UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
|
|
|
☑ |
|
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended September 30, 2014
|
|
|
☐ |
|
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 1-13602
The Female Health Company
(Name of registrant as specified in its charter)
|
|
|
Wisconsin |
|
39-1144397 |
|
|
|
(State 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) |
Registrant’s telephone number, including area code (312) 595-9123
Securities registered under Section 12(b) of the Act:
|
|
|
Title of each class |
|
Name of each exchange on which registered |
Common stock, $.01 par value |
|
NASDAQ Stock Market |
|
|
|
Securities registered under Section 12(g) of the Act:
None
(Title of Class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes ☐ No ☑
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes ☐ No ☑
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☑ No ☐
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☐
1
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
☐ |
|
|
Accelerated filer |
☑ |
|
|
|
|
|
|
Non-accelerated filer |
☐ |
(Do not check if a smaller reporting company) |
|
Smaller reporting company |
☐ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☑
The aggregate market value of the voting stock held by non-affiliates of the registrant as of March 31, 2014, was approximately $170.7 million based on the per share closing price as of March 31, 2014 quoted on the NASDAQ Capital Market for the registrant’s common stock, which was $7.76.
There were 28,817,465 shares of the registrant’s common stock, $0.01 par value per share outstanding at November 28, 2014.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Proxy Statement for the 2015 Annual Meeting of the Shareholders of the Registrant are incorporated by reference into Part III 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 collectively, unless the context indicates another meaning, and the term "common stock" means shares of our common stock, par value of $0.01 per share.
2
THE FEMALE HEALTH COMPANY
FORM 10-K
September 30, 2014
PART I |
Page |
|||
|
5 |
|
||
|
12 |
|
||
|
16 |
|
||
|
16 |
|
||
|
16 |
|
||
|
16 |
|
||
|
|
|
|
|
PART II |
|
|
|
|
|
|
|
|
|
|
17 |
|
||
|
19 |
|
||
Management's Discussion and Analysis of Financial Condition and Results of Operations |
|
20 |
|
|
|
26 |
|
||
|
26 |
|
||
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure |
|
26 |
|
|
|
26 |
|
||
|
26 |
|
||
|
|
|
|
|
PART III |
|
|
|
|
|
|
|
|
|
|
27 |
|
||
|
27 |
|
||
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
|
27 |
|
|
Certain Relationships and Related Transactions, and Director Independence |
|
28 |
|
|
|
28 |
|
||
|
|
|
|
|
PART IV |
|
|
|
|
|
|
|
|
|
|
29 |
|
||
|
|
33 |
|
3
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. Forward-looking statements can be identified by the use of forward-looking words or phrases such as "anticipate," "believe," "could," "expect," "intend," "may," "opportunity," "plan," "predict," "potential," "estimate," "will," "would" or the negative of these terms or other words of similar meaning. These statements are based upon the Company's current plans and strategies, and reflect the Company's current assessment of the risks and uncertainties related to its business, and are made as of the date of this report. 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.
4
PART I
General
The Female Health Company manufactures, markets and sells the FC2 Female Condom (“FC2”). FC2 is the only currently available female-controlled product approved by the U.S. Food and Drug Administration (FDA) and cleared by the World Health Organization (WHO) for purchase by U.N. agencies that provides dual protection against unintended pregnancy and sexually transmitted infections ("STIs"), including HIV/AIDS. FC2 was approved by the FDA as a Class III medical device in 2009.
Because FC2 is used for both disease prevention and family planning, 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., Sekunjalo Investments Corporation (PTY) Ltd (“Sekunjalo”), the Company’s distributor in the Republic of South Africa (“RSA”), and the Brazil Ministry of Health either through UNFPA or Semina Indústria e Comércio Ltda (“Semina”), the Company’s distributor in Brazil. Other customers include ministries of health or other governmental agencies, which either purchase directly or via in-country distributors, and non-governmental organizations (“NGOs”).
Since the Company began distributing FC2 in 2007, it has been shipped to 144 countries. A significant number of countries with the highest demand potential are in the developing world. The incidence of HIV/AIDS, other STIs and unwanted pregnancy in these countries represents a remarkable potential for significant sales of a product that benefits some of the world’s most underprivileged people. However, conditions in these countries can be volatile and result in unpredictable delays in program development, tender applications and processing orders.
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 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. A tender award indicates acceptance of the bidder’s price rather than an order or guarantee of the purchase of any minimum number of units. Many governmental tenders are stated to be “up to” the maximum number of units, which gives the applicable government agency discretion to purchase less than the full maximum tender amount. Orders are placed after the tender is awarded; there are often no set dates for orders in the tender and there are no guarantees as to the timing or amount of actual orders or shipments. Orders received may vary from the amount of the tender award based on a number of factors including vendor supply capacity, quality inspections and changes in demand. Administrative issues, politics, bureaucracy, process errors, changes in government 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. Continuation of this in the future periods will be contingent on a number of factors, including the degree and period of sales volatility, the strength of global demand for the Company’s product and competition in the Company’s markets.
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.
5
Company History
The female condom was invented by a Danish physician who obtained a U.S. patent for FC1, the Company’s first generation product, in 1988. The physician subsequently sold certain rights to the condom to Chartex Resources Limited (“Chartex”). 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. Wisconsin Pharmacal 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 Condom.
The FDA approved FC1 for distribution in the U.S. in 1993 and approved the Company's U.K. FC1 manufacturing facility in 1994. FC1 was produced from a costly raw material, polyurethane, in a labor intensive manufacturing process in 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 Female Condom, FC2, which was completed in 2005. The second generation product is made from a less costly raw material, a nitrile polymer. FC2’s production process is more efficient and less labor and capital intensive than that of FC1, making it less costly to produce. Its price is now approximately 30 percent less than FC1. FC2 is currently being produced at the Company’s facility in Selangor D.E., Malaysia. 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.
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, FC2 has been approved by other regulatory agencies, including the European Union, India and Brazil. Based on a rigorous scientific review, WHO cleared FC2 for purchase by U.N. agencies in 2006.
Since FC2’s introduction in March 2007 through September 30, 2014, approximately 268 million FC2’s have been distributed in 144 countries. It is marketed to consumers through distributors, global public sector procurement organizations and retailers in 16 countries. Since the first FDA approval in 1993, the Company has sold approximately 443 million Female Condoms (FC1 and FC2).
Strategy
The Company’s strategy is to fully develop global markets for FC2 for both contraception and STI prevention, including HIV/AIDS. Since the introduction of its first generation product, FC1, the Company has developed contacts and relationships with global public health sector organizations such as WHO, UNFPA, USAID, the United Nations Joint Programme on HIV/AIDS (“UNAIDS”), country-specific health ministries and NGOs, and commercial partners in various countries. The Company has representatives in various locations around the world to provide technical sales support and assist with its customers’ prevention and family planning programs.
6
In July 2014, the Company announced a new growth strategy with two key elements. The first element seeks to accelerate demand for FC2 by strengthening key customer relationships and creating greater awareness of FC2 in our current markets through sales and marketing efforts. A portion of our training and education resources have been redeployed to support the sales and marketing activities, and the Company is also examining the potential for FC2 in the U.S. consumer market. The Company appointed a new executive in July 2014, who has responsibility for directing resources to implement the FC2 growth strategy. The Company remains strongly committed to realizing the market potential for FC2, both in the global public sector and potentially as a consumer product in developed countries, and believes that increased spending on sales and marketing activities will accelerate and grow global demand for FC2. The second element of the Company’s new growth strategy involves product diversification. The Company is actively evaluating the potential acquisition of additional products, technologies and businesses that are complementary to FC2 in terms of market segment, product category and/or channel presence.
Products
Currently, there are only two FDA approved and marketed products that prevent the transmission of HIV/AIDS through sexual intercourse: the male condom and FC2. FC2 is currently the only FDA approved and marketed female-controlled product that prevents STIs, including HIV/AIDS. Used consistently and correctly, FC2 provides women dual protection against STIs, including HIV/AIDS, and unintended pregnancy. When used correctly the protection rates against unintended pregnancies and STIs are 95 percent for female condoms compared to 98 percent for male condoms according to the FDA. FC2 is not seen as directly competing with the male condom; it provides an alternative to either unprotected sex or male condom usage.
An economic analysis of the cost effectiveness of an FC2 HIV/AIDS prevention program conducted by Dr. David Holtgrave, the chairman of the Department of Health Behavior and Society at the Johns Hopkins Bloomberg School of Public Health was featured in the March 26, 2012 issue of AIDS and Behavior. The study showed that the Washington, D.C. FC2 prevention program, a public-private partnership to provide and promote FC2, prevented enough HIV infections in the first year alone to save over $8 million in avoided future medical care costs (over and above the cost of approximately $445,000 for the program). This means that for every dollar spent on the program, there was a cost savings of nearly $20. In the article Dr. Holtgrave concluded, “These results clearly indicate that delivery of, and education about, Female Condoms is an effective HIV prevention intervention and an outstanding public health investment.” Washington, D.C. began its program in 2010 to fight a disease that is at epidemic levels. At least 3 percent of Washington, D.C. residents have HIV or AIDS, a prevalence rate that is the highest of any U.S. city.
In May 2014, a business case was published by Global Health Visions, LLC, commissioned by Rutgers WPF, the advocacy partner of the Universal Access to Female Condoms (UAFC) Joint Programme. Part of the publication was a study comparing total expected costs with total estimated economical benefits and it determined there was an excellent return on investment for female condoms in sub-Saharan Africa. For example, in Nigeria an investment of $1 offers a $3.20 return on investment to the country’s economy.
Numerous clinical and behavioral studies have been conducted regarding use of the female condom. Studies show that in many cultures, the female condom is found acceptable by women and their partners. Importantly, studies also show that when the female condom is made available as an option along with male condoms there is a significant increase in protected sex acts with a concurrent decrease in STIs. The increase in protected sex acts varies by country and averages between 10 percent and 35 percent.
FC2 has basically the same physical design, specifications, safety and efficacy profile as FC1. Manufactured from a nitrile polymer formulation that is exclusive to the Company, FC2 is produced more economically than 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 who are unable to use male condoms without irritation. For example, 7 percent to 20 percent of the individuals with significant exposure to latex rubber (i.e., healthcare workers) experience such 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.
Global Market Potential
Because FC2 offers a woman dual protection against both unintended pregnancy and STIs, including HIV/AIDS, its market encompasses both family planning and disease prevention.
7
Disease Prevention. The first clinical evidence of AIDS was noted more than thirty years ago. Since then, HIV/AIDS has become the most devastating pandemic facing humankind in recorded history. In November 2009, WHO released statistics indicating that on a world-wide basis, HIV/AIDS is now the leading cause of death in women 15 to 44 years of age. According to WHO, in 2012 worldwide women comprised 50 percent of all the adults living with HIV and approximately 58 percent of all new adult cases of HIV/AIDS in Sub-Saharan Africa were women. In the United States the Centers for Disease Control and Prevention (CDC) and FDA both list heterosexual sex as the most common method of HIV transmission in women.
For sexually active couples, male condoms and FC2 are the only barrier methods approved by the 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 STIs, including HIV/AIDS. FC2, when used consistently and correctly, gives a woman control over her sexual health by providing dual protection against STIs, including HIV/AIDS, and unintended pregnancy.
In the United States, the CDC continues to report that the HIV/AIDS epidemic is taking an increasing toll on women and girls. Women of color, particularly black women, have been especially hard hit. Women of color comprise both the majority of new HIV and AIDS cases among women, and the majority of women living with the disease. In 2010, the CDC lists the rate of new HIV infection for black women as approximately 8 times the rate for white women in the United States. In 2010, in the United States, it estimated that one in 32 black women would be diagnosed with HIV in her lifetime, compared to the one in 526 incidence rate amongst white women.
The CDC estimates there are 19 million new STIs in the U.S. each year. It is also estimated that over 24,000 women each year in the U.S. lose the ability to conceive or carry a pregnancy to term due to undiagnosed or untreated STIs. In March 2008, the CDC announced that a study indicated that 26 percent of female adolescents in the U.S. have at least one of the most common STIs. Led by the CDC’s Sara Forhan, the study is the first to examine the combined national prevalence of common STIs among adolescent women in the U.S. In addition to overall STI prevalence, the study found that by race, African American teenage girls had the highest prevalence, with an overall prevalence of 48 percent compared to 20 percent among both whites and Mexican Americans. Overall, approximately half of all the teens in the study reported ever having sex. Among these girls, the STI prevalence was 40 percent.
On November 29, 2012, in conjunction with World AIDS day, U.S. Secretary of State Hillary Clinton, as part of the President’s Emergency Plan For AIDS Relief (“PEPFAR”), issued a blueprint for an AIDS Free Generation. In the blueprint it states that female condoms are unique in providing a female-controlled HIV prevention option and that PEPFAR will work with partner governments and other donors to promote female condoms wherever effective programs can build a sustained demand.
On December 3, 2013, donors pledged $12 billion, which includes $1.5 billion from the U.K. Government, over a 3 year period to the Global Fund to Fight AIDS, Tuberculosis and Malaria.
Contraception. The feminization of HIV/AIDS has increased the relevance of FC2 for the prevention of unintended pregnancies as well as disease prevention. Unintended pregnancy may result in maternal and infant death, babies with HIV/AIDS, AIDS orphans and increased health care costs.
On July 11, 2012, World Population Day, the U.K. Government and the Bill and Melinda Gates Foundation held a Summit on Family Planning in London, England (the “London Summit”). It was attended by public health officials, government officials, and private sector companies that supply contraceptives and related products. FHC was one of only fourteen companies, and the only condom manufacturer, invited to attend the London Summit. 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.
The Condom Market
The global public health sector market for male condoms is estimated to be greater than 6-7 billion units annually. The private sector market for male condoms is estimated at 10-15 billion units annually. The combined global male condom market (public and private sector) is estimated at a value of $4.5 billion annually. The female condom market represents a very small portion of the total global condom market.
8
Government Regulation
Female condoms as a group were classified by the FDA as a Class III medical device in 1989. Class III medical devices are deemed by the FDA to carry potential risks with use which must be tested prior to FDA approval, referred to as Premarket Approval (PMA), for sale in the U.S. As FC2 is a Class III medical device, prior to selling FC2 in the U.S., the Company was required to submit a PMA application containing technical information on the use of FC2 such as pre-clinical and clinical safety and efficacy studies which were gathered together in a required format and content. The FC2 PMA was approved by the FDA as a Class III medical device in March 2009.
FC2 received the CE Mark which allows it to be marketed throughout the European Union. FC2 has also been approved by regulatory authorities in Brazil, India and other jurisdictions.
The Company believes that FC2’s PMA and FDA classification as a Class III medical device creates a significant barrier to entry in the U.S. market. The Company estimates that it would take up to six years to implement, execute and receive FDA approval of a PMA to market another type of female condom.
In the U.S., FC2 is regulated by the FDA. Pursuant to section 515(a)(3) of the Safe Medical Amendments Act of 1990 (the "SMA Act"), the FDA may temporarily suspend approval and initiate withdrawal of the PMA if the FDA finds that FC2 is unsafe or ineffective, or on the basis of new information with respect to the device, which, when evaluated together with information available at the time of approval, indicates a lack of reasonable assurance that the device is safe or effective under the conditions of use prescribed, recommended or suggested in the labeling. Failure to comply with the conditions of FDA approval invalidates the approval order. Commercial distribution of a device that is not in compliance with these conditions is a violation of the SMA Act. As an FDA approved medical device, the facilities in which FC2 is produced and tested are subject to periodic FDA inspection to ensure compliance with current Good Manufacturing Processes. The Company’s most recent FDA inspection was completed in September 2010.
The FDA’s approval order for FC2 includes conditions that relate to product labeling, including information on the package itself and instructions for use called a “package insert” which accompanies each product. The Company believes it is in compliance with the FDA approval order.
The Company’s facility may also be subject to inspection by UNFPA, USAID, International Organization for Standardization (ISO) and county specific ministries of health.
Significant Customers
Because FC2 provides dual protection against both STIs, 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, USAID, DFID (U.K.’s Department for International Development), PSI (Population Services International) and other social marketing groups, various government health agencies and NGOs. 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 four largest customers in fiscal 2014 were UNFPA, USAID, Sekunjalo and Azinor International Lda, a customer in Angola (“Azinor”). UNFPA accounted for 40 percent of unit sales in fiscal 2014, 62 percent of unit sales in fiscal 2013, and 40 percent of unit sales in fiscal 2012. USAID accounted for 17 percent of unit sales in fiscal 2014, less than 10 percent of unit sales in fiscal 2013, and 25 percent of unit sales in fiscal 2012. Sekunjalo accounted for 13 percent of unit sales in fiscal 2014, less than 10 percent of unit sales in fiscal 2013, and 20 percent of unit sales in fiscal 2012. Azinor accounted for 11 percent of unit sales in fiscal 2014 with no unit sales in fiscal 2013 or fiscal 2012. No other single customer accounted for more than 10 percent of unit sales in fiscal 2014, 2013 or 2012. We also sell to the Brazil Ministry of Health either through UNFPA or Semina. The Company considers its most significant customers to be UNFPA, USAID, Sekunjalo and Brazil Ministry of Health either through UNFPA or Semina.
Commercial Markets – Direct to Consumers
The Company has distribution agreements and other arrangements with commercial partners which market to consumers through distributors and retailers in 16 countries, including the United States, Brazil, Spain, France, and the United Kingdom. These agreements are generally exclusive for a single country. Under these agreements, the Company sells FC2 to the distributor partners, who market and distribute the product to consumers in the established territory.
9
In the U.S., FHC initiated the FC2 College Health Mini-Grant Program in early 2013. The objective is to create awareness and sexual health knowledge that results in online/in store retail purchasing by young women and men. Education and training is the key content element for this program, similar to the public sector. College health and wellness centers were contacted and advised that they could apply to participate in the FC2 Program. If accepted, FHC would provide a mini-grant ($50-$500) and related education and training materials to help start or enhance an on-campus FC2 program. Grants would be awarded based on a school’s intention to (1) raise awareness of FC2 on campus, (2) increase access to FC2 on campus, and (3) enhance students’ capacity to effectively and accurately use FC2. The pilot regions for The FC2 College Campus Program were determined through selection of the following four American College Health Associations Regional Affiliates: New England, New York, South and South West College Health Associations. In total 30 colleges were chosen to receive grants for The FC2 College Campus Program, including Colgate University, Tulane University and Duke University plus student groups from institutions such as Boston College and University of Florida. Due to the pilot program’s success, the program has been implemented for the 2014 – 2015 academic year with 20 schools chosen to receive grants between $500 and $1,000.
Relationships and Agreements with Public Health Sector Organizations
The Company’s customers are primarily large global agencies, NGOs, ministries of health and other government agencies which purchase and distribute FC2 for use in HIV/AIDS prevention and family planning programs. The Company offers uniform, volume-based pricing to such agencies, rather than entering into long-term supply agreements.
In the U.S., FC2 is sold to city and state public health clinics as well as not-for-profit organizations such as Planned Parenthood. Municipal and state departments of health have been increasing access to FC2 within established condom programming. Chicago, Los Angeles, San Francisco, New York and Washington, D.C., are all examples of cities with programs providing female and male condoms free of charge. In New York City, at September 30, 2014 FC2 has been distributed in 1,625 locations, up 13% over 1,436 locations at September 30, 2013.
The Company has encouraged growth in the U.S. through education and program development support. To make health professional education broadly available, the Company introduced its FC2 On-line Training Program in March 2012.
The National Female Condom Coalition (NFCC) and Universal Access to Female Condoms (UAFC) sponsored the third annual Global Female Condom Day on September 16, 2014. The 2014 Global Female Condom Day drew greater attention and participation than in the previous year. Public events highlighting the need for access to female condoms and promoting their use in family planning and disease prevention were organized around the world and in the U.S., including events specifically initiated or co-sponsored by the Company. The Company assembled five internationally recognized health experts and sexual health advocates to record their insights on the challenges and opportunities facing female condom use in the U.S. and around the world, which was made available on Global Female Condom Day.
Globally, the Company has a multilingual website that provides downloadable training and education information in English, Portuguese, Spanish and French, which is viewed approximately 1,500 times per month. The Company also has a multilingual YouTube channel for FC2 animation and instructions which has been viewed more than 10 million times since it was launched in December 2012.
Outside of the U.S., 184 training and education sessions were held in 7 countries, with an estimated 118,000 people participating in the sessions in 2014. In addition, persons in 40 countries asked for and received information and advice on training and education.
Employees
As of November 28, 2014, the Company had 149 full-time employees, including 12 located in the U.S., 12 in the U.K., 121 in Malaysia and 4 in other countries to implement training and programs, and 1 part-time employee located in the U.S. None of the Company’s employees are represented by a labor union. The Company believes that its employee relations are good. In Malaysia, a significant proportion of direct labor is supplied by a contracted work force.
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 2014, 2013 or 2012, nor does it anticipate environmental expenses in the foreseeable future.
10
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 25,900 sq. ft. of production space in Selangor D.E., Malaysia for the production of FC2. In 2012, the Company completed the expansion of the facility’s manufacturing capacity by 20 percent to approximately 100 million units annually. The cost was approximately $700,000, which was funded internally.
In fiscal 2014 the Company leased an additional 19,900 sq. ft adjacent to its existing Malaysian facility to support future capacity build-outs which provides sufficient space to add manufacturing capacity of up to an additional 100 million units annually. The Company is currently utilizing this facility for warehouse storage. The Company will consider manufacturing in other locations as the demand for FC2 develops.
Competition
FC2 participates in the same market as male condoms; however, it is not seen as directly competing with male condoms. Rather, studies show that providing FC2 is additive in terms of prevention and choice. Male condoms cost less and have brand names that are more widely recognized than FC2. In addition, male condoms are generally manufactured and marketed by companies with significantly greater financial resources than the Company.
Other parties have developed and marketed female condoms. None of these female condoms marketed or under development by other parties have secured FDA approval. FDA approval is required to sell female condoms in the U.S. The Cupid female condom became the second female condom design to successfully complete the WHO prequalification process in July 2012 and be cleared for purchase by U.N. agencies. FC2 has also been competing with other female condoms in markets that do not require either FDA approval or WHO prequalification. We have experienced increasing competition in the global public sector, and competitors including Cupid received part of the last South African tender. Increasing competition in FC2’s markets may put pressure on pricing for FC2 or adversely affect sales of FC2, and some customers, particularly in the global public sector, may prioritize price over other features where FC2 may have an advantage. It is also possible that other female condoms may receive FDA approval or complete the WHO prequalification process, which would increase competition from other female condoms in FC2’s markets.
Patents and Trademarks
FC2 patents have been issued by the United States, Europe, Canada, Australia, South Africa, the People’s Republic of China, Japan, Mexico and the African Regional Intellectual Property Organization (ARIPO), which includes Botswana, Gambia, Ghana, Kenya, Lesotho, Malawi, Mozambique, Namibia, Sierra Leone, Sudan, Swaziland, Tanzania, Uganda, Zambia and Zimbabwe. Further, the European patent for FC2 has been validated in the following countries: Austria, Belgium, Bulgaria, Switzerland, Republic of Cyprus, Czech Republic, Germany, Denmark, Estonia, Spain, Finland, France, United Kingdom, Greece, Hungary, Ireland, Italy, Luxembourg, Monaco, Netherlands, Portugal, Romania, Sweden, Slovenia, Slovakia, and Turkey. The patents cover the key aspects of FC2, including its overall design and manufacturing process. In addition, patent applications for FC2 are pending in a number of other countries around the world. There can be no assurance that pending patent applications provide the Company with protection against copycat products entering markets during the pendency of the applications.
The Company has a registration for the trademark “FC2 Female Condom” in the United States. Furthermore, the Company has filed applications or secured registrations in 40 countries or jurisdictions around the world to protect the various names and symbols used in marketing FC2. These encompass 14 different trademarks, including "femidom," "femy," "Reality" and others. In addition, the experience that has been gained through years of manufacturing its Female Condoms (FC1 and FC2) has allowed the Company to develop trade secrets and know-how, including certain proprietary production technologies, that further protect its competitive position.
Backlog
Unfilled product orders totaled $9,848,220 at November 28, 2014 and $2,940,710 at November 29, 2013. Unfilled orders materially fluctuate from quarter-to-quarter, and the amount at November 28, 2014 includes orders with requested delivery dates later in fiscal 2015. The Company expects current unfilled orders to be filled during fiscal 2015.
11
Available Information
The Company maintains a corporate website for investors at www.fhcinvestor.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.
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.
