FORM
      10-KSB





SECURITIES
      AND EXCHANGE COMMISSION


Washington,
      D.C. 20549





(Mark
                One)x
            ANNUAL
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                ACT OF
                1934For
                the fiscal year ended September 30, 2007ORo
            TRANSITION
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                ACT OF
                1934For
                the transition period from _______ to
                _________





Commission
      file number: 1-13602





THE
                FEMALE HEALTH COMPANY(Name
                of Small Business Issuer in Its
                Charter)





Wisconsin
            
            39-1144397(State
                or other Jurisdiction of
              Incorporation
                or Organization)
            
            (IRS
                Employer Identification No.)








515
                  North State Street, Suite 2225, Chicago, Illinois
            
            60610(Address
                of principal executive offices)
            
            Zip
                Code





312-595-9123(Issuer's
                Telephone Number, Including Area
                Code)





Securities
      registered pursuant to Section 12(b) of the Exchange Act:





Title
                of Each Class
              
              Common
                Stock, $.01 par value
            Name
                of Each Exchange on Which Registered
              
              American
                Stock Exchange





Securities
      registered pursuant to Section 12(g) of the Exchange Act:


None








Check
      whether the Issuer is not required to file reports pursuant to Section 13 or
      15(d) of the Exchange Act. [    ]





Check
      whether the Issuer (1) filed all reports required to be filed by Section 13
      or
      15(d) of the Exchange Act during the past 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 [ X ]   No
      [    ]





Check
      if
      there is no disclosure of delinquent filers in response to Item 405 of
      Regulation S-B in this form, and no disclosure will be contained, to the best
      of
      the registrant's knowledge, in definitive proxy or information statements
      incorporated by reference in Part III of this Form 10-KSB or any amendments
      to
      this Form 10-KSB. [    ]





Indicate
      by check mark whether the Issuer is a shell company (as defined in Exchange
      Act
      Rule 12b-2). Yes [    ]   No [ X ]





Issuer's
      revenues for its most recent fiscal year: $19,319,889.





As
      of
      December 13, 2007, 26,707,908 shares of the Company's common stock were
      outstanding. As of December 13, 2007, the aggregate market value of shares
      of
      the Company's common stock held by non-affiliates was approximately $51.6
      million (based upon the last reported sale price of $2.72 on that date on the
      American Stock Exchange).





2


FORM
      10-KSB INDEX





PART
      I





PageItem
                1.
            Description
                of Business
            5Item
                2.
            Description
                of Property
            13Item
                3.
            Legal
                Proceedings
            13Item
                4.
            Submission
                of Matters To A Vote Of Security
                Holders
            13





Part
      II





Item
                5.
            Market
                For Common Equity, Related Stockholder Matters and Small
                Business Issuer Purchases of Equity Securities
            14Item
                6.
            Management's
                Discussion and Analysis of Financial Condition and
                Results of Operations
            15Item
                7.
            Financial
                Statements
            20Item
                8.
            Changes
                in and Disagreements With Accountants On Accounting and
                Financial Disclosure
            20Item
                8A.
            Controls
                and Procedures
            21Item
                8B.
            Other
                Information
            21





Part
      III





Item
                9.
            Directors,
                Executive Officers and Corporate Governance;
                Compliance with Section 16(a) of the Exchange Act
            22Item
                10.
            Executive
                Compensation
            28Item
                11.
            Security
                Ownership Of Certain Beneficial Owners and Management
                and Related Stockholder Matters
            33Item
                12.
            Certain
                Relationships and Related Transactions, and Director
                Independence
            36Item
                13.
            Exhibits
            37Item
                14
            Principal
                Accountant Fees and Services
            43





3


CAUTIONARY
      STATEMENT REGARDING FORWARD LOOKING STATEMENTS





Certain
      statements included in this Annual Report on Form 10-KSB 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.     Description of
      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, Canada and France.  Currently, public sector
      female condom programs in various stages are ongoing in over 90
      countries.





The
      Female Health Company obtained approval for its common stock to be listed on
      the
      American Stock Exchange early in July, 2007.  The Company’s common
      stock began trading on AMEX under the symbol “FHC” on July 9, 2007.





Product





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. FC is pre-lubricated
      and disposable and is recommended for use during a single sex act.





In
      September 2005, FHC announced that it had 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. 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. The Company expects to submit a PMA for approval of FC2
      to the FDA before the end of calendar 2007.  FC2 has also been
      approved by regulatory authorities in India and Brazil.






5




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 expires on
      December 31, 2008 and automatically renews for additional one year periods
      unless either party gives at least 12 months prior written notice of
      termination.





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





Global
      Market Potential





It
      is
      more than twenty years since the first clinical evidence of AIDS was noted.
      HIV/AIDS is the most devastating pandemic that humankind has faced in recorded
      history. The Joint United Nations Programme on HIV/AIDS (“UNAIDS”) in its
      December 2006 Aids Epidemic Update reported that 33 million people globally
      were living with HIV. Approximately 2.5 million new cases of HIV will be
      reported this year while about 2 million people will have died from the disease.
      Women now comprise the majority of the new cases in many areas of the world.
      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
      2006,
      the Centers for Disease Control and Prevention reported that the HIV/AIDS
      epidemic is taking an increasing toll on women and girls in the United
      States.  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.





For
      the
      most recent year in which data are available (2002), 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 heterosexual transmission (71% in
      2005) followed by injection drug use (27%).







6




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 be between 6 and 9 billion units annually. 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





The
      FC
      Female Condom and the Male Condom





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. It provides women dual protection against STD’s
      (including HIV/AIDS) and unintended pregnancy.  It is also an
      alternative when male condoms are not used for reasons of latex sensitivity
      or
      choice.





The
      polyurethane material that is used for FC offers a number of benefits over
      latex, the material that is most commonly used in male condoms. Polyurethane
      is
      much stronger than latex, reducing the probability that the FC sheath will
      tear
      during use. Unlike latex, polyurethane quickly transfers heat, so FC immediately
      warms to body temperature when it is inserted, which may enhance pleasure and
      sensation during use. Unlike the male condom, FC may be inserted in advance
      of
      arousal, eliminating disruption during sexual intimacy. The product also offers
      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 polyurethane to date.





FC2,
      made
      from synthetic nitrile, has the same physical design, specifications, safety
      and
      efficacy profile as the FC female polyurethane condom.





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%.





Cost
      Effectiveness





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.





7




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.





Worldwide
      Regulatory Approvals





FC
      received Pre-Market Approval ("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.





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.  The Company expects to submit a PMA for
      FC2 to the FDA before the end of calendar 2007.





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.




8


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), 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
      technical sales 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.  FC2 is currently being produced in Selangor D.E.,
      Malaysia.





With
      the
      majority of its products currently being sold to the public sector, the Company
      incurs minimal sales and marketing expense.  As the demand for the
      Female Condom continues to grow, the Company’s operating expenses are likely to
      grow at a much lower rate than that of volume.





To
      accelerate market penetration and increase volume, the Company developed FC2,
      a
      nitrile polymer product which is less costly to manufacture than FC. FC2 is
      currently being produced in Selangor D.E., Malaysia. In August 2006, the Company
      received notice from 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 measures being applied prior to procurement.
      The Company made its first substantial sales of FC2 in the second quarter of
      fiscal 2007.





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.





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 $0.84 to $0.89, 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 a uthorities
      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.





9


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 was placed through UNFPA, the
      United Nations Population Fund. India faces a significant threat of HIV/AIDS,
      with existing cases estimated to be 2.5 – 3 million.  Since May, 2006,
      the Indian Government has developed and tested prevention programs which include
      female condoms in six high-incidence states. The government will conclude its
      assessment of the test program in December 2007.  A survey conducted
      as part of the assessment process shows a high acceptance of the female
      condom.





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 63 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.





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 at a capital expenditure of less than $1 million
      for the purchase of additional equipment.





FC2


The
      Company began end-stage production of FC2 within a 1,900 square foot leased
      facility located in Selangor D.E., Malaysia.  On September 1, 2007, the
      Company leased 16,000 sq. ft. of production space to house the expanding
      operations also located in Selangor D.E., Malaysia.  The lease on the
      1,900 sq. ft. will terminate on December 31, 2007, after manufacturing commences
      at the newly leased facility in Malaysia.  By December 31, 2007, FC2
      manufacturing capacity in Malaysia will be 30 million units
      annually.





The
      Company’s India-based FC2 end-stage production capacity is located at a facility
      owned by its India 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.





Upon
      commencement of manufacturing in India, FHC’s total FC2 production capacity will
      be 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.




10


Government
      Regulation





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 expects to submit a PMA for FC2 to the FDA before the end of calendar
      2007.





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, 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 between 2007 and 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.





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.






11




Employees





As
      of
      December 14, 2007, the Company had 166 full-time employees, all but eight of
      whom are located in the U.S. or the U.K., and no part-time employees. No Company
      employees are represented by a labor union. The Company believes that its
      employee relations are good.





