UNITED
      STATES


SECURITIES
      AND EXCHANGE
      COMMISSION


Washington,
      D.C.
      20549


FORM
      10-K


(Mark
      One)


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


For
      the fiscal year ended September 30, 2008


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


For
      the transition period fromto


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 registeredCommon
                stock, $.01 par
                value
            
            American
                Stock Exchange




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
o
      No þ




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
o
      No þ




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 þ No o




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. o




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
      definition of “large accelerated filer,” “accelerated filer” and “smaller
      reporting company” in Rule 12b-2 of the Exchange Act. (Check
      one):




Large
      accelerated filero                                                                                                         
      Accelerated filer o




Non-accelerated
      file o(Do
      not check if a smaller reporting
      company)                           
Smaller reporting companyþ







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




The
      aggregate market value of the voting stock held by non-affiliates of the
      registrant as of March 31, 2008,  was approximately $48.8 million
      based on the per share closing price as of March 31, 2008 quoted on the American
      Stock Exchange for the registrant’s common stock, which was $2.48.




There
      were 27,146,158 shares of the registrant’s common stock, $0.01 par value per share outstanding at December
      10, 2008.




DOCUMENTS
      INCORPORATED BY REFERENCE:




None







THE
      FEMALE HEALTH COMPANY





FORM
      10-K





SEPTEMBER
      30, 2008





TABLE
      OF CONTENTS





PART
                I
            PageItem
                1.
            Business
            
            5Item
                2.
            Properties
            
            15Item
                3.
            Legal
                Proceedings
            
            15Item
                4.
            Submission
                of Matters to a Vote of Security Holders
            
            15PART
                IIItem
                5.
            Market
                for Registrant's Common Equity, Related Stockholder Matters and Issuer
                Purchases of Equity Securities
            
            16Item
                6.
            Selected
                Financial Data
            
            18Item
                7.
            Management's
                Discussion and Analysis of Financial Condition and Results of
                Operations
            
            19Item
                7A.
            Quantitative
                and Qualitative Disclosures About Market Risk
            
            25Item
                8.
            Financial
                Statements and Supplementary Data
            
            25Item
                9.
            Changes
                in and Disagreements With Accountants on Accounting and Financial
                Disclosure
            
            25Item
                9A(T).
            Controls
                and Procedures
            
            25Item
                9B.
            Other
                InformationPART
              IIIItem
                10.
            Directors,
                Executive Officers and Corporate Governance
            
            26Item
                11.
            Executive
                Compensation
            
            32Item
                12.
            Security
                Ownership of Certain Beneficial Owners and Management and Related
                Stockholder Matters
            
            37Item
                13.
            Certain
                Relationships and Related Transactions, and Director
                Independence
            
            40Item
                14.
            Principal
                Accountant Fees and Services
            
            41PART
              IVItem
                15.
            Exhibits
                and Financial Statement Schedules
            
            42Signatures
            
            48









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. 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,
      among others, the following: the Company's inability to secure adequate capital
      to fund operations, working capital requirements, advertising and promotional
      expenditures and principal and interest payments on debt obligations; factors
      related to increased competition from existing and new competitors including
      new
      product introduction, price reduction and increased spending on marketing;
      limitations on the Company's opportunities to enter into and/or renew agreements
      with international partners, the failure of the Company or its partners to
      successfully market, sell, and deliver its product in international markets,
      and
      risks inherent in doing business on an international level, such as laws
      governing medical devices that differ from those in the U.S., unexpected changes
      in the regulatory requirements, political risks, export restrictions, tariffs,
      and other trade barriers, and fluctuations in currency exchange rates; the
      disruption of production at the Company's manufacturing facilities due to raw
      material shortages, labor shortages, and/or physical damage to the Company's
      facilities; the Company's inability to manage its growth and to adapt its
      administrative, operational and financial control systems to the needs of the
      expanded entity and the failure of management to anticipate, respond to and
      manage changing business conditions; the loss of the services of executive
      officers and other key employees and the Company's continued ability to attract
      and retain highly-skilled and qualified personnel; the costs and other effects
      of litigation, governmental investigations, legal and administrative cases
      and
      proceedings, settlements and investigations; and developments or assertions
      by
      or against the Company relating to intellectual property rights.





4


PART
      I





Item
      1.
      Business





General





The
      Female Health Company ("FHC" or the "Company") manufactures, markets and sells
      the female condom (FC), the only product approved by the U.S. Food and Drug
      Administration (FDA) under a woman's control which provides dual protection
      against unintended pregnancy and sexually transmitted diseases ("STDs"),
      including HIV/AIDS.





FC
      has
      undergone extensive testing for efficacy, safety and acceptability, not only
      in
      the United States but also in many countries around the world. Certain of these
      studies show that having FC available allows women to have more options,
      resulting in an increase in protected sex acts and a decrease in STDs, including
      HIV/AIDS.





The
      product is currently sold or available through various channels in 116
      countries.  It is commercially marketed directly to consumers in 15
      countries by various country specific partners, including in the United States,
      the United Kingdom, France, Brazil, India and Canada.  Currently,
      public sector female condom programs in various stages are ongoing in over
      90
      countries.





In
      September 2005, FHC completed development of FC2, its second generation female
      condom. FC2 has basically the same physical design, specifications, safety
      and
      efficacy profile as FC. Manufactured from a nitrile polymer, FC2 can be produced
      more economically than the first generation product made from polyurethane,
      a
      higher cost raw material. FC2 has received the CE Mark which allows the Company
      to market FC2 throughout the European Union ("EU"). In August 2006, the Company
      was notified by the World Health Organization (WHO) that after a stringent
      technical review process regarding design, product characteristics, quality
      control and manufacturing technology, FC2 is in principle being manufactured
      to
      at least the same standard as the polyurethane female condom, FC. In addition,
      the design and physical characteristics of FC2, supported by the clinical data,
      suggest that FC and FC2 are functionally equivalent, when used correctly and
      consistently. Based on this assessment, WHO has stated that FC2 is acceptable
      for bulk procurement by UN agencies subject to the standard quality assurance
      measures being applied prior to procurement.   In January 2008,
      the Company submitted a PMA application to the FDA for FC2.  The FDA’s
      OB/GYN Device Advisory Committee unanimously voted at its December 11, 2008
      meeting that the Company’s second-generation female condom, the FC2 female
      condom, is approvable with a single condition.  The condition is that
      the FC2 female condom’s instructions for use continue to follow use instructions
      for the FC female condom and appropriately identify the study that was performed
      to establish the comparable safety and effectiveness of FC2 with
      FC.  The FDA is not bound by the committee’s recommendation, but it
      takes its advice into consideration when completing its review of obstetric
      and
      gynecologic devices.  If the FDA determines the FC2 female condom
      approvable, the final step will be to confirm the package labeling and
      directions.





5




In
      July
      2007, The Female Health Company obtained approval for its common stock to be
      listed on the American Stock Exchange (AMEX) and began trading on AMEX under
      the
      symbol “FHC” on July 9, 2007.  On December 1, 2008, following the
      merger of The American Stock Exchange with the New York Stock Exchange, the
      Company’s stock began to trade on the NYSE Alternext under the symbol
“FHC”.





On
      October 1, 2007, The Female Health Company (M) SDN, BHD, a wholly owned
      subsidiary of The Female Health Company-UK which was incorporated in May, 2007,
      began operations in Selangor D.E. Malaysia.  The Malaysian entity
      manufactures the Company’s second generation product, FC2.





History





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





The
      Female Health Company is the successor to Wisconsin Pharmacal Company, Inc.,
      a
      company which previously manufactured and marketed a wide variety of disparate
      specialty chemical and branded consumer products in addition to owning certain
      rights to the female condom described above. The Company was originally
      incorporated in Wisconsin 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 all of the assets and liabilities of the Company other than
      those related primarily 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 (renamed The Female Health Company - UK in 1997),
      the
      manufacturer and owner of certain worldwide rights to, and the Company's sole
      supplier of, the female condom. 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 FC for distribution in 1993 and approved the Company's UK FC
      manufacturing facility in 1994. Since that time, the Company has sold about
      180
      million female condoms (FC and FC2) around the world.








6


Strategy





The
      Company’s strategy is to fully develop the market for FC and FC2 on a global
      basis. In doing so, it has developed contacts and relationships with global
      public health sector organizations such as WHO, the United Nations Population
      Fund (UNFPA), the Joint United Nations Programme on HIV/AIDS
      (UNAIDS),  the U.S. Agency for International Development (USAID),
      country-specific health ministries and non-governmental organizations (NGOs),
      and commercial partners in various countries. To provide its customers with
      prevention program and technical product support, the Company has placed
      representatives in the major regions of the world: Asia, Africa, Europe, North
      America and Latin America. The Company manufactures the first generation
      product, FC, in London, England.  To accelerate market penetration and
      increase volume, the Company developed FC2, a nitrile polymer product less
      costly to produce which is available at a lower price than FC.  FC2 is
      currently being produced at the Company’s facility in Selangor D.E., Malaysia
      and in Kochi, India, in conjunction with FHC’s business partner, Hindustan Latex
      Limited (“HLL”). The Company made its first substantial sales of FC2 in the
      second quarter of fiscal 2007. In fiscal 2008, FC2 comprised 40% of the units
      sold.





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





Products





Currently,
      there are only three FDA approved products marketed that prevent the
      transmission of HIV/AIDS through sexual intercourse: the male latex condom,
      the
      male polyurethane condom and the FC female polyurethane condom. FC is the only
      FDA approved product controlled by women that prevents sexually transmitted
      diseases including HIV/AIDS. Used consistently and correctly, it provides women
      dual protection against STD’s (including HIV/AIDS) and unintended
      pregnancy.  The female condom does not compete with the male condom,
      but is an alternative to either male condom use or to unprotected
      sex.





Numerous
      clinical and behavioral studies have been conducted regarding use of FC. Studies
      show that FC is found acceptable by women and their partners in many cultures.
      Importantly, studies also show that when FC is made available with male condoms
      there is a significant increase in protected sex acts. The increase in
      protected sex acts varies by country and averages between 10% and
      35%.





FC
      is
      made of polyurethane, a thin but strong material which is resistant to rips
      and
      tears during use. FC consists of a soft, loose fitting sheath and two flexible
      O
      rings. One of the rings is used to insert the device and helps to hold it in
      place. The other ring remains outside the vagina after insertion. FC lines
      the
      vagina, preventing skin-to-skin contact during intercourse.


7


In
      September 2005, FHC completed development of FC2, its second generation female
      condom. FC2 has basically the same physical design, specifications, safety
      and
      efficacy profile as FC. Manufactured from a nitrile polymer, FC2 can be produced
      more economically than the first generation product made from polyurethane,
      a
      more costly raw material.   FC2 has received the CE Mark which
      allows the Company to market FC2 throughout the EU. In August 2006, the Company
      was notified by WHO that after a stringent technical review process regarding
      design, product characteristics, quality control and manufacturing technology,
      FC2 is in principle being manufactured to at least the same standard as the
      polyurethane female condom, FC. In addition, the design and physical
      characteristics of FC2, supported by the clinical data, suggest that FC and
      FC2
      are functionally equivalent, when used correctly and consistently. Based on
      this
      assessment, WHO has stated that FC2 is acceptable for bulk procurement by UN
      agencies subject to the standard quality assurance measures being applied prior
      to procurement.





On
      January 8, 2008, the Company submitted the FC2 pre-market approval application
      (PMA) to the FDA.  The FDA accepted it for review on January 28, 2008.
      The FDA’s OB/GYN Device Advisory Committee unanimously voted at its December 11,
      2008 meeting that the Company’s second-generation female condom, the FC2 female
      condom, is approvable with a single condition.  The condition is that
      the FC2 female condom’s instructions for use continue to follow use instructions
      for the FC female condom and appropriately identify the study that was performed
      to establish the comparable safety and effectiveness of FC2 with
      FC.  The FDA is not bound by the committee’s recommendation, but it
      takes its advice into consideration when completing its review of obstetric
      and
      gynecologic devices.  If the FDA determines the FC2 female condom
      approvable, the final step will be to confirm the package labeling and
      directions.





The
      raw
      materials of which FC and FC2 are manufactured offer a number of benefits over
      latex, the material that is most commonly used in male condoms. Both materials,
      polyurethane and FC2’s nitrile polymer, are stronger than latex, reducing the
      probability that the female condom sheath will tear during use. Unlike latex,
      both polyurethane and FC2’s nitrile polymer quickly transfer heat, so the female
      condom immediately warms to body temperature when it is inserted, which may
      enhance pleasure and sensation during use. Unlike the male condom, the female
      condom may be inserted in advance of arousal, eliminating disruption during
      sexual intimacy. Both female condoms offer an alternative to latex sensitive
      users (7% to 20% of the population) who are unable to use male condoms without
      irritation. To the Company's knowledge, there is no reported allergy to either
      polyurethane or the nitrile polymer to date.





Both
      products, FC and FC2, are pre-lubricated and disposable and are recommended
      for
      use during a single sex act.





Cost
      Effectiveness of the Female Condom





A
      study
      entitled "Cost-effectiveness of the female condom in preventing HIV and STDs
      in
      commercial sex workers in South Africa" was reported in the Journal of Social Science
      and
      Medicine in 2001. This study shows that making FC available is highly
      cost effective in reducing public health costs in developing countries as well
      as in the U.S.


8


In
      October 2006, a study regarding FC2 entitled “Country-wide distribution of the
      nitrile female condom (FC2) in Brazil and South Africa: a cost effectiveness
      analysis” was published in AIDS.  The study
      concludes that expanded distribution of FC2 in Brazil and South Africa may
      avert
      hundreds to thousands of HIV infections annually at an incremental cost to
      government or donors that is less than that of antiretroviral
      therapy.  The study also found that if only 16.6 million female
      condoms were distributed in South Africa, almost 10,000 HIV infections would
      be
      prevented.  If 53.7 million female condoms were distributed, 32,000
      HIV infections would be prevented.  Comparing the dollar value of
      health care costs averted with the cost of distributing the female condoms,
      the
      total cost savings would be between $5.3 million and $35.7
      million.  Similarly, if 26.2 million condoms were distributed in
      Brazil, 600 HIV infections would be averted.  If 84.8 million condoms
      were distributed, 2,000 new HIV infections would be prevented.  In
      total, the savings in Brazil alone could range from $1.1 million to $27
      million.





Female
      Condom Reuse





Studies
      have shown that FC can be reused up to five times. WHO’s website includes the
      proper procedure for the washing and preparation of FC if it is going to be
      reused.  WHO, UNAIDS and FHC concur that FC should only be reused when
      a new female condom is not available.   FC2 is not
      reusable.





Global
      Market Potential





The
      only
      means of preventing sexual transmission of HIV/AIDS, besides abstinence, is
      condoms, male and female.  In recent years, scientists have sought to
      develop alternative means of preventing HIV/AIDS.  Unfortunately, the
      development attempts have not been successful to date:  four
      microbicides have failed in clinical trials and the most promising HIV/AIDS
      vaccine under development has also failed.  Thus, HIV/AIDS prevention
      is focused on condoms, male and female.  The Company’s female condom
      is the only product, when used consistently and correctly, that gives a woman
      control over her sexual health by providing dual protection against sexually
      transmitted diseases (including HIV/AIDS), and unintended
      pregnancy.





The
      first
      clinical evidence of AIDS was noted more than twenty years ago.  Since
      then, HIV/AIDS has become the most devastating pandemic facing humankind in
      recorded history. UNAIDS in its July 2008 Aids Epidemic Update reported that
      approximately 33 million people globally were living with HIV.
      Approximately 2.7 million new cases of HIV will be reported this year while
      about 2 million people will have died from the disease. Sub-Saharan Africa
      remains most heavily affected by HIV, accounting for 67% of all people living
      with HIV and for 72% of AIDS deaths in 2007.  Women now account for
      50% of those living with HIV/AIDS and in some Sub-Saharan African countries,
      for
      more than 70% of those infected.  In a published paper by Dr. Colin
      Mathers and Dejan Loncar of the WHO, “Projections of Global Mortality and Burden
      of Disease from 2002 to 2030," they estimate that at least 117 million people
      will have died of or will have AIDS by 2030.





In
      the
      United States, the Centers for Disease Control and Prevention reported in 2006
      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 and
      represent the majority of new HIV and AIDS cases among women, and the majority
      of women living with the disease.  Black women accounted for 67% of AIDS
      cases among women aged 13 and older diagnosed in 2005, but only 12% of the
      U.S.
      population of women.  Latinas accounted for 16% of estimated AIDS
      cases in 2005, compared to 13% of the female population aged 13 and
      over.


9




For
      the
      most recent year in which data are available (2004), the Centers for Disease
      Control and Prevention reported that HIV infection was:





●    
      the leading cause of death for African American women aged 25-34
      years;


●    
      the 3rd
      leading
      cause of death for African American women aged 35-44 years; and


●    
      the 4th
      leading
      cause of death for African American women aged 45-54 years and for Hispanic
      women aged 35-44.





Most
      HIV/AIDS diagnoses among women are due to high-risk heterosexual contact (80%
      in
      2005).  The rate of AIDS diagnosis for black women was approximately
      18 times the rate for white women, while the prevalence rate among Hispanic
      women was more than four times that of white women.





In
      March
      2008, CDC announced that a recent study indicated that 26% of female adolescents
      in the United States has at least one of the most common sexually transmitted
      infections (STI’s).  Led by CDC’s Sara Forhan, the study is the first
      to examine the combined national prevalence of common STI’s among adolescent
      women in the United States.





In
      addition to overall STI prevalence, the study found that by race, African
      American teenage girls had the highest prevalence, with an overall prevalence
      of
      48 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.





The
      Condom Market





The
      global male condom market (public and private sector) is estimated to be $3
      billion.  The global public sector market for male condoms is
      estimated to have been greater than 10 billion units annually since 2005. Given
      the rapid spread of HIV/AIDS in India and China, UNAIDS estimates that the
      annual public sector demand for condoms, both male and female, will reach 19
      billion units within the next ten years.





Government
      Regulation





FC
      received PMA as a Class III Medical Device from the FDA in 1993. The extensive
      clinical testing and scientific data required for FDA approval laid the
      foundation for approvals throughout the rest of the world, including receipt
      of
      a CE Mark in 1997 which allows the Company to market FC throughout the European
      Union. In addition to the United States and the EU, several other countries
      have
      formally reviewed and approved FC for sale, including Canada, Australia, Japan
      and India.


10


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





FC2
      received the CE mark which allows it to be marketed throughout the European
      Union.  FC2 has also been approved by both Brazil’s and India’s
      Regulatory authorities.