At this time, we derive our revenues from sales of our only current product, FC2. 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 under governmental tenders, process errors, politics or other pressures, and the risk that contracts may be subject to cancellation, delay or restructuring. A governmental tender award indicates acceptance of the bidder’s price rather than an order or guarantee of the purchase of any minimum number of units. Many governmental tenders are stated to be “up to” the maximum number of units, which gives the applicable government agency discretion to purchase less than the full maximum tender amount. As a result government agencies may order and purchase fewer units than the full maximum tender amount and there are no guarantees as to the timing or amount of actual orders or shipments under government tenders. Orders received may vary from the amount of the tender award based on a number of factors including vendor supply capacity, quality inspections and changes in demand. 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, spending cuts and global health spending priorities affecting government health agencies may also adversely affect demand for our product and our net revenues.
Competition from other products, including other female condoms, may have an adverse effect on our net revenues and 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 and profit margins. Other 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. FDA approval is required to sell female condoms in the U.S., and WHO pre-clearance is required to sell female condoms to U.N. agencies. FC2 has also been competing with other female condoms in markets that do not require either FDA approval or WHO prequalification. We have experienced increasing competition in the global public sector, and competitors received part of the last South African tender. Increasing competition in FC2’s markets may put pressure on pricing for FC2 or adversely affect sales of FC2, and some customers, particularly in the global public sector, may prioritize price over other features where FC2 may have an advantage. It is also possible that other companies will develop a female condom, and such companies could have greater financial resources and customer contacts than us. In addition, other contraceptive methods may compete with FC2 for funding and attention in the global public sector.
12
We may experience difficulties in implementing our growth initiatives.
We have announced new initiatives to increase our investment in sales and marketing activities. We may face a number of obstacles to successfully implementing these initiatives, such as the costs associated with entering new markets or expanding current markets, retaining adequate numbers of effective sales and marketing personnel, developing and implementing effective marketing efforts, and establishing and maintaining appropriate regulatory compliance. We cannot assure you that we will be successful in implementing our growth strategies or that such strategies, even if implemented, will lead to the successful achievement of our objectives. Even if we are able to increase our sales as a result of our growth initiatives, we may not be able to achieve an adequate return on the amount we invest in these initiatives.
An inability to identify or complete future acquisitions could adversely affect our future growth.
As part of our growth initiatives, we intend to pursue acquisitions of new products, technologies and/or businesses that are complementary to FC2 and enable us to leverage our competitive strengths. While we continue to evaluate potential acquisitions, we may not be able to identify and successfully negotiate suitable acquisitions, obtain financing for future acquisitions on satisfactory terms, obtain regulatory approval for acquisitions where required or otherwise complete acquisitions in the future. An inability to identify or complete future acquisitions could limit our future growth.
We may experience difficulties in integrating strategic acquisitions.
The integration of acquired companies and their operations into our operations involves a number of risks, including:
· |
the acquired business may experience losses that could adversely affect our profitability; |
· |
unanticipated costs relating to the integration of acquired businesses may increase our expenses; |
· |
possible failure to accomplish the strategic objectives for an acquisition; |
· |
the loss of key personnel of the acquired business; |
· |
difficulties in achieving planned cost-savings and synergies may increase our expenses or decrease our net revenues; |
· |
diversion of management’s attention could impair their ability to effectively manage our business operations; |
· |
we may record goodwill and nonamortizable intangible assets that are subject to impairment testing on a regular basis and potential impairment charges and we may also incur amortization expenses related to intangible assets; and |
· |
unanticipated management or operational problems or liabilities may adversely affect our profitability and financial condition. |
Additionally, we may borrow funds to finance strategic acquisitions. Debt leverage resulting from future acquisitions could adversely affect our operating margins and limit our ability to capitalize on future business opportunities. Such borrowings may also be subject to fluctuations in interest rates.
We depend on three major customers for a significant portion of our net revenues.
The Company's three largest customers currently are UNFPA, USAID and Sekunjalo. UNFPA accounted for 40 percent of unit sales in fiscal 2014, 62 percent of unit sales in fiscal 2013, and 40 percent of unit sales in fiscal 2012. USAID accounted for 17 percent of unit sales in fiscal 2014, less than 10 percent of unit sales in fiscal 2013, and 25 percent of unit sales in fiscal 2012. Sekunjalo accounted for 13 percent of unit sales in fiscal 2014, less than 10 percent of unit sales in fiscal 2013, and 20 percent of unit sales in fiscal 2012. We also sell to the Brazil Ministry of Health either through UNFPA or Semina. 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. |
13
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 U.S. dollars. Manufacturing costs are subject to normal currency risks associated with fluctuations in the exchange rate of the Malaysian ringgit (MYR) relative to the U.S. dollar. Historically, we have not hedged our foreign currency risk.
We rely 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 U.S. or in foreign markets. |
Uncertainty and adverse changes in the general economic conditions may negatively affect our business.
If general economic conditions in the U.S. and other global markets in which we operate decline, or if consumers fear that economic conditions will 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 by governmental agencies. 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.
14
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 FC2. 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 28, 2014, our directors and executive officers and their affiliates beneficially owned in the aggregate approximately 23.6 percent 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.
There are provisions in our charter documents, Wisconsin law and change of control agreements with our officers that might 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 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 four 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 market expectations for our performance; |
· |
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.
15
Item 1B. Unresolved Staff Comments
Not Applicable
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 FC2. 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 45,800 sq. ft. of production and warehouse 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, 2016 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.
The Company is not currently involved in any pending legal proceedings.
Item 4. Mine Safety Disclosures
Not Applicable
16
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 28, 2014 was 272. 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 eighteen quarterly dividends, the most recent of which was paid in May 2014. All dividends have been paid from the Company's cash on hand. On July 14, 2014, the Company announced that its Board of Directors elected to suspend the payment of quarterly cash dividends in order to devote operating cash flows towards strategic growth initiatives. 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 |
||||||||
2014 Fiscal Year |
|||||||||||
Price per common share – High |
$ |
9.94 |
$ |
8.42 |
$ |
7.76 |
$ |
5.84 | |||
Price per common share – Low |
$ |
7.87 |
$ |
6.70 |
$ |
5.49 |
$ |
3.49 | |||
Dividends paid |
$ |
0.07 |
$ |
0.07 |
$ |
0.07 |
$ |
— |
|||
2013 Fiscal Year |
|||||||||||
Price per common share – High |
$ |
8.27 |
$ |
8.00 |
$ |
10.01 |
$ |
9.95 | |||
Price per common share – Low |
$ |
6.35 |
$ |
6.70 |
$ |
7.26 |
$ |
8.59 | |||
Dividends paid |
$ |
0.06 |
$ |
0.06 |
$ |
0.07 |
$ |
0.07 |
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, 2014. From the program’s onset through September 30, 2014, the total number of shares repurchased by the Company is 2,183,454. The Stock Repurchase Program authorizes purchases in privately negotiated transactions as well as in the open market.
In October 2008 the Company's Board of Directors authorized repurchases in private transactions under the Stock Repurchase Program of shares issued under the Company's equity compensation plans to directors, employees and other service providers at the market price on the effective date of the repurchase request. Total repurchases under this provision currently are limited to an aggregate of 450,000 shares per calendar year and to a maximum of 50,000 shares annually per individual. Private repurchase transactions for fiscal 2014, 2013 and 2012 were 4,000, 45,625 and 34,000 shares, respectively. Open market repurchase transactions for fiscal 2014, 2013 and 2012 were 165,000, 10,000, and 10,000 shares, respectively.
Issuer Purchases of Equity Securities: |
Details of Treasury Stock Purchases to Date through |
|||||
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, 2014 |
2,050,954 |
$ |
3.55 | 2,050,954 | 949,046 | |
July 1, 2014 – July 31, 2014 |
— |
— |
2,050,954 | 949,046 | ||
August 1, 2014 – August 31, 2014 |
130,000 | 3.93 | 2,180,954 | 819,046 | ||
September 1, 2014 – September 30, 2014 |
2,500 | 3.73 | 2,183,454 | 816,546 | ||
Quarterly Subtotal |
132,500 | 3.92 | 132,500 | |||
Total |
2,183,454 |
$ |
3.57 | 2,183,454 | 816,546 |
17
Performance Graph
The performance graph set forth below shows the value of an investment of $100 on September 30, 2009 in each of The Female Health Company, the NASDAQ Composite Index and NASDAQ Health Care Index. All values assume reinvestment of the pre-tax value of dividends paid by FHC and the companies included in the indices, and are calculated as of September 30 each year. The historical stock price performance of FHC is not necessarily indicative of future stock performance.
9/09 |
9/10 |
9/11 |
9/12 |
9/13 |
9/14 |
|
The Female Health Company |
100.00 | 104.71 | 86.30 | 157.53 | 224.44 | 81.46 |
NASDAQ Composite |
100.00 | 112.55 | 116.28 | 153.12 | 189.49 | 227.09 |
NASDAQ Health Care |
100.00 | 101.46 | 105.77 | 152.61 | 211.54 | 270.61 |
18
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, 2014, 2013 and 2012, and the Consolidated Balance Sheet Data as of September 30, 2014 and 2013, are derived from the Consolidated Financial Statements included elsewhere in this report. The Consolidated Statement of Income Data for the years ended September 30, 2011 and 2010, and the Consolidated Balance Sheet Data as of September 30, 2012, 2011 and 2010, 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, |
||||||||||||||
Condensed Consolidated Statement of Income Data: |
2014 |
2013 |
2012 |
2011 |
2010 |
|||||||||
(In thousands, except per share data) |
||||||||||||||
Net revenues |
$ |
24,491 |
$ |
31,457 |
$ |
35,034 |
$ |
18,565 |
$ |
22,222 | ||||
Cost of sales |
11,370 | 13,953 | 14,413 | 8,700 | 9,297 | |||||||||
Gross profit |
13,121 | 17,504 | 20,621 | 9,865 | 12,925 | |||||||||
Operating expenses |
9,197 | 7,714 | 9,681 | 6,570 | 8,576 | |||||||||
Operating income |
3,924 | 9,790 | 10,940 | 3,295 | 4,349 | |||||||||
Non-operating income (expense) |
33 | 144 | (148) | (63) | (125) | |||||||||
Income before income taxes |
3,957 | 9,934 | 10,792 | 3,232 | 4,224 | |||||||||
Income tax expense (benefit) |
1,524 | (4,409) | (4,507) | (2,167) | (2,513) | |||||||||
Net income |
$ |
2,433 |
$ |
14,343 |
$ |
15,299 |
$ |
5,399 |
$ |
6,737 | ||||
Net income per basic common share outstanding |
$ |
0.09 |
$ |
0.51 |
$ |
0.55 |
$ |
0.20 |
$ |
0.25 | ||||
Basic weighted average common shares outstanding |
28,523 | 28,377 | 27,694 | 27,287 | 26,981 | |||||||||
Net income per diluted common share outstanding |
$ |
0.08 |
$ |
0.50 |
$ |
0.53 |
$ |
0.19 |
$ |
0.24 | ||||
Diluted weighted average common shares outstanding |
28,875 | 28,726 | 28,933 | 28,971 | 28,545 | |||||||||
Cash dividends declared per share |
$ |
0.21 |
$ |
0.26 |
$ |
0.22 |
$ |
0.20 |
$ |
0.15 | ||||
Year ended September 30, |
||||||||||||||
Condensed Consolidated Balance Sheet Data: |
2014 |
2013 |
2012 |
2011 |
2010 |
|||||||||
(In thousands) |
||||||||||||||
Cash and cash equivalents |
$ |
5,796 |
$ |
8,922 |
$ |
5,296 |
$ |
4,318 |
$ |
2,924 | ||||
Working capital |
9,695 | 13,424 | 10,966 | 7,454 | 9,853 | |||||||||
Total assets |
31,673 | 35,170 | 30,446 | 19,443 | 18,368 | |||||||||
Accumulated deficit |
(32,342) | (28,715) | (35,594) | (44,697) | (44,544) | |||||||||
Long-term obligations |
39 | 67 | 174 | 209 | 145 | |||||||||
Total stockholders' equity |
$ |
28,065 |
$ |
31,403 |
$ |
24,218 |
$ |
16,753 |
$ |
16,132 |
19
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Overview
The Company manufactures, markets and sells FC2. FC2 is the only currently available female-controlled product approved by the FDA that provides dual protection against unintended pregnancy and STIs, including HIV/AIDS.
Because FC2’s primary usages are for disease prevention and family planning, the public health sector is the Company’s main market. Within the public health sector, various organizations supply critical products such as FC2, at no cost or low cost, to those who need but cannot afford to buy such products for themselves.
FC2 has been distributed in 144 countries. A significant number of countries with the highest demand potential are in the developing world. The incidence of HIV/AIDS, other STIs and unwanted pregnancy in these countries represents a remarkable potential for significant sales of a product that benefits some of the world’s most underprivileged people. However, conditions in these countries can be volatile and result in unpredictable delays in program development, tender applications and processing orders.
The Company has a relatively small customer base, with a limited number of customers who generally purchase in large quantities. Over the past few years, major customers have included large global agencies, such as UNFPA and USAID. Other customers include ministries of health or other governmental agencies, which either purchase directly or via in-country distributors, and NGOs.
Purchasing patterns vary significantly from one customer to another, and may reflect factors other than simple demand. For example, some governmental agencies purchase through a formal procurement process in which a tender (request for bid) is issued for either a specific or a maximum unit quantity. Tenders also define the other elements required for a qualified bid submission (such as product specifications, regulatory approvals, clearance by WHO, unit pricing and delivery timetable). Bidders have a limited period of time in which to submit bids. Bids are subjected to an evaluation process which is intended to conclude with a tender award to the successful bidder. The entire tender process, from publication to award, may take many months to complete. A tender award indicates acceptance of the bidder’s price rather than an order or guarantee of the purchase of any minimum number of units. Many governmental tenders are stated to be “up to” the maximum number of units, which gives the applicable government agency discretion to purchase less than the full maximum tender amount. Orders are placed after the tender is awarded; there are often no set dates for orders in the tender and there are no guarantees as to the timing or amount of actual orders or shipments. Orders received may vary from the amount of the tender award based on a number of factors including vendor supply capacity, quality inspections and changes in demand. 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. Continuation of these accomplishments in the future periods will be contingent on a number of factors, including the degree and period of sales volatility and on the strength of global demand for the Company’s product.
During fiscal 2011, the Company's unit shipments, revenues and net income were adversely affected by bureaucratic delays and other timing issues involving the receipt and shipment of large orders from Brazil and 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 and 2013 results.
In October 2014, we announced that Semina, our distributor in Brazil, has been awarded an exclusive contract under a public tender. The contract is valid through August 20, 2015, and the Brazil Ministry of Health may place orders against this tender in its discretion. We expect orders under this contract to commence in the first quarter of fiscal 2015, although the timing and amounts of orders under the contract is uncertain.
Details of the quarterly unit sales for the last five fiscal years are listed below:
Period |
2014 |
2013 |
2012 |
2011 |
2010 |
October 1 – December 31 |
11,832,666 | 17,114,630 | 15,166,217 | 6,067,421 | 9,527,700 |
January 1 – March 31 |
7,298,968 | 16,675,035 | 13,945,320 | 8,905,099 | 12,960,496 |
April 1 – June 30 |
13,693,652 | 12,583,460 | 15,198,960 | 5,922,334 | 2,606,802 |
July 1 - September 30 |
9,697,341 | 8,386,800 | 17,339,500 | 11,977,716 | 13,824,264 |
Total |
42,522,627 | 54,759,925 | 61,649,997 | 32,872,570 | 38,919,262 |
20
Revenues. The Company's revenues are derived from sales of FC2, and are recognized upon shipment of the product to its customers.
The Company's strategy is to further develop a global market and distribution network for its product by maintaining relationships with public health sector groups and completing partnership arrangements with companies with the necessary marketing and financial resources and local market expertise.
The Company’s most significant customers are either global public health sector agencies or those who facilitate their purchases and/or distribution of FC2 for use in HIV/AIDS prevention and/or family planning. The Company's four largest customers currently are UNFPA, USAID, Sekunjalo and Azinor. UNFPA accounted for 40 percent of unit sales in fiscal 2014, 62 percent of unit sales in fiscal 2013, and 40 percent of unit sales in fiscal 2012. USAID accounted for 17 percent of unit sales in fiscal 2014, less than 10 percent of unit sales in fiscal 2013, and 25 percent of unit sales in fiscal 2012. Sekunjalo accounted for 13 percent of unit sales in fiscal 2014, less than 10 percent of unit sales in fiscal 2013, and 20 percent of unit sales in fiscal 2012. Azinor accounted for 11 percent of unit sales in fiscal 2014 with no unit sales in fiscal 2013 or fiscal 2012. No other single customer accounted for more than 10 percent of unit sales in fiscal 2014, 2013 or 2012. We also sell to the Brazil Ministry of Health either through UNFPA or Semina. In the U.S., FC2 is sold to city and state public health clinics as well as to not-for-profit organizations such as Planned Parenthood.
Because the Company manufactures FC2 in a leased facility located in Malaysia, a portion of the Company's operating costs are denominated in foreign currencies. While a material portion of the Company's future sales are likely to be in foreign markets, all sales are denominated in the U.S. dollar. Effective October 1, 2009, the Company’s U.K. and Malaysia subsidiaries adopted the U.S. dollar as their functional currency, further reducing the Company’s foreign currency risk.
Expenses. The Company manufactures FC2 at its facility located in Selangor D.E., Malaysia. The Company's cost of sales consists primarily of direct material costs, direct labor costs and indirect production and distribution costs. Direct material costs include raw materials used to make the FC2, principally a nitrile polymer. 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 FC2 are essentially available from either multiple sources or multiple locations within a source.
The Company's operating expenses include costs for sales, marketing, education and training relating to FC2. During the London Summit, the Company announced a program to support the London Summit's goal to provide contraceptives to an additional 120 million women by 2020. This program includes a plan for the Company to invest up to $14 million over the period from 2013 through 2018 in reproductive health and HIV/AIDS prevention education and training in collaboration with global agencies. Such investment in education and training may increase the Company’s operating expenses in future periods, although the Company has not set a specific timetable for any such increased spending on education and training. In connection with the London Summit, the Company implemented a volume purchasing incentive program to award major public sector purchasers with FC2 equal to 5 percent of their total annual units purchased, at no-cost. The Company reserves for the no-cost product as a cost of sales, which may affect the Company’s gross margin.
Fiscal Year Ended September 30, 2014 Compared to Fiscal Year Ended September 30, 2013
Operating Highlights. The Company had net revenues of $24,490,586 during fiscal 2014, compared to $31,456,778 in fiscal 2013. The Company’s fiscal 2014 unit sales were 22 percent lower than fiscal 2013. The average sales price of FC2 increased 0.3 percent in fiscal 2014 from fiscal 2013.
The Company generated cash flow from operations of $3,663,596 for fiscal 2014 compared to $11,793,081 for fiscal 2013.
The Company had net income of $2,433,061, or $0.08 per diluted share, in fiscal 2014 compared to net income of $14,342,598, or $0.50 per diluted share, in fiscal 2013.
Results of Operations. The Company had net revenues of $24,490,586 and net income of $2,433,061, or $0.08 per diluted share, in fiscal 2014, compared to net revenues of $31,456,778 and net income of $14,342,598, or $0.50 per diluted share, in fiscal 2013. Net revenues decreased $6,966,192, or 22 percent, in fiscal 2014 compared to prior fiscal year. Results in fiscal 2013 were in part impacted by the receipt and shipment of Brazil orders delayed from fiscal 2011. The delayed orders were shipped in fiscal 2012 and 2013 and did not continue in fiscal 2014.
Cost of sales decreased $2,583,312, or 19 percent, to $11,369,108 in fiscal 2014 from $13,952,420 in fiscal 2013. The decrease is primarily due to a reduction in material costs due to lower unit sales partially offset by increased costs of quality control testing, a net increase in rent due to the leased warehouse facility and an increase in insurance costs.
Gross profit decreased $4,382,880, or 25 percent, to $13,121,478 in fiscal 2014 from $17,504,358 in fiscal 2013. Gross profit as a percentage of net revenues decreased to 54 percent in fiscal 2014 from 56 percent in fiscal 2013.
21
Advertising expenses decreased $163,597 to $58,121 in fiscal 2014 from $221,718 in fiscal 2013. The decrease is primarily due to a program launched in fiscal 2013 which did not recur in fiscal 2014.
Selling, general and administrative expenses increased $1,646,402 to $9,139,445 in fiscal 2014 from $7,493,043 in fiscal 2013. The increase was primarily due to increased spending in sales, marketing, training and education. The majority of the increased spending relates to payments to our Brazilian distributor for programming related to the 2012 tender and for management fees for the recently announced 2014 tender.
Total operating expenses increased $1,482,805 to $9,197,566 in fiscal 2014 from $7,714,761 in fiscal 2013.
The Company's operating income decreased $5,865,685 to $3,923,912 in fiscal 2014 from $9,789,597 in fiscal 2013. The decrease is primarily due to lower unit sales and the increased spending in sales, marketing, training and education.
The Company recorded non-operating income of $33,279 in fiscal 2014 compared to $144,257 in fiscal 2013. The decrease is primarily due to the distribution upon demutualization of an insurance carrier received in fiscal 2013. The impact of the foreign currency transactions was a loss of $83,844 in fiscal 2014 compared to a loss of $101,288 in fiscal 2013.
Income tax expense increased $5,932,874 to $1,524,130 in fiscal 2014 compared to an income tax benefit of $4,408,744 in fiscal 2013. The increase is primarily due to the Company no longer recognizing an income tax benefit associated with reducing the Company’s valuation allowance on its deferred tax assets related to net operating loss carryforwards. During the year ended September 30, 2013, the valuation allowance on the Company’s deferred tax assets was fully realized and as a result the Company does not expect to recognize such tax benefits to any significant extent in its consolidated statements of income for periods after September 30, 2013. However the Company’s net operating loss carryforwards will be utilized to reduce cash payments for income taxes based on the statutory rate in effect at the time of such utilization. Actual income taxes paid are reflected on the Company’s consolidated statements of cash flows.
Fiscal Year Ended September 30, 2013 Compared to Fiscal Year Ended September 30, 2012
Operating Highlights. The Company had net revenues of $31,456,778 during fiscal 2013, compared to $35,033,897 in fiscal 2012. The Company’s fiscal 2013 unit sales were 11 percent lower than fiscal 2012 due to the receipt and shipment of large orders from Brazil and the RSA in fiscal 2012. The average sales price of FC2 increased 1 percent in fiscal 2013 from fiscal 2012.
The Company generated cash flow from operations of $11,793,081 for fiscal 2013 compared to $10,356,054 for fiscal 2012.
The Company had net income of $14,342,598, or $0.50 per diluted share, in fiscal 2013 compared to net income of $15,299,321, or $0.53 per diluted share, in fiscal 2012.
During fiscal 2013, the Company continued to pay quarterly dividends, raising the quarterly dividend rate from $0.06 per share to $0.07 per share mid-year. The Company remains debt free.
Results of Operations. The Company had net revenues of $31,456,778 and net income of $14,342,598, or $0.50 per diluted share, in fiscal 2013, compared to net revenues of $35,033,897 and net income of $15,299,321, or $0.53 per diluted share, in fiscal 2012. Net revenues decreased $3,577,119, or 10 percent, in fiscal 2013 compared to the prior fiscal year. Results in fiscal 2012 were in part impacted by the receipt of Brazil and RSA orders delayed from fiscal 2011. This catch up factor did not repeat in fiscal 2013 negatively impacting the comparison to fiscal 2012.
Cost of sales decreased $460,464, or 3 percent, to $13,952,420 in fiscal 2013 from $14,412,884 in fiscal 2012. The decrease is primarily due to a reduction in material costs due to lower sales units partially offset by increased costs as a result of an investment for storage materials due to increased inventory, additional quality control testing to conform to the requirements of a major customer and the Company’s volume purchasing incentive program.
Gross profit decreased $3,116,655, or 15 percent, to $17,504,358 in fiscal 2013 from $20,621,013 in fiscal 2012. Gross profit as a percentage of net revenues decreased to 56 percent in fiscal 2013 from 59 percent in fiscal 2012.
Advertising expenses increased $168,769 to $221,718 in fiscal 2013 from $52,949 in fiscal 2012. The increase is due to the expansion of the U.S. training and education program.
Selling, general and administrative expenses decreased $2,135,091 to $7,493,043 in fiscal 2013 from $9,628,134 in fiscal 2012. The decrease was primarily due to a reduction in incentive payments partially offset by increased spending in education and training and consulting expenses.
22
Total operating expenses decreased $1,966,322 to $7,714,761 in fiscal 2013 from $9,681,083 in fiscal 2012.
The Company's operating income decreased $1,150,333 to $9,789,597 in fiscal 2013 from $10,939,930 in fiscal 2012. The decrease is primarily due to the lower unit sales.
The Company recorded non-operating income of $144,257 in fiscal 2013 compared to non-operating expense of $147,907 in fiscal 2012. The increase is primarily due to the distribution upon demutualization of an insurance carrier. The impact of the foreign currency transactions was a loss of $101,288 in fiscal 2013 compared to a loss of $148,269 in fiscal 2012.