Backlog





At
      December 15, 2007, the orders to be shipped totaled $4,692,000 for FC and
      $1,928,000 for FC2, or a total of $6,620,000.  At December 15, 2006,
      the orders to be shipped totaled $4,802,000 for FC and $2,528,000 for FC2,
      or a
      total of $7,330,000. Unfilled orders materially fluctuate from quarter to
      quarter, and include orders with requested delivery dates later in fiscal 2008.
      The Company expects current unfilled orders to be filled during fiscal
      2008.





Research
      and Development





The
      Company incurred approximately $209,000 of research and development costs in
      fiscal 2007 and $211,000 of research and development costs in fiscal 2006.
      Such
      expenditures funded various activities related to the preparation of a
      PMA for FC2.





Industry
      Segments and Financial Information About Foreign And Domestic
      Operations





See
      Note
      10 to Notes to Consolidated Financial Statements, included herein.





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 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.


12





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 r estructured
      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 the Company's manufacturing facility
      in
      1994. Since that time, the Company has sold about 150 million female condoms
      around the world.





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 60610. The lease expires October 31,
      2011.
      The Company utilizes warehouse space and sales fulfillment services of an
      independent public warehouse located 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 can be expanded
      to
      60 million units annually at a capital expenditure of less than $1 million
      for
      the purchase of additional equipment. The
      Company****manufactures and warehouses FC2 within 1,900
      square feet of a leased facility located in Selangor D.E.,
      Malaysia.  On September 1, 2007, the Company leased a manufacturing
      facility with 16,000 sq. ft. of production space, also in Selangor D.E.,
      Malaysia.  The lease on the 1,900 sq. ft. will terminate on
      December 31, 2007, after manufacturing commences at the newly leased
      facility in Malaysia. The new lease has a three year term and is renewable
      for
      two additional three year terms. The Company’s Malaysian production capacity is
      now approximately 30 million units annually.  Management believes the
      properties are adequately insured.





Item
      3.     Legal
      Proceedings.





The
      Company is not currently involved in any material 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, 2007.


13


PART
      II





Item
                5.
            Market
                For Common Equity, Related
                Stockholder Matters and Small Business 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.  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 13, 2007 was 419. The Company has paid no
      cash dividends on its common stock and does not expect to pay cash dividends
      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 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.


**Quarters**FIRST
            
            
            SECOND
            
            
            THIRD
            
            
            FOURTH2007
                Fiscal YearPrice
                per common share – High
            
            $
            1.65
            
            
            $
            2.30
            
            
            $
            2.95
            
            
            $
            2.55Price
                per common share – Low
            
            $
            1.20
            
            
            $
            1.46
            
            
            $
            2.15
            
            
            $
            2.002006
                Fiscal YearPrice
                per common share – High
            
            $
            1.80
            
            
            $
            1.78
            
            
            $
            1.63
            
            
            $
            1.65Price
                per common share – Low
            
            $
            1.32
            
            
            $
            1.50
            
            
            $
            1.25
            
            
            $
            1.19





Recent
      Sales of Unregistered Securities





In
      January, 2007, the Company issued 150,000 shares of stock for investor relations
      consulting.  The Company believes that this issuance of the common
      stock in connection with the performance of services to the Company was exempt
      from registration under section 4(2) of the Securities Act and/or Regulation
      D
      promulgated under the Securities Act because such issuance was made to a person
      who is an accredited investor. The accredited investor represented to the
      Company that he was purchasing for investment without a view to further
      distribution. Restrictive legends were placed on all instruments evidencing
      the
      securities described above.




Warrant
      Settlement Program




During
      the third quarter of fiscal 2007, the Company offered certain holders of
      warrants a program under which they could exercise the warrants on a cashless
      basis for shares of common stock.  The subject warrants had 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 fiscal 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.




14




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.  Through September 30, 2007, the
      Company has purchased 173,400 shares.  The Board has approved the
      continuation of this program through December 31, 2008.




Issuer
                Purchases of Equity Securities:
            Details
                of Treasury Stock Purchases for the 12 MonthsPeriod:
            Total
              Number
              of
                Shares
              Purchased
            
            Per
                Average
              Price
                Paid
              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 – June 30, 2007
            114,000
            
            $     
                2.11
            
            114,000
            
            886,000July
                1, 2007 – July 31, 2007
            -
            
            -
            
            -August
                1, 2007 – August 31, 2007
            13,200
            
            $     
                2.16
            
            13,200
            
            872,800September
                1, 2007 – September 30, 2007
            46,200
            
            $     
                2.12
            
            46,200
            
            826,600Quarterly
                Subtotal
            59,400
            
            $     
                2.13
            
            59,400Total
            173,400
            
            $     
                2.12
            
            173,400
            
            826,600




Item
                6.
            Management's
                Discussionand 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 started developing a second
      generation female condom, FC2, which was completed in 2005.  The first
      substantial sales of FC2 occurred in the second quarter of fiscal
      2007.  The Company believes that FC2 will result in a significant
      reduction in production costs and accelerate growth.





*Revenues*.  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.  The Company's strategy is to develop a global market and
      distribution network for its product by establishing 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 $0.84 to $0.89, depending on contractual
                volumes.  Currently, the female condom is available in over 90
                countries through public sector
                distribution.  ●
            The
              Company also sells FC to the U.S. Agency for International Development
              (USAID) for use in USAID prevention programs in developing
              countries.







15




●
            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 availabe in 63
                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.





●
            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.





Significant
      quarter to quarter variations may result from time to time due to the timing
      and
      shipment of large orders and not 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 occur in foreign markets. While a
      material portion of the Company's future sales are likely to be in foreign
      markets, all sales are denominated in 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. For 2007, 53% of the Company's
      net revenues, 85% of the Company's cost of products sold and 34% of the
      Company's operating expenses were affected by changes in the exchange rate
      of
      British pounds sterling relative to the United States dollar. 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. For 2006, the Company estimated that the net adverse
      impact of the exchange rate fluctuations was not significant. For 2007, the
      net
      adverse impact of the exchange rate was about $414,000.





*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 2006
      and 2007, the Company has, where possible, increased selling prices to offset
      such increases in costs.




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.  Tod ate,
      the
      Company's management has not deemed it necessary 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.





16




*Operating
      Highlights.*  The Company's net revenues have increased in recent
      periods.  The Company had net revenues of $19,319,889 in the fiscal
      year ended September 30, 2007 as compared to net revenues of $14,824,242 in
      the
      fiscal year ended September 30, 2006.





The
      Company used $42,047 in its 2007 operations versus generating cash flow from
      operations was $0.3 million during the fiscal year ended September 30,
      2006.





The
      Company had net income attributable to common stockholders of $1,532,665 or
      $0.06 per share in fiscal 2007.  In fiscal 2006, the Company had net
      income attributable to common stockholders of $120,778 or $0.01 per
      share.





Results
      of Operations





Fiscal
      Year Ended September 30, 2007 ("2007") Compared to Fiscal Year Ended September
      30, 2006 ("2006")





The
      Company had net revenues of $19,319,889 and net income attributable to common
      stockholders of $1,532,665 or $0.06 per share versus net revenues of $14,824,242
      and net income attributable to common stockholders of $120,778 or $0.01 per
      share in 2006.





Gross
      profit increased $1,666,905, or 30%, to $7,156,315 for 2007 from $5,489,410
      for
      2006. The increase was a result of improved FC margins as overhead was spread
      over a higher number of units and the introduction of the more profitable second
      generation product, FC2.





Net
      revenues increased $4,495,647, or 30%, in 2007 over the prior year, reflecting
      increased demand from global public sector customers.





Cost
      of
      goods sold increased $2,828,742, or 30%, to $12,163,574 for 2007 from $9,334,832
      for 2006. The increase in cost of products sold is a result of a significant
      increase in volume and a slight increase in manufacturing costs.





Advertising
      and promotional expenditures decreased $38,626 to $179,874 for 2007 from
      $218,500 for 2006. The reduction relates to the public relations program to
      promote FC2 and communicate the Company’s global contribution to woman’s
      health.





Selling,
      general and administrative expenses increased $1,072,246, or 22%, from
      $4,819,679 in 2006 to $5,891,925 in 2007. The increase resulted from expansion
      of the Global Public Sector team, higher employee compensation costs, decreased
      expense offsets from a grant from the British Linkage Challenge Fund and a
      one-time fee to list the common stock on the American Stock Exchange, partially
      offset by lower depreciation and office expenses.




17


Research
      and development costs decreased $2,268 to $208,608 in 2007 from $210,876 in
      2006. The costs in 2006 were incurred to develop commercial scale manufacturing
      of FC2, while fiscal 2007 expenses relate to the preparation of the PMA
      for FC2.





The
      Company's operating income increased $635,553 to $875,908 in 2007 from $240,355
      in 2006 due to the improved gross profit offset in part by a net increase in
      operating expenses. Total operating expenses increased $1,031,352 from
      $5,249,055 in 2006 to $6,280,407 as a result of increases in selling, general
      and administrative expense which were partially offset by lower advertising
      and
      promotional expenditures and decreased research and development
      expenses.





The
      Company recorded non-operating expense of $6,995 in 2007 versus non-operating
      income of $41,671 in 2006.  The reduction in investment income
      resulted from a lower cash balance due to the Company’s investment in
      manufacturing expansion and its stock repurchase program.