In
      the
      U.S., FC 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 FC 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.  The
      Company submitted a PMA for FC2 to the FDA in January 2008.  The FDA’s
      OB/GYN Device Advisory Committee unanimously voted at its December 11, 2008
      meeting that the Company’s second-generation female condom, the FC2 female
      condom, is approvable with a single condition.  The condition is that
      the FC2 female condom’s instructions for use continue to follow use instructions
      for the FC female condom and appropriately identify the study that was performed
      to establish the comparable safety and effectiveness of FC2 with
      FC.  The FDA is not bound by the committee’s recommendation, but it
      takes its advice into consideration when completing its review of obstetric
      and
      gynecologic devices.  If the FDA determines the FC2 female condom
      approvable, the final step will be to confirm the package labeling and
      directions.





Significant
      Customers





While
      the
      female condom (FC and FC2) provides dual protection against sexually transmitted
      diseases, including HIV/AIDS, and unintended pregnancy, it is most commonly
      used
      to prevent sexually- transmitted diseases and is an integral part of many
      HIV/AIDS prevention programs throughout the world.  These prevention
      programs are typically supplied by global public 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
      sector are large international agencies such as UNFPA (UN Population Fund),
      USAID (United States Agency for International Development) various Ministries
      of
      Health, state and local health agencies and NGO’s (non-governmental agencies)
      such as Population Services International.  The Company’s most
      significant customers are either global public sector agencies or those who
      facilitate their purchases and/or distribution.  In fiscal year 2008,
      significant customers were UNFPA (19% of sales), John Snow, Inc., facilitator
      of
      USAID I DELIVER project (25% of sales) and Sekunjalo, distributor to the
      Republic of South Africa (17% of sales).


11


Commercial
      Markets – Direct to Consumers





The
      Company markets FC directly in the United Kingdom. The Company has distribution
      agreements with commercial partners which market directly to consumers in 15
      countries, including the United States, Brazil, Canada, Mexico, Spain, France,
      Japan and India. These agreements are generally exclusive for a single country.
      Under these agreements, the Company manufactures and sells the female condom
      to
      the distributor partners, who, in turn market and distribute the product to
      consumers in the established territory.  FC2 is being sold
      commercially in India, France and Brazil.





Relationships
      and Agreements with Public Sector Organizations





The
      Company has an agreement with UNAIDS to supply FC to developing countries at
      a
      reduced price which can be negotiated each year based on the Company's cost
      of
      production. The current price per unit ranges between £0.42 and £0.445 (British
      pounds sterling), or approximately $0.76 to $0.81, depending on contractual
      volumes. Under the agreement, UNAIDS and the Company cooperate in educational
      efforts and marketing FC in developing countries. Sales of FC are made directly
      to international public agencies and to public health authorities in each
      country at the price established by the agreement with UNAIDS. The agreement
      expires on December 31, 2008, but is automatically renewed for one year
      unless either party gives at least 90 days prior written notice of termination.
      FC is available in over 90 countries through public sector
      distribution.





In
      May
      2006, the Company received an initial order for 500,100 FC female condoms from
      the National AIDS Control Organization (NACO) of the Ministry of Health &
Family Welfare, Government of India.  The order, placed through UNFPA,
      supplied female condoms for NACO’s year-long program effectiveness
      study.  The female condoms were distributed to 60,000 women at 13
      sites in eight states. Because the pilot project was highly successful showing
      consistent use of FC, NACO decided to scale up the program under which women
      are
      trained on how to use the female condom. In June 2008, the Company and HLL
      were
      successful in winning an order from NACO.  The order, for 1.5 million
      female condoms, was manufactured in Kochi, India, in HLL’s newly commissioned
      factory and will be used in the scaled up prevention program.





The
      Company sells the female condom in the United States to city and state public
      health clinics as well as not-for-profit organizations such as Planned
      Parenthood.  The female condom is currently available in 95 locations
      in New York City, including both community based organizations and the N.Y.C.
      Department of Health and Mental Hygiene units, it is being distributed as part
      of New York City’s Female Condom Education and Distribution Project being
      conducted by the Bureau of HIV/AIDS Prevention and Control.





Employees





As
      of
      December 10, 2008, the Company had 168 full-time employees, including 9 located
      in the U.S., 144 in the UK and 15 in Malaysia, and no part-time
      employees. No Company employees are represented by a labor union. The Company
      believes that its employee relations are good.   In Malaysia,
      direct labor is supplied primarily by a contracted work force.


12




Research
      and Development





In
      September 2005, the Company announced that development of its second generation
      product, FC2 was complete.  Throughout fiscal 2006, the Company
      developed and scaled-up the FC2 manufacturing process, which was completed
      by
      approximately March 31, 2007.  Throughout the remainder of fiscal 2007
      and throughout fiscal 2008, the Company conducted various activities in
      preparation and support of a PMA for FC2.  The Company incurred
      research and development costs of approximately $284,000 in fiscal 2008 and
      approximately $209,000 in fiscal 2007.





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 FC and FC2.  The Company has incurred no expenses in
      either fiscal 2008 or 2007, nor does it anticipate the need for any
      environmental expenditures in the foreseeable future.





Raw
      Materials





Polyurethane
      is the principal raw material the Company uses to produce FC. The Company has
      entered into a supply agreement with Deerfield Urethane, Inc. for the purchase
      of the Company's requirement of polyurethane. Under this agreement, the parties
      negotiate pricing on an annual basis. The term of the agreement currently
      expires on December 31, 2009 and automatically renews for additional one year
      periods unless either party gives at least 12 months prior written notice of
      termination.  There are no quantity commitments in this
      agreement.





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





FC


The
      Company manufactures FC in a 40,000 square-foot leased facility in London,
      England. Manufacturing capacity at this facility is expandable to
      60 million units per year with additional investment in
      equipment.





FC2


The
      Company began end-stage production of FC2 within a 1,900 square foot leased
      facility located in Selangor D.E., Malaysia.  That lease terminated on
      December 31, 2007, after production was moving to a larger
      facility.  On September 1, 2007, the Company leased
      16,000


13


sq.
      ft.
      of production space in Selangor D.E., Malaysia to house the expanding
      operations.  Manufacturing began in that location in December
      2007.  Current production capacity in Malaysia is 30 million units
      annually.





The
      Company’s India-based FC2 end-stage production capacity is located at a facility
      owned by its business partner, Hindustan Latex Limited (HLL) in the Cochin
      Special Export Zone. Production began at that facility in December 2007
      with an initial capacity of 7.5 million units per year.  In June,
      2008, NACO placed an order of 1.5 million units for distribution in
      India.





FHC’s
      total FC2 production capacity is 37.5 million units annually.  The
      Company intends to expand its capacity at existing locations and/or manufacture
      at additional locations as the demand for FC2 develops.





Competition





The
      Company's female condom participates in the same market as male condoms but
      is
      not seen as directly competing with male condoms. Rather, the Company believes
      that providing FC is additive in terms of prevention and choice. Latex male
      condoms cost less and have brand names that are more widely recognized than
      FC.
      In addition, male condoms are generally manufactured and marketed by companies
      with significantly greater financial resources than the Company.





Medtech
      Products Ltd. ("MP"), a male latex condom company with a manufacturing facility
      in Chennai, India, has developed a natural latex female condom.  MP's
      female condom has been marketed under various names including V-Amour, VA
      Feminine Condom and L’Amour. USAID and Family Health International (FHI) are
      currently evaluating the MP female condom for consideration to move into Phase
      3
      clinical study.  The manufacturing process has a CE mark for
      distribution in Europe and may be available in other countries.  MP
      received the Indian Drug Controller approval in January 2003. The product has
      not received FDA approval nor has it been listed as an essential product by
      WHO.





It
      is
      also possible that other parties may develop a female condom. These competing
      products could be manufactured, marketed and sold by companies with
      significantly greater financial resources than those of the
      Company.





Patents
      and Trademarks





The
      Company currently holds product and technology patents for FC in the United
      States. The Company’s current United States patents expire between 2009 and
      2014. The Company understands these U.S. patents to cover FC as sold.  The
      patents are generally directed to the structural aspects of the product. 
The Company also has patents covering technology and products relating to FC
      in
      Japan, the United Kingdom, France, Italy, Germany, Spain, the European Patent
      Convention, Canada, the People’s Republic of China, South Korea and
      Australia.  These patents expire from 2008 to 2013.  Patent
      applications for FC2 are pending in the U.S. and in other countries around
      the
      world through the Patent Cooperation Treaty. The applications cover the key
      aspects of the second generation female condom, including its overall design
      and
      manufacturing process. While there can be no assurance, these patents could
      provide the Company with protection against copycat products entering the U.S.
      market during the pendency of the patents. In South Africa, a patent for FC2
      was
      granted in fiscal year 2008.


14







The
      Company has the registered trademark “FC Female Condom” in the United
      States. The Company has also secured, or applied for, 12 trademarks in 22
      countries to protect the various names and symbols used in marketing the product
      around the world. These include "femidom" and "femy," “Reality” and others. In
      addition, the experience that has been gained through years of manufacturing
      the
      FC female condom has allowed the Company to develop trade secrets and know-how,
      including certain proprietary production technologies that further protect
      its
      competitive position. The Company has registered the trademark “FC2 Female
      Condom” in the United States.





Backlog





At
      December 10, 2008, product orders totaled $10,087,176 for FC and $730,843 for
      FC2, or a total of $10,818,019.  At December 15, 2007, product orders
      totaled $4,692,000 for FC and $1,928,000 for FC2, or a total of
      $6,620,000.  Unfilled orders materially fluctuate from quarter to
      quarter, and include orders with requested delivery dates later in fiscal 2009.
      The Company expects current unfilled orders to be filled during fiscal
      2009.





Item
      2.
      Description of Property





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, 2011. The Company utilizes warehouse space and sales fulfillment
      services of an independent public warehouse located in Wood Dale, IL for storage
      and distribution of the female condom. The Company manufactures the FC female
      condom in a 40,000 square foot leased facility located in London, England under
      a lease which expires in 2016, with the right to renew through 2027. The
      FDA-approved manufacturing process is subject to periodic inspections by the
      FDA
      as well as the EU quality group. Current capacity at the U.K. facility could
      be
      expanded to 60 million units annually with additional investment in
      equipment.  The Companymanufactures and
      warehouses FC2 within a leased facility with 16,000 sq. ft. of production space,
      in Selangor D.E., Malaysia.  The lease, which began on September 1,
      2007, has a three year term and is renewable for two additional three year
      terms. The Company’s Malaysian production capacity is approximately 30 million
      units annually.





Item
      3.
      Legal Proceedings.





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





Item
      4.
      Submission of Matters To A Vote Of Security Holders.





No
      matters were submitted to a vote of security holders during the fourth quarter
      of the fiscal year ended September 30, 2008.


15


PART
      II





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





Shares
      of
      the Company's common stock have traded on the American Stock Exchange (AMEX)
      under the symbol "FHC" since July 9, 2007. On December 1, 2008, following
      the merger of The American Stock Exchange with the New York Stock Exchange,
      the
      Company’s stock began to trade on the NYSE Alternext under the symbol “FHC”.
      Prior to July 9, 2007, shares of the Company's common stock traded on the
      OTC Bulletin Board under the symbol "FHCO." The approximate number of record
      holders of the Company's common stock at December 11, 2008 was 395. The Company
      has paid no cash dividends on its common stock and does not expect to pay cash
      dividends on its common stock in the foreseeable future. The Company anticipates
      that for the foreseeable future it will retain any earnings for use in the
      operation of its business. The Company's credit facility contains a provision
      restricting the Company's ability to pay common stock dividends and
      distributions. Information regarding the Company's high and low reported closing
      prices for its common stock for the quarters indicated is set forth in the
      table
      below. Sale prices on the OTC Bulletin Board reflect inter-dealer prices,
      without retail mark-ups, mark downs, or commissions.





QuartersFIRST
            
            
            SECOND
            
            
            THIRD
            
            
            FOURTH2008
                Fiscal YearPrice
                per common share – High
            
            $
            3.60
            
            
            $
            2.84
            
            
            $
            2.87
            
            
            $
            3.15Price
                per common share – Low
            
            $
            2.20
            
            
            $
            2.17
            
            
            $
            2.30
            
            
            $
            2.152007
                Fiscal YearPrice
                per common share – High
            
            $
            1.65
            
            
            $
            2.30
            
            
            $
            2.95
            
            
            $
            2.55Price
                per common share – Low
            
            $
            1.20
            
            
            $
            1.46
            
            
            $
            2.15
            
            
            $
            2.00





Stock
      Repurchase Program





On
      January 17, 2007, the Company announced a Stock Repurchase Program under the
      terms of which up to a million shares of its common stock could be purchased
      during the subsequent twelve months.  In March, 2008, the Board
      approved the expansion of the repurchase program up to two million shares and
      continuation of this program through December 31, 2009.  Through
      September 30, 2008, the Company has purchased 841,000 shares.


16





Issuer
                Purchases of Equity Securities:
            
            Details
                of Treasury Stock Purchases through September 30, 2008Period:
            
            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 ProgramJanuary
                17, 2007 –  September 30, 2007
            
            
            173,400
            
            
            $
            2.12
            
            
            
            173,400
            
            
            
            826,600October
                1, 2007 –  June 30, 2008
            
            
            439,600
            
            
            $
            2.57
            
            
            
            613,000
            
            
            
            1,387,000July
                1, 2008 – July 31, 2008
            
            
            53,000
            
            
            $
            2.51
            
            
            
            666,000
            
            
            
            1,334,000August
                1, 2008 – August 31, 2008
            
            
            68,700
            
            
            $
            2.62
            
            
            
            734,700
            
            
            
            1,265,300September
                1, 2008 – September 30, 2008
            
            
            106,300
            
            
            $
            3.09
            
            
            
            841,000
            
            
            
            1,159,000Quarterly
                Subtotal
            
            
            228,000
            
            
            $
            2.81
            
            
            
            228,000Total
            
            
            841,000
            
            
            $
            2.54
            
            
            
            841,000
            
            
            
            1,159,000





In
      October, 2008, the Board of Directors amended this Stock Repurchase Program
      to
      expressly authorize the repurchase outside of the open market of common stock
      issued under the Company’s equity compensation plans from directors, employees,
      consultants and other service providers of the Company or any of its
      subsidiaries.  The repurchases would be authorized by Company officers
      at fair market value on the date of purchase.  Total repurchases under
      this amendment are limited to an aggregate of 250,000 shares per calendar year
      and to a maximum of 25,000 shares annually per individual.  The
      maximum repurchase for the remainder of calendar 2008 would be a total of 62,500
      shares or 6,250 shares per individual.  This provision will expire at
      the termination date of the Stock Repurchase Program.  To date, no
      repurchases have been made under this amendment.




Warrant
      Settlement Program




During
      the third quarter of fiscal 2007, the Company offered certain holders of
      warrants a program under which they could settle the warrants for fully vested
      common stock.  The subject warrants had exercise prices ranging from
      $0.40 per share to $1.50 per share.  Warrant holders who elected to
      participate in the program tendered 2,762,500 warrants to acquire 1,782,645
      shares of common stock, which were issued during the third quarter of FY 2007.
      Since the fair value of the warrants tendered was greater than the value of
      the
      common stock received, no expense was recorded related to this
      program.





Redemption
      of Class A Series 1 Convertible Preferred Stock





In
      May
      2008, the Company elected to exercise its right to redeem all of the 56,000
      outstanding shares of its Class A Series 1 Convertible Preferred
      Stock (the "Series 1 Preferred Stock"), subject to the right of the holders
      to
      elect to convert their shares of Series 1 Preferred Stock into Common Stock
      in lieu of redemption.  On the redemption dates in
      June 2008, 42,000 of the outstanding shares of Series 1 Preferred
      Stock were acquired by the Company pursuant to the redemption and
      cancelled and the remaining 14,000 outstanding shares of Series 1 Preferred
      Stock were converted into 14,000 shares of Common Stock and cancelled.  The
      Series 1 Preferred Stock was subject to an 8% dividend, paid
      annually.  The Company paid a redemption price per share equal to the
      liquidation value per share (which was $2.50 per share plus accrued and unpaid
      dividends) for the 42,000 shares that were redeemed. Shareholders who
      elected to convert received one common share for each share of Series 1
      Preferred Stock plus accumulated dividends.  The final unpaid
      dividends of $2,100 for the converted 14,000 shares of Series 1 Preferred Stock
      were paid in July 2008.


17




The
      Company issued 473,377 shares of
      Series 3 Preferred Stock to 11 investors during February 2004 and received
      $1,500,602 in proceeds. Each share of Series 3 Preferred Stock is convertible
      at
      any time into one share of the Company’s common stock. Holders of shares of the
      Series 3 Preferred Stock are entitled to cumulative dividends in preference
      to
      any dividend on the Company’s common stock at the rate of 10 percent of the
      original issuance price ($3.17 per share) per annum, payable quarterly at the
      Company’s option in cash or shares of the Company’s common stock. If dividends
      are paid in shares of common stock, the dividend rate will be equal to 95
      percent of the average of the closing sales prices of the common stock on the
      five trading days preceding the dividend reference date. The dividend reference
      date means January 1, April 1, July 1, October 1 of each year. In the event
      of a
      liquidation or dissolution of the Company, the Series 3 Preferred Stock would
      have priority over the Company’s common stock and holders of any other series of
      preferred stock of the Company. The Company may redeem any share of Series
      3
      Preferred Stock at any time that is after the second anniversary of the date
      of
      issuance of the share, provided that the redemption may not occur until the
      first day on or after the second anniversary of the date of issuance of such
      share in which the market value of the Company’s common stock is at least 150
      percent of theoriginal
      issue price of $3.17 per
      share.  The liquidation preference on the Series 3 Preferred Stock is
      $3.17 per share plus accrued and unpaid dividends.  As of September
      30, 2008, there are 307,602shares
      of Series 3
      Preferred Stock outstanding.





Repurchase
      of Class A Series 3 Convertible Preferred Stock





In
      April
      2008, the Company repurchased 150,000 shares of Class A Series 3 Convertible
      Preferred Stock, which is subject to a 10% dividend, paid quarterly. The shares
      were repurchased at $3.17 per share for a total of approximately
      $475,000.  In July, 2008, the Company repurchased an additional 15,773
      shares of Class A Series 3 Convertible Preferred Stock for a total of
      approximately $50,000; the dividend of approximately $500 of this purchase
      was
      paid in October, 2008.  All of the shares were purchased at the same
      per share price at which they were sold to the shareholder, $3.17 per
      share.  The repurchased preferred shares have been
      retired.





Item
      6.
      Selected Financial Data





Not
      applicable to a smaller reporting company.


