HIV/AIDS babies and 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 British 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 program to support the goal to provide contraceptives to an additional 120 million women by 2020. FHC’s program includes the following:

·	Aggregate annual public sector purchases from all large buyers to set prospectively volume-based unit pricing

·	Award major purchasers with free product equal to 5% of total annual units purchased

·	Invest up to $14 million over the next six years 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 STI’s including HIV/AIDS.

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. Given the rapid spread of HIV/AIDS in India and China, UNAIDS estimates that the annual public health sector demand for condoms, both male and female, will reach 19 billion units by 2015.

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 Class III medical devices create 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.

Significant Customers

Because FC2 provides dual protection against both sexually transmitted infections, (including HIV/AIDS), and unintended pregnancy, it is an integral part of both HIV/AIDS prevention and family planning programs throughout the world. These programs are typically supplied by global public health sector buyers who purchase products for distribution, at low cost or no cost, to those who need but cannot afford to buy such products themselves. Within the global public health sector are large global agencies such as UNFPA (U.N. Population Fund), USAID (United States Agency for International Development), DFID (U.K.’s Department for International Development), PSI (Population Services International) and other social marketing groups, various government health agencies and NGO’s (non-governmental agencies). The Company’s most significant customers are either global public health sector agencies, country specific ministries of health or those who facilitate their purchases and/or distribution.

The Company's three largest customers currently are UNFPA, John Snow, Inc., facilitator of USAID I DELIVER project, and Sekunjalo Investments Corporation (PTY) Ltd. UNFPA accounted for 40% of unit sales in fiscal 2012, 25% of unit sales in fiscal 2011, and 37% of unit sales in fiscal 2010. John Snow, Inc. accounted for 25% of unit sales in fiscal 2012, 26% of unit sales in fiscal 2011, and 33% of unit sales in fiscal 2010. Sekunjalo Investments Corporation (PTY) Ltd., accounted for 20% of unit sales in 2012. Sekujalo’s purchases were less than 10% of total annual units sold in fiscal 2011 and 2010. No other single customer accounted for more than 10% of unit sales in fiscal 2012, 2011 or 2010.

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 India. These agreements are generally exclusive for a single country. Under these agreements, the Company sells the FC2 female condom to the distributor partners, who market and distribute the product to consumers in the established territory.

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 the FC2 female condom 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. FC2 is being distributed as part of New York City’s Female Condom Education and Distribution Project being conducted by the Bureau of HIV/AIDS Prevention and Control. As of September 30, 2012, FC2 was available in 1,001 locations in New York City, as compared to 609 at September 30, 2011; including both community based organizations and the N.Y.C. Department of Health and Mental Hygiene units.

The Company, in collaboration with the National Female Condom Coalition, is encouraging FC2 usage through city-specific programs as well as other coordinated efforts. To make “train the trainer” education broadly available, the Company introduced its FC2 On-line Training Program in March 2012. The National Female Condom Coalition support of the female condom was evidenced by its initiation of the first-ever Global Female Condom Day on September 12, 2012.

Employees

As of November 30, 2012, the Company had 144 full-time employees including 10 located in the U.S., 13 in the U.K., 116 in Malaysia and 5 in other countries to implement training and programs, and no part-time employees. None of the Company’s employees are represented by a labor union. The Company believes that its employee relations are good. In Malaysia, direct labor is supplied primarily by a contracted work force.

Research and Development

In September 2005, the Company announced that development of its second generation product, FC2, was complete. Throughout fiscal 2006, the Company developed and scaled-up the FC2 manufacturing process, which was completed by approximately March 31, 2007. During the remainder of fiscal 2007 and throughout fiscal 2008 and fiscal 2009, the Company conducted various activities in preparation and support of a PMA to secure FDA approval for FC2.

Environmental Regulation

The Company believes there are no material issues or material costs associated with the Company's compliance with environmental laws related to the manufacture and distribution of FC2. The Company has not incurred environmental expenses in fiscal 2012, 2011 or 2010, nor does it anticipate environmental expenses in the foreseeable future.

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.

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% to approximately 100 million units annually was begun. The expansion was completed in October 2012, when the new lines went into production.

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, Hindustan Lifecare Limited (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 intends to expand its capacity at existing locations and/or manufacture at additional locations as the demand for FC2 develops.

Competition

The Company's FC2 female condom participates in the same market as male condoms but 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. 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 UN agencies. It is possible that other female condoms may receive FDA approval or complete the WHO prequalification process or may otherwise compete with the Company's FC2 female condom.

Patents and Trademarks

FC2 patents have been issued by the United States, the European Union, Canada, Australia, South Africa, The People’s Republic of China, Greece, Turkey, Spain, Japan and the African Regional Intellectual Property Organization (ARIPO), which includes Botswana, The Gambia, Ghana, Kenya, Lesotho, Malawi, Mozambique, Namibia, Sierra Leone, Somalia, Sudan, Swaziland, Uganda, United Republic of Tanzania, Zambia and Zimbabwe. Patent applications for FC2 are pending in various other countries around the world through the Patent Cooperation Treaty. The patents cover the key aspects of FC2, including its overall design and manufacturing process. There can be no assurance that pending patents provide the Company with protection against copycat products entering markets during the pendency of the patents.

The Company has the registered trademark “FC2 Female Condom” in the United States. The Company has also secured, or applied for, 12 trademarks in 22 countries to protect the various names and symbols used in marketing the product around the world. These include "femidom" and "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.

Backlog

Unfilled product orders totaled $11,382,572 at November 30, 2012 and $6,482,000 at December 1, 2011. Unfilled orders materially fluctuate from quarter to quarter, and the amount at November 30, 2012 includes orders with requested delivery dates later in fiscal 2013. The Company expects current unfilled orders to be filled during fiscal 2013.

Available Information

The Company maintains its corporate website at www.femalehealth.com and it makes available, free of charge, through this website its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports that the Company files with or furnishes to the Securities and Exchange Commission (the "SEC"), as soon as reasonably practicable after it electronically files such material with, or furnishes it to, the SEC. Information on the Company's website is not part of this report.

Item 1A. Risk Factors

You should carefully consider the risks described below, together with all of the other information included in this Annual Report and our other SEC filings, in considering our business and prospects. The risks described below are not the only risks we face. Additional risks that we do not yet know of or that we currently think are immaterial may also impair our business operations. If any of the events or circumstances described in the following risks occur, our business, financial condition or results of operations could be materially adversely affected. In such cases, the trading price of our common stock could decline.

Our success is dependent upon the success of FC2.

We expect to derive virtually all of our future revenues from sales of our only product, the FC2 female condom. The ultimate level of demand for FC2 is uncertain, and we may not be able to grow our business if demand for FC2 does not increase. We also depend on public sector agencies around the world to continue to include FC2 in their STI prevention and family planning programs; and on our commercial sector distribution partners to successfully market and distribute FC2. A decline in demand for FC2 would reduce our net revenues and profitability.

Our business may be affected by contracting risks with government and other international health agencies.

Our customers are primarily large international agencies and government health agencies which purchase and distribute FC2 for use in family planning and HIV/AIDS prevention programs. Sales to such agencies may be subject to government contracting risks, including the appropriations process and funding priorities, potential bureaucratic delays in awarding contracts, process errors, politics or other pressures, and the risk that contracts may be subject to cancellation, delay or restructuring. These contracting risks may cause significant quarter to quarter variations in our operating results and could adversely affect our net revenues and profitability. Budget issues and spending cuts affecting government health agencies may also adversely affect demand for our product and our net revenues.

We depend on three major customers for a significant portion of our net revenues.

In fiscal 2012, our three largest customers, UNFPA, John Snow, Inc., facilitator of USAID I DELIVER project, and Sekunjalo Investments Corporation (PTY) Ltd., together accounted for 85% of our total unit sales. In fiscal 2011, USAID and UNFPA collectively purchased 51% of units sold. In fiscal 2010, USAID and UNFPA collectively purchased 70% of the units sold. Sekunjalo’s purchases in fiscal 2011 and 2010 were less than 10% of total annual units sold. An adverse change in our relationship with our largest customers could have a material adverse effect on our net revenues and profitability.

Since we sell product in foreign markets, we are subject to international business risks that could adversely affect our operating results.

Our international operations subject us to risks, including:

·	economic and political instability;

·	changes in international regulatory requirements, import duties or export restrictions, including limitations on the repatriation of earnings;

·	difficulties in staffing and managing foreign operations;

·	complications in complying with trade and foreign tax laws;

·	price controls and other restrictions on foreign currency; and

·	difficulties in our ability to enforce legal rights and remedies.

Any of these risks might disrupt the supply of our products, increase our expenses or decrease our net revenues. The cost of compliance with trade and foreign tax laws increases our expenses, and actual or alleged violations of such laws could result in enforcement actions or financial penalties that could result in substantial costs.

Increases in the cost of raw materials, labor and other costs used to manufacture our product could increase our cost of sales and reduce our gross margins.

We may experience increased costs of raw materials, including the nitrile polymer used in FC2, and increased labor costs. We may not be able to pass along such cost increases to our customers. As a result, an increase in the cost of raw materials, labor or other costs associated with manufacturing FC2 could increase our cost of sales and reduce our gross margins.

Currency exchange rate fluctuations could increase our expenses.

Because we manufacture FC2 in a leased facility located in Malaysia, a portion of our operating costs are denominated in a foreign currency. While a material portion of our future sales of FC2 are likely to be in foreign markets, all sales of FC2 are denominated in United States dollars. Manufacturing costs are subject to normal currency risks associated with fluctuations in the exchange rate of the Malaysian ringgit (MYR) relative to the United States dollar. Historically, we have not hedged our foreign currency risk.

We rely primarily on a single facility to manufacture FC2, which subjects us to the risk of supply disruptions.

We manufacture FC2 in a single leased facility located in Malaysia. Difficulties encountered by this facility, such as fire, accident, natural disaster or an outbreak of a contagious disease, could halt or disrupt production at the facility, delay the completion of orders or cause the cancellation of orders. Any of these risks could increase our expenses or reduce our net revenues.

Our product is subject to substantial government regulation which exposes us to risks that we will be fined or exposed to civil or criminal liability, receive negative publicity or be prevented from selling our product.

FC2 is subject to regulation by the FDA under the Food, Drug and Cosmetic Act, and by foreign regulatory agencies. Under the Food, Drug and Cosmetic Act, medical devices must receive FDA clearance before they can be sold. FDA regulations also require us to adhere to "Good Manufacturing Practices," which include testing, quality control and documentation procedures. Our compliance with applicable regulatory requirements is monitored through periodic inspections by the FDA and foreign regulatory agencies. If we fail to comply with applicable regulations, we could:

·	be fined or exposed to civil or criminal liability;

·	face suspensions of clearances, seizures or recalls of products or operating restrictions;

·	receive negative publicity; or

·	be prohibited from selling our product in the United States or in foreign markets.

Uncertainty and adverse changes in the general economic conditions may negatively affect our business.

If the recent decline in general economic conditions in the United States and other global markets in which we operate continues, or if consumers fear that economic conditions will continue to decline, consumers may reduce expenditures for products such as our product. Adverse changes may occur as a result of adverse global or regional economic conditions, fluctuating oil prices, declining consumer confidence, unemployment, fluctuations in stock markets, contraction of credit availability or other factors affecting economic conditions generally. These changes may negatively affect the sales of our product, increase the cost and decrease the availability of financing, or increase costs associated with producing and distributing our product. In addition, a substantial portion of the sales of FC2 are made in the public market to government agencies, including USAID and other government agencies around the world. Worsening economic conditions as well as budget deficits and austerity measures may cause pressures on government budgets and result in a reduction in purchases of FC2 from us by governmental agencies.

Because our product faces significant competition from other products, including other female condoms as well as the male condom, we may not be able to achieve anticipated growth levels or profit margins.

We may be unable to compete successfully against current and future competitors, and competitive pressures could have a negative effect on our net revenues, cash flows and profit margins. Some parties have developed and marketed female condoms, although only one such product has WHO pre-clearance and none of these female condoms have been approved by the FDA. It is also possible that other parties will develop a female condom. These products, if developed, could be distributed by companies with greater financial resources and customer contacts than us. In addition, there are a number of other products currently marketed which have a higher degree of accepted efficacy for preventing pregnancy than does the female condom. These products include male condoms, birth control pills, and Depo Provera. However, other than the FC2 female condom, only the latex male condom is generally recognized as being efficacious in preventing both unintended pregnancies and sexually transmitted diseases. Companies manufacturing these competing products are generally much larger than we are and have access to significantly greater resources than we do. In addition, FC2 is generally sold at prices comparatively greater than the price of the latex male condom. Accordingly, FC2 will not be able to compete with the latex male condom solely on the basis of price.

Sales of our product fluctuate, which causes our operating results to vary from quarter to quarter.

Sales of our product fluctuate based upon demand from our commercial partners and the public sector and the nature of government procurement processes. Historically, our net revenues and profitability have varied from quarter to quarter due to such buying patterns. Quarterly variations in operating results may cause us to fail to meet our earnings guidance or market expectations for our operating results and may tend to depress our stock price during such quarters.

Material adverse or unforeseen legal judgments, fines, penalties or settlements could have an adverse impact on our profits and cash flows.

We may, from time to time, become a party to legal proceedings incidental to our business, including, but not limited to, alleged claims relating to product liability, environmental compliance, patent infringement, commercial disputes and employment matters. Future litigation could require us to record reserves or make payments which could adversely affect our profits and cash flows. Even the successful defense of legal proceedings may cause us to incur substantial legal costs and may divert management's attention and resources away from our business.

Our success depends, in part, on our ability to protect our intellectual property.

We rely on our patented and other proprietary technology relating to our FC2 female condom. The actions taken by us to protect our proprietary rights may not be adequate to prevent imitation of our product, processes or technology. We cannot assure you that our proprietary technology will not become known to competitors, or that others will not independently develop a substantially equivalent or better female condom that does not infringe on our intellectual property rights, or will not challenge or assert rights in, and ownership of, our patents and other proprietary rights.

A limited number of our shareholders can exercise substantial influence over our company.

As of November 30, 2012, our directors and executive officers and their affiliates beneficially owned in the aggregate approximately 25.6% of the outstanding shares of our common stock. If these shareholders were to vote together as a group, they would have the ability to exert significant influence over our Board of Directors and policies. For instance, these shareholders would be able to exert a significant influence over the outcome of all shareholder votes, including votes concerning director elections, amendments to our articles of incorporation and possible mergers, corporate control contests and other significant corporate transactions.

We may not be able to continue paying dividends on our common stock.

Although we have paid a quarterly cash dividend to the holders of our common stock since the second quarter of fiscal 2010, holders of our common stock are not entitled to receive dividends. Downturns in the domestic and global economies or in our operating results could cause our Board of Directors to consider, among other things, the reduction or elimination of dividends paid on our common stock. This could adversely affect the market price of our common stock. In addition, under our credit facility with Heartland Bank, dividends are only permitted as long as after giving effect to the dividend we have a ratio of total liabilities to total stockholders' equity of no more than 1:1.

Anti-takeover provisions in our charter documents, Wisconsin law and change of control agreements with our officers could prevent or delay a change in control of our company.

We are subject to a number of provisions in our charter documents, Wisconsin law and change of control agreements that may discourage, delay or prevent a merger or acquisition that a shareholder may consider favorable. These anti-takeover provisions include the following:

·	the authority provided to our Board of Directors in our Amended and Restated Articles of Incorporation to issue preferred stock without further action by our shareholders;

·	change of control agreements we have entered into with five of our employees which provide for up to three years of compensation following a change of control as defined in the agreements;

·	the provision under Wisconsin law that permits shareholders to act by written consent only if such consent is unanimous;

the provision under Wisconsin law that requires for a corporation such as us that was formed before January 1, 1973, the affirmative vote of the holders of at least two-thirds of the outstanding shares of our voting stock to approve an amendment to our articles of incorporation, a merger submitted to a vote of our shareholders or a sale of substantially all of our assets; and

·	the Wisconsin control share acquisition statute and Wisconsin's "fair price" and "business combination" provisions which limit the ability of an acquiring person to engage in certain transactions or to exercise the full voting power of acquired shares under certain circumstances.

The trading price of our common stock has been volatile, and investors in our common stock may experience substantial losses.

The trading price of our common stock has been volatile and may become volatile again in the future. The trading price of our common stock could decline or fluctuate in response to a variety of factors, including:

·	our failure to meet our earnings guidance or market expectations for our performance;

·	changes in the rate at which we pay dividends;

·	the timing of announcements by us or our competitors concerning significant product developments, acquisitions or financial performance;

·	fluctuation in our quarterly operating results;

·	substantial sales of our common stock;

·	general stock market conditions; or

·	other economic or external factors.

You may be unable to sell your stock at or above your purchase price.

Item 1B. Unresolved Staff Comments

Not Applicable

Item 2. Properties

The Company leases approximately 5,100 square feet of office space at 515 North State Street, Suite 2225, Chicago, IL 60654. The lease expires October 31, 2016. The Company utilizes warehouse space and sales fulfillment services of an independent public warehouse located in Wood Dale, IL for storage and distribution of the FC2 female condom. In June 2010, the Company entered a new lease agreement for 6,400 square feet of office space located in London, England. The lease, which expires in June 2020, includes an option by the Company to terminate the lease in 2015. The Company manufactures and warehouses FC2 within a leased facility with 16,000 sq. ft. of production space, in Selangor D.E., Malaysia. The FDA-approved manufacturing process is subject to periodic inspections by the FDA as well as the U.K. based “notified body”, which is responsible for CE and ISO accreditation. The lease currently has an expiration date of September 1, 2013 and is renewable at the option of the Company for an additional three year term. The Company’s Malaysian production capacity is approximately 100 million units annually. In February 2012, the Company extended the lease for 11,000 square feet of warehouse space in Selangor, Malaysia. The lease term is two years, beginning March 1, 2012 and ending on February 29, 2014. The lease terms include an option by the Company to extend the lease for an additional year.

Item 3. Legal Proceedings.

The Company is not currently involved in any pending legal proceedings.

Item 4. Mine Safety Disclosures

Not Applicable

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Shares of our common stock trade on the NASDAQ Capital Market under the symbol "FHCO". The approximate number of record holders of our common stock at November 30, 2012 was 319. In January 2010, the Board of Directors adopted a quarterly cash dividend policy and declared the first cash dividend in the Company's history, which was paid in February 2010. In total, the Board has declared twelve quarterly dividends, the most recent of which was paid in November 2012. All dividends have been paid from the Company's cash on hand. Any future quarterly dividends and the record date for any such dividend will be considered 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. Under the Company's credit facility with Heartland Bank, 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 not more than 1:1. Information regarding the high and low reported closing prices for our common stock and dividends paid on our common stock for the quarters indicated is set forth in the table below.

	Quarters
	FIRST		SECOND		THIRD		FOURTH
2012 Fiscal Year
Price per common share – High	$	4.69	$	5.49	$	5.95	$	7.30
Price per common share – Low	$	3.70	$	4.58	$	5.07	$	5.59
Dividends paid	$	0.05	$	0.05	$	0.06	$	0.06

2011 Fiscal Year
Price per common share – High	$	6.24	$	5.63	$	5.13	$	4.92
Price per common share – Low	$	4.63	$	4.18	$	4.33	$	3.95
Dividends paid	$	0.05	$	0.05	$	0.05	$	0.05

Stock Repurchase Program

The Company has had a Stock Repurchase Program in effect since January 2007. The Stock Repurchase Program currently authorizes a total of 3,000,000 shares to be acquired through December 31, 2012. From the program’s onset through September 30, 2012, the total number of shares repurchased by the Company is 1,958,829. 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 amendment are limited to an aggregate of 250,000 shares per calendar year and to a maximum of 25,000 shares annually per individual. Purchases under this amendment for fiscal 2012, 2011 and 2010 were 34,000, 5,750 and 65,274 shares, respectively.