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 as made it more likely than not that
      the Company will utilize its net operating carryforwards in the
      future.  The Company has recorded a tax benefit in the amount of
      $825,000 during the year ended September 30, 2007.





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.





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.






18




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.
      For 2007, 53% of the Company’s net revenues, 85% of the Company’s cost of
      products sold and 34% of the Company’s operating expenses were affected by
      changes in the exchange rate of foreign currencies relative to the United States
      dollar.





For
      2007,
      the Company estimates that the net negative impact of the exchange rate
      fluctuations was approximately $414,000.  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.




19


Liquidity
      and Sources of Capital





In
      fiscal
      year 2006, the company generated $0.3 million in positive cash flow from
      operations. In
      2007,
      the company’s operations consumed cash of $42,047, primarily due to the timing
      of collection of accounts receivable.  In prior years, the Company has
      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, 2007, the Company had working capital of $7.2 million and
      stockholders' equity of $7.4 million compared to working capital of $5.1 million
      and stockholders' equity of $4.7 million as of September 30, 2006.





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, 2008.
      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 1% (prime rate was 7.75% at September 30, 2007). 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, 2007.





As
      of
      December 15, 2007, the Company had approximately $1.8 million in cash, net
      trade
      accounts receivable of $ 4.1 million and current trade accounts payable of
      $ 0.8
      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 2006 and 2007
      the Company has, where possible, increased selling prices to offset such
      increases in costs.





Item
      7.     Financial
      Statements





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




Item
      8.      Changes in
      andDisagreementswith
      Accountants on Accounting
      and Financial Disclosure.




Not
      Applicable.




20


Item
      8A.   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.





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.





Item
      8B.    Other
      Information





Not
      applicable.




21


PART
      III





Item
      9.      Directors and
      Executive Officers and Corporate Governance; Compliance with Section 16(a)
      of the Exchange Act





Certain
      information about the Company's executive officers, directors and certain key
      employees as of September 30, 2007, is as follows:





NAME
            POSITION
            AGEO.B.
                Parrish
            Chairman
                of the Board, Chief Executive Officer, acting President and
                Director
            74Mary
                Ann Leeper, Ph.D.
            Senior
                Strategic Adviser and Director
            67William
                R. Gargiulo, Jr.
            Secretary
                and Director
            79Michael
                Pope
            Vice
                President and General Manager of  The Female Health Company (UK)
                Plc
            50Donna
                Felch
            Vice
                President and Chief Financial Officer
            60Jack
                Weissman
            Vice
                President - Sales
            60Janet
                Lee
            Controller
            43David
                R. Bethune
            Director
            67Stephen
                M. Dearholt
            Director
            61Michael
                R. Walton
            Director
            70James
                R. Kerber
            Director
            75Richard
                E. Wenninger
            Director
            60Mary
                Margaret Frank
            Director
            38





O.B.
      PARRISH


Age:
      74;
      Elected Director: 1987; Present Term Ends: 2008 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.




22


MARY
      ANN
      LEEPER, Ph.D.


Age:
      67;
      Elected Director: 1987; Present Term Ends: 2008 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:
      79;
      Elected Director: 1987; Present Terms Ends: 2008 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.





MICHAEL
      POPE


Age:
      50;
      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.





23




DONNA
      FELCH


Age
      60;
      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 in 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:
      60;
      Vice President - Sales





Mr.
      Weissman has served as Vice President - Sales 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.





JANET
      LEE


Age:
      43;  Controller





Ms.
      Lee
      has served as Controller 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:
      67;
      Elected Director: 1996; Present Term Ends: 2008 Annual Meeting





Mr.
      Bethune has served as a Director of the Company since January 1996. He is
      currently Executive Chairman 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.





24


STEPHEN
      M. DEARHOLT


Age:
      61;
      Elected Director: 1996; Present Term Ends: 2008 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.





MICHAEL
      R. WALTON


Age:
      70;
      Elected Director: 1999; Present Term Ends: 2008 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.





JAMES
      R.
      KERBER


Age:
      75;
      Director: 1999; Present Term Ends: 2008 Annual Meeting





Mr.
      Kerber has served as a Director of the Company since April 1999. Mr. Kerber
      has
      been a business consultant to the insurance industry since January 1996. He
      has
      over 40 years of experience in operating insurance companies, predominately
      those associated with life and health.
      From 1994 to 1996, he was Chairman, President, Chief Executive Officer and
      Director of the 22 life and health insurance companies which comprise the ICH
      Group. In 1990, Mr. Kerber was a founding partner in the Life Partners Group
      where he was Senior Executive Vice President and
      a
      Director. Prior to that, he was involved with operating and consolidating over
      200 life and health insurance companies for ICH Corporation, HCA Corporation
      and
      US Life Corporation.






25




RICHARD
      E. WENNINGER


Age:
      60;
      Director: 2001; Present Term Ends: 2008 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:
      38;
      Director: 2004; Present Term Ends: 2008 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
      masters 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 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 28,
      2007, 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 February 23, 2007 reporting a
      transaction occurring on February 20, 2007 and a Form 4 report on
      August 27, 2007 reporting a transaction occurring on August 21, 2007
      and Mr. Dearholt filed a Form 4 report on December 21, 2007 reporting a
      transaction occurring on September 24, 2004.





26




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 James R. Kerber.
      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.





27


Item
      10.     Executive
      Compensation





Summary
      Compensation Table





The
      table
      shown below provides information for the Company's last fiscal year 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, 2007.  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
            
            Stock
              Awards
            (1)
            
            All
                Other
              Compensation
            (2)
            
            TotalO.B.
                Parrish, Chief Executive Officer and Acting President
            
            2007
            
            $
            140,000
            
            
            
            -
            
            $
            245,375
            
            
            $
            22,074
            
            
            $
            407,449Donna
                Felch, Vice President and Chief Financial Officer
            
            2007
            
            $
            175,000
            
            
            
            -
            
            $
            56,888
            
            
            $
            5,457
            
            
            $
            237,345Mike
                Pope, Vice President and General Manager of Female Health Company
                (UK)
                Plc.
            
            2007
            
            $
            227,009
            (3)
            
            
            -
            
            $
            50,625
            
            
            $
            33,625
            (3)
            
            $
            311,259





(1)
            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 our common stock on the
                date of
                grant.





(2)
            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.





(3)
            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.





Stock
      Awards





No
      stock
      options were granted to any of the named executive officers during the fiscal
      year ended September 30, 2007.




28





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 is entitled to receive a grant of an additional 30,000
      shares of common stock on July 1, 2008, unless he voluntarily resigns or is
      terminated by the Company without cause.





The
      following table provides information regarding unexercised options and unvested
      restricted stock awards held by the named executive officers at September 30,
      2007.  All of these option awards are fully vested.  No
      named executive officer exercised any option during the fiscal year ended
      September 30, 2007.





Outstanding
                Equity Awards at Fiscal Year-End





Option
                Awards
            
            
            Stock
                AwardsName
            
            Number
                of
              Securities
              Underlying
              Unexercised
              Options
                (#)
              Exercisable
            
            
            Option
              Exercise
                Price ($)
            
            
            Option
                Expiration
              Date
            
            
            Number
                of
              Shares
                of
              Stock
                That
              Have
                Not
              Vested 
                (#)
            
            
            Market
                Value of
              Shares
                of Stock
              That
                Have Not
              Vested
                ($)
            (1)O.
                B. Parrish
            
            
            464,000
            
            
            
            1.40
            
            
            04/22/13
            
            
            
            150,000
            (2)
            
            
            352,500Donna
                Felch
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            30,000
            (3)
            
            
            70,500Michael
                Pope
            
            
            370,000
            
            
            
            1.40
            
            
            04/22/13
            
            
            
            –
            
            
            
            –_______________




(1)   
                Market value equals the closing market price of our common stock
                on
                September 28, 2007, which was $2.35, multiplied by the number of
                shares of restricted stock.(2)   
                The shares of restricted stock vest on May 1, 2008, the second
                anniversary of the grant date.(3)   
                The shares of restricted stock vest on June 30, 2008, the second
                anniversary of the grant date.





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.





29




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.





Director
      Summary Compensation Table





Directors
      who are executive officers or employees of the Company do not receive
      compensation for serving as directors.  In fiscal 2007, the Company
      paid fees to its directors who are not executive officers or employees of the
      Company for their committee participation.  As described below, 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.





30


The
      following table provides information concerning the compensation paid by the
      Company in 2007 to each of its directors who are not executive officers of
      the
      Company.





Name
            
            Fees Earned
              or
                Paid in Cash
            (1)
            
            Option
                Awards
            (2)
            
            All Other
              Compensation
            (3)
            
            TotalMary
                Ann Leeper
            
            
            –
            
            
            
            –
            
            
            $
            200,217
            
            
            $
            200,217William
                Gargiulo, Jr.
            