18


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





Overview





The
      Company manufactures, markets and sells the FC female condom, the only
      FDA-approved product under a woman's control which provides dual protection
      against unintended pregnancy and sexually transmitted diseases, including
      HIV/AIDS.  During 2003, the Company began development of its second
      generation female condom, FC2, which was completed in 2005.  In
      August, 2006, after a stringent technical review, the World Health Organization
      cleared it for purchase by UN agencies.  The first substantial sales
      of FC2 occurred in the second quarter of fiscal 2007.  The Company
      submitted a PMA with the FDA for FC2 in January 2008.  The FDA’s
      OB/GYN Device Advisory Committee unanimously voted at its December 11, 2008
      meeting that the Company’s second-generation female condom, the FC2 female
      condom, is approvable with a single condition.  The condition is that
      the FC2 female condom’s instructions for use continue to follow use instructions
      for the FC female condom and appropriately identify the study that was performed
      to establish the comparable safety and effectiveness of FC2 with
      FC.  The FDA is not bound by the committee’s recommendation, but it
      takes its advice into consideration when completing its review of obstetric
      and
      gynecologic devices.  If the FDA determines the FC2 female condom
      approvable, the final step will be to confirm the package labeling and
      directions.  The Company believes that FC2 will result in a
      significant reduction in production costs and accelerate growth through the
      lower price product.





Revenues.  Most
      of
      the Company's revenues are derived from sales of the female condom, its only
      product, and are recognized upon shipment of the product to its customers.
      Beginning in fiscal 2008, revenue is also being derived from licensing its
      intellectual property to its business partner in India, Hindustan Latex
      Limited.  Such revenue appears as royalties on the Audited
      Consolidated Statement of Income for the year ended September 30,
      2008.





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






●
            The
                Company sells the female condom to the global public sector under
                the
                umbrella of its agreement with UNAIDS.  This agreement
                facilitates the availability and distribution of the female condom
                at a
                reduced price based on the Company's cost of production.  The
                current price per unit ranges between £0.42 and £0.445 (British pounds
                sterling), or approximately $0.76 to $0.81, depending on contractual
                volumes.  Currently, the female condom
                is available in over 90 countries through public sector
                distribution.●
            The
                Company sells FC to the U.S. Agency for International Development
                (USAID)
                for use in USAID prevention programs in developing countries.●
            The
              Company sells
              the female condom in the United States to city and state public health
              clinics as well as not-for-profit organizations such as Planned
              Parenthood.










19





●
              The
                Company markets FC directly in the United Kingdom. The Company has
                distribution agreements with commercial partners which market directly
                to
                consumers in 15 countries, including the United States, Brazil,Canada,
                Mexico, Spain, France, Japan and India. These agreements are generally
                exclusive for a single country. Under these agreements, the Company
                manufactures and sells the female condom to the distributorpartners,
                who, in
                turn market and distribute the product to consumers in the established
                territory.




Occasionally,
      significant quarter to quarter variations may occur due to the timing and
      shipment of large orders, not from any fundamental change in the Company's
      business.  Because the Company manufactures FC in a leased facility
      located in London, England and 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 either British pounds sterling
      or
      United States dollars. Manufacturing costs and sales to foreign markets are
      subject to normal currency risks associated with changes in the exchange rate
      of
      British pounds sterling relative to the United States dollar. Since the
      Malaysian ringgit (MYR) is historically quite stable against the dollar, the
      foreign exchange impact of MYR versus British pounds (GBP) is negligible as
      the
      UK subsidiary’s financial statements are converted to U.S. dollars. On an
      ongoing basis, management continues to evaluate the Company's commercial
      transactions and is prepared to employ currency hedging strategies when it
      believes such strategies are appropriate.





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




The
      Company has experienced increased costs of products, supplies, salaries and
      benefits, and increased general and administrative expenses.  In both
      2007 and 2008, the Company has increased selling prices wherever possible to
      offset such cost increases.





As
      noted
      above, the Company's manufacturing costs are subject to currency risks
      associated with changes in the exchange rate of British pounds sterling relative
      to the United States dollar.  To date, the Company's management has
      not deemed it appropriate to utilize currency hedging strategies to manage
      its
      currency risks.  A decrease of the value of the U.S. dollar compared
      to British pounds sterling has the effect of increasing the Company's cost
      of
      sales and decreasing its gross profit margin.  When the dollar
      strengthens against the pound, the opposite impact occurs.


20


Operating
      Highlights.  The Company's net revenues have increased steadily
      in recent periods.  The Company had net revenues of $25,634,126 in the
      fiscal year ended September 30, 2008 as compared to net revenues of $19,319,889
      in the fiscal year ended September 30, 2007.





The
      Company generated cash flow from operations of $4.2 million in 2008 versus
      using
      $0.08 million in its operation for the fiscal year ended September 30,
      2007.





The
      Company had net income attributable to common stockholders of $4,829,262 or
      $0.18 per diluted share in fiscal 2008.  In fiscal 2007, the Company
      had net income attributable to common stockholders of $1,532,665 or $0.06 per
      diluted share.




Results
      of Operations





Fiscal
      Year Ended September 30, 2008 ("2008") Compared to Fiscal Year Ended September
      30, 2007 ("2007")





The
      Company had net revenues of $25,634,126 and net income attributable to common
      stockholders of $4,829,262 or $0.18 per diluted share versus net revenues of
      $19,319,889 and net income attributable to common stockholders of $1,532,665
      or
      $0.06 per diluted share in 2007.





Net
      revenues increased $6,314,237, or 33%, in 2008 over the prior year,
      demonstrating growth in demand for female condoms. In 2008, net revenue included
      royalties of $105,876 earned from licensing intellectual property to the
      Company’s business partner in India, Hindustan Latex Limited.





Gross
      profit increased $3,573,486, or 50%, to $10,729,801 for 2008 from $7,156,315
      for
      2007. The increase was attributable to improved FC margins as overhead was
      spread over a higher number of units and the product mix, with a higher
      percentage of the more profitable second generation product, FC2.





Cost
      of
      sales increased $2,740,751, or 23%, to $14,904,325 for 2008 from $12,163,574
      for
      2007. The increase in cost of sales is a result of increased volume and a slight
      increase in manufacturing costs.





Advertising
      and promotional expenses increased $43,926 to $223,800 for 2008 from $179,874
      for 2007. The increase relates to the public relations program to promote FC2
      and communicate the Company’s global contribution to woman’s health, and
      promotional expenses related to the 2008 International AIDS Conference held
      in
      Mexico City, in August 2008.





Selling,
      general and administrative
      expenses increased $1,173,624,
      or 20%, to $7,038,060in
      2008from
      $5,864,436in
      2007. The increase resultedfromfull
      year versus partial year salaries
      and related costs from various positions added mid-year 2007,increased consulting
      fees
      for Sarbanes-Oxley-related review of internal control over financial
      reporting and incentive bonuses related to the achievement of various
      levels of profitability and units shipped.


21


Research
      and development costs
      increased $75,608 to $284,216 in 2008 from $208,608 in 2007. The costs in 2007
      were incurred to develop commercial scale manufacturing of FC2, while fiscal
      2008 costs are related to the preparation and support of the PMA for
      FC2.





Total
      operating expenses increased $1,293,158 to $7,546,076 in 2008 from $6,252,918
      in
      2007 as a result of increases in selling, general and administrative expense,
      advertising and promotion and research and development costs.





The
      Company's operating income increased $2,280,328 to $3,183,725 in 2008 from
      $903,397 in 2007 due to the improved gross profit partially offset by an
      increase in operating expenses.





The
      Company recorded non-operating income of $1,020,181 in 2008 versus non-operating
      expense of $34,484 in 2007.  This was primarily attributable to a
      significant gain on foreign currency ($966,736).  In accordance with
      Financial Accounting Standards No. 52, Foreign Currency Translation, the
      financial statements of the Company’s international subsidiaries are translated
      into U.S. dollars using the exchange rate at each balance sheet date for assets
      and liabilities, the historical exchange rate for stockholders’ equity and a
      weighted average exchange rate for each period for revenues, expenses and gains
      and losses.  Translation adjustments on intercompany trade accounts
      are recorded in earnings as the local currency is the functional
      currency.  Assets located outside the United States totaled
      approximately $7,500,000 and $6,500,000 at September 30, 2008 and 2007,
      respectively.





Under
      the
      Statement of Financial Accounting Standards No. 109, Accounting for Income
      Taxes, an entity is able to recognize a tax benefit for current or past losses
      when it can demonstrate that the tax loss carry forward will be utilized before
      expiration.  Management believes that the Company’s recent and
      projected future growth and profitability has made it more likely than not
      that
      the Company will utilize a portion of its net operating carryforwards in the
      future.  The Company has recorded a tax benefit in the amount of
      $775,000 during the year ended September 30, 2008 compared to $825,000 for
      the
      year ended September 30, 2007 as a result of the decrease in the valuation
      allowance on these assets.





Factors
      That May Affect Operating Results and Financial Condition





The
      Company's future operating results and financial condition are dependent on
      the
      Company's ability to increase demand for the female condom and to
      cost-effectively manufacture sufficient quantities of the female condom.
      Inherent in this process are a number of factors that the Company must
      successfully manage in order to achieve favorable future results and improve
      its
      financial condition.





Reliance
      on a Single Product





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


22


Distribution
      Network





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





Inventory
      and Supply





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





Global
      Market and Foreign Currency Risks





The
      Company manufactures FC in a leased facility located in London, England and
      FC2
      in a leased facility located in Malaysia. A material portion of the Company's
      future sales are likely to be in foreign markets. Manufacturing costs and sales
      to foreign markets are subject to normal currency risks associated with changes
      in the exchange rate of foreign currencies relative to the United States
      dollar.





On
      an
      ongoing basis, management continues to evaluate its commercial transactions
      and
      is prepared to employ currency hedging strategies when it believes such
      strategies are appropriate. In addition, some of the Company's future
      international sales may be in developing nations where dramatic political or
      economic changes are possible. Such factors may adversely affect the Company's
      results of operations and financial condition.





Government
      Regulation





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


23




Liquidity
      and Sources of Capital





In
      2007,the Company’s
      operations consumed cash of $0.1 million primarily due to the timing of
      collection of accounts receivable.  In fiscal year 2008, the Company
      generated $4.2 million in positive cash flow from
      operations.  Investing activities consumed $0.5 million, primarily in
      purchasing fixed assets.  Financing activities consumed a net of $1.9
      million; $2.4 million was used to repurchase stock, $0.7 million generated
      by
      stock option and warrant exercises, and $0.2 consumed by preferred dividend
      and
      capital lease payments.  Cash flows from operations, investing activites
      and financing activites together with an $0.8 million negative currency
      exchange rate impact resulted in a positive cash flow of $1.1 million in fiscal
      2008.  In earlier years, the Company funded operating losses and
      capital requirements, in large part, through the sale of preferred stock, common
      stock or debt securities convertible into common stock.





At
      September 30, 2008, the Company had working capital of $9.2 million and
      stockholders' equity of $9.7 million compared to working capital of $7.2 million
      and stockholders' equity of $7.4 million as of September 30, 2007.





The
      Company believes its current cash position is adequate to fund operations of
      the
      Company in the near future, although no assurances can be made that such cash
      will be adequate. However, if needed, the Company may sell equity securities
      to
      raise additional capital and may borrow funds under its Heartland Bank credit
      facility.





Presently,
      the Company has two revolving notes with Heartland Bank that allow the Company
      to borrow up to $1,500,000.  These notes expire on July 1, 2009.
      These notes were extended under the same terms as the initial notes dated May
      19, 2004, with the exception of the interest rate which has been reduced to
      prime plus .5% (prime rate was 5% at September 30, 2008). No new warrants were
      issued as part of the extension of these notes. These notes are collateralized
      by substantially all of the assets of the Company. No amounts were outstanding
      under the revolving notes at September 30, 2008.





As
      of
      December 10, 2008, the Company had approximately $3.7 million in cash, net
      trade
      accounts receivable of $ 3.2 million and current trade accounts payable of
      $ 1.1
      million. Presently, the Company has no required debt service
      obligations.





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. In 2007 and 2008
      the Company has, where possible, increased selling prices to offset such
      increases in costs.







24




Item
      7A.  Quantitative and Qualitative Disclosures About Market
      Risk





Not
      applicable to a smaller reporting company.




Item
      8.
      Financial Statements and Supplementary Data





The
      consolidated financial statements of the Company and notes thereto are filed
      under this item beginning on page F-1 of this report.





Supplementary
      data is not applicable to a smaller reporting company.





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





Not
      applicable.





Item
      9A(T). Controls and Procedures





Evaluation
      of Disclosure Controls and Procedures


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


Management’sReport 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.


25




Management
      assessed the effectiveness of the Company's internal control over financial
      reporting as of September 30, 2008.  In making this assessment,
      management used the criteria set forth by the Committee of Sponsoring
      Organizations of the Treadway Commission (COSO) in Internal Control-Integrated
      Framework.  Based on its assessment, management believes that,
      as of September 30, 2008, the Company's internal control over financial
      reporting was effective based on those criteria.





This
      Annual Report on Form 10-K does not include an attestation report of the
      Company's registered public accounting firm regarding internal control over
      financial reporting.  Management's report was not subject to
      attestation by the Company's registered public accounting firm pursuant to
      temporary rules of the Securities and Exchange Commission that permit the
      Company to provide only management's report in this Annual Report on Form
      10-K.





PART
      III





Item
      10.
      Directors, Executive Officers and Corporate Governance





Certain
      information about the Company's executive officers, directors and certain key
      employees as of September 30, 2008, is as follows:





NAME
            POSITION
            AGEO.B.
                Parrish
            Chairman
                of the Board, Chief Executive Officer, acting President and
                Director
            75Mary
                Ann Leeper, Ph.D.
            Senior
                Strategic Adviser and Director
            68William
                R. Gargiulo, Jr.
            Secretary
                and Director
            80Michael
                Pope
            Vice
                President and General Manager of  The Female Health Company (UK)
                Plc
            51Donna
                Felch
            Vice
                President and Chief Financial Officer
            61Jack
                Weissman
            Vice
                President – Sales
            61Janet
                Lee
            Controller
            44David
                R. Bethune
            Director
            68Stephen
                M. Dearholt
            Director
            62Michael
                R. Walton
            Director
            71Richard
                E. Wenninger
            Director
            61Mary
                Margaret Frank
            Director
            39





26




O.B.
      PARRISH


Age:
      75;
      Elected Director: 1987; Present Term Ends: 2009 Annual Meeting




O.B.
      Parrish has served as Chief Executive Officer of the Company since 1994, as
      acting President since May 2006, as acting Chief Financial and Accounting
      Officer from February 1996 to March 1999 and as the Chairman of the Board and
      a
      Director of the Company since 1987. Mr. Parrish is a shareholder and has served
      as the President and as a Director of Phoenix Health Care of Illinois, Inc.
      ("Phoenix of Illinois") since 1987. Phoenix of Illinois owns approximately
      233,501 shares of the Company's common stock. Mr. Parrish also is Chairman
      and a
      Director of Abiant, Inc., a neuroimaging company, and a director of Zila, Inc.,
      an oral cancer screening company.  Mr. Parrish is also a trustee of
      Lawrence University. From 1977 until 1986, Mr. Parrish was the President of
      the
      Global Pharmaceutical Group of G.D. Searle & Co. ("Searle"), a
      pharmaceutical/consumer products company. From 1974 until 1977, Mr. Parrish
      was
      the President of Searle International, the foreign sales operation of Searle.
      Prior to that, Mr. Parrish was Executive Vice President of Pfizer's
      International Division.





MARY
      ANN
      LEEPER, Ph.D.


Age:
      68;
      Elected Director: 1987; Present Term Ends: 2009 Annual Meeting





Dr.
      Leeper has served as Senior Strategic Adviser since May 2006. Dr. Leeper served
      as the President and Chief Operating Officer of the Company from February 1996
      to April 2006, as President and Chief Executive Officer of The Female Health
      Company Division from May 1994 until January 1996, as Senior Vice President
      -
      Development of the Company from 1989 until January 1996 and as a Director of
      the
      Company since 1987. Dr. Leeper is a shareholder and has served as a Vice
      President and Director of Phoenix of Illinois since 1987. From 1981 until 1986,
      Dr. Leeper served as Vice President - Market Development for Searle's
      Pharmaceutical Group and in various Searle research and development management
      positions. As Vice President - Market Development, Dr. Leeper was responsible
      for worldwide licensing and acquisition, marketing and market research. In
      earlier positions, she was responsible for preparation of new drug applications
      and was a liaison with the FDA. Dr. Leeper serves on the Board of Neenah Paper,
      Inc. and is chair of its nominating and governance committee. She is also an
      adjunct professor at the University of Virginia Darden School of
      Business.





WILLIAM
      R. GARGIULO, JR.


Age:
      80;
      Elected Director: 1987; Present Terms Ends: 2009 Annual Meeting





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





27




MICHAEL
      POPE


Age:
      51;
      Vice President, General Manager - The Female Health Company (UK)
      Plc.




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





DONNA
      FELCH


Age
      61;
      Vice President and Chief Financial Officer





Ms.
      Felch
      has served as Vice President and Chief Financial Officer of the Company since February
      2006. Prior to joining the Company, Ms. Felch was Vice President and Treasurer
      of American Pharmaceutical Partners, Inc., a pharmaceutical company that
      develops, manufactures and markets injectible pharmaceutical products, from
      November 2002 until June 2005. In these positions, she directed the
      treasury, tax, financial planning and analysis, credit and collections and
      risk
      management functions. Ms. Felch joined American Pharmaceutical Partners in
      1998
      and during such time held the positions of Senior Director of Corporate
      Accounting and Director of General Accounting and Tax. In these roles her
      responsibilities included internal and external financial reporting, tax,
      treasury, financial planning, credit and risk management. Previously, Ms Felch
      served as Director of Corporate Tax with Fujisawa USA, a subsidiary of a major
      Japanese pharmaceutical company. Ms. Felch had formerly worked as a Tax Manager
      for LyphoMed, Inc., a generic pharmaceutical manufacturer.





JACK
      WEISSMAN


Age:
      61;
      Vice President - Sales





Mr.
      Weissman has served as Vice President – Sales of the Company since June 1995.
      From 1992 to 1994, Mr. Weissman was Vice President-Sales for Capitol Spouts,
      Inc., a manufacturer of pouring spouts for gable paper cartons. From 1989 to
      1992, he acted as General Manager-HTV Group, an investment group involved in
      the
      development of retail stores. Mr. Weissman joined Searle's Consumer Products
      Group in 1979 and held positions of increasing responsibility, including
      National Account and Military Sales Manager. From 1985 to 1989, he was Director
      - Retail Business Development for The NutraSweet Company, a Searle subsidiary.
      Prior to Searle, Mr. Weissman worked in the consumer products field as account
      manager and territory manager for Norcliff Thayer and Whitehall
      Laboratories.