An entity is able to recognize a tax benefit for current or past losses when it can demonstrate that the tax loss carryforward 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 $5.3 million during fiscal 2013 compared to $4.9 million for fiscal 2012 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 $3.7 million in fiscal 2014, $11.8 million in fiscal 2013, and $10.4 million in fiscal 2012. The decrease of $8.1 million in cash generated from operating activities in fiscal 2014 as compared to fiscal 2013 was primarily due to the reduction in net revenues and the timing of orders shipped in the fourth quarter. In fiscal 2014, investing activities consumed about $0.1 million. Financing activities used a net of $6.7 million, most of which was used to pay quarterly cash dividends. The increase of $1.4 million in cash generated from operating activities in fiscal 2013 as compared to fiscal 2012 was primarily due to the decrease in the amount of outstanding accounts receivable at year end and the reduction in incentive payments. In fiscal 2013, investing activities consumed about $0.3 million for the purchase of fixed assets related to the expansion of the Company’s Malaysian facility. Financing activities used a net of $7.8 million, most of which was used to pay quarterly cash dividends.
At September 30, 2014, the Company had working capital of $9.7 million and stockholders' equity of $28.1 million compared to working capital of $13.4 million and stockholders' equity of $31.4 million as of September 30, 2013.
Since the Company’s Board of Directors instituted a quarterly cash dividend program in January 2010, the Company has paid a total of 18 consecutive dividends, the most recent of which was paid on May 7, 2014. The first 9 quarterly dividends were paid at the rate of $0.05 per share through February 9, 2012, 4 were paid at a quarterly rate per share of $0.06 from May 9, 2012 through February 6, 2013 and 5 were paid at a quarterly rate per share of $0.07 from May 8, 2013 through May 7, 2014. A cumulative total of $29.4 million has been paid since the program’s initiation.
On July 14, 2014, the Company announced that its Board of Directors has elected to suspend the payment of quarterly cash dividends in order to devote operating cash flows towards strategic growth initiatives.
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, 2014, the Company entered into an amendment to the Second Amended and Restated Loan Agreement (as amended, the “Loan Agreement”) with Heartland Bank to extend the term of the Company’s revolving line of credit to August 1, 2015. The credit facility consists of a single revolving note for up to $2 million with Heartland Bank, with borrowings limited to a borrowing base determined based on 70 percent to 80 percent of eligible accounts receivable plus 50 percent of eligible inventory. Significant restrictive covenants in the Loan Agreement include prohibitions on any merger, consolidation or sale of all or a substantial portion of the Company’s assets and limits on the payment of dividends or the repurchase of shares. The Loan Agreement does not contain any financial covenants that require compliance with ratios or amounts. Dividends and share repurchases are permitted as long as after giving effect to the dividend or share repurchase the Company has a ratio of total liabilities to total stockholders’ equity of no more than 1:1. Borrowings on the revolving note bear interest at the national prime rate published by the Wall Street Journal (3.25 percent at September 30, 2014). 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, 2014 or 2013.
As of November 28, 2014, the Company had approximately $5.1 million in cash, net trade accounts receivable of $4.1 million and current trade accounts payable of $0.9 million. Presently, the Company has no required debt service obligations.
23
The following table includes information relating to our contractual obligations as of September 30, 2014 in future fiscal years:
Contractual |
||||||||||||||||||||
Obligations |
Total |
2015 |
2016 |
2017 |
2018 |
2019 |
Thereafter |
|||||||||||||
Long-term debt |
$ |
- |
$ |
- |
$ |
- |
$ |
- |
$ |
- |
$ |
- |
$ |
- |
||||||
Capital lease obligations |
- |
- |
- |
- |
- |
- |
- |
|||||||||||||
Operating lease obligations |
1,330,122 | 444,338 | 427,027 | 130,383 | 122,341 | 121,793 | 84,240 | |||||||||||||
Purchase obligations |
- |
- |
- |
- |
- |
- |
- |
|||||||||||||
Other long-term obligations |
- |
- |
- |
- |
- |
- |
- |
|||||||||||||
Total |
$ |
1,330,122 |
$ |
444,338 |
$ |
427,027 |
$ |
130,383 |
$ |
122,341 |
$ |
121,793 |
$ |
84,240 |
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 allowance 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 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 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 reversal of the valuation allowance against the NOL carryforwards. 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.
24
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.
25
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 million with borrowings limited to a percentage of eligible accounts receivable and eligible inventory. Outstanding borrowings under the line of credit will incur interest at a rate equal to the national prime rate published by the Wall Street Journal. 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 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 page F-2 of this Annual Report on Form 10-K under the heading "Report of Independent Registered Public Accounting Firm."
None.
26
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Information with respect to this item is incorporated herein by reference to the discussion under the headings “Proposal 1: Election of Directors,” “Executive Officers,” “Section 16(a) Beneficial Ownership Reporting Compliance,” “Corporate Governance Matters-Director Nominations” and “Audit Committee Matters – Audit Committee Financial Expert” in the Company’s Proxy Statement for the 2015 Annual Meeting of Shareholders, which will be filed with the SEC on or before January 28, 2015. Information regarding the Company’s Code of Business Ethics is incorporated herein by reference to the discussion under “Corporate Governance Matters –Code of Business Ethics” in the Company’s Proxy Statement for the 2015 Annual Meeting of Shareholders, which will be filed with the SEC on or before January 28, 2015.
The Audit Committee of the Company’s Board of Directors is an “audit committee” for purposes of Section 3(a)(58)(A) of the Securities Exchange Act of 1934.
Item 11. Executive Compensation
Information with respect to this item is incorporated herein by reference to the discussion under the headings “Director Compensation and Benefits,” and “Executive Compensation” in the Company’s Proxy Statement for the 2015 Annual Meeting of Shareholders, which will be filed with the SEC on or before January 28, 2015. The information under the subsection "Executive Compensation – Compensation Committee Report" is not deemed to be "soliciting material" or to be "filed" with the SEC or subject to Regulation 14A under the Securities Exchange Act of 1934 or to be the liabilities of Section 18 of the Securities Exchange Act of 1934, and will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent it is specifically incorporated by reference into such a filing.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Information with respect to this item is incorporated herein by reference to the discussion under the heading “Security Ownership” in the Company’s Proxy Statement for the 2015 Annual Meeting of Shareholders, which will be filed with the SEC on or before January 28, 2015.
Equity Compensation Plan Information
The following table summarizes share information, as of September 30, 2014, 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 million shares (subject to adjustment in the event of stock splits and other similar events) for issuance under the plan.
Shares Remaining |
||||||
Number of Shares To Be |
Weighted-Average |
Available For Future |
||||
Issued Upon Exercise Of |
Exercise Price Of |
Issuance Under Equity |
||||
Equity Plan Category |
Outstanding Options |
Outstanding Options |
Compensation Plans |
|||
Equity compensation plans approved by shareholders |
156,750 |
(1) |
$ |
4.94 | 945,982 | |
Equity compensation plans not approved by shareholders |
90,000 |
$ |
1.27 |
— |
||
Total |
246,750 |
$ |
3.60 | 945,982 |
______________
(1)Includes rights to receive a total of 66,750 shares contingent on continued employment.
The Company's equity compensation plans not approved by shareholders consists of the 1997 Stock Option Plan. 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 percent 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.
27
Item 13. Certain Relationships and Related Transactions, and Director Independence.
Information with respect to this item is incorporated herein by reference to the discussion under the heading “Certain Relationships and Related Transactions” in the Company’s Proxy Statement for the 2015 Annual Meeting of Shareholders, which will be filed with the SEC on or before January 28, 2015. Information regarding director independence is incorporated by reference to the discussions under “Corporate Governance Matters – Director Independence” in the Company’s Proxy Statement for the 2015 Annual Meeting of Shareholders, which will be filed with the SEC on or before January 28, 2015.
Item 14. Principal Accountant Fees and Services.
Information with respect to this item is incorporated herein by reference to the discussion under the heading “Audit Committee Matters – Fees of Independent Registered Public Accounting Firm” in the Company’s Proxy Statement for the 2015 Annual Meeting of Shareholders, which will be filed with the SEC on or before January 28, 2015.
28
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, 2014 and 2013 |
|
Consolidated Statements of Income for the Years Ended September 30, 2014, 2013 and 2012 |
|
Consolidated Statements of Stockholders’ Equity for the Years Ended September 30, 2014, 2013 and 2012 |
|
Consolidated Statements of Cash Flows for the Years Ended September 30, 2014, 2013 and 2012 |
|
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.
29
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. (6) |
|
|
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. (7) |
|
|
10.2 |
1997 Stock Option Plan, as amended. (8) |
|
|
10.3 |
Letter Agreement dated December 5, 2013 between the Company and Karen King. (9) |
|
|
10.4 |
Change of Control Agreement effective as of January 20, 2014, between the Company and Karen King. (9) |
|
|
10.5 |
Change of Control Agreement between the Company and Michele Greco dated November 9, 2012. (10) |
|
|
10.6 |
Letter Agreement dated November 9, 2012 between the Company and Michele Greco. (10) |
|
|
10.7 |
Consulting Agreement, dated as of January 1, 2013, between the Company and Donna Felch. (11) |
|
|
10.8 |
Consulting Agreement, dated as of December 31, 201, between the Company and Mary Ann Leeper. (12) |
|
|
10.9 |
Letter Agreement dated July 10, 2014 between the Company and Susan Ostrowski. |
|
|
10.10 |
Change of Control Agreement effective as of July 10, 2014, between the Company and Susan Ostrowski. |
|
|
10.11 |
Consultancy Agreement, dated as of September 15, 2014, between The Female Health Company (UK) PLC and Michael Pope. (13) |
|
|
10.12 |
Service Agreement, dated September 15, 2014, between The Female Health Company (UK) PLC and Martin Tayler. (13) |
|
|
10.13 |
Change of Control Agreement dated September 15, 2014 between the Company and Martin Tayler. (13) |
|
|
10.14 |
The Female Health Company 2008 Stock Incentive Plan. (14) |
|
|
10.15 |
Form of Nonstatutory Stock Option Grant Agreement for The Female Health Company 2008 Stock Incentive Plan. (15) |
|
|
10.16 |
Form of Restricted Stock Grant Agreement for The Female Health Company 2008 Stock Incentive Plan. (16) |
|
|
10.17 |
Second Amended and Restated Loan Agreement, dated as of August 1, 2011, between the Company and Heartland Bank. (17) |
|
|
10.18 |
First Amendment to Second Amended and Restated Loan Agreement, dated as of August 1, 2012, between the Company and Heartland Bank. (18) |
|
|
30
10.19 |
Second Amendment to Second Amended and Restated Loan Agreement, dated as of August 1, 2013, between the Company and Heartland Bank. (16) |
|
|
10.20 |
Third Amendment to Second Amended and Restated Loan Agreement, dated as of August 1, 2014, between the Company and Heartland Bank. |
|
|
10.21 |
Commercial Security Agreement, dated as of July 20, 2004, between the Company and Heartland Bank. (19) |
|
|
10.22 |
First Amendment to Commercial Security Agreement, dated as of July 1, 2010, between the Company and Heartland Bank. (20) |
|
|
10.23 |
Second Amendment to Commercial Security Agreement, dated as of August 1, 2011, between the Company and Heartland Bank. (17) |
|
|
10.24 |
Share Charge, dated as of August 30, 2011, between the Company and Heartland Bank. (21) |
|
|
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 Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
32.1 |
Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350 (Section 906 of the Sarbanes-Oxley Act of 2002. (22) |
|
|
101 |
The following materials from the Company's Annual Report on Form 10-K for the year ended September 30, 2014, 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 herein by reference 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 Form 8-K filed on May 22, 2013. |
|
|
(7) |
Incorporated herein by reference to the Company's 1992 Form 10-KSB. |
|
|
(8) |
Incorporated herein by reference to the Company's Form S-8 Registration Statement filed on March 26, 2010. |
|
|
(9) |
Incorporated herein by reference to the Company's Form 8-K filed on December 11, 2013. |
|
|
(10) |
Incorporated herein by reference to the Company's Form 8-K filed on November 9, 2012. |
|
|
(11) |
Incorporated herein by reference to the Company's Form 8-K filed on January 7, 2013. |
|
|
(12) |
Incorporated herein by reference to the Company's December 31, 2013 Form 10-Q. |
|
|
(13) |
Incorporated herein by reference to the Company’s Form 8-K filed on September 16, 2014. |
|
|
31
(14) |
Incorporated herein by reference to the Company's Form 8-K filed on March 31, 2008. |
|
|
(15) |
Incorporated herein by reference to the Company's September 30, 2009 Form 10-K. |
|
|
(16) |
Incorporated herein by reference to the Company's September 30, 2013 Form 10-K. |
|
|
(17) |
Incorporated herein by reference to the Company's June 30, 2011 Form 10-Q. |
|
|
(18) |
Incorporated herein by reference to the Company's September 30, 2012 Form 10-K. |
|
|
(19) |
Incorporated herein by reference to the Company's March 31, 2010 Form 10-Q. |
|
|
(20) |
Incorporated herein by reference to the Company's June 30, 2010 Form 10-Q. |
|
|
(21) |
Incorporated herein by reference to the Company’s September 30, 2011 Form 10-K. |
|
|
(22) |
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.
(c) Financial Statement Schedules
32
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 2, 2014 |
|
THE FEMALE HEALTH COMPANY |
||
|
|
|
|
|
|
|
BY: |
/s/ Karen King |
|
|
|
|
Karen King, President and |
|
|
|
|
Chief Executive Officer |
|
|
|
|
|
|
|
|
BY: |
/s/ Michele Greco |
|
|
|
|
Michele Greco, Vice President and |
|
|
|
|
Chief Financial Officer |
POWER OF ATTORNEY
Each person whose signature appears below hereby appoints Karen King and Michele Greco, 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/ Karen King |
President, Chief Executive Officer and Director |
December 2, 2014 |
Karen King |
(Principal Executive Officer) |
|
|
|
|
/s/ O.B. Parrish |
Chairman of the Board |
December 2, 2014 |
O.B. Parrish |
||
|
|
|
/s/ Michele Greco |
Vice President and Chief Financial Officer |
December 2, 2014 |
Michele Greco |
(Principal Accounting and Financial Officer) |
|
|
|
|
/s/ William R. Gargiulo |
Secretary and Director |
December 2, 2014 |
William R. Gargiulo |
|
|
|
|
|
/s/ David R. Bethune |
Director |
December 2, 2014 |
David R. Bethune |
|
|
|
|
|
|
Director |
December 2, 2014 |
Stephen M. Dearholt |
|
|
|
|
|
/s/ Donna Felch |
Director |
December 2, 2014 |
Donna Felch |
|
|
|
|
|
33
|
Director |
December 2, 2014 |
Richard E. Wenninger |
|
|
|
|
|
/s/ Mary Margaret Frank |
Director |
December 2, 2014 |
Mary Margaret Frank |
|
|
|
|
|
Director |
December 2, 2014 |
|
Andrew S. Love |
|
|
34
The Female Health Company
Index to Consolidated Financial Statements
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 |
Consolidated Balance Sheets as of September 30, 2014 and 2013. |
F-3 |
Consolidated Statements of Income for the years ended September 30, 2014, 2013 and 2012. |
F-4 |
F-5 through F-7 |
|
Consolidated Statements of Cash Flows for the years ended September 30, 2014, 2013 and 2012. |
F-8 |
F-9 through F-21 |
F-0
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, 2014. 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 in 1992. Based on its assessment, management believes that, as of September 30, 2014, 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, 2014 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 page F-2 of this report.
December 2, 2014
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, 2014 and 2013, 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, 2014. We also have audited The Female Health Company’s internal control over financial reporting as of September 30, 2014, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 1992. The Female Health Company’s 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.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of The Female Health Company as of September 30, 2014 and 2013, and the results of its operations and its cash flows for each of the three years in the three-year period ended September 30, 2014, in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, The Female Health Company maintained, in all material respects, effective internal control over financial reporting as of September 30, 2014, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 1992.
/s/ McGladrey LLP
Chicago, Illinois
December 2, 2014
F-2
THE FEMALE HEALTH COMPANY
SEPTEMBER 30, 2014 AND 2013
2014 |
2013 |
||||
ASSETS |
|||||
Current Assets |
|||||
Cash |
$ |
5,796,223 |
$ |
8,922,430 | |
Accounts receivable, net of allowance for doubtful accounts of $48,068 for 2014 and $13,180 for 2013 |
|
2,943,850 |
|
|
2,362,165 |
Income tax receivable |
— |
78,440 | |||
Inventory, net |
2,983,447 | 2,459,417 | |||
Prepaid expenses and other current assets |
638,243 | 514,213 | |||
Deferred income taxes |
711,000 | 2,552,000 | |||
TOTAL CURRENT ASSETS |
13,072,763 | 16,888,665 | |||
Other assets |
166,084 | 138,458 | |||
PLANT AND EQUIPMENT |
|||||
Equipment, furniture and fixtures |
4,590,124 | 4,497,854 | |||
Leasehold improvements |
323,147 | 323,147 | |||
Less accumulated depreciation and amortization |
(3,310,964) | (2,726,171) | |||
Plant and equipment, net |
1,602,307 | 2,094,830 | |||
Deferred income taxes |
16,832,000 | 16,048,000 | |||
TOTAL ASSETS |
$ |
31,673,154 |
$ |
35,169,953 | |
LIABILITIES AND STOCKHOLDERS' EQUITY |
|||||
Current Liabilities |
|||||
Accounts payable |
$ |
1,124,859 |
$ |
904,049 | |
Accrued expenses and other current liabilities |
1,816,508 | 1,598,276 | |||
Accrued compensation |
436,843 | 962,693 | |||
TOTAL CURRENT LIABILITIES |
3,378,210 | 3,465,018 | |||
LONG-TERM LIABILITIES |
|||||
Deferred rent |
39,105 | 66,799 | |||
Deferred income taxes |
190,513 | 235,179 | |||
TOTAL LIABILITIES |
3,607,828 | 3,766,996 | |||
Commitments and Contingencies |
|||||
STOCKHOLDERS' EQUITY: |
|||||
Preferred stock; no shares issued and outstanding in 2014 or 2013. |
— |
— |
|||
Common Stock, par value $0.01 per share; authorized 38,500,000 shares; issued 30,958,669 and 30,694,843, and 28,775,215 and 28,680,389 shares outstanding in 2014 and 2013 respectively |
|
309,587 |
|
|
306,948 |
Additional paid-in-capital |
68,484,889 | 67,460,478 | |||
Accumulated other comprehensive loss |
(581,519) | (581,519) | |||
Accumulated deficit |
(32,341,976) | (28,715,040) | |||
Treasury stock, at cost |
(7,805,655) | (7,067,910) | |||
TOTAL STOCKHOLDERS' EQUITY |
28,065,326 | 31,402,957 | |||
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY |
$ |
31,673,154 |
$ |
35,169,953 | |
See notes to consolidated financial statements. |
F-3
THE FEMALE HEALTH COMPANY
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED SEPTEMBER 30, 2014, 2013 AND 2012
2014 |
2013 |
2012 |
||||||
Net revenues |
$ |
24,490,586 |
$ |
31,456,778 |
$ |
35,033,897 | ||
Cost of sales |
11,369,108 | 13,952,420 | 14,412,884 | |||||
Gross profit |
13,121,478 | 17,504,358 | 20,621,013 | |||||
Operating expenses: |
||||||||
Advertising |
58,121 | 221,718 | 52,949 | |||||
Selling, general and administrative |
9,139,445 | 7,493,043 | 9,628,134 | |||||
Total operating expenses |
9,197,566 | 7,714,761 | 9,681,083 | |||||
Operating income |
3,923,912 | 9,789,597 | 10,939,930 | |||||
Non-operating income (expense): |
||||||||
Interest and other income, net |
117,123 | 245,545 | 362 | |||||
Foreign currency transaction loss |
(83,844) | (101,288) | (148,269) | |||||
Total non-operating income (expense) |
33,279 | 144,257 | (147,907) | |||||
Income before income taxes |
3,957,191 | 9,933,854 | 10,792,023 | |||||
Income tax expense (benefit) |
1,524,130 | (4,408,744) | (4,507,298) | |||||
Net income |
$ |
2,433,061 |
$ |
14,342,598 |
$ |
15,299,321 | ||
Net income per basic common share outstanding |
$ |
0.09 |
$ |
0.51 |
$ |
0.55 | ||
Basic weighted average common shares outstanding |
28,522,525 | 28,376,607 | 27,693,721 | |||||
Net income per diluted common share outstanding |
$ |
0.08 |
$ |
0.50 |
$ |
0.53 | ||
Diluted weighted average common shares outstanding |
28,865,384 | 28,726,478 | 28,933,144 | |||||
Cash dividends declared per common share |
$ |
0.21 |
$ |
0.26 |
$ |
0.22 | ||
See notes to consolidated financial statements. |
F-4
THE FEMALE HEALTH COMPANY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
YEARS ENDED SEPTEMBER 2014, 2013 and 2012
Accumulated |
||||||||||||||||||||||
Additional |
Other |
Treasury |
||||||||||||||||||||
Preferred |
Common Stock |
Paid-in |
Comprehensive |
Accumulated |
Stock |
|||||||||||||||||
Stock |
Shares |
Amount |
Capital |
Loss |
Deficit |
at Cost |
Total |
|||||||||||||||
Balance at September 30, 2011 |
$ |
— |
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-5
THE FEMALE HEALTH COMPANY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
YEARS ENDED SEPTEMBER 2014, 2013 and 2012
Accumulated |
||||||||||||||||||||||
Additional |
Other |
Treasury |
||||||||||||||||||||
Preferred |
Common Stock |
Paid-in |
Comprehensive |
Accumulated |
Stock |
|||||||||||||||||
Stock |
Shares |
Amount |
Capital |
Loss |
Deficit |
at Cost |
Total |
|||||||||||||||
Balance at September 30, 2012 (balance forward) |
$ |
— |
|
30,550,030 |
|
$ |
305,500 |
|
$ |
66,760,907 |
|
$ |
(581,519) |
|
$ |
(35,594,455) |
|
$ |
(6,672,243) |
|
$ |
24,218,190 |
Share-based compensation |
— |
73,176 | 731 | 700,288 |
— |
— |
— |
701,019 | ||||||||||||||
Issuance of 43,465 shares of common stock upon cashless exercise of 52,000 warrants |
|
— |
|
43,465 |
|
|
435 |
|
|
(435) |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
Issuance of 28,172 shares of common stock upon cashless exercise of 36,250 options |
|
— |
|
28,172 |
|
|
282 |
|
|
(282) |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
Stock repurchase – total 55,625 treasury shares |
|
— |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(395,667) |
|
|
(395,667) |
Common stock dividends |
— |
— |
— |
— |
— |
(7,463,183) |
— |
(7,463,183) | ||||||||||||||
Net income and comprehensive income |
|
— |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
14,342,598 |
|
|
— |
|
|
14,342,598 |
Balance at September 30, 2013 |
$ |
— |
30,694,843 |
$ |
306,948 |
$ |
67,460,478 |
$ |
(581,519) |
$ |
(28,715,040) |
$ |
(7,067,910) |
$ |
31,402,957 | |||||||
See notes to consolidated financial statements. |
F-6
THE FEMALE HEALTH COMPANY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
YEARS ENDED SEPTEMBER 2014, 2013 and 2012
Accumulated |
||||||||||||||||||||||
Additional |
Other |
Treasury |
||||||||||||||||||||
Preferred |
Common Stock |
Paid-in |
Comprehensive |
Accumulated |
Stock |
|||||||||||||||||
Stock |
Shares |
Amount |
Capital |
Loss |
Deficit |
at Cost |
Total |
|||||||||||||||
Balance at September 30, 2013 (balance forward) |
$ |
— |
|
30,694,843 |
|
$ |
306,948 |
|
$ |
67,460,478 |
|
$ |
(581,519) |
|
$ |
(28,715,040) |
|
$ |
(7,067,910) |
|
$ |
31,402,957 |
Share-based compensation |
— |
216,863 | 2,169 | 907,281 |
— |
— |
— |
909,450 | ||||||||||||||
Issuance of 30,000 shares of common stock upon exercise of stock options |
|
— |
|
30,000 |
|
|
300 |
|
|
117,300 |
|
|
— |
|
|
— |
|
|
— |
|
|
117,600 |
Issuance of 16,963 shares of common stock upon cashless exercise of 30,000 options |
|
— |
|
16,963 |
|
|
170 |
|
|
(170) |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
Stock repurchase – total 169,000 treasury shares |
|
— |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(737,745) |
|
|
(737,745) |
Common stock dividends |
— |
— |
— |
— |
— |
(6,059,997) |
— |
(6,059,997) | ||||||||||||||
Net income and comprehensive income |
|
— |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
2,433,061 |
|
|
— |
|
|
2,433,061 |
Balance at September 30, 2014 |
$ |
— |
30,958,669 |
$ |
309,587 |
$ |
68,484,889 |
$ |
(581,519) |
$ |
(32,341,976) |
$ |
(7,805,655) |
$ |
28,065,326 | |||||||
See notes to consolidated financial statements. |
F-7
THE FEMALE HEALTH COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED SEPTEMBER 30, 2014, 2013 and 2012
2014 |
2013 |
2012 |
||||||
OPERATIONS |
||||||||
Net income |
$ |
2,433,061 |
$ |
14,342,598 |
$ |
15,299,321 | ||
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
589,343 | 556,304 | 461,447 | |||||
Provision for obsolete inventory |
37,603 | (6,662) | 128,360 | |||||
Provision for bad debts |
38,068 | 3,180 | 42,375 | |||||
Interest added to certificate of deposit |
— |
— |
(252) | |||||
Share-based compensation |
858,615 | 727,609 | 842,512 | |||||
Deferred income taxes |
1,012,334 | (5,259,065) | (4,893,933) | |||||
Loss on disposal of fixed assets |
491 | 940 | 11,220 | |||||
Changes in operating assets and liabilities: |
||||||||
Accounts receivable |
(619,753) | 4,903,572 | (5,005,819) | |||||
Income tax receivable |
78,440 | (51,071) | (27,369) | |||||
Inventories |
(561,633) | (994,556) | 439,969 | |||||
Prepaid expenses and other assets |
(151,656) | 93,933 | (332,977) | |||||
Accounts payable |
220,810 | (871,278) | 573,531 | |||||
Accrued expenses and other current liabilities |
(270,310) | (1,652,423) | 2,817,669 | |||||
Net cash provided by operating activities |
3,665,413 | 11,793,081 | 10,356,054 | |||||
INVESTING ACTIVITIES |
||||||||
Proceeds from redemption of certificate of deposit |
— |
— |
64,127 | |||||
Capital expenditures |
(97,311) | (302,198) | (718,303) | |||||
Net cash used in investing activities |
(97,311) | (302,198) | (654,176) | |||||
FINANCING ACTIVITIES |
||||||||
Payments on capital lease obligations |
— |
— |
(13,037) | |||||
Proceeds from exercise of stock options |
117,600 |
— |
— |
|||||
Proceeds from exercise of common stock warrants |
— |
— |
13,000 | |||||
Purchases of common stock for treasury shares |
(737,745) | (395,667) | (289,611) | |||||
Taxes paid in lieu of shares |
— |
— |
(2,177,943) | |||||
Dividends paid on common stock |
(6,074,164) | (7,468,248) | (6,192,675) | |||||
Net cash used in financing activities |
(6,694,309) | (7,863,915) | (8,660,266) | |||||
Net (decrease) increase in cash |
(3,126,207) | 3,626,968 | 1,041,612 | |||||
Cash at beginning of year |
8,922,430 | 5,295,462 | 4,253,850 | |||||
CASH AT END OF YEAR |
$ |
5,796,223 |
$ |
8,922,430 |
$ |
5,295,462 | ||
Supplemental Disclosure of Cash Flow Information: |
||||||||
Cash payments for income taxes |
773,041 | 345,657 | 926,434 | |||||
Schedule of noncash financing and investing activities: |
||||||||
Dividends payable |
6,913 | 12,530 | 19,320 | |||||
Reduction of accrued expense upon issuance of shares |
311,515 | 200,088 | 174,185 | |||||
Fixed asset additions in accounts payable at year end |
— |
— |
124,802 | |||||
See notes to consolidated financial statements. |
F-8
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 45,800 sq. ft. manufacturing facility located in Selangor D.E., Malaysia.