Issuer Purchases of Equity Securities:	Details of Treasury Stock Purchases to Date through September 30, 2012:
Period	Total Number of Shares Purchased		Average Price Paid Per Share		Total Number of Shares Purchased As Part of Publicly Announced Program		Maximum Number of Shares that May yet be Purchased Under the Program
January 1, 2007 – June 30, 2012		1,925,829	$	3.34		1,925,829		1,074,171
July 1, 2012– July 31, 2012		-		-		1,925,829		1,074,171
August 1, 2012– August 31, 2012		-		-		1,925,829		1,074,171
September 1, 2012– September 30, 2012		33,000		6.99		1,958,829		1,041,171
Quarterly Subtotal		33,000		6.99		33,000		-
Total		1,958,829	$	3.41		1,958,829		1,041,171

Recent Sales of Unregistered Securities

On July 24, 2012, a warrant holder exercised 10,000 warrants for cash which provided the Company with proceeds of $13,000, and on September 28, 2012, the warrant holder exercised 18,000 warrants using the cashless exercise option available in the warrant which entitled the warrant holder to 14,795 shares of our common stock. The Company believes that these issuances of our common stock in connection with the warrant exercises were exempt from registration under section 4(2) of the Securities Act of 1933 and/or Regulation D promulgated under the Securities Act of 1933 because such issuances were made to a person who is an accredited investor. The accredited investor represented to the Company that he was purchasing for investment without a view to further distribution.

Item 6. Selected Financial Data

The data set forth below should be read in conjunction with Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the Consolidated Financial Statements and Notes thereto appearing in this Annual Report on Form 10-K. The Consolidated Statement of Income Data for the years ended September 30, 2012, 2011 and 2010, and the Consolidated Balance Sheet Data as of September 30, 2012 and 2011, are derived from the Consolidated Financial Statements included elsewhere in this report. The Consolidated Statement of Income Data for the years ended September 30, 2009 and 2008, and the Consolidated Balance Sheet Data as of September 30, 2010, 2009 and 2008, are derived from Consolidated Financial Statements that are not included in this report. The historical results are not necessarily indicative of results to be expected for future periods.

	Year ended September 30,
Consolidated Statement of Income Data:	2012			2011			2010			2009			2008
	(In thousands, except per share data)
Product sales	$	35,012		$	18,516		$	22,188		$	27,383		$	25,528
Royalty income		22			49			34			160			106
Net revenues		35,034			18,565			22,222			27,543			25,634

Cost of sales		14,413			8,700			9,297			14,026			14,904

Gross profit		20,621			9,865			12,925			13,518			10,730

Operating expenses:
Advertising		53			33			77			108			95
Selling, general and administrative		9,628			6,537			6,569			7,195			7,451
Restructuring costs		-			-			1,930			1,497			-
Total operating expenses, net		9,681			6,570			8,576			8,800			7,546

Operating income		10,940			3,295			4,349			4,718			3,184

Non-operating (expense) income:
Interest and other (expense) income		-			(2	)		29			56			53
Foreign currency transaction (loss) gain		(148	)		(61	)		(154	)		276			967
Total non-operating (expense) income		(148	)		(63	)		(125	)		332			1,020

Income before income taxes		10,792			3,232			4,224			5,050			4,204

Income tax benefit		(4,507	)		(2,167	)		(2,513	)		(1,485	)		(763	)

Net income		15,299			5,399			6,737			6,535			4,967
Preferred dividends, Class A, Series 1		-			-			-			-			8
Preferred dividends, Class A, Series 3		-			-			-			80			129
Net income attributable to common stockholders	$	15,299		$	5,399		$	6,737		$	6,456		$	4,829

Net income per basic common share outstanding	$	0.55		$	0.20		$	0.25		$	0.25		$	0.18
Basic weighted average common shares outstanding		27,694			27,287			26,981			25,652			26,116
Net income per diluted common share outstanding	$	0.53		$	0.19		$	0.24		$	0.24		$	0.18
Diluted weighted average common shares outstanding		28,933			28,971			28,545			27,807			27,983
Cash dividends declared per share	$	0.22		$	0.20		$	0.15		$	0.00		$	0.00

	September 30,
Consolidated Balance Sheet Data:	2012			2011			2010			2009			2008
	(In thousands)
Cash and cash equivalents	$	5,291		$	4,313		$	2,919		$	2,810		$	1,922
Restricted cash		5			5			5			105			212
Working capital		10,966			7,454			9,853			9,209			9,249
Total assets		30,446			19,443			18,368			18,540			13,831
Accumulated deficit		(35,594	)		(44,697	)		(44,544	)		(47,143	)		(53,599	)
Long-term obligations		174			209			145			192			1,090
Total stockholders' equity	$	24,218		$	16,753		$	16,132		$	12,954		$	9,709

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

Overview

The Female Health Company manufactures, markets and sells the FC2 female condom. FC2 is the only currently available female-initiated product approved by the U.S. Food and Drug Administration (FDA) that provides dual protection against unintended pregnancy and sexually transmitted infections ("STIs"), including HIV/AIDS.

In 2005, the Company introduced a second generation female condom, FC2, which had been developed to:

1.	Expand access to female-initiated prevention by offering a more affordable product

2.	Increase HIV/AIDS prevention and family planning options

3.	Lower health care costs

4.	Increase gross margins

In August 2006, after a stringent technical review, the World Health Organization (WHO) cleared FC2 for purchase by U.N. agencies. The first substantial sales of FC2 occurred in fiscal 2007. FC2 received FDA approval as a Class III medical device on March 10, 2009 and became available in the United States in August 2009. In addition to FDA approval, the FC2 female condom has been approved by other regulatory agencies, including in the European Union, India, and Brazil.

In October 2009, the Company completed the transition from its first generation product, FC1, to its second generation product, FC2, and production of FC1 ceased. Although FC1 production has ceased, the Company retains ownership of certain world-wide rights to FC1, as well as various patents, regulatory approvals and other intellectual property related to FC1.

From its introduction in March 2007 through September 30, 2012, approximately 170 million FC2 female condoms have been distributed in 138 countries. Since the last shipments of FC1 were produced and sold in October 2009, all units sold have been FC2.

The FC2 female condom provides women dual protection against STI’s (including HIV/AIDS) and unintended pregnancy. Because FC2’s primary usage is that of 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.

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 the United Nations Population Fund (UNFPA) and the United States Agency for International Development (USAID), through its facilitator, John Snow, Inc. Other customers include ministries of health or other governmental agencies, which either purchase directly or via in-country distributors, and non-governmental organizations.

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.

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 fiscal 2012 results.

Revenues. Most of the Company's revenues have been derived from sales of the FC female condoms (FC1 and FC2), and are recognized upon shipment of the product to its customers. Since fiscal 2008, revenue is also being derived from licensing its intellectual property to 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. 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 as royalties on the Audited Consolidated Statements of Income for the years ended September 30, 2012, 2011 and 2010, 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. The Company's three largest customers currently are UNFPA, John Snow, Inc., facilitator of USAID I DELIVER project, and Sekunjalo Investments Corporation (PTY) Ltd. UNFPA accounted for 40% of unit sales in fiscal 2012, 25% of unit sales in fiscal 2011, and 37% of unit sales in fiscal 2010. John Snow, Inc. accounted for 25% of unit sales in fiscal 2012, 26% of unit sales in fiscal 2011, and 33% of unit sales in fiscal 2010. Sekunjalo Investments Corporation (PTY) Ltd., accounted for 20% of unit sales in 2012. Sekunjalo’s purchases were less than 10% of total annual units sold in fiscal 2011 and 2010. No other single customer accounted for more than 10% of unit sales in fiscal 2012, 2011 or 2010.

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 previously manufactured FC1 at a facility located in the United Kingdom and 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 the female condoms, principally polyurethane for FC1 and a nitrile polymer for FC2. Indirect product 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 the FC2 female condom are essentially available from multiple sources.

In fiscal 2010, the Company incurred a one-time charge of $1.9 million for restructuring expenses related to exiting the lease of its former U.K. manufacturing facility, following the cessation of FC1 production.

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 next six years 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 increase the market for FC2. In connection with the London Summit, the Company also plans to award major purchasers with free product equal to 5% of total annual units purchased beginning in fiscal 2013. The Company will reserve for the cost of the free product as a cost of sales, which may affect the Company's gross margin. The Company believes that such free product awards will provide an incentive for increased unit sale volumes from major purchasers.

Fiscal Year Ended September 30, 2012 Compared to Fiscal Year Ended September 30, 2011

Operating Highlights. The Company had net revenues of $35,033,897 during the fiscal year 2012, compared to $18,565,102 in the fiscal year ended September 30, 2011. The Company’s fiscal 2012 unit sales were 88% higher than fiscal 2011 due to increased volume and several large orders from major customers during fiscal 2012. 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 average sales price of FC2 increased 1% in fiscal 2012 from fiscal 2011.

The Company generated cash flow from operations of $10,356,054 for fiscal year 2012 compared to $6,968,155 for fiscal 2011.

The Company had net income of $15,299,321, or $0.53 per diluted share, in fiscal 2012 compared to net income of $5,399,051, or $0.19 per diluted share, in fiscal 2011.

During fiscal 2012, the Company continued to pay quarterly dividends, raising the quarterly dividend rate from $0.05 per share to $0.06 per share mid-year. The Company remains debt free.

Results of Operations. The Company had net revenues of $35,033,897 and net income of $15,299,321, or $0.53 per diluted share, in fiscal 2012, compared to net revenues of $18,565,102 and net income of $5,399,051, or $0.19 per diluted share, in fiscal 2011. Net revenues increased $16,468,795, or 89%, in fiscal 2012 over the prior fiscal year, as a result of higher unit sales. In fiscal 2012 and fiscal 2011, net revenues included royalties of $21,721 and $49,011, respectively, earned from licensing intellectual property to the Company’s exclusive distributor in India, Hindustan Lifecare Limited.

Gross profit increased $10,755,823, or 109%, to $20,621,013 in fiscal 2012 from $9,865,190 in fiscal 2011. Gross profit as a percentage of net revenues increased to 59% in fiscal 2012 from 53% in fiscal 2011. The increase in gross profit was the result of higher unit sales which improved the absorption of fixed overhead costs.

Cost of sales increased $5,712,972, or 66%, to $14,412,884 in fiscal 2012 from $8,699,912 in fiscal 2011. The increase is due to higher volume.

Advertising expenses increased $20,091 to $52,949 in fiscal 2012 from $32,858 in fiscal 2011. The increase is due to the expansion of the US training and education program.

Selling, general and administrative expenses increased $3,091,144 to $9,628,134 in fiscal 2012 from $6,536,990 in fiscal 2011. The increase was primarily due to increased spending in education and training and incentive payments based on the achievement of performance goals relating to the Company’s unit sales and operating income.

Total operating expenses increased $3,111,235 to $9,681,083 in fiscal 2012 from $6,569,848 in fiscal 2011.

The Company's operating income increased $7,644,588 to $10,939,930 in fiscal 2012 from $3,295,342 in fiscal 2011. The increase reflects the impact of significantly higher unit sales.

The Company recorded non-operating expense of $147,907 in fiscal 2012 compared to non-operating expense of $63,367 in fiscal 2011. The increase was the result of an increased foreign currency loss of $148,269 in fiscal 2012 versus a foreign currency loss of $61,258 in fiscal 2011.

An entity is able to recognize a tax benefit for current or past losses when it can demonstrate that the tax loss carry forward will be utilized before expiration. Management believes that the Company’s recent and projected future growth and profitability has made it more likely than not that the Company will utilize a portion of its net operating loss carryforwards in the future. The Company recorded a deferred tax benefit in the amount of $4.9 million (gross tax benefit) during the year ended September 30, 2012 compared to $2.5 million for the year ended September 30, 2011 as a result of the decrease in the valuation allowance on these assets.

Fiscal Year Ended September 30, 2011 Compared to Fiscal Year Ended September 30, 2010

Operating Highlights. The Company's net revenues were reduced as a result of lower unit sales, primarily due to delays in two large orders. The Company had net revenues of $18,565,102 in the fiscal year ended September 30, 2011 compared to $22,221,955 in the fiscal year ended September 30, 2010. The Company’s fiscal 2011 unit sales were 16% lower than fiscal 2010 due to reduced sales volume. The average sales price of FC2 decreased 1% in fiscal 2011 from fiscal 2010.

The Company generated cash flow from operations of $6,968,155 for fiscal 2011, compared to $3,991,855 for fiscal 2010.

The Company had net income of $5,399,051, or $0.19 per diluted share, in fiscal 2011 compared to net income of $6,737,078, or $0.24 per diluted share, in fiscal 2010.

The Company paid quarterly dividends of $0.05 per share and remained debt free.

Results of Operations. The Company had net revenues of $18,565,102 and net income of $5,399,051, or $0.19 per diluted share, in fiscal 2011 compared to net revenues of $22,221,955 and net income of $6,737,078, or $0.24 per diluted share, in fiscal 2010.

Net revenues decreased $3,656,853, or 16%, in fiscal 2011 over the prior fiscal year, as a result of lower unit sales, primarily due to delays in two large orders. In fiscal 2011 and fiscal 2010, net revenues included royalties of $49,011 and $33,863, respectively, earned from licensing intellectual property to the Company’s exclusive distributor in India, Hindustan Lifecare Limited.

Gross profit decreased $3,059,629, or 24%, to $9,865,190 in fiscal 2011 from $12,924,819 in fiscal 2010. Gross profit as a percentage of net revenues decreased to 53% in fiscal 2011 from 58% in fiscal 2010. The decrease in gross profit was the result of lower unit sales which reduced the absorption of fixed overhead costs.

Cost of sales decreased $597,224, or 6%, to $8,699,912 in fiscal 2011 from $9,297,136 in fiscal 2010. The decrease is due to lower volume.

Advertising expenses decreased $43,849 to $32,858 in fiscal 2011 from $76,707 in fiscal 2010.

Selling, general and administrative expenses decreased $32,040 to $6,536,990 in fiscal 2011 from $6,569,030 in fiscal 2010. The decrease was due to a reduction in selling and marketing expenses and lower consulting fees somewhat offset by higher legal fees and stock compensation expenses.

In fiscal 2010, the Company incurred a one-time charge of $1,929,922 for restructuring expenses related to exiting the lease of its former U.K. manufacturing facility. Included in that amount are lease surrender payments, excess capacity costs, and dilapidation expenses, partially offset by the proportionate recognition of deferred gain on the original sale/leaseback of the plant. There were no restructuring related costs in fiscal 2011.

Total operating expenses decreased $2,005,811 to $6,569,848 in fiscal 2011 from $8,575,659 in fiscal 2010. The reduction resulted primarily from the lack of one-time restructuring costs and reduced selling and marketing costs, somewhat offset by higher legal fees and stock compensation expenses.

The Company's operating income decreased $1,053,818 to $3,295,342 in fiscal 2011 from $4,349,160 in fiscal 2010. That reduction was the result of lower unit sales.

The Company recorded non-operating expense of $63,367 in fiscal 2011 compared to non-operating expense of $125,028 in fiscal 2010. The reduction was the result of a reduced foreign currency loss of $61,258 in fiscal 2011 versus a foreign currency loss of $154,196 in fiscal 2010.

An entity is able to recognize a tax benefit for current or past losses when it can demonstrate that the tax loss carry forward will be utilized before expiration. Management believes that the Company’s recent and projected future growth and profitability has made it more likely than not that the Company will utilize a portion of its net operating loss carryforwards in the future. The Company recorded a deferred tax benefit in the amount of $2.5 million (gross tax benefit) during the year ended September 30, 2011 compared to $2.7 million for the year ended September 30, 2010 as a result of the decrease in the valuation allowance on these assets.

Liquidity and Sources of Capital

We generally fund our operations and working capital needs through cash generated from operations. Our operating activities generated cash of $10.4 million in fiscal 2012, $7.0 million in fiscal 2011, and $4.0 million in fiscal 2010. The increase of $3.4 million in cash generated from operating activities in fiscal 2012 as compared to fiscal 2011 was primarily due to the increase in revenues partially offset by the increase of accounts receivable. In fiscal 2012, investing activities consumed about $0.7 million for the purchase of fixed assets related to the expansion of the Company’s Malaysian facility. Financing activities used a net of $8.7 million, most of which was used to pay quarterly cash dividends and tax withholding in connection with cashless stock option exercises where the option holders’ surrendered shares to satisfy their withholding obligations. The increase of $3.0 million in cash generated from operating activities in fiscal 2011 as compared to fiscal 2010 was primarily due to a $2.2 million decrease in accounts receivable as well as miscellaneous fluctuations in the other assets and liabilities. In fiscal 2011, investing activities consumed about $0.05 million for the purchase of fixed assets. Financing activities used a net of $5.6 million, most of which was used to pay quarterly cash dividends.

At September 30, 2012, the Company had working capital of $11.0 million and stockholders' equity of $24.2 million compared to working capital of $7.5 million and stockholders' equity of $16.8 million as of September 30, 2011.

Since the Company’s Board of Directors instituted a quarterly cash dividend program in January 2010, the Company has paid a total of twelve consecutive dividends, the most recent of which was paid on November 7, 2012. The first nine quarterly dividends were paid at the rate of $0.05 per share. In May 2012, the quarterly cash dividend rate was increased to $0.06 per share. A cumulative total of $17.6 million has been paid since the program’s initiation.

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. Payments of any future dividends are at the discretion of the Board of Directors and the Company may not have sufficient cash flows to pay dividends.

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.

On August 1, 2012, the Company entered into an amendment to its Second Amended and Restated Loan Agreement (as amended, the “Loan Agreement”) with Heartland Bank (the “Bank”) to extend the term of the Company’s revolving line of credit to August 1, 2013 . The credit facility consists of a revolving note for up to $2,000,000 with the Bank, with borrowings limited to a borrowing base determined based on 70% to 80% of eligible accounts receivable plus 50% 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 (4.5% at September 30, 2012) plus 0.5%. The note is collateralized by substantially all of the assets of the Company. No amounts were outstanding under the revolving notes at September 30, 2012 or 2011.

As of November 30, 2012, the Company had approximately $4.2 million in cash, net trade accounts receivable of $6.9 million and current trade accounts payable of $0.9 million. Presently, the Company has no required debt service obligations.

The following table includes information relating to our contractual obligations as of September 30, 2012 in future fiscal years:

Contractual Obligations	Total		2013		2014		2015		2016		2017		Thereafter
Long-term debt	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Capital lease obligations		-		-		-		-		-		-		-
Operating lease obligations		1,456,008		356,865		311,246		216,802		218,349		129,101		223,645
Purchase obligations		-		-		-		-		-		-		-
Other long-term obligations		-		-		-		-		-		-		-
Total	$	1,456,008	$	356,865	$	311,246	$	216,802	$	218,349	$	129,101	$	223,645

Critical Accounting Estimates

The preparation of financial statements requires management to make estimates and use assumptions that affect certain reported amounts and disclosures. Critical accounting estimates include the deferred income tax valuation allowance. Actual results may differ from those estimates.

The Company files separate income tax returns for its foreign subsidiaries. ASC Topic 740 requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial statements and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Deferred tax assets are also provided for carryforwards for income tax purposes. In addition, the amount of any future tax benefits is reduced by a valuation allowance to the extent such benefits are not expected to be realized.

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 assets and liabilities, and for net operating loss and tax credit carryforwards.

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 its 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 six years for each tax jurisdiction.

Although management uses the best information available, it is reasonably possible that the estimates used by the Company will be materially different from the actual results. These differences could have a material effect on the Company's future results of operations and financial condition.