            
            –
            
            
            
            –
            
            
            $
            60,000
            
            
            $
            60,000David
                Bethune
            
            $
            10,000
            
            
            $
            20,261
            
            
            
            –
            
            
            $
            30,261Stephen
                Dearholt
            
            
            –
            
            
            $
            20,261
            
            
            
            –
            
            
            $
            20,261Mary
                Margaret Frank
            
            $
            10,000
            
            
            $
            20,261
            
            
            
            –
            
            
            $
            30,261James
                Kerber
            
            
            –
            
            
            $
            20,261
            
            
            
            –
            
            
            $
            20,261Michael
                Walton
            
            
            –
            
            
            $
            20,261
            
            
            
            –
            
            
            $
            20,261Richard
                Weninger
            
            
            –
            
            
            $
            20,261
            
            
            
            –
            
            
            $
            20,261





(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,
                2007, in accordance with FAS 123R of stock option awards to the listed
                directors and, thus, include amounts from awards granted prior to
                fiscal
                2007 that vested in fiscal 2007.  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)
            The
                amount of "All Other Compensation" for Dr. Leeper consists of salary
                of
                $179,167 and $21,050 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 is for the execution of these responsibilities.  He
                does not receive compensation for being a director of the
                Company.







31


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
      extend 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.





Item 11.
            Security
                Ownership of Certain Beneficial Ownersand Management and Related Stockholder
                Matters





The
      following table sets forth information regarding the beneficial ownership of
      the
      Company's common stock as of December 14, 2007 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.




32
  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 December
          14, 2007
          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.
  **Shares
                    Beneficially Owned****Name
                    and Address of Beneficial Owner (1)**
                
                **Number**
                
                
                **Percent**O.B.
                    Parrish (2)
                
                
                1,366,901
                
                
                
                5.0
                %William
                    R. Gargiulo, Jr. (3)
                
                
                137,500
                
                
                
                *Mary
                    Ann Leeper, Ph.D. (4)
                
                
                949,500
                
                
                
                3.5
                %Stephen
                    M. Dearholt (5)
                
                
                3,872,268
                
                
                
                13.8
                %David
                    R. Bethune (6)
                
                
                185,833
                
                
                
                *James
                    R. Kerber (7)
                
                
                545,099
                
                
                
                2.0
                %Michael
                    R. Walton (8)
                
                
                841,389
                
                
                
                3.2
                %Richard
                    E. Wenninger (9)
                
                
                3,072,084
                
                
                
                11.5
                %Mary
                    Margaret Frank (10)
                
                
                43,333
                
                
                
                *Michael
                    Pope (11)
                
                
                412,245
                
                
                
                1.5
                %Donna
                    Felch (12)
                
                
                90,000
                
                
                
                *Red
                  Oak Partners (13)
                
                
                1,530,410
                
                
                
                5.8
                %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)(12)
                
                
                11,516,152
                
                
                
                37.9
                %
 _______________
  *
          Less
          than 1 percent.
   33


(1)
              Unless
                  otherwise indicated, the address of each beneficial owner is 515
                  North
                  State Street, Suite 2225, Chicago, IL 60610; the address of Mr.
                  Dearholt
                  is 36365 Trail Ridge Road, Steamboat Springs, CO 80488; the address
                  of Mr.
                  Kerber is 8547 East Arapahoe Road, #J217, Englewood, CO 80112;
                  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.
 
 (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 417,900 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
                1,529,015 shares owned directly by Mr. Dearholt. Also includes 69,500
                shares held by the Dearholt, Inc. Profit Sharing Plan, 26,500 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
                153,333
                shares of common stock subject to stock options and common stock
                purchase
                warrants for 1,400,000 shares of common
                stock.





(6)
            Consists
                of 32,500 shares of common stock owned directly by Mr. Bethune and
                153,333
                shares of common stock subject to stock options held by Mr.
                Bethune.





(7)
            Includes
                421,766 shares of common stock owned directly by Mr. Kerber and 123,333
                shares of common stock subject to stock options held by Mr.
                Kerber.





(8)
            Consists
                of (a) 485,341 shares of common stock owned directly by Mr. Walton,
                (b)
                93,333 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.






34




(9)
            Consists
                of (a) 2,773,751 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) 43,333 shares of common stock subject
                to stock
                options.





(10)
            Consists
                of 43,333 shares of common stock subject to stock options held by
                Dr.
                Frank.





(11)
            Consists
                of 42,245 shares of common stock owned directly by Mr. Pope and 370,000
                shares of common stock subject to stock
                options.





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





(13)
            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.





(14)
            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.





35


Equity
      Compensation Plan Information





The
      following table summarizes share information, as of September 30, 2007, for
      the
      Company's equity compensation plans and arrangements. These plans and
      arrangements 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.





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
            
            -
            
            -
            
            -Equity
                compensation plans not approved by shareholders
            
            2,745,980
            
            $1.37
            
            -Total
            
            2,745,980
            
            $1.37
            
            -





The
      Company's equity compensation plans 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 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
      December 2001 and June 2002, the Company issued to a consultant as compensation
      for services provided 50,000 options and 100,000 options respectively to
      purchase shares of common stock.  The options have an exercise price
      of $0.66 per share for each option and an expiration date of December 31, 2011
      as to 50,000 shares and June 30, 2012 as to 100,000 shares.





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
      12.   Certain Relationships
      and Related
      Transactions, and Director Independence.





Transactions
      with Related Persons





During
      the third quarter of fiscal 2007, the Company offered certain holders of
      warrants a program under which they could exercise the warrants on a cashless
      basis for shares of common stock.  The subject warrants had 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
      fiscal 2007 .  Two of the Company's directors, Stephen M.
      Dearholt and James R. Kerber, participated in this program.  Mr.
      Dearholt exercised 200,000 warrants with an exercise price of $1.16 per share
      to
      acquire 95,495 shares of common stock, 250,000 warrants with an exercise price
      of $0.71 per share to acquire 169,683 shares of common stock and 62,500 warrants
      with an exercise price of $0.77 per share to acquire 40,724 shares of common
      stock.  Mr. Kerber exercised 100,000 warrants with an exercise price
      of $1.00 per share to acquire 55,556 shares of common stock.






36




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





Director
      Independence





The
      Company's Board of Directors currently consists of nine members:  O.B.
      Parrish, Mary Ann Leeper, Ph.D., William R. Gargiulo, Jr., Stephen M. Dearholt,
      David R. Bethune, Michael R. Walton, James R. Kerber, 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.





Item
      13.   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)





37





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)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)






38




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)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)






39




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)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 Officerpursuant 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.






40




(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.(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.






41




(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, 2006 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.





42


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 2007 and 2006:


Service
                Type
            
            Fiscal
                2007
            
            
            Fiscal
                2006Audit
                Fees (1)
            
            $
            201,496
            
            
            $
            226,311Audit-Related
                Fees (2)
            
            
            15,261
            
            
            
            17,365Tax
                Fees (3)
            
            
            23,901
            
            
            
            26,066All
                Other Fees
            
            
            --
            
            
            
            --Total
                Fees Billed
            
            $
            240,658
            
            
            $
            269,742





(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, 2007 and September 30, 2006; 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.





(3)
            For
                the fiscal years ended September 30, 2006 and September 30, 2007
                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.





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.




43


SIGNATURES





In
      accordance with Section 13 or 15(d) of the Exchange Act, the Registrant caused
      this report to be signed on its behalf by the undersigned, thereunto duly
      authorized.




Date:  December 21,
      2007




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-KSB 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.





In
      accordance with the Exchange Act, 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 21,
                2007/s/
                Mary Ann
                Leeper
              Mary
                Ann Leeper, Ph.D.
            
            Director
            December 21,
                2007


44





/s/
                Donna
                Felch
              Donna
                Felch
            
            Vice
                President and Chief Financial Officer (Principal Accounting and Financial
                Officer)
            December 21,
                2007/s/
                William R.
                Gargiulo
            
            Secretary
                and Director
            December 21,
                2007William
                R. Gargiulo/s/
                David R.
                Bethune
            
            Director
            December 21,
                2007David
                R. BethuneDirector
            December __,
                2007Stephen
                M. DearholtDirector
            December __,
                2007Michael
                R. Walton/s/
                James R.
                Kerber
            
            Director
            December 21,
                2007James
                R. KerberDirector
            December __,
                2007Richard
                E. Wenninger/s/
                Mary Margaret
                Frank
            
            Director
            December 21,
                2007Mary
                Margaret Frank




45




**Female
      Health Company and Subsidiaries**


**Index
      to Consolidated Financial Statements**




Document Page
      No.





Document
            Page
              No.Audited
                Consolidated Financial Statements.Report
                of McGladrey & Pullen, LLP, Independent Registered
                Public Accounting Firm.
            F-1Consolidated
                Balance Sheet as of September 30,
                2007
            F-2Consolidated
                Statements of Operations for the years ended
                September 30, 2007 and 2006.
            F-3Consolidated
                Statements of Stockholders’ Equity for the years
                ended September 30, 2007 and 2006.
            F-4
                and F-5Consolidated
                Statements of Cash Flows for the years ended
                September 30, 2007 and 2006.
            F-6Notes
                to Consolidated Financial Statements.
            F-7
                through F-19












**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 sheet of The Female Health
        Company
        and Subsidiaries, as of September 30, 2007, and the related consolidated
        statements of operations, stockholders' equity, and cash flows for the years
        ended September 30, 2007 and 2006.  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, 2007, and the results of their operations
        and their cash flows for the years ended September 30, 2007 and 2006, in
        conformity with U.S. generally accepted accounting principles.
 