FC2 has been distributed in either or both commercial (private sector) and public health sector markets in 144 countries. It is marketed to consumers through distributors, public health programs and retailers in 16 countries.
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 was approximately 50 days. Over the past five years, the Company’s bad debt expense has been less than 0.03 percent 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. The components of accounts receivable consist of the following at September 30, 2014 and 2013:
2014 |
2013 |
|||||
Trade receivables |
$ |
2,814,558 |
$ |
2,340,267 | ||
Other receivables |
177,360 | 35,078 | ||||
Accounts receivable, gross |
2,991,918 | 2,375,345 | ||||
Less: allowance for doubtful accounts |
(48,068) | (13,180) | ||||
Accounts receivable, net |
$ |
2,943,850 |
$ |
2,362,165 |
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:
Balance at |
Provision Charges |
Write offs/ |
Balance at |
||||||||
Year |
October 1 |
to Expenses |
Recoveries |
September 30 |
|||||||
2012 |
$ |
10,000 |
$ |
42,375 |
$ |
(10,750) |
$ |
41,625 | |||
2013 |
$ |
41,625 |
$ |
3,180 |
$ |
(31,625) |
$ |
13,180 | |||
2014 |
$ |
13,180 |
$ |
38,068 |
$ |
(3,180) |
$ |
48,068 |
F-9
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 2014, our significant customers were United Nations Population Fund (“UNFPA”), John Snow, Inc., facilitator of USAID I DELIVER project (“USAID”), Sekunjalo Investments Corporation (PTY) Ltd (“Sekunjalo”) and Azinor International Lda (“Azinor”). In fiscal year 2013, our significant customer was UNFPA. In fiscal year 2012, our significant customers were UNFPA, USAID, and Sekunjalo. No other single customer accounted for more than 10 percent of unit sales during those periods.
Percentage of Unit Sales |
||||||
Significant Customers |
2014 |
2013 |
2012 |
|||
UNFPA |
40 |
% |
62 |
% |
40 |
% |
USAID |
17 |
% |
* |
25 |
% |
|
Sekunjalo |
13 |
% |
* |
20 |
% |
|
Azinor |
11 |
% |
* |
* |
||
Total Percentage of Unit Sales |
81 |
% |
62 |
% |
85 |
% |
_____________________
* Less than 10 percent of unit sales.
UNFPA’s accounts receivable balance represented 12 percent and 11 percent of current assets at September 30, 2014 and 2013, respectively. No other single customer’s accounts receivable balance accounted for more than 10 percent of current assets at the end of those periods.
Inventory: 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 production of the Company’s first generation product, FC1, 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 $83,844, $101,288 and $148,269 for the years ended September 30, 2014, 2013 and 2012, respectively. The cumulative foreign currency translation loss included in accumulated other comprehensive loss was $581,519 as of September 30, 2014 and 2013. Assets located outside of the U.S. totaled approximately $12,000,000 and $15,000,000 at September 30, 2014 and 2013, 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 |
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, Europe, Canada, Australia, South Africa, the People’s Republic of China, Japan, Mexico and the African Regional Intellectual Property Organization (ARIPO), which includes Botswana, Gambia, Ghana, Kenya, Lesotho, Malawi, Mozambique, Namibia, Sierra Leone, Sudan, Swaziland, Tanzania, Uganda, Zambia and Zimbabwe. Further, the European patent for FC2 has been validated in the following countries: Austria, Belgium, Bulgaria, Switzerland, Republic of Cyprus, Czech Republic, Germany, Denmark, Estonia, Spain, Finland, France, United Kingdom, Greece, Hungary, Ireland, Italy, Luxembourg, Monaco, Netherlands, Portugal, Romania, Sweden, Slovenia, Slovakia, and Turkey. The patents cover the key aspects of FC2, including its overall design and manufacturing process. In addition, patent applications for FC2 are pending in a number of other countries around the world. There can be no assurance that pending patent applications provide the Company with protection against copycat products entering markets during the pendency of the applications.
F-10
The Company has a registration for the trademark “FC2 Female Condom” in the United States. Furthermore, the Company has filed applications or secured registrations in 40 countries or jurisdictions around the world to protect the various names and symbols used in marketing FC2. These encompass 14 different trademarks, including "femidom," "femy," "Reality" and others. In addition, the experience that has been gained through years of manufacturing its Female Condoms (FC1 and FC2) has allowed the Company to develop trade secrets and know-how, including certain proprietary production technologies, that further protect its competitive position.
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, 2014, 2013 and 2012 of $5,575, $4,745, and $5,277, 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. The Company has a facility of $250,000 for such performance bonds. 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 customer or its provider of funds. The expiration of the bond is defined by the completion of the event such as, but not limited to, a period of time after the product has been distributed or expiration of the product shelf life. Restricted cash was $55,806 and $55,455 for the years ended September 30, 2014 and 2013, respectively, and is included in cash on the accompanying balance sheets.
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.
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 $58,121, $221,718, and $52,949 for the years ended September 30, 2014, 2013 and 2012, 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.
F-11
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 2014, 2013 and 2012, comprehensive income is equivalent to the reported net income.
Reclassifications: Certain items in the 2013 and 2012 consolidated financial statements have been reclassified to conform to the 2014 presentation.
Note 2.Earnings per Share
Basic EPS is computed by dividing net income by the weighted average number of common shares outstanding for the period. Diluted EPS is computed by dividing net income by the weighted average number of common shares outstanding during the period after giving effect to all dilutive potential common shares that were outstanding during the period. Dilutive potential common shares consist of the incremental common shares issuable upon the exercise of stock options and warrants and unvested shares granted to employees.
Year Ended September 30, |
||||||||
Denominator |
2014 |
2013 |
2012 |
|||||
Weighted average common shares outstanding - basic |
28,522,525 | 28,376,607 | 27,693,721 | |||||
Net effect of dilutive securities: |
||||||||
Options |
109,583 | 162,195 | 913,600 | |||||
Warrants |
— |
— |
39,823 | |||||
Unvested restricted shares |
233,276 | 187,676 | 286,000 | |||||
Total net effect of dilutive securities |
342,859 | 349,871 | 1,239,423 | |||||
Weighted average common shares outstanding - diluted |
28,865,384 | 28,726,478 | 28,933,144 | |||||
Income per common share – basic |
$ |
0.09 |
$ |
0.51 |
$ |
0.55 | ||
Income per common share – diluted |
$ |
0.08 |
$ |
0.50 |
$ |
0.53 |
All the outstanding warrants and stock options were included in the computation of diluted net income per share for the years ended September 30, 2014, 2013 and 2012.
Note 3.Inventory
The components of inventory consist of the following at September 30, 2014 and 2013:
2014 |
2013 |
||||
Raw material |
$ |
1,091,703 |
$ |
868,742 | |
Work in process |
15,962 | 77,782 | |||
Finished goods |
1,936,655 | 1,554,026 | |||
Inventory, gross |
3,044,320 | 2,500,550 | |||
Less: inventory reserves |
(60,873) | (41,133) | |||
Inventory, net |
$ |
2,983,447 |
$ |
2,459,417 |
The change in the inventory reserve for the years ended September 30 is as follows:
Balance at |
Charged to Costs |
Balance at |
|||||||||
Year |
October 1 |
and Expenses |
Write-offs |
September 30 |
|||||||
2012 |
$ |
75,952 |
$ |
128,360 |
$ |
(154,502) |
$ |
49,810 | |||
2013 |
$ |
49,810 |
$ |
(6,662) |
$ |
(2,015) |
$ |
41,133 | |||
2014 |
$ |
41,133 |
$ |
37,603 |
$ |
(17,863) |
$ |
60,873 |
F-12
Note 4.Revolving Line of Credit
On August 1, 2014, the Company entered into an amendment to the Second Amended and Restated Loan Agreement (as amended, the “Loan Agreement”) with Heartland Bank to extend the term of the Company’s revolving line of credit to August 1, 2015. The credit facility consists of a single revolving note for up to $2 million with Heartland Bank, with borrowings limited to a borrowing base determined based on 70 percent to 80 percent of eligible accounts receivable plus 50 percent of eligible inventory. Significant restrictive covenants in the Loan Agreement include prohibitions on any merger, consolidation or sale of all or a substantial portion of the Company’s assets and limits on the payment of dividends or the repurchase of shares. The Loan Agreement does not contain any financial covenants that require compliance with ratios or amounts. Dividends and share repurchases are permitted as long as after giving effect to the dividend or share repurchase the Company has a ratio of total liabilities to total stockholders’ equity of no more than 1:1. Borrowings on the revolving note bear interest at the national prime rate published by the Wall Street Journal (3.25 percent at September 30, 2014). 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, 2014 or 2013.
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. Based on the terms of the lease agreement, the Company was also required to make a security deposit equivalent to six months’ rent (approximately $72,000).
The Company leases 45,800 square feet of manufacturing space in Selangor D.E., Malaysia under a lease that requires monthly payments of approximately $19,000 through September 2016 and may be renewed at the option of the Company for an additional three year term.
The Company also leases equipment under a number of lease agreements which expire at various dates through July 2018. The aggregate monthly rental was $397 at September 30, 2014. Details of operating lease expense, including real estate taxes and insurance, for the years ended September 30, 2014, 2013 and 2012 are as follows:
2014 |
2013 |
2012 |
||||||
Factory and office leases |
$ |
439,722 |
$ |
404,678 |
$ |
397,073 | ||
Other |
4,758 | 5,541 | 4,824 | |||||
Total |
$ |
444,480 |
$ |
410,219 |
$ |
401,897 |
Future minimum payments under leases consist of the following as of September 30, 2014:
Operating |
||
Leases |
||
2015 |
$ |
444,338 |
2016 |
427,027 | |
2017 |
130,383 | |
2018 |
122,341 | |
2019 |
121,793 | |
Thereafter |
84,240 | |
Total minimum lease payments |
$ |
1,330,122 |
F-13
Note 6.Income Taxes
The Company accounts for income taxes using the liability method, which requires the recognition of deferred tax assets or liabilities for the tax-effected temporary differences between the financial reporting and tax bases of assets and liabilities, and for net operating loss and tax credit carryforwards.
The Company completes a detailed analysis of its deferred income tax valuation allowance 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 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.
Income before income taxes for the years ended September 30, 2014, 2013 and 2012, was taxed by the following jurisdictions.
2014 |
2013 |
2012 |
||||||
Domestic |
$ |
2,837,835 |
$ |
7,461,329 |
$ |
6,290,684 | ||
Foreign |
1,119,356 | 2,472,525 | 4,501,339 | |||||
Total |
$ |
3,957,191 |
$ |
9,933,854 |
$ |
10,792,023 |
A reconciliation of income tax expense (benefit) and the amount computed by applying the statutory Federal income tax rate to income before income taxes for the years ended September 30, 2014, 2013 and 2012 is as follows:
2014 |
2013 |
2012 |
||||||
Income tax expense at statutory rates |
$ |
1,345,000 |
$ |
3,378,000 |
$ |
3,669,000 | ||
State income tax, net of federal benefits |
248,000 | 623,000 | 677,000 | |||||
Non-deductible expenses |
(5,000) | 129,000 | 5,000 | |||||
Effect of AMT expense |
32,207 | 116,644 | 41,000 | |||||
Effect of lower foreign income tax rates |
(175,632) | (395,441) | (688,093) | |||||
Effect of change in U.K. tax rate |
— |
(159,000) | (72,000) | |||||
Effect of pioneer tax status - Malaysia |
— |
— |
(233,000) | |||||
Effect of reinvestment allowance - Malaysia |
(9,000) | (75,000) |
— |
|||||
Effect of share-based compensation |
(368,000) | (110,000) | (2,263,000) | |||||
Other |
24,555 |
— |
— |
|||||
Increase (decrease) in valuation allowance |
432,000 | (7,915,947) | (5,643,205) | |||||
Income tax expense (benefit) |
$ |
1,524,130 |
$ |
(4,408,744) |
$ |
(4,507,298) |
As of September 30, 2014, the Company had federal and state net operating loss carryforwards of approximately $17,269,000 and $17,020,000, 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 $62,870,000 as of September 30, 2014, which can be carried forward indefinitely to be used to offset future U.K. taxable income.
The Female Health Company (M) SDN BHD, had 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 year 2012, the Pioneer Status exempted approximately $932,000 of the entity’s income from tax, resulting in a tax savings of nearly $233,000. The impact on net income per basic and fully diluted common share outstanding resulting from the tax savings is an increase of $.01 in fiscal year 2012. The Pioneer Status tax exemption expired at September 30, 2012.
F-14
The federal and state income tax expense (benefit) for the years ended September 30, 2014, 2013 and 2012 is summarized below:
2014 |
2013 |
2012 |
||||||
Deferred – U.S. |
$ |
561,000 |
$ |
(12,000) |
$ |
(1,399,000) | ||
Deferred – U.K. |
496,000 | (5,288,000) | (3,501,000) | |||||
Deferred – Malaysia |
(44,666) | 40,935 | 6,067 | |||||
Subtotal |
1,012,334 | (5,259,065) | (4,893,933) | |||||
Current – U.S. |
219,000 | 625,606 | 293,123 | |||||
Current – Malaysia |
292,796 | 221,625 | 93,512 | |||||
Current - U.K. |
— |
3,090 |
— |
|||||
Subtotal |
511,796 | 850,321 | 386,635 | |||||
Income tax expense (benefit) |
$ |
1,524,130 |
$ |
(4,408,744) |
$ |
(4,507,298) |
Significant components of the Company's deferred tax assets and liabilities are as follows at September 30, 2014 and 2013:
Deferred Tax Assets |
2014 |
2013 |
|||
Federal net operating loss carryforwards |
$ |
5,871,000 |
$ |
6,516,000 | |
State net operating loss carryforwards |
1,067,000 | 1,080,000 | |||
AMT credit carryforward |
301,000 | 269,000 | |||
Foreign net operating loss carryforwards – U.K. |
12,574,000 | 12,653,000 | |||
Foreign capital allowance – U.K. |
110,000 | 95,000 | |||
Accrued expenses |
— |
90,000 | |||
Other, net - Malaysia |
30,153 | 23,018 | |||
Other, net - U.S. |
211,000 | 44,000 | |||
Gross deferred tax assets |
20,164,153 | 20,770,018 | |||
Valuation allowance for deferred tax assets |
(2,591,000) | (2,147,000) | |||
Net deferred tax assets |
17,573,153 | 18,623,018 | |||
Deferred Tax Liabilities: |
|||||
Foreign capital allowance – Malaysia |
(220,666) | (258,197) | |||
Net deferred tax assets |
$ |
17,352,487 |
$ |
18,364,821 |
The deferred tax amounts have been classified in the accompanying consolidated balance sheets as follows:
2014 |
2013 |
||||
Current assets – U.S. |
$ |
711,000 |
$ |
2,074,000 | |
Current assets – U.K. |
— |
478,000 | |||
Total current assets |
711,000 | 2,552,000 | |||
Long-term assets – U.S. |
6,739,000 | 5,937,000 | |||
Long-term assets – U.K |
10,093,000 | 10,111,000 | |||
Total long-term assets |
16,832,000 | 16,048,000 | |||
Long-term liability – Malaysia |
(190,513) | (235,179) | |||
$ |
17,352,487 |
$ |
18,364,821 |
The change in the valuation allowance for deferred tax assets for the years ended September 30 is as follows:
Balance at |
Charged to Costs |
Balance at |
|||||||||
Year |
October 1 |
and Expenses |
Deductions/Other |
September 30 |
|||||||
2012 |
$ |
22,045,000 |
$ |
(4,900,000) |
$ |
(4,545,000) |
$ |
12,600,000 | |||
2013 |
$ |
12,600,000 |
$ |
(5,300,000) |
$ |
(5,153,000) |
$ |
2,147,000 | |||
2014 |
$ |
2,147,000 |
$ |
432,000 |
$ |
12,000 |
$ |
2,591,000 |
F-15
The valuation allowance increased by $444,000 and decreased by $10,453,000 and $9,445,000 for the years ended September 30, 2014, 2013 and 2012, 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, 2014, 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 2011 through 2013, which expire in years 2015 through 2017, respectively. |
· |
For Malaysia, a tax return may be audited any time within 6 years from filing date. The Malaysia open tax years are for 2008 through 2013, which expire in years 2016 through 2020. |
· |
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 2013, which expires in 2015. |
The fiscal year 2014 tax returns for each jurisdiction has not been filed as of the date of this filing. As of September 30, 2014 and 2013, 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, 2014, 2013 and 2012.
Note 7.Equity and Share-based Payments
In March 2008, the Company’s shareholders approved the 2008 Stock Incentive Plan which is utilized to provide equity opportunities and performance–based incentives to attract, retain and motivate those persons who make (or are expected to make) important contributions to the Company. A total of 2 million shares are available for issuance under the plan. As of September 30, 2014, a total of 1,054,018 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, 2014, 2013 and 2012.
Compensation expense is recognized only for share-based payments expected to vest. The Company estimates forfeitures at the date of grant based on historical experience and future expectations. Stock compensation expense related to options for the years ended September 30, 2014, 2013 and 2012 was approximately $0, $0 and $60,000, respectively.
F-16
Option Activity
The following table summarizes the stock options outstanding and exercisable at September 30, 2014:
Weighted Average |
||||||||
Remaining |
Aggregate |
|||||||
Exercise Price |
Contractual Term |
Intrinsic |
||||||
Shares |
Per Share |
(years) |
Value |
|||||
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 | |||||
Granted |
— |
- |
||||||
Exercised |
(36,250) | 2.05 | ||||||
Forfeited |
— |
- |
||||||
Outstanding at September 30, 2013 |
240,000 |
$ |
2.64 | |||||
Granted |
— |
— |
||||||
Exercised |
(60,000) | 2.79 | ||||||
Forfeited |
— |
— |
||||||
Outstanding at September 30, 2014 |
180,000 |
$ |
2.60 | 3.34 |
$ |
199,800 | ||
Exercisable on September 30, 2014 |
180,000 |
$ |
2.60 | 3.34 |
$ |
199,800 |
During the year ended September 30, 2014, stock option holders exercised 60,000 stock options, 30,000 shares using the cashless exercise option available under the plan which entitled them to 16,963 shares of common stock and 30,000 shares using the cash exercise option available under the plan resulting in cash proceeds of $117,600. During the year ended September 30, 2013, stock option holders exercised 36,250 stock options, using the cashless exercise option available under the plan which entitled them to 28,172 shares of common stock. During the year ended September 30, 2012, 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 for fiscal year 2012.
The aggregate intrinsic value in the table above is before income taxes, based on the Company’s closing stock price of $3.49 on the last day of business for the period ended September 30, 2014. The total intrinsic value of options exercised during the years ended September 30, 2014, 2013 and 2012, was approximately $154,000, $272,000 and $6,888,000, respectively.
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.
F-17
A summary of the non-vested stock activity for fiscal years 2014, 2013 and 2012 is summarized in the table below:
Weighted Average |
||||||
Grant -Date |
||||||
Shares |
Fair Value |
Vesting Period |
||||
Total Outstanding September 30, 2011 |
193,504 |
$ |
5.68 | |||
Stock Granted |
52,500 | 4.16 |
September 2012 - September 2014 |
|||
Vested |
(149,686) | 5.23 | ||||
Forfeited |
(2,500) | 3.94 | ||||
Total Outstanding September 30, 2012 |
93,818 |
$ |
5.59 | |||
Stock Granted |
64,676 | 7.29 |
September 2013 - May 2016 |
|||
Vested |
(117,992) | 6.17 | ||||
Forfeited |
(7,000) | 5.80 | ||||
Total Outstanding September 30, 2013 |
33,502 |
$ |
6.80 | |||
Stock Granted |
213,576 | 7.80 |
September 2014 - December 2016 |
|||
Vested |
(105,393) | 8.15 | ||||
Forfeited |
(250) | 9.68 | ||||
Total Outstanding September 30, 2014 |
141,435 |
$ |
7.30 |
The Company granted a total of 213,576, 64,676 and 52,500 shares of restricted stock or shares issuable pursuant to promises to issue shares of common stock during the years ended September 30, 2014, 2013 and 2012, respectively. The fair value of the awards granted was approximately $1,665,000, $471,000 and $218,000 for the years ended September 30, 2014, 2013 and 2012, respectively. All such shares of restricted stock vest and all such shares must be issued pursuant to the vesting period noted, provided the grantee has not voluntarily terminated service or been terminated for cause prior to the vesting or issuance date. There were 250, 7,000 and 2,500 shares of restricted stock forfeited during the year ended September 30, 2014, 2013 and 2012, respectively.
The Company recognized share-based compensation expense for restricted stock or promises to issue shares of common stock of approximately $859,000, $728,000 and $782,000 for the years ended September 30, 2014, 2013 and 2012, respectively, $256,000, $227,000 and $199,000 of which was included in accrued expenses at year end since the related shares have not yet been issued at September 30, 2014, 2013 and 2012, respectively. This expense was included in selling, general and administrative expenses for the respective periods. The Company recorded a tax benefit of stock-based compensation expenses of approximately $204,000 for the year ended September 30, 2014. For the years ended September 30, 2013 and 2012, the Company did not recognize a tax benefit for stock-based compensation expense based on the election of the “with and without” approach. As of September 30, 2014, there was approximately $1,032,000, representing approximately 141,000 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 1.84 years.