Our effective tax rates have differed from the statutory rate primarily due to the tax impact of foreign operations, state taxes, certain benefits realized related to equity-based awards, and utilization of NOL carryforwards. The effective tax rates, before considering the reversal of the valuation allowance, were 3.6%, 10.3%, and 6.8% for fiscal 2012, 2011, and 2010, respectively. Our future effective tax rates could be adversely affected by earnings being lower than anticipated in countries where we have lower statutory rates and higher than anticipated in countries where we have higher statutory rates, changes in the valuation of our deferred tax assets or liabilities, or changes in tax laws, regulations, and accounting principles. In addition, we are subject to the continuous examination of our income tax returns by the IRS and other tax authorities. We regularly assess the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of our provision for income taxes.

Impact of Inflation and Changing Prices

Although the Company cannot accurately determine the precise effect of inflation, the Company has experienced increased costs of product, supplies, salaries and benefits, and increased general and administrative expenses. The Company has, where possible, increased selling prices to offset such increases in costs.

Off-Balance Sheet Arrangements

The Company has no off-balance sheet arrangements as defined in Item 303(a) (4) of Regulation S-K.

Item 7A. Quantitative 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. subsidiary and Malaysia subsidiary each adopted the U.S. dollar as its 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 $2,000,000 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%. As the Company has had no outstanding borrowings in the last five years, it currently has no significant exposure to market risk for changes in interest rates. Should the Company incur future borrowings under its line of credit, it would be subject to interest rate risk related to such borrowings.

Item 8. Financial Statements and Supplementary Data

The response to this item is submitted in a separate section of this report. See “Index to Consolidated Financial Statements” for a list of the financial statements being filed herein.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

None.

Item 9A. Controls and Procedures

Evaluation of Disclosure Controls 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.

Changes in Internal Control Over Financial Reporting

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 and 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.

Management’s Report on Internal Control Over Financial Reporting

The report of management required under this Item 9A is contained on page F-1 of this Annual Report on Form 10-K under the heading "Management's Report on Internal Control over Financial Reporting."

Report of Independent Registered Public Accounting Firm

The attestation report required under this Item 9A is contained on pages F-2 and F-3 of this Annual Report on Form 10-K under the heading "Report of Independent Registered Public Accounting Firm."

Item 9B. Other Information

None.

PART III

Item 10. Directors and Executive Officers and Corporate Governance

Certain information about the Company's executive officers, directors and certain key employees as of November 30, 2012, is as follows:

Name	Position	Age
O.B. Parrish	Chairman of the Board, Chief Executive Officer, acting President and Director	79
Mary Ann Leeper, Ph.D.	Senior Strategic Adviser and Director	72
William R. Gargiulo, Jr.	Secretary and Director	84
Michael Pope	Vice President of FHC and General Manager of The Female Health Company (UK) Plc	55
Donna Felch	Vice President, Chief Financial Officer and Director	65
Janet Lee	Controller	48
David R. Bethune	Director	72
Stephen M. Dearholt	Director	66
Michael R. Walton	Director	75
Richard E. Wenninger	Director	65
Mary Margaret Frank	Director	43

O.B. PARRISH

Age: 79; Elected Director: 1987; Present Term Ends: 2013 Annual Meeting

O.B. Parrish has served as Chief Executive Officer of the Company since 1994, as acting President since May 2006, as acting Chief Financial and Accounting Officer from February 1996 to March 1999 and as the Chairman of the Board and a Director of the Company since 1987. Mr. Parrish is a shareholder and has served as the President and as a Director of Phoenix Health Care of Illinois, Inc. ("Phoenix of Illinois") since 1987. Phoenix of Illinois owns approximately 233,501 shares of our common stock. Mr. Parrish also is Chairman and a Director of Abiant, Inc., a neuroimaging company, and an advisor to Algasol Renewables, a technology company developing micro algae biomass as a fuel source. Mr. Parrish is also a trustee of Lawrence University. From 1977 until 1986, Mr. Parrish was the President of the Global Pharmaceutical Group of G.D. Searle & Co. ("Searle"), a pharmaceutical/consumer products company. From 1974 until 1977, Mr. Parrish was the President of Searle International, the foreign sales operation of Searle. Prior to that, Mr. Parrish was Executive Vice President of Pfizer's International Division. Mr. Parrish’s extensive experience as a health care executive and as an executive of the Company and his skills in the areas of corporate transactions, operations and manufacturing, international business, corporate communications and enterprise risk management, along with his familiarity with the Company’s business and industry and his role as the Company’s Chief Executive Officer, led to the conclusion that he should serve as a director of the Company and Chairman of the Board.

MARY ANN LEEPER, Ph.D.

Age: 72; Elected Director: 1987; Present Term Ends: 2013 Annual Meeting

Dr. Leeper has served as Senior Strategic Adviser since May 2006. Dr. Leeper served as the President and Chief Operating Officer of the Company from February 1996 to April 2006, as President and Chief Executive Officer of The Female Health Company Division from May 1994 until January 1996, as Senior Vice President - Development of the Company from 1988 until January 1996 and as a Director of the Company since 1987. Dr. Leeper is a shareholder and has served as a Vice President and Director of Phoenix of Illinois since 1987. From 1981 until 1986, Dr. Leeper served as Vice President - Market Development for Searle's Pharmaceutical Group and in various Searle research and development management positions. As Vice President - Market Development, Dr. Leeper was responsible for worldwide licensing and acquisition, marketing and market research. In earlier positions, she was responsible for preparation of new drug applications and was a liaison with the FDA. Dr. Leeper serves on the Board of Neenah Paper, Inc. and is chair of its nominating and governance committee. She is also an adjunct professor at the University of Virginia, Darden School of Business. She has received various awards recognizing her commitment and pioneering efforts in the work of women’s health. Ms. Leeper’s background as the former President of the Company, her knowledge of the Company’s business, her relationships with its customers and her long term commitment to women’s health issues led to the conclusion that she should serve as a director of the Company.

WILLIAM R. GARGIULO, JR.

Age: 84; Elected Director: 1987; Present Terms Ends: 2013 Annual Meeting

William R. Gargiulo, Jr. has served as Secretary of the Company from 1996 to present, as Vice President of the Company from 1996 to September 30, 1998, as Assistant Secretary of the Company from 1989 to 1996, as Vice President - International of The Female Health Company Division from 1994 until 1996, as Chief Operating Officer of the Company from 1989 to 1994, and as General Manager of the Company from 1988 to 1994. Mr. Gargiulo has also served as a Director of the Company since 1987. Mr. Gargiulo is a trustee of a trust which is a shareholder of Phoenix of Illinois. From 1984 until 1986, Mr. Gargiulo was the Executive Vice-President of the Pharmaceutical Group of Searle, in charge of Searle's European operations. From 1976 until 1984, Mr. Gargiulo was the Vice President of Searle's Latin American operations. Mr. Gargiulo’s years of experience as an officer of the Company and his extensive international sales and marketing experience led to the conclusion that he should serve as a director of the Company.

MICHAEL POPE

Age: 55; Vice President, Global Manufacturing of FHC, General Manager and Director of - The Female Health Company (UK) Plc.

Mr. Pope has served as Vice President of the Company since 1996 and as General Manager of The Female Health Company (UK) Plc. (formerly Chartex International, Plc.) since the Company's 1996 acquisition of Chartex. Mr. Pope has also served as a Director of The Female Health Company, Ltd. (formerly Chartex Resources Limited) and The Female Health Company (UK) Plc. since 1995. He has been responsible for the technical development of FC2, including design of the manufacturing process and manufacturing scale-up, and the manufacturing section of the Pre-Market Approval Application submitted to FDA. He is also responsible for the Malaysian subsidiary that manufactures FC2, which includes engineering, process development and quality assurance. From 1990 until 1996, Mr. Pope was Director of Technical Operations for Chartex with responsibility for manufacturing, engineering, process development and quality assurance. Mr. Pope was responsible for the development of the high speed proprietary manufacturing technology for the female condom and securing the necessary approvals of the manufacturing process by regulatory organizations, including the FDA. Mr. Pope was also instrumental in developing and securing Chartex's relationship with its Japanese marketing partner. Prior to joining Chartex, from 1986 to 1990, Mr. Pope was Production Manager and Technical Manager for Franklin Medical, a manufacturer of disposable medical devices. From 1982 to 1986, Mr. Pope was Site Manager, Engineering and Production Manager, Development Manager and Silicon Manager for Warne Surgical Products.

DONNA FELCH

Age 65; Vice President and Chief Financial Officer; Elected Director: 2012; Present Term Ends: 2013 Annual Meeting

Ms. Felch has served as Vice President and Chief Financial Officer of the Company since February 2006 and as a Director of the Company since November 2012. Prior to joining the Company, Ms. Felch was Vice President and Treasurer of American Pharmaceutical Partners, Inc., a pharmaceutical company that develops, manufactures and markets injectible pharmaceutical products, from November 2002 until June 2005. In these positions, she directed the treasury, tax, financial planning and analysis, credit and collections and risk management functions. Ms. Felch joined American Pharmaceutical Partners in 1998 and during such time held the positions of Senior Director of Corporate Accounting and Director of General Accounting and Tax. In these roles her responsibilities included internal and external financial reporting, tax, treasury, financial planning, credit and risk management. Previously, Ms Felch served as Director of Corporate Tax with Fujisawa USA, a subsidiary of a major Japanese pharmaceutical company. Ms. Felch had formerly worked as a Tax Manager for LyphoMed, Inc., a generic pharmaceutical manufacturer. Ms. Felch was appointed to the Board of Directors in connection with her planned retirement as the Company's Vice President and Chief Financial Officer effective January 1, 2013. Her background as the Vice President and Chief Financial Officer of the Company, her knowledge of the Company's business and her background and experience in public accounting led to the conclusion that she should serve as a director of the Company.

JANET LEE

Age: 48; Controller

Ms. Lee has served as Controller of the Company since May 2007. From November 2002 until May 2007, Ms. Lee served the Society of Thoracic Surgeons as Accounting Manager/Analyst. Previously, she held various financial positions at RR Donnelley and Sons Company and ServiceMaster.

DAVID R. BETHUNE

Age: 72; Elected Director: 1996; Present Term Ends: 2013 Annual Meeting

Mr. Bethune has served as a Director of the Company since January 1996. He was Chairman of Zila, Inc., an oral cancer screening company, from August 2007 to September 2009 and Chief Executive Officer of Zila, Inc. from March 2008 to September 2009. He served as a member of the Board of Directors of the CAMBREX Corporation, a life sciences company dedicated to providing products and services that accelerate and improve the discovery and commercialization of human therapeutics, from 2005 to March 2012. Mr. Bethune served as Chairman and Chief Executive Officer of Atrix Laboratories, Inc. from 1999 until his retirement in 2004. From 1997 to 1998, Mr. Bethune held the positions of President and Chief Operating Officer of the IVAX Corporation. From 1996 to 1997, Mr. Bethune was a consultant to the pharmaceutical industry. From 1995 to 1996, Mr. Bethune was President and Chief Executive Officer of Aesgen, Inc., a generic pharmaceutical company. From 1992 to 1995, Mr. Bethune was Group Vice President of American Cyanamid Company and a member of its Executive Committee until the sale of the company to American Home Products. He had global executive authority for human biologicals, consumer health products, pharmaceuticals and opthalmics, as well as medical research. In 1989 he became president of Lederle Laboratories, a division of American Cyanamid and held that position until 1992. Mr. Bethune is a founding trustee of the American Cancer Society Foundation. He is the founding chairman of the Corporate Council of the Children's Health Fund in New York City and served on the Arthritis Foundation Corporate Advisory Council. Mr. Bethune’s impressive track record of achievements in leadership positions, including with public companies in the pharmaceutical and medical products industries, led to the conclusion that he should serve as a director of the Company and a member of the audit committee.

STEPHEN M. DEARHOLT

Age: 66; Elected Director: 1996; Present Term Ends: 2013 Annual Meeting

Mr. Dearholt has served as a Director of the Company since April 1996. Mr. Dearholt is a co-founder of, and partner in, Insurance Processing Center, Inc., one of the largest privately owned life insurance marketing organizations in the United States, since 1972. He has over 39 years of experience in direct response advertising and data based marketing of niche products. In late 1995, Mr. Dearholt arranged, on very short notice, a $1 million bridge loan which assisted the Company in its purchase of Chartex. He is a past board member of the Children’s Hospital Foundation of Wisconsin, the Zoological Society of Milwaukee, Planned Parenthood Association of Wisconsin, and past Chairman of the Board of the New Day Club, Inc. Mr. Dearholt’s achievements as a successful business owner and his long term commitment to the Company led to the conclusion that he should serve on the Company’s Board of Directors.

MICHAEL R. WALTON

Age: 75; Elected Director: 1999; Present Term Ends: 2013 Annual Meeting

Mr. Walton has served as a Director of the Company since April 1999. Mr. Walton is President and owner of Sheboygan County Broadcasting Co., Inc., a company he founded in 1972. The company has focused on start-up situations, and growing value in under-performing, and undervalued radio stations and newspapers. Sheboygan County Broadcasting Co. has owned and operated businesses in Wisconsin, Illinois, Michigan and New York. It has specialized in creating, building and managing news media properties and has acquired existing companies as well. Prior to 1972, Mr. Walton was owner and President of Walton Co., an advertising representative firm he founded in New York City. He has held sales and management positions with Forbes Magazine, The Chicago Sun Times and Gorman Publishing Co. Mr. Walton has served on the Boards of the American Red Cross, the Salvation Army, the Sheboygan County Chamber of Commerce and the Rogers Memorial Hospital Foundation, and the Economic Club of Sheboygan. Mr. Walton’s background in sales and marketing, his extensive experience as a successful business owner and his long term commitment to the Company led to the conclusion that he should serve as a director of the Company.

RICHARD E. WENNINGER

Age: 65; Director: 2001; Present Term Ends: 2013 Annual Meeting

Mr. Wenninger has served as a Director of the Company since July 2001. Mr. Wenninger is former Chairman of Wenninger Company, Inc., a mechanical contracting and engineering company. From 1976 to 2001, Mr. Wenninger served as President and Chief Executive Officer of Wenninger Company, Inc. He is also Secretary of Wenn Soft, Inc., a software development, sales and service company he founded in 1997. From 1992 to 1999, Mr. Wenninger served as Secretary of Liftco, Inc. Mr. Wenninger is a former board member of the Boys & Girls Club of Milwaukee, a former President and board member of the Milwaukee Athletic Club, a former board member of the Wisconsin Psychoanalytic Foundation, a former board member of University Lake School, the former President and a former board member of the Plumbing and Mechanical Contractors Association of Milwaukee, the former President and a former board member of the Sheet Metal Contractors Association of Milwaukee and a former board member of the Mechanical Contractors Association of America. Mr. Wenninger’s years of experience as a successful entrepreneur and his long term commitment to the Company led to the conclusion that he should serve as a director of the Company.

MARY MARGARET FRANK

Age: 43; Director: 2004; Present Term Ends: 2013 Annual Meeting

Dr. Frank has served as a Director of the Company since October 2004. Dr. Frank has served as an Associate Professor of Accounting at the Darden Graduate School of Business at the University of Virginia where she teaches financial and tax accounting since 2002. From 1999 to 2002, Dr. Frank was an Assistant Professor at the University of Chicago Booth School of Business. During 1997, Dr. Frank was an accounting instructor at the Kenan-Flagler Business School at the University of North Carolina at Chapel Hill. From 1992 to 1994, Dr. Frank served as a Senior Tax Consultant at Arthur Andersen. She has her master’s degree and Ph.D. in accounting from the University of North Carolina at Chapel Hill and was issued her CPA in 1994. Dr. Frank’s background and experience in both public accounting and financial education and her qualification as an “audit committee financial expert” under the SEC’s rules led to the conclusion that she should serve as a director of the Company.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934 requires the Company's officers and directors, and persons who own more than 10% of a registered class of the Company's equity securities, to file reports of ownership and changes in ownership with the SEC on Forms 3, 4 and 5. Officers, directors and greater than 10% stockholders are required by SEC regulation to furnish the Company with copies of all Forms 3, 4 and 5 they file.

Based solely on a review of the copies of such forms furnished to the Company, or written representations that no Forms 5 were required, the Company believes that during the year ended September 30, 2012, all reports required by Section 16(a) to be filed by the Company's officers, directors and more than 10% shareholders were filed on a timely basis, except that Mr. Bethune filed a Form 4 on October 27, 2011 reporting transactions occurring on October 18, 2011.

Code of Ethics

The Company has adopted a Code of Business Ethics that applies to all of the Company's employees, including the Company's Chief Executive Officer and Chief Financial Officer. A copy of the Code of Business Ethics is available on the Company's corporate website which is located at www.femalehealth.com. The Company also intends to disclose any amendments to, or waivers from, the Code of Business Ethics on its corporate website.

Audit Committee

The members of the Audit Committee of the Company's Board of Directors are Mary Margaret Frank, Ph.D. (Chairperson), David R. Bethune and Michael Walton. The Company's Board of Directors has determined that Dr. Frank qualifies as an "audit committee financial expert" as defined by the rules of the SEC based on her work experience and education. Dr. Frank and the other members of the Audit Committee are independent directors in accordance with the listing standards of the NASDAQ Stock Market. The Audit Committee is an "audit committee" for purposes of Section 3(a)(58)(A) of the Securities Exchange Act of 1934.

Item 11. Executive Compensation

COMPENSATION DISCUSSION AND ANALYSIS

Introduction

This section discusses the principles underlying the Company's compensation decisions for fiscal 2012 for the Company’s named executive officers and the most important factors relevant to an analysis of these decisions. It also provides information regarding the manner and context in which compensation is awarded to and earned by the named executive officers. In fiscal 2012, the Company had three executive officers, and we refer to these executive officers as the "named executive officers" throughout this section:

·	O. B. Parrish, Chairman of the Board, Chief Executive Officer and Acting President;

·	Donna Felch, Vice President and Chief Financial Officer; and

·	Michael Pope, Vice President of the Company and General Manager of The Female Health Company (UK) Plc.

The compensation of these individuals is presented in the tables and other quantitative information that follow this section.

Overview

The Company experienced very strong operating results in fiscal 2012, with unit sales increasing by 88% over fiscal 2011, net revenues increasing by 89% over fiscal 2011 and operating income increasing by 232% over fiscal 2011. Because the Company's executive compensation program is heavily weighted towards pay for performance, particularly through the Company's annual performance award program, the named executive officers received significant cash incentive compensation payouts for fiscal 2012. By contrast, in fiscal 2010 and fiscal 2011 when the performance objectives were not met, the named executive officers did not receive cash incentive compensation payouts under the annual performance award program.

The Company’s compensation strategy is to closely align its compensation programs with shareholders’ interests by providing effective incentives for performance and a level of compensation needed to attract, motivate and maintain key executives who are important to the Company's continued success. Nearly all of the compensation to the named executive officers consists of only three components: a modest base salary, an annual performance award program and periodic restricted stock grants. As part of aligning executive compensation with shareholders' interests, the Company's annual performance award program is based solely on achievement of corporate goals (unit sales and operating income targets). The program is straightforward and rewards management with cash incentives only if 100% of both corporate goals are achieved. For fiscal year 2012, the program offered an enhanced performance award if achievement reaches 110% of both goals and a maximum performance reward if achievement reaches 115% of both goals. If both goals are achieved, the amount of the cash payout is based on the average closing price of the Company’s common stock for the last ten trading days of the fiscal year. In fiscal 2012, achievement exceeded 115% of both goals, resulting in payment of the maximum performance award to participants.

The Company's executive compensation program is clear and straightforward. The Company does not have employment agreements with any of the named executive officers and, therefore, unless there is a change of control of the Company, the named executive officers do not have a contractual right to any minimum level of base salary, incentive awards or other compensation or any right to annual increases in base salary. None of the named executive officers have any rights to severance payments except in connection with a change of control. Change of control agreements provide for payment of three times a named executive officer's base salary and bonus and certain additional benefits upon termination of employment following a change of control under the agreements. The Company offers limited perquisites to its named executive officers and does not offer supplemental retirement benefits to any of the named executive officers. The only retirement benefit the Company offers to the named executive officers is participation in a Simple Individual Retirement Account plan by Ms. Felch.