 As
        described in Notes 7 and 13 to the consolidated financial statements, on
        October
        1, 2007, the Company changed its method of accounting for share-based payments
        to adopt Statement of Financial Accounting Standard No. 123(R), and changed
        its
        method of evaluating the effects of prior year misstatements in the current
        year
        financial statements to adopt Securities and Exchange Commission Staff
        Accounting Bulletin No. 108.




/s/
      McGladrey & Pullen, LLP





Schaumburg,
      Illinois


December
      19, 2007





F-1





**The
                Female Health Company and Subsidiaries****Consolidated
                Balance Sheet****September
                30, 2007**





**Assets**Current
                AssetsCash
            
            **$**
            **799,421**Restricted
                cash
            
            ****
            **86,435**Accounts
                receivable, net of allowance for doubtful accountsof
                $51,000
            
            ****
            **6,080,153**Inventories
            
            ****
            **1,372,582**Prepaid
                expenses and other current assets
            
            ****
            **399,536**Deferred
                Income Taxes
            
            ****
            **825,000****Total
                current assets**
            
            ****
            **9,563,127**Other
                Assets
            
            ****
            **251,536**Equipment,
                Furniture and FixturesEquipment
                not yet in service
            
            ****
            **444,275**Equipment,
                furniture and fixtures
            
            ****
            **5,967,082******
            **6,411,357**Less
                accumulated depreciation
            
            ****
            **5,032,472******
            **1,378,885****Total
                assets**
            
            **$**
            **11,193,548****Liabilities
                and Stockholders’ Equity**Current
                LiabilitiesAccounts
                payable
            
            **$**
            **806,134**Accrued
                expenses and other current liabilities
            
            ****
            **1,555,346**Preferred
                dividends payable
            
            ****
            **53,025****Total
                current liabilities**
            
            ****
            **2,414,505**Deferred
                Gain on Sale of Facilities
            
            ****
            **1,074,339**Deferred
                Grant Income
            
            ****
            **257,245****Total
                liabilities**
            
            ****
            **3,746,089**Stockholders’
                EquityConvertible
                preferred stock, Class A Series 1, par value $.01 per
                share;authorized
                5,000,000 shares; issued and outstanding 56,000 shares
            
            ****
            **560**Convertible
                preferred stock, Class A Series 3, par value $.01 per
                share;authorized
                700,000 shares; issued and outstanding 473,377 shares
            
            ****
            **4,734**Convertible
                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 and outstanding 26,437,908 shares
            
            ****
            **264,379**Additional
                paid-in capital
            
            ****
            **64,954,610**Accumulated
                other comprehensive income
            
            ****
            **1,051,156**Accumulated
                deficit
            
            ****
            **(58,428,233**
            **)**Treasury
                stock, at cost, 173,400 shares of common stock
            
            ****
            **(399,747**
            **)****Total
                stockholders’ equity**
            
            ****
            **7,447,459****Total
                liabilities and stockholders’ equity**
            
            **$**
            **11,193,548**See
                Notes to Consolidated Financial Statements.







F-2





**The
                Female Health Company and Subsidiaries****Consolidated
                Statements of
                Operations****Years
                Ended September 30, 2007 and 2006**





**2007**
            
            
            2006Net
                revenues
            
            **$**
            **19,319,889**
            
            
            $
            14,824,242Cost
                of products sold
            
            ****
            **12,163,574**
            
            
            
            9,334,832**Gross
                profit**
            
            ****
            **7,156,315**
            
            
            
            5,489,410Operating
                expenses:Advertising
                and promotion
            
            ****
            **179,874**
            
            
            
            218,500Selling,
                general and administrative
            
            ****
            **5,891,925**
            
            
            
            4,819,679Research
                and development costs
            
            ****
            **208,608**
            
            
            
            210,876Total
                operating expenses
            
            ****
            **6,280,407**
            
            
            
            5,249,055**Operating
                income**
            
            ****
            **875,908**
            
            
            
            240,355Non-operating
                (expense) income:Interest
                expense
            
            ****
            **(17,279**
            **)**
            
            
            (11,250
            )Interest
                and other income
            
            ****
            **78,197**
            
            
            
            65,267Foreign
                currency transaction loss
            
            ****
            **(67,913**
            **)**
            
            
            (12,346
            )****
            **(6,995**
            **)**
            
            
            41,671**Income
                before income taxes**
            
            ****
            **868,913**
            
            
            
            282,026Income
                tax benefit
            
            ****
            **(825,000**
            **)**
            
            
            -**Net  income**
            
            ****
            **1,693,913**
            
            
            
            282,026Preferred
                dividends, Class A Series 1
            
            ****
            **11,201**
            
            
            
            11,201Preferred
                dividends, Class A Series 3
            
            ****
            **150,047**
            
            
            
            150,047Net
                income attributable to common stockholders
            
            **$**
            **1,532,665**
            
            
            $
            120,778Net
                income per basic common shares outstanding
            
            $
            0.06
            
            
            $
            0.01Basic
                weighted average common shares outstanding
            
            ****
            **24,952,440**
            
            
            
            23,801,167Net
                income per diluted common share outstanding
            
            $
            0.06
            
            
            $
            0.01Diluted
                weighted average common shares outstanding
            
            ****
            **26,398,565**
            
            
            
            26,494,568See
                Notes to Consolidated Financial Statements.






F-3








**The
                Female Health Company and Subsidiaries****Consolidated
                Statements of Stockholders’ Equity****Years
                Ended September 2007 and 2006**





Class
                A
            
            Class
                A
            
            
            
            
            
            
            
            
            
            
            
            
            
            AccumulatedSeries
                1
            
            Series
                3
            
            Preferred
            
            
            
            Additional
            
            Unearned
            
            
            
            
            
            Other
            
            
            
            
            Cost
                ofPreferred
            
            Preferred
            
            Stock
            
            Common
            
            Paid-in
            
            Consulting
            
            
            Deferred
            
            
            Comprehensive
            
            Accumulated
            
            
            TreasuryStock
            
            Stock
            
            Class
                B
            
            Stock
            
            Capital
            
            Fees
            
            
            Compensation
            
            
            Income
            
            Deficit
            
            
            Stock
            
            
            TotalBalance
                at September 30, 2005  (balance forwarded)
            
            $
            560
            
            $
            4,734
            
            $
            -
            
            $
            234,973
            
            $
            62,836,236
            
            $
            (105,449
            )
            
            $
            -
            
            
            $
            315,075
            
            $
            (59,944,228
            )
            
            $
            (32,076
            )
            
            $
            3,309,825Issuance
                of 170,000shares
                    of Common Stock for consulting services
            
            
            -
            
            
            -
            
            
            -
            
            
            1,700
            
            
            283,300
            
            
            (285,000
            )
            
            
            -
            
            
            
            -
            
            
            -
            
            
            
            -
            
            
            
            -Issuance
                of 1,000 sharesof
                Common Stock upon exercise of stock options
            
            
            -
            
            
            -
            
            
            -
            
            
            10
            
            
            1,390
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            -
            
            
            
            -
            
            
            
            1,400Issuance
                of 462,875restricted
                shares of Common Stock
            
            
            -
            
            
            -
            
            
            -
            
            
            4,629
            
            
            704,259
            
            
            -
            
            
            
            (839,800
            )
            
            
            -
            
            
            -
            
            
            
            -
            
            
            
            (130,912
            )Issuance
                of 75,000 sharesof
                Common Stock as bonus
            
            
            -
            
            
            -
            
            
            -
            
            
            750
            
            
            123,100
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            -
            
            
            
            -
            
            
            
            123,850Issuance
                of 110,154 sharesof
                Common Stock as payment of preferred stock dividends
            
            
            -
            
            
            -
            
            
            -
            
            
            1,102
            
            
            148,924
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            -
            
            
            
            -
            
            
            
            150,026Issuance
                of 200,000Common
                Stock warrants forconsulting services
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            194,035
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            -
            
            
            
            -
            
            
            
            194,035Preferred
                Stock dividends
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            (161,248
            )
            
            
            -
            
            
            
            (161,248
            )Amortization
                of deferredcompensation
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            
            390,475
            
            
            
            -
            
            
            -
            
            
            
            -
            
            
            
            390,475Amortization
                of unearnedconsulting
                fees
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            329,449
            
            
            
            -
            
            
            
            -
            
            
            -
            
            
            
            -
            
            
            
            329,449Comprehensive
                income:Net
                income
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            282,026
            
            
            
            -
            
            
            
            282,026Foreign
                currencytranslation
                adjustment
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            
            -
            
            
            
            283,399
            
            
            -
            
            
            
            -
            
            
            
            283,399Comprehensive
                income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            565,425Balance
                at September 30, 2006
            
            $
            560
            
            $
            4,734
            
            $
            -
            
            $
            243,164
            
            $
            64,291,244
            
            $
            (61,000
            )
            
            $
            (499,325
            )
            
            $
            598,474
            
            $
            (59,823,450
            )
            
            $
            (32,076
            )
            
            $
            4,772,325




See
      Notes
      to Consolidated Financial Statements.