Common Stock Purchase Warrants
The Company did not issue any common stock purchase warrants in fiscal year 2014, 2013 or 2012. In fiscal year 2013, a warrant holder exercised 52,000 warrants using the cashless exercise option available within the warrant agreements which entitled the warrant holder to 43,465 shares of common stock. 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 is no unrecognized compensation cost related to warrants as of September 30, 2014.
At September 30, 2014 and 2013, there were no outstanding warrants.
Preferred Stock
The Company has 5,000,000 shares designated as Class A Preferred Stock with a par value of $.01 per share. There are 1,040,000 shares of Class A Preferred Stock - Series 1 authorized; 1,500,000 shares of Class A Preferred Stock- Series 2 authorized; and 700,000 shares of Class A Preferred Stock - Series 3 authorized. There were no shares of Class A Preferred Stock of any series issued and outstanding in fiscal 2014 or 2013. The Company has 15,000 shares designated as Class B Preferred Stock with a par value of $.50 per share. There were no shares of Class B Preferred Stock issued and outstanding in fiscal 2014 or 2013.
F-18
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, 2014. From the program’s onset through September 30, 2014, the total number of shares repurchased by the Company is 2,183,454. The Stock Repurchase Program authorizes purchases in privately negotiated transactions as well as in the open market. In October 2008, the Company's Board of Directors authorized repurchases in private transactions under the Stock Repurchase Program of shares issued under the Company's equity compensation plans to directors, employees and other service providers at the market price on the effective date of the repurchase request. Total repurchases under this provision currently are limited to an aggregate of 450,000 shares per calendar year and to a maximum of 50,000 shares annually per individual. Total repurchase transaction are as follows (in shares):
2014 |
2013 |
2012 |
|
Open market repurchase transactions |
165,000 | 10,000 | 10,000 |
Private repurchase transactions |
4,000 | 45,625 | 34,000 |
Total repurchase transactions |
169,000 | 55,625 | 44,000 |
Total repurchase activity is as follows:
Issuer Purchases of Equity |
||||||
Securities: |
Details of Treasury Stock Purchases to Date through September 30, 2014: |
|||||
Total |
Average |
Aggregate Number |
Maximum Number |
|||
Number |
Price Paid |
of Shares Purchased |
of Shares that May |
|||
of Shares |
Per |
As Part of Publicly |
Yet be Purchased |
|||
Period |
Purchased |
Share |
Announced Program |
Under the Program |
||
January 1, 2007 – September 30, 2011 |
1,914,829 |
$ |
3.33 | 1,914,829 | 1,085,171 | |
October 1, 2011 – September 30, 2012 |
44,000 | 6.58 | 1,958,829 | 1,041,171 | ||
October 1, 2012 – September 30, 2013 |
55,625 | 7.11 | 2,014,454 | 985,546 | ||
October 1, 2013 – September 30, 2014 |
169,000 | 4.37 | 2,183,454 | 816,546 | ||
Total |
2,183,454 |
$ |
3.57 | 2,183,454 | 816,546 |
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 $14,500 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, 2014, 2013 and 2012. Annual Company contributions were approximately $31,000, $29,000 and $42,000 for the years ended September 30, 2014, 2013 and 2012, respectively.
In March 2014, the Company elected to contribute 3 percent into the personal pension schemes of certain senior U.K. employees. Contributions for the year ended September 30, 2014 were approximately $6,000. Pension contributions were not made for the certain senior U.K. employees for the years ended September 30, 2013 and 2012.
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.
F-19
The Company operates in foreign and domestic regions. Information about the Company's operations by geographic area is as follows (in thousands).
Net Revenues to External Customers for |
Long-Lived Asset As Of |
||||||||||||||||
the Year Ended September 30, |
September 30, |
||||||||||||||||
2014 |
2013 |
2012 |
2014 |
2013 |
|||||||||||||
South Africa |
$ |
2,928 |
(1) |
$ |
5,421 |
(1) |
$ |
6,834 |
(1) |
$ |
- |
$ |
- |
||||
Angola |
2,477 |
(1) |
* |
* |
- |
- |
|||||||||||
United States |
2,381 | 2,611 | 2,423 | 88 | 154 | ||||||||||||
DR of Congo |
2,185 | 2,467 |
* |
- |
- |
||||||||||||
Zimbabwe |
2,064 |
* |
* |
- |
- |
||||||||||||
Tanzania |
1,936 |
* |
* |
- |
- |
||||||||||||
Nigeria |
* |
2,879 |
* |
- |
- |
||||||||||||
Uganda |
* |
2,997 |
* |
- |
- |
||||||||||||
Brazil |
* |
4,480 |
(1) |
6,720 |
(1) |
- |
- |
||||||||||
United Kingdom |
* |
* |
* |
152 | 181 | ||||||||||||
Malaysia |
* |
* |
* |
1,528 | 1,853 | ||||||||||||
Other |
10,520 | 10,602 | 19,057 |
- |
45 | ||||||||||||
Total |
$ |
24,491 |
$ |
31,457 |
$ |
35,034 |
$ |
1,768 |
$ |
2,233 |
* Less than 5 percent of total net revenues.
(1) Exceeds 10 percent of total net revenues.
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 million for FHC's consumer health care product.
Note 12.Dividends
Beginning February 16, 2010 through May 7, 2014, the Company paid 18 quarterly cash dividends. The first 9 were paid at a quarterly rate per share of $0.05 through February 9, 2012, 4 were paid at a quarterly rate per share of $0.06 from May 9, 2012 through February 6, 2013, and 5 were paid at a quarterly rate per share of $0.07 from May 8, 2013 through May 7, 2014. Cumulative dividends paid totaled $29.4 million through September 30, 2014. Total dividends paid were approximately $6.1 million, $7.5 million and $6.2 million in 2014, 2013 and 2012, respectively.
On July 14, 2014, the Company announced that its Board of Directors has elected to suspend the payment of quarterly cash dividends in order to devote operating cash flows towards strategic growth initiatives.
F-20
Note 13.Quarterly Financial Data (Unaudited)
First |
Second |
Third |
Fourth |
Year |
||||||||||
Quarter |
Quarter |
Quarter |
Quarter |
Ended |
||||||||||
2014 |
||||||||||||||
Net revenues |
$ |
6,690,195 |
$ |
4,346,223 |
$ |
7,900,055 |
$ |
5,554,113 |
$ |
24,490,586 | ||||
Gross profit |
3,678,494 | 2,385,941 | 4,170,270 | 2,886,773 | 13,121,478 | |||||||||
Operating expenses |
2,094,858 | 1,590,718 | 2,142,640 | 3,369,350 | 9,197,566 | |||||||||
Income tax expense |
98,875 | 504,898 | 851,321 | 69,036 | 1,524,130 | |||||||||
Net income (loss) |
1,464,603 | 375,081 | 1,159,498 | (566,121) | 2,433,061 | |||||||||
Net income (loss) per common share – basic |
0.05 | 0.01 | 0.04 | (0.02) | 0.09 | |||||||||
Net income (loss) per common share – diluted |
0.05 | 0.01 | 0.04 | (0.02) | 0.08 | |||||||||
2013 |
||||||||||||||
Net revenues |
$ |
9,910,227 |
$ |
9,476,866 |
$ |
7,280,498 |
$ |
4,789,187 |
$ |
31,456,778 | ||||
Gross profit |
5,966,199 | 5,520,116 | 3,743,080 | 2,274,963 | 17,504,358 | |||||||||
Operating expenses |
2,365,165 | 2,163,429 | 2,653,184 | 532,983 | 7,714,761 | |||||||||
Income tax expense (benefit) |
25,677 | 116,369 | 328,938 | (4,879,728) | (4,408,744) | |||||||||
Net income |
3,533,846 | 3,491,669 | 726,911 | 6,590,172 | 14,342,598 | |||||||||
Net income per common share – basic |
0.12 | 0.12 | 0.03 | 0.23 | 0.51 | |||||||||
Net income per common share – diluted |
0.12 | 0.12 | 0.03 | 0.23 | 0.50 |
F-21
Exhibit 10.10
CHANGE OF CONTROL AGREEMENT
THIS CHANGE OF CONTROL AGREEMENT is dated effective as of July 10, 2014 by and between THE FEMALE HEALTH COMPANY, a Wisconsin corporation (the "Company"), and SUSAN OSTROWSKI (the "Executive").
RECITALS
A. The Board of Directors of the Company (the "Board") has determined that it is in the best interests of the Company and its shareholders to assure that the Company will have the continued dedication of the Executive, notwithstanding the possibility, threat or occurrence of a Change of Control (as defined below) of the Company. |
B. The Board believes it is imperative to diminish the inevitable distraction of the Executive by virtue of the personal uncertainties and risks created by a pending or threatened Change of Control and to encourage the Executive's full attention and dedication to the Company currently and in the event of any threatened or pending Change of Control, and to provide the Executive with compensation and benefit arrangements upon a Change of Control which ensure that the compensation and benefit expectations of the Executive will be satisfied and which are competitive with those of other corporations. |
C. In order to accomplish the objectives of the Board summarized in these recitals, the Board has caused the Company to enter into this Agreement. |
AGREEMENTS
In consideration of the recitals and the mutual covenants and agreements set forth in this Agreement and for other good and valuable consideration, the receipt and sufficiency of which are acknowledged, the parties agree as follows:
1. Definitions. For the sole and exclusive purposes of this Agreement, the following terms have the following meanings: |
(a) Effective Date. The "Effective Date" means the first date during the Change of Control Period on which a Change of Control occurs. Notwithstanding anything in this Agreement to the contrary, if a Change of Control occurs and Executive's employment with the Company (or, if applicable, its subsidiary) or this Agreement was terminated prior to the date on which the Change of Control occurs, and if it is reasonably demonstrated by the Executive that such termination of employment or of this Agreement (i) was at the request of a third party who has taken steps reasonably calculated to effect a Change of Control or (ii) otherwise arose in connection with or anticipation of a Change of Control, then for all purposes of this Agreement the "Effective Date" shall mean the date immediately prior to the date of such termination of employment or purported termination of this Agreement. |
(b) Change of Control Period. The "Change of Control Period" means the period commencing on the date of a Change of Control and ending on the third anniversary thereafter. |
(c) Change of Control. "Change of Control" means any of the following: |
(i) The acquisition by any individual, entity or group (within the meaning of section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership (within the meaning of Rule 13d‑3 promulgated under the Exchange Act) of 20% or more of either [a] the then outstanding shares of common stock of the Company (the "Outstanding Company Common Stock") or [b] the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); provided, however, that the following acquisitions shall not constitute a Change of Control: [i] any acquisition directly from the Company,
|
[ii] any acquisition by the Company, [iii] any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company or [iv] any acquisition by any corporation pursuant to a transaction which complies with clauses [a], [b] and [c] of subsection (iii) of this section 1. |
(ii) Individuals who, as of the date hereof, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Company's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board (or by the Nominating and Corporate Governance Committee of the Board) shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board. |
(iii) Approval by the shareholders of the Company of a reorganization, merger or consolidation (a "Business Combination"), in each case, unless, following such Business Combination, [a] all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 60% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation (or other entity) resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Company through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination, of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, [b] no Person (excluding any employee benefit plan (or related trust) of the Company or such corporation (or other entity) resulting from such Business Combination) beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of the corporation (or other entity) resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination and [c] at least a majority of the members of the board of directors of the corporation (or other governing body) resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination. |
(iv) Approval by the shareholders of the Company of [a] a complete liquidation or dissolution of the Company or [b] the sale or other disposition of all or substantially all of the assets of the Company, other than to a corporation (or other entity), with respect to which following such sale or other disposition, [i] more than 60% of, respectively, the then outstanding shares of common stock of such corporation (or other equity interests) and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors (or other governing body) is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and outstanding Company Voting Securities immediately prior to such sale or other disposition in substantially the same proportion as their ownership, immediately prior to such sale or other disposition, of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, [ii] less than 20% of, respectively, the then outstanding shares of common stock of such corporation (or other entity) and the combined voting power of the then outstanding voting securities of such corporation (or other entity) entitled to vote generally in the election of directors (or other governing body)is then beneficially owned, directly or indirectly, by any Person (excluding any employee benefit plan (or related trust) of the Company or such corporation), except to the extent that such Person owned substantially the same percent of the Outstanding Company Common Stock or Outstanding Company Voting Securities prior to the sale or disposition, and [iii] at least a majority of the members of the board of directors of such corporation (or other governing body) were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such sale or other disposition of assets of the Company or were elected, appointed or nominated by the Board. |
(d) Disability. "Disability" means the absence of the Executive from the Executive's duties with the Company on a full‑time basis for 180 consecutive business days as a result of incapacity due to mental or
2
|
physical illness which is determined to be total and permanent by a physician selected by the Company or its insurers and acceptable to the Executive or the Executive's legal representative (such agreement as to acceptability not to be withheld unreasonably). |
(e) Cause. "Cause" means: |
(i) the willful and continued failure of the Executive to perform substantially the Executive's duties with the Company or its affiliates (other than any such failure resulting from incapacity due to physical or mental illness), after a written demand for substantial performance is delivered to the Executive by the Board which specifically identifies the manner in which the Board believes that the Executive has not substantially performed the Executive's duties and after the Executive is given a reasonable period of time to rectify or eliminate such failure, or |
(ii) the willful engaging by the Executive in illegal conduct or gross misconduct which is materially and demonstrably injurious to the Company. |
Notwithstanding anything herein to the contrary, no act or failure to act, on the part of the Executive, shall be considered "willful" unless it is done, or omitted to be done, by the Executive in bad faith or without reasonable belief that the Executive's action or omission was in the best interests of the Company. Any act, or failure to act, based upon authority given pursuant to a resolution duly adopted by the Board or upon the instructions of a more senior officer of the Company or based upon the advice of counsel for the Company shall be conclusively presumed to be done, or omitted to be done, by the Executive in good faith and in the best interests of the Company. The cessation of employment of the Executive shall not be deemed to be for Cause unless and until there shall have been delivered to the Executive a copy of a resolution duly adopted by the affirmative vote of not less than three‑quarters of the entire membership of the Board at a meeting of the Board called and held for such purpose (after reasonable notice is provided to the Executive and the Executive is given an opportunity, together with counsel, to be heard before the Board), finding that, in the good faith opinion of the Board, the Executive is guilty of the conduct described in subparagraph (i) or (ii) above, and specifying the particulars thereof in detail.
(f) Good Reason. "Good Reason" means: |
(i) the assignment to the Executive of any duties inconsistent in any respect with the Executive's position (including status, offices, titles and reporting requirements), authority, duties or responsibilities as contemplated by section 3(a) of this Agreement, or any other action by the Company which results in a diminution in such position, authority, duties or responsibilities, excluding for this purpose an isolated, insubstantial and inadvertent action not taken in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive; |
(ii) any failure by the Company to comply with any of the provisions of section 3(b) of this Agreement, other than an isolated, insubstantial and inadvertent failure not occurring in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive; |
(iii) the Company's requiring the Executive to be based at any office or location other than as provided in section 3(a)(i)[b] hereof or the Company's requiring the Executive to travel on Company business to a substantially greater extent than required immediately prior to the Effective Date; |
(iv) any purported termination by the Company of the Executive's employment otherwise than as expressly permitted by this Agreement; or |
(v) any failure by the Company to comply with and satisfy section 10(c) of this Agreement. |
(g) Date of Termination. "Date of Termination" means (i) if the Executive's employment is terminated by the Company for Cause, or by the Executive for Good Reason, the date of receipt of the Notice of Termination (as defined in section 4(d)) or any later date specified therein, as the case may be, (ii) if the Executive's
3
|
employment is terminated by the Company other than for Cause or Disability, the Date of Termination shall be the date on which the Company notifies the Executive of such termination, and (iii) if the Executive's employment is terminated by reason of death or Disability, the Date of Termination shall be the date of death of the Executive or the Disability Effective Date (as defined in section 4(a)), as the case may be. |
2. Employment Period. The Company agrees to continue the Executive in its employ (or, if applicable, in the employ of its subsidiary or subsidiaries), and the Executive agrees to remain in the employ of the Company (or, if applicable, in the employ of its subsidiary or subsidiaries) subject to the terms and conditions of this Agreement, for the period commencing on the Effective Date and ending on the third anniversary of such date (the "Employment Period"). Notwithstanding the foregoing, if the Incumbent Board approves the Change of Control transaction before it is consummated and one or more of the nonemployee directors adopt(s) a resolution providing that this Agreement shall not become operative in connection with such Change of Control, this Agreement shall not become operative in connection with that Change of Control. |
3. Terms of Employment. |
(a) Position and Duties. |
(i) During the Employment Period, [a] the Executive's position (including status, offices, titles and reporting requirements), authority, duties and responsibilities shall be at least commensurate in all material respects with those held, exercised or assigned at any time during the 120‑day period immediately preceding the Effective Date and [b] the Executive's services shall be performed at the location where the Executive was employed immediately preceding the Effective Date or any office or location less than 35 miles from such location. |
(ii) During the Employment Period, and excluding any periods of vacation and sick leave to which the Executive is entitled, the Executive agrees to devote reasonable attention and time during normal business hours to the business and affairs of the Company (or, if applicable, its subsidiary or subsidiaries) and, to the extent necessary to discharge the responsibilities assigned to the Executive hereunder, to use the Executive's reasonable efforts to perform faithfully and efficiently such responsibilities. During the Employment Period it shall not be a violation of this Agreement for the Executive to [a] serve on corporate, civic or charitable boards or committees, [b] deliver lectures, fulfill speaking engagements or teach at educational institutions and/or [c] manage personal investments, so long as such activities do not significantly interfere with the performance of the Executive's responsibilities as an employee of the Company (or, if applicable, its subsidiaries) in accordance with this Agreement. It is expressly understood and agreed that to the extent that any such activities have been conducted by the Executive prior to the Effective Date, the continued conduct of such activities (or the conduct of activities similar in nature and scope thereto) subsequent to the Effective Date shall not thereafter be deemed to interfere with the performance of the Executive's responsibilities to the Company (or, if applicable, its subsidiaries). |
(b) Compensation. |
(i) Base Salary. During the Employment Period, the Executive shall receive an annual base salary ("Annual Base Salary"), at least equal to twelve times the highest monthly base salary paid or payable, including any base salary which has been earned but deferred, to the Executive by the Company and its affiliated companies in respect of the 12‑month period immediately preceding the month in which the Effective Date occurs. During the Employment Period, the Annual Base Salary shall be reviewed no more than 12 months after the last salary increase awarded to the Executive prior to the Effective Date and thereafter at least annually and shall be first increased no more than 12 months after the last salary increase awarded to the Executive prior to the Effective Date and thereafter at least annually by the higher of [a] the average increase (excluding promotional increases) in base salary awarded to the Executive for each of the three full fiscal years (annualized in the case of any fiscal year consisting of less than twelve full months or during which the Executive was employed for less than twelve months) prior to the Effective Date, and [b] the percentage increase (excluding promotional increases) in base salary generally awarded to peer executives of the Company and its affiliated companies for the year of determination. Any increase in Annual Base Salary shall not serve to limit or reduce any other obligation to the Executive under this Agreement. Annual Base Salary shall not be reduced after any such increase and the term Annual Base Salary as utilized in this Agreement shall refer to Annual Base Salary as so increased. As used in this Agreement, the term
4
|
"affiliated companies" shall include any company controlled by, controlling or under common control with the Company. |
(ii) Annual Bonus. In addition to Annual Base Salary, the Executive shall be awarded, for each fiscal year ending during the Employment Period, an annual bonus (the "Annual Bonus") in cash at least equal to the higher of [a] the average of the three highest bonuses paid or payable, including any bonus or portion thereof which has been earned but deferred, to the Executive by the Company and its affiliated companies in respect of the five fiscal years (or such shorter period during which the Executive has been employed by the Company) immediately preceding the fiscal year in which the Effective Date occurs (annualized for any fiscal year during such period consisting of less than twelve full months or with respect to which the Executive has been employed by the Company for less than twelve full months) and [b] the bonus paid or payable (annualized as described above), including any bonus or portion thereof which has been earned but deferred, to the Executive by the Company and its affiliated companies in respect of the most recently completed fiscal year prior to the Effective Date (such higher amount being referred to as the "Recent Annual Bonus"). Each such Annual Bonus shall be paid no later than two and one-half months following the end of the fiscal year for which the Annual Bonus is awarded, unless the Executive shall elect to defer the receipt of such Annual Bonus. |
(iii) Incentive, Savings and Retirement Plans. During the Employment Period, the Executive shall be entitled to participate in all incentive, savings and retirement plans, practices, policies and programs applicable generally to other peer executives of the Company and its affiliated companies, but in no event shall such plans, practices, policies and programs provide the Executive with incentive opportunities (measured with respect to both regular and special incentive opportunities, to the extent, if any, that such distinction is applicable), savings opportunities and retirement benefit opportunities, in each case, less favorable, in the aggregate, than the most favorable of those provided by the Company and its affiliated companies for the Executive under such plans, practices, policies and programs as in effect at any time during the 120‑day period immediately preceding the Effective Date or if more favorable to the Executive, those provided generally at any time after the Effective Date to other peer executives of the Company and its affiliated companies. |
(iv) Welfare Benefit Plans. During the Employment Period, the Executive and/or the Executive's family, as the case may be, shall be eligible for participation in and shall receive all benefits under welfare benefit plans, practices, policies and programs provided by the Company and its affiliated companies (including, without limitation, medical, prescription, dental, disability, salary continuance, employee life, group life, accidental death and travel accident insurance plans and programs) to the extent applicable generally to other peer executives of the Company and its affiliated companies, but in no event shall such plans, practices, policies and programs provide the Executive with benefits which are less favorable, in the aggregate, than the most favorable of such plans, practices, policies and programs in effect for the Executive at any time during the 120‑day period immediately preceding the Effective Date or, if more favorable to the Executive, those provided generally at any time after the Effective Date to other peer executives of the Company and its affiliated companies. |
(v) Expenses. During the Employment Period, the Executive shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by the Executive in accordance with the most favorable policies, practices and procedures of the Company and the affiliated companies in effect for the Executive at any time during the 120‑day period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies. |
(vi) Fringe Benefits. During the Employment Period, the Executive shall be entitled to fringe benefits, including, without limitation, tax and financial planning services, payment of club dues, and, if applicable, use of automobile and payment of related expenses, in accordance with the most favorable plans, practices, programs and policies of the Company and its affiliated companies in effect for the Executive at any time during the 120‑day period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies. |
(vii) Office and Support Staff. During the Employment Period, the Executive shall be entitled to an office or offices of a size and with furnishings and other appointments, and to exclusive personal
5
|
secretarial and other assistance, at least equal to the most favorable of the foregoing provided to the Executive by the Company and its affiliated companies at any time during the 120‑day period immediately preceding the Effective Date or, if more favorable to the Executive, as provided generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies. |
(viii) Vacation. During the Employment Period, the Executive shall be entitled to paid vacation in accordance with the most favorable plans, policies, programs and practices of the Company and its affiliated companies as in effect for the Executive at any time during the 120‑day period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies. |
4. Termination of Employment. |
(a) Death or Disability. The Executive's employment shall terminate automatically upon the Executive's death during the Employment Period. If the Company determines in good faith that a Disability of the Executive has occurred during the Employment Period, it may give to the Executive written notice in accordance with section 11(b) of this Agreement of its intention to terminate the Executive's employment. In such event, the Executive's employment with the Company shall terminate effective on the 30th day after receipt of such notice by the Executive (the "Disability Effective Date"), provided that, within the 30 days after such receipt, the Executive shall not have returned to full‑time performance of the Executive's duties. |
(b) Cause. The Company may terminate the Executive's employment during the Employment Period for Cause. |
(c) Good Reason. The Executive's employment may be terminated by the Executive for Good Reason. For purposes of this section 4(c), any good faith determination of "Good Reason" made by the Executive shall be conclusive. Anything in this Agreement to the contrary notwithstanding, a termination by the Executive for any reason during the 180‑day period immediately following the Effective Date shall be deemed to be a termination for Good Reason for all purposes of this Agreement. |
(d) Notice of Termination. Any termination by the Company for Cause, or by the Executive for Good Reason, shall be communicated by Notice of Termination to the other party hereto given in accordance with section 11(b) of this Agreement. For purposes of this Agreement, a "Notice of Termination" means a written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated, and (iii) if the Date of Termination (as defined below) is other than the date of receipt of such notice, specifies the termination date (which date shall be not more than thirty days after the giving of such notice). The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company, respectively, hereunder or preclude the Executive or the Company, respectively, from asserting such fact or circumstance in enforcing the Executive's or the Company's rights hereunder. |
5. Obligations of the Company upon Termination. |
(a) Good Reason; Other Than for Cause, Death or Disability. If, during the Employment Period, the Company shall terminate the Executive's employment other than for Cause, death or Disability or the Executive shall terminate the Executive's employment for Good Reason: |
(i) The Company shall pay to the Executive in a lump sum in cash within 30 days after the Date of Termination the aggregate of the following amounts: |
[a] the sum of [i] the Executive's Annual Base Salary through the Date of Termination to the extent not theretofore paid, [ii] the product of (x) the higher of [A] the Recent Annual Bonus and [B] the Annual Bonus paid or payable, including any bonus or portion thereof which has been earned but deferred
6
|