Key Compensation Actions in Fiscal 2012

The compensation actions taken by the Compensation Committee in fiscal 2012 included the following:

In December 2011, the Compensation Committee approved increases in the base salaries of the named executive officers based on the rate of inflation for the twelve months ended November 30, 2011, in their respective countries (the U.S. for Mr. Parrish and Ms. Felch and the U.K. for Mr. Pope). These base salary increases took retroactive effect as of October 1, 2011.

In December 2011, the Compensation Committee approved a change in the Company's annual performance award program to provide that in addition to payout at achievement of 100% and 110% of corporate goals, an additional payout will be made upon achievement of 115% of corporate goals. The Compensation Committee also set specific objectives for achievement of performance goals under the Company’s annual performance award program.

The Compensation Committee did not make any equity awards to the named executive officers in fiscal 2012 as the grants made in December 2010 are still subject to continued vesting. In December 2010, Mr. Parrish and Ms. Felch each received an award of 45,000 shares of restricted common stock while Mr. Pope received an award of the right to receive 45,000 shares of common stock. Half of the shares will vest (or, in the case of Mr. Pope, will be issued) on the second anniversary of the grant date (December 16, 2012) and the other half will vest (or, in the case of Mr. Pope, will be issued) on the third anniversary of the grant date (December 16, 2013). Should a recipient terminate employment, or be terminated for cause, any unvested shares issued will be forfeited (or, in the case of Mr. Pope, will not be issued).

At the Company's 2011 Annual Meeting of Shareholders, pursuant to a non-binding, advisory vote, shareholders approved the compensation of the Company's named executive officers as disclosed in the proxy statement for the meeting by a vote of 11,081,787 shares in favor to 177,224 against. The Compensation Committee has considered the results of this advisory shareholder vote and believes that it shows support by the Company's shareholders for the Company's compensation philosophy and the executive compensation programs that implement the Company's compensation philosophy. The Company has not significantly changed its executive compensation program following the shareholder advisory vote. The Board of Directors has determined that future shareholder advisory votes on executive compensation will occur every three years. Accordingly, the next shareholder advisory vote on executive compensation will be held at our 2014 Annual Meeting of Shareholders.

Executive Compensation Program Objectives and Philosophy

The Company has designed the compensation program for its named executive officers to align the interests of the named executive officers with those of shareholders. To do so, the Company provides a modest level of base pay and incentivizes executives to achieve corporate goals through restricted stock grants and an annual performance award program that ties cash incentives to performance goal achievement and year-end stock prices. The Company believes its executive compensation package, as a whole, is competitive with companies of a similar size in the HIV/AIDS product arena.

A named executive officer's compensation opportunity is impacted by the Company’s performance and stock price. By design, the annual performance awards are paid only if the performance goals are attained, and, if the performance goals are surpassed by either 10%, or 15%, the program provides for higher levels of award payouts. With restricted stock grants, the value is not realized until the vesting requirement is met. Enhanced value is possible if the stock price increases after the grant is awarded.

Process for Determining Executive Compensation

Information Reviewed by the Compensation Committee

Compensation for the named executive officers and other senior managers is reviewed and approved by the Compensation Committee. The Compensation Committee views compensation as an ongoing process. The Compensation Committee receives and reviews materials in advance of each meeting, including materials that management believes will be helpful to the Compensation Committee as well as materials specifically requested by members of the Compensation Committee.

The Compensation Committee annually reviews performance information provided by the Chief Executive Officer, including an assessment of overall corporate performance and an assessment of individual performance and compensation recommendations for each named executive officer, other than himself. The Chief Executive Officer does not submit an assessment of his own performance or present a recommendation on his own compensation, and does not participate in the portion of the meeting where his compensation is approved. The Compensation Committee considers the assessment and the input it receives from management, and exercises its own judgment in evaluating performance.

The Compensation Committee's charter requires that the Company provide the Compensation Committee with adequate funding to engage any compensation consultants or other advisers the Compensation Committee deems it appropriate to engage. During fiscal 2012 and 2013 to date, the Compensation Committee did not engage any consultants to assist it in reviewing the Company's compensation practices and levels.

Involvement of Management

Management plays a significant role in assisting the Compensation Committee in its oversight of compensation. Management's role includes assisting the Compensation Committee with evaluating employee performance, establishing individual performance targets and objectives, recommending salary levels and equity incentive grants, and providing financial data on company performance, calculations and reports on achievement of performance objectives, and other information requested by the Compensation Committee. The Chief Executive Officer works with the Compensation Committee in making recommendations regarding overall compensation policies and plans as well as specific compensation levels for the named executive officers and other key employees, other than the Chief Executive Officer. Members of management who were present during a part of the Compensation Committee meetings in fiscal 2012 and the first part of fiscal 2013 included the Chief Executive Officer and the Chief Financial Officer. The Compensation Committee makes all decisions regarding the compensation of the Chief Executive Officer without the Chief Executive Officer or any other member of management present.

Use of Market Compensation Data

Although the Compensation Committee does not use benchmarking to determine executive compensation, it has reviewed market compensation data to help in evaluating the competitiveness of the Company's executive compensation program. In 2010, at the Compensation Committee's request, the Company conducted a survey of 2009 executive compensation levels for three comparison groups of public companies with a market capitalization under $200 million, consisting of (1) companies involved in HIV diagnosis, prevention or treatment, (2) companies involved in health care and (3) companies that market medical devices. The named executive officers' base salaries are below both the mean and the median in each group of the survey while potential bonus and stock compensation are above both the mean and the median. The Compensation Committee intends to conduct such an analysis every three years, consistent with the frequency in which the Company intends to hold future “say on pay” votes.

Components of Executive Compensation

Mix of Compensation

The Company’s compensation program features three main components:

·	base salaries;

·	an annual performance award program; and

·	periodic restricted stock grants.

The mix of compensation is determined largely by the Compensation Committee’s intent to align compensation with the shareholders’ interests. As such, base pay is a modest part of the overall package. The annual performance award, which increases with a higher year-end share price, provides the named executive officers with an incentive to meet corporate targets that are likely to impact stock price. The restricted stock grants offer the named executive officers an additional opportunity to share in the stock value created for shareholders when growth targets are achieved.

Base Salaries

The Compensation Committee annually reviews the base salaries for the named executive officers. During its review in December 2011, the Compensation Committee determined that a modest increase in the base salaries for the named executive officers based on the rate of inflation for the twelve months ended November 30, 2011, in each executive's country of residence (the U.S. for Mr. Parrish and Ms. Felch and the U.K. for Mr. Pope) was the appropriate adjustment for fiscal 2012. As a result, the Compensation Committee approved the base salary increases for Mr. Parrish and Ms. Felch of approximately 3.0% and for Mr. Pope of approximately 5.0%. These base salary increases took retroactive effect as of October 1, 2011.

Annual Performance Awards

Each year, the named executive officers have the opportunity to receive a cash incentive under the Company's annual performance award program. Participants are eligible to receive a target payment upon achievement of corporate goals. The target award is calculated by multiplying the designated award quantity by the average closing price of the Company’s common stock for the last ten trading days of the fiscal year. Thus, the value of the performance award, if achieved, is impacted by the Company’s year-end stock price.

At the beginning of fiscal 2012, the Company established the performance goals under the annual performance award program for fiscal 2012 operating results in the following areas:

·	specific rate of increase in unit sales in fiscal 2012 as compared to fiscal 2011; and

·	specific rate of increase in operating income in 2012 as compared to fiscal 2011.

Achievement of 100% of both corporate goals will trigger annual incentive performance awards to the named executive officers at the target level. Achievement of at least 110% of both corporate goals triggers an enhanced annual award, while achievement of at least 115% of both corporate goals triggers the maximum annual award. The corporate goals for fiscal 2012 were set at levels that were challenging to achieve, representing significant growth from the prior fiscal year. Both unit sales and operating profit for fiscal 2012 were greater than 115% of both corporate goals, which entitled participants to the maximum performance award.

Under exceptional circumstances the Compensation Committee has the authority to award discretionary cash bonuses outside of the annual performance award program. These discretionary bonuses allow the Company to recognize superior performance by the named executive officers and to have the flexibility to maintain competitive compensation when needed. No discretionary bonuses were awarded to the named executive officers for fiscal 2012, 2011 or 2010.

Restricted Stock Grants

The Company uses restricted stock grants for its equity incentive awards to be consistent with its objective to align the interests of shareholders and its named executive officers. Stock grants were selected as a long-term incentive, in part, because the value of the grant is impacted by the stock price. The restricted stock grants generally vest over a period of years, in a number of tranches. The staggered vesting schedule was selected because the Compensation Committee believes it is consistent with industry practice, while providing a relatively long retention benefit. Instead of annual grants of stock, the Company has generally staggered the grants so that the named executive officers generally hold some unvested shares at all times to promote the Company's retention objectives.

Prior to the Compensation Committee setting the size of restricted stock grants, the Chief Executive Officer makes a recommendation to the Compensation Committee for the other named executive officers. The Chief Executive Officer generally uses historic awards and stock price trends as a starting point in developing his recommendation (other than for himself). That information is also available to the Compensation Committee when it makes its decisions. Following review of the Chief Executive Officer's recommendations, the Compensation Committee also considers, in its collective experience and judgment, the Chief Executive Officer's individual performance assessments of the other named executive officers and other factors regarding executive retention considerations. No formal weightings are applied to these factors in determining the size of restricted stock grants.

No equity awards were granted in fiscal 2012. Restricted stock grants were awarded in fiscal 2011 to retain certain key employees who were viewed by the Compensation Committee as important to continuing to achieve the Company’s corporate goals. A total of 180,000 shares were granted in December 2010 to a total of four executives and employees, including 45,000 shares to each of Mr. Parrish, Ms. Felch and Mr. Pope. Half of the restricted stock granted in December 2010 vest in twenty-four months (December 2012), with the other half vesting in thirty-six months (December 2013). The shares of restricted stock have all the rights of our common stock, including voting and dividend rights. Unvested shares are subject to forfeiture if the holder voluntarily leaves the Company or is terminated for cause. All shares will vest immediately if there is a change in control of the Company. As Mr. Pope is a resident of the U.K., rather than an immediate grant of restricted stock, his grant of 45,000 shares was in the form of the right to receive 22,500 shares in December 2012 and 22,500 shares in December 2013, unless Mr. Pope voluntarily leaves the Company or his employment is terminated for cause prior to such dates. Any remaining grants will be immediately issued to Mr. Pope if there is a change in control of the Company. In connection with dividends declared by the Company on its common stock, an amount equal to the dividend that would have been payable on the 45,000 shares that Mr. Pope is entitled to receive pursuant to this grant will be credited to Mr. Pope, with such credit payable when and to the extent the applicable shares are subsequently issued.

The Company does not currently maintain any formal policy regarding executive officer stock ownership or the hedging of economic risk related to such stock ownership nor does it have any program, plan or obligation that requires it to grant equity compensation to any executive officer on specified dates. The authority to make equity grants to executive officers rests with the Compensation Committee, although, as noted above, the Compensation Committee does consider the recommendations of the Chief Executive Officer in setting the compensation of the other named executive officers.

Change of Control Agreements

The Company has entered into a change of control agreement with each of the named executive officers. These agreements act as springing employment agreements which take effect upon a change of control. The Company provides these agreements based on competitive market practice, and to ensure that the executives' interests remain aligned with shareholders while the Company considers, or during the pendency of, a transaction that involves a change of control. Additional information regarding these agreements, including a description of key terms and a quantification of benefits that would be received by the named executive officers had termination or a change in control occurred on September 30, 2012, is found below under the heading "Potential Payments on Termination After a Change of Control."

Deductibility of Executive Compensation

Section 162(m) of the Internal Revenue Code generally disallows a tax deduction to a public corporation for compensation over $1.0 million paid for any fiscal year to each of the individuals who were, at the end of the fiscal year, the corporation's chief executive officer and the three other most highly compensated executive officers other than the chief financial officer. Performance-based compensation that has been approved by shareholders is excluded from the $1.0 million deductibility limit if certain requirements are met. Neither the Company's annual performance award program nor its 1997 Stock Option Plan were approved by its shareholders, and therefore any compensation the Company pays under such plans does not qualify for the exclusion from the $1.0 million deductibility limit in Section 162(m).

The Company does not believe that any of the compensation it paid to its named executive officers prior to fiscal 2012 exceeded the limit on deductibility in Section 162(m). During fiscal 2012, the Company's Chief Executive Officer exercised stock options granted under the 1997 Stock Option Plan which resulted in compensation in excess of $2.1 million based on the spread between the market price of our common stock and the exercise price of options on the date of exercise, which will cause his fiscal 2012 compensation for purposes of Section 162(m) to exceed the $1.0 million deductibility limit by more than $1.2 million. Section 162(m) will disallow the Company from deducting the amount of such compensation to the Chief Executive Officer for fiscal 2012 in excess of $1.0 million. After this stock option exercise, no stock options under the 1997 Stock Option Plan are held by any of the Company's named executive officers. In addition, due to the achievement of the goals for payment of enhanced awards under the Company's annual performance award program for fiscal 2012, the Company's Chief Executive Officer will receive a cash incentive payout of $910,000. For federal income tax accounting purposes, the Company's deduction, if any, for the compensation relating to the Chief Executive Officer's fiscal 2012 cash incentive payout will accrue in fiscal 2013. As a result, the Chief Executive Officer's compensation will likely exceed the $1.0 million deductibility limit in Section 162(m) for fiscal 2013. Section 162(m) will disallow the Company from deducting the amount of such compensation to the Chief Executive Officer for fiscal 2013 in excess of $1.0 million.

The Compensation Committee intends to continue to monitor the applicability of Section 162(m) in connection with future compensation to the Company's named executive officers. Although the Compensation Committee may consider tax deductibility in connection with future compensation decisions, it believes that it is generally not in the shareholders' interest to restrict the Compensation Committee's discretion and flexibility in developing appropriate compensation programs and establishing compensation levels and, in some instances, the Compensation Committee may approve compensation that is not fully deductible.

COMPENSATION COMMITTEE REPORT

The Compensation Committee has reviewed and discussed with management the Compensation Discussion and Analysis section of this report. Based on its review and discussions with management, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this report.

Compensation Committee:

Stephen Dearholt (Chair)

David Bethune

Michael Walton

Richard Wenninger

Mary Margaret Frank

SUMMARY COMPENSATION TABLE

The table shown below provides information for the Company's last three fiscal years regarding compensation paid by the Company to its Chief Executive Officer, its Chief Financial Officer and its only other executive officer. The individuals listed in this table are referred to elsewhere in this report as the "named executive officers."

Name and Principal Position	Year	Salary		Stock Awards (1)		Non-equity Incentive Plan Compensation (2)		All Other Compensation (3)		Total
O.B. Parrish,	2012	$	164,925		-	$	910,000	$	19,516	$	1,094,441
Chairman, Chief Executive	2011	$	159,944	$	261,000		-	$	19,516	$	440,460
Officer and Acting President	2010	$	157,548		-		-	$	19,516	$	177,064
Donna Felch,	2012	$	205,743		-	$	350,000	$	14,142	$	569,885
Vice President and Chief	2011	$	198,978	$	261,000		-	$	5,998	$	465,976
Financial Officer	2010	$	195,935		-		-	$	10,423	$	206,358
Mike Pope, Vice President	2012	$	194,831		-	$	350,000	$	32,880	$	577,711
of the Company and	2011	$	189,480	$	261,000		-	$	32,631	$	483,111
General Manager of Female	2010	$	177,120		-		-	$	29,823	$	206,943
Health Company (UK) Plc (4)

________________

(1)

The 2011 amounts reflect the grant date fair value of the restricted stock awards granted to Mr. Parrish and Ms. Felch on December 16, 2010 and the right to receive shares of common stock granted to Mr. Pope on December 16, 2010, computed in accordance with Accounting Standards Codification Topic 718-10 (formerly FAS No. 123R) excluding estimated forfeitures. The stock awards are valued at the closing market price ($5.80) of our common stock on the date of grant.

(2)

Amounts for 2012 represent payouts under the Company's annual performance award program based on achieving 115% of unit sales and operating income targets for fiscal 2012. Under this program, each named executive officer is entitled to receive a cash incentive on the Company exceeding target amounts of both unit sales and operating income, with the amount of the payout based on the average closing price of the Company's common stock for the last ten trading days of the fiscal year. The targets for fiscal 2010 and 2011 under the Company's annual performance award program were not met and, as a result, no payouts were made under the program for fiscal 2010 and fiscal 2011.

(3)

The amount of "All Other Compensation" for Mr. Parrish consists of premiums paid by the Company for term life insurance under which Mr. Parrish or his designee is the beneficiary; for Ms. Felch consists of matching contributions by the Company under the Company's Simple Individual Retirement Account plan for its employees; and for Mr. Pope consists of health coverage, use of a leased automobile and reimbursement of expenses relating to the use of the automobile.

(4)

Mr. Pope's salary and all other compensation are paid in U.K. pounds. Amounts shown for Mr. Pope's salary and all other compensation are based on the 12-month average exchange rate for the year, which was 1.5768 U.S. dollars per U.K. pound in fiscal 2012, 1.6071 in fiscal 2011 and 1.5592 in fiscal 2010.

GRANTS OF PLAN–BASED AWARDS

			Non-Equity Incentive Plan Awards: Number of Units (1)				Estimated Future Payouts Under Non-Equity Incentive Plan Awards (1)
Name	Grant Date		Target		Maximum		Threshold		Target		Maximum
O.B. Parrish		-		110,000		130,000		-	$	770,000	$	910,000
Donna Felch		-		30,000		50,000		-	$	210,000	$	350,000
Michael Pope		-		30,000		50,000		-	$	210,000	$	350,000

____________________

(1)

These amounts show the range of target and maximum payouts for fiscal 2012 performance under the Company's annual performance award program. Payouts under the awards would be made only if 100% of unit sale and operating income goals for fiscal 2012 are achieved. There is an enhanced performance award if 110% of both goals are achieved. The maximum performance award is earned if 115% of both goals are achieved. The size of the payout is based on the number of units awarded to each participant multiplied by the average closing price of our common stock for the last ten trading days of the fiscal year. The dollar amounts for the target and maximum awards for each named executive officer in the table are based on the number of units multiplied by the average closing price of our common stock for the last ten trading days of fiscal 2012, which was $7.00 per share.

OUTSTANDING EQUITY AWARDS AT FISCAL YEAR–END

The following table provides information regarding unvested restricted stock and rights to receive stock held by the named executive officers at September 30, 2012. None of the named executive officers held any unexercised stock options as of September 30, 2012.

	Stock Awards
Name	Number of Shares of Stock That Have Not Vested			Market Value of Shares of Stock That Have Not Vested
O.B. Parrish		45,000	(1)	$	321,750	(2)
Donna Felch		45,000	(1)	$	321,750	(2)
Michael Pope		45,000	(3)	$	321,750	(4)

__________________

(1)	22,500 shares vest on each of December 16, 2012 and December 16, 2013.

(2)	Market value equals the number of shares of restricted stock that have not vested multiplied by $7.15 per share, the closing price of our common stock on September 28, 2012, which was the last trading day of fiscal 2012.

(3)	Represents the right to receive 22,500 shares on December 16, 2012 and 22,500 shares on December 16, 2013.

(4)	Market value equals the number of shares of our common stock that Mr. Pope has the right to receive multiplied by $7.15 per share, the closing price of our common stock on September 28, 2012, which was the last trading day of the fiscal year.

OPTION EXERCISES AND STOCK VESTED

The following table provides information regarding the stock options exercised by the named executive officers during fiscal 2012 and the shares of restricted stock held by, or shares of stock issued pursuant to rights to received stock held by, the named executive officers that vested or were issued during fiscal 2012.