F-4




**The
                Female Health Company and Subsidiaries****Consolidated
                Statements of Stockholders’ Equity****Years
              Ended September 2007 and 2006**





Class
                A
            
            Class
                A
            
            
            
            
            
            
            
            
            
            
            
            AccumulatedSeries
                1
            
            Series
                3
            
            Preferred
            
            
            
            Additional
            
            Unearned
            
            
            
            Other
            
            
            
            
            Cost
                ofPreferred
            
            Preferred
            
            Stock
            
            Common
            
            Paid-in
            
            Consulting
            
            Deferred
            
            Comprehensive
            
            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 ofaccounting
                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 1,782,645shares
                of Common Stock for Warrant Settlement Program
            
            
            -
            
            
            -
            
            
            -
            
            
            17,826
            
            
            (17,826
            )
            
            
            
            
            -
            
            
            -
            
            
            -
            
            
            
            -
            
            
            
            -Issuance
                of 150,000 sharesof
                Common Stock for  consulting services
            
            
            -
            
            
            -
            
            
            -
            
            
            1,500
            
            
            230,500
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            
            -
            
            
            
            232,000Issuance
                of 61,397 sharesof
                Common Stock as payment of preferred stock dividends
            
            
            -
            
            
            -
            
            
            -
            
            
            614
            
            
            111,613
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            
            -
            
            
            
            112,227Issuance
                of 69,000 shares ofCommon
                Stock for  options exercised
            
            
            -
            
            
            -
            
            
            -
            
            
            690
            
            
            95,910
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            
            -
            
            
            
            96,600Stock
                repurchase –173,400Treasury
                Shares
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            
            (367,671
            )
            
            
            (367,671
            )Preferred
                Stock dividends
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (161,248
            )
            
            
            -
            
            
            
            (161,248
            )Comprehensive
                income:Net
                income
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            1,693,913
            
            
            
            -
            
            
            
            1,693,913Foreign
                currencytranslation 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
            )
            
            
            7,447,459




See Notes to Consolidated Financial
      Statements.





F-5





**The
                Female Health Company and Subsidiaries****Consolidated
                Statements of Cash
                Flows****Years
                Ended September 30, 2007 and 2006**





**2007**
            
            
            2006Operating
                ActivitiesNet
                income
            
            **$**
            **1,693,913**
            
            
            $
            282,026Adjustments
                to reconcile net income to net cashprovided
                by operating activities:Depreciation
            
            ****
            **133,657**
            
            
            
            63,004Amortization
                of patents
            
            ****
            **-**
            
            
            
            43,809Increase
                in inventory obsolescence reserve
            
            ****
            **10,035**
            
            
            
            26,245(Recovery
                of) increase in allowance for doubtful accounts
            
            ****
            **1,649**
            
            
            
            (15,568
            )Interest
                added to certificate of deposit
            
            ****
            **(2,464**
            **)**
            
            
            (2,347
            )Amortization
                of unearned consulting fees
            
            ****
            **232,000**
            
            
            
            329,449Common
                stock warrants issued for investor relation services
            
            ****
            **-**
            
            
            
            194,035Amortization
                of deferred gain on sale and leaseback of building
            
            ****
            **(112,721**
            **)**
            
            
            (102,629
            )Share-based
                compensation
            
            ****
            **616,631**
            
            
            
            429,325Deferred
                income taxes
            
            ****
            **(825,000**
            **)**
            
            
            -Changes
                in operation assets and liabilities:Accounts
                receivable
            
            ****
            **(2,648,079**
            **)**
            
            
            (949,869
            )Inventories
            
            ****
            **(280,528**
            **)**
            
            
            (100,407
            )Prepaid
                expenses and other assets
            
            ****
            **167,524**
            
            
            
            (158,128
            )Accounts
                payable
            
            ****
            **159,079**
            
            
            
            16,729Accrued
                expenses and other current liabilities
            
            ****
            **812,257**
            
            
            
            212,261**Net cash (used in) provided by operating
                activities**
            
            ****
            **(42,047**
            **)**
            
            
            267,935Investing
                ActivitiesDecrease
                in restricted cash
            
            ****
            **167,508**
            
            
            
            (237,741
            )Capital
                expenditures
            
            ****
            **(1,020,170**
            **)**
            
            
            (124,190
            )**Net
                cash used in investing activities**
            
            ****
            **(852,662**
            **)**
            
            
            (361,931
            )Financing
                ActivitiesProceeds
                from exercise of stock options
            
            ****
            **96,600**
            
            
            
            1,400Purchases
                of common stock for Treasury
            
            ****
            **(367,671**
            **)**
            
            
            -Dividend
                paid on preferred stock
            
            ****
            **(7,200**
            **)**
            
            
            (15,200
            )**Net
                cash used in financing activities**
            
            ****
            **(278,271**
            **)**
            
            
            (13,800
            )Effects
                of exchange rate changes on cash
            
            ****
            **145,008**
            
            
            
            160,123Net
                (decrease) increase in cash
            
            ****
            **(1,027,971**
            **)**
            
            
            52,327Cash
                at beginning of year
            
            ****
            **1,827,393**
            
            
            
            1,775,066Cash
                at end of year
            
            **$**
            **799,421**
            
            
            $
            1,827,393Supplemental
                Schedules of Non-cash Investing and Financing Activities:Common
                stock issued for payment of preferred stock dividends
            
            **$**
            **112,227**
            
            
            $
            150,026Preferred
                dividends declared
            
            ****
            **11,201**
            
            
            
            11,201Issuance
                of restricted stock to employees and consultants
            
            ****
            **624,118**
            
            
            
            839,800Accrued
                expense incurred for restricted common stock granted to
                employeesand
                consultants
            
            ****
            **71,453**
            
            
            
            130,912


See
        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
      subsidiaries, The Female Health Company - UK and The Female Health Company
      - UK,
      plc. 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 known as the “FC Female Condom” in the U.S., and
      "femidom" or "femy" outside the U.S. 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, leases 1,900
      sq. ft. of a manufacturing facility located in Selangor D.E., Malaysia pursuant
      to a lease which expires on December 31, 2007 and leases 16,000 sq. ft. of
      a manufacturing facility also 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 credit terms are primarily on a net 30-day
      basis.





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:





The
      market value of inventory is based on management's best estimate of future
      sales
      and the time remaining before the existing inventories reach their expiration
      dates.





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 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.  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.





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.







F-7





**The
      Female Health Company and Subsidiaries**





**Notes
        to Consolidated Financial Statements**







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




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
      $6,500,000 at September 30, 2007.





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 and leasehold improvements 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 of 12
      years.  Patents and trademarks have no carrying value in the
      accompanying balance sheet at September 30, 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, 2007 and 2006, was approximately $209,000 and $211,000,
      respectively.





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.







F-8





**The
      Female Health Company and Subsidiaries**





**Notes
        to Consolidated Financial Statements**





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


Deferred
      Grant Income:  The Company receives 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 Company allocates the grant
      monies received on a proportionate basis to expenses incurred and capital
      expenditures related to the underlying project. The deferred income will be
      recognized over the useful lives of the fixed assets when they are placed in
      service.





Adoption
      of Accounting Standard and Share-Based Compensation: Effective October 1,
      2006, the Company adopted Financial Accounting Standards Board (“FASB”)
      Statement No. 123 (revised), “Share-Based Payment” (“SFAS 123R”), 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.





Prior
      to
      the adoption of SFAS 123R, the Company utilized the intrinsic-value based method
      of accounting under Accounting Principles Board Opinion No. 25 (APB 25),
“Accounting for Stock Issued to Employees” and related interpretations, and
      adopted the disclosure requirements of SFAS 123, “Accounting for Stock Based
      Compensation” (“SFAS 123”). Under the intrinsic-value based method of
      accounting, compensation expense for stock options granted to our employees
      was
      measured as the excess of the quoted market price of the Company’s common stock
      at the grant date over the amount the employee must pay for the
      stock.





Advertising:  The
      Company's policy is to expense production costs in the period in which the
      advertisement is initially presented to consumers.





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.





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 Parent Company has financed the operations of its subsidiaries
      through an intercompany loan with The Female Health Company, plc. which was
      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.”







F-9





**The
      Female Health Company and Subsidiaries**





**Notes
        to Consolidated Financial Statements**


**Note
                2.**
            **Inventories**




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





Raw
                material
            
            $
            808,379Work
                in process
            
            
            273,704Finished
                goods
            
            
            358,499Inventory,
                gross
            
            
            1,440,582Less
                allowance for obsolescence
            
            
            (68,000
            )Inventory,
                net
            
            **$**
            **1,372,582**




**Note
                3.**
            **Acquired
                Intangible Asset**




The
      Company follows SFAS 142, *Goodwill and Other Intangible
      Assets*.  The following is a summary of acquired intangible assets
      at September 30, 2007:




Gross
                Carrying
                Amount
              
              
              Accumulated
                AmortizationSubject
                  to amortization:Patents
              
              $
              1,123,214
              
              
              $
              1,123,214


Amortization
      expense recognized on all amortizable intangible assets totaled $43,809 for
      the
      year ended September 30, 2006.  As the patents were fully amortized as
      of March 31, 2006, no additional amortization expense was incurred subsequent
      to
      that date.




