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Accounting Policies, by Policy (Policies)
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12 Months Ended | ||||||||||||||||||||
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Sep. 30, 2012
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| Consolidation, Policy [Policy Text Block] |
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.
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| Use of Estimates, Policy [Policy Text Block] |
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.
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| Concentration Risk, Credit Risk, Policy [Policy Text Block] |
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.
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| Receivables, Policy [Policy Text Block] |
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:
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.
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| Inventory, Policy [Policy Text Block] |
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.
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| Foreign Currency Transactions and Translations Policy [Policy Text Block] |
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.
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| Property, Plant and Equipment, Policy [Policy Text Block] |
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:
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.
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| Intangible Assets, Finite-Lived, Policy [Policy Text Block] |
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.
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.
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| Fair Value of Financial Instruments, Policy [Policy Text Block] |
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.
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| Research and Development Expense, Policy [Policy Text Block] |
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.
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| Cash and Cash Equivalents, Restricted Cash and Cash Equivalents, Policy [Policy Text Block] |
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.
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| Revenue Recognition, Policy [Policy Text Block] |
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.
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| Deferred Grant Income [Policy Text Block] |
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.
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| Share-based Compensation, Option and Incentive Plans Policy [Policy Text Block] |
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.
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| Advertising Costs, Policy [Policy Text Block] |
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
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| Income Tax, Policy [Policy Text Block] |
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.
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| Earnings Per Share, Policy [Policy Text Block] |
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.
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| Comprehensive Income, Policy [Policy Text Block] |
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.
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| Reclassification, Policy [Policy Text Block] |
Reclassifications:
Certain items in the 2011 and 2010 consolidated financial
statements have been reclassified to conform to the 2012
presentation.
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