	Option Awards						Stock Awards
	Number of Shares Acquired on Exercise			Value Realized on Exercise			Number of Shares Acquired on Vesting			Value Realized on Vesting
O.B. Parrish		464,000	(1)	$	2,101,920	(2)		-			-
Donna Felch		-			-			30,000	(3)	$	135,900	(4)
Michael Pope		-			-			30,000	(5)	$	135,900	(6)

__________________

(1)	Mr. Parrish exercised 464,000 stock options using the cashless exercise option available under the plan, which entitled Mr. Parrish to receive 242,849 shares of our common stock net of 221,151 shares used to pay the exercise price and tax withholding obligations.

(2)	Value realized equals the market price of the common stock on July 16, 2012, which was $5.93 per share, minus the exercise price of $1.40 per share, multiplied by the 464,000 shares exercised.

(3)	Shares vested on December 10, 2011.

(4)	Market value equals the number of shares of restricted stock that vested multiplied by the closing price of our common stock on December 10, 2011, which was $4.53 per share.

(5)	Represents shares issued on December 10, 2011 pursuant to the right to receive shares held by Mr. Pope.

(6)	Market value equals the number of shares of the Company's common stock that were issued to Mr. Pope multiplied by the closing price of our common stock on December 10, 2011, which was $4.53 per share.

POTENTIAL PAYMENTS ON TERMINATION AFTER A CHANGE OF CONTROL

Effective October 1, 2005, the Company entered into an Amended and Restated Change of Control Agreement with each of O.B. Parrish and Michael Pope, and effective February 8, 2006, the Company entered into a Change of Control Agreement with Donna Felch. These agreements essentially act as springing employment agreements which provide that, upon a change of control, as defined in the agreement, the Company will continue to employ the executive for a period of three years in the same capacities as prior to the change of control, with an annual base salary equal to 12 times the highest monthly base salary paid during the 12 months prior to the change of control, an annual bonus equal to the higher of (1) the average of the three highest bonuses paid with respect to the five fiscal years prior to the change of control or (2) the bonus paid for the most recent fiscal year prior to the change of control, and other benefits substantially equivalent to what the executive was receiving prior to the change of control, in each case as specified in the agreements. If the executive is terminated without cause or if he or she resigns for good reason, in each case as defined in the agreements, after the change of control and during the three year employment period, including a termination by the executive for any reason within 180 days after the change of control, the executive is generally entitled to receive the following benefits:

·	a lump sum payment equal to three times the executive's base salary;

a lump sum payment equal to three times the highest of (1) the average of the three highest bonuses paid with respect to the five fiscal years prior to the change of control, (2) the bonus paid for the most recent fiscal year prior to the change of control or (3) the bonus paid or payable for the most recent fiscal year prior to the date of termination of employment;

·	continuation of health and other similar benefits for a period of three years after the termination date; and

·	a "gross-up" payment which will, in general, effectively reimburse the executive for any amounts paid under federal excise taxes relating to change of control benefits.

The terms of the grant agreements for the stock awards granted to the named executive officers also provide for immediate vesting (or, in the case of Mr. Pope, immediate issuance) upon a change of control.

The following table sets forth the compensation that the named executive officers would have been eligible to receive if the applicable named executive officer’s employment had been terminated as of September 30, 2012, under circumstances requiring payment of severance benefits as described above in connection with a change of control as well as the value as of September 30, 2012 of the outstanding unvested stock awards of the named executive officers that would vest upon a change of control (or, in the case of Mr. Pope, be issued).

Name	Salary		Stock Awards (1)		Cash Incentive		Continued Benefits (2)		Excise Tax Gross-Up (3)		Total
O.B. Parrish	$	494,775	$	321,750	$	2,730,000	$	109,937	$	1,406,536	$	5,062,998
Donna Felch	$	617,230	$	321,750	$	1,050,000	$	180,527	$	761,210	$	2,930,717
Michael Pope	$	599,356	$	321,750	$	1,050,000	$	37,516		-	$	2,008,622

(1)	Represents the value of the stock awards of 45,000 shares for each of Mr. Parrish, Ms. Felch and Mr. Pope multiplied by $7.15 per share, the closing price of our common stock on September 28, 2012, which was the last trading day of the fiscal year.

(2)	The benefits consist of health and similar benefits and outplacement services.

(3)

Under the change of control agreement of each named executive officer, the Company agrees to make an additional tax gross-up payment to the executive if any amounts paid or payable to the executive would be subject to the excise tax imposed on certain so-called "excess parachute payments" under Section 4999 of the Internal Revenue Code. Mr. Pope, as a resident of the U.K., is not subject to a similar excise tax.

DIRECTOR COMPENSATION

Overview

In December 2010, the Board of Directors approved a new arrangement to compensate non-employee directors for their service as Board members. Non-employee directors were given an election to receive either a restricted stock grant or quarterly cash compensation. Each director who elected a restricted stock grant would receive 21,000 shares of restricted stock, vesting in three tranches of 7,000 shares on the first, second and third anniversary of the grant, as compensation for a three year period. Each director who elected cash would receive a quarterly compensation payment of $7,500. Four out of five independent directors chose the restricted stock compensation option. The independent director who initially chose the cash compensation changed the election after twelve months and received a proportionate grant of restricted stock. In addition, in fiscal 2012, Dr. Frank received fees for committee participation and Mr. Bethune received fees for committee participation and for providing special assistance to management in connection with designated projects.

As described below, one of the Company's directors, Mary Ann Leeper, receives compensation as the Company's Senior Strategic Adviser pursuant to an employment agreement, and another director, William R. Gargiulo, Jr. receives consulting fees. They do not receive compensation as directors.

Director Summary Compensation Table

The following table provides information concerning the compensation paid by the Company in fiscal 2012 to each of its directors who are not executive officers of the Company.

Name	Fees Earned or Paid in Cash (1)		Stock Awards (2)		Non-equity Incentive Plan Compensation (3)		All Other Compensation (4)		Total
Mary Ann Leeper		-		-	$	350,000	$	187,767	$	537,767
William R. Gargiulo, Jr.		-		-	$	175,000	$	62,909	$	237,909
David R. Bethune	$	84,000		-		-		-	$	84,000
Stephen M. Dearholt		-		-		-		-		-
Mary Margaret Frank	$	17,500	$	65,660		-		-	$	83,160
Michael R. Walton		-		-		-		-		-
Richard E. Wenninger		-		-		-		-		-

__________________

(1)	The amount for Mr. Bethune represents $9,000 of fees paid for committee participation and $75,000 of fees paid for providing special assistance to management in connection with designated projects. The amount for Dr. Frank represents $10,000 of fees paid for committee participation and $7,500 of fees paid pursuant to her election to receive board compensation for the first quarter of fiscal 2012 in the form of cash.

(2)	The amount for Mary Margaret Frank reflects the grant date fair value of the restricted stock awards granted to her on December 16, 2011, computed in accordance with Accounting Standards Codification Topic 718-10 (formerly FAS No. 123R) excluding estimated forfeitures. The stock award is valued at the closing market price ($4.69) of our common stock on the date of grant.

(3)

Amounts for 2012 represent payouts under the Company's annual performance award program based on achieving 115% of unit sales and operating income targets for fiscal 2012. Under this program, each of Dr. Leeper and Mr. Gargiulo is entitled to receive a cash incentive on the Company exceeding target amounts of both unit sales and operating income, with the amount of the payout based on the average closing price of the Company's common stock for the last ten trading days of the fiscal year.

(4)

The amount of "All Other Compensation" for Dr. Leeper consists of salary of $168,867 as well as $14,000 in matching contributions by the Company under the Company's Simple Individual Retirement Account plan for its employees and $4,900 of premiums paid by the Company for life insurance under which Dr. Leeper or her designee is the beneficiary. Dr. Leeper is employed as a Senior Strategic Advisor and she participates as a member of the Executive Operation Committee. Dr. Leeper's compensation is for the execution of these responsibilities. She does not receive compensation for her role as a director of the Company. Mr. Gargiulo is a consultant to the Company and serves as the Corporate Secretary. In this role, he is responsible for scheduling all board and board committee meetings and distribution of material and preparation and approval of minutes for each meeting. In addition, he is responsible for the Company's relationship with its transfer agent and the issuance of shares. Mr. Gargiulo also assists Ms. Felch with investor relations. Mr. Gargiulo's compensation for the execution of these responsibilities was $62,909. He does not receive compensation for being a director of the Company.

As of September 30, 2012, the directors who are not executive officers of the Company held the following number of stock options and shares of unvested restricted stock:

	Option Awards				Unvested
Name	Vested		Unvested		Stock Awards
Mary Ann Leeper		-		-		45,000	(1)
William R. Gargiulo, Jr.		-		-		-
David R. Bethune		6,250		-		14,000	(2)
Stephen M. Dearholt		90,000		-		14,000	(2)
Mary Margaret Frank		60,000		-		14,000	(2)
Michael R. Walton		30,000		-		14,000	(2)
Richard E. Wenninger		90,000		-		14,000	(2)

_________________

(1)	22,500 shares vest on December 16, 2012 and 22,500 shares vest on December 16, 2013.

(2)	7,000 shares vest on each of December 16, 2012 and December 16, 2013.

Dr. Leeper has served as the Company's Senior Strategic Adviser since May 2006 when she retired from the positions of President and Chief Operating Officer of the Company. Dr. Leeper's services as Senior Strategic Adviser are governed by the terms of an employment agreement dated January 20, 2006, between the Company and Dr. Leeper. The employment agreement took effect as of May 1, 2006, and originally was to expire on September 30, 2006, but has been extended a number of times with the most recent extension lasting until December 31, 2007. Since the contract expiration, the Company has continued to employ Dr. Leeper based on the same terms. Pursuant to the employment agreement, Dr. Leeper receives an annual base salary of at least $150,000 and is entitled to participate in the Company’s bonus plans, stock incentive plan and other employee benefit plans. Additionally, Dr. Leeper is eligible to participate in any medical, health, dental, disability and life insurance policy that is in effect for the Company’s other senior management. Pursuant to the employment agreement, Dr. Leeper has agreed not to compete with the Company during employment and for a period of two years following termination of employment (six months if employment is terminated by the Company after a “change of control”) and has agreed to maintain the confidentiality of the Company’s proprietary information and trade secrets during the term of employment and for three years thereafter. The employment agreement provides that if Dr. Leeper’s employment is terminated by the Company without “cause” or by Dr. Leeper for “good reason,” Dr. Leeper will be entitled to a severance payment of $125,000 and a payment of $50,000 in consideration of the noncompetition and confidentiality covenants, except that if such termination occurs at any time after or in anticipation of a “change of control” with respect to the Company, Dr. Leeper will be entitled solely to those amounts to which she is entitled under the Amended and Restated Change of Control Agreement dated October 1, 2005 by and between the Company and Dr. Leeper. The terms of such Amended and Restated Change of Control Agreement are substantially the same as those summarized under the heading “Potential Payments on Termination After a Change of Control.” If the termination of Dr. Leeper’s employment occurs as a result of the death or disability of Dr. Leeper, then she shall be entitled to receive the greater of (a) her base salary or (b) the remaining amounts due her under the terms of the employment agreement.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The following table sets forth information regarding the beneficial ownership of common stock as of November 30, 2012 with respect to (a) each person known to the Company to own beneficially more than 5% of the outstanding shares of common stock, (b) each named executive officer and each director of the Company and (c) all directors and executive officers as a group.

The Company has determined beneficial ownership in accordance with the rules of the SEC. Unless otherwise indicated, the persons and entities included in the table have sole voting and investment power with respect to all shares beneficially owned, except to the extent authority is shared by spouses under applicable law. Shares of the common stock subject to options that are either currently exercisable or exercisable within 60 days of November 30, 2012 are treated as outstanding and beneficially owned by the holder for the purpose of computing the percentage ownership of the holder. However, these shares are not treated as outstanding for the purpose of computing the percentage ownership of any other person. The table lists applicable percentage ownership based on 28,672,416 shares outstanding as of November 30, 2012.

	Shares Beneficially Owned
Name and Address of Beneficial Owner (1)	Number		Percent
Bares Capital Management (2)		4,140,153		14.4	%
O.B. Parrish (3)		1,097,950		3.8	%
William R. Gargiulo, Jr. (4)		100,000		*
Mary Ann Leeper, Ph.D. (5)		403,155		1.4	%
Stephen M. Dearholt (6)		3,081,428		10.7	%
David R. Bethune (7)		183,665		*
Michael R. Walton (8)		151,958		*
Richard E. Wenninger (9)		2,121,320		7.4	%
Mary Margaret Frank (10)		90,962		*
Michael Pope (11)		250		*
Donna Felch (12)		172,500		*
All directors and executive officers as a group (10 persons) (3)(4)(5)(6)(7)(8)(9)(10)(11)(12)		7,403,188		25.6	%

_______________

* Less than 1 percent.

(1)

Unless otherwise indicated, the address of each beneficial owner is 515 North State Street, Suite 2225, Chicago, IL 60654; the address of Mr. Dearholt is 36365 Trail Ridge Road, Steamboat Springs, CO 80488; the address of Mr. Walton is 929 North Astor, Unit 2101, Milwaukee, WI 53202; the address of Mr. Wenninger is 14000 Gypsum Creek Road, Gypsum, CO 81637; and the address of Dr. Frank is P.O. Box 6550, Charlottesville, VA 22906.

(2)

Bares Capital Management, Inc. filed an amendment to Schedule 13G dated February 14, 2012 reporting that as of December 31, 2011, Bares Capital Management, Inc. beneficially owned 4,140,153 shares of common stock, with sole voting and dispositive power over 112,228 shares of common stock and shared voting and dispositive power over 4,027,925 shares of common stock. The address of Bares Capital Management, Inc. is 12600 Hill Country Boulevard, Suite R-230, Austin, Texas 78738.

(3)

Includes 233,501 shares owned by Phoenix of Illinois. Under the rules of the SEC, Mr. Parrish may be deemed to have voting and dispositive power as to such shares since Mr. Parrish is an officer, director and the majority shareholder of Phoenix of Illinois. Also includes 864,449 shares of common stock owned directly by Mr. Parrish, of which 220,000 shares have been pledged by Mr. Parrish to a bank to secure a personal loan.

(4)	Consists of 100,000 shares of common stock owned directly by Mr. Gargiulo.

(5)	Consists of 403,155 shares of common stock owned directly by Dr. Leeper.

(6)

Includes 2,404,466 shares of common stock owned directly by Mr. Dearholt. Also includes 125,150 shares of common stock held in a self-directed IRA, 61,812 shares of common stock held by the Mary C. Dearholt Trust of which Mr. Dearholt is a co-trustee with a sibling, and 400,000 shares of common stock held by the John W. Dearholt Trust of which Mr. Dearholt is a co-trustee with a sibling. Mr. Dearholt shares the power to vote and dispose of 461,812 shares of common stock held by the Mary C. Dearholt Trust and the John W. Dearholt Trust. Mr. Dearholt has sole power to vote and dispose of the remaining shares of common stock. Also includes 90,000 shares of common stock subject to stock options.

(7)	Consists of 177,415 shares of common stock owned directly by Mr. Bethune and 6,250 shares of common stock subject to stock options held by Mr. Bethune.

(8)	Consists of 121,958 shares of common stock owned directly by Mr. Walton and 30,000 shares of common stock subject to stock options held by Mr. Walton.

(9)

Consists of (a) 21,000 shares of common stock owned directly by Mr. Wenninger, (b) 17,448 shares of common stock held by Mr. Wenninger’s spouse (Mr. Wenninger disclaims beneficial ownership of the shares held by his spouse), (c) 1,742,872 shares of common stock held by a trust of which Mr. Wenninger is trustee and a beneficiary, (d) 250,000 shares of common stock held by a charitable remainder trust of which Mr. Wenninger is a trustee and Mr. Wenninger and his spouse are beneficiaries (Mr. Wenninger disclaims beneficial ownership except to the extent of his pecuniary interest therein), and (e) 90,000 shares of common stock subject to stock options.

(10)	Consists of 30,962 shares of common stock owned directly by Dr. Frank and 60,000 shares of common stock subject to stock options held by Dr. Frank.

(11)	Consists of 250 shares of common stock owned directly by Mr. Pope.

(12)	Consists of 172,500 shares of common stock owned directly by Ms. Felch.

The above beneficial ownership information is based on information furnished by the specified person and is determined in accordance with Rule 13d-3 under the Securities Exchange Act of 1934, as amended, as required for purposes of this annual report. This information should not be construed as an admission of beneficial ownership for other purposes.

Equity Compensation Plan Information

The following table summarizes share information, as of September 30, 2012, for the Company's equity compensation plans and arrangements. The plans and arrangements dated prior to July 2007 were not required to be approved by the Company's shareholders, and, accordingly, none of these plans or arrangements have been approved by the Company's shareholders. In March 2008, the Company’s shareholders approved the 2008 Stock Incentive Plan and authorized 2,000,000 shares (subject to adjustment in the event of stock splits and other similar events) for issuance under the plan.

Equity Plan Category	Number of Shares To Be Issued Upon Exercise Of Outstanding Options, Warrants and Rights			Weighted-Average Exercise Price Of Outstanding Options, Warrants and Rights		Shares Remaining Available For Future Issuance Under Equity Compensation Plans
Equity compensation plans approved by shareholders		199,750	(1)	$	4.35		1,233,068
Equity compensation plans not approved by shareholders		202,000		$	1.39		-
Total		401,750		$	2.86		1,233,068

______________

(1) Includes rights to receive a total of 73,500 shares contingent on continued employment.

The Company's equity compensation plans not approved by shareholders include the 1997 Stock Option Plan and a warrant issuance to a consultant. Options granted under the 1997 Stock Option Plan are nonqualified stock options under the Internal Revenue Code. Options expire at such time as the Board of Directors determines, provided that no stock option may be exercised later than the tenth anniversary of the date of its grant. Options cannot be exercised until the vesting period, if any, specified by the Board of Directors. Options are not transferable other than by will or the laws of descent and distribution, and may be exercised during the life of the participant only by him or her. The option price per share is determined by the Board of Directors, but cannot be less than 100% of the fair market value of the common stock on the date such option is granted. The 1997 Stock Option Plan expired as of December 31, 2006, thus no further shares can be issued under this plan.

In July 2006, the Company issued 200,000 warrants to purchase shares of common stock to a consultant in part for payment to assist in evaluating strategic growth opportunities. Through September 30, 2012, a total of 148,000 warrants had been exercised, including 48,000 warrants exercised using the cashless exercise option available within the warrants, resulting in the issuance of a total of 137,880 shares of common stock. At September 30, 2012, 52,000 warrants were outstanding, with an exercise price of $1.30 per share and an expiration date of July 10, 2016. On October 8, 2012, the remaining 52,000 warrants were exercised using the cashless exercise option available within the warrants, resulting in the issuance of 43,465 shares of common stock.

Item 13. Certain Relationships and Related Transactions, and Director Independence.

Transactions with Related Persons

It has been and currently is the policy of the Company that transactions between the Company and its officers, directors, principal shareholders or affiliates are to be on terms no less favorable to the Company than could be obtained from unaffiliated parties. The Company intends that any future transactions between the Company and its officers, directors, principal shareholders or affiliates will be approved by a majority of the directors who are not financially interested in the transaction.

Director Independence

The Company's Board of Directors currently consists of nine members: O.B. Parrish, Mary Ann Leeper, Ph.D., Donna Felch, William R. Gargiulo, Jr., Stephen M. Dearholt, David R. Bethune, Michael R. Walton, Richard E. Wenninger and Mary Margaret Frank, Ph.D. The Board of Directors has reviewed the independence of the directors under the applicable standards of the NASDAQ Stock Market, and based on this review, the Board of Directors determined that all of the directors are independent under the NASDAQ Stock Market listing standards other than O.B. Parrish, Mary Ann Leeper, Donna Felch and William R. Gargiulo, Jr.

Item 14. Principal Accountant Fees and Services.