28


JANET
      LEE


Age:
      44;
      Controller





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





DAVID
      R.
      BETHUNE


Age:
      68;
      Elected Director: 1996; Present Term Ends: 2009 Annual Meeting





Mr.
      Bethune has served as a Director of the Company since January 1996. He is
      currently Executive Chairman and Chief Financial Officer of Zila, Inc, an oral
      cancer screening company. Additionally, he is a member of the Board of Directors
      of the CAMBREX Corporation, a life sciences company dedicated to providing
      products and services that accelerate and improve the discovery and
      commercialization of human therapeutics. Mr. Bethune served as Chairman and
      Chief Executive Officer of Atrix Laboratories, Inc. from 1999 until his
      retirement in 2004. From 1997 to 1998, Mr. Bethune held the positions of
      President and Chief Operating Officer of the IVAX Corporation. From 1996 to
      1997, Mr. Bethune was a consultant to the pharmaceutical industry. From 1995
      to
      1996, Mr. Bethune was President and Chief Executive Officer of Aesgen, Inc.,
      a
      generic pharmaceutical company. From 1992 to 1995, Mr. Bethune was Group Vice
      President of American Cyanamid Company and a member of its Executive Committee
      until the sale of the company to American Home Products. He had global executive
      authority for human biologicals, consumer health products, pharmaceuticals
      and
      opthalmics, as well as medical research. Mr. Bethune is a founding trustee
      of
      the American Cancer Society Foundation. He is the founding chairman of the
      Corporate Council of the Children's Health Fund in New York City and served
      on
      the Arthritis Foundation Corporate Advisory Council.





STEPHEN
      M. DEARHOLT


Age:
      62;
      Elected Director: 1996; Present Term Ends: 2009 Annual Meeting





Mr.
      Dearholt has served as a Director of the Company since April 1996. Mr. Dearholt
      is a co-founder of, and partner in, Insurance Processing Center, Inc., one
      of
      the largest privately owned life insurance marketing organizations in the United
      States, since 1972. He has over 36 years of experience in direct response
      advertising and data based marketing of niche products. In late 1995, Mr.
      Dearholt arranged, on very short notice, a $1 million bridge loan which assisted
      the Company in its purchase of Chartex.  He is a past board member of the
      Children’s Hospital Foundation of Wisconsin, the Zoological Society of
      Milwaukee, Planned Parenthood Association of Wisconsin, and past Chairman of
      the
      Board of the New Day Club, Inc.





29




MICHAEL
      R. WALTON


Age:
      71;
      Elected Director: 1999; Present Term Ends: 2009 Annual Meeting




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





RICHARD
      E. WENNINGER


Age:
      61;
      Director: 2001; Present Term Ends: 2009 Annual Meeting





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





MARY
      MARGARET FRANK


Age:
      39;
      Director: 2004; Present Term Ends: 2009 Annual Meeting





Dr.
      Frank
      has served as a Director of the Company since October 2004. Dr. Frank has served
      as an Assistant Professor of Accounting at the Darden Graduate School of
      Business at the University of Virginia where she teaches financial and tax
      accounting since 2002. From 1999 to 2002, Dr. Frank was an Assistant Professor
      at the Graduate School of Business at the University of Chicago. During 1997,
      Dr. Frank was an accounting instructor at the Kenan-Flagler Business School
      at
      the University of North Carolina at Chapel Hill. From 1992 to 1994, Dr. Frank
      served as a Senior Tax Consultant at Arthur Andersen.  She has her
      master’s degree and Ph.D. in accounting from the University of North Carolina at
      Chapel Hill and was issued her CPA in 1994.





Section
      16(a) Beneficial Ownership Reporting Compliance





Section
      16(a) of the Securities Exchange Act of 1934 requires the Company's officers
      and
      directors, and persons who own more than 10% of a registered class of the
      Company's equity securities, to file reports of ownership and changes in
      ownership with the Securities and


30


Exchange
      Commission ("SEC") on Forms 3, 4 and 5. Officers, directors and greater than
      10%
      stockholders are required by SEC regulation to furnish the Company with copies
      of all Forms 3, 4 and 5 they file.





Based
      solely on a review of the copies of such forms furnished to the Company, or
      written representations that no Forms 5 were required, the Company believes
      that
      during the year ended September 30, 2008, all reports required by Section
      16(a) to be filed by the Company's officers, directors and more than 10%
      shareholders were filed on a timely basis, except Mr. Pope filed a Form 4 report
      on August 11, 2008 reporting a transaction occurring on August 1, 2008 and
      a
      Form 4 report on August 22, 2008 reporting a transaction occurring on
      August 15, 2008.





Code
      of
      Ethics





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





Audit
      Committee





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


31


Item
      11.
      Executive Compensation





Summary
      Compensation Table





The
      table
      shown below provides information for the Company's last two fiscal years
      regarding compensation paid by the Company to its Chief Executive Officer and
      the other two most highly compensated executive officers of the Company based
      on
      total compensation for services rendered during the fiscal year ended September
      30, 2008.  The individuals listed in this table are referred to
      elsewhere in this report as the "named executive officers."





Name
                and Principal Position
            Year
            Salary
            Bonus
                (1)
            Stock
              Awards
                (2)
            Nonequity
              Incentive
                Plan
              Compensation
                (3)
            All
                Other Compensation
                (4)
            TotalO.B.
                Parrish, Chief Executive Officer and Acting President
            2008
              2007
            $145,100
              $140,000
            $93,750
              -
            $66,063
              $245,375
            $366,000
              -
            $22,073
              $22,074
            $692,986
              $407,449Donna
                Felch, Vice President and Chief Financial Officer
            2008
              2007
            $185,000
              $175,000
            -
              $34,000
            $15,188
              $56,888
            $122,000
              -
            $9,504
              $5,457
            $331,692
              $271,345Mike
              Pope, Vice President and General Manager of Female Health Company (UK)
              Plc.
            2008
              2007
            $211,725
                (5)
              $227,009
                (5)
            -
              $34,000
            $15,188
              $50,625
            $122,000
              -
            $34,468 (5)
              $33,625
                (5)
            $383,381
              $345,259





(1)
            Bonus
                amount for 2008 represents a retention bonus payable monthly to Mr.
                Parrish based on continued service from January 1, 2008 through
                September 30, 2008.  Bonus amounts for 2007 represent
                discretionary bonuses awarded based on the Company's revenue and
                profit
                performance.





(2)
            These
                amounts reflect the dollar value of the compensation cost of all
                outstanding restricted stock awards recognized over the requisite
                service
                period, computed in accordance with FAS 123R. The stock awards are
                valued
                at the closing market price of the Company's common stock on the
                date of
                grant.





(3)
            Amounts
                for 2008 represent payouts under the Company's Key Executive Incentive
                Program based on achieving net income objectives for 2008. Under
                this
                program, each named executive officer is entitled to a payout based
                on the
                Company exceeding a target amount of net income for 2008 and an additional
                payout for exceeding 110% of such target amount, with the amount
                of the
                payout based on the value of the Company's common stock onSeptember 30,
                2008.  A similar program was in effect for 2007, but no payout
                was made under the program as the net income targets were not met.


32







(4)
            The
                amount of "All Other Compensation" for Mr. Parrish consists of premiums
                paid by the Company for term life insurance and disability insurance
                under
                which Mr. Parrish or his designee is the beneficiary; for Ms. Felch
                consists of matching contributions by the Company under the Company's
                Simple Individual Retirement Account plan for its employees and for
                Mr.
                Pope consists of an automobile allowance.





(5)
            Mr.
                Pope's salary and automobile allowance are paid in U.K. pounds. Amounts
                shown for Mr. Pope's salary are based on the 12-month average exchange
                rate for the year, which was 1.978304 U.S. dollars per U.K. pound
                in
                fiscal 2007 and 1.975563 U.S. dollars per U.K. pound in fiscal 2008.





Stock
      Awards





No
      stock
      options were granted to any of the named executive officers during the fiscal
      year ended September 30, 2008.





On
      February 6, 2007, Ms. Felch received a grant of 15,000 shares of common
      stock pursuant to her employment letter agreement described below under
      "Employment and Change of Control Agreements."





On
      July 1, 2007, Mr. Pope received a grant of 30,000 shares of common stock
      pursuant to a commitment made by the Company on June 30,
      2006.  Mr. Pope received a grant of an additional 30,000 shares of
      common stock on August 1, 2008.





The
      following table provides information regarding unexercised options held by
      the
      named executive officers at September 30, 2008.  All of these option
      awards are fully vested.  No named executive officer exercised any
      option during the fiscal year ended September 30, 2008.





Outstanding
                Equity Awards at Fiscal Year-EndOption
                AwardsName
            
            Number
                of Securities Underlying Unexercised Options (#)
              Exercisable
            Option
              Exercise
                Price
            Option
                Expiration
              DateO.
                B. Parrish
            
            464,000
            1.40
            04/22/13Donna
                Felch
            
            –
            –
            –Michael
                Pope
            
            370,000
            1.40
            04/22/13


33


Employment
      and Change of Control Agreements





Effective
      February 2, 2006, the Company entered into a letter agreement with Donna Felch,
      the Company's Chief Financial Officer and Vice President regarding the terms
      of
      her employment with the Company. Pursuant to the terms of the letter agreement,
      Ms. Felch will serve as the Company's Vice President and Chief Financial Officer
      and will be responsible for the Company's financial reporting, financial
      analysis and related filings with the Securities and Exchange
      Commission.  Ms. Felch will receive an annual base salary of at least
      $165,000. Additionally, Ms. Felch is entitled to participate in the Company's
      bonus plans, stock incentive plan and other employee benefit plans. As a hiring
      bonus, Ms. Felch received a grant of 15,000 shares of common stock.
      Additionally, the Company agreed to grant Ms. Felch an additional 15,000 shares
      of common stock on the one year anniversary date of her hire date if she
      remained employed by the Company on such date. Ms. Felch is eligible to
      participate in any medical, health, dental, disability and life insurance policy
      that is in effect for the Company's other employees who are located in the
      United States.





Effective
      October 1, 2005, the Company entered into Amended and Restated Change of Control
      Agreements with each of O.B. Parrish, its Chairman, Chief Executive Officer
      and
      Acting President and Michael Pope, its Vice President, and effective
      February 8, 2006, the Company entered into a Change of Control Agreement
      with Donna Felch, its Chief Financial Officer and Vice President. These
      agreements essentially act as springing employment agreements which provide
      that, upon a change of control, as defined in the agreement, the Company will
      continue to employ the executive for a period of three years in the same
      capacities and with the same compensation and benefits as the executive was
      receiving prior to the change of control, in each case as specified in the
      agreements. If the executive is terminated without cause or if he or she quits
      for good reason, in each case as defined in the agreements, after the change
      of
      control, the executive is generally entitled to receive the following
      benefits:




●
            a
                lump
                sum payment equal to the sum of the executive's base salary through
                the
                termination date, a prorated payment of bonus which the executive
                is
                eligible to receive and any compensation previously deferred by
                the executive;●
            a
                lump
                sum payment equal to three times the sum of the executive's base
                salary
                and the amount of the executive's prorated bonus;●
            continuation
                of
                health and other similar benefits for a period of three years after
                the
                termination date; and●
            a
              "gross-up" payment
              which will, in general, effectively reimburse the executive for any
              amounts paid under federal excise taxes relating to change of control
              benefits.







34




Director Summary Compensation Table






Directors
        who are executive officers or employees of the Company do not receive
        compensation for serving as directors.  In fiscal 2008, the Company
        paid fees to its directors who are not executive officers or employees of
        the
        Company for their committee participation.  As describedbelow, one of our directors, Mary Ann Leeper, receives
        compensation as the Company's Senior Strategic Adviser pursuant to an employment
        agreement, and another director, William Gargiulo, Jr. receives consulting
        fees.
The
        following table provides information concerning the compensation paid bythe
        Companyin
        2008to
        each ofitsdirectorswho
        are not executive officers of the Company.





Name
            
            Fees
                Earned
              or
                Paid in Cash (1)
            
            Option
                Awards (2)
            
            Nonequity
              Incentive Plan
              Compensation
                (3)
            
            All
                Other
              Compensation
                (4)
            
            TotalMary
                Ann Leeper
            
            
            –
            
            
            –
            
            $
            122,000
            
            $
            178,042
            
            $
            300,042William
                Gargiulo, Jr.
            
            
            –
            
            
            –
            
            $
            67,100
            
            $
            60,000
            
            $
            127,100David
                Bethune
            
            $
            9,000
            
            $
            10,182
            
            
            –
            
            
            –
            
            $
            19,182Stephen
                Dearholt
            
            
            –
            
            $
            10,182
            
            
            –
            
            
            –
            
            $
            10,182Mary
                Margaret Frank
            
            $
            11,000
            
            $
            10,182
            
            
            –
            
            
            –
            
            $
            21,182Michael
                Walton
            
            
            –
            
            $
            10,182
            
            
            –
            
            
            –
            
            $
            10,182Richard
                Weninger
            
            
            –
            
            $
            10,182
            
            
            –
            
            
            –
            
            $
            10,182James
                Kerber (5)
            
            
            –
            
            $
            5,561
            
            
            –
            
            
            –
            
            $
            5,561





(1)
            The
                amounts in this column reflect fees paid to board members for their
                committee participation.(2)
            The
              amounts in this column reflect the dollar amount recognized for financial
              statement reporting purposes for the fiscal year ended September 30,2008,
              in accordance with FAS 123R of stock option awards to the listed directors
              and, thus, include amounts from awards granted prior to fiscal 2008
              that
              vested in fiscal 2008. The assumptions made in valuing the stock option
              awards are included under "Note 7, Share-based Compensation" in the
              Notes
              to Consolidated Financial Statements, included herein.On
              October 12, 2006, each of the directors of the Company other than
              O.B. Parrish, Mary Ann Leeper and William Gargiulo, Jr. received a
              grant of options to purchase 30,000 shares of common stock with an
              exercise price of $1.27 per share.  All such stock options vest
              on the 12th of each month commencing on November 12, 2006 and ending
              on October 12, 2009 and have a ten year term.(3)
            Amounts
              for 2008 represent payouts under the Company's Key Executive Incentive
              Program based on achieving net income objectivesfor
              2008. Under this program, each participant is entitled to a payout
              based on the Company exceeding a target amount of net income for 2008
              and
              an additional payout for exceeding 110% of such target amount, with
              the
              amount of the payout based on the value of the Company's common stock
              on
              September 30,
              2008.  A similar program was in effect for 2007, but no payout
              was made under the program as the net income targets were not
              met.(4)
            The
              amount of "All Other Compensation" for Dr. Leeper consists of salary
              of
              $157,520 as well as $5,746 in matching contributions by the Company
              under
              the Company's Simple Individual Retirement Account plan for its employees
              and $14,776 of premiums paid by the Company for term life insurance
              and
              disability insurance under which Dr. Leeper or her designee is the
              beneficiary. Dr. Leeper is employed as a Senior Strategic Advisor.
              She has
              specific responsibility for the preparation, submission and presentation
              of the FC2 PMA to the FDA.  In addition, she participates as a member
              of the Executive Operation Committee. Dr. Leeper's compensation is
              for the
              execution of these responsibilities. She does not receive compensation
              for
              her role as a director of the Company. Mr. Gargiulo is a consultant
              to the
              Company and serves as the Corporate Secretary.  In
              this role, he is responsible for scheduling all board and board committee
              meetings and distribution of material and preparation and approval
              of
              minutes for each meeting.  In addition, he is responsible for
              the Company's relationship with its transfer agent and the issuance
              of
              shares.  Mr. Gargiulo also assists Ms. Felch with investor
              relations.  Mr. Gargiulo's compensation for the execution of
              these responsibilities was $60,000.  He does not receive compensation
              for being a director of the Company.












35




(5)
            Mr.
                Kerber did not stand for re-election at the 2008 Annual Meeting of
                Shareholders, and accordingly his term as a director ended as of
                March 27, 2008.





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


36


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





The
      following table sets forth information regarding the beneficial ownership of
      the
      Company's common stock as of November 18, 2008 with respect to (a) each
      person known to the Company to own beneficially more than 5% of the Company's
      common stock, (b) each named executive officer and each director of the Company
      and (c) all directors and executive officers as a group.


The
      Company has determined beneficial ownership in accordance with the rules of
      the
      SEC. Unless otherwise indicated, the persons and entities included in the table
      have sole voting and investment power with respect to all shares beneficially
      owned, except to the extent authority is shared by spouses under applicable
      law.
      Shares of the Company's common stock subject to options or warrants that are
      either currently exercisable or exercisable within 60 days of November 18,
      2008 are treated as outstanding and beneficially owned by the holder for the
      purpose of computing the percentage ownership of the holder. However, these
      shares are not treated as outstanding for the purpose of computing the
      percentage ownership of any other person.  The table lists applicable
      percentage ownership based on 26,723,758 shares outstanding as of
      November 18, 2008.




Shares
                Beneficially
                OwnedName
                and Address of
                Beneficial Owner (1)
            Number
            
            PercentO.B.
                Parrish (2)
            
            1,328,901
            
            
            4.9
            %William
                R. Gargiulo, Jr. (3)
            
            137,500
            
            
            *Mary
                Ann Leeper, Ph.D. (4)
            
            949,500
            
            
            3.5
            %Stephen
                M. Dearholt (5)
            
            3,878,820
            
            
            13.7
            %David
                R. Bethune (6)
            
            195,000
            
            
            *Michael
                R. Walton (7)
            
            850,556
            
            
            3.2
            %Richard
                E. Wenninger (8)
            
            2,813,671
            
            
            10.5
            %Mary
                Margaret Frank (9)
            
            52,500
            
            
            *Michael
                Pope (10)
            
            400,845
            
            
            1.5
            %Donna
                Felch (11)
            
            90,000
            
            
            *Red
                Oak Partners (12)
            
            1,530,410
            
            
            5.7
            %Gary
                Benson (13)
            
            1,261,364
            
            
            4.7
            %All
                directors and executive officers
              as
                a group (11 persons) (2)(3)(4)(5)(6)(7)(8)(9)(10)(11)
            
            10,697,293
            
            
            35.2
            %


_______________


*Less
      than 1 percent.





(1)
            Unless
                otherwise indicated, the address of each beneficial owner is 515
                North
                State Street, Suite 2225, Chicago, IL 60654; the address of Mr. Dearholt
                is 36365 Trail Ridge Road,
                Steamboat Springs, CO 80488; the address of Mr. Walton is 1626 North
                Prospect Avenue, No. 2310, Milwaukee, WI 53202; the address of Mr.
                Wenninger is 14000 Gypsum Creek Road, Gypsum, CO 81637; the address
                of Dr.
                Frank is P.O. Box 6550, Charlottesville, VA 22906; the address of
                Mr.
                Benson is Regency Athletic Club, 1300 Nicollet Mall, Suite 600,
                Minneapolis, MN 55403; and the address of Red Oak Partners is 145
                Fourth
                Avenue, Suite 15A, New York, NY 10003.


37




(2)
            Includes
                233,501 shares owned by Phoenix of Illinois. Under the rules of the
                SEC,
                Mr. Parrish may be deemed to have voting and dispositive power as
                to such
                shares since Mr. Parrish is an officer, director and the majority
                shareholder of Phoenix of Illinois. Also includes 379,900 shares
                of common
                stock owned directly by Mr. Parrish, 225,000 shares of common stock
                owned
                by the Geneva O. Parrish 1996 Living Trust of which Mr. Parrish is
                beneficiary and for which Mr. Parrish may be deemed to share voting
                and
                investment power, 464,000 shares of common stock subject to stock
                options
                held by Mr. Parrish and 26,500 shares under common stock purchase
                warrants
                issued to Mr. Parrish.