**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, 2008.  The two notes
      total $1,500,000 and bear interest payable at a rate of prime plus 1% (prime
      rate was 7.75% at September 30, 2007). These notes are collateralized by
      substantially all of the assets of the Company.  No amounts are
      outstanding under the revolving notes at September 30, 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 $6,486 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 $3,365,000
      (£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.







F-10




**The
      Female Health Company and Subsidiaries**




**Notes
        to Consolidated Financial Statements**




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 $580,513 (£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 $198,793 (£97,500) and is included in other
      assets in the consolidated balance sheet at 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 will be recognized ratably over the initial term of the
      lease.  Unamortized deferred gain as of September 30, 2007, was
      $1,074,339 (£526,921).




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 will expire 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 $6,840 and may be renewed for two additional three year
      terms.





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





September
                30,2007
            
            
            2006Operating
                Lease Expense:Factory
                & Office Leases
            
            $
            1,026,335
            
            
            $
            832,547Other
            
            
            37,688
            
            
            
            18,718$
            1,064,023
            
            
            $
            851,265





The
      Company also leases equipment under a number of lease agreements which expire
      at
      various dates between March 2009 and May 2011.  The aggregate monthly
      rental was $3,141 at September 30, 2007.




Future
                  Minimum payments under operating leases consisted of the following
                  at
                  September 30, 2007:Operating
                  Leases2008
              $         773,5722009
              770,6002010
              771,2282011
              690,4402012
              612,259Thereafter
              2,544,914$     6,163,013


F-11





**The
      Female Health Company and Subsidiaries**





**Notes
          to Consolidated Financial Statements**


**Note
                6.**
            **Income
                Taxes**




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, 2007 and 2006 is as follows:





September
                302007
            
            
            2006Income
                tax expense at statutory rates
            
            $
            295,000
            
            
            $
            96,000Non-deductible
                expenses
            
            
            97,000
            
            
            
            142,000State
                income tax, net of federal benefits
            
            
            (46,000
            )
            
            
            (13,000
            )Recognition
                of net operating loss, decrease in valuation allowance
            
            
            (825,000
            )
            
            
            -Utilization
                of NOL carryforwards
            
            
            (674,000
            )
            
            
            (225,000
            )Benefit
                of net operating loss not recognized, increase in valuation
                allowance
            
            
            328,000
            
            
            
            -Income
                tax benefit
            
            $
            (825,000
            )
            
            $
            -




As
      of
      September 30, 2007, the Company had federal and state net operating loss
      carryforwards of approximately $43,565,000 and $23,461,000, respectively, for
      income tax purposes expiring in years 2008 to 2027. The benefit relating to
      $1,537,800 of these net operating losses relates to exercise of common stock
      options and will be credited directly to stockholders’ equity when realized. The
      Company's UK subsidiary, The Female Health Company - UK, plc has UK net
      operating loss carryforwards of approximately $88,222,000 as of September 30,
      2007.  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, 2007:




**Deferred
                Tax Assets:**Federal
                net operating loss carryforwards
            
            $
            14,812,000State
                net operating loss carryforwards
            
            
            1,877,000Foreign
                net operating loss carryforwards
            
            
            29,996,000Foreign
                capital allowance
            
            
            1,806,000Other
            
            
            71,000Gross
                deferred tax assets
            
            
            48,562,000Valuation
                allowance for deferred tax asset
            
            
            47,737,000Deferred
                income taxes
            
            $
            825,000




The
      valuation allowance increased by $149,000 and $1,089,000 for the years ended
      September 30, 2007 and 2006, respectively.  Included in the valuation
      allowance increase in 2007 is a recognition of $825,000 of net operating loss
      carryforward.








F-12




**The
      Female Health Company and Subsidiaries**





**Notes
          to Consolidated Financial Statements**


**Note
                7.**
            **Share-based
                Compensation**




Stock
      Option Plans





Under
      the
      Company’s share based long-term incentive compensation plans, the Company had
      granted non-qualified stock options to employees and consultants.  The
      Company's 1997 Stock Option Plan expired December 31, 2006, and the Company
      no
      longer has shares available for issuance under any of its plans.





The
      Company adopted SFAS 123R in the first quarter of fiscal 2007 using the modified
      prospective approach. Under this transition method, the measurement of the
      Company’s method of amortization of costs for share-based payments granted prior
      to, but not vested as of October 1, 2006, would be based on the same estimate
      of
      the grant-date fair value and the same amortization method that was previously
      used in our SFAS 123 pro forma disclosure. Financial statement amounts for
      prior
      periods presented in this Form 10-KSB have not been restated to reflect the
      fair
      value method granted of expensing share-based compensation. For equity awards
      granted after the date of adoption, the Company will amortize share-based
      compensation on a straight-line basis over the vesting term.





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. Prior to the adoption of SFAS 123R, the
      effect of forfeitures on the pro forma expense amounts was recognized based
      on
      estimated forfeitures.





The
      effect of adopting SFAS 123R was to decrease operating income, income before
      income taxes and net income by $121,564 for the twelve months ended September
      30, 2007.  Share-based compensation is included in selling, general
      and administrative expenses in the statements of income. The adoption of SFAS
      123R by the Company had no effect on basic and diluted earnings per share for
      the twelve months ended September 30, 2007. The adoption of SFAS 123R did not
      affect the Company’s cash flows or financing activities. Upon adoption of SFAS
      123R the Company reclassified amounts in unearned consulting fees and deferred
      compensation to additional paid in capital.





The
      following table shows the effect on net income attributable to common
      stockholders for the twelve months ended September 30, 2006 had compensation
      expense been recognized based upon the estimated fair value on the grant date
      of
      stock option awards, in accordance with SFAS 123, as amended by SFAS No. 148
      “Accounting for Stock-Based Compensation - Transition and
      Disclosure”:





Year
                Ended
              September
                30, 2006Net
                income as reported
            
            $
            120,778Deduct:
                Total stock based employee compensation expense
              determined
                under the fair value basis for all awards, net of related tax
                effects
            
            
            (492,086
            )Pro
                forma net loss
            
            $
            (371,308
            )Earnings
                (loss) per share:Basic
                and diluted - as reported
            
            $
            0.01Pro
                forma
            
            $
            (0.02
            )







F-13





**The
      Female Health Company and Subsidiaries**





**Notes
          to Consolidated Financial Statements**




The
      Company granted 180,000 stock options during the fiscal year ended September
      30,
      2007. The Company did not grant any options during the fiscal year ended
      September 30, 2006. 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
      and
      pro forma 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.





The
      Company’s stock options expire in 10 years and generally vest ratably over the
      thirty-six month vesting period.





Option
      Activity:





The
      following table summarizes the stock options outstanding and exerciserable
      at
      September 30, 2007:





Weighted
                AverageShares
            
            
            Exercise
                Price
              Per
                Share
            
            Remaining
              Contractual
              Term
              (years)
            
            Aggregate
              Intrinsic
              ValueOutstanding
                at September 30, 2005
            
            
            2,660,980
            
            
            $
            1.39Granted
            
            
            -
            
            
            
            -Exercised
            
            
            (1,000
            )
            
            $
            1.40Forfeited
            
            
            (15,000
            )
            
            $
            2.40Outstanding
                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
            
            
            $
            1.37
            
            5.82
            
            $    2,421,683Exercisable
                on  September 30, 2007
            
            
            2,619,370
            
            
            $
            1.37
            
            5.67
            
            $    2,299,208







F-14





**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 $2.35 on the last day of business for the
      period ended September 30, 2007. The total intrinsic value of options exercised
      during the year ended September 30, 2007 was $46,230.





Total
      unrecognized compensation cost for stock options as of September 30, 2007 was
      $120,000. This compensation cost will be recognized over a weighted average
      period of 2.1 years.  The realized tax benefit from stock options and
      other share-based payments for the twelve months ended September 30, 2007 and
      the twelve months ended September 30, 2006 was $0, 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 2007 is summarized in
      the
      table below:


Non-vested
                awards summary:
            
            Shares
            
            
            Weighted
                Average
              Grant
                -Date
              Fair
                ValueOutstanding
                at October 1, 2006
            
            
            347,917
            
            
            $
            1.48Stock
                Granted
            
            
            231,250
            
            
            $
            1.61Vested
            
            
            468,333
            
            
            $
            1.54Forfeited
            
            
            2,500
            
            
            $
            1.26Total
                Outstanding September 30, 2007
            
            
            113,333
            
            
            $
            1.53





The
      Company recognized share-based compensation expense for restricted stock of
      approximately $727,067 for the year ended September 30, 2007 and $952,809 for
      the year ended September 30, 2006. This expense is included in selling, general
      and administrative expenses for the respective periods.





As
      of
      September 30, 2007, there was approximately $173,629 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 six months. The fair
      value of the shares that vested during the years ended September 30, 2007 and
      2006 was $731,375 and $269,412, respectively.