The following table summarizes the fees the Company paid for audit and non-audit services rendered by the Company's independent auditors, McGladrey LLP, during fiscal 2012 and 2011:

Service Type	2012		2011
Audit Fees (1)	$	318,928	$	304,657
Audit-Related Fees		-		-
Tax Fees (2)		35,500		46,665
All Other Fees		-		-
Total Fees	$	354,428	$	351,322

(1)

Consists of fees for professional services rendered in connection with the audit of the Company's financial statements for the fiscal years ended September 30, 2012 and 2011; the reviews of the financial statements included in each of the Company's quarterly reports on Form 10-Q during those fiscal years; and consents and assistance with documents filed by the Company with the SEC.

(2)	Consists of fees for professional services rendered in connection with preparation of federal and state income tax returns, including foreign tax filings, and assistance with foreign tax structuring.

The Audit Committee of the Board of Directors of the Company considered that the provision of the services and the payment of the fees described above are compatible with maintaining the independence of McGladrey LLP.

The Audit Committee is responsible for reviewing and pre-approving any non-audit services to be performed by the Company's independent auditors. The Audit Committee has delegated its pre-approval authority to the Chairperson of the Audit Committee to act between meetings of the Audit Committee. Any pre-approval given by the Chairperson of the Audit Committee pursuant to this delegation is presented to the full Audit Committee at its next regularly scheduled meeting. The Audit Committee or Chairperson of the Audit Committee reviews and, if appropriate, approves non-audit service engagements, taking into account the proposed scope of the non-audit services, the proposed fees for the non-audit services, whether the non-audit services are permissible under applicable law or regulation and the likely impact of the non-audit services on the independence of the independent auditors.

Each new engagement of the Company's independent auditors to perform non-audit services set forth in the table above has been approved in advance by the Audit Committee or the Chairperson of the Audit Committee pursuant to the foregoing procedures.

PART IV

Item 15. Exhibits and Financial Statement Schedules.

(a) The following documents are filed as part of this report:

1. Financial Statements

The following consolidated financial statements of the Company are included in Item 8 of this report:

Report of Independent Registered Public Accounting Firm

Consolidated Balance Sheets as of September 30, 2012 and 2011

Consolidated Statements of Income for the Years Ended September 30, 2012, 2011 and 2010

Consolidated Statements of Stockholders’ Equity for the Years Ended September 30, 2012, 2011 and 2010

Consolidated Statements of Cash Flows for the Years Ended September 30, 2012, 2011 and 2010

Notes to Consolidated Financial Statements

2. Financial Statement Schedules

All schedules for which provision is made in the applicable accounting regulations of the SEC are not required under the related instructions, are inapplicable or the required information is shown in the financial statements or notes thereto, and therefore, have been omitted.

3. Exhibits

3.1	Amended and Restated Articles of Incorporation of the Company. (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	Articles of Amendment to the Amended and Restated Articles of Incorporation of the Company designating the terms and preferences for the Class A Preferred Stock – Series 3. (5)
3.6	Amended and Restated By-Laws of the Company.
4.1	Amended and Restated Articles of Incorporation, as amended (same as Exhibits 3.1, 3.2, 3.3, 3.4 and 3.5).
4.2	Articles II, VII and XI of the Amended and Restated By-Laws of the Company (included in Exhibit 3.6).
10.1	Trademark License Agreement for Reality Trademark. (6)
10.2	1997 Stock Option Plan, as amended. (7)
10.3	Amended and Restated Change of Control Agreement between the Company and O.B. Parrish dated October 1, 2005. (8)
10.4	Amended and Restated Change of Control Agreement between the Company and Mary Ann Leeper dated October 1, 2005. (8)
10.5	Amended and Restated Change of Control Agreement between the Company and Michael Pope dated October 1, 2005. (8)
10.6	Change of Control Agreement between the Company and Donna Felch dated February 8, 2006. (9)
10.7	Employment Agreement between the Company and Mary Ann Leeper dated effective as of May 1, 2006. (10)

10.8	The Female Health Company 2008 Stock Incentive Plan. (11)
10.9	Form of Nonstatutory Stock Option Grant Agreement for The Female Health Company 2008 Stock Incentive Plan. (12)
10.10	Second Amended and Restated Loan Agreement, dated as of August 1, 2011, between the Company and Heartland Bank. (13)
10.11	First Amendment to Second Amended and Restated Loan Agreement, dated as of August 1, 2012, between the Company and Heartland Bank.
10.12	Commercial Security Agreement, dated as of July 20, 2004, between the Company and Heartland Bank. (14)
10.13	First Amendment to Commercial Security Agreement, dated as of July 1, 2010, between the Company and Heartland Bank. (15)
10.14	Second Amendment to Commercial Security Agreement, dated as of August 1, 2011, between the Company and Heartland Bank. (13)
10.15	Share Charge, dated as of August 30, 2011, between the Company and Heartland Bank. (16)
21	Subsidiaries of Registrant.
23.1	Consent of McGladrey LLP.
24.1	Power of Attorney (included as part of the signature page hereof).
31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification of Chief Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350 (Section 906 of the Sarbanes-Oxley Act of 2002. (17)
101	The following materials from the Company's Annual Report on Form 10-K for the year ended September 30, 2012, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Income, (iii) Consolidated Statements of Stockholders’ Equity, (iv) Consolidated Statements of Cash Flows, and (v) the Notes to Consolidated Financial Statements.
(1)	Incorporated herein by reference to the Company's Form SB-2 Registration Statement filed on October 19, 1999.

(2)	Incorporated herein by reference to the Company's Form SB-2 Registration Statement filed on September 21, 2000.

(3)	Incorporated by reference herein to the Company's Form SB-2 Registration Statement filed on September 6, 2002.

(4)	Incorporated herein by reference to the Company's March 31, 2003 Form 10-QSB.

(5)	Incorporated herein by reference to the Company's March 31, 2004 Form 10-QSB.

(6)	Incorporated herein by reference to the Company's 1992 Form 10-KSB.

(7)	Incorporated herein by reference to the Company's Form S-8 Registration Statement filed on March 26, 2010.

(8)	Incorporated herein by reference to the Company's September 30, 2005 Form 10-KSB.

(9)	Incorporated herein by reference to the Company's Form 8-K filed on February 8, 2006.

(10)	Incorporated hereby by reference to the Company's Form 8-K/A filed on February 21, 2006.

(11)	Incorporated hereby by reference to the Company's Form 8-K filed on March 31, 2008.

(12)	Incorporated herein by reference to the Company's September 30, 2009 Form 10-K.

(13)	Incorporated by reference to the Company's June 30, 2011 Form 10-Q.

(14)	Incorporated by reference to the Company's March 31, 2010 Form 10-Q.

(15)	Incorporated herein by reference to the Company's June 30, 2010 Form 10-Q.

(16)	Incorporated by reference to the Company’s September 30, 2011 Form 10-K.

(17)	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 Exchange Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended.

The response to this portion of Item 15 is submitted as a separate section of this report.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.

Date: December 4, 2012

	THE FEMALE HEALTH COMPANY

	BY:	/s/ O.B. Parrish
		O.B. Parrish, Chairman and Chief Executive Officer


	BY:	/s/ Donna Felch
		Donna Felch, Vice President and Chief Financial Officer

POWER OF ATTORNEY

Each person whose signature appears below hereby appoints O.B. Parrish and Donna Felch, and each of them individually, his true and lawful attorney-in-fact, with power to act with or without the other and with full power of substitution and resubstitution, in any and all capacities, to sign any or all amendments to the Form 10-K and file the same with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or their substitutes, may lawfully cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated.

Signature	Title	Date

/s/ O.B. Parrish O.B. Parrish	Chairman of the Board, Chief Executive Officer and Director (Principal Executive Officer)	December 4, 2012

/s/ Mary Ann Leeper, Ph.D. Mary Ann Leeper, Ph.D.	Director	December 4, 2012

/s/ Donna Felch Donna Felch	Vice President, Chief Financial Officer and Director (Principal Accounting and Financial Officer)	December 4, 2012

/s/ William R. Gargiulo	Secretary and Director	December 4, 2012
William R. Gargiulo

/s/ David R. Bethune	Director	December 4, 2012
David R. Bethune

__________________	Director	December 4, 2012
Stephen M. Dearholt

/s/ Michael R. Walton	Director	December 4, 2012
Michael R. Walton

__________________	Director	December 4, 2012
Richard E. Wenninger

/s/ Mary Margaret Frank	Director	December 4, 2012
Mary Margaret Frank

Management's Report on Internal Control over Financial Reporting

Management of the Company is responsible for establishing and maintaining effective 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). The Company’s internal control over financial reporting is designed to provide reasonable assurance to the Company’s management and Board of Directors regarding the preparation and fair presentation of published financial statements. The Company’s internal control over financial reporting includes those policies and procedures that:

(i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company;

(ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and

(iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company's assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management assessed the effectiveness of the Company's internal control over financial reporting as of September 30, 2012. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework. Based on its assessment, management believes that, as of September 30, 2012, the Company's internal control over financial reporting was effective based on those criteria.

The effectiveness of our internal control over financial reporting as of September 30, 2012 has been audited by McGladrey LLP, an independent registered public accounting firm, as stated in their report. See ”Report of Independent Registered Public Accounting Firm,” which appears on pages F-2 and F-3 of this report.

December 4, 2012

F-1

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders

The Female Health Company

We have audited the accompanying consolidated balance sheets of The Female Health Company and Subsidiaries (the Company) as of September 30, 2012 and 2011, and the related consolidated statements of income, stockholders' equity, and cash flows for each of the three years in the three-year period ended September 30, 2012. We also have audited The Female Health Company and Subsidiaries' internal control over financial reporting as of September 30, 2012, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Female Health Company and Subsidiaries' management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management's Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on these financial statements and an opinion on the Company's internal control over financial reporting based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (a) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (b) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (c) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Member of the RSM International network of Independent accounting, tax and consulting firms.

F-2

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of The Female Health Company and Subsidiaries as of September 30, 2012 and 2011, and the results of its operations and its cash flows for each of the three years in the three-year period ended September 30, 2012, in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, The Female Health Company and Subsidiaries maintained, in all material respects, effective internal control over financial reporting as of September 30, 2012, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

/s/ McGladrey LLP

Chicago, Illinois

December 4, 2012

F-3

THE FEMALE HEALTH COMPANY AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

SEPTEMBER 30, 2012 AND 2011

	2012			2011
ASSETS
Current Assets
Cash	$	5,290,780		$	4,249,324
Certificate of deposit		-			63,875
Restricted cash		4,682			4,526
Accounts receivable, net of allowance for doubtful accounts 2012 $41,625 and 2011 $10,000		7,268,917			2,305,473
Income tax receivable		27,369			-
Inventories		1,458,199			2,026,528
Prepaid expenses and other current assets		624,268			297,267
Deferred income taxes		2,152,000			800,000
TOTAL CURRENT ASSETS		16,826,215			9,746,993

Other Assets		122,336			116,360

PLANT AND EQUIPMENT
Equipment, furniture and fixtures		3,969,888			3,465,745
Leasehold improvements		322,814			301,179
Construction in progress		268,765			-
Less accumulated depreciation and amortization		(2,211,591	)		(1,787,486	)
Plant and equipment, net		2,349,876			1,979,438

Deferred income taxes		11,148,000			7,600,000
TOTAL ASSETS	$	30,446,427		$	19,442,791

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable	$	1,775,327		$	1,076,994
Accrued expenses and other current liabilities		1,120,302			846,591
Accrued compensation		2,964,812			369,825
TOTAL CURRENT LIABILITIES		5,860,441			2,293,410

LONG-TERM LIABILITIES
Deferred rent		90,902			101,133
Deferred grant income		82,650			107,481
Deferred income taxes		194,244			188,177
TOTAL LIABILITIES		6,228,237			2,690,201

Commitments and Contingencies

STOCKHOLDERS’ EQUITY
Convertible preferred stock, Class A Series 1, par value $.01 per share; authorized 5,000,000 shares; no shares issued and outstanding in 2012 and 2011.		-			-
Convertible preferred stock, Class A Series 3, par value $.01 per share; authorized 700,000 shares; no shares issued and outstanding in 2012 and 2011.		-			-
Convertible preferred stock, Class B, par value $.50 per share; authorized 15,000 shares; no shares issued and outstanding in 2012 and 2011.		-			-
Common Stock, par value $.01 per share; authorized 38,500,000 shares; issued 30,550,030 and 29,649,003 shares, and 28,591,201 and 27,734,174 shares outstanding in 2012 and 2011, respectively.		305,500			296,490
Additional paid-in capital		66,760,907			68,117,382
Accumulated other comprehensive loss		(581,519	)		(581,519	)
Accumulated deficit		(35,594,455	)		(44,697,131	)
Treasury stock, at cost, 1,958,829 and 1,914,829 shares of common stock in 2012 and 2011, respectively		(6,672,243	)		(6,382,632	)
TOTAL STOCKHOLDERS’ EQUITY		24,218,190			16,752,590
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	30,446,427		$	19,442,791

See notes to consolidated financial statements.

F-4

THE FEMALE HEALTH COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

YEARS ENDED SEPTEMBER 30, 2012, 2011 and 2010

	2012			2011			2010

Product sales	$	35,012,176		$	18,516,091		$	22,188,092
Royalty income		21,721			49,011			33,863
Net revenues		35,033,897			18,565,102			22,221,955

Cost of sales		14,412,884			8,699,912			9,297,136

Gross profit		20,621,013			9,865,190			12,924,819

Operating expenses:
Advertising		52,949			32,858			76,707
Selling, general and administrative		9,628,134			6,536,990			6,569,030
Restructuring costs		-			-			1,929,922
Total operating expenses		9,681,083			6,569,848			8,575,659

Operating income		10,939,930			3,295,342			4,349,160

Non-operating (expense) income:
Interest and other income (expense)		362			(2,109	)		29,168
Foreign currency transaction loss		(148,269	)		(61,258	)		(154,196	)
Total non-operating expense		(147,907	)		(63,367	)		(125,028	)

Income before income taxes		10,792,023			3,231,975			4,224,132

Income tax benefit		(4,507,298	)		(2,167,076	)		(2,512,946	)
Net income	$	15,299,321		$	5,399,051		$	6,737,078

Net income per basic common share outstanding	$	0.55		$	0.20		$	0.25

Basic weighted average common shares outstanding		27,693,721			27,287,342			26,981,275

Net income per diluted common share outstanding	$	0.53		$	0.19		$	0.24

Diluted weighted average common shares outstanding		28,933,144			28,971,011			28,545,391

See notes to consolidated financial statements.

F-5

THE FEMALE HEALTH COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

YEARS ENDED SEPTEMBER 2012, 2011 and 2010

														Accumulated
	Preferred Stock										Additional			Other						Cost of
	Class A		Class A		Class B		Common Stock				Paid-in			Comprehensive			Accumulated			Treasury
	Series 1		Series 3				Shares		Amount		Capital			Loss			Deficit			Stock			Total

Balance at September 30, 2009	$	-	$	-	$	-		28,382,766	$	283,828	$	66,395,902		$	(581,519	)	$	(47,143,309	)	$	(6,000,511	)	$	12,954,391

Share-based compensation		-		-		-		38,932		389		357,432			-			-			-			357,821
Issuance of 110,000 shares of Common Stock upon exercise of options		-		-		-		110,000		1,100		156,800			-			-			-			157,900
Issuance of 186,220 shares of Common Stock upon cashless exercise of 325,000 options		-		-		-		186,220		1,862		(315,622	)		-			-			-			(313,760	)
Issuance of 626,500 shares of Common Stock upon exercise of warrants		-		-		-		626,500		6,265		719,335			-			-			-			725,600
Issuance of 23,085 shares of Common Stock upon cashless exercise of 30,000 warrants		-		-		-		23,085		231		(231	)		-			-			-			-
Stock repurchase – Total 65,274 Treasury Shares		-		-		-		-		-		-			-			-			(349,058	)		(349,058	)
Common Stock Dividends		-		-		-		-		-		-			-			(4,137,842	)		-			(4,137,842	)
Net income and comprehensive income		-		-		-		-		-		-			-			6,737,078			-			6,737,078
Balance at September 30, 2010	$	-	$	-	$	-		29,367,503	$	293,675	$	67,313,616		$	(581,519	)	$	(44,544,073	)	$	(6,349,569	)	$	16,132,130

See notes to consolidated financial statements.

F-6

THE FEMALE HEALTH COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

YEARS ENDED SEPTEMBER 2012, 2011 and 2010

													Accumulated
	Preferred Stock										Additional		Other						Cost of
	Class A		Class A		Class B		Common Stock				Paid-in		Comprehensive			Accumulated			Treasury
	Series 1		Series 3				Shares		Amount		Capital		Loss			Deficit			Stock			Total

Balance at September 30, 2010 (balance forward)	$	-	$	-	$	-		29,367,503	$	293,675	$	67,313,616	$	(581,519	)	$	(44,544,073	)	$	(6,349,569	)	$	16,132,130

Share-based compensation		-		-		-		281,500		2,815		803,766		-			-			-			806,581
Stock repurchase – Total 5,750 Treasury Shares		-		-		-		-		-		-		-			-			(33,063	)		(33,063	)
Common Stock Dividends		-		-		-		-		-		-		-			(5,552,109	)		-			(5,552,109	)
Net income and comprehensive income		-		-		-		-		-		-		-			5,399,051			-			5,399,051
Balance at September 30, 2011	$	-	$	-	$	-		29,649,003	$	296,490	$	68,117,382	$	(581,519	)	$	(44,697,131	)	$	(6,382,632	)	$	16,752,590

See notes to consolidated financial statements.

F-7

THE FEMALE HEALTH COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

YEARS ENDED SEPTEMBER 2012, 2011 and 2010

														Accumulated
	Preferred Stock										Additional			Other						Cost of
	Class A		Class A		Class B		Common Stock				Paid-in			Comprehensive			Accumulated			Treasury
	Series 1		Series 3				Shares		Amount		Capital			Loss			Deficit			Stock			Total

Balance at September 30, 2011 (balance forward)	$	-	$	-	$	-		29,649,003	$	296,490	$	68,117,382		$	(581,519	)	$	(44,697,131	)	$	(6,382,632	)	$	16,752,590

Share-based compensation		-		-		-		73,250		732		816,746			-			-			-			817,478
Issuance of 10,000 shares of Common Stock upon exercise of warrants		-		-		-		10,000		100		12,900			-			-			-			13,000
Issuance of 14,795 shares of Common Stock upon cashless exercise of 18,000 warrants		-		-		-		14,795		148		(148	)		-			-			-			-
Issuance of 802,982 shares of Common Stock upon cashless exercise of 1,557,750 options		-		-		-		802,982		8,030		(2,185,973	)		-			-			-			(2,177,943	)
Stock repurchase – Total 44,000 Treasury Shares		-		-		-		-		-		-			-			-			(289,611	)		(289,611	)
Common Stock Dividends		-		-		-		-		-		-			-			(6,196,645	)		-			(6,196,645	)
Net income and comprehensive income		-		-		-		-		-		-			-			15,299,321			-			15,299,321
Balance at September 30, 2012	$	-	$	-	$	-		30,550,030	$	305,500	$	66,760,907		$	(581,519	)	$	(35,594,455	)	$	(6,672,243	)	$	24,218,190

See notes to consolidated financial statements.