(and annualized for any fiscal year consisting of less than 12 full months or during which the Executive was employed for less than 12 full months), for the most recently completed fiscal year during the Employment Period, if any (such higher amount being referred to as the "Highest Annual Bonus") and (y) a fraction, the numerator of which is the number of days in the current fiscal year through the Date of Termination, and the denominator of which is 365 and [iii] any compensation previously deferred by the Executive (together with any accrued interest or earnings thereon) and any accrued vacation pay, in each case to the extent not theretofore paid (the sum of the amounts described in clauses [i], [ii] and [iii] shall be hereinafter referred to as the "Accrued Obligations"); and |
[b] The amount equal to the product of [i] three and [ii] the sum of (x) the Executive's Annual Base Salary and (y) the Highest Annual Bonus. |
(ii) For three years after the Executive's Date of Termination, or such longer period as may be provided by the terms of the appropriate plan, program, practice or policy, the Company shall continue benefits to the Executive and/or the Executive's family at least equal to those which would have been provided to them in accordance with the plans, programs, practices and policies described in sections 3(b)(iii) and (iv) (the "Benefit Plans") of this Agreement had the Executive's employment not been terminated, in accordance with the most favorable plans, practices, programs or policies of the Company and its affiliated companies applicable generally to other peer executives and their families during the 120‑day period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies and their families, provided, however, that if the Executive becomes re-employed with another employer and is eligible to receive medical or other welfare benefits under another employer provided plan, the medical and other welfare benefits described herein shall be secondary to those provided under such other plan during such applicable period of eligibility. For purposes of determining eligibility (but not the time of commencement of benefits) of the Executive for retiree benefits pursuant to such plans, practices, programs and policies, the Executive shall be considered to have remained employed until three years after the Date of Termination and to have retired on the last day of such period. Notwithstanding anything herein to the contrary, the Company shall have no obligation to continue benefits to the Executive under this section 5(a)(ii) to the extent any such continuation of benefits [a] is contrary to the terms of the applicable Benefit Plan at the time of the Effective Date of the Change of Control, [b] would cause a Benefit Plan or the applicable benefit to lose any tax favored treatment or tax qualification, or [c] would cause a Benefit Plan to violate any requirement of the Employee Retirement Income Security Act of 1974, as amended, or any tax qualification or tax favorable treatment provision of the Code (defined below) that is intended to apply to the Benefit Plan. To the extent the Company is not able to continue the benefits to the Executive under this section 5(a)(ii) because of application of the foregoing sentence, then the Company shall make a lump-sum payment (within 30 days after the Executive's Date of Termination) to the Executive equal to the present value of the health, welfare and retirement benefits unable to be provided hereunder, which is designed to compensate the Executive for lost health, welfare and retirement benefits. |
(iii) The Company shall, at its sole expense and as requested, provide the Executive with outplacement services the scope and provider of which shall be selected by the Executive in the Executive's sole discretion. |
(iv) To the extent not theretofore paid or provided, the Company shall timely pay or provide to the Executive any other amounts or benefits required to be paid or provided or which the Executive is eligible to receive under any plan, program, policy or practice or contract or agreement of the Company and its affiliated companies (such other amounts and benefits shall be hereinafter referred to as the "Other Benefits"). |
(b) Death. If the Executive's employment is terminated by reason of the Executive's death during the Employment Period, this Agreement shall terminate without further obligations to the Executive's legal representatives under this Agreement, other than for payment of Accrued Obligations and the timely payment or provision of Other Benefits. Accrued Obligations shall be paid to the Executive's estate or beneficiary, as applicable, in a lump sum in cash within 30 days of the Date of Termination. With respect to the provision of Other Benefits, the term Other Benefits as utilized in this section 5(b) shall include, without limitation, and the Executive's estate and/or beneficiaries shall be entitled to receive, benefits at least equal to the most favorable benefits provided by the Company and affiliated companies to the estates and beneficiaries of peer executives of the Company and such affiliated companies under such plans, programs, practices and policies relating to death benefits, if any, as in effect with respect to other peer executives and their beneficiaries at any time during the 120‑day period
7
|
immediately preceding the Effective Date or, if more favorable to the Executive's estate and/or the Executive's beneficiaries, as in effect on the date of the Executive's death with respect to other peer executives of the Company and its affiliated companies and their beneficiaries. |
(c) Disability. If the Executive's employment is terminated by reason of the Executive's Disability during the Employment Period, this Agreement shall terminate without further obligations to the Executive, other than for payment of Accrued Obligations and the timely payment or provision of Other Benefits. Accrued Obligations shall be paid to the Executive in a lump sum in cash within 30 days of the Date of Termination. With respect to the provision of Other Benefits, the term Other Benefits as utilized in this section 5(c) shall include, and the Executive shall be entitled after the Disability Effective Date to receive, disability and other benefits at least equal to the most favorable of those generally provided by the Company and its affiliated companies to disabled executives and/or their families in accordance with such plans, programs, practices and policies relating to disability, if any, as in effect generally with respect to other peer executives and their families at any time during the 120‑day period immediately preceding the Effective Date or, if more favorable to the Executive and/or the Executive's family, as in effect at any time thereafter generally with respect to other peer executives of the Company and its affiliated companies and their families. |
(d) Cause; Other than for Good Reason. If the Executive's employment shall be terminated for Cause during the Employment Period, this Agreement shall terminate without further obligations to the Executive other than the obligation to pay to the Executive (i) the Executive's Annual Base Salary through the Date of Termination, (ii) the amount of any compensation previously deferred by the Executive, and (iii) Other Benefits, in each case to the extent theretofore unpaid. If the Executive voluntarily terminates employment during the Employment Period, excluding a termination for Good Reason, this Agreement shall terminate without further obligations to the Executive, other than for Accrued Obligations and the timely payment or provision of Other Benefits. In such case, all Accrued Obligations shall be paid to the Executive in a lump sum in cash within 30 days of the Date of Termination. |
(e) Compliance with Code section 409A. To the extent any amount payable under this Agreement is considered "nonqualified deferred compensation" under Code section 409A, the Company shall not accelerate or defer the time or schedule of any payment to be made hereunder and such payments may only be made if the Executive has previously "separated from service" with the Company as defined under Code section 409A. To the extent the Executive is a "specified employee" as defined under Treasury Regulation section 1.409A-1(i)(1), any payment of nonqualified deferred compensation following the Executive's separation from service by reason other than death that is not otherwise exempt from Code section 409A shall be paid on the first payroll period of the Company that is at least 6-months after the Executive's separation from service. It is expressly contemplated by the parties that this Agreement will conform to, and be interpreted to comply with, Code section 409A. |
6. Nonexclusivity of Rights. Nothing in this Agreement shall prevent or limit the Executive's continuing or future participation in any plan, program, policy or practice provided by the Company or any of its affiliated companies and for which the Executive may qualify, nor shall anything herein limit or otherwise affect such rights as the Executive may have under any contract or agreement with the Company or any of its affiliated companies. Amounts which are vested benefits or which the Executive is otherwise entitled to receive under any plan, policy, practice or program of or any contract or agreement with the Company or any of its affiliated companies at or subsequent to the Date of Termination shall be payable in accordance with such plan, policy, practice or program or contract or agreement except as explicitly modified by this Agreement. |
7. Full Settlement. The Company's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set‑off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against the Executive or others. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement and such amounts shall not be reduced whether or not the Executive obtains other employment. The Company agrees to pay as incurred, to the full extent permitted by law, all legal fees and expenses which the Executive reasonably incurs as a result of any contest (regardless of the outcome thereof) by the Company, the Executive or others of the validity or enforceability of, or liability under, any provision of this Agreement or any guarantee of performance thereof (including as a result of any contest by the Executive about the amount of any payment pursuant to this Agreement), plus in each case
8
|
interest on any delayed payment at the applicable federal rate provided for in section 7872(f)(2)(A) of the Internal Revenue Code of 1986, as amended (the "Code"). |
8. Certain Additional Payments by the Company. |
(a) Anything in this Agreement to the contrary notwithstanding, if it is determined that any payment or distribution by the Company to or for the benefit of the Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, but determined without regard to any additional payments required under this section 8) (a "Payment") would be subject to the excise tax imposed by section 4999 of the Code or any interest or penalties are incurred by the Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), then the Executive shall be entitled to receive an additional payment (a "Gross‑Up Payment") in an amount such that after payment by the Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including, without limitation, any income taxes (and any interest and penalties imposed with respect thereto) and Excise Tax imposed upon the Gross‑Up Payment, the Executive retains an amount of the Gross‑Up Payment equal to the Excise Tax imposed upon the Payments. |
(b) Subject to the provisions of section 8(c), all determinations required to be made under this section 8, including whether and when a Gross‑Up Payment is required and the amount of such Gross‑Up Payment and the assumptions to be utilized in arriving at such determination, shall be made by such certified public accounting firm as may be designated by the Executive (the "Accounting Firm") which shall provide detailed supporting calculations both to the Company and the Executive within 15 business days of the receipt of notice from the Executive that there has been a Payment, or such earlier time as is requested by the Company. If the Accounting Firm is serving as accountant or auditor for the individual, entity or group effecting the Change of Control, the Executive shall appoint another nationally recognized accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be borne solely by the Company. Any Gross‑Up Payment, as determined pursuant to this section 8, shall be paid by the Company to the Executive within five days of the receipt of the Accounting Firm's determination. If the Accounting Firm determines that no Excise Tax is payable by the Executive, it shall furnish the Executive with a written opinion that failure to report the Excise Tax on the Executive's applicable federal income tax return would not result in the imposition of a negligence or similar penalty. Any determination by the Accounting Firm shall be binding upon the Company and the Executive. As a result of the uncertainty in the application of section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross‑Up Payments which will not have been made by the Company should have been made ("Underpayment"), consistent with the calculations required to be made hereunder. If the Company exhausts its remedies pursuant to section 8(c) and the Executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of the Executive. |
(c) The Executive shall notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of the Gross‑Up Payment. Such notification shall be given as soon as practicable but no later than ten business days after the Executive is informed in writing of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. The Executive shall not pay such claim prior to the expiration of the 30‑day period following the date on which it gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Company notifies the Executive in writing prior to the expiration of such period that it desires to contest such claim, the Executive shall: |
(i) give the Company any information reasonably requested by the Company relating to such claim, |
(ii) take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company, |
9
(iii) cooperate with the Company in good faith in order effectively to contest such claim, and |
(iv) permit the Company to participate in any proceedings relating to such claim; provided, however, that the Company shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold the Executive harmless, on an after‑tax basis, for any Excise Tax or income tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses. Without limitation on the foregoing provisions of this section 8(c), the Company shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forgo any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct the Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and the Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided, however, that if the Company directs the Executive to pay such claim and sue for a refund, the Company shall advance the amount of such payment to the Executive, on an interest‑free basis and shall indemnify and hold the Executive harmless, on an after‑tax basis, from any Excise Tax or income tax (including interest or penalties with respect thereto) imposed with respect to such advance or with respect to any imputed income with respect to such advance; and further provided that any extension of the statute of limitations relating to payment of taxes for the taxable year of the Executive with respect to which such contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Company's control of the contest shall be limited to issues with respect to whether a Gross‑Up Payment would be payable hereunder and the Executive shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority. |
(d) If, after the receipt by the Executive of an amount advanced by the Company pursuant to section 8(c), the Executive becomes entitled to receive any refund with respect to such claim, the Executive shall (subject to the Company's complying with the requirements of section 8(c)) promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by the Executive of an amount advanced by the Company pursuant to section 8(c), a determination is made that the Executive shall not be entitled to any refund with respect to such claim and the Company does not notify the Executive in writing of its intent to contest such denial of refund prior to the expiration of 30 days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of Gross‑Up Payment required to be paid. |
9. Confidential Information. The Executive shall hold in a fiduciary capacity for the benefit of the Company all secret or confidential information, knowledge or data relating to the Company or any of its affiliated companies, and their respective businesses, which shall have been obtained by the Executive during the Executive's employment by the Company or any of its affiliated companies and which shall not be or become public knowledge (other than by acts by the Executive or representatives of the Executive in violation of this Agreement). After termination of the Executive's employment with the Company, the Executive shall not, for a period of three years following the Executive's termination of employment, without the prior written consent of the Company or as may otherwise be required by law or legal process, communicate or divulge any such information, knowledge or data to anyone other than the Company and those designated by it. In no event shall an asserted violation of the provisions of this section 9 constitute a basis for deferring or withholding any amounts otherwise payable to the Executive under this Agreement. |
10. Successors. |
(a) This Agreement is personal to the Executive and without the prior written consent of the Company shall not be assignable by the Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive's legal representatives. |
(b) This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns. |
10
(c) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. |
11. Miscellaneous. |
(a) This Agreement shall be governed by and construed in accordance with the laws of the State of Wisconsin, without reference to principles of conflict of laws. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. This Agreement may not be amended or modified otherwise than by a written agreement executed by the parties hereto or their respective successors and legal representatives. |
(b) All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: |
If to the Executive, to the Executive's address appearing on the records of the Company.
If to the Company:
The Female Health Company
515 North State Street
Suite 2225
Chicago, IL 60654
Attn: Chief Executive Officer
or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notice and communications shall be effective when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. |
(d) The Company may withhold from any amounts payable under this Agreement such federal, state, local or foreign taxes as shall be required to be withheld pursuant to any applicable law or regulation. |
(e) The Executive's or the Company's failure to insist upon strict compliance with any provision hereof or any other provision of this Agreement or the failure to assert any right the Executive or the Company may have hereunder, including, without limitation, the right of the Executive to terminate employment for Good Reason pursuant to section 4(c) of this Agreement, shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement. |
(f) The Executive and the Company acknowledge that, except as may otherwise be provided under any other written agreement between the Executive and the Company, the employment of the Executive by the Company is "at will" and, prior to the Effective Date, the Executive's employment and this Agreement may be terminated by either the Executive or the Company at any time prior to the Effective Date, in which case the Executive shall have no further rights under this Agreement. From and after the Effective Date this Agreement shall supersede any other agreement between the parties with respect to the subject matter hereof. |
11
Dated as of the date first above written. |
|
|
|
|
|
|
|
|
|
EXECUTIVE: |
|
|
|
/s/ Susan Ostrowski |
7/11/14 |
|
|
Susan Ostrowski |
|
|
|
THE FEMALE HEALTH COMPANY |
||
|
|
|
|
|
|
|
BY |
/s/ Karen King |
|
|
|
|
Karen King, President and |
|
|
|
|
Chief Executive Officer |
12
Exhibit 10.20
THIRD AMENDMENT TO SECOND AMENDED AND RESTATED LOAN AGREEMENT
This THIRD AMENDMENT TO SECOND AMENDED AND RESTATED LOAN AGREEMENT (this "Amendment") is entered into as of the 1st day of August, 2014, by and between THE FEMALE HEALTH COMPANY, a Wisconsin corporation ("Borrower") and HEARTLAND BANK, a federal savings bank ("Lender").
WITNESSETH:
WHEREAS, the Borrower has an existing revolving credit facility with Lender (the "Existing Loan"), pursuant to that certain Second Amended and Restated Loan Agreement entered into by and between Lender and Borrower, dated as of August 1, 2011, as amended by that certain First Amendment to Second Amended and Restated Loan Agreement dated as of August 1, 2012, and as further amended by that certain Second Amendment to Second Amended and Restated Loan Agreement dated as of August 1, 2013 (as so amended, the "Loan Agreement");
WHEREAS, Borrower and Lender have agreed to amend the Loan Agreement to change the terms and conditions of the revolving credit facility, including extending the maturity date thereof;
NOW, THEREFORE, in consideration of the promises and the mutual agreements herein set forth and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:
SECTION 1. Definitions; References. Unless otherwise specifically defined herein, each term used herein which is defined in the Loan Agreement shall have the meaning assigned to such term in the Loan Agreement. Each reference to "hereof", "hereunder", "herein" and "hereby" and each other similar reference and each reference to "this Agreement" and each other similar reference contained in the Loan Agreement shall from the date hereof refer to the Loan Agreement as amended hereby. |
SECTION 2. Amendments to Loan Agreement. Subject to the satisfaction and occurrence of each of the conditions set forth in Section 3 hereof, the Loan Agreement is hereby amended as follows, effective as of the date hereof: |
2.1. At Section 1.1 of the Loan Agreement, replace the definition of Maturity Date in its entirety as follows: |
"Maturity Date" means August 1, 2015.
2.2. At Section 1.1 of the Loan Agreement, replace the definition of Note in its entirety as follows: |
"Note" means the Promissory Note dated as of August 1, 2014 executed by Borrower and payable to the order of Lender, the form of which is attached hereto and incorporated herein as Exhibit A, and any amendments, modifications, restatements, replacements, renewals or refinancing thereof.
2.3. Exhibit A to the Loan Agreement is hereby deleted in its entirety, and is replaced with the Exhibit A attached to this Amendment. |
SECTION 3. Effectiveness. The effectiveness of this Amendment is subject to the satisfaction and occurrence of each of the following conditions precedent: |
3.1. Lender shall have received executed counterparts of the following documents, each containing terms satisfactory to Lender: |
(a) this Amendment; |
(b) replacement Promissory Note in the form and containing the terms as attached hereto as Exhibit A (the "Replacement Note"); and |
(c) such other documents and certificates as Lender may reasonably require. |
3.2. Lender shall have received from Borrower a fee in an amount equal to Two Thousand Five Hundred and NO/100 Dollars ($2,500.00) in connection with the renewal of the Existing Loan and in order to compensate Lender for the costs associated with structuring, processing, approving and closing the Existing Loan renewal, but excluding expenses for which Borrower has agreed elsewhere to reimburse Lender. The fee shall be fully earned by Lender when received and, except as otherwise set forth herein, shall not be subject to refund or rebate. All fees are for compensation for services and are not, and shall not be deemed to be, interest or a charge for the use of money. |
SECTION 4. Representations and Warranties. Borrower represents and warrants to Lender that: |
4.1. The representations and warranties of Borrower contained in the Loan Agreement are true and correct in all material respects on and as of the date hereof as if such representations and warranties had been made on and as of the date hereof (except to the extent that any such representations and warranties specifically relate to an earlier date); |
4.2. Borrower is in compliance with all the terms and provisions set forth in the Loan Agreement and no Default or Event of Default has occurred and is continuing or would result from the execution, delivery and performance of this Amendment; and |
4.3. This Amendment and any and all agreements, notes, or other documents executed in connection herewith have been duly and validly executed by an authorized officer of the Borrower and constitute the legal, valid, and binding obligation of the Borrower enforceable against the Borrower in accordance with their respective terms. The Loan Agreement, as amended by this Amendment, remains in full force and effect and remains the valid and binding obligation of the Borrower enforceable against the Borrower in accordance with its terms. The Borrower hereby ratifies and confirms the Loan Agreement, as amended by this Amendment. |
SECTION 5. Voluntary Agreement. Each party represents and warrants to the other that it has consulted or has had the opportunity to consult with counsel regarding this Amendment, that it is fully aware of the terms contained herein and that it has voluntarily and without coercion or duress of any kind entered into this Amendment. |
SECTION 6. Release. In consideration of the agreement of Lender to modify the terms of the Loan Agreement as set forth in this Amendment, Borrower hereby releases, discharges, and acquits forever Lender and any of its officers, directors, servants, agents, employees, and attorneys, past and present, from any and all claims, demands, and causes of action, of whatever nature, whether in contract or tort, accrued or to accrue, contingent or vested, known to Borrower, arising out of or relating to the loans evidenced by the Loan Agreement, as hereby amended, or Lender's administration of same or any other actions taken pursuant to the Loan Agreement or under any other documents or instruments evidencing loans made by Lender to Borrower or the administration of same; provided, however, that the foregoing release and the following indemnity relate only to actions or inactions of Lender through the date hereof. Borrower hereby further indemnifies and holds Lender, and all officers, directors, servants, agents, employees, and attorneys of Lender, past or present, harmless from any and all such claims, demands, and causes of action by Borrower, or anyone claiming by, through, or under Borrower, said indemnity to cover all losses and expenses incurred by the Lender, its officers, directors, servants, agents, employees, or attorneys, past or
2 |
present, in connection with any such claims, demands, or cause of action, including all attorneys' fees and costs. |
SECTION 7. Payment of Costs/Expenses. Without limiting the generality of provisions in the Loan Agreement relating to payment of Lender's costs and expenses, the Borrower will pay all out‑of‑pocket expenses, costs, and reasonable charges of attorneys incurred by Lender in connection with the preparation and implementation of this Amendment, the Replacement Note and related documents. |
SECTION 8. Authority. By execution hereof, each of the persons signing on behalf of the parties hereto hereby represents and warrants that each is fully authorized to act and execute this Agreement on behalf of their respective party. |
SECTION 9. Other Documents/Provisions to Remain in Force. Except as expressly amended hereby, the Loan Agreement and all documents and instruments executed in connection therewith or contemplated thereby and all indebtedness incurred pursuant thereto, shall remain in full force and effect and are in all respects hereby ratified and affirmed. No reference to this Amendment need he made in any instrument or document at any time referring to the Loan Agreement, a reference to the Loan Agreement in any of such to be deemed to be reference to the Loan Agreement, as amended hereby. |
SECTION 10. Successors and Assigns. Subject to any restriction on assignment set forth in the Loan Agreement, this Amendment shall he binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. |
SECTION 11. Counterparts. This Amendment may be executed in one or more counterparts, each of which shall he deemed to be an original, and all of which shall constitute together but one and the same agreement. |
SECTION 12. Headings; Recitals. The various headings of this Amendment are inserted for convenience only and shall not affect the meaning or interpretation of this Amendment or any provisions hereof. The recitals set forth herein are hereby incorporated into this Amendment and form a part hereof, the truth and accuracy of which is evidenced by each party's execution hereof. |
SECTION 13. Incorporation by Reference. The Loan Agreement and all exhibits thereto, and the exhibits to this Amendment (if any), are incorporated herein by this reference. |
SECTION 14. Governing Law. This Amendment shall he binding upon and inure to the benefit of the parties hereto and their respective successors and assigns and shall be governed by and construed in accordance with the laws of the State of Missouri. |
SECTION 15. Missouri Revised Statute - §432.047. ORAL OR UNEXECUTED AGREEMENTS OR COMMITMENTS TO LOAN MONEY, EXTEND CREDIT OR TO FORBEAR FROM ENFORCING REPAYMENT OF A DEBT INCLUDING PROMISES TO EXTEND OR RENEW SUCH DEBT ARE NOT ENFORCEABLE REGARDLESS OF THE LEGAL THEORY UPON WHICH IT IS BASED THAT IS IN ANY WAY RELATED TO THE CREDIT AGREEMENT. TO PROTECT YOU (BORROWER) AND US (LENDER) FROM MISUNDERSTANDING OR DISAPPOINTMENT, ANY AGREEMENTS WE REACH COVERING SUCH MATTERS ARE CONTAINED IN THIS WRITING, WHICH, TOGETHER WITH THE LOAN DOCUMENTS, IS THE COMPLETE AND EXCLUSIVE STATEMENT OF THE AGREEMENT BETWEEN US, EXCEPT AS WE MAY LATER AGREE IN WRITING TO MODIFY IT. |
[The Remainder of this Page is Left Blank Intentionally]
3
COUNTERPART SIGNATURE PAGE TO
THIRD AMENDMENT TO SECOND AMENDED AND RESTATED LOAN AGREEMENT
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed by their respective authorized officers as of the day and year first above written.
|
BORROWER |
||||
|
|
|
|
||
|
THE FEMALE HEALTH COMPANY |
||||
|
|
|
|
||
|
|
|
|
||
|
By: |
|
/s/ Karen King |
||
|
Name: |
|
Karen King |
||
|
Title: |
|
President and CEO |
STATE OF ILLINOIS |
) |
|
|
|
) |
SS |
|
COUNTY OF COOK |
) |
|
|
On this 10 day of July, 2014, before me appeared Karen King, in her capacity as President and CEO of The Female Health Company, a Wisconsin corporation, to me personally known, who, being by me duly sworn, did say that she is the President and CEO of The Female Health Company, a Wisconsin corporation, and that said instrument was signed in behalf of said corporation by authority of its Board of Directors, and said Karen King, as President and CEO, acknowledged said instrument to be the free act and deed of said corporation.