(3)
            Consists
                of 37,500 shares of common stock owned directly by Mr. Gargiulo and
                100,000 shares of common stock subject to stock options held by Mr.
                Gargiulo.





(4)
            Consists
                of 159,500 shares of common stock owned directly by Dr. Leeper and
                790,000
                shares of common stock subject to stock options held by Dr. Leeper.





(5)
            Includes
                1,574,400 shares owned directly by Mr. Dearholt. Also includes 69,500
                shares held by the Dearholt, Inc. Profit Sharing Plan, 28,500 shares
                held
                in a self-directed IRA, 275,820 shares held by the Mary C. Dearholt
                Trust
                of which Mr. Dearholt, a sibling and his mother are trustees, and
                418,100
                shares held by the John W. Dearholt Trust of which Mr. Dearholt is
                a
                co-trustee with a sibling. Mr. Dearholt shares the power to vote
                and
                dispose of 693,920 shares of common stock held by the Mary C. Dearholt
                Trust and the John W. Dearholt Trust. Mr. Dearholt has sole power
                to vote
                and dispose of the remaining shares of common stock. Also includes
                162,500
                shares of common stock subject to stock options and common stock
                purchase
                warrants for 1,350,000 shares of common stock.





(6)
            Consists
                of 32,500 shares of common stock owned directly by Mr. Bethune and
                162,500
                shares of common stock subject to stock options held by Mr. Bethune.





(7)
            Consists
                of (a) 485,341 shares of common stock owned directly by Mr. Walton,
                (b)
                102,500 shares of common stock subject to stock options held by Mr.
                Walton, (c) 27,757 shares of Common Stock held by a trust of which
                Mr.
                Walton is trustee and (d) 234,958 shares of common stock held by
                Sheboygan
                County Broadcasting Co., Inc. ("Sheboygan"). Under the rules of the
                SEC,
                Mr. Walton may be deemed to have voting and dispositive power as
                to the
                shares held by Sheboygan since Mr. Walton is an officer, director
                and
                shareholder of Sheboygan.





(8)
            Consists
                of (a) 2,506,171 shares of common stock owned directly by Mr. Wenninger,
                (b) 5,000 shares of common stock held by Mr. Wenninger's spouse (Mr.
                Wenninger disclaims
                beneficial ownership of the shares held by his spouse), (c) 250,000
                shares
                of Common Stock held by a trust of which Mr. Walton is trustee, and
                (d)
                52,500 shares of common stock subject to stock options.


38




(9)
            Consists
                of 52,500 shares of common stock subject to stock options held by
                Dr.
                Frank.





(10)
            Consists
                of 30,845 shares of common stock owned directly by Mr. Pope and 370,000
                shares of common stock subject to stock options.





(11)        
      Consists of 90,000 shares of common stock owned directly by Ms.
      Felch.





(12)
            Red
                Oak Partners and certain affiliates filed a Schedule 13D dated
                May 7, 2007 reporting that Red Oak Partners, as general partner of
                Red Oak Fund LP, beneficially owned 1,530,410 shares of common stock
                with
                shared voting and investment power over such shares.





(13)
            Gary
                Benson filed a Schedule 13G/A dated May 25, 2007 reporting that as
                of May
                15, 2007 Mr. Benson and certain of his affiliates beneficially owned
                1,261,364 shares of common stock, which includes 32,710 shares of
                preferred stock and 1,170,379 shares of common stock owned by Goben
                Enterprises LP, a limited partnership, of which Mr. Benson is the
                general
                partner.





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





Equity
      Compensation Plan Information





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





EQUITY
                PLAN CATEGORY
            
            NUMBER
                OF COMMON SHARES TO BE ISSUED UPON EXERCISE OF OUTSTANDING OPTIONS,
                WARRANTS, AND RIGHTS
            
            NUMBER
                OF WEIGHTED-AVERAGE EXERCISE PRICE OF OUTSTANDING OPTIONS, WARRANTS,
                AND
                RIGHTS
            
            COMMON
                SHARES AVAILABLE FOR FUTURE ISSUANCE UNDER COMPENSATION
                PLANSEquity
                compensation plans approved by shareholders
            
            -
            
            -
            
            1,950,000Equity
                compensation plans not approved by shareholders
            
            2,439,980
            
            $1.41
            
            -Total
            
            2,439,980
            
            $1.41
            
            1,950,000





39


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





In
      July
      2006, the Company issued 200,000 warrants to purchase shares of common stock
      to
      a consultant in part for payment to assist in evaluating strategic growth
      opportunities.  These warrants have an exercise price of $1.30 per
      share and expire on July 10, 2016.





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





Transactions
      with Related Persons





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





Director
      Independence





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


40


Item
      14.
      Principal Accountant Fees and Services.





The
      following table summarizes the fees the Company paid for audit and non-audit
      services rendered by the Company's independent auditors, McGladrey & Pullen,
      LLP, during fiscal years 2008 and 2007:





Service
                Type
            Fiscal
                2008
            Fiscal
                2007Audit
                Fees (1)
            $287,017
            $201,496Audit-Related
                Fees (2)
            12,211
            15,261Tax
                Fees (3)
            12,481
            23,901All
                Other Fees
            --
            --Total
                Fees
            $311,709
            $240,658





(1)
            Consists
                of fees for professional services rendered in connection with the
                audit of
                the Company's financial statements for the fiscal years ended September
                30, 2008 and September 30, 2007; the reviews of the financial statements
                included in each of the Company's quarterly reports on Form 10-QSB
                during
                those fiscal years; and consents and assistance with documents filed
                by
                the Company with the SEC.





(2)
            Consists
                of costs incurred for consultation on various accounting matters
                in
                support of the Company's financial statements and comment letters
                from the
                SEC.





(3)
            For
                the fiscal years ended September 30, 2007 and September 30, 2008
                consists
                of fees for professional services rendered in connection with preparation
                of federal and state income tax returns, including foreign tax filings,
                and assistance with foreign tax structuring.





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





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


41


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





PART
      IV





Item
      15.
      Exhibits and Financial Statement Schedules.




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





1.        Financial
      Statements





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





Report
                of Independent Registered Public Accounting Firm





Consolidated
                Balance Sheets as of September 30, 2008 and 2007





Consolidated
                Statements of Income for the Years Ended September 30, 2008 and 2007





Consolidated
                Statements of Stockholders’ Equity for the Years Ended September 30,
                2008 and 2007





Consolidated
                Statements of Cash Flows for the Years Ended September 30, 2008 and
                2007





Notes
                to Consolidated Financial Statements





2.        Financial
      Statement Schedules





All
      schedules for which provision is made in the applicable accounting regulations
      of the Commission 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.





42


3.          Exhibits





EXHIBIT
                NO.
            DESCRIPTION3.1
            Amended
                and Restated Articles of Incorporation of the Company. (10)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. (15)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. (18)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. (19)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. (21)3.6
            Amended
                and Restated By-Laws of the Company. (1)4.1
            Amended
                and Restated Articles of Incorporation, as amended (same as
                Exhibits 3.1, 3.2, 3.3 and 3.4).4.2
            Articles
                II, VII and XI of the Amended and Restated By-Laws of the Company
                (included in Exhibit 3.5).10.1
            Reality
                Female Condom Clinical Trial Data Agreement between the Company and
                Family
                Health International dated September 24, 1992. (3)10.2
            Trademark
                License Agreement for Reality Trademark. (4)10.3
            Company
                Promissory Note payable to Stephen M. Dearholt for $1 million dated
                March 25, 1996 and related Note Purchase and Warrant Agreement,
                warrants and Stock Issuance Agreement. (5)10.4
            Outside
                Director Stock Option Plan. (6)10.5
            Supply
                Agreement between Chartex International Plc and Deerfield Urethane,
                Inc.
                dated August 17, 1994. (6)10.6
            Letter
                Amendment to Asset Sale Agreement dated April 29, 1996 between the
                Company and Dowty Seals Limited and Chartex International Plc. (6)


43





10.7
            Company
                Promissory Note to Stephen M. Dearholt for $250,000 dated
                February 1, 1999 and related Note Purchase And Warrant Agreement,
                warrants and Stock Issuance Agreement. (7)10.8
            Company
                Promissory Note to O.B. Parrish for $50,000 dated February 1, 1999
                and related Note Purchase And Warrant Agreement, warrants and Stock
                Issuance Agreement. (7)10.9
            Company
                Promissory Note to Stephen M. Dearholt for $1 million dated
                March 25, 1999 and related Note Purchase and Warrant Agreement,
                Warrant and Stock Issuance Agreement. (7)10.10
            Lease
                Agreement among Chartex Resources Limited, P.A.T. (Pensions) Limited
                and
                The Female Health Company. (8)10.11
            Agreement
                dated March 14, 1997, between the United Nations Joint Programme on
                HIV/AIDS and Chartex International PLC. (9)10.12
            Company
                promissory note payable to Stephen M. Dearholt for $1 million dated
                March 25, 1997, and related stock purchase and warrant agreement,
                warrants and stock issuance agreement. (11)10.13
            1997
                Stock Option Plan. (9)10.14
            Agreement
                dated September 29, 1997, between Vector Securities International and
                The Female Health Company. (9)10.15
            Company
                Promissory Note to Stephen M. Dearholt for $250,000 dated
                February 12, 2000 and related Warrants. (13)10.16
            Company
                Promissory Note to O.B. Parrish for $50,000 dated February 18,
                2000 and related Warrants. (13)10.17
            Company
                Promissory Note to Stephen M. Dearholt for $1 million dated
                March 25, 2000 and related Warrants. (13)10.18
            Stock
                Purchase Agreement, dated as of June 14, 2000, between The Female
                Health Company and The John W. Dearholt Trust. (14)10.19
            Stock
                Purchase Agreement, dated as of June 14, 2000, between the Company
                and The John W. Dearholt Trust. (14)10.20
            Amended
                and Restated Promissory Note to Stephen M. Dearholt for $250,000
                dated
                February 12, 2001 and related warrants. (2)


44





10.21
            Amended
                and Restated Promissory Note to O.B. Parrish for $50,000 dated
                February 18, 2001 and related warrants. (2)10.22
            Amended
                and Restated Promissory Note to Stephen M. Dearholt for $1,000,000
                dated March 25, 2001 and related warrants. (16)10.23
            Loan
                Agreement, dated as of May 18, 2001, between the Company and
                Heartland Bank. (16)10.24
            Registration
                Rights Agreement, dated as of May 18, 2001, between the Company and
                Heartland Bank. (16)10.25
            Warrant
                dated May 18, 2001 from the Company to Heartland Bank. (17)10.26
            Warrants
                dated May 18, 2001 from the Company to Stephen M. Dearholt.
                (17)10.27
            Warrant
                dated May 18, 2001 from the Company to The Geneva O. Parrish
                1996 Living Trust. (17)10.28
            Warrants
                dated May 23, 2001 from the Company to Richard E. Wenninger.
                (17)10.29
            Registration
                Rights Agreement, dated as of May 18, 2001, among the Company and
                certain guarantors. (17)10.30
            Amended
                and Restated Promissory Note to Stephen M. Dearholt for $1,000,000
                dated
                March 25, 2003 and related warrants.(20)10.31
            Amended
                and Restated Change of Control Agreement between the Company and
                O.B.
                Parrish dated October 1, 2005.(22)10.32
            Amended
                and Restated Change of Control Agreement between the Company and
                Mary Ann
                Leeper dated October 1, 2005.(22)10.33
            Amended
                and Restated Change of Control Agreement between the Company and
                Michael
                Pope dated October 1, 2005.(22)10.34
            Change
                of Control Agreement between the Company and Donna Felch dated February
                8,
                2006.(23)10.35
            Letter
                Agreement between the Company and Donna Felch dated February 2, 2006.
                (23)10.36
            Employment
                Agreement between the Company and Mary Ann Leeper dated effective
                as of
                May 1, 2006. (24)21
            Subsidiaries
                of Registrant. (12)


45





23.1
            Consent
                of McGladrey & Pullen, LLP24.1
            Power
                of Attorney (included as part of the signature page hereof).31.1
            Certification
                of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
                Act of 2002.31.2
            Certification
                of Principal Financial Officer pursuant to Section 302 of the
                Sarbanes-Oxley Act of 2002.32.1
            Certification
                of Chief Executive Officer and Principal Financial Officer pursuant
                to 18
                U.S.C. Section 1350 (Section 906 of the Sarbanes-Oxley Act of 2002.
(25)





(1)
            Incorporated
                herein by reference to the Company's Registration Statement on Form
                S-18,
                Registration No. 33-35096, as filed with the Securities and Exchange
                Commission on May 25, 1990.(2)
            Incorporated
                herein by reference to the Company's March 31, 2001 Form
                10-QSB.(3)
            Incorporated
                herein by reference to Pre-Effective Amendment No. 1 to the Company's
                Registration Statement on Form S-1, Registration No. 33-51586, as
                filed
                with the Securities and Exchange Commission on September 28,
                1992.(4)
            Incorporated
                herein by reference to the Company's 1992 Form 10-KSB.(5)
            Incorporated
                herein by reference to the Company's June 30, 1995 Form
                10-Q.(6)
            Incorporated
                herein by reference to Pre-Effective Amendment No. 1 to the Company's
                Form
                S-1 Registration Statement filed with the Securities and Exchange
                Commission on June 5, 1996.(7)
            Incorporated
                herein by reference to the Company's March 31, 1999 Form
                10-QSB.(8)
            Incorporated
                herein by reference to the Company's December 31, 1996 Form
                10-QSB.(9)
            Incorporated
                herein by reference to the Company's Form 10-KSB/A-2 for the year
                ended
                September 30, 1997.(10)
            Incorporated
                herein by reference to the Company's Form SB-2 Registration Statement
                filed with the Securities and Exchange Commission on October 19,
                1999.(11)
            Incorporated
                herein by reference to the Company's March 31, 1997 Form
                10-QSB.(12)
            Incorporated
                herein by reference to the Company's Form 10-KSB for the year ended
                September 30, 1999.


46





(13)
            Incorporated
                herein by reference to the Company's March 31, 2000 Form
                10-QSB.(14)
            Incorporated
                herein by reference to the Company's June 30, 2000 Form
                10-QSB.(15)
            Incorporated
                herein by reference to the Company's Form SB-2 Registration Statement
                filed with the Securities and Exchange Commission on September 21,
                2000.(16)
            Incorporated
                herein by reference to the Company's June 30, 2001 Form
                10-QSB.(17)
            Incorporated
                herein by reference to the Company's Form SB-2 Registration Statement
                filed on November 13, 2001.(18)
            Incorporated
                by reference herein to the Company's Form SB-2 Registration Statement
                filed on September 6, 2002.(19)
            Incorporated
                herein by reference to the Company's March 31, 2003 Form
                10-QSB.(20)
            Incorporated
                herein by reference to the Company's September 30, 2003 Form
                10-KSB.(21)
            Incorporated
                herein by reference to the Company's March 31, 2004 Form
                10-QSB.(22)
            Incorporated
                herein by reference to the Company's September 30, 2007 Form
                10-KSB.(23)
            Incorporated
                herein by reference to the Company's Form 8-K dated February 8, 2006
                and
                filed on February 8, 2006.(24)
            Incorporated
                hereby by reference to the Company's Form 8-K/A dated February 20,
                2006
                and filed on February 21, 2006.(25)
            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.





(b)  Exhibits





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





(c)  Financial
      Statement Schedules





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





47


SIGNATURES





Pursuant
      to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
      1934, the Registrant has duly caused this report to be signed on its behalf
      by
      the undersigned, thereunto duly authorized.








Date:  December 18,
      2008




THE
      FEMALE HEALTH COMPANY




BY:  /s/
      O.B.
      Parrish


O.B. Parrish, Chairman,


Chief
      Executive Officer




BY:  /s/
      Donna
      Felch


Donna Felch, Vice President,


Chief Financial Officer




POWER
      OF
      ATTORNEY





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





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





Signature
            Title
            Date/s/
                O.B.
                Parrish
              O.B.
                Parrish
            Chairman
                of the Board, Chief Executive Officer and Director
              (Principal
                Executive Officer)
            December 18,
                2008/s/
                Mary Ann
                Leeper
              Mary
                Ann Leeper, Ph.D.
            Director
            December 18,
                2008


48





/s/
              Donna
              Felch
            Vice
                President and Chief Financial Officer (Principal Accounting
                and
            December 18,
                2008Donna
              Felch
            Financial
              Officer)/s/William
                R.
                Gargiulo
            Secretary
                and Director
            December 18,
                2008William
                R. Gargiulo/s/
                David R.
                Bethune
            Director
            December 18,
                2008David
                R. Bethune______________________
            Director
            December 18,
                2008Stephen
                M. Dearholt/s/
              Michael R.
              Walton
            Director
            December 18,
                2008Michael
                R. Walton______________________
            Director
            December 18,
                2008Richard
                E. Wenninger/s/
                Mary Margaret
                Frank
            Director
            December 18,
                2008Mary
                Margaret Frank





49


The
      Female Health Company and Subsidiaries


Index
      to Consolidated Financial Statements








Document
            Page
                No.Audited
                Consolidated Financial Statements.Report
                of McGladrey & Pullen, LLP, Independent Registered Public Accounting
                Firm.
            F-1Consolidated
                Balance Sheets as of September 30, 2008 and 2007
            F-2Consolidated
                Statements of Income for the years endedSeptember
                30, 2008 and 2007.
            F-3Consolidated
                Statements of Stockholders’ Equityfor
                the years ended September 30, 2008 and 2007.
            F-4
                and F-5Consolidated
                Statements of Cash Flows for the years endedSeptember
                30, 2008 and 2007.
            F-6Notes
                to Consolidated Financial Statements.
            F-7
                through F-21











Report
      of Independent Registered Public Accounting Firm





To
      the
      Board of Directors and Stockholders


The
      Female Health Company and Subsidiaries





We
      have
      audited the accompanying consolidated balance sheets of The Female Health
      Company and Subsidiaries, as of September 30, 2008 and 2007, and the related
      consolidated statements of income, stockholders' equity, and cash flows for
      each
      of the two years in the period ended September 30, 2008.  These
      financial statements are the responsibility of the Company's
      management.  Our responsibility is to express an opinion on these
      financial statements 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 audit to obtain reasonable assurance about whether
      the financial statements are free of material misstatement.  An audit
      includes examining, on a test basis, evidence supporting the amounts and
      disclosures in the financial statements.  An audit also includes
      assessing the accounting principles used and significant estimates made by
      management, as well as evaluating the overall financial statement
      presentation.  We believe that our audits provide a reasonable basis
      for our opinion.





In
      our
      opinion, the consolidated financial statements referred to above present fairly,
      in all material respects, the financial position of The Female Health Company
      and Subsidiaries as of September 30, 2008 and 2007, and the results of their
      operations and their cash flows for each of the two years in the period ended
      September 30, 2008, in conformity with U.S. generally accepted accounting
      principles.