F-8

THE FEMALE HEALTH COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

YEARS ENDED SEPTEMBER 30, 2012, 2011 and 2010

	2012			2011			2010
OPERATIONS
Net income	$	15,299,321		$	5,399,051		$	6,737,078
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		461,447			464,909			466,544
Amortization of deferred gain on sale and leaseback of building		-			-			(657,605	)
Amortization of deferred income from grant - BLCF		(24,831	)		(24,831	)		(24,831	)
Provision for obsolete inventory		128,360			177,726			(2,066	)
Provision for bad debts		42,375			6,036			-
Interest added to certificate of deposit		(252	)		(3,223	)		(2,613	)
Share-based compensation		842,512			796,453			471,811
Deferred income taxes		(4,893,933	)		(2,464,050	)		(2,538,624	)
Loss on disposal of fixed assets		11,220			-			8,145
Changes in operating assets and liabilities:
Accounts receivable		(5,005,819	)		2,149,008			3,345,490
Income tax receivable		(27,369	)		28,179			39,927
Inventories		439,969			(9,924	)		(989,201	)
Prepaid expenses and other assets		(332,977	)		(10,618	)		56,175
Accounts payable		573,531			490,398			(15,600	)
Accrued expenses and other current liabilities		2,842,500			(30,959	)		(2,902,775	)
Net cash provided by operating activities		10,356,054			6,968,155			3,991,855

INVESTING ACTIVITIES
(Increase) decrease in restricted cash		(156	)		52			100,496
Proceeds from redemption of Certificate of Deposit		64,127			-			-
Capital expenditures		(718,303	)		(46,287	)		(51,133	)
Net cash (used in) provided by investing activities		(654,332	)		(46,235	)		49,363

FINANCING ACTIVITIES
Payments on capital lease obligations		(13,037	)		(12,999	)		(29,279	)
Proceeds from exercise of stock options		-			-			157,900
Proceeds from exercise of common stock warrants		13,000			-			725,600
Purchases of common stock for treasury shares		(289,611	)		(33,063	)		(349,058	)
Taxes paid in lieu of shares		(2,177,943	)		-			(313,760	)
Dividends paid on common stock		(6,192,675	)		(5,545,310	)		(4,124,042	)
Net cash used in financing activities		(8,660,266	)		(5,591,372	)		(3,932,639	)

Net increase in cash		1,041,456			1,330,548			108,579
Cash at beginning of year		4,249,324			2,918,776			2,810,197
CASH AT END OF YEAR	$	5,290,780		$	4,249,324		$	2,918,776

Supplemental Disclosure of Cash Flow Information:
Cash payments for income taxes		926,434			57,148			111,929

Schedule of noncash financing and investing activities:
Dividends declared (unpaid dividends on restricted stock)		19,320			16,100			13,800
Reduction of accrued expense upon issuance of shares		174,185			221,970			92,180
Fixed asset additions in accounts payable at year end		124,802			-			-

See notes to consolidated financial statements.

F-9

The Female Health Company and Subsidiaries

Notes to Consolidated Financial Statements

Note 1. Nature of Business and Significant Accounting Policies

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.

The FC2 female condom is currently sold or available in either or both commercial (private sector) and public health sector markets in 138 countries as compared to 120 countries at September 30, 2011. 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 as royalty income on the Consolidated Statements of Income for the years ended September 30, 2012, 2011, and 2010, and is recognized in the period in which the sale is made by HLL.

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 period. 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 56 days. Over the past five years, the Company’s bad debt expense has been less than .04% of product sales.

Use of estimates: The preparation of financial statements requires management to make estimates and use assumptions that affect certain reported amounts and disclosures. Significant accounting estimates include the deferred income tax valuation allowance and value of equity-based compensation. Actual results may differ from those estimates.

Cash concentration: The Company’s cash is maintained primarily in three financial institutions, one located in Clayton, Missouri, one located in London, England and the other in Kuala Lumpur, Malaysia.

Accounts receivable and concentration of credit risk: Accounts receivable are carried at original invoice amount less an estimate made for doubtful receivables based on a review of all outstanding amounts on a periodic basis. As of September 30, 2012, the $7,268,917 accounts receivable balance was comprised of $7,205,144 trade receivables and $63,773 other receivables, compared to an accounts receivable balance of $2,305,473 as of September 30, 2011, which was comprised of $2,287,172 trade receivables and $18,301 in other receivables. The Company maintains an allowance for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments on accounts receivable. Management determines the allowance for doubtful accounts by identifying troubled accounts and by using historical experience applied to an aging of accounts. Management also periodically evaluates individual customer receivables and considers a customer’s financial condition, credit history, and the current economic conditions. Accounts receivable are written off when deemed uncollectible. The table below sets forth the components of the allowance for doubtful accounts for the years ended September 30:

F-10

The Female Health Company and Subsidiaries

Notes to Consolidated Financial Statements

Note 1. Nature of Business and Significant Accounting Policies – continued

Year	Balance at October 1	Provision Charges to Expenses	Write offs/Recoveries	Balance at September 30
2010	$ 39,805	$ -	$ -	$ 39,805
2011	$ 39,805	$ 6,036	$ (35,841)	$ 10,000
2012	$ 10,000	$ 42,375	$ (10,750)	$ 41,625

Recoveries of accounts receivable previously written off are recorded when received. The Company’s customers are primarily large global agencies, non-government organizations, ministries of health and other governmental agencies which purchase and distribute the female condom for use in HIV/AIDS prevention and family planning programs. In fiscal year 2012, significant customers were UNFPA, John Snow, Inc., facilitator of USAID I DELIVER project, and Sekunjalo Investments Corporation (PTY) Ltd. In fiscal year 2011 and 2010, significant customers were John Snow, Inc., facilitator of USAID I DELIVER project and UNFPA. No other single customer accounted for more than 10% of unit sales during those periods.

	Percentage of Unit Sales
Significant Customers	2012			2011			2010
UNFPA		40	%		25	%		37	%
John Snow, Inc. (USAID I DELIVER)		25	%		26	%		33	%
Sekunjalo Investments Corp. (PTY) Ltd.		20	%		-			-
Total Percentage of Unit Sales		85	%		51	%		70	%

Inventories: Inventories are valued at the lower of cost or market. The cost is determined using the first-in, first-out (FIFO) method. Inventories are also written down for management’s estimates of product which will not sell prior to its expiration date. Write-downs of inventories establish a new cost basis which is not increased for future increases in the market value of inventories or changes in estimated obsolescence.

Foreign currency translation and operations: Effective October 1, 2009, the Company determined that there were significant changes in facts and circumstances, triggering an evaluation of its subsidiaries’ functional currency. The evaluation indicated that the U.S. dollar is the currency with the most significant influence upon the subsidiaries. Because all of the Company's U.K. subsidiary's future sales and cash flows would be denominated in U.S. dollars following the October 2009 cessation of FC1 production, the U.K. subsidiary adopted the U.S. dollar as its functional currency effective October 1, 2009. As the Malaysia subsidiary is a direct and integral component of the U.K. parent’s operations, it, too, adopted the U.S. dollar as its functional currency as of October 1, 2009. The consistent use of the U.S. dollar as functional currency across the Company reduces its foreign currency risk and stabilizes its operating results. The Company recognized foreign currency transaction losses of $148,269, $61,258 and $154,196 for the years ended September 30, 2012, 2011 and 2010, respectively. The cumulative foreign currency translation loss included in accumulated other comprehensive loss was $581,519 as of September 30, 2012 and 2011. Assets located outside of the United States totaled approximately $14,000,000 and $7,700,000 at September 30, 2012 and 2011, respectively.

Equipment, furniture and fixtures: Depreciation and amortization are computed using primarily the straight-line method. Depreciation and amortization are computed over the estimated useful lives of the respective assets which range as follows:

Manufacturing equipment	5 – 10 years
Office equipment	3 years
Furniture and fixtures	7 – 10 years

F-11

The Female Health Company and Subsidiaries

Notes to Consolidated Financial Statements

Note 1. Nature of Business and Significant Accounting Policies – continued

Depreciation on leased assets is computed over the lesser of the remaining lease term or the estimated useful lives of the assets. Depreciation on leased assets is included with depreciation on owned assets.

Patents and trademarks: FC2 patents have been issued by the United States, the European Union, Canada, Australia, South Africa, The People’s Republic of China, Greece, Turkey, Spain, Mexico, Japan and the African Regional Intellectual Property Organization (ARIPO), which includes Botswana, The Gambia, Ghana, Kenya, Lesotho, Malawi, Mozambique, Namibia, Sierra Leone, Somalia, Sudan, Swaziland, Uganda, United Republic of Tanzania, Zambia and Zimbabwe. Patent applications for FC2 are pending in various other countries around the world through the Patent Cooperation Treaty. The patents cover the key aspects of FC2, including its overall design and manufacturing process. There can be no assurance that pending patents provide the Company with protection against copycat products entering markets during the pendency of the patents.

Financial instruments: The Company follows ASC Topic 820, Fair Value Measurements and Disclosures, which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. The fair value framework requires the categorization of assets and liabilities into three levels based upon the assumptions (inputs) used to price the assets or liabilities. Level 1 provides the most reliable measure of fair value, whereas Level 3 generally requires significant management judgment.

The Company currently does not have any assets or liabilities measured at fair value on a recurring or non-recurring basis. Substantially all of the Company’s cash and cash equivalents, as well as restricted cash, are held in demand deposits with three financial institutions. The Company has no financial instruments for which the carrying value is materially different than fair value.

Research and development costs: Research and development costs are expensed as incurred. The amount of costs expensed for the years ended September 30, 2012, 2011 and 2010 of $5,277, $10,929, and $381, respectively, are included in selling, general and administrative expenses on the consolidated statements of income.

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, delivery of goods or at a period of time after product has been distributed.

Revenue recognition: The Company recognizes revenue from product sales when each of the following conditions has been met: an arrangement exists, delivery has occurred, there is a fixed price, and collectability is reasonably assured. The Company also derives revenue from licensing its intellectual property under an agreement with its exclusive distributor in India, HLL. Such revenue appears as royalty income on the Consolidated Statements of Income for the years ended September 30, 2012, 2011 and 2010, and is recognized in the period in which the sale is made by HLL.

F-12

The Female Health Company and Subsidiaries

Notes to Consolidated Financial Statements

Note 1. Nature of Business and Significant Accounting Policies – continued

Deferred grant income: The Company received grant monies from the British Linkage Challenge Fund to help the Company defray certain expenses and the cost of capital expenditures related to a project. The underlying project related to the development of a linkage between the U.K. subsidiary and HLL, in India, to do end-stage manufacturing of the female condom and develop the market for the product in that country. The grant received was split between the Company and HLL pro-rata to their respective expenditure on the project. The Company utilized the general precepts of U.S. GAAP and the principles of matching and conservatism to determine how to account for the grant monies received. The Company also utilized the guidance of International Accounting Standard No. 20 – Accounting for Government Grants and Disclosure of Government Assistance to further support the Company's accounting treatment of the grant received. The Company allocated its share of the grant monies to capital and expense pro-rata to the respective cost allocated to the project. Grant proceeds for expenses were credited to income in the quarter incurred. Grant proceeds for capital expenditure were deferred and released to income in line with the depreciation of the relevant assets.

Share-based compensation: The Company accounts for stock-based compensation expense for equity awards exchanged for employee services over the vesting period based on the grant-date fair value.

Advertising: The Company's policy is to expense advertising costs as incurred. Advertising costs were $52,949, $32,858, and $76,707 for the years ended September 30, 2012, 2011 and 2010, respectively.

Income taxes: The Company files separate income tax returns for its foreign subsidiaries. ASC Topic 740 requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial statements and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Deferred tax assets are also provided for carryforwards for income tax purposes. In addition, the amount of any future tax benefits is reduced by a valuation allowance to the extent such benefits are not expected to be realized.

Earnings per share (EPS): 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 warrants and unvested shares granted to employees and directors.

Other comprehensive income: Accounting principles generally require that recognized revenue, expenses, gains and losses be included in net income. Although certain changes in assets and liabilities, such as foreign currency translation adjustments, are reported as a separate component of the equity section of the accompanying consolidated balance sheets, these items, along with net income, are components of comprehensive income.

The U.S. parent company and its U.K. subsidiary routinely purchase inventory produced by its Malaysia subsidiary for sale to their respective customers. These intercompany trade accounts are eliminated in consolidation. The Company’s policy and intent is to settle the intercompany trade account on a current basis. Since the U.K. and Malaysia subsidiaries adopted the U.S. dollar as their functional currencies effective October 1, 2009, no foreign currency gains or losses from intercompany trade are recognized. In fiscal 2012, 2011 and 2010, comprehensive income is equivalent to the reported net income.

Reclassifications: Certain items in the 2011 and 2010 consolidated financial statements have been reclassified to conform to the 2012 presentation.

F-13

The Female Health Company and Subsidiaries

Notes to Consolidated Financial Statements

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 warrants and unvested shares granted to employees.

	Year Ended September 30,
Denominator	2012		2011		2010
Weighted average common shares outstanding - basic		27,693,721		27,287,342		26,981,275
Net effect of dilutive securities:
Options		913,600		1,243,222		1,292,919
Warrants		39,823		59,197		60,947
Unvested restricted shares		286,000		381,250		210,250
Total net effect of dilutive securities		1,239,423		1,683,669		1,564,116
Weighted average common shares outstanding - diluted		28,933,144		28,971,011		28,545,391
Income per common share – basic	$	0.55	$	0.20	$	0.25
Income per common share – diluted	$	0.53	$	0.19	$	0.24

All the outstanding warrants and stock options were included in the computation of diluted net income per share for the years ended September 30, 2012, 2011 and 2010.

Note 3. Inventories

The components of inventory consist of the following at September 30, 2012 and 2011:

	2012			2011
Raw material	$	523,201		$	435,947
Work in process		57,102			64,149
Finished goods		927,706			1,602,384
Inventory, gross		1,508,009			2,102,480
Less: inventory reserves		(49,810	)		(75,952	)
Inventory, net	$	1,458,199		$	2,026,528

The change in the inventory reserve for the years ended September 30 is as follows:

Year	Balance at October 1	Charged to Costs and Expenses	Write-offs	Balance at September 30
2010	$ 95,574	$ (2,066)	$ (78,044)	$ 15,464
2011	$ 15,464	$ 177,726	$ (117,237)	$ 75,952
2012	$ 75,952	$ 128,360	$ (154,502)	$49,810

F-14

The Female Health Company and Subsidiaries

Notes to Consolidated Financial Statements

Note 4. Revolving Line of Credit

On August 1, 2012, the Company entered into an amendment to the Second Amended and Restated Loan Agreement (as amended, the “Loan Agreement”) with Heartland Bank (the “Bank”) to extend the term of the Company’s revolving line of credit to August 1, 2013. The credit facility consists of a single revolving note for up to $2,000,000 with the Bank, with borrowings limited to a borrowing base determined based on 70% to 80% of eligible accounts receivable plus 50% 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 (4.5% at September 30, 2012) plus 0.5%. The note is collateralized by substantially all of the assets of the Company. No amounts were outstanding under the revolving note at either September 30, 2012 or 2011.

Note 5. Operating Leases and Rental Expense

The Company’s corporate headquarters is located in approximately 5,100 square feet of office space located in Chicago, Illinois. On March 10, 2011, the Company signed a lease amendment, effective November 1, 2010, which extended the lease term for this office space for a five year period commencing on November 1, 2011 and ending on October 31, 2016. The lease amendment grants the Company a five month lease abatement beginning November 1, 2010, reduces base rent and provides a tenant improvement allowance. The lease requires escalating monthly payments ranging from $6,797 to $7,859, plus real estate taxes, utilities and maintenance expenses from April 1, 2011 to October 31, 2016. The lease stipulates that after five years, the Company shall have a one-time right to extend the term of the lease for an additional three years by giving the landlord no less than twelve months prior notice in writing.

The Company leases 6,400 square feet of office space located in London, England. The lease, which expires in June 2020, includes an option by the Company to terminate the lease in 2015 by giving the landlord no less than six months prior notice in writing. The lease requires quarterly payments of approximately $13,500 through December 2011 and quarterly payments of approximately $27,000 from January 2012 through June 2015. The lease stipulates that after 5 years (June 2015) the principal rent will be reviewed and adjusted to the higher of the principal rent immediately prior to the review date or the market rate. Per the terms of the lease agreement, the Company was also required to make a security deposit equivalent to six months’ rent (approximately $71,000).

The Company leases 16,000 square feet of manufacturing space in Selangor D.E., Malaysia under a lease that requires monthly payments of approximately $13,000 through August 2013 and may be renewed at the option of the Company for an additional three year term. The Company also leases 11,000 square feet of warehouse space in Selangor D.E., Malaysia under a lease that requires monthly payments of approximately $4,000 through February 2014 and may be renewed at the option of the Company for an additional one year term.

The Company also leases equipment under a number of lease agreements which expire at various dates through June 2015. The aggregate monthly rental was $402 at September 30, 2012. Details of operating lease expense, including real estate taxes and insurance, for the years ended September 30, 2012, 2011 and 2010 are as follows:

	2012		2011		2010
Factory and office leases	$	397,073	$	414,380	$	403,955
Other		4,824		5,887		1,414
Total	$	401,897	$	420,267	$	405,369

F-15

The Female Health Company and Subsidiaries

Notes to Consolidated Financial Statements

Note 5. Operating Leases and Rental Expense – continued

Future minimum payments under leases consisted of the following as of September 30, 2012:

	Operating leases
2013	$	356,865
2014		311,246
2015		216,802
2016		218,349
2017		129,101
Thereafter		223,645
Total minimum lease payments	$	1,456,008

Note 6. Income Taxes

Income before income taxes for the years ended September 30, 2012, 2011 and 2010, was taxed by the following jurisdictions.

	2012		2011		2010
Domestic	$	6,290,684	$	1,638,572	$	2,676,258
Foreign		4,501,339		1,593,403		1,547,874
Total	$	10,792,023	$	3,231,975	$	4,224,132

A reconciliation of income tax benefit and the amount computed by applying the statutory Federal income tax rate to income before income taxes for the years ended September 30, 2012, 2011 and 2010 is as follows:

F-16

The Female Health Company and Subsidiaries

Notes to Consolidated Financial Statements

Note 6. Income Taxes – continued

	2012			2011			2010
Income tax expense at statutory rates	$	3,669,000		$	1,099,000		$	1,436,000
State income tax, net of federal benefits		677,000			192,000			223,000
Non-deductible expenses		5,000			(12,000	)		305,000
Effect of AMT expense		41,000			28,178			6,000
Effect of foreign income tax		(688,093	)		(221,501	)		(206,773	)
Effect of pioneer tax status - Malaysia		(233,000	)		(134,000	)		-
Effect of change in UK tax rate		(72,000	)		-			-
Effect of stock option exercises		(2,263,000	)		-			(704,000	)
Utilization of NOL carryforwards		(1,637,205	)		(973,753	)		(1,087,173	)
Decrease in valuation allowance		(4,006,000	)		(2,145,000	)		(2,485,000	)
Income tax benefit	$	(4,507,298	)	$	(2,167,076	)	$	(2,512,946	)

As of September 30, 2012, the Company had federal and state net operating loss carryforwards of approximately $24,641,000 and $12,363,000, 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 $64,260,000 as of September 30, 2012, which can be carried forward indefinitely to be used to offset future U.K. taxable income.

The Female Health Company (M) SDN BHD, has been granted Pioneer Status in Malaysia. The Pioneer Status is a tax incentive program that permanently exempts a portion of the entity’s income from tax. In fiscal years 2012 and 2011, the Pioneer Status exempted approximately $932,000 and $536,000, respectively, of the entity’s income from tax, resulting in a tax savings of nearly $233,000 and $134,000 in fiscal years 2012 and 2011, respectively. The impact on net income per basic and fully diluted common share outstanding resulting from the tax savings is an increase of $.01 and $.00 in fiscal years 2012 and 2011, respectively. The Pioneer Status, which the Company elected in fiscal year 2011, is valid through fiscal year 2012.