IN TESTIMONY WHEREOF, I have hereunto set my hand and affixed my official seal in the County and State aforesaid, the day and year first above written.
|
/s/ Rebecca Lynn Bouck |
|
|
Notary Public |
|
|
|
|
|
My Commission Expires: |
12/16/15 |
COUNTERPART SIGNATURE PAGE TO
THIRD AMENDMENT TO SECOND AMENDED AND RESTATED LOAN AGREEMENT
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed by their respective authorized officers as of the day and year first above written.
|
LENDER |
||||
|
|
|
|
||
|
HEARTLAND BANK |
||||
|
|
|
|
||
|
|
|
|
||
|
By: |
|
/s/ Nick Overkamp |
||
|
Name: |
|
Nick Overkamp |
||
|
Title: |
|
Vice President |
STATE OF MISSOURI |
) |
|
|
|
) |
SS |
|
COUNTY OF ST. LOUIS |
) |
|
|
On this __ day of __________, 2014, before me appeared _______________, to me personally known, who being by me duly sworn did say that he/she is a Vice President of Heartland Bank, a federal savings bank, and that said instrument was signed on behalf of said bank and said _______________, as Vice President, acknowledged said instrument to be the free act and deed of said bank.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal on the day and year last above written.
|
|
|
|
Notary Public |
|
|
|
|
|
My Commission Expires: |
|
EXHIBIT A
Promissory Note
(see attached)
PROMISSORY NOTE
US $2,000,000.00 |
St. Louis, Missouri |
|
Dated as of August 1, 2014 |
FOR VALUE RECEIVED, the undersigned, THE FEMALE HEALTH COMPANY, a Wisconsin corporation (the "Borrower"), hereby promises to pay to the order of HEARTLAND BANK, a federal savings bank (the "Lender"), at its office at 212 S. Central Avenue, Clayton, Missouri 63105 (the "Lender's Address"), or at such other office as the Lender may subsequently designate in writing, (i) on August 1, 2015 (the "Maturity Date"), the principal amount of Two Million Dollars (US $2,000,000.00), or, if less, the aggregate unpaid principal amount of all advances made hereunder by the Lender to the Borrower prior to said date, (ii) interest on such principal amount at the interest rate per annum for each advance, as determined in accordance with the terms specified below (but in no event in excess of the maximum rate permitted by applicable law), and (iii) any and all other sums which may be owing to the Lender by the Borrower pursuant to this Note. All advances made hereunder by the Lender to the Borrower and all payments made on account of principal hereof and interest hereunder shall be recorded by the Lender and, prior to any transfer hereof, endorsed on the grid attached hereto; provided, however, that the Lender's failure to record any such advance or payment shall not limit or otherwise affect the obligations of the Borrower under this Note.
1.Definitions. Each initially capitalized term used herein shall have the meaning set forth in Schedule A. Any capitalized terms used herein, but not otherwise defined herein or on Schedule A attached hereto, shall have the meaning ascribed to such term(s) as set forth in the Loan Agreement.
2.Advances. Subject to the terms and conditions hereof and the Loan Agreement, and in reliance upon the representations and warranties of the Borrower contained in the Loan Agreement, the Lender agrees to make advances to the Borrower from time to time during the period commencing on the date of this Note and ending on the Maturity Date in an aggregate principal amount at any time outstanding not to exceed the Commitment. The Borrower agrees that it will use the proceeds of any such advance for the purposes set forth in the Loan Agreement. Borrower further agrees that it will not use the proceeds of any such advance for any illegal or unlawful purpose. Each request for an advance hereunder shall be made by a Borrowing Officer on written notice received by the Lender in the form set forth on Exhibit A attached hereto not later than 12:00 noon (St. Louis time) of the Business Day of such advance, shall specify the amount thereof, and shall be irrevocable and binding upon the Borrower. Except as the Borrower and the Lender may otherwise mutually agree, the proceeds of each advance hereunder shall be wired to an account specified by the Borrower.
3.Interest Rate. For the period from the date hereof until maturity (whether by acceleration or otherwise) the Borrower promises to pay interest, in arrears, on the from time to time unpaid principal amount of each advance hereunder on the first Business Day of each month beginning September 1, 2014, at the Prime Rate, and is subject to change from time to time based on changes in the Prime Rate; provided, however, that with respect to any advance or other obligation of the Borrower hereunder which is not paid at maturity, or which remains unpaid following the commencement, by or against the Borrower, of a case under Title 11 of the United States Code, the Borrower promises to pay interest on such advance or other obligation from the date of maturity or the date such case is commenced, until such advance or other obligation is paid in full, payable upon demand, at a rate per annum (in lieu of the Prime Rate in effect at such time) equal at all times to the Overdue Rate, but in no event in excess of the maximum rate permitted by law. The interest rate hereunder shall change on each Interest Rate Change Date. All computations of interest with respect to each advance hereunder shall be made by the Lender on the basis of a year of 360 days for the actual number of days (including the first day, but excluding the last day) in the period for which such interest is payable. This calculation method results in a higher effective interest rate than the numeric interest rate provided for under this Note. After maturity, by acceleration or otherwise, and/or upon an Event of Default, this Note shall bear interest at the Default Rate. A late charge equal to five percent (5%) of the payment amount shall be assessed for each payment not received by Lender by the date ten (10) days after the due date therefor. Borrower hereby acknowledges that the Prime Rate is not necessarily the lowest rate of interest then available from Lender on fluctuating-rate loans.
4.Payments.
(a)Time of Payments. All payments of principal, interest, fees, and other amounts due under this Note shall be made to the Lender at the Lender's Address in lawful money of the United States not later than 2:00 p.m. (St. Louis time) on the day when due, without defense, claim, counterclaim, setoff or right of recoupment.
(b)Final Payment. On the Maturity Date of this Note as provided in the Loan Agreement, Borrower shall pay to the Lender, in same day funds, an amount equal to the aggregate principal amount outstanding under this Note and due on such date, together with accrued interest thereon, all fees payable to the Lender pursuant to the provisions of this Note and the Loan Agreement and any and all other Obligations then outstanding and due and payable.
(c)Interest Calculation. For purposes of interest calculation only, (i) a payment by check, draft, or other instrument received on a Business Day shall be deemed to have been applied to the relevant Obligation on the second following Business Day, (ii) a payment in cash or by wire transfer received at or before 2:00 p.m., St. Louis, Missouri time, on a Business Day shall be deemed to have been applied to the relevant Obligation on the Business Day when it is received, and (iii) a payment in cash or by wire transfer received on a day that is not a Business Day or after 2:00 p.m., St. Louis, Missouri time, on a Business Day shall be deemed to have been applied to the relevant Obligation on the next Business Day.
(d)Due Dates Not on Business Days. If any payment required hereunder becomes due on a date that is not a Business Day, then such payment shall be due on the next Business Day, the amount of such payment, in such case, to include all interest accrued to the date of actual payment.
(e)Prepayments Generally. The Borrower shall have the right to prepay the unpaid principal balance of the indebtedness evidenced by this Note in whole or in part, without penalty. All prepayments, whether voluntary or mandatory pursuant to acceleration, shall be applied first to any expenses due Lender under this Note or under any other documents securing or evidencing obligations of Borrower to Lender with respect to the Loan, then to accrued interest on the unpaid principal balance of this Note, and the balance, if any, shall be applied to the principal sum hereof in inverse order of maturity and shall not relieve Borrower of making installment payments hereon when due. Amounts prepaid may be re-advanced to Borrower in accordance with the terms and conditions of the Loan Agreement.
5.Oral Agreements. ORAL OR UNEXECUTED AGREEMENTS OR COMMITMENTS TO LOAN MONEY, EXTEND CREDIT OR TO FORBEAR FROM ENFORCING REPAYMENT OF A DEBT INCLUDING PROMISES TO EXTEND OR RENEW SUCH DEBT ARE NOT ENFORCEABLE, REGARDLESS OF THE LEGAL THEORY UPON WHICH IT IS BASED THAT IS IN ANY WAY RELATED TO THE CREDIT AGREEMENT. TO PROTECT YOU (BORROWER(S)) AND US (CREDITOR) FROM MISUNDERSTANDING OR DISAPPOINTMENT, ANY AGREEMENTS WE REACH COVERING SUCH MATTERS ARE CONTAINED IN THIS WRITING, WHICH IS THE COMPLETE AND EXCLUSIVE STATEMENT OF THE AGREEMENT BETWEEN US, EXCEPT AS WE MAY LATER AGREE IN WRITING TO MODIFY IT.
6.Default; Remedies after a Default. Any one or more of the following constitutes an Event of Default hereunder: (a) the occurrence of any Event of Default under (or as defined in) the Loan Agreement; or (b) the occurrence of an Event of Default under (or as defined in) any of the other Loan Documents. Upon the occurrence of an Event of Default, the remedies available to Lender shall include, but will not necessarily be limited to, the right to declare the entire principal balance hereof and accrued and unpaid interest thereon immediately due and payable and those other remedies specified in the Loan Agreement and in the other Loan Documents.
7.Expenses; Indemnification. The Borrower agrees to pay on demand all reasonable costs and expenses incurred by the Lender in connection with the preparation, execution, delivery, administration, modification, amendment, and enforcement (whether through legal proceedings, negotiations or otherwise) of this Note or any of the other Loan Documents (such costs and expenses to include, without limitation, the reasonable fees and disbursements of legal counsel). The Borrower agrees to indemnify and hold harmless the Lender and each
of its directors, officers, employees, agents, affiliates, and advisors from and against any and all claims, damages, losses, liabilities, and expenses (including, without limitation, the reasonable fees and disbursements of legal counsel) which may be incurred by or asserted against the Lender or any such director, officer, employee, agent, affiliate, or advisor in connection with or arising out of any investigation, subpoena, litigation, or proceeding, related to or arising out of this Note or any of the other Loan Documents or any transaction contemplated hereby or thereby (but in any case excluding any such claims, damages, losses, liabilities, costs, or expenses incurred by reason of the gross negligence, willful misconduct, or bad faith of the indemnitee). The obligations of the Borrower under this paragraph shall survive the payment in full of the indebtedness evidenced by this Note or by any Other Note.
8.Assignment. The Lender may assign to one or more banks or other entities all or a portion of its rights under this Note. In the event of an assignment of all of its rights, the Lender may transfer this Note to the assignee. The Lender may, in connection with any assignment or proposed assignment, disclose to the assignee or proposed assignee any information relating to the Borrower furnished to the Lender by or on behalf of the Borrower.
9.Amendments, etc. No amendment or waiver of any provision of this Note, nor consent to any departure by the Borrower therefrom, shall in any event be effective unless the same shall be in writing and separately acknowledged in writing by the Lender, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given.
10.Governing Law. This Note shall be governed by, and construed and enforced in all respects in accordance with, the laws of the State of Missouri applicable to contracts made and to be performed entirely within such State, without giving effect to its conflicts of laws, principles or rules.
11.Right of Set-off. At any time that an Event of Default exists, the Lender is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to place an administrative hold upon or to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by the Lender to or for the credit or the account of the Borrower against any and all of the Obligations, irrespective of whether or not the Lender shall have made any demand under this Note or any Other Note and although the Obligations may be unmatured. The Lender agrees promptly to notify the Borrower after any such administrative hold, set-off and/or application made by the Lender; provided, however, that the failure to give such notice shall not affect the validity of such administrative hold, set-off and/or application. The rights of the Lender under this paragraph shall be in addition to all other rights and remedies (including, without limitation, other rights of set-off) which the Lender may have under applicable law.
12.Notices. All notices hereunder and under the Loan Documents shall be in writing and sent by certified or registered mail, return receipt requested, or by overnight delivery service, with all charges prepaid. Notices to the Lender shall be sent to the Lender's Address. Notices to the Borrower shall be sent to the Borrower's Address until the Borrower specifies another address in a notice delivered to the Lender in accordance with this paragraph. Notice will be deemed received upon actual receipt at the Lender's Address or the Borrower's Address, as the case may be.
13.Consent to Jurisdiction; Waiver of Venue Objection; Service of Process. WITHOUT LIMITING THE RIGHT OF THE LENDER TO BRING ANY ACTION OR PROCEEDING AGAINST THE BORROWER OR AGAINST PROPERTY OF THE BORROWER ARISING OUT OF OR RELATING TO THIS NOTE (AN "ACTION") IN THE COURTS OF OTHER JURISDICTIONS, THE BORROWER HEREBY IRREVOCABLY SUBMITS TO AND ACCEPTS THE NON-EXCLUSIVE JURISDICTION OF ANY MISSOURI STATE COURT OR ANY FEDERAL COURT SITTING IN ST. LOUIS CITY OR COUNTY, AND THE BORROWER HEREBY IRREVOCABLY AGREES THAT ANY ACTION MAY BE HEARD AND DETERMINED IN SUCH MISSOURI STATE COURT OR IN SUCH FEDERAL COURT. THE BORROWER HEREBY IRREVOCABLY WAIVES AND DISCLAIMS, TO THE FULLEST EXTENT THAT THE BORROWER MAY EFFECTIVELY DO SO, ANY DEFENSE OR OBJECTION (INCLUDING, WITHOUT LIMITATION, ANY DEFENSE OR OBJECTION TO VENUE BASED ON THE GROUNDS OF FORUM NON CONVENIENS) WHICH THE BORROWER MAY NOW OR HEREAFTER HAVE TO THE MAINTENANCE OF ANY ACTION IN ANY JURISDICTION. THE BORROWER HEREBY IRREVOCABLY AGREES THAT THE SUMMONS AND COMPLAINT OR ANY OTHER PROCESS IN ANY ACTION IN ANY JURISDICTION MAY BE
SERVED BY MAILING (USING CERTIFIED OR REGISTERED MAIL, POSTAGE PREPAID) TO THE BORROWER'S ADDRESS. SUCH SERVICE WILL BE COMPLETE ON THE DATE SUCH PROCESS IS SO DELIVERED, AND THE BORROWER WILL HAVE THIRTY DAYS FROM SUCH COMPLETION OF SERVICE IN WHICH TO RESPOND IN THE MANNER PROVIDED BY LAW. THE BORROWER MAY ALSO BE SERVED IN ANY OTHER MANNER PERMITTED BY LAW, IN WHICH EVENT THE BORROWER'S TIME TO RESPOND SHALL BE THE TIME PROVIDED BY LAW.
14.Waiver of Jury Trial. TO THE FULLEST EXTENT PERMITTED BY LAW, THE BORROWER HEREBY WAIVES AND DISCLAIMS ANY RIGHT TO TRIAL BY JURY (WHICH THE LENDER ALSO WAIVES AND DISCLAIMS) IN ANY ACTION, SUIT, PROCEEDING OR COUNTERCLAIM OF ANY KIND ARISING OUT OF OR RELATING TO THIS NOTE.
15.Collateral. This Note is secured as provided in the Loan Agreement.
16.Miscellaneous. No failure on the part of the Lender to exercise, and no delay in exercising, any right under this Note shall operate as a waiver thereof, nor shall any single or partial exercise of any such right preclude any other or further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative and not exclusive of any remedies provided by law.
17.Superseding Note. This Note supersedes and replaces all other promissory notes labeled "Loan Number Two" executed between the parties hereto in connection with the Loan Agreement, including the Promissory Note dated July 20, 2004, in the principal face amount of $500,000 executed by Borrower to the order of Lender, the Promissory Note dated July, 2005, in the principal face amount of $500,000 executed by Borrower to the order of Lender, the Promissory Note dated July 1, 2006, in the principal face amount of $500,000 executed by Borrower to the order of Lender, the Promissory Note dated July 1, 2007 in the principal face amount of $500,000 executed by Borrower to the order of Lender, the Promissory Note dated July 1, 2008 in the principal face amount of $500,000 executed by Borrower to the order of Lender, the Promissory Note dated July 1, 2009, in the principal face amount of $500,000 executed by Borrower to the order of Lender, the Promissory Note dated July 1, 2010, in the principal face amount of $1,000,000 executed by Borrower to the order of Lender, the Promissory Note dated August 1, 2011 in the principal face amount of $2,000,000 executed by Borrower to the order of Lender, Promissory Note dated August 1, 2012 in the principal face amount of $2,000,000 executed by Borrower to the order of Lender, and the Promissory Note dated August 1, 2013 in the principal face amount of $2,000,000 executed by Borrower to the order of Lender (collectively, the "Prior Notes"). Upon the Lender's acceptance of this Note and the satisfaction and occurrence of each of the conditions precedent to the effectiveness of this Note, the Prior Notes shall be deemed canceled and of no further force or effect; provided, however, that (i) nothing in the foregoing shall be deemed to waive any outstanding principal, accrued interest, fees, or late charges under the Prior Notes, and (ii) the execution, delivery, and/or acceptance of this Note shall not be deemed to have terminated, extinguished, released, constituted a novation of, or discharged the indebtedness evidenced under the Prior Notes, which indebtedness shall continue under and be governed by this Note. No reference to this Note need be made in any instrument or document at any time referring to the Prior Notes, a reference to the Prior Notes in any such instrument or document to be deemed to be reference to this Note as the same may be amended, restated, modified, extended, and/or supplemented from time to time. Nothing herein is intended to extinguish, cancel or impair the lien priority or effect of any security agreement, pledge agreement or mortgage with respect to the Borrower's obligations hereunder and under any other document relating hereto.
[Remainder of page intentionally left blank.]
IN WITNESS WHEREOF, the Borrower has executed this Note as of the date first above written.
THIS AGREEMENT CONTAINS A BINDING JURY WAIVER PROVISION.
|
“BORROWER” |
||||
|
|
|
|
||
|
THE FEMALE HEALTH COMPANY |
||||
|
|
|
|
||
|
|
|
|
||
|
By: |
|
/s/ Karen King |
||
|
Name: |
|
Karen King |
||
|
Title: |
|
President and CEO |
STATE OF ILLINOIS |
) |
|
|
|
) |
SS |
|
COUNTY OF COOK |
) |
|
|
On this 10 day of July, 2014, before me appeared Karen King, in her capacity as President and CEO of The Female Health Company, a Wisconsin corporation, to me personally known, who, being by me duly sworn, did say that she is the President and CEO of The Female Health Company, a Wisconsin corporation, and that said instrument was signed in behalf of said corporation by authority of its Board of Directors, and said Karen King, as President and CEO, acknowledged said instrument to be the free act and deed of said corporation.
IN TESTIMONY WHEREOF, I have hereunto set my hand and affixed my official seal in the County and State aforesaid, the day and year first above written.
|
/s/ Rebecca Lynn Bouck |
|
|
Notary Public |
|
|
|
|
|
My Commission Expires: |
12/16/15 |
Borrower's Address:
515 N. State Street
Suite 2225
Chicago, Illinois 60654
ADVANCES AND PAYMENTS OF PRINCIPAL AND INTEREST
DATE |
AMOUNT OF ADVANCE |
AMOUNT OF PRINCIPAL PAID OR PREPAID |
AMOUNT OF INTEREST PAID |
UNPAID PRINCIPAL BALANCE OF ADVANCES |
NOTATION MADE BY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SCHEDULE A
Definitions
"Affiliate" means, with respect to a Person, (a) any officer, director, employee, member or managing agent of such Person, (b) any spouse, parents, brothers, sisters, children and grandchildren of such Person, (c) any association, partnership, trust, entity or enterprise in which such Person is a director, officer or general partner, (d) any other Person that, (i) directly or indirectly, through one or more intermediaries, controls, or is controlled by, or is under common control with, such given Person, (ii) directly or indirectly beneficially owns or holds 5% or more of any class of voting stock or partnership, membership or other interest of such Person or any Subsidiary of such Person, or (iii) 5% or more of the voting stock or partnership, membership or other interest of which is directly or indirectly beneficially owned or held by such Person or a Subsidiary of such Person. The term "control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through ownership of voting securities or partnership or other interests, by contract or otherwise.
"Borrower" means THE FEMALE HEALTH COMPANY, a Wisconsin corporation.
"Borrower's Address" means 515 N. State Street, Suite 2225, Chicago, Illinois 60654.
"Borrowing Officer" means each individual of Borrower who is duly authorized by Borrower to submit a request for a Loan Advance.
"Business Day" means any day other than a Saturday, Sunday, or other day on which banks in St. Louis, Missouri are authorized to close.
"Commitment" means the agreement of the Lender to fund advances to the Borrower in an aggregate principal amount not to exceed, at any time outstanding, US $2,000,000.00.
"Default Rate" means a rate of interest equal to four percent per annum (4%) in excess of the Prime Rate.
"Dollar" and "$" means freely transferable United States dollars.
"Effective Date" means the later of (a) the Agreement Date, as defined in the Loan Agreement, and (b) the first date on which all of the conditions set forth in Section 4.1 of the Loan Agreement shall have been fulfilled or waived by the Lender.
"Events of Default" has the meaning specified in paragraph 6 of this Note, or any Event of Default as defined in the Loan Agreement.
"Interest Rate Change Date" shall mean each Business Day during the term of this Note.
"Lender" means Heartland Bank, a federal savings bank, and its successors and assigns.
"Lender's Address" means 212 S. Central Avenue, Clayton, Missouri 63105.
"Loans" means any loan made to Borrower pursuant to Section 2.1 of the Loan Agreement and all extensions, renewals and modifications thereto, as well as all such Loans collectively.
"Loan Agreement" means that certain Second Amended and Restated Loan Agreement entered into by and between Lender and Borrower, dated as of August 1, 2011, as amended by a First Amendment to Second Amended and Restated Loan Agreement dated as of August 1, 2012, as amended by a Second Amendment to Second Amended and Restated Loan Agreement dated as of August 1, 2013, and as amended by a Third Amendment to Second Amended and Restated Loan Agreement dated as of the date herewith, as the same may be further amended, modified, or restated.
"Loan Documents" means, collectively, this Note, the Loan Agreement, the Security Agreement, and each other instrument, agreement and document executed and delivered by Borrower in connection with this Note and each other instrument, agreement, or document referred to herein or contemplated hereby.
"Material Adverse Effect" means any act, omission, event or undertaking which would, singly or in the aggregate, have a material adverse effect upon (a) the business, assets, properties, liabilities, condition (financial or otherwise), results of operations or business prospects of Borrower, (b) upon the ability of Borrower to perform any obligations under this Note or any other Loan Document to which it is a party, or (c) the legality, validity, binding effect, enforceability or admissibility into evidence of any Loan Document or the ability of Lender to enforce any rights or remedies under or in connection with any Loan Document; in any case, whether resulting from any single act, omission, situation, status, event, or undertaking, together with other such acts, omissions, situations, statuses, events, or undertakings.
"Maturity Date" means August 1, 2015.
"Note" means this Promissory Note and any and all amendments, modifications, restatements, renewals or refinancings thereof.
"Obligations" means, in each case whether now in existence or hereafter arising, (a) the principal of and interest and premium, if any, on, and expenses related to, the Loans and (b) all indebtedness, liabilities, obligations, overdrafts, covenants and duties of Borrower to the Lender of every kind, nature and description, direct or indirect, absolute or contingent, due or not due, contractual or tortious, liquidated or unliquidated, and whether or not evidenced by any note and whether or not for the payment of money under or in respect of the Loans, this Note, any Note or any of the other Loan Documents.
"Obligors" means Borrower, and each other party at any time primarily or secondarily, directly or indirectly, liable on any of the Obligations.
"Other Note" means any promissory note which may be given in renewal or extension of all or any part of the indebtedness evidenced by this Note or which may amend or restate the terms pursuant to which such indebtedness is to remain outstanding.
"Overdue Rate" means, in respect of any amount not paid when due under this Note or any Other Note, a rate per annum during the period commencing on the due date of such amount until such amount is paid in full equal to 4% per annum in excess of the Prime Rate.
"Person" means an individual, corporation, partnership, association, trust or unincorporated organization or a government or any agency or political subdivision thereof.
"Prime Rate" means the fluctuating rate per annum that is published as the national prime rate of interest by the Wall Street Journal, with each change in the Prime Rate, automatically, immediately, and without notice changing the Prime Rate thereafter applicable hereunder.
EXHIBIT A
FORM OF REQUEST FOR AN ADVANCE
Heartland Bank
212 South Central Avenue
St. Louis, Missouri 63105
Attn.:
Re:Promissory Note, dated as of August 1, 2014 between THE FEMALE HEALTH COMPANY ("Borrower") and HEARTLAND BANK ("Lender"), as it may be amended, modified, restated, or replaced from time to time (the "Note")
Ladies and Gentlemen:
The undersigned is a Borrowing Officer and, as such is authorized to make and deliver this request for an advance pursuant to the Note. All capitalized words used herein that are defined in the Note have the meanings defined in the Note.