We
      were
      not engaged to examine management’s assessment of the effectiveness of The
      Female Health Company and Subsidiaries’ internal control over financial
      reporting as of September 30,2008, included in the accompanying Controls and
      Procedures and, accordingly, we do not express an opinion thereon.





/s/
      McGladrey & Pullen, LLP





Chicago,
      Illinois


December
      18,
      2008


F-1


THE
                FEMALE HEALTH COMPANY AND SUBSIDIARIESCONSOLIDATED
                BALANCE SHEETS
              SEPTEMBER
                30, 2008 AND 20072008
            
            
            2007ASSETSCurrent
                AssetsCash
            
            $
            1,922,148
            
            
            $
            799,421Restricted
                cash
            
            
            211,873
            
            
            
            86,435Accounts
                receivable, net of allowance for doubtful accounts2008
                $53,000 and 2007 $51,000
            
            
            6,810,050
            
            
            
            6,080,153Inventories
            
            
            1,322,652
            
            
            
            1,372,582Prepaid
                expenses and other current assets
            
            
            414,040
            
            
            
            399,536Deferred
                income taxes
            
            
            1,600,000
            
            
            
            825,000TOTAL
                CURRENT ASSETS
            
            
            12,280,763
            
            
            
            9,563,127Other
                Assets
            
            
            55,330
            
            
            
            251,536EQUIPMENT,
                FURNITURE AND FIXTURESEquipment
                not yet in service
            
            
            -
            
            
            
            444,275Equipment,
                furniture and fixtures
            
            
            6,046,283
            
            
            
            5,967,0826,046,283
            
            
            
            6,411,357Less
                accumulated depreciation and amortization
            
            
            4,551,638
            
            
            
            5,032,4721,494,645
            
            
            
            1,378,885TOTAL
                ASSETS
            
            $
            13,830,738
            
            
            $
            11,193,548LIABILITIES
                AND STOCKHOLDERS’ EQUITYCurrent
                Liabilities:Accounts
                payable
            
            $
            621,115
            
            
            $
            806,134Accrued
                expenses and other current liabilities
            
            
            2,385,540
            
            
            
            1,532,170Preferred
                dividends payable
            
            
            25,068
            
            
            
            53,025TOTAL
                CURRENT LIABILITIES
            
            
            3,031,723
            
            
            
            2,391,329Obligations
                under capital leases
            
            
            49,597
            
            
            
            23,176Deferred
                gain on sale of facilities
            
            
            836,733
            
            
            
            1,074,339Deferred
                grant income
            
            
            203,483
            
            
            
            257,245TOTAL
                LIABILITIES
            
            
            4,121,536
            
            
            
            3,746,089STOCKHOLDERS’
                EQUITY:Convertible
                preferred stock, Class A Series 1, par value $.01 per
                share;authorized
                5,000,000 shares; no shares issued and outstanding in
                2008;56,000 shares issued and outstanding in 2007.
            
            
            -
            
            
            
            560Convertible
                preferred stock, Class A Series 3, par value $.01 per
                share;authorized
                700,000 shares; 307,602 shares and 473,377shares
                issued outstanding in 2008 and 2007, respectively;
            
            
            3,076
            
            
            
            4,734Convertible
                preferred stock, Class B, par value $.50 per share;authorized
                15,000 shares; no shares issued and outstanding
            
            
            -
            
            
            
            -Common
                Stock, par value $.01 per share; authorized 38,500,000shares;
                issued 27,112,908 and 26,437,908 shares, and26,271,908
                and 26,264,508 shares outstanding in 2008 and 2007,
                respectively
            
            
            271,129
            
            
            
            264,379Additional
                paid-in capital
            
            
            65,366,130
            
            
            
            64,954,610Accumulated
                other comprehensive (loss) income
            
            
            (162,705
            )
            
            
            1,051,156Accumulated
                deficit
            
            
            (53,598,971
            )
            
            
            (58,428,233
            )Treasury
                stock, at cost, 841,000 and 173,400  shares of common
                stockin 2008 and 2007, respectively
            
            
            (2,169,457
            )
            
            
            (399,747
            )TOTAL
                STOCKHOLDERS’ EQUITY
            
            
            9,709,202
            
            
            
            7,447,459TOTAL
                LIABILITIES AND STOCKHOLDERS’ EQUITY
            
            $
            13,830,738
            
            
            $
            11,193,548See
                notes to consolidated financial statements.


F-2


THE
                FEMALE HEALTH COMPANY AND SUBSIDIARIESCONSOLIDATED
                STATEMENTS OF INCOME
              YEARS
                ENDED SEPTEMBER 30, 2008 AND 20072008
            
            
            2007Product
                sales
            
            $
            25,528,250
            
            
            $
            19,319,889Royalty
                income
            
            
            105,876
            
            
            
            -Net
                revenues
            
            
            25,634,126
            
            
            
            19,319,889Cost
                of sales
            
            
            14,904,325
            
            
            
            12,163,574Gross
                profit
            
            
            10,729,801
            
            
            
            7,156,315Operating
                expenses:Advertising
                and promotion
            
            
            223,800
            
            
            
            179,874Selling,
                general and administrative
            
            
            7,038,060
            
            
            
            5,864,436Research
                and development
            
            
            284,216
            
            
            
            208,608Total
                operating expenses
            
            
            7,546,076
            
            
            
            6,252,918Operating
                income
            
            
            3,183,725
            
            
            
            903,397Non-operating
                income (expense):Interest,
                net and other income
            
            
            53,445
            
            
            
            36,004Foreign
                currency transaction gain (loss)
            
            
            966,736
            
            
            
            (70,488
            )1,020,181
            
            
            
            (34,484
            )Income
                before income taxes
            
            
            4,203,906
            
            
            
            868,913Income
                tax benefit
            
            
            (762,862
            )
            
            
            (825,000
            )Net  income
            
            
            4,966,768
            
            
            
            1,693,913Preferred
                dividends, Class A, Series 1
            
            
            8,397
            
            
            
            11,201Preferred
                dividends, Class A, Series 3
            
            
            129,109
            
            
            
            150,047Net
                income attributable to common stockholders
            
            $
            4,829,262
            
            
            $
            1,532,665Net
                income per basic common share outstanding
            
            $
            0.18
            
            
            $
            0.06Basic
                weighted average common shares outstanding
            
            
            26,116,499
            
            
            
            24,952,440Net
                income per diluted common share outstanding
            
            $
            0.18
            
            
            $
            0.06Diluted
                weighted average common shares outstanding
            
            
            27,983,263
            
            
            
            26,398,565See
                notes to consolidated financial statements.








F-3


THE
                FEMALE HEALTH COMPANY AND SUBSIDIARIES
              CONSOLIDATED
                STATEMENTS OF STOCKHOLDERS'EQUITY
              YEARS
                ENDED SEPTEMBER 2008 AND 2007AccumulatedClass
                A
            
            Class
                A
            
            
            
            
            
            
            
            
            
            
            
            OtherSeries
                1
            
            Series
                3
            
            Preferred
            
            
            
            Additional
            
            Unearned
            
            
            
            Comprehensive
            
            
            
            Cost
                ofPreferred
            
            Preferred
            
            Stock
            
            Common
            
            Paid-in
            
            Consulting
            
            Deferred
            
            (Loss)
            
            Accumulated
            
            TreasuryStock
            
            Stock
            
            Class
                B
            
            Stock
            
            Capital
            
            Fees
            
            Compensation
            
            Income
            
            Deficit
            
            Stock
            
            TotalBalance
                at September 30, 2006
            $
            560
            
            $
            4,734
            
            $
            -
            
            $
            243,164
            
            $
            64,291,244
            
            $
            (61,000
            )
            $
            (449,325
            )
            $
            598,474
            
            $
            (59,823,450
            )
            $
            (32,076
            )
            $
            4,772,325Cumulative
                effect of accounting change for SAB 108
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            137,448
            
            
            -
            
            
            -
            
            
            -
            
            
            (137,448
            )
            
            -
            
            
            -Adoption
                of FAS 123R
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (510,325
            )
            
            61,000
            
            
            449,325
            
            
            -
            
            
            -
            
            
            -
            
            
            -Share-based
                compensation
            
            -
            
            
            -
            
            
            -
            
            
            585
            
            
            616,046
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            616,631Issuance
              of 1,782,645 shares of CommonStock for Warrant Settlement Program
            
            -
            
            
            -
            
            
            -
            
            
            17,826
            
            
            (17,826
            )
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -Issuance
              of 150,000 shares of CommonStock for consulting services
            
            -
            
            
            -
            
            
            -
            
            
            1,500
            
            
            230,500
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            232,000Issuance
              of 61,397 shares of Common Stockas payment of preferred stock dividends
            
            -
            
            
            -
            
            
            -
            
            
            614
            
            
            111,613
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            112,227Issuance
              of 69,000 shares of Common Stockfor options exercised
            
            -
            
            
            -
            
            
            -
            
            
            690
            
            
            95,910
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            96,600Stock
                repurchase – 173,400 Treasury Shares
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (367,671
            )
            
            (367,671
            )Preferred
                Stock dividends
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (161,248
            )
            
            -
            
            
            (161,248
            )Comprehensive
                income:Net
                income
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            1,693,913
            
            
            -
            
            
            1,693,913Foreign
                currency translation adjustment
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            452,682
            
            
            -
            
            
            -
            
            
            452,682Comprehensive
                income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            2,146,595Balance
                at September 30, 2007
            $
            560
            
            $
            4,734
            
            $
            -
            
            $
            264,379
            
            $
            64,954,610
            
            $
            -
            
            $
            -
            
            $
            1,051,156
            
            $
            (58,428,233
            )
            $
            (399,747
            )
            $
            7,447,459See
                Notes to Consolidated Financial Statements.




F-4





THE
                FEMALE HEALTH COMPANY AND SUBSIDIARIES
              CONSOLIDATED
                STATEMENTS OF STOCKHOLDERS'EQUITY
              YEARS
                ENDED SEPTEMBER 2008 AND 2007AccumulatedClass
                A
            
            Class
                A
            
            
            
            
            
            
            
            OtherSeries
                1
            
            Series
                3
            
            Preferred
            
            
            
            Additional
            
            Comprehensive
            
            
            
            Cost
                ofPreferred
            
            Preferred
            
            Stock
            
            Common
            
            Paid-in
            
            (Loss)
            
            Accumulated
            
            TreasuryStock
            
            Stock
            
            Class
                B
            
            Stock
            
            Capital
            
            Income
            
            Deficit
            
            Stock
            
            TotalBalance
                at September 30, 2007
            
            $
            560
            
            $
            4,734
            
            $
            -
            
            $
            264,379
            
            $
            64,954,610
            
            $
            1,051,156
            
            $
            (58,428,233
            )
            $
            (399,747
            )
            $
            7,447,459Share-based
                compensation
            
            
            -
            
            
            -
            
            
            -
            
            
            800
            
            
            264,002
            
            
            -
            
            
            -
            
            
            -
            
            
            264,802Amoritization
                of unearned consulting fees
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            57,000
            
            
            -
            
            
            -
            
            
            -
            
            
            57,000Issuance
                of 290,000 shares of Common Stock forWarrants exercised
            
            
            -
            
            
            -
            
            
            -
            
            
            2,900
            
            
            419,600
            
            
            -
            
            
            -
            
            
            -
            
            
            422,500Issuance
                of 291,000 shares of Common Stock foroptions
                exercised
            
            
            -
            
            
            -
            
            
            -
            
            
            2,910
            
            
            299,340
            
            
            -
            
            
            -
            
            
            -
            
            
            302,250Issuance
                of 14,000 shares of Common Stock andcash
                payment  for 42,000 shares for redemption56,000 shares preferred stock Class A ,Series 1
            
            
            (560
            )
            
            -
            
            
            -
            
            
            140
            
            
            (104,580
            )
            
            -
            
            
            -
            
            
            -
            
            
            (105,000
            )Repurchase
                165,773 shares preferred stock Class A,Series
                3
            
            
            -
            
            
            (1,658
            )
            
            -
            
            
            -
            
            
            (523,842
            )
            
            -
            
            
            -
            
            
            -
            
            
            (525,500
            )Stock
                repurchase – 667,600 Treasury Shares
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (1,769,710
            )
            
            (1,769,710
            )Preferred
                Stock dividends
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (137,506
            )
            
            -
            
            
            (137,506
            )Comprehensive
                income:Net
                income
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            4,966,768
            
            
            -
            
            
            4,966,768Foreign
                currency translation adjustment
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (1,213,861
            )
            
            -
            
            
            -
            
            
            (1,213,861
            )Comprehensive
                income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            3,752,907Balance
                at September 30, 2008
            
            $
            -
            
            $
            3,076
            
            $
            -
            
            $
            271,129
            
            $
            65,366,130
            
            $
            (162,705
            )
            $
            (53,598,971
            )
            $
            (2,169,457
            )
            $
            9,709,202See
                Notes to Consolidated Financial Statements.


F-5


THE
                FEMALE HEALTH COMPANY AND SUBSIDIARIESCONSOLIDATED
                STATEMENTS OF CASH FLOWSYEARS
                ENDED SEPTEMBER  30, 2008 AND 20072008
            
            
            2007OPERATIONSNet
                income
            $
            4,966,768
            
            
            $
            1,693,913Adjustments
                to reconcile net income to net cashprovided
                by (used in) operating activities:Depreciation
                and amortization
            
            217,085
            
            
            
            133,657Amortization
                of deferred gain on sale and leaseback of building
            
            (112,512
            )
            
            
            (112,721
            )Amortization
                of deferred income from grant - BLCF
            
            (23,466
            )
            
            
            -(Decrease)
                increase in inventory obsolescence reserve
            
            (15,100
            )
            
            
            10,035Provision
                for bad debts
            
            9,878
            
            
            
            1,649Interest
                added to certificate of deposit
            
            (2,586
            )
            
            
            (2,464
            )Amortization
                of unearned consulting fees
            
            57,000
            
            
            
            232,000Share-based
                compensation
            
            264,802
            
            
            
            616,631Deferred
                income taxes
            
            (775,000
            )
            
            
            (825,000
            )Loss
                on disposal of fixed assets
            
            6,288
            
            
            
            -Changes
                in operation assets and liabilities:Accounts
                receivable
            
            (1,158,701
            )
            
            
            (2,648,079
            )Inventories
            
            (110,081
            )
            
            
            (280,528
            )Prepaid
                expenses and other assets
            
            134,823
            
            
            
            167,524Accounts
                payable
            
            (94,241
            )
            
            
            159,079Accrued
                expenses and other current liabilities
            
            879,441
            
            
            
            773,316Net
                cash provided by (used in) operating activities
            
            4,244,398
            
            
            
            (80,988
            )INVESTING
                ACTIVITIES(Increase)
                decrease in restricted cash
            
            (125,438
            )
            
            
            167,508Proceeds
                from disposal of fixed assets
            
            13,859
            
            
            
            -Capital
                expenditures
            
            (347,602
            )
            
            
            (970,040
            )Net
                cash used in investing activities
            
            (459,181
            )
            
            
            (802,532
            )FINANCING
                ACTIVITIESPayment
                on capital lease obligations
            
            (36,499
            )
            
            
            (11,189
            )Proceeds
                from exercise of stock options
            
            302,250
            
            
            
            96,600Proceeds
                from exercise of common stock warrants
            
            422,500
            
            
            
            -Redemption
                and repurchase of preferred stock
            
            (630,500
            )
            
            
            -Purchases
                of common stock for treasury shares
            
            (1,769,710
            )
            
            
            (367,671
            )Dividends
                paid on preferred stock
            
            (165,463
            )
            
            
            (7,200
            )Net
                cash used in financing activities
            
            (1,877,422
            )
            
            
            (289,460
            )Effect
                of exchange rate changes on cash
            
            (785,068
            )
            
            
            145,008Net
                increase (decrease) in cash
            
            1,122,727
            
            
            
            (1,027,972
            )Cash
                at beginning of period
            
            799,421
            
            
            
            1,827,393CASH
                AT END OF PERIOD
            $
            1,922,148
            
            
            $
            799,421Schedule
                of noncash financing and investing activities:Common
                stock issued for payment of preferred stock dividends
            $
            -
            
            
            $
            112,227Preferred
                dividends declared
            
            25,068
            
            
            
            11,201Reduction
                of accrued expense upon issuance of shares
            
            76,516
            
            
            
            -Conversion
                of 14,000 shares of preferred stock Class A, Series 1 to common
                stock
            
            35,000
            
            
            
            -Capital
                lease obligations incurred for the purchase of equipment
            
            103,559
            
            
            
            50,130Foreign
                currency translation adjustment
            
            (1,213,861
            )
            
            
            452,682See
                notes to consolidated financial statements.





F-6







The
      Female Health Company and Subsidiaries




Notes
      to
      Consolidated Financial
      Statements




Note
      1.            Nature
      of Business and Significant Accounting Policies




Principles
      of consolidation
      and nature of operations:  The consolidated financial
      statements include the accounts of the Company and its wholly owned subsidiary,
      The Female Health Company – UK, and its wholly owned subsidiaries, The Female
      Health Company - UK, plc and The Female Health Company (M) SDN. BHD. All
      significant intercompany transactions and accounts have been eliminated in
      consolidation. The Female Health Company ("FHC" or the "Company") is currently
      engaged in the marketing, manufacture and distribution of a consumer health
      care
      product, the female condom.  The original female condom is known as
      the “FC Female Condom” in the U.S., and "femidom" or "femy" outside the U.S; the
      second generation product is known as FC2 throughout the world.  The
      Female Health Company - UK, is the holding company of The Female Health Company
      - UK, plc, which operates a 40,000 sq. ft. leased manufacturing facility located
      in London, England. The Female Health Company (M) SDN.BHD leases a 16,000 sq.
      ft. manufacturing facility located in Selangor D.E., Malaysia.





The
      product is currently sold or available in either or both commercial (private
      sector) and public sector markets in 116 countries. The product is marketed
      in
      15 countries by various country-specific commercial partners. The Company's
      standard credit terms vary from 30 to 90 days, depending on the class of trade
      and customary terms within a territory, so accounts receivable is affected
      by
      the mix of purchasers within the quarter.  As is typical in the
      Company's business, extended credit terms may occasionally be offered as a
      sales
      promotion.  For the past twelve months, the Company's average days
      sales outstanding has averaged approximately 87 days.  Over the past
      five years, the Company’s bad debt expense has been less than .01% of
      sales.





Use
      of
      estimates:  The preparation of financial statements requires
      management to make estimates and use assumptions that affect certain reported
      amounts and disclosures.  Actual results may differ from those
      estimates.





Significant
      accounting estimates include the following:





In
      evaluating the Company’s ability to realize it’s deferred tax assets management
      considers all available positive and negative evidence including our past
      operating results and our forecasts of future taxable income. In determining
      future taxable income, management makes assumptions to forecast U.S. federal,
      U.S. state, and international 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 future taxable income, and are consistent with the forecasts used
      to manage the Company’s business.