The federal and state income tax provision (benefit) for the years ended September 30, 2012, 2011 and 2010 is summarized below:

	2012			2011			2010
Deferred – U.S.	$	(1,399,000	)	$	(3,442,000	)	$	(1,210,000	)
Deferred – U.K.		(3,501,000	)		942,000			(1,480,851	)
Deferred – Malaysia		6,067			35,950			152,227
Current – U.S.		293,123			226,178			25,678
Current – Malaysia		93,512			70,796			-
Income tax benefit	$	(4,507,298	)	$	(2,167,076	)	$	(2,512,946	)

Significant components of the Company's deferred tax assets and liabilities are as follows at September 30, 2012 and 2011:

Deferred Tax Assets	2012			2011
Federal net operating loss carryforwards	$	8,378,000		$	10,112,000
State net operating loss carryforwards		1,175,000			1,426,000
AMT credit carryforward		152,000			111,000
Foreign net operating loss carryforwards – U.K.		14,780,000			18,489,000
Foreign capital allowance – U.K.		177,000			247,000
Accrued expenses		748,000			-
Other, net		29,000			60,000
Gross deferred tax assets		25,439,000			30,445,000
Valuation allowance for deferred tax asset		(12,139,000	)		(22,045,000	)
Net deferred tax assets		13,300,000			8,400,000
Deferred Tax Liabilities:
Foreign capital allowance – Malaysia		(194,244	)		(188,177	)
Net deferred tax asset	$	13,105,756		$	8,211,823

F-17

The Female Health Company and Subsidiaries

Notes to Consolidated Financial Statements

Note 6. Income Taxes – continued

The deferred tax amounts have been classified in the accompanying consolidated balance sheets as follows:

	2012			2011
Current assets – U.S.	$	1,802,000		$	662,000
Current assets – U.K.		350,000			138,000
Long-term assets – U.S.		6,197,000			5,938,000
Long-term assets – U.K		4,951,000			1,662,000
Long-term liability – Malaysia		(194,244	)		(188,177	)
	$	13,105,756		$	8,211,823

The change in the valuation allowance for deferred tax assets for the years ended September 30 is as follows:

Year	Balance at October 1	Charged to Costs and Expenses	Deductions/Other	Balance at September 30
2010	$ 32,340,000	$ (2,800,000)	$ (2,799,000)	$ 26,741,000
2011	$ 26,741,000	$ (2,500,000)	$ (2,196,000)	$22,045,000
2012	$ 22,045,000	$ (4,900,000)	$ (5,006,000)	$12,139,000

The valuation allowance decreased by $9,906,000, $4,696,000 and $5,599,000 for the years ended September 30, 2012, 2011 and 2010, respectively. Under the Internal Revenue Code, certain ownership changes, including the prior issuance of preferred stock, the public offering of common stock and the exercise of common stock warrants and options may subject the Company to annual limitations on the utilization of its net operating loss carryforward. Under the Inland Revenue statutes, certain triggering events may subject the Company to limitations on the utilization of its net operating loss carryforward in the U.K. As of September 30, 2012, management does not believe any limitations have occurred.

ASC Topic 740 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC Topic 740 developed a two-step process to evaluate a tax position and also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. The Company has not recorded a reserve for any tax positions for which the ultimate deductibility is highly certain but for which there is uncertainty about the timing of such deductibility. The Company files tax returns in all appropriate jurisdictions, including foreign, U.S. Federal and Illinois and Virginia State tax returns:

·	For the U.S., a tax return may be audited any time within 3 years from filing date. The U.S. open tax years are for fiscal years 2009 through 2011, which expire in years 2013 through 2015, respectively.

·	For Malaysia, a tax return may be audited any time within 6 years from filing date. The Malaysia open tax years are for 2007 through 2011, which expire in years 2015 through 2018.

·	For the U.K., a tax return may be audited within 1 year from the later of: the filing date or the filing deadline (1 year after the end of the accounting period). The U.K. open tax year is for 2011, which expires in 2013.

F-18

The Female Health Company and Subsidiaries

Notes to Consolidated Financial Statements

The fiscal year 2012 tax returns for each jurisdiction has not been filed as of the date of this filing. As of September 30, 2012 and 2011, the Company has no recorded liability for unrecognized tax benefits.

The Company recognizes interest and penalties related to uncertain tax positions as income tax expense as incurred. No expense for interest and penalties was recognized for the years ended September 30, 2012, 2011 and 2010.

Note 7. Share-based Payments

In March 2008, the Company’s shareholders approved the 2008 Stock Incentive Plan which will be 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 2,000,000 shares are available for issuance under the plan. As of September 30, 2012, a total of 766,932 shares have 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 Option Plans

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 years ended September 30, 2012, 2011 and 2010.

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. Stock compensation expense related to options for the years ended September 30, 2012, 2011 and 2010 was approximately $60,000, $90,000 and $92,000, respectively.

Option Activity

The following table summarizes the stock options outstanding and exercisable at September 30, 2012:

				Weighted Average
	Shares			Exercise Price Per Share		Remaining Contractual Term (years)		Aggregate Intrinsic Value
Outstanding at September 30, 2009		2,269,000		$	1.58
Granted		-			-
Exercised		(435,000	)		1.43
Forfeited		-			-
Outstanding at September 30, 2010		1,834,000		$	1.61
Granted		-			-
Exercised		-			-
Forfeited		-			-
Outstanding at September 30, 2011		1,834,000		$	1.61
Granted		-			-
Exercised		(1,557,750	)		1.44
Forfeited		-			-
Outstanding at September 30, 2012		276,250		$	2.57		4.78	$	1,266,000
Exercisable on September 30, 2012		276,250		$	2.57		4.78	$	1,266,000

F-19

The Female Health Company and Subsidiaries

Notes to Consolidated Financial Statements

Note 7. Share-based Payments - continued

During the year ended September 30, 2012, a number of stock option holders exercised 1,557,750 stock options, using the cashless exercise option available under the plan which entitled them to 1,166,017 shares of common stock. Some option holders surrendered 363,035 of the shares due them in payment of taxes, bringing the net number of shares issued to 802,982. No stock options were exercised during fiscal year 2011. During the year ended September 30, 2010, a number of stock option holders exercised 325,000 stock options, using the cashless exercise option available under the plan which entitled them to 186,220 shares of common stock. Proceeds of $157,900 were received during the year ended September 30, 2010 for the exercise of an additional 110,000 stock options.

The aggregate intrinsic value in the table above is before income taxes, based on the Company’s closing stock price of $7.15 on the last day of business for the period ended September 30, 2012. The total intrinsic value of options exercised during the years ended September 30, 2012 and 2010 was approximately $6,888,000 and $1,792,000, respectively.

There was no unrecognized compensation cost for stock options as of September 30, 2012. The deferred tax asset and realized tax benefit from stock options exercised and other share-based payments for the years ended September 30, 2012, 2011 and 2010 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.

A summary of the non-vested stock activity for fiscal years 2012, 2011 and 2010 is summarized in the table below:

	Shares			Weighted Average Grant -Date Fair Value
Total Outstanding September 30, 2009		119,589		$	3.16
Stock Granted		35,250			4.71
Vested		(105,250	)		3.61
Forfeited		(5,000	)		4.71
Total Outstanding September 30, 2010		44,589		$	3.16
Stock Granted		293,750			5.71
Vested		(142,335	)		4.97
Forfeited		(2,500	)		5.07
Total Outstanding September 30, 2011		193,504		$	5.68
Stock Granted		52,500			4.16
Vested		(149,686	)		5.23
Forfeited		(2,500	)		3.94
Total Outstanding September 30, 2012		93,818		$	5.59

F-20

The Female Health Company and Subsidiaries

Notes to Consolidated Financial Statements

Note 7. Share-based Payments - continued

The Company granted a total of 52,500 shares of restricted stock or shares issuable pursuant to promises to issue shares of common stock during the year ended September 30, 2012. The fair value of the awards granted was approximately $218,000. All such shares of restricted stock vest and all such shares must be issued pursuant to promises to issue common stock in September 2012 through September 2014, provided the grantee has not voluntarily terminated service or been terminated for cause prior to the vesting or issuance date. There were 2,500 shares of restricted stock forfeited during the year ended September 30, 2012. The Company granted a total of 293,750 shares of restricted stock or shares issuable pursuant to promises to issue shares of common stock during the year ended September 30, 2011. The fair value of the awards granted was approximately $1,677,000. All such shares of restricted stock vest and all such shares must be issued pursuant to promises to issue common stock between September 2011 and December 2013, provided the grantee has not voluntarily terminated service or been terminated for cause prior to the vesting or issuance date. The Company granted 35,250 shares of restricted stock during the year ended September 30, 2010. The fair value of the awards granted was approximately $166,000. All such shares of restricted stock vested in September 2010.

The Company recognized share-based compensation expense for restricted stock or promises to issue shares of common stock of approximately $782,000, $706,000 and $379,000 for the years ended September 30, 2012, 2011 and 2010, respectively, $199,000, $212,000 and $206,000 of which was included in accrued expenses at year end since the related shares have not yet been issued at September 30, 2012, 2011 and 2010, respectively. This expense was included in selling, general and administrative expenses for the respective periods. As of September 30, 2012, there was approximately $525,000, representing approximately 94,000 unvested shares, of total unrecognized compensation cost related to non-vested restricted stock compensation arrangements granted under the incentive plans. This unrecognized cost will be recognized over the weighted average period of the next 1.13 years.

Common Stock Purchase Warrants

The Company did not issue any common stock purchase warrants in fiscal year 2012, 2011 or 2010. In fiscal year 2012, a warrant holder exercised 10,000 warrants which provided proceeds of $13,000. The warrant holder also exercised 18,000 warrants using the cashless exercise option available within the warrant agreements which entitled the warrant holder to 14,795 shares of common stock. There were no warrant exercises during fiscal year 2011. In fiscal year 2010, a warrant holder exercised 30,000 warrants using the cashless exercise option available within the warrant agreements which entitled the warrant holder to 23,085 shares of common stock. In fiscal 2010, warrant holders exercised 626,500 warrants which provided proceeds of $725,600. There is no unrecognized compensation cost related to warrants as of September 30, 2012.

At September 30, 2012, 52,000 warrants issued in connection with investor relations were outstanding and exercisable. These warrants have an exercise price of $1.30, remaining life of 3.79 years and aggregate intrinsic value of $304,200. The aggregate intrinsic value is before taxes, based on the Company’s closing price of $7.15 on the last day of business for the year ended September 30, 2012.

F-21

The Female Health Company and Subsidiaries

Notes to Consolidated Financial Statements

Note 8. Stock Repurchase Program

The Company’s Stock Repurchase Program was announced on January 17, 2007. At initiation, the plan’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 plan a number of times to both extend its term and increase the maximum number of shares which could be repurchased. Currently, the plan allows for a maximum repurchase of up to 3,000,000 shares through the period ending December 31, 2012. From the program’s onset through September 30, 2012, the total number of shares repurchased by the Company is 1,958,829. 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. Thereafter, total repurchases under this amendment are limited to an aggregate of 250,000 shares per calendar year and to a maximum of 25,000 shares annually per individual. Purchases under this amendment for fiscal year 2012, 2011 and 2010 were 34,000, 5,750 and 65,274 shares, respectively.

Issuer Purchases of Equity Securities:	Details of Treasury Stock Purchases to Date through September 30, 2012:
Period	Total Number of Shares Purchased		Average Price Paid Per Share		Aggregate Number of Shares Purchased As Part of Publicly Announced Program		Maximum Number of Shares that May Yet be Purchased Under the Program
January 1, 2007 – September 30, 2009		1,843,805	$	3.24		1,843,805		1,156,195
October 1, 2009 – September 30, 2010		65,274		5.35		1,909,079		1,090,921
October 1, 2010 – September 30, 2011		5,750		5.75		1,914,829		1,085,171
October 1, 2011 – September 30, 2012		44,000		6.58		1,958,829		1,041,171
Total		1,958,829	$	3.41		1,958,829		1,041,171

Note 9. Employee Benefit Plan

The Company has a Simple Individual Retirement Account (IRA) plan for its employees. Employees are eligible to participate in the plan if their compensation reaches certain minimum levels and are allowed to contribute up to a maximum of $14,000 annual compensation to the plan. The Company has elected to match 100 percent of employee contributions to the plan up to a maximum of 3 percent of employee compensation for the years ended September 30, 2012, 2011 and 2010. Annual Company contributions were approximately $42,000, $21,000 and $30,000 for the years ended September 30, 2012, 2011 and 2010, respectively.

Note 10. 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).

F-22

The Female Health Company and Subsidiaries

Notes to Consolidated Financial Statements

Note 10. Industry Segments and Financial Information about Foreign and Domestic Operations - continued

	Product Sales to External Customers for the Year Ended									Long-Lived Asset As Of
	September 30,									September 30,
	2012			2011			2010			2012		2011
South Africa	$	6,834	(1)	$	1,378		$	2,549	(1)	$	-	$	-
Brazil		6,720			955			*			-		-
United States		2,423	(1)		2,112	(1)		1,594			175		132
Uganda		*			1,305			*			-		-
Zimbabwe		*			966			1,667			-		-
Malawi		*			*			2,543	(1)		-		-
DR of Congo		*			*			1,519			-		-
India		*			*			*			67		88
United Kingdom		*			*			*			220		193
Malaysia		*			*			*			2,010		1,683
Other		19,035			11,800			12,316			-		-
Total	$	35,012		$	18,516		$	22,188		$	2,472	$	2,096

* Less than 5% percent of total net sales.

(1) Comprised of a single customer considered to be a major customer (exceeds 10 percent of net sales).

Note 11. 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 $5,000,000 for FHC's consumer health care product.

Note 12. FC1 – FC2 Transition – Restructuring Costs

On August 5, 2009, the Company announced to its U.K. employees that the Company would evaluate the future of its U.K. facility following the decision of two of its largest customers to switch their purchases from the first generation product, FC1, manufactured in the U.K. facility, to the second generation product, FC2, which is manufactured in Malaysia. As is required by British labor law, the Company went through an evaluation process, working in tandem with employee representatives, in which various manufacturing alternatives were considered.

In September 2009, the process concluded when management and the labor representatives were unable to identify a viable alternative. In late September, production employees were notified of the redundancy (plan to terminate their employment) and of the one-time termination payments due them. Manufacturing ceased in mid-October 2009.

In November 2009, following the cessation of FC1 manufacturing in the U.K. facility, the Company entered into an agreement with a new owner of the London manufacturing facility to surrender its existing property lease, which would have expired in December 2016, in exchange for a lease surrender fee of $1,490,716 and a new short-term lease. Per the terms of the agreement, the Company was responsible for removing certain leasehold improvements from the property (dilapidations) prior to termination of the lease. Upon execution of the new agreements, the Company deposited the new annual rent of approximately $484,000, as required by the lease terms.

From a cash flow perspective, replacing the previous lease at that time eliminated future payments of approximately $4.3 million (for rent and related expenses) over the remaining term of the previous lease, producing a positive net impact of $2.8 million (after deducting the lease surrender payments).

On April 27, 2010, the Company signed two related agreements, with the former and new landlords of the U.K. facility, which terminated the November 2009 U.K. lease and granted the Company rent-free occupation of the premises from April 28, 2010 through June 30, 2010. Per the terms of these agreements, the Company agreed to a lease exit fee of $216,000 and a $248,000 payment in lieu of dilapidations. Those obligations were fulfilled by a cash payment of $234,000 and surrender of remaining rent prepayment of $230,000, which had been held in trust since November 2009.

F-23

The Female Health Company and Subsidiaries

Notes to Consolidated Financial Statements

Note 12. FC1 – FC2 Transition – Restructuring Costs – continued

The Company evaluated, measured and recognized the restructuring costs under the guidance of ASC Topic 420, Exit or Disposal Cost Obligations, and recognized such costs in the period incurred. The costs associated with this restructuring fall under the scope of associated costs of an exit activity, as suggested by the Interpretive Response in Staff Accounting Bulletin Topic 5(P)(4), including footnote 17. The components of the restructuring expenses recognized for the year ended September 30, 2010 are as follows:

	2010
Lease surrender payments and related costs	$	1,734,496
Excess capacity costs		302,683
Proportionate recognition of deferred gain on original sale/leaseback of plant		(657,605	)
Dilapidations and related costs		550,348
Total	$	1,929,922

Restructuring accrual balance at September 30, 2009				$	1,116,911
Restructuring costs incurred during the year ended September 30, 2010					1,929,922
Less:
Termination payments	$	1,325,309
Lease surrender payments		1,734,496
Lease exit payments		644,633
Reversal of deferred gain		(657,605	)
					(3,046,833	)
Restructuring accrual balance at September 30, 2010				$	-

While FC1 production has ceased, the Company continues to conduct significant operating activities in the U.K. Such activities include global sales and marketing of the FC2 female condom, management and direction of Global Manufacturing Operations (including production planning, inventory management, quality assurance and quality control, finished goods release, compliance with good manufacturing practices), relationships with regulatory agencies world-wide, oversight of the Global Technical Support Team and new product development.

Note 13. Dividends

Beginning February 16, 2010 through September 30, 2012, the Company has paid eleven quarterly cash dividends. The first nine were paid at a quarterly rate per share of $0.05. In May 2012, the quarterly dividend per share increased to a rate of $0.06. Cumulative dividends paid totaled $15.9 million through September 30, 2012. On October 5, 2012, the Company’s Board of Directors declared a quarterly cash dividend of $0.06 per share. The Company paid, from its cash on hand, approximately $1.7 million pursuant to the dividend on November 7, 2012 to stockholders of record as of October 31, 2012. Total dividends paid were approximately $6.2 million, $5.5 million and $4.1 million in 2012, 2011 and 2010, respectively.

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 any future dividends is at the discretion of the Board of Directors and the Company may not have sufficient cash flows to pay dividends.

F-24

The Female Health Company and Subsidiaries

Notes to Consolidated Financial Statements

Note 14. Quarterly Financial Data (Unaudited)

	First Quarter		Second Quarter			Third Quarter		Fourth Quarter			Year Ended
2012
Net revenues	$	8,634,442	$	7,831,364		$	8,656,390	$	9,911,701		$	35,033,897
Gross profit		5,016,144		4,560,969			5,293,736		5,750,164			20,621,013
Operating expenses		2,232,864		2,397,738			2,485,690		2,564,791			9,681,083
Income tax expense (benefit)		71,385		226,836			273,839		(5,079,358	)		(4,507,298	)
Net income		2,659,944		1,904,429			2,549,743		8,185,205			15,299,321
Net income per common share – basic		0.10		0.07			0.09		0.29			0.55
Net income per common share – diluted		0.09		0.07			0.09		0.29			0.53

2011
Net revenues	$	3,651,368	$	4,287,245		$	3,517,439	$	7,109,050		$	18,565,102
Gross profit		2,016,918		1,807,234			1,813,685		4,227,353			9,865,190
Operating expenses		1,582,931		1,705,949			1,363,184		1,917,784			6,569,848
Income tax expense (benefit)		17,130		(8,130	)		15,266		(2,191,342	)		(2,167,076	)
Net income		386,668		80,998			416,667		4,514,718			5,399,051
Net income per common share – basic		0.01		0.00			0.02		0.17			0.20
Net income per common share – diluted		0.01		0.00			0.01		0.16			0.19

F-25


Wisconsin		39-1144397
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

515 N. State Street, Suite 2225, Chicago, Illinois		60654
(Address of principal executive offices)		(Zip Code)


Title of each class		Name of each exchange on which registered
Common stock, $.01 par value		NASDAQ Stock Market

Document	Page No.
Audited Consolidated Financial Statements.
Management's Report on Internal Control over Financial Reporting.	F-1
Report of McGladrey LLP, Independent Registered Public Accounting Firm.	F-2 and F-3
Consolidated Balance Sheets as of September 30, 2012 and 2011.	F-4
Consolidated Statements of Income for the years ended September 30, 2012, 2011 and 2010.	F-5
Consolidated Statements of Stockholders’ Equity for the years ended September 30, 2012, 2011 and 2010.	F-6 through F-8
Consolidated Statements of Cash Flows for the years ended September 30, 2012, 2011 and 2010.	F-9
Notes to Consolidated Financial Statements.	F-10 through F-25


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


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