Borrower hereby requests that Lender make a Loan of $__________ to Borrower under the terms of the Note dated August 1, 2014. The proceeds of the advance should be deposited in account number _________________________ with [Lender].
The undersigned hereby certifies on behalf of Borrower that:
(i)There is no Event of Default.
(ii)The representations and warranties of Borrower in the Loan Agreement are true as if made on the date hereof.
(iii)The amount of the requested advance will not, when added to the current amount of the aggregate Loans exceed the Commitment.
(iv)All conditions precedent to an advance as set forth in the Loan Agreement have been satisfied.
(v)The proceeds of this advance will be used for the following purpose:
Executed this _____ day of _______, 20__.
|
THE FEMALE HEALTH COMPANY |
||||
|
|
|
|
||
|
|
|
|
||
|
By: |
|
|
||
|
Name: |
|
|
||
|
Title: |
|
|
Exhibit 10.9
July 10, 2014
Ms. Susan Ostrowski
Dear Susan:
I am very pleased to extend you an offer to join The Female Health Company (the "Company") in the position of Executive Vice President of New Business Development. You would join the Company in such position on July 10, 2014 (the "start date") if you return a signed copy of this letter to me by the start date. The position carries the responsibilities that have been described to you including direction and management of the sales, marketing, and sales support functions of the Company. You will manage the existing U.S. sales support team and the global SUPPORT team and a new sales function to be developed by you. You will be a member of and participate in the Company’s Executive Operating Committee and as such, will help to develop and drive the overall Company strategy and implementation plan. You will report directly to me as the Company President and CEO.
The specifics of our offer include the following:
Annual Base Salary: |
|
$209,280 |
|
|
|
Hiring Bonus: |
|
A grant of 12,000 shares of restricted stock under the Company’s Stock Incentive Plan on the start date. The restriction will lapse and shares will vest on April 1, 2015. A second grant of 12,000 shares of restricted stock on the first anniversary of your start date if you continue to be employed which will vest 12 months after the grant date. |
|
|
|
Bonus: |
|
You will be eligible to receive a bonus of 25,000 shares of common stock, or at the Company’s option the cash equivalent of such shares, based on the average closing price of the Company’s stock on the last ten trading days of each fiscal year, contingent on the Company achieving its plan for each fiscal year. |
|
|
|
Insurance: |
|
You will be immediately eligible to participate in the U.S. health, dental, vision, disability and life insurance programs of which the premiums are fully paid by the Company. |
|
|
|
Simple IRA Program: |
|
You will also be immediately eligible to participate in the Simple IRA program offered by the Company. The Company offers a matching contribution for up to 3% of the value of your annual base salary based on your own participation elections. |
|
|
|
Vacation: |
|
You will receive four weeks paid time off per year. Holidays are as defined for US employees. |
|
|
|
Page 1
Expenses: |
|
The Company will reimburse you for all reasonable and documented expenses associated with your position for the Company. The Company policy is that we travel economy class unless prior approval is given to travel business class on an international flight. |
|
|
|
Additional Benefits: |
|
As a member of the Executive Operating Committee you will be covered by the Company’s Change in Control Agreement, which will be executed as of the start date. |
The Female Health Company is making a significant contribution to the health of women around the world. You will be contributing and playing a key role in driving the future success of the Company. I am certain you will be successful in this role and look forward to having you as a member of the team.
If the terms and conditions of this offer are acceptable to you, please sign the copy of this letter in the space indicated and return to me by Monday, July 10, 2014. Subject to your execution of this letter, as of the start date, the Consulting Agreement dated as of April 14, 2014, between you and the Company shall be terminated.
Yours truly,
/s/ Karen King
Karen King
President and CEO
The Female Health Company
Accepted by: /s/ Susan OstrowskiDate: 7/11/14
Page 2
Exhibit 21
Subsidiaries of The Female Health Company (1)
The subsidiaries of The Female Health Company are as follows:
Name |
Jurisdiction of Organization |
|
|
The Female Health Company Limited |
United Kingdom |
The Female Health Company (UK) Plc. |
United Kingdom |
The Female Health Company (M) SDN.BHD |
Malaysia |
______________________
(1)All subsidiaries are wholly owned, directly or indirectly, by The Female Health Company.
Exhibit 23.1
Consent of Independent Registered Public Accounting Firm
We consent to the incorporation by reference in Registration Statements (No. 333-23517, No. 333-154252 and No. 333-165729) on Form S-8 of The Female Health Company of our report dated December 2, 2014, relating to our audits of the consolidated financial statements and internal control over financial reporting, which appear in this Annual Report on Form 10-K of The Female Health Company for the year ended September 30, 2014.
/s/ McGladrey LLP
Chicago, Illinois
December 2, 2014
Exhibit 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Karen King, certify that:
1. I have reviewed this annual report on Form 10-K of The Female Health Company; |
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a‑15(f) and 15d‑15(f)) for the registrant and have: |
(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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; |
(c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and |
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): |
(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
Date: December 2, 2014 |
|
/s/ Karen King |
|
|
Karen King |
|
|
Chief Executive Officer |
Exhibit 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Michele Greco, certify that:
1. I have reviewed this annual report on Form 10-K of The Female Health Company; |
1. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
2. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
3. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a‑15(f) and 15d‑15(f)) for the registrant and have: |
(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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; |
(c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and |
4. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): |
(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
Date: December 2, 2014 |
|
/s/ Michele Greco |
|
|
Michele Greco |
|
|
Chief Financial Officer |
Exhibit 32.1
Certification of Periodic Financial Report
Pursuant to 18 U.S.C. Section 1350
Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, each of the undersigned officers of The Female Health Company (the "Company") certifies that the Annual Report on Form 10-K of the Company for the year ended September 30, 2013 fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 and information contained in that Form 10-K fairly presents, in all material respects, the financial condition and results of operations of the Company.
Dated: December 2, 2014 |
|
/s/ Karen King |
|
|
Karen King |
|
|
Chief Executive Officer |
Dated: December 2, 2014 |
|
/s/ Michele Greco |
|
|
Michele Greco |
|
|
Chief Financial Officer |
This certification is made solely for purpose of 18 U.S.C. Section 1350, subject to the knowledge standard contained therein, and not for any other purpose.
:8W#V\EJ99IYI'FN&%M*T"^>\@2(1H
M@588@@!/%X>L(/)V18^RW=Q?0_/(=ES=_:OM$G+_`#>9]LN?D;,:^9\B+LCV
M@'/^&/A]I?AO3XK#RDN2EDEE*9`S0R)Y:)<^7:R22P6RWKH)KR.%5%U+B2Y,
MTBAZ`-.#P?ID$$UMLEF6Y\OS)+BZNKBX_=,7@V74\TES%]GD)FMO*F3[-.S3
MP>7,S.0"'_A!M',3P/"\@FM[JUE>6XN99I8;T0+ `Q0J?\`51E;
M:)B`=P95`81Q0QQ`$DW@+0[BR339;4/;QR/,`TDQD:24,L[R3^9Y\IN%=TN?
M-D?[2CND_F*[`@%^3PKI4M_%JK6Z?:[=56-QN``176,F,,(F>))94AD9&>%)
M95B9%D<,`=!0!CZ'_P`>[_\`7U>_^ED]`&Q0`4`%`!0`4`%`!0`4`%`!0`4`
M%`!0`4`%`!0`4`%`!0`4`%`!0`4`%`!0`4`%`!0`4`%`!0`4`%`!0`4`%`!0
M`4`%`!0`4`%`!0`4`%`!0`4`%`!0`4`%`!0`4`%`!0`4`%`!0`4`%`!0`4`%
M`!0`4`%`!0`4`%`!0`4`%`!0`4`%`!0`4`%`!0`4`%`!0`4`%`!0`4`%`&/H
M?_'N_P#U]7O_`*63T`;%`!0`4`%`!0`4`%`!0`4`%`!0`4`%`!0`4`%`!0`4
M`%`!0`4`%`!0`4`%`!0`4`%`!0`4`%`!0`4`%`!0`4`%`!0`4`%`!0`4`%`!
M0`4`%`!0`4`%`!0`4`%`!0`4`%`!0`4`%`!0`4`%`!0`4`%`!0`4`%`!0`4`
M%`!0`4`%`!0`4`%`!0`4`%`!0`4`%`!0`4`%`!0`4`8^A_\`'N__`%]7O_I9
M/0!L4`%`!0`4`%`!0`4`%`!0`4`%`!0`4`%`!0`4`%`!0`4`%`!0`4`%`!0`
M4`%`!0`4`%`!0`4`%`!0`4`%`!0`4`%`!0`4`%`!0`4`%`!0`4`%`!0`4`%`
M!0`4`%`!0`4`%`!0`4`%`!0`4`%`!0`4`%`!0!7N;N&S7?.ZQJ`QRQ`X52[8
M[G"J6(&3@$]J`/-?%_B&XO;6V73XYHM.O)$%Q?REK2)(V,J1Q-DI>Q">X6&.
M2=8406\V^*;""."#P10!F:5H&FZ"K)I=I;6*R'+BV@B@#$="PC50Q'JZ4/\`ENQ+W-FO
M_3<\M
M:AHFGZIIFF7-PC:?>W$D$AFDN+J"ULM!M]9WM-<--+ M+`VJ-!;7#71GC,%\++*++;J@!M:K!<:;JDFB64M[/8!-.N)+0:E,+^Y,ZZXL ML5G>WEY%<*P>RL[F2%+Z!!;6ET4!\V>*X`-/P]KEU):Z.)Q*&GUK5;$K/*[3 M10VB:XL$&[=EMV4W0,X M>``Y^_\`%6KSZ+9ZJ[VY&J/H][;6=H6M[Y(I=4TOS+7=- W.G:5+9O:?:=?E`AG\J>2VABDL[K48SY+R6L]Q^XMQ M;[F>S9Y'^TF&$`V=`%+3?%>JZG>6%C$EHOG?VN+V5EE_Y@^I6U@TEM$'./M6 M^0K#+*WV;S4D,]S]F:&[`(+OQ!J:ZA-I^G-;P2SZZM@);F.XND2(>'H]29A" M+R`*QDC\L+"\,(#-*T3SO))(` :K<:+J_DR6EE)I6GW0GF9I86GF:\U M72HI+.42DV4JS:<;F"%Q>//+<0V2SPLGVQP#IM/\7Z[JFI-#';16^GSW>H:? M;3S+!M2:R-W&LP(U5;F]WR6;L]DFGV;I$\C"[,=J9K@`ZWPEX@E\2Q2WC?9T MA5Q"D<,AF8.@W23--B-6@N5>.:PQ"IEL6M[YFQ>K;VP!R5AKVL:A<0:?ILEI M:F>7Q%)))=075[\NG:Q'9Q(@-_;LF];@LP\QHH]BQ010PA(T`)O#GC/4/$\: M:K$;*QL%?3HI;:X\PRR/?V=A=@Q7HD2-&4ZC'!#;M8R&ZFA">=!]J4VP!S_A M+QY=)X=M);J2)[D7?A[38FG9S+<_;[/19KEF+2[IKK;>W -=3O+W2+F:2W$6I65I>K:P37$3PQ:AK7A^&)+J))P9FMXY9TAO-T<-X6N M87L8X%FCN`#:LO'FM0V.G3WOV*:;7[*UN;8PV\\"6;W-WI-GB9'O+AKQ4;5D MEPCV986K1[E-P)+<`TT\:ZJ+#4)%73[J\T[6K'28_*>5;:;SY-+BE,C@S/!+ MOO9@Z`3_`&*11"PO#`\DX`2>+]=AU9K,6T4UC8W=EI]W:.6 M?55FM]IOD\JR6QOWG9$A2[,ESFW`,6S\:ZPFE+J$!M%MM-\-:;K-Q#+%=3S7 M+3Q7LDL$=W)?;H >$//))?6P*S2VUO 15C%VBRI#J-Y=X%J\5C+_:*+:@'&:9XZ\26. MA?:UFTR^F:W\3ZF\^+F6!4TR_C6..V;[1NN8)&EDBMR7MA%:O;,N\VC17@!W M.H>,=9LHFT^&&*]U5-5&F"2"$+$^=+&KF9;.XU"`#;"3;F-]43YE-RLC?+9D M`S#XZU[R;R\=+*W31-,^W7=LT?GRW#Q76K0RQ)<6VHR6]DSII@S&1J!LYIGB MD>X:`[P#3T/6]5TWP_-=7DT5Y>2:U=6,,ABE2./[1KKZ;&SQO WO;/6-.TN>YBMYT2:&_;32S0Q+>B> MT8)J2Q,Z7DDI$,CP2VTTT4EJ`'BKQ/J`N&A@EM[6UM]=T;3"A>2.ZF>:;3+V M1X95?9(KV]P]M+8>2"T"7%TUV44VK`!!XPU.VBEBBA222\N-2MM,.+B5?MT& MLWEH5NV>9G$`@:WO/*MR6BL[/5I(HXK>UAA4`YCQ!XUU,:+K:VDEO9#3+?4W M>66:X660SZIK6GVHM;EIV:UG@:Q62)-DR7$TL5G;+I\:QNH!IZG\1M=LTO[^ M.SB73[?^V(;9YO(13-I<5\5<2#4_M-WYTE@^^T33+5XXI))!=/':F6X`.@N/ M$NM66HIXU,5ZMK.EO$EQ!JTY5[(WLDDK*-'D0.M]"";I&V#[,RW M(!S.A^-=7>PCNX9+*6W%QJ4]U.TS7L4<1U:_CMP]PL]O/::<4A\FVU-+'4(4 MA26>>UM+:Q8S`'O-`!0`4`%`!0`4`%`!0`4`%`!0`4`%`!0`4`%`!0`4`%`! M0`4`%`!0`4`%`!0`4`%`!0`4`%`!0`4`%`!0`4`%`!0`4`%`'/Z_KXT$6RK; M7%]-?7!MH8;8VX >Y8EKF>VB55BMI"29,D[55230!F:7:Z<-5&JMIW]GZ MQJ5I()GE:S^T^39RQ1A)!! DSRO M-I5SHHE/VEFDM)+$323+,WG$DP>:\\J2G?\`.TTBR'+N"0`N_P#A%?\`B6?: MO[*_Y9_V-YOV3_ICY7]F[O\`MW\O[+_TQV_P4`7;:\TK5H7U"6.)!]K-DSW* M1*SS6&HRVUNNXEMVV^5GL@6WB65614F"ZUD)IDPFMS'?7@6V& MSG)&(H?,:-HX6V1[V0@;B"`7+R\T#PO<_)':1:A/+$S16Z6ZW;?VG?6MD]TZ M`I(8I;G[/]IG.=YA7/F21HM`%,7WA*>>.XNAI4&HZ]:1*4G>P-W>6]TJ(D+, MDDGVN*38L($ RTUK0VBQ#?N MFN%A*,H$4EQ!'%*(`V^]DMHW7>RD`!9?\(6^E206?]BG1Y97\Y(OL1LGFAB% MS)YBI^X:6*"`7#[@72*$2G"1A@`7$U[0!86]YIS6E[9V=W:65N;$V\T=M- *KA"KI;2.%5@P1@"==:\-Z=96VJ+ RN[>W6/2GDM+1+B:W,T-E M%#9[9#+9*9;^V@$%]_9YC%YB5(T2Z,(!T'AZVT?4/M :TF=I)+ M>2&-X7=Y3.[O$RE&9IR9F9E),I,A) ?Y,7F^;Y^_RTW^=Y/V;SMV,^;]G_T? MS,[_`"?W6=GRT`4KCPYI5WM\^SM)?+^T[-]O$VW[9N^V;=R''VK>_P!IQCS] MS>;NW'(`2>'-*EGGO'L[1KF]B,%S,UO$99X654:&:0INEB*HBF-RR%44$84` M`!>Z#:WUY;:@Z[+FRE$JN@0-)MM[RV2.5BI9XHUOKAXT#+ME TL$,A):)"H!!J7AJTO[+[!$J6:"W-I&\,%JQBM7,7F MVT<=S;W%N()4ACCDA:%HV15&T,B,H!#H?A.RT.U-FH^TAY8IW::.`;I;=(([ M9A#!#!;1?9H[6V2`001*GD1R8,VZ1@#3ET33Y[V/5);:W>_@0QQ730QFXC0A MP428J9$4B20%58`AWX^9L@`NB:>D36ZVUN(9+=+1XQ#&$:UC#K';,FW:8$66 M14A(,:B1PJ@.V0">?3;6Z\WSX8I?M40@GWQHWG0CS,0RY!\R(>=+B-\H/-DP M/G;(!ER^$]%GLH]+ET^R>P@ 62Z MC6&,),-LSSH%VRM*ORRM(&,@X ;YLR8'RRR^?-YD@P[^ M=+N)\Q\@%*X\.:5=[?/L[27R_M.S?;Q-M^V;OMFW ;NW'( M`2>'-*EGGO'L[1KF]B,%S,UO$99X654:&:0INEB*HBF-RR%44$84``$U_HFG MZHLD=];6]REPD< &6 M:SM))+262>W9[>)FAFEE$TLT1*$QRR3`2R2(0[R@2,2W-`&G;VT5HIC@1(D+ MO(510H+RNTDCD*`-TDCO([=7=F=B68D@$U`!0`4`%`!0`4`%`!0`4`%`!0`4 M`%`!0`4`%`!0`4`%`!0`4`%`!0`4`%`!0`4`%`!0`4`%`!0`4`%`!0`4`%`! M0`4` )WT]+J*WN;2SO6N;B&Y02)(GV&]MT`C9'1V6>XBD`?:`$9PV M]55@"#4O"WVBZ@:U2TCL[?2M0TX020^9"/M3Z?Y*&U7RTDM42TD26$2Q90I& MF`Q9`#F;7PEK$!AO]EI]JL+M)[>WEOKJ[:2(6E]:M#-J\]F+PQ*VH37,$4MK M=M!*)HUG\BZCCL0#,\6?#S5O$%K/'`;*UFO[*:&0037MG#!-)+>3G>MIY;:L ML[7?E2-?&.*"59[^.RD-] :?J+/LEN-3NO,M%>2>(7%_=7U MO+;*(GD^V6XDBDA\J*1TNHU,(D94+`')/X&U&[@L-3=,ZKY5U)J$']I7FFDW M.HM:3S8OM.$\TD5D;1+*VMW$L9M%@!N#]DB\P`AF^&=]%+;16DENEK:W&D3Y M2>_MT\O338(]M]@262WG8I:--#?W\U[=*#%8,NR""]A`.@C\"/%X0L_#,?E1 M3V<6GL_D/+;Q2W%G/;W4NV>%4G@^U3POF[1//C:4W(C>5=C`!X8\&7.D:E'J M QT1!=6L&HQR2,?*W"`M=QE&"F0A7W1*0H8` MR]/TZYE\0V5M%!O@TC5=7O&NI+*^AE,6HIJ3RJEQ &T1V+6QE0*+AP"?3_`(>SO?6NH7L-NAM[ MV">2.34-1U9V2UM-3CMW6YU%5PT=U?I+#`D$0@, R=AIGAJR83+)/;L^CWLMS=^9"5B,T$L<@6.,O&9CNCD-NI\R@":]\!ZI M=WAUMUB-Y/+ TBB9KHY.;2-YP#K M?!7@]?"7VL!;<&X>S6-X$=3]GL],LK*.-O-:64*DL%P\4;W%P427)F:1Y#0! MS]]X-U75+E[Z5-/M+B/[,[-:O*%U6:SOK"\MY;T&!6M?+6P:W@!?5'M8KZ;9 M)((2MT`=;H&FZAI[W-U=);K-JEZ+FXBBGD=+9$L8+1!#*UO$URSM9Q.P>*U" M">0!G,"_:`#K*`"@`H`*`"@`H`*`"@`H`*`"@`H`*`"@`H`*`"@`H`*`"@`H M`*`"@`H`*`"@`H`*`"@`H`*`"@`H`*`"@`H`*`"@`H`*`"@`H`*`"@`H`*`" M@`H`*`"@`H`*`"@`H`*`"@`H`*`"@`H`*`"@`H`*`"@`H`*`"@`H`*`"@`H` M*`"@`H`*`"@`H`*`"@`H`*`"@`H`*`"@`H`*`"@`H`*`"@`H`*`"@`H`*`"@ M`H`*`"@`H`*`"@`H`*`"@`H`*`"@`H`*`"@`H`*`"@`H`*`"@`H`*`"@`H`* M`"@`H`*`"@`H`*`"@`H`*`"@`H`*`"@`H`*`"@`H`*`"@`H`*`"@`H`*`"@` MH`*`"@`H`*`"@`H`*`"@`H`*`"@`H`*`"@`H`*`"@`H`*`"@`H`*`"@`H`*` M"@`H`*`"@`H`*`"@`H`*`"@`H`*`"@`H`*`"@`H`*`"@`H`*`"@`H`*`"@`H M`*`"@`H`*`"@`H`*`"@`H`*`"@`H`*`"@`H`*`"@`H`*`"@`H`*`"@`H`*`" M@`H`*`"@`H`*`"@`H`*`"@`H`*`"@`H`*`"@`H`*`"@`H`*`"@`H`*`"@`H` M*`"@`H`*`"@`H`*`"@`H`*`"@`H`*`"@`H`*`"@`H`*`"@`H`*`"@`H`*`"@ M`H`*`"@`H`*`"@`H`*`"@`H`*`"@`H`*`"@`H`*`"@`H`*`"@`H`*`"@`H`* A`"@`H`*`"@`H`*`"@`H`*`"@`H`*`"@`H`*`"@`H`__9 ` end
Revolving Line Of Credit (Details) (USD $)
|
12 Months Ended | |
---|---|---|
Sep. 30, 2014
|
Sep. 30, 2013
|
|
Line of Credit Facility [Line Items] | ||
Line of credit facility, maximum borrowing capacity (in Dollars) | $ 2,000,000 | |
Ratio of liabilities to equity | 100.00% | |
Line of credit facility, interest rate at period end | 3.25% | |
Line of credit facility, amount outstanding (in Dollars) | $ 0 | $ 0 |
Inventory [Member]
|
||
Line of Credit Facility [Line Items] | ||
Line of credit facility, percentage of assets borrowing | 50.00% | |
Minimum [Member] | Accounts Receivable [Member]
|
||
Line of Credit Facility [Line Items] | ||
Line of credit facility, percentage of assets borrowing | 70.00% | |
Maximum [Member] | Accounts Receivable [Member]
|
||
Line of Credit Facility [Line Items] | ||
Line of credit facility, percentage of assets borrowing | 80.00% |
Stock Repurchase Program (Schedule Of Treasury Stock Purchase) (Details) (USD $)
|
12 Months Ended | 57 Months Ended | 93 Months Ended | ||
---|---|---|---|---|---|
Sep. 30, 2014
|
Sep. 30, 2013
|
Sep. 30, 2012
|
Sep. 30, 2011
|
Sep. 30, 2014
|
|
Equity, Class of Treasury Stock [Line Items] | |||||
Total Number of Shares Purchased | 169,000 | 55,625 | 44,000 | 1,914,829 | 2,183,454 |
Average Price Paid Per Share (in Dollars per share) | $ 4.37 | $ 7.11 | $ 6.58 | $ 3.33 | $ 3.57 |
Aggregate Number of Shares Purchased as Part of Publicly Announced Program | 2,183,454 | 2,014,454 | 1,958,829 | 1,914,829 | 2,183,454 |
Maximum Number of Shares that May Yet be Purchased Under the Program | 816,546 | 985,546 | 1,041,171 | 1,085,171 | 816,546 |
Open Market Repurchase [Member]
|
|||||
Equity, Class of Treasury Stock [Line Items] | |||||
Total Number of Shares Purchased | 165,000 | 10,000 | 10,000 | ||
Private Repurchase [Member]
|
|||||
Equity, Class of Treasury Stock [Line Items] | |||||
Total Number of Shares Purchased | 4,000 | 45,625 | 34,000 |
Income Taxes (Schedule Of Deferred Tax Amounts Classified In Balance Sheets) (Details) (USD $)
|
Sep. 30, 2014
|
Sep. 30, 2013
|
---|---|---|
Components Of Deferred Tax Assets And Liabilities [Line Items] | ||
Current assets | $ 711,000 | $ 2,552,000 |
Long-term assets | 16,832,000 | 16,048,000 |
Long-term liability – Malaysia | (190,513) | (235,179) |
Net deferred tax assets | 17,352,487 | 18,364,821 |
U.S. [Member]
|
||
Components Of Deferred Tax Assets And Liabilities [Line Items] | ||
Current assets | 711,000 | 2,074,000 |
Long-term assets | 6,739,000 | 5,937,000 |
U.K. [Member]
|
||
Components Of Deferred Tax Assets And Liabilities [Line Items] | ||
Current assets | 478,000 | |
Long-term assets | $ 10,093,000 | $ 10,111,000 |