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.





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





Accounts
      receivable and
      concentration of credit risk:  Accounts receivable are carried
      at original invoice amount less an estimate made for doubtful receivables based
      on a review of all outstanding amounts on a periodic basis. As of September
      30,
      2008, the $6,810,050 accounts receivable balance was comprised of $6,351,493
      trade receivables and $458,557 other receivables, compared to an accounts
      receivable balance of $6,080,153 as of September 30, 2007 which was comprised
      of
      $5,349,128 trade receivables and $731,025 other receivables. 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.  Recoveries of accounts receivable
      previously written off are recorded when received.  The Company’s customers
      are primarily governments, ministries of health and large global agencies which
      purchase and distribute the female condom for use in HIV/AIDS prevention
      programs. In fiscal year 2008, significant customers were UNFPA (19% of sales),
      John Snow, Inc., facilitator of USAID I DELIVER project (25% of sales) and
      Sekunjalo, distributor to the Republic of South Africa (17% of
      sales).


F-7


The
      Female Health Company and Subsidiaries





Notes
      to Consolidated
      Financial
      Statements





Note
      1.            Nature
      of Business and Significant Accounting Policies (Continued)




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





Foreign
      currency translation
      and operations:  In accordance with Financial Accounting
      Standards No. 52, Foreign
      Currency Translation, the financial statements of the Company's
      international subsidiaries are translated into U.S. dollars using the exchange
      rate at each balance sheet date for assets and liabilities, the historical
      exchange rate for stockholders' equity and a weighted average exchange rate
      for
      each period for revenues, expenses, and gains and losses.  Translation
      adjustments are recorded as a separate component of stockholders' equity as
      the
      local currency is the functional currency. Assets located outside of the United
      States totaled approximately $7,500,000 and $6,500,000 at September 30, 2008
      and
      2007, respectively.





Equipment
      and 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:





Equipment                                                      
      5 - 10 years


Office
      equipment                                                  
3 years


Furniture
      &
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:  The Company currently holds product and technology
      patents on the female condom in the United States, Japan, the United Kingdom,
      France, Italy, Germany, Spain, the European Patent Convention, Canada, the
      People’s Republic of China, Brazil, South Korea and Australia.  The
      Company has the registered trademark "FC Female Condom" in the United States
      and
      has trademarks on the names "femidom," "femy," “Reality,” and others in certain
      foreign countries.  Patents are amortized on a straight-line basis
      over their estimated useful life.  Patents and trademarks have no
      carrying value in the accompanying balance sheet at September 30, 2008 and
      2007.





Financial
      instruments: The Company has no financial instruments for which the
      carrying value materially differs from 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, 2008
      and 2007, was approximately $284,000 and $209,000,
      respectively.


F-8


The
      Female Health Company and Subsidiaries





Notes
      to Consolidated
      Financial
      Statements





Note
      1.            Nature
      of Business and Significant Accounting Policies (Continued)





Restricted
      cash:  Restricted cash relates to security provided to one of
      the Company’s UK banks for performance bonds issued in favor of customers. Such
      security has been extended infrequently and only on occasions where it has
      been
      a contract term expressly stipulated as an absolute requirement by the funds’
provider. The expiration of the
      bond
      is defined by the completion of the event such as, but not limited to, delivery
      of goods or at a period of time after product has been distributed.





Revenue
      recognition:  The Company recognizes revenue from product sales
      when each of the following conditions has been met: an arrangement exists,
      delivery has occurred, there is a fixed price, and collectibility is reasonably assured.  Beginning
      in fiscal 2008, the Company also derives revenue from licensing its intellectual
      property under an agreement with its business partner, Hindustan Latex
      Limited.  Such revenue appears as royalty income on the Consolidated
      Statements of Income for the year ended September 30, 2008, and is recognized
      in
      the period in which the sale is made by Hindustan Latex Limited.





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





Share-based
      compensation: The Company accounts for stock-based compensation in
      accordance with Statement of Financial Accounting Standards (“SFAS”) No. 123
      (R), “Share-Based Payments” which establishes standards for the accounting for
      equity instruments exchanged for employee services. Among its provisions, SFAS
      123R requires the Company to recognize compensation expense for equity awards
      over the vesting period based on their grant-date fair value.





Advertising:  The
      Company's policy is to expense advertising and promotion costs as
      incurred.





Income
      taxes:  The Company files separate income tax returns for its
      foreign subsidiaries.  Statement of Financial Accounting Standards No.
      109, Accounting for Income
      Taxes (FAS 109), 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 income available to common stockholders by the weighted average number
      of common shares outstanding for the period.  Diluted EPS is computed
      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 conversion of convertible preferred
      shares and the exercise of stock options and warrants and upon restrictions
      lapsing on contingent shares, for all periods.


F-9


The
      Female Health Company and Subsidiaries





Notes
      to Consolidated
      Financial
      Statements





Note
      1.            Nature
      of Business and Significant Accounting Policies (Continued)




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 balance sheet, such items, along with net income,
      are components of comprehensive income.





Over
      the
      years, the US parent company has financed the operations of its subsidiaries
      through an intercompany loan with The Female Health Company-UK, plc., which
      is
      eliminated upon consolidation.  The Company has designated the
      intercompany loan to be long-term in nature as prescribed by FAS
      52.  Further, the Company followed the guidance of FAS 52 paragraph
      20. b. when translating the subsidiary’s balance sheet for consolidation
      purposes.  This paragraph states that “gains and losses on
      intercompany foreign currency transactions that are of a long-term investment
      nature (that is, settlement is not planned or anticipated in the foreseeable
      future) would not be included in the computation of net income when the entities
      to the transaction are consolidated.”





The
      US
      parent company routinely purchases inventory produced by its UK subsidiary
      for
      sale to its customers.  This intercompany trade account is eliminated
      in consolidation. The Company’s policy and intent is to settle the intercompany
      trade account on a current basis, and in accordance with FAS
      52, translation gains and losses are recognized in the consolidated income
      statement. Included in foreign currency transaction gains and losses is
      approximately $551,000 and $70,000 of translation gains (losses) on the
      intercompany trade account for the years ended 2008 and 2007, respectively,
      which fluctuate based on the timing of inventory purchases by the US from the
      UK
      as well as variability in exchange rates.





Reclassification:





Certain
      items in the financial statements for the year ended September 30, 2007 have
      been reclassified to be consistent with the presentation shown for the year
      ended September 30, 2008.





Note
      2.            Earnings
      per Share





Basic
      EPS
      is computed by dividing income attributable to common stockholders by the
      weighted average number of common shares outstanding for the period. In the
      diluted earnings per share calculation, the numerator is the sum of net income
      attributable to common stockholders and preferred dividends. Diluted EPS is
      computed 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 conversion of convertible
      preferred shares and the exercise of stock options and warrants and unvested
      shares granted to employees.




September
                30,2008
            
            
            2007Denominator:Weighted
                average common shares outstanding
                – basic
            
            26,116,499
            
            
            24,952,440Net
                effect of dilutive securities:Options
            
            
            755,600
            
            
            
            492,556Warrants
            
            
            757,060
            
            
            
            694,819Convertible preferred stock
            
            
            307,604
            
            
            
            -Unvested restricted shares
            
            
            46,500
            
            
            
            258,750Total
              net effect of dilutive securities
            
            
            1,866,764
            
            
            
            1,446,125Weighted average common shares outstanding - diluted
            
            
            27,983,263
            
            
            
            26,398,565Income
              per common share – basic
            
            $
            0.18
            
            
            $
            0.06Income
              per common share – diluted
            
            $
            0.18
            
            
            $
            0.06





F-10


The
                Female Health Company and Subsidiaries
              
              Notes
                to Consolidated Financial
                Statements




Warrants
      to purchase approximately
      450,000 shares of common stock at exercise prices ranging from $2.25 to $3.10
      per share that were outstanding during the year ended September 30, 2007, were
      not included in the computation of diluted net income per share because their
      effect was anti-dilutive. In March 2008, 400,000 of these warrants
      expired.  The remaining 50,000 warrants will expire in July
      2009.  There are no anti-dilutive shares in the current
      year.







Note
      3.            Inventories




The
      components of inventory consist of the following at September 30, 2008 and
      2007:





2008
            
            
            2007Raw
                material
            
            $
            910,130
            
            
            $
            808,379Work
                in process
            
            
            135,020
            
            
            
            273,704Finished
                goods
            
            
            323,502
            
            
            
            358,499Inventory,
                gross
            
            
            1,368,652
            
            
            
            1,440,582Less:
                inventory reserves
            
            
            (46,000
            )
            
            
            (68,000
            )Inventory,
                net
            
            $
            1,322,652
            
            
            $
            1,372,582




Note
      4.            Notes
      Payable and Long-Term Debt




Presently,
      the Company has two revolving notes with Heartland Bank that allow the Company
      to borrow up to $1,500,000 and expire July 1, 2009.  The two notes
      total $1,500,000 and bear interest payable at a rate of prime plus 0.5% (prime
      rate was 5% at September 30, 2008). These notes are collateralized by
      substantially all of the assets of the Company.  No amounts are
      outstanding under the revolving notes at September 30, 2008 and
      2007.





Note
      5.            Operating
      Leases and Rental Expense





During
      the year ended September 30, 2006, the Company renewed and expanded its U.S.
      lease agreement to 5,100 square feet of office space which expires October
      31,
      2011.  The lease requires monthly payments of $6,682 plus real estate
      taxes, utilities, and maintenance expenses.





On
      December 10, 1996, the Company entered into what is in essence a sale and
      leaseback agreement with respect to its 40,000 square foot manufacturing
      facility located in London, England.  The Company received $3,365,00
      (£1,950,000) for leasing the facility to a third party for a nominal annual
      rental charge and for providing the third party with an option to purchase
      the
      facility for one pound during the period December 2006 to December 2027. 
As part of the same transaction, the Company entered into an agreement to lease
      the facility back from the third party for base rents of $586,198 (£296,725) per
      year payable quarterly until 2016. The lease is renewable through December
      2027.
      The Company was also required to make an initial security deposit of $483,168
      (£268,125) which has been reduced to $173,589 (£97,500) and is included in
      accounts receivable in the consolidated balance sheet at September 30, 2008
      because the deposit is expected to be returned to the Company during fiscal
      2009.  This deposit was classified as long term and included in other
      assets on the balance sheet as of September 30, 2007.  The
      facility had a net book value of $1,398,819 (£810,845) on the date of the
      transaction.  The $1,966,181 (£1,139,155) gain which resulted from
      this transaction is being recognized ratably over the initial lease
      term.  Unamortized deferred gain as of September 30, 2008 and 2007,
      was $836,733 (£469,969) and $1,074,339 (£526,921),
      respectively.


F-11


The
      Female Health Company and Subsidiaries





Notes
      to Consolidated
      Financial
      Statements




On
      September 1, 2005, the Company entered into a lease agreement to utilize 1,900
      square feet of a facility located in Selangor D.E., Malaysia, for warehousing
      and manufacturing FC2. The lease expired on December 31, 2007.  On
      September 1, 2007, the Company leased 16,000 sq. ft. of manufacturing space
      in
      Selangor D.E., Malaysia.  The lease term is for three years at a
      monthly rate of $7,737 and may be renewed for two additional three year
      terms.





The
      Company also leases equipment under a number of lease agreements which expire
      at
      various dates between March 2009 and June 2013.  The aggregate monthly
      rental was $1,920 at September 30, 2008.





Details
      of operating lease expense, including real estate taxes and insurance, are
      as
      follows:





September
                30,2008
            
            
            2007Operating
                Lease Expense:Factory
                & Office Leases
            
            $
            1,052,918
            
            
            $
            1,026,335Other
            
            
            23,038
            
            
            
            37,688$
            1,075,956
            
            
            $
            1,064,023





In
                fiscal year 2007 and 2008, the Company entered into several capital
                leases. Each of the leases have a thirty-six month term and require
                monthly rentals of $4,492.
              
              
              Future
                minimum payments under leases consisted of the following at September
                30,
                2008:Operating
                Leases
            
            
            Capital
                Leases2009
            
            $
            707,243
            
            
            $
            53,9072010
            
            
            709,649
            
            
            
            41,0722011
            
            
            618,238
            
            
            
            12,2472012
            
            
            540,106
            
            
            
            -2013
            
            
            531,702
            
            
            
            -Thereafter
            
            
            1,693,970
            
            
            
            -$
            4,800,908
            
            
            
            107,226Less:
                amount representing interest
            
            
            
            
            
            
            11,92595,301Current
                portion
            
            
            
            
            
            
            45,704$
            49,597





F-12


The
      Female Health Company and Subsidiaries





Notes
      to Consolidated
      Financial
      Statements




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





In
      evaluating the Company’s ability to realize it’s deferred tax assets management
      considers all available positive and negative evidence including our past
      operating results and our forecast of future taxable income.  In
      determining future taxable income, management makes assumptions to forecast
      U.S.
      federal, U.S. state, and international 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 future taxable income, and are consistent with the forecasts
      used to manage the Company’s business.





A
      reconciliation of income tax expense (benefit) and the amount computed by
      applying the statutory Federal income tax rate to loss before income taxes
      as of
      September 30, 2008 and 2007 is as follows:





September
                302008
            
            
            2007Income
                tax expense at statutory rates
            
            $
            1,429,000
            
            
            $
            295,000State
                income tax, net of federal benefits
            
            
            222,000
            
            
            
            (46,000
            )Non-deductible
                expenses
            
            
            (76,000
            )
            
            
            97,000Effect
                of foreign income tax
            
            
            12,138
            
            
            
            -Utilization
                of NOL carryforwards
            
            
            (1,087,000
            )
            
            
            (674,000
            )Increase
                (decrease) in valuation allowance
            
            
            (1,263,000
            )
            
            
            (497,000
            )Income
                tax benefit
            
            $
            (762,862
            )
            
            $
            (825,000
            )





As
      of
      September 30, 2008, the Company had federal and state net operating loss
      carryforwards of approximately $41,601,000 and $22,134,000, respectively, for
      income tax purposes expiring in years 2009 to 2027.  The Company's UK
      subsidiary, The Female Health Company - UK, plc has UK net operating loss
      carryforwards of approximately $85,383,000 as of September 30,
      2008.  These UK net operating loss carryforwards can be carried
      forward indefinitely to be used to offset future UK taxable income.





Significant
      components of the Company's deferred tax assets and liabilities are as follows
      at September 30, 2008 and 2007:





September
                30Deferred
                Tax
                Assets:
            
            2008
            
            
            2007Federal
                net operating loss carryforwards
            
            $
            14,144,000
            
            
            $
            14,812,000State
                net operating loss carryforwards
            
            
            1,771,000
            
            
            
            1,877,000Foreign
                net operating loss carryforwards – UK
            
            
            23,907,000
            
            
            
            24,702,000Foreign
                capital allowance – UK
            
            
            1,010,000
            
            
            
            1,487,000Foreign
                net operating loss carryforwards – Malaysia
            
            
            104,000
            
            
            
            -Other,
                net
            
            
            31,000
            
            
            
            71,000Gross
                deferred tax assets
            
            
            40,967,000
            
            
            
            42,949,000Valuation
                allowance for deferred tax asset
            
            
            39,367,000
            
            
            
            42,124,000Deferred
                income taxes
            
            $
            1,600,000
            
            
            $
            825,000





F-13


The
      Female Health Company and Subsidiaries





Notes
      to Consolidated
      Financial
      Statements





The
      valuation allowance decreased by $1,263,000 (representing a reduction of
      $2,757,000 net of the effects of foreign currency translations of $1,494,000)
      and increased by $497,000 (representing an increase of $37,000 net of the
      effects of foreign currency translations of $460,000), for the years ended
      September 30, 2008 and 2007, respectively.  Included in the valuation
      allowance change is recognition of $775,000 and 825,000 of net operating loss
      carryforwards in 2008 and 2007 respectively.  Under the Internal Revenue
      Code, certain ownership changes, including the prior issuance of preferred
      stock, the Company’s 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. As of September 30, 2008,
      the amounts subject to limitations has not yet been determined.





In
      September, 2006, FASB issued Interpretation No. 48 (FIN 48), Accounting for
      Uncertainty in Income Taxes.  FIN 48 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. FIN 48 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 adopted this
      interpretation on October 1, 2007. 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.  The open tax years are those years ending September
      30, 2004 to September 30, 2008, which statutes expire in
      2008-2011.  As of September 30, 2008, the Company has no recorded
      liability for unrecognized tax benefits.  The adoption and
      implementation of FIN 48 had no effect on the Company’s income from operations,
      net income or basic and diluted earnings per share for the period ended
      September 30, 2008.





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 year ended September 30, 2008.




Note
      7.            Stock
      Incentive Plan





In
      March
      2008, the Company’s shareholders approved the 2008 Stock Incentive Plan which
      will be utilized to provide equity opportunities and performance –based
      incentives to attract, retain and motivate those persons who make (or are
      expected to make) important contributions to the Company.  A total of
      2,000,000 shares are available for issuance under the plan.  As of
      September 30, 2008, 50,000 of those shares had been issued.  The
      compensation expense related to these awards and related terms of these award
      are included in the restricted stock disclosures that follow in Note
      8.







Note
      8.            Share-based
      Compensation




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 the plan
      which expired on December 31, 2006.  Options issued under that plan
      expire in 10 years and generally vested 1/36 per month, with full vesting after
      three years.





Compensation
      expense is recognized only for share-based payments expected to vest. The
      Company estimates forfeitures at the date of grant based on our historical
      experience and future expectations. Stock compensation expense related to
      options for the years ended September 30, 2008 and 2007 was $56,470 and
      $121,564, respectively.


F-14


The
      Female Health Company and Subsidiaries





Notes
      to Consolidated
      Financial
      Statements





The
      Company did not grant any stock options for the year ended September 30,
      2008.    The Company’s outstanding stock options were issued
      under its 1997 Stock Option plan.  These stock options expire 10 years
      from the grant date and generally vest ratably over the thirty-six month vesting
      period.




The
      Company granted 180,000 stock options during the fiscal year ended September
      30,
      2007. The table below outlines the weighted average assumptions for options
      granted during the fiscal year ended September 30, 2007.


Fiscal
                Year Ended
              September
                30, 2007Weighted
                average assumptions:Expected
                volatility
            61.2
                %Expected
                dividend yield
            0
                %Risk-free
                interest rate
            5.10
                %Expected
                term (in years)
            10.0Fair
                value of options granted
            $   0.95





During
      the fiscal year ended September 30, 2007, the Company used historical volatility
      of our common stock over a period equal to the expected life of the options
      to
      estimate their fair value. The dividend yield assumption is based on the
      Company’s history and expectation of future dividend payouts on the common
      stock. The risk-free interest rate is based on the implied yield available
      on
      U.S. treasury zero-coupon issues with an equivalent remaining term.