Common
      Stock Purchase Warrants





The
      Company enters into consulting agreements with separate third-party
      professionals to provide investor relations services and financial advisory
      services.  In connection with the consulting agreements, the Company
      granted 200,000 warrants to purchase common stock in 2006.  The fair
      value of warrants was estimated at the date of grant using the Black-Scholes
      option pricing model assuming expected volatility of 61.2 percent, risk-free
      interest rate of 5.10 percent, expected life of ten years, and no dividend
      yield.  The warrants were valued at $194,035 and recorded by the
      Company in selling, general and administrative expense.  No warrants
      were issued in 2007.





At
      September 30, 2007, the following warrants were outstanding and
      exercisable:




NumberOutstandingWarrants
                issued in connection with:Investor
                relations
            
            
            200,000Note
                payable, bank
            
            
            340,000Notes
                payable, related party
            
            
            1,376,500Outstanding
                at September 30, 2007
            
            
            1,916,500







F-15




**The
      Female Health Company and Subsidiaries**





**Notes
            to Consolidated Financial Statements**


Warrants
                outstanding and exercisable:**Number****Range
                of**
            
            **Outstanding**
            
            
            **Wghtd.Avg.**
            
            
            **Wghtd.Avg.****Exercise**
            
            **and
                Exercisable**
            
            
            **Remaining**
            
            
            **Exercise****Prices**
            
            **at
                9/30/07**
            
            
            **Life**
            
            
            **Price****$0.40
                - $0.99**
            
            
            364,000
            
            
            
            3.54
            
            
            $
            0.40**$1.00
                - $1.99**
            
            
            12,500
            
            
            
            2.38
            
            
            
            0.72**$2.00
                - $3.10**
            
            
            1,540,000
            
            
            
            4.29
            
            
            
            1.691,916,500
            
            
            
            4.13
            
            
            $
            1.44




Warrant
      Settlement Program




During
      the third quarter of fiscal 2007, the Company offered certain holders of
      warrants a program under which they could exercise the warrants on a cashless
      basis for shares of 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. 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
                8.**
            **Preferred
                Stock**




The
      Company has 56,000 outstanding shares of 8 percent cumulative convertible Series
      1 Preferred Stock.  Each share of preferred stock is convertible into
      one share of the Company's common stock.  Annual preferred stock
      dividends will be paid if and as declared by the Company's Board of Directors.
      No dividends or other distributions will be payable on the Company's common
      stock unless dividends are paid in full on the Series 1 Preferred
      Stock.  The Series 1 Preferred Stock may be redeemed at the option of
      FHC, in whole or in part, subject to certain conditions, at $2.50 per share
      plus
      accrued and unpaid dividends.  In the event of a liquidation or
      dissolution of the Company, the Series 1 Preferred Stock would have priority
      over the Company's common stock.





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 riginal
      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.








F-16





**The
      Female Health Company and Subsidiaries**





**Notes
          to Consolidated Financial Statements**




**Note
      9.           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,
      2007 and 2006.  Annual company contributions were approximately
      $19,000 and 23,000 for 2007 and 2006




**Note
      10.         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
                  Twelve Months Ended
              
              
              Long-Lived
                  Asset As OfSeptember
                  30,
              
              
              September
                  30,
              
              
              September
                  30,2007
              
              
              2006
              
              
              2007
              
              
              2006South
                  Africa
              
              $
              3,733
              (1)(2)
              
              $
              1,161
              
              
              $
              -
              
              
              $
              -Zimbabwe
              
              
              4,096
              (1)
              
              
              1,065
              
              
              
              -
              
              
              
              -United
                  States
              
              
              2,516
              (3)
              
              
              2,074
              
              
              
              226
              
              
              
              107France
              
              
              1,217
              
              
              
              *
              
              
              
              -
              
              
              
              -Brazil
              
              
              *
              
              
              
              2,718
              (1)
              
              
              -
              
              
              
              -Tanzania
              
              
              *
              
              
              
              754
              
              
              
              -
              
              
              
              -Zambia
              
              
              940
              
              
              
              *
              
              
              
              -
              
              
              
              -India
              
              
              *
              
              
              
              *
              
              
              
              225
              
              
              
              112United
                  Kingdom
              
              
              *
              
              
              
              *
              
              
              
              315
              
              
              
              269Malaysia
              
              
              *
              
              
              
              *
              
              
              
              865
              
              
              
              307Other
              
              
              6,818
              
              
              
              7,052
              
              
              
              -
              
              
              
              -$
              19,320
              
              
              $
              14,824
              
              
              $
              1,630
              
              
              $
              795
  *
        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 has approximately $1,028,000 of outstanding accounts receivable
                  at September 30, 2007. No other customers had accounts receivable
                  in
                  excess of 10% of current assets at September 30,
                  2007.
 (3)
              Comprised
                  of multiple customers. One customer is considered to be a major
                  customer
                  (exceeds 10% of net sales) with sales accumulating approximately
                  12% of
                  total sales.







F-17





**The
      Female Health Company and Subsidiaries**




**Notes
          to Consolidated Financial Statements**


**Note
                11.**
            **Contingent
                Liabilities**




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




**Note
                12.**
            **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.  Through September 30, 2007, the
      Company has purchased 173,400 shares.  The Board has approved the
      continuation of this program through December 31, 2008.




Issuer
                    Purchases of Equity Securities:
                Details
                    of Treasury Stock Purchases for the 9 MonthsPeriod:
                Total
                    Number of
                  Shares
                    Purchased
                Average
                    Price Paid
                  Per
                    Share
                Total
                    Cash Outlay
                Maximum
                    Number of Shares that May Yet be Purchased Under the
                    ProgramJanuary
                    1, 2007 – September 30, 2007
                173,400
                $      2.12
                $   367,671
                826,600


**Note
                13.**
            **Recent
                Accounting Pronouncements**




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
      derecognition, classification, interest and penalties, accounting in interim
      periods, disclosure, and transition.  This interpretation is effective for
      the Company beginning October 1, 2007. The Company has determined that the
      adoption of FIN 48 will not have a material effect on its consolidated financial
      statements.





SAB
      No. 108 Adoption and Evaluation





In
      September 2006, the staff of the Securities and Exchange Commission ("SEC")
      issued Staff Accounting****Bulletin No. 108 (“SAB No. 108”),
“Considering the Effects of Prior Year Misstatements in the
      Current Year
      Financial Statements”. SAB No. 108 addresses how the effects of prior year
      uncorrected misstatements should be considered when quantifying misstatements
      in
      current year financial statements. SAB No. 108 requires an entity to evaluate
      misstatements using a balance sheet and income statement approach and evaluate
      whether either approach results in quantifying an error that is material in
      light of relevant quantitative factors. The requirements of SAB No. 108 are
      effective for the Company’s current fiscal year-end.





The
      Company’s evaluation of SAB No. 108 has discovered an omission from a prior
      period. In September 2004, the Board of Directors extended the term of 400,000
      warrants to purchase common stock for an additional two years. While the
      decision was properly recorded in the Board of Directors’ minutes, the fair
      value of the extensions was not reflected in the Company’s financial statements
      for the fiscal year ended September 30, 2004. The Company’s retained loss and
      additional paid in capital as of September 30, 2006 has been increased by
      approximately $137,000 to properly reflect the extensions’ fair value under the
      guidance of SAB No. 108.







F-18




**The
        Female Health Company and Subsidiaries**
  **Notes
            to Consolidated Financial Statements**




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. 
The Company does not believe the adoption of 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
      does
      not believe SFAS 159 will have a material effect on its consolidated financial
      statements.




SAB
      109
      expresses the current view of the staff that, consistent with the guidance
      in
      Statements No. 156, *Accounting for Servicing of Financial Assets*, and
      No. 159, *The Fair Value Option for Financial Assets and Financial
      Liabilities,* the expected net future cash flows related to the associated
      servicing of the loan should be included in the measurement of all written
      loan
      commitments that are accounted for at fair value through earnings. 
However, in accordance with Statement No. 140, *Accounting for Transfers and
      Servicing of Financial Assets and Extinguishments of Liabilities*, a
      separate and distinct servicing asset or liability is not recognized for
      accounting purposes until the servicing rights have been contractually separated
      from the underlying loan by sale or securitization of the loan with servicing
      retained.  The SEC staff also cautions that this view is not intended to be
      applied by analogy to any other instrument that contains a non-financial
      element.




SAB
      109
      also indicated that the SEC staff believed that internally-developed intangible
      assets, such as customer relationship intangible assets, should not be recorded
      as part of the fair value of a derivative loan commitment. SAB 109 retains
      that
      staff view and broadens its application to all written loan commitments that
      are
      accounted for at fair value through earnings. The SEC staff expects registrants
      to apply the guidance in the second preceding paragraph on a prospective basis
      to derivative loan commitments issued or modified in fiscal quarters beginning
      after December 15, 2007. The Company does not believe SAB 109 will have an
      effect on the Company’s consolidated financial statements.





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).  The Company does not
      believe SFAS No. 141R will have an effect on the Company’s consolidated
      financial statements.





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.








F-19