The
      expected term of the options represents the estimated period of time until
      exercise and is based on historical experience of similar awards, giving
      consideration to the contractual terms, vesting schedules and expectations
      of
      future employee behavior. To value option grants and other awards for actual
      stock-based compensation, the Company used the Black-Scholes option valuation
      model. When the measurement date is certain, the fair value of each option
      grant
      is estimated on the date of grant and is based on the assumptions used for
      the
      expected stock price volatility, expected term, risk-free interest rates and
      future dividend payments.





Option
      Activity:





The
      following table summarizes the stock options outstanding and exerciserable
      at
      September 30, 2008:





Weighted
                AverageShares
            
            
            Exercise
                Price
              Per
                Share
            
            Remaining
              Contractual
                Term
              (years)
            Aggregate
              Intrinsic
              ValueOutstanding
                at September 30, 2006
            
            
            2,644,980
            
            
            $
            1.38Granted
            
            
            180,000
            
            
            
            1.27Exercised
            
            
            (69,000
            )
            
            
            1.40Forfeited
            
            
            (10,000
            )
            
            
            2.70Outstanding
                at September 30, 2007
            
            
            2,745,980
            
            
            
            1.37Granted
            
            
            -
            
            
            
            -Exercised
            
            
            (291,000
            )
            
            
            1.04Forfeited
            
            
            (15,000
            )
            
            
            1.27Outstanding
                at September 30, 2008
            
            
            2,439,980
            
            
            $
            1.41
            
            4.88
            $    4,006,467Exercisable
                on  September 30, 2008
            
            
            2,389,980
            
            
            $
            1.41
            
            4.81
            $    3,917,467





F-15


The
      Female Health Company and Subsidiaries





Notes
      to Consolidated
      Financial
      Statements





The
      aggregate intrinsic value in the table above is before income taxes, based
      on
      the Company’s closing stock price of $3.05 on the last day of business for the
      period ended September 30, 2008. The total intrinsic value of options exercised
      during the years ended September 30, 2008 and 2007 were $506,350 and
      $46,230 respectively.





Total
      unrecognized compensation cost for stock options as of September 30, 2008 was
      $50,000. This compensation cost will be recognized over a weighted average
      period of 1.0 year.  The realized tax benefit from stock options and
      other share-based payments for the years ended September 30, 2008 and 2007
      was
      not recognized, based on the Company’s election of the “with and without”
approach.





Restricted
      Stock:





The
      Company issues restricted stock to employees and consultants. Such issuances
      may
      have vesting periods that range from one to two years or the issuances may
      be
      contingent on continued employment for periods that range from one to two years.
      In addition, the Company has issued stock awards to certain employees that
      contain vesting provisions or provide for future issuance contingent upon the
      achievement of pre-established performance targets.





A
      summary
      of the non-vested stock activity for the fiscal year 2008 is summarized in
      the
      table below:





Non-vested
                awards summary:
            
            Shares
            
            
            Weighted
                Average
              Grant
                -Date
              Fair
                ValueOutstanding
                at September 30, 2006
            
            
            347,917
            
            
            $
            1.48Stock
                Granted
            
            
            231,250
            
            
            
            1.61Vested
            
            
            (463,334
            )
            
            
            1.54Forfeited
            
            
            (2,500
            )
            
            
            1.26Outstanding
                at September 30, 2007
            
            
            113,333
            
            
            
            1.53Stock
                Granted
            
            
            46,500
            
            
            
            2.32Vested
            
            
            (157,278
            )
            
            
            1.75Forfeited
            
            
            -
            
            
            
            -Total
                Outstanding September 30, 2008
            
            
            2,555
            
            
            $
            2.65








The
      Company recognized share-based compensation expense for restricted stock of
      approximately $265,000 for the year ended September 30, 2008 and $727,067 for
      the year ended September 30, 2007. This expense is included in selling, general
      and administrative expenses for the respective periods.





As
      of
      September 30, 2008, there was approximately $7,000 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 1.1 years. The fair
      value of the shares that vested during the years ended September 30, 2008 and
      2007 was $656,205 and $731,375, respectively.








Common
      Stock Purchase
      Warrants





The
      Company did not issue any common stock purchase warrants in either fiscal year
      2008 or fiscal year 2007.   In 2008, warrant holders exercised 290,000
      warrants.  The Company received $422,500 of proceeds from the exercise of
      these warrants.  No warrants were exercised in 2007 other than those
      settled through the Warrant Settlement Program.  The intrinsic value of
      warrants outstanding and exercisable at September 30, 2008 is $2,482,725. 
There is no unrecognized compensation cost related to warrants as of September
      30, 2008.








F-16





The
      Female Health Company and Subsidiaries





Notes
      to Consolidated
      Financial
      Statements





At
      September 30, 2008, the following warrants were outstanding and
      exercisable:





NumberOutstandingWarrants
                issued in connection with:Investor
                relations
            
            
            200,000Note
                payable, bank
            
            
            340,000Notes
                payable, related party
            
            
            686,500Total
                Outstanding September 30, 2008
            
            
            1,226,500











Warrants
                outstanding and exercisable:NumberRange
                of
            Outstanding
            Wghtd.Avg.
            Wghtd.Avg.Exercise
            and
                Exercisable
            Remaining
            ExercisePrices
            at
                9/30/08
            Life
            Price$0.40
                - $0.50
            364,000
            2.47
            $         0.40$0.51
                - $1.00
            12,500
            1.38
            0.72$1.01
                - $3.00
            850,000
            6.47
            1.301,226,500
            5.23
            $        
                1.03







Warrant
      Settlement
      Program




During
      the third quarter of fiscal 2007, the Company offered certain holders of
      warrants a program under which they could settle the warrants for fully vested
      common stock.  The subject warrants had exercise prices ranging from
      $0.40 per share to $1.50 per share.  Warrant holders who elected to
      participate in the program tendered 2,762,500 warrants to acquire 1,782,645
      shares of common stock, which were issued during the third quarter of FY 2007.
      Since the fair value of the warrants tendered was greater than the value of
      the
      common stock received, no expense was recorded related to this
      program.







Note
      9.            Preferred
      Stock




Redemption
      of Class A Series 1 Convertible Preferred Stock





In
      May
      2008, the Company elected to exercise its right to redeem all of the 56,000
      outstanding shares of its Class A Series 1 Convertible Preferred
      Stock (the "Series 1 Preferred Stock"), subject to the right of the holders
      to
      elect to convert their shares of Series 1 Preferred Stock into Common Stock
      in lieu of redemption.  On the redemption dates in
      June 2008, 42,000 of the outstanding shares of Series 1 Preferred
      Stock were acquired by the Company pursuant to the redemption and
      cancelled and the remaining 14,000 outstanding shares of Series 1 Preferred
      Stock were converted into 14,000 shares of Common Stock and cancelled.  The
      Series 1 Preferred Stock was subject to an 8% dividend, paid
      annually.  The Company paid a redemption price per share equal to the
      liquidation value per share (which was $2.50 per share plus accrued and unpaid
      dividends) for the 42,000 shares that were redeemed.  Shareholders who
      elected to convert received one common share for each share of Series 1
      Preferred Stock plus accumulated dividends.  The final unpaid
      dividends of $2,100 for the converted 14,000 shares of Series 1 Preferred Stock
      were paid in July 2008.


F-17


The
      Female Health Company and Subsidiaries





Notes
      to Consolidated
      Financial
      Statements





The
      Company issued 473,377 shares of
      Series 3 Preferred Stock to 11 investors during February 2004 and received
      $1,500,602 in proceeds. Each share of Series 3 Preferred Stock is convertible
      at
      any time into one share of the Company’s common stock. Holders of shares of the
      Series 3 Preferred Stock are entitled to cumulative dividends in preference
      to
      any dividend on the Company’s common stock at the rate of 10 percent of the
      original issuance price ($3.17 per share) per annum, payable quarterly at the
      Company’s option in cash or shares of the Company’s common stock. If dividends
      are paid in shares of common stock, the dividend rate will be equal to 95
      percent of the average of the closing sales prices of the common stock on the
      five trading days preceding the dividend reference date. The dividend reference
      date means January 1, April 1, July 1, October 1 of each year. In the event
      of a
      liquidation or dissolution of the Company, the Series 3 Preferred Stock would
      have priority over the Company’s common stock and holders of any other series of
      preferred stock of the Company. The Company may redeem any share of Series
      3
      Preferred Stock at any time that is after the second anniversary of the date
      of
      issuance of the share, provided that the redemption may not occur until the
      first day on or after the second anniversary of the date of issuance of such
      share in which the market value of the Company’s common stock is at least 150
      percent of the original
      issue price of $3.17 per
      share.  The liquidation preference on the Series 3 Preferred Stock is
      $3.17 per share plus accrued and unpaid dividends.  As of September
      30, 2008, there are 307,602 shares of Series 3 Preferred Stock
      outstanding.





Repurchase
      of Class A Series 3 Convertible Preferred Stock





In
      April
      2008, the Company repurchased 150,000 shares of Class A Series 3 Convertible
      Preferred Stock, which is subject to a 10% dividend, paid quarterly. The shares
      were repurchased at $3.17 per share for a total of approximately
      $475,000.  In July, 2008, the Company repurchased an additional 15,773
      shares of Class A Series 3 Convertible Preferred Stock for a total of
      approximately $50,000; the dividend of approximately $500 of this purchase
      was
      paid in October, 2008.  All of the shares were purchased at the same
      per share price at which they were sold to the shareholder, $3.17 per
      share.  The repurchased preferred shares have been
      retired.







Note
      10.          Stock Repurchase
      Program




On
      January 17, 2007, the Company announced a Stock Repurchase Program under the
      terms of which up to a million shares of its common stock could be purchased
      during the subsequent twelve months.  In March 2008, the Board
      approved the continuation of this program through December 31, 2009 for up
      to 2
      million shares.   Through September 30, 2008, the Company has
      purchased 841,000 shares.





Issuer
                Purchases of Equity Securities:
            
            Details
                of Treasury Stock Purchases through September 30, 2008Period:
            
            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 ProgramJanuary
                17, 2007 –  September 30, 2007
            
            
            173,400
            
            
            $
            2.12
            
            
            
            173,400
            
            
            
            826,600October
                1, 2007 –  June 30, 2008
            
            
            439,600
            
            
            
            2.57
            
            
            
            613,000
            
            
            
            1,387,000July
                1, 2008 – July 31, 2008
            
            
            53,000
            
            
            
            2.51
            
            
            
            666,000
            
            
            
            1,334,000August
                1, 2008 - August 31, 2008
            
            
            68,700
            
            
            
            2.62
            
            
            
            734,700
            
            
            
            1,265,300September
                1, 2008 – September 30, 2008
            
            
            106,300
            
            
            
            3.09
            
            
            
            841,000
            
            
            
            1,159,000Quarterly
                Subtotal
            
            
            228,000
            
            
            
            2.81
            
            
            
            228,000Total
            
            
            841,000
            
            
            $
            2.54
            
            
            
            841,000
            
            
            
            1,159,000





F-18


The
      Female Health Company and Subsidiaries





Notes
      to Consolidated
      Financial
      Statements





In
      October, 2008, the Board of Directors amended its Stock Repurchase Program
      to
      allow the repurchase of common stock issued under the Company’s equity
      compensation plans from directors, employees, consultants and other service
      providers of the Company or any of its subsidiaries.  The repurchases
      would be authorized by Company officers at fair market value.  Total
      repurchases under this amendment are limited to an aggregate of 250,000 per
      calendar year and to a maximum of 25,000 shares annually per
      individual.  The maximum repurchase for the remainder of calendar 2008
      would be a total of 62,500 shares or 6,250 per individual.  This
      provision will expire at the termination date of the Stock Repurchase
      Program.  To date, no repurchases have been made under this
      provision.





Note
      11.          Employee Benefit
      Plans





Employee
      retirement
      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 $13,000 annual compensation to the plan.  The Company has
      elected to match 100 percent of employee contributions to the plan up to a
      maximum of 3 percent of employee compensation for the years ended September
      30,
      2008 and 2007.  Annual company contributions were approximately
      $30,000 and $19,000 for 2008 and 2007, respectively.





Note
      12.          Industry Segments and
      Financial Information about Foreign and Domestic Operations





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





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




Net
                Sales to External Customers for the Year Ended
            Long-Lived
                Asset As OfSeptember
                30,
            September
                30,2008
            2007
            2008
            2007




South
              Africa
            
            $
            4,302
            (1)
            (2)
            
            $
            3,733
            (1)
            
            $
            --
            
            $
            --Zimbabwe
            
            
            4,084
            (1)
            (3)
            
            
            4,096
            (1)
            
            
            --
            
            
            --United
              States
            
            
            2,356
            
            
            
            
            2,516
            
            
            
            194
            
            
            226rance
            
            
            *
            
            
            
            
            1,217
            
            
            
            --
            
            
            --Brazil
            
            
            2,239
            
            
            
            
            *
            
            
            
            --
            
            
            --Tanzania
            
            
            1,460
            
            
            
            
            *
            
            
            
            --
            
            
            --Papua
              New Guinea
            
            
            1,292
            
            
            
            
            *
            
            
            
            --
            
            
            --Zambia
            
            
            *
            
            
            
            
            940
            
            
            
            --
            
            
            --India
            
            
            *
            
            
            
            
            *
            
            
            
            174
            
            
            225United
              Kingdom
            
            
            *
            
            
            
            
            *
            
            
            
            171
            
            
            315Malaysia
            
            
            *
            
            
            
            
            *
            
            
            
            1,011
            
            
            864Other
            
            
            9,795
            
            
            
            
            6,818
            
            
            
            --
            
            
            --$
            25,528
            
            
            
            $
            19,320
            
            
            $
            1,550
            
            $
            1,630




*
              Less than 5% percent of total net sales.(1)
              Comprised of a single customer considered to be a major customer (exceeds
              10 percent of net sales).(2)This
              customer had approximately $897,000 of outstanding accounts receivable
              at
              September 30, 2008.  All of the receivable was paid by the date
              of this filing.(3)This customer had approximately $1,385,600 of outstanding accounts
              receivable at September 30, 2008.  All of the receivable was
              paid by the date of this filing.




F-19


The
      Female Health Company and Subsidiaries





Notes
      to Consolidated
      Financial
      Statements




Note
      13.         Contingent
      Liabilities




The
      testing, manufacturing and marketing of consumer products by the Company entail
      an inherent risk that product liability claims will be asserted against the
      Company.  The Company maintains product liability insurance coverage
      for claims arising from the use of its products.  The coverage amount
      is currently $5,000,000 for FHC's consumer health care product.




Note
      14.         Recent  Accounting
      Pronouncements




In
      September 2006, the FASB issued SFAS
      157,Fair
      Value
      Measurements. SFAS 157
      defines fair value, establishes a framework for measuring fair value and expands
      disclosures about fair value measurements.  The requirements of SFAS 157
      are effective for fiscal years beginning after November 15, 2007 except for
      nonfinancial assets and nonfinancial liabilities that are recognized or
      disclosed at fair value in the financial statements on a nonrecurring basis
      for
      which delayed application is permitted until fiscal years beginning after
      November 15, 2008.  The Company does not believe SFAS 157
      will have a material effect on its consolidated financial
      statements.





In
      February 2007, the FASB issued Statement of Financial Accounting Standards
      No.
      159, The Fair Value Option for Financial Assets and Financial Liabilities ("SFAS
      159"), which provides companies with an option to report selected financial
      assets and liabilities at fair value. The objective of SFAS 159 is to reduce
      both complexity in accounting for financial instruments and the volatility
      in
      earnings caused by measuring related assets and liabilities differently. SFAS
      159 establishes presentation and disclosure requirements designed to facilitate
      comparisons between companies that choose different measurement attributes
      for
      similar types of assets and liabilities and to more easily understand the effect
      of the company's choice to use fair value on its earnings. SFAS 159 also
      requires entities to display the fair value of the selected assets and
      liabilities on the face of the balance sheet. SFAS 159 does not eliminate
      disclosure requirements of other accounting standards, including fair value
      measurement disclosures in SFAS 157. This statement is effective as of the
      beginning of an entity's first fiscal year beginning after November 15, 2007.
      Early adoption is permitted as of the beginning of the previous fiscal year
      provided that the entity makes that choice in the first 120 days of that fiscal
      year and also elects to apply the provisions of Statement 157. The Company
      has
      not elected adoption of SFAS 159.





In
      December 2007, the FASB issued SFAS No. 141 (revised 2007), Business
      Combinations, which replaces FASB Statement No. 141. SFAS No. 141R establishes
      principles and requirements for how an acquirer recognizes and measures in
      its
      financial statements the identifiable assets acquired, the liabilities assumed,
      any non controlling interest in the acquiree and the goodwill acquired. The
      Statement also establishes disclosure requirements which will enable users
      to
      evaluate the nature and financial effects of the business combination. SFAS
      No.
      141R is effective as of the beginning of an entity’s fiscal year that begins
      after December 15, 2008 (our Fiscal 2010).  SFAS No. 141R will have an
      effect on the Company’s consolidated financial statements for any business
      combinations the Company may enter into.





In
      December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in
      Consolidated Financial Statements – an amendment of Accounting Research
      Bulletin No. 51, which establishes accounting and reporting standards for
      ownership interests in subsidiaries held by parties other than the parent,
      the
      amount of consolidated net income attributable to the parent and to the
      noncontrolling interest, changes in a parent’s ownership interest and the
      valuation of retained noncontrolling equity investments when a subsidiary is
      deconsolidated. The Statement also establishes reporting requirements that
      provide sufficient disclosures that clearly identify and distinguish between
      the
      interests of the parent and the interests of the noncontrolling owners. SFAS
      No.160 is effective as of the beginning of an entity’s fiscal year that begins
      after December 15, 2008 (our Fiscal 2010). The Company does not believe SFAS
      No.
      160 will have an effect on the Company’s consolidated financial
      statements.





In
      March 2008, the FASB issued SFAS
      No. 161, “Disclosures about Derivative Instruments and Hedging Activities”
(SFAS 161) as an amendment to SFAS No. 133, “Accounting for Derivative
      Instruments and Hedging Activities”.  SFAS 161 requires that objectives for
      using derivative instruments be disclosed in terms of underlying risk and
      accounting designation. SFAS 161 is effective for financial statements issued
      for fiscal years beginning after November 15, 2008. The adoption of this
      statement is not expected to have a material effect on the Company's future
      reported financial position or results of operations.


F-20


The
      Female Health Company and Subsidiaries





Notes
      to Consolidated
      Financial
      Statements










In
      May
      2008, the FASB issued FAS No. 162 "The Hierarchy of Generally Accepted
      Accounting Principles" ("FAS 162"). FAS 162 identifies the sources of accounting
      generally accepted accounting principles in the United States. FAS 162 is
      effective sixty days following the SEC's approval of PCAOB amendments to AU
      Section 411, "The Meaning of 'Present fairly in conformity with generally
      accepted accounting principles'". The adoption of this statement is not expected
      to have a material effect on the Company's future reported financial position
      or
      results of operations.